2. Theoretical framework
2.1. Business models
The business model (BM) concept has been interpreted in different ways over time and no common ground seems to exist (Zott et al., 2011). Teece (2010) describes it as a conceptual model that captures how a business delivers value for customers, get the customers to pay for the value and in some way transforms it to business profit. All organisations have a BM, explicitly or implicitly, but what is important is that a good business model needs to be non-imitable to shape competitiveness. Business model blocks must act together as a system and customer insights is vital to succeed with the operations (Teece, 2010). Furthermore, Osterwalder and Pigneur (2010) mean that a BM should describe a business value creation and how it turn out that way, i.e. what resources and activities are needed. They have established a tool for visualising the business model in an easy and linear way, called the business model canvas (BMC), see figure 1 for including blocks. To design a successful business model through the BMC, the mindset must shift towards customer centric instead of internal focus. Also, organisations require to take account for external factors by identifying market trends and forces (Osterwalder & Pigneur, 2010).
Figure 1. From Business model generation: a handbook for visionaries, game changers, and challengers (p. 44), of A. Osterwalder and Y. Pigneur, 2010, John Wiley & Sons. Copyright 2010 of John Wiley Sons.
Elaboration on above explanations, Zott and Amit (2010) have highlighted the importance of network-thinking and to consider the BM as a system of interdependent activities. The perspective is called activity system and aims to see beyond the firm’s boundaries, thus not conduct isolated internal decisions.
Rather, a holistic and across-firm view must be considered in the business model to gain benefits for the organisation itself and its partners. In other words, it is necessary to base the choices on network-thinking, but the BM still belongs to the focal firm which aim is to get a share of the created value (Zott & Amit, 2010).
Whilst above mentioned definitions of the concept business model are expressed differently, the theories from the foremost researchers can be interpreted similarly in terms of focusing on a holistic view. From the logic of business models and the included building blocks, business models can both drive innovations and act as a subject for innovation itself (Zott et al., 2011).
This turns the focus to business model innovation (BMI) which will be discussed in next chapter.
2.1.1. Business model innovation
Business models have been considered as a growing area of interest since companies can gain competitive advantage by innovating it (Zott et al., 2011).
As mentioned, companies can either use the model to innovate the value creation (Casadesus‐Masanell & Zhu, 2013) by modifying all or some of the interdependent building blocks (Teece, 2010; Zott & Amit, 2010), or change the entire model itself (Markides, 2006; Zott et al., 2011). The first mentioned activity does mean that innovative solutions, ideas or technologies can generate revenues via a company’s business model (Zott et al., 2011). Furthermore, Geissdoerfer et al. (2018b) mean that BMI also take account for adoption of several business models, the transformation to a new model or acquisitions of other business models.
Business model innovation is important for organisations, not least since it can help gain market shares and shape competitiveness (Zott et al., 2011), but also since the chance to succeed is greater than if conducting product/service or technology innovation (Girotra & Netessine, 2013). Whilst business model innovation is important, it is also difficult and complicated to reach. What comes with BMI are changes in organisational processes as well as a mind-set shift towards accepting business model experimenting. Mapping tools and planning models can help in innovation work, but it cannot tell everything, e.g.,
how to change an organisation to fit to the new model (Chesbrough, 2010). In addition, Girotra and Netessine (2013) have studied large companies’ and new business models where they found three eminent barriers: unwillingness to experiment, lack of top management support as well as failure to repeat and improve continuously. Further, the authors mean that large companies possess capabilities for working with BMI on a big scale, however they fail very often.
That is a matter of not being able to overcome the newly mentioned barriers and that the flexibility during developing BM ideas is not enough (Girotra &
Netessine, 2013). Even though BMI is complex and difficult, it is encouraged to work with since it helps getting new insights. New insights can tell a company about hidden opportunities and in turn drive business development (Chesbrough, 2010).
To overcome obstacles with BMI, specific leadership and change management is needed. Geissdoerfer et al. (2018b) mention change management stages needed for achieving BMI. These are originated from Kotter (1995) transformation steps which are: establishing a sense of urgency, forming a powerful guiding coalition, creating, communicating and empower other to act on a vision, planning and creating short-term wins, continuously produce changes and anchor improvements and new approaches. The importance of working actively with leadership to overcome BMI barriers is highlighted by many authors (Doz & Kosonen, 2010; Smith et al., 2010; Svejenova et al., 2010).
In sum, all authors touch upon Kotter's (1995) steps when they name that dynamic decision making, commitment, shaping vision, and maintaining flexibility is necessary. To summarise, BMI is a complex and tremendous work and to overcome barriers is a big issue. However, it will help in succeeding by having a strong leadership that can adopt above mentioned capabilities.
Repeatedly, one can innovate the entire model into a new one, or some of the building blocks as in the left side of figure 2. Connecting it all together, with business model innovation both opportunities and challenges arise, see figure 2.
Figure 2. Business model innovation illustrated with its challenges and needs, summarised from cited authors.
2.1.2. Circular business models
For understanding the concept of circular business models (CBM), it is important to be clear of what a sustainable business model (SBM) is. It is an updated or remade business model aimed to add sustainability aspects into the ordinary business model. It can be defined as a model that takes a long-term perspective into account for creating value, non-monetary and monetary, for all possible stakeholders by maintaining a pro-active stakeholder management (Geissdoerfer et al., 2018b). Furthermore, Schaltegger et al. (2016) point out another important aspect, namely how a company captures and delivers value to customers and stakeholders while social, natural, and economic capital is maintained. Circular business model in turn, is a sub-category to SBM (Geissdoerfer et al., 2018b) that besides the SBM aspects also include shaping loops for slowing, closing, intensifying and dematerialising resources (Bocken et al., 2016; Geissdoerfer et al., 2018a). Circular business models can sometimes consider all aspects of SBM, but it can as mentioned also be seen as a sub-category to SBM. This because it does not always take account for all parts. For instance, when a circular activity creates negative consequences for employees, it belongs to CBM but not SBM (Geissdoerfer et al., 2018b). In other words, a circular move has then been made but not a sustainable one since the social aspect is missing.
More practically, Ranta et al. (2018) studied how the concept circular economy (described in next theory section) could be adopted by using the 3R’s and how it creates value and gathers revenues for organisations. They shaped a framework consisting of a regular business model design with the 3R’s as an
extended layer. A proposition from the study was that through circular activities such as recycling, cost-efficiency arose which is stated as a key proponent to shape successful CBM. Furthermore, it is seen in the study that implementation of recycling is the easiest one of the 3R’s. The reason for that is because it requires few adjustments and therefore put least impact on the organisation (Ranta et al., 2018). However, Lehtimäki et al. (2020) has studied a company founded in 1998 with recycling and waste management of wood material as business idea. Accordingly, the core business was within CE and in 2018 the company tried to launch a new value offering with cement composite production, to iterate the CBM. Surprisingly, the company failed due to path dependency theory. Path dependency means that there are lock-ins from the market (customers, business, activities) to conventional behaviours. More precise, instead of the best solution, people chose the first solution (Norton et al., 1998). This means that there is always a big issue for business to start offering something different, thus transforming a business model into a circular one.
Ranta et al. (2018) also concluded that take back services is of importance to make waste into resources or products. However, costs of customers total waste management must be reduced to make this business function. Take back systems cannot be implemented in one strict way, instead it could be implemented through partnerships or from purchasing directly from the market.
What is clear is that such take back system should be managed separately from a company’s other activities. Another benefit with the system is that it enables the actor to be a part in different stages of the customers value chain and not only selling products at an initial phase. At last, to reach full potential of CE and CBM, reduce and reuse must be used for creating value for customers (Ranta et al., 2018) since only recycling has limitations in keeping materials in circulation (Stahel, 2013).
To conclude, all parts within a BM must be integrated (Bocken & Short, 2021).
An interpretation of a circular business model has been done, see figure 3 for illustration. This figure includes parts from the BMC with an expansion of 3R activities, in each and every nine blocks. Inspiration to this business model framework comes from Geissdoerfer et al. (2020), Kirchherr et al. (2017), Osterwalder and Pigneur (2010) and Ranta et al. (2018).
Figure 3. Linear business model combined with circular activities resulting in an interpretation of a circular business model.