Capability Perspective on Circular Business Models Implementation : From Capability Deployment to Value Creation and Capture

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Linköping University SE-581 83 Linköping, Sweden +46 13-28 10 00, www.liu.se

Linköping University | Department of Management and Engineering Master’s Thesis, 30 credits |One-year Master and MSc Business Administration - Strategy and Management in International Organizations Spring 2020 | ISRN-nummer: LIU-IEI-FIL-A--20/03421--SE

Capability Perspective

on Circular Business

Models Implementation

From Capability Deployment to Value Creation

and Capture

Amal Kanzari

Jaheda Sultana

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English title:

Capability Perspective on Circular Business Models implementation- From Capability Deployment to Value Creation and Capture

Authors:

Amal Kanzari and Jaheda Sultana

Advisor:

Josefine Rasmussen

Publication type:

One-year Master’s- Strategy and Marketing Master’s Thesis in Business Administration

Strategy and Management in International Organizations Advanced level, 30 credits

Spring semester 2020

ISRN-number: LIU-IEI-FIL-A--20/03421--SE Linköping University

Department of Management and Engineering (IEI) www.liu.se

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Abstract

Title Capability Perspective on Circular Business Models’ implementation Authors Amal Kanzari and Jaheda Sultana

Supervisor Josefine Rasmussen Date May 25th, 2020

Thesis’ background This thesis intends to contribute to the literature gap identifying when connecting the literature on capabilities required for the transition towards circular business models and the literature that investigates the value creation and capture in these business models.

Research aim Identifying the key capabilities that facilitate the transition towards circular business models and investigating their use for value creation and capture

Methodology A qualitative approach was followed, and semi- structured interviews were conducted with four managers working at companies that are experiencing circular business models

Findings Eight key capabilities were identified from this research including: (1) Developing the systemic thinking, (2) Managing the circular network, (3) Managing knowledge, (4) fostering open innovation, (5) Understanding customer’s requirement for exploring the wasted value, (6) Designing products for longevity, (7) Innovating in the sale and use phase and (8) managing circular suppliers to close the loops between the end use and the production. Deploying these eight key capabilities with a systemic thinking would enable companies moving to circular business models and creating and capturing economic and non-economic sustainable values.

Keywords Circular business model, capabilities, value creation, value capture, uncaptured value, sustainability

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Acknowledgements

This research was supported by the Mistra REES (Resource Efficient and Effective Solutions) program (No.2014/16), funded by Mistra (The Swedish Foundation for Strategic Environmental Research).

We would like to express our sincere appreciation to all the people whose contribution make this thesis reality. Without the kind support and help of the individuals, the thesis would not have been possible.

Foremost, we would like to offer our utmost gratitude to our thesis supervisor Josefine Rasmussen for her continuous support, guidance, and encouragement throughout the entire Master thesis. Her valuable input and recommendations direct us to produce our own contribution. We also want to thank our co-supervisors Henrik Nehler and Andrea Fried for their insightful comments and valuable feedback. We would also like to thank our seminar groupmates, Keariam Abera and Saadul Islam Khan for their feedback and suggestions throughout the seminar sessions.

Furthermore, we want to express our gratitude to all the people from the interviewee organizations, who allowed us to interview them during this Covid-19 epidemic. Without their help this thesis would remain incomplete. Special thanks go to Prof. Mattias Lindahl for his recommendation to a company that help us conducting one interview.

Last but not least, we would like to thank our families and friends for their unlimited support and continuous encouragement throughout the entire study period.

We are really pleased getting to share this knowledge and experience with each other. We hope this thesis represents all the time, efforts, and passion that we have invested on it.

Linköping, 25th_{May 2020}

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“Wherever you are on your own journey,

Waste to Wealth can help guide you along the way”

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I. List of figures

Figure 1: Linear Open model and Circular Closed loop Model ... 2

Figure 2: The role of capabilities in CBMs ... 3

Figure 3: The research gap ... 5

Figure 4: Thesis structure ... 7

Figure 5: Creating advantage in a circular economy ... 13

Figure 6: Capabilities required for CBMs’ strategy management ... 15

Figure 7: Capabilities required in product design area within CBMs ... 16

Figure 8: Capabilities required in manufacturing and sourcing area within CBMs ... 19

Figure 9: Capabilities required in product sale area within CBMs ... 20

Figure 10: Capabilities required in reverse logistics area within CBMs... 22

Figure 11: Capabilities required in human resources management area within CBMs ... 23

Figure 12: Capabilities required in CBMs as suggested by previous studies ... 24

Figure 13: Sustainable value analysis framework ... 29

Figure 14:Theoretical framework of the thesis ... 32

Figure 15:Operationalisation of the theoretical framework ... 33

Figure 16:Value Creation and Capture by Key Capabilities ... 87

Figure 17: Revised theoretical framework ... 90

II. List of tables

Table 1: Overview of the identified capabilities in the literature ... 12

Table 2 : Value creation in CBMs ... 26

Table 3: Value capture in CBMs... 28

Table 4: Companies participating in the case study ... 44

Table 5: Respondent to the interview ... 45

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III.

Abbreviation list

CBMs Circular business models CE Circular economy RBV The Resource-based view RL Reverse Logistics HR Human resources

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1 INTRODUCTION

1.1

Background

In recent days, organizations are struggling to maintain a balance between their socio-environmental impacts and economic benefits. Economic crisis, resource scarcity and environmental pollution are increasingly pressurizing companies to change their business strategies worldwide (Los Rios & Charnley, 2017). Increased material costs due to resource scarcity and new regulations on waste policy and extended producers responsibility in the European Union (European Commission, 2019), have made companies more concerned on the sustainability issues (Dobbs, et al., 2011).Companies have already taken various sustainable approaches, however, despite efforts to reduce environmental impairment, a number of companies continue their operations with linear business strategies (Abdul-Rashid, et al., 2008). The concept of linear economy is built on take-make-waste philosophy (Ellen MacArthur Foundation, 2013) that puts little emphasis on waste management and decreasing set of resources (Sauve, et al., 2016). Due to the speed at which the earth’s resources are being depleted, the sustainability challenges are getting more prominent. Therefore, the need for a new industrial setting that can lower the use and extend the usable value of resources (Los Rios & Charnley, 2017), decoupling economic growth from the destruction of the socio-ecological system, gets more crucial (Hawken, et al., 2000).

Responding to the sustainability challenges, circular economy (CE) has emerged. This is basically an environmental change regarding the global demand for an ecological economy. CE aims to lower resource extraction and waste streams, leading companies towards sustainability with reduced environmental impairment (Stahel, 2010). Within CE, business activities should be consistent with the three Rs principles: Reduce, Reuse and Recycle replacing the ‘take-make-waste’ rationales of linear economy (Stuchtey, et al., 2016) (see Figure 1). The Ellen MacArthur Foundation (2015) suggested that CE causes economic growth, job creation, lower environmental impacts, and industrial regeneration. Therefore, politicians are more eager to move towards this new concept, which is noticeable in the Circular Economy Package of European Commission. The package contains action plans on better recycling and reusing products and legislative proposal on waste policy (European Commission, 2019). In a similar vein. the Swedish government considers CE as a smart economy, where products would have longer lifetime, the use of resources and amount of waste would be reduced through

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reusing, recycling, restoring, and upgrading products. Moreover, the Official Reports of Swedish Government highlights that CE could generate more growth opportunities in forms of new jobs and businesses (SOU, 2017:22), which exhibits greater potential for Sweden.

Figure 1: Linear Open model and Circular Closed loop Model (Taleb, 2018, p. 3)

The transition from the linear economy to the CE is attracting the attention of many companies that aim to seize opportunities from the expected financial, social, and environmental benefits of CE. The role of companies in the transition is crucial since switching an economy from linear to circular depends; at a macrolevel, on legislations and policymakers, yet at a microlevel on the introduction of circularity into companies’ existing business models (Lacy & Rutqvist, 2015). Hence, a thorough understanding of the transition requirements is needed to simulate the implementation of CE at the macrolevel.

In practice, as argued by Lacy & Rutqvist (2015), companies seeking to seize opportunities from the circular advantages will need to develop new business models free from the constraints of linear thinking. Circular business models (CBMs) would enable companies to create a regenerative system in which the waste is minimized by slowing, closing, and narrowing the material loops (Ludeke-Freund al., 2018). The waste in current linear businesses is not only physical, but could also be identified in resources, product lifecycle, capabilities, and product embedded value (Lacy & Rutqvist, 2015). The wasted value represents a considerable opportunity for companies to gain benefits and minimize waste (Yang et al., 2015; Lacy & Rutqvist, 2015). Therefore, finding a business solution to turn the waste into value would not only make financial benefits but also enable growing businesses and economics without increasing the need of additional resources.

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Moving towards CBMs implies not only using the waste as a resource, but also bundling the resources in an efficient way to leverage capabilities (Lewandowski, 2015). The way companies convert their resources into values using capabilities is in the core of business model’s definition (Teece, 2006). Consequently, deploying capabilities in CBMs would allow companies creating values for their customers and capturing value from CE ‘s opportunities (figure 2). Without the right capabilities, companies might face issues and high costs in trying to implement circular activities in their business models (Lacy & Rutqvist, 2015). Accordingly, developing right capabilities would enable companies moving smoothly to CBMs while efficiently creating and capturing values.

Figure 2: The role of capabilities in CBMs (Own illustration)

The concept of capabilities was slightly approached by scholars when discussing the activities required for the transition towards CBMs (Bakkar, et al., 2014; Bocken, et al., 2014; Geissdoerfer, et al., 2018; Hopkinson, et al., 2020). For instance, activities for sourcing, manufacturing, and designing products were widely discussed to shed the light on some capabilities required. Furthermore, areas where capabilities should be developed to create and capture value from the waste were identified (Lacy & Rutqvist, 2015; Laubsher & Marinelli, 2014). Thereby, these studies would guide managers to focus on some particular areas in their businesses. Similarly, the concept of value creation and capture was discussed previously in relation to the CBMs design to reveal the benefits from circularity (Gronroos & Ravald, 2011; Hopkinson, et al., 2020; Evans, et al., 2017). However, few studies have considered the capability perspective for studying the transition towards CBMs (Lacy & Rutqvist, 2015).

Capbilities captureValue

Value Creation

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From capability perspective, the emphasis would be on key capabilities that facilitate and accelerate the transition towards CBMs. Likewise, the use of the capabilities in value creation and captures would be an area of investigation.

Studying the transition to CBMs from a capability perspective would give valuable insights on key capabilities that companies are suggested to prioritize in order to enrich the transition towards CBMs. In addition, it would help them deploying the identified key capabilities to create and capture more values. Therefore, studying the transition to CBMs from the capability perspective would provide valuable insights for managers and encourage them implementing circular principles within their businesses.

1.2

The Research Gaps

While reviewing the literature, it has been noticed that many studies were conducted on CBMs innovation and implementation (Laubscher & Marinelli, 2014, NuBholz, 2018; Prieto-Sandoval et al., 2019; Lacy & Rutqvist, 2015). Likewise, the value dimensions, particularly, the value creation and capture were broadly discussed in relation to the change in business models and value chains (Osterwalder & Pigneur, 2010).

Some studies approached indirectly the concept of capabilities by defining, for example, activities and skills needed to be developed in CBMs (Joustra, 2013; Bocken et al., 2014; Winter, 2014; Scott, 2015; Planing, 2015; Linder et al, 2015; Lewandowski,2015; Evans,2017; Yang et al., 2017; Sandoval et al., 2019 ; Reim et al., 2019). Likewise, some scholars directly approached the concept of capabilities in CBMs. For instance, Prieto-Sandoval et al., (2019) acknowledged some fundamental resources, strategies and dynamic capabilities required when implementing CE within SMEs. Laubscher & Marineilli (2014) pointed out six areas in which internal capabilities are needed to implement CE principles. Lacy & Rutqvist (2015) identified five areas affected by the transiting towards CBMs and identified some capabilities and activities required in these areas. However, these studies are specific to one company (Laubsher & Marinelli, 2014), or to a specific companies’ size in relation to dynamic capabilities (Prieto‐ Sandoval et al., 2019) or lack evidence for how to use capabilities to deliver circular advantages (Lacy & Rutqvist, 2015). In addition, no study was found on how capabilities could be deployed within the CBMs in order to create and capture value.

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Some other scholars studied the value creation and capture dimensions within CBMs (Osterwalder et al., 2014; Yang et al., 2017; Uusitalo & Antikainen, 2018). Further, some researchers developed tools to help companies identifying value opportunities for a successful transition towards CBMs (Yang et al., 2017). However, identifying opportunities without suggesting capabilities for seizing it, makes these tools unavailing for circular activities’ implementation.

Figure 3: The research gap (own illustration)

The value creation and capture mechanisms are interdependent since companies seize benefits when they create value for their customers. Hence, the provider’s value perspective would be incomplete without customer’s value dimensions. However, the customer-centric aspects on CBMs have already been researched broadly (Kimita et al., 2009; Sakao & Lindahl, 2012; Schenkel et al., 2015). While a little research has been conducted on the providers’ value aspects. Further investigations on value creation and capture through circular activities would enlighten the benefits of CBMs and encourage companies to rethink their existing linear business models. Therefore, this thesis intends to discuss the value dimensions for both customers and providers, although putting more emphasis on the provider’s value perspective.

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Consequently, this thesis will consider previous research in the field of capabilities and value dimensions in CBMs in order to identify the key capabilities that enhance the transition towards CBMs and leverage more value for both customers and companies (see gap illustration in figure 3).

1.3 Research Question

The purpose of this thesis is to identify key capabilities required for the transition towards CBMs and to show up the way these capabilities would be used for creating and capturing values for both customers and providers. For these purposes, previous research in this field and an empirical study will be used to answer the following purpose and research questions:

What are the key capabilities that facilitate the transition towards CBMs and ensure value for customers and providers?

To reach to abovementioned goal, the following research questions have been formulated RQ1: What are the key capabilities required for the transition towards CBMs? RQ2: How using these capabilities could enable value creation and capture?

Answering these research questions would contribute to the identified research gap and would provide relevant knowledge on how to make benefits from CBMs.

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7 1.4 Thesis structure

Figure 4: Thesis structure

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•Chapter 1 introduces the subject of this thesis, highlights the research gap and outlines the research questions and the research purposes.

2

•Chapter 2 provides an overview of the theoretical background of this thesis. It includes three parts. The first part displays theories on CBMs and capability development for CBMs , the second part exhibits research on value dimensions,. The third part presents the theoretical framework and its operationalisation.

3

•Chapter 3 presents the methodology used in conducting the research. It provides insights on the research philosophy and design. It present methodology followed in conducting the literature review ,the empirical study.Also, it displays the way data was collected and analysed.

4

•Chapter 4 presents the result of the empirical study. In this chapter data collected is analysed according to the theoretical framework. Hence, capabilities are presented in diffrent business areas. The chapter concluded with a summary of key capabilities identified by the partcipants to the empirical study.

5

•Chapter 5 presents a discussion of the findings regarding the literature. The discussion has covered all capabilities in addition to their relative value dimensions. Accordingly the theoretical framwork was reviewed.

6

•Chapter 6 concludes the thesis and present theroretical and practical implication of the thesis' results. It also present the limitation of the thesis and suggest future reseraches

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2 THEORETICAL BACKGROUND

This chapter presents the theoretical background of the thesis and depicts the theoretical framework of the study. The chapter defines, first, the concept of CBMs in the literature. Second, it presents capabilities for the transition towards CBMs identified by scholars. Third, it presents the value creation and capture generated when implementing CBMs. Finally, this chapter concludes by the developing of a theoretical framework.

2.1 Understanding the Concept of CBM

The current linear industrial model provokes the sustainability challenges and demands a new industrial setting. The new wave of sustainability is embedded within CBMs (Stuchtey et al., 2016) which represents how a company creates, delivers and captures value with and within closed material loops (Mentink, 2014). This infers that materials are reused as bulk material, products, and components. Similarly, Lahti, et al., (2018) proposed that CBMs are designed to create and capture value while ensuring an ideal state of resource utilization. Hence, the goal of the business has also shifted from making profits by selling products to making profits through the flow of resources, and products over time, embracing reusing goods and recycling resources (Lahti et al., 2018).

CBMs are built on various characteristics- durability, renovation, repair, reuse, upgrade, capacity sharing and dematerialization (Uusitalo & Antikainen, 2018). Considering these features, Bocken et al., (2016) categorized CBMs under three strategies: slowing, closing, and

narrowing the loop (p. 309). Slowing the loop focuses on durable product design and

product-life extension through reuse, repair, and remanufacturing. Prolonging product product-lifetime is considered to minimize environmental impairment in comparison to new product development, since production and distribution can be deferred and the amount of wastes can be reduced (Van Nes & Cramer, 2006). However, in some instances, often for energy using products, replacement might be applicable at a certain point in time, seen from the aspect of life cycle assessment, if the new products present substantial energy savings than the previous one (Bakkar, et al., 2014). Thereby, Pocock et al., (2011) inferred that extending product lifetime and material flow can generate revenue for companies.

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Closing loop aims to ensure circular flow of resources by closing the loop between post-use and production through recycling of the materials, emphasizing on removing ‘leaks’ from the whole system (Bocken, et al., 2016). Thus, closing loops intend to reduce or completely eliminate wastes from the environment by turning unwanted goods into resources at the end of the product’s lifetime (Stahel , 2016; Bocken, et al., 2016). Hence, this ensures companies’ operational efficiency resultant from resource utilization in production other than resource diminution and environmental pollution (Camilleri, 2018).

On the other hand, narrowing loops intend to enhance resource efficiency by using less resources in product design and production stage (Bocken, et al., 2016). It relates to developing products and services efficiently to serve customers with same level of performance like before along with lowering environmental impact. In fact, this ensures operational efficiency for the company, since they could save costs from waste reduction, thereby, also minimizing environmental degradation. This strategy differs from the slowing loops strategy, since it does not affect the speed of products’ flow and does not include any service. This strategy has already been incorporated within linear business model, nevertheless, within CBMs it could be used combining with both product life extension and recycling model (Bocken, et al., 2016; Bocken, et al., 2019).

The interactions within a sustainable market is slightly different, since the consumers play the role of suppliers by the end of the product life cycle, which makes companies rethink and reorganize their capabilities. Thereby, company’s strategic intentions determine the required capabilities, that might differ in relation to company’s intention whether they want to slow, close or narrow the material loops. Hereafter, it is important to understand different dimensions of capabilities.

2.2

The Notion of capabilities in CBMs

2.2.1 Capabilities- in a nutshell

Fundamentally, capabilities are derived from the theory of RBV. In the RBV, resources and capabilities develop companies’ internal characteristics and enable them to gain competitive advantage (Barney, 1991, Penrose, 1995, Wernerfelt, 1984). Helfat & Peteraf (2003) claimed that, according to RBV, companies’competitiveness is assumed to be based on the availability of heterogeneous firm-specific resources and the required capabilities to coordinate those

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resources in a strategically successful way. Hence, Barney (1986) argued that internal assessments of the resources and the capabilities should be done to create exclusive combination of product and service features, that could lead to a competitive advantagei.

Usually, the RBV considers resources as tangible and intangible assets (Barney, 1991) and regards as infiniteii in order to create value and implement strategies. Capabilities represent a pool of resources, which are controlled by a company and its strategic choices made within the organization to adjust the resources according to the business environment (Barney, 2011). This further fosters the significance of capabilities for companies to create and capture value and to be competitive in the market.

Amit and Schoemaker (1993) defined capabilities as companies’ abilities to combine resources efficiently to improve performance. Grant (1991) described capabilities as a pattern of coordination between individuals and resources which is learnt through repetition. Ulrich and Smallwood (2004) argued that capabilities derived from a bundle of activities, not from a single pursuit. Likewise, Helfat and Peteraf (2003) viewed capabilities as organization’s abilities to perform a coordinated set of tasks and exploiting organizational resources in order to gain a certain objective.

As such, Collis (1994) inferred that capabilities determine the efficiency and effectiveness of a company by which it can convert inputs into outputs. However, Dutta, et al. (2005) claimed that capabilities can be regarded as efficiency, as these allow companies to use available resources as input and transform those into output to gain desired outcome. This implies that capabilities are an ‘intermediate transformation ability’ between resources and objectives (Dutta, et al., 2005, p. 278). Thus, companies deploy these capabilities, constantly, within their daily activities in order to ensure effectiveness and to develop organizational competences and routines (Grant, 1991). Nelson and Winter (1982) also agreed that capabilities are the company’s ability to perform repeatedly or to imitate productive tasks in regard to their capacity to create value with effective conversion of inputs and outputs.

Capabilities are divided into two broad categories: operational and dynamic capabilities (Teece, 2006). Operational capabilities emphasise on regular activities, whereas, dynamic capabilities create and modify operational capabilities (Nelson and Winter, 1982). In addition to these, companies develop many dimensions of firm-level capabilities, to meet customer’s

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demands and to acquire competitive advantage by offering unique products and services. These could be- product/service innovation and development capability, marketing capability, upper management capability, technological capability, external relationship capability (Acar and Zehir, 2006). The scope of interest of this thesis is limited to the study of operational capabilities. For simplifying, the term “capabilities” has been used along the text to designate operational capabilities.

Nonetheless, business models and companies’ strategic intentions determine the required capabilities, which has been exhibited in this thesis in the context of transformation towards CBMs.

2.2.2 Capabilities for the transition towards CBMs

Basically, the design and operation of business models are dependent on company’s capabilities (Teece, 2006). Therefore, the transition to CBMs hinges on building new capabilities that support the circular ways of working (Lacy & Rutqvist, 2015, Alix & Vallespir, 2010; Kopina, 2014; Los Rios et Charnley, 2017; NuBholz, 2018; Sandoval et al., 2019). The design of CBMs requires innovation in the entire organization, including technologies, design, and operating processes. Therefore, capabilities need to be implemented with a holistic system view allowing product life cycle innovation for economic, social, and environmental value (Yang, et al., 2017).

On the one side, scholars such as Laubscher & Marinelli (2014) and Lacy & Rutqvist (2015) regrouped these capabilities into categories and areas providing, as such, a holistic overview of capabilities needed for the transition. For instance, while studying the case of PHILIPS, Laubscher & Marinelli (2014) identified six areas in the business models where CE principles should be integrated for the transition to CBMs, including (1) sales model, (2) product design and material composition, (3) IT & data management, (4) supply loops, (5) strategic sourcing and (6) Human resources. However, their study was specific to the case of one company, PHILIPS, and entails generalizability issues. In a similar vein, Lacy & Rutqvist (2015) identified five areas where circular capabilities should be developed, including (1) the management of CBM strategy, (2) product design, (3) sourcing and manufacturing, (4) sales and product use and (5) return chains or reverse logistics. Lacy & Rutqvist (2015)’s theory exhibited a deep analysis of capabilities to be developed in different areas. However, their study

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lacks evidence on key capabilities and how to use the capabilities found to deliver circular advantages.

On the other side, many researchers have outlined activities that companies need to implement in CBMs (Joustra, 2013; Evans et al., 2014; Winter, 2014; Scott, 2015; Planing, 2015; Linder et al., 2015; Lewandowski, 2015; Evans, 2017; Yang et al., 2017; Sandoval et al., 2019 ; Reim et al., 2019). However, authors cited separately these capabilities when discussing activities, factors, priorities, key concepts or practices related to the CBMs. Hence, these terms were also considered when reviewing the literature and the capabilities identified were regrouped into different areas (table 1).

Table 1:Overview of the identified capabilities in the literature

Authors Areas of capabilities

Lacy & Rutqvist, 2015; Nubholz, 2018; Evans et al., 2017; Sirmon et al., 2007 Urbinati et al., 2017; Lewandowski, 2015; Sjödin et al., 2016; Reim et al., 2019; Matschewsky et al.,2018; Yang et al.,2017; Sundin et al., 2004; Sandoval et al., 2019; Hopkinson et al., 2020; Frishammar & Parida, 2019; Linder & Willander, 2017

The management of CBMs strategy

+hen Lacy & Rutqvist , 2015; Sumter et al., 2018; Los Rios & Charnley, 2016; Bekker et al., 2014; Brocken et al., 2016; Tukker, 2013; Matschewsky et al., 2018; Govindin et al., 2015; Reddy et al., 2018; Pagoropoulos et al., 2017; Sandoval et al., 2019

Innovation and product development

Lacy & Rutqvist, 2015; Scott, 2015; Joustra, 2013; Hokinson, 2019; Yang et al., 2017; Urbinati et al., 2017; Lewandowski, 2016; Unal et al., 2019; Pagoropoulos et al., 2017; Frishammar & Parida, 2019; Sandoval et al., 2019

Sourcing and manufacturing

Lacy & Rutqvist, 2015; Frishammar & Parida, 2019; Bocken et al., 2016; Matschewsky et al., 2018; Sandoval et al., 2019; Alix et al., 2009;

Sales and product use

Lacy & Rutqvist, 2015; Pagoropoulos et al., 2017; Reddy et al., 2018; Frishammar & Parida, 2019; Govindan et al., 2014; Urbinati et al., 2017; Linder et Willander, 2017; Sandoval et al., 2019; Hopkinson et al., 2020; Brocken et al., 2016

Reverse logistics

Lacy & Rutqvist, 2015; Laubscher et Marinelli, 2014; Joustra, 2014; Lacy et al., 2014; Epstein & Buhovac, 2014; Frishammar & Parida, 2019; Ünal et al., 2019; Lewandowski, 2015; Joustra, 2014; Sandoval et al., 2019

Human resources management (HRM)

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Consequently, considering capabilities mentioned in the literature and the areas identified in previous studies, companies’ capabilities required in CBMs will be regrouped in this thesis into six main areas based mainly on Lacy & Rutqvist (2015)’s taxonomy. These categories of capabilities comprise: (1) the management of CBMs’ strategy (2) Innovation and product development (3) Sourcing and manufacturing (4) Sales and product use (5) Reverse logistics (6) Human resources management (Table 1).

While different capabilities and areas were barely and separately mentioned in different studies, Lacy & Rutqvist (2015)’s was the only study found that discussed deeply capabilities within different areas in the CBMs. Furthermore, their study offered a clear structure exhibiting the role of capabilities not only in moving towards CBMs, but also in transforming the uncaptured or the wasted values into valuable advantages. In their study, Lacy & Rutqvist (2015) considered capabilities and technologies as the main tools required for making circular advantages (See figure 5). The use of technology in driving circular advantages will not be the focus in this thesis. However, it will be discussed in relation with capabilities in different areas.

Figure 5: Creating advantage in a circular economy (inspired by Lacy & Rutqvist, 2015, p27)

The HRM area was not considered by Lacy & Rutqvist (2015) as a separate area, however, some aspects referring to it were discussed within different areas. In addition, other scholars emphasized the relevance of HRM for the transition towards CBMs (Laubscher et Marinelli, 2014; Joustra, 2014; Ünal, et al., 2019; Epstein & Buhovac, 2014, Lewandowski, 2016). Therefore, in this thesis, the HRM will be considered as one of the areas where capabilities would be implemented for value creation and capture during the transition towards CBMs.

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The analysis of capabilities in this thesis will be based mainly on Lacy & Rutqvist (2015)’s theory, combined with literature that approached circular activities and skills within CBMs. Accordingly, the following sections present capabilities that companies need to develop within the six areas mentioned above.

2.2.2.1 The Management of CBMs’ Strategy

Scholars in resource efficiency have developed a range of circular strategies that save the embodied energy and reduce resource intensive production and waste. Basically, the aim of these strategies is to slow, narrow and close the material loops (Bocken et al., 2016; NuBholz, 2018). Therefore, companies moving their linear business models towards more circular ones need to adopt one or some of these circular strategies, then make a strategic shifts and build an ecosystem of partners that supports their circular strategies (Bocken, et al., 2016, Los Rios & Charnley, 2017; Hopkinson et al., 2020).

Moving from linear strategy to a circular strategy requires capabilities for identifying and exploring the wasted value (e.g wasted energy or resources within the linear business model). This transition is complex and would take a single company beyond its capabilities (Lacy & Rutqvist, 2015). Therefore, collaborating efficiently with partners could, to some extent, compensate internal capabilities development (Frishammar & Parida, 2019). On this basis, researchers highlighted the importance of building a circular network of partners (Roos, 2014; Nußholz, 2018; Laubsher & Marinelli, 2014; Lacy & Rutqvist, 2015; Linder & Williander, 2015; Oghazi & Mostaghel, 2018; Frishammar & Parida, 2019; Zucchella & Previtali, 2019). Moreover, Lacy & Rutqvist (2015) and Zucchella & Previtali (2019) considered that building and managing the circular network is the most important capability that companies should develop in managing the CBMs strategy. In fact, the transition towards CBMs requires changes along the entire value chain from sourcing, product design to sale and return chain. Thus, it involves many partners and an efficient collaboration is required in order to share their expertise and have control on every activity in the value chain (Lacy & Rutqvist, 2015).

For these purposes, Oghazi & Mostaghel (2018) emphasized the importance of selecting expert partners and developing cooperative arrangement where the responsibilities are clearly defined. Likewise, Evans et al., (2017) argued that companies need to review their contracts and

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relationships with different partners by taking a wider and a long-term view. In the same vein, several authors underlined the important role of partners in value generation since they would enable companies closing the material loops by linking the initial sale to the product disposal (Lacy & Rutqvist, 2015; Nußholz, 2018). Hence, Linder & Williander (2015) approached the managing of the relationship with partners as one challenge for the transition to CBMs.

In addition, Lacy & Rutqvist (2015) argued that when moving from linear to circular strategy, companies need to assess how this transition could impact their ecosystem. This implies assessing the impact of the resources constraints, the change in customers’ requirements and the technology use (Lacy & Rutqvist, 2015). In fact, companies need to assess their current resources regarding environmental uncertainty and then, to identify the most vulnerable and dependent parts in their organizations and products value chain. Thereby, they will be able to review their network of partners according to the resources’ constraints.

Likewise, companies need to understand customers’ requirement with regards to their competitive environment and to develop a product that satisfy customer’s needs yet use less resources. Therefore, many scholars emphasized the role of customers in co-creating value and in designing products within CBMs (Lewandowski, 2015; Sjödin et al., 2016; Reim et al., 2019; Matschewsky et al., 2018). Accordingly, lacy & Rutqvist (2015) claimed that companies need to adapt new technologies for decoupling consumer value from resource use.

Figure 6: Capabilities required for CBMs’ strategy management own illustration based on Lacy & Rutqvist (2015)

The management of circular strategy

Capabilities for exploring the wasted value Identifying and using new technologies Understanding customer’s requirements Assessing resources constraints Managing circular network

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Consequently, in the management of CBMs’ strategy area, firms need to develop capabilities for exploring efficiently the wasted values. Therefore, they need to manage a circular network, achieve the assessment of resource constraints and customer’s requirements and use new technologies efficiently (see figure 6).

2.2.2.2 Innovation and product development

The transition towards CBMs depends on companies’ capacity to provide attractive offers that preserve products’ embedded values without creating waste and liabilities over time (NuBholz, 2018; Lacy & Rutqvist, 2015). Hence, CBMs design would switch the focus from a single-use product life cycle to multiple use and longer product life cycles (Sumter et al., 2018). In this way, Los Rios & Charnley (2016) highlighted the crucial role of design competencies in creating closed loop products. They also argued that using product life cycle assessment is the most appropriate tool for evaluating costs and managing material choices. Therefore, companies need to develop skills and capabilities to design circular products and services that enhance careless resource depletion and revitalize existing material value. Thus, capabilities for designing products are required in the innovation and product development area.

Capabilities for product design includes designing for longevity, designing for leasing or service, designing for reuse and designing for material recovery (Los Rios & Charnley, 2017; Bocken, et al., 2016; Lacy & Rutqvist, 2015) ( see figure7).

Figure 7: Capabilities required in product design area within CBMs own illustration based on Lacy & Rutqvist (2015)

Innovation and product development

Capabilities for product design Designing for longevity Designing for service Designing for reuse Designing for recovery

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Designing for longevity implies designing for quality, reliability, and maintenance in order to extend the product life (De Los Rios & Charnley, 2016). This means, products within CBMs should embed sustainable components to have a long lifespan and companies should develop knowledge and skills to ensure the maintenance of products components and their reuse in the product end life.

Designing for leasing or service implies designing products into a service business model that creates and captures value from product related services instead of physical products. Hence, the business models are shifting from product seller to service seller where the provider has the responsibility of maintenance and repair of the physical product during the customer use phase. Hence, designing for service requires designing product in a way to facilitate the maintenance and repair with less cost. Therefore, companies need to develop capabilities that focus on assessing intangible value and influencing consumers acceptance of new ownership models (Bakker et al, 2014; Tukker, 2013). For instance, the functional sale is one type of CBMs design that include product for service.

Designing for reuse implies designing products with components that could be taken back for reuse or could be remanufactured for resale (Lacy & Rutqvist, 2015). Cascaded uses and regenerative cycles require designing product with efficient materials that can be reused and remanufactured after the product end-life in order to close material loops (los Rios & Charnley, 2016).

Designing for recovery means designing product and CBMs for a quick flow of material recapture in the product end-life. These materials would be recycled and transformed into raw materials destined to be sold or reintegrated in the manufacturing process (Lacy & Rutqvist, 2015; Los Rios & Charnley, 2016). From recovery, new revenue streams derive mainly through product and material recycling.

In such way, in the product design area, the design of product for many lifecycles and users is an important capability to develop for the transition towards CBMs (illustrated in figure 7). In design capabilities products could be designed for longevity, service, reuse and recovery. Combining these four capabilities is suggested since it would enable companies having a control on both the supply side and the customer side (Lacy & Rutqvist, 2015).

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18 2.2.2.3 Sourcing and manufacturing

For the transition to CBMs companies need to develop capabilities for identifying and using unconstrained resources (Lacy & Rutqvist, 2015). Unconstrained resources mean resources that do not generate waste and are provided from renewable and sustainable sources or from recycled material. Identifying these resources requires capabilities in the sourcing area, however, using these resources efficiently requires capabilities in the manufacturing area.

In the sourcing area, companies need to assess the sustainability of the resources used. Thereby, they can substitute constrained resources by better-performing and unconstrained resources that have better technical requirement to be reused and are less harmful for the environment (Lewandowski, 2016). Changing input materials need identifying circular suppliers that would help companies capitalizing on circular resource flow (Lacy & Rutqvist, 2015; Lewandowski, 2016; Geissdoerfer, et al., 2018). For selecting circular suppliers, they need to consider their existent suppliers and at the same time, to identify other suppliers of alternative input such as recycling companies (Lacy & Rutqvist, 2015). For the relation with circular suppliers, researchers recommended building a relationship based on trust in order to make benefits from their expertise and to have visibility on their operations (Lewandowski, 2016; Linder & Williander, 2015; Lacy & Rutqvist, 2015; Joustra, et al., 2013; Urbinati, et al., 2017).

In the manufacturing area, Lacy & Rutqvist (2015) argued that companies need to develop capabilities to protect the resources value and quality throughout the production process. They also highlighted the need to develop ideas and to innovate in the production activities in order to reuse the products and to make value from the waste. In the same way, Yang et al., (2017) argued that companies have to evaluate the uncaptured value in their product life cycle and to identify opportunities for value creation.

To sum up, in the manufacturing and sourcing area, scholars argued that companies need to develop capabilities for managing circular suppliers (Lacy & Rutqvist, 2015; Geissdoerfer, et al., 2018). Therefore, they should assess the constrained resources, to select circular suppliers and to manage the relation with them. Besides they need to innovate for transforming the waste material into value. (illustration in figure 8).

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19 Figure 8: Capabilities required in manufacturing and sourcing area within CBMs

own illustration based on Lacy & Rutqvist (2015)

2.2.2.4 Sales and product use

Building and maintaining a good relationship with customers was considered by several researchers as one of the main principles for a successful transition to CBMs (Lewandowski, 2016; Lacy & Rutqvist, 2015; Laubsher & Marinelli, 2014; Frishammar & Parida, 2019). In this way, Lacy & Rutqvist (2015) considered the relationship with customers as vital and argued that the transition towards CBMs would not impact it negatively but would rather enhance it. Therefore, they defined five activities that would strengthen the relationship with customers.

First, companies need to use different channels such social media and to develop capabilities in order to know about the user’s feedbacks and to understand customer’s requirements. Then, innovation in the use phase is required for developing services such as maintenance. This would help companies extending the product lifecycle and the recovery, also, it would enable them to maintain a closer relationship with their customers. Other new practice in the use phase, widely discussed in the literature is selling functionalities instead of physical products. This innovation in the offering changed the value network structure and challenged the product design (Matschewsky et al., 2018). As a part of the design, it was recommended to design the product to be easily repaired and to use components that could be easily replaced. Therefore, companies need to develop activities for managing spare parts. For these purposes, the commitment of channel partners is essential. Moreover, an effective management of channel partners would facilitate the management of taking-back the product at the end of life. Such activity engages

Sourcing and manufacturing

Identifying the unsustainable resources

Selecting and developing a relationship with circular

suppliers

Innovation to transform the wasted material into

value Capabilities for managing circular suppliers

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customers in the value co-creation. This concept of value co-creation was discussed in the literature when investigating the change in the relationship with customers. It refers to the participating role of customers in the value creation by returning the product after using it (Matschewsky et al., 2018; Roos, 2014; Camilleri, 2018). Thereby, the role of technologies was highlighted for managing the relationship with customers. For instance, Lacy & Rutqvist (2015) and Pagoropoulosa, et al., (2017) emphasized the importance of using technologies for strengthening the connection and access to customer’s data.

Consequently, ensuring customer engagement is the most important capability that companies need to develop in sales and product use area. This capability requires maintaining a good relationship with customers (Gronroos & Ravald, 2011), an innovation in the use phase and an effective management of channel partners (Lacy & Rutqvist, 2015; Geissdoerfer, et al., 2018) (illustration in figure 9).

Figure 9: Capabilities required in product sale area within CBMs own illustration based on Lacy & Rutqvist (2015)

2.2.2.5 The Reverse logistic

Return chain or reverse logistic (RL) is one of the most important areas in CBMs that enable companies closing the material loop and holding the entire circular loop together (Reddy et al., 2018; Lacy & Rutqvist, 2015; Geissdoerfer, et al., 2018). In this area, capabilities for identifying and exploiting the opportunity driven by taking back products are required (Lacy & Rutqvist, 2015). For this purpose, researchers underlined the important role of customers in

Sale and product use

Capabilities to foster customer’s engagement

Maintaining a good relationship

with customers Innovation in the use phase

Effective management of channel partners

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ensuring the buy-back resources and materials (Lacy & Rutqvist, 2015; Reddy, et al., 2019; Geissdoerfer, et al., 2018; Meynhardt, et al., 2016). Thereby, they suggested the development of RL network that enables to collect products by their end of life and reintegrate in the value chain (Reddy, et al., 2019; Lacy & Rutqvist, 2015; Laubsher & Marinelli, 2014).

In this way, Lacy & Rutqvist (2015) argued that the RL starts by understanding the wasted value in the disposed product, hence, manufacturing capabilities are needed to identify valuable parts in the end- of- use product (Yang et al., 2017; Lacy & Rutqvist, 2015). Likewise, assessing the embedded value wasted and identifying the greatest amount of waste in the end of use product would allow companies understanding and evaluating the targeted value and accordingly, designing a RL network (Lacy & Rutqvist, 2015).

The RL network design includes ; customer contact centres, collection and reprocessing sites and capacitated inspection (Lacy & Rutqvist, 2015; Reddy, et al., 2019). Among various elements of the RL network, Lacy & Rutqvist (2015) considered that the most critical element in the RL network is the site where firms reprocess the collected products in their end-use-life. In fact, some firms choose to build their own facilities, while others operate the return chains directly with circular suppliers. When operating the RL, Urbinati et al., (2017) and Reddy et al., (2018) emphasized the role of quality inspection for the returned products and extracted components in order to maintain a high quality in production. In this way, Linder and Willander (2017) highlighted the challenge managers face when planning the input from recycled and refurbished components. The number of returned products could not be controlled or predicted; therefore, companies need to develop capabilities in their provision in order to manage the return chain uncertainties. Consequently, Pagoropoulosa et al., (2017) and Lacy & Rutqvist (2015) underlined the role of technology and IT capabilities in taking-back products and suggested creating customers’ platforms to increase customer’s engagement and to reduce the transaction costs when sending the product back.

Accordingly, in the RL area companies need to develop capabilities for identifying and exploiting the opportunity driven by taking back products. Therefore, they need to understand the wasted value in the disposed product and to design a reverse logistics network (illustration in figure 10).

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22 Figure 10: Capabilities required in reverse logistics area within CBMs

own illustration based on Lacy & Rutqvist (2015)

2.2.2.6 Human resources management (HRM)

HRM is considered by many researchers as an important area to study for the transition towards CBMs (Laubscher et Marinelli, 2014; Joustra, 2014; Epstein & Buhovac, 2014). In fact, managers and employees have been educated in a linear way of thinking and the transition to CBMs require an implementation of a circular thinking and practices on companies’ organizational and operational levels (Ünal, et al., 2019).

On the one side, several researchers claimed that commitment to achieve sustainability goals are commonly realized in a top–down manner in a company (Ünal, et al., 2019; Epstein & Buhovac, 2014). In addition, Egger & Kaplan (2013) argued that the value of firms’ capabilities may be ineffective without managerial interpretations of their adequacy to the environment. For the same purposes, Ünal et al., (2019) argued that developing capabilities for management commitment is important to foster circular values and to help implementing circular culture in the organization. In addition, Lacy et al., (2014) identified five capabilities that leaders need to develop for the transition towards CBMs including Circular Supplies, Resource Recovery, Product Life Extension, Sharing Platforms and Product as a Service.

On the other side, other researchers underlined the need of developing new skills at the operational level such as design (Los Rios & Charnley, 2017), manufacturing (Geissdoefter et al., 2018), logistics (Govindan, 2014) and marketing (Lacy & Rutqvist, 2015) . Nevertheless, these new skills need to be combined with a new organizational culture and cognition skills to

Reverse Logistics

Capabilities for identifying and exploiting opportunities from tracking- back products

Understanding the wasted value in the taken-back products

Designing and managing the RL network

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deliver the required value (Laubscher & Marinelli, 2014; Lacy & Rutqvist, 2015; Frishammar & Parida, 2019). In order to develop new skills and foster manager’s commitment, companies need to implement continuously training programs and incentives systems including workshops and reward systems (Epstein & Buhovac, 2014). The incentives system would encourage employees, implementing circular practices and driving efficiently the organization towards circularity (Ünal et al., 2019; Lewandowski, 2015; Joustra, 2014).

Consequently, for the HRM, companies need to develop capabilities for implementing the circular culture among employees. Therefore, scholars suggested developing new skills and raising managerial commitment for the transition towards CBMs (illustration in figure 11).

Figure 11: Capabilities required in human resources management area within CBMs own illustration based on the literature

2.2.2.7 An overview of capabilities in CBMs

The literature review of capabilities needed for the transition towards CBMs, exhibits that many areas in companies’ value chain are involved in the transition including procurement, manufacturing, logistics, marketing, sale, and the reverse chain management. Therefore, companies need to build new capabilities within these areas according to the circular principles. Figure 12 summarizes capabilities required for the transition towards CBMs as mentioned in the literature and reviewed in the previous sections.

Human resources management

Capabilities for implementing and developing the circular culture

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Figure 12: Capabilities required in CBMs as suggested by previous studies (Own illustration based on the literature)

Firms need to exploit these capabilities constantly in their daily operations to enhance efficiency and effectiveness and to embrace sustainability within their products and services. This further expedites firms’ capacity to create value for their customers as well as to capture value for themselves while transitioning towards CBMs. Thereby, the value creation and capture within CBMs need to be discussed.

The management of CBM’s strategy

Capabilities for exploring the wasted value Managing the circular

network Assessing the resources

constraints Understanding customer’s

requirement Identifying and using new

technologies

Sourcing and manufacturing Capabilities for managing

circular suppliers Identifying unsustainable

resources Selecting and developing relationship with circular

suppliers

Innovation to transform the waste into value

Innovation and product development Capabilities for product

design

Designing for longevity Designing for service

Designing for reuse Designing for recovery

Sale and product use Capabilities to foster customer’s engagement

Maintaining a good

relationship with customers Innovation in the use phase

Effective management of channel partners

Reverse logistics Capabilities for identifying and exploiting opportunities

from taking back products Understanding the wasted

value in the taken-back products Designing and managing RL

network

Human resources management Capabilities for developing

the circular culture Fostering managerial

commitment Developing new skills

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2.3 The value dimensions in Circular business models

2.3.1 Value creation in Circular Business Models

Value creation is one of the central, perhaps the most important dimensions of the business model, which is designed to understand the expected value from companies’ offerings and their embedded circular strategy (Uusitalo & Antikainen, 2018). Companies’ offerings are the products and services that provide value by meeting customers’ demand. Customer value is their perceived preferences for an assessment of product qualities, performance and outcomes (Woodruff, 1997). As mentioned by Osterwalder & Pignuer (2013) customer value is generated when a company could mitigate ‘pain’ (e.g. costs) or create ‘gains’ (e.g. desired benefits). Henceforth, value creation is the process of utilizing key partners, channels, resources and activities to develop products and services that meet customers’ expectations (Osterwalder & Pigneur, 2013).

With the transition to CBMs, the value creation strategy is also changing. Moreno et al., (2016) argued that value creation depends on the CBMs strategy whether companies intend to slow down, close or narrow the resource loops. Capitalizing on circular strategies requires company’s ability to create offerings that enable to preserve and make maximum utilization of the embedded value, such as materials, energy, labour and capital costs (Roper, et al., 2017). In doing so, companies involved in activities of material recovery, multiple use cycles and end-of-lifecycle treatment (Hollander, et al., 2017). Thus the business model is shifting its focus from single use cycle towards multi use cycles in order to create and recreate value along with less environmental impact (Nußholz, 2018).

As such, companies need to concern about both economic and non-economic benefits while going through the value creation process (table 2). To create economic benefits, companies aim at reducing products overall lifecycle costs through increasing efficiency during usage by performance monitoring and optimization, lowering downtime through repair services and reducing purchase price for secondary products (Schenkel et al., 2015).

Whereas for creating non-economic value, companies regard mostly environmental issues while developing offerings to reach end consumers (Geissdoerfer, et al., 2018). Nevertheless, the customers role in product development does not remain unnoticed. Peronard & Ballantyne

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(2019) argue that value creation with CBMs is not only a process of satisfying consumer needs, but also symbolic system, in which consumer’s value is created by enactment of roles and enhanced through consumption constellations. This implies that consumers are not only passive receivers of a product or service, but also active co-creators of symbolic meaning of a product, thus providers only have a facilitating role in the process (Gronroos and Ravald, 2011).

Table 2 : Value creation in CBMs (own illustration based on the literature)

Value Creation

Economic Non- economic

• Minimizing cost throughout product life cycle (repair)

• Reducing purchase price for secondary products

• Enacting customer’s social roles

• Satisfying customer needs • Durable products

• Environmental friendly market opportunities • Energy efficiency • Less pollution

However, providers can promote the value-generating process and provide consumers more comprehensive experiences through a service network1 of a specific service (Peronard & Ballantyne, 2019). Such collaboration enables providers to create more value than operating alone (Chandler and Vargo, 2011) and extend environmental friendly market opportunities (Mathews et al., 2018). As a result, companies engage more in redesigning the business processes and include sustainable practices within their business models. In such way, they conduct resource efficient and waste management business activities through sustainable consumption and production, which further reduce environmental deterioration and make the earth sustainable. These activities, hence, exhibit CBMs role in creating both economic and non-economic value for customers, environment and society. However, this shift in orientation towards sustainability, yet, alters the conventional notion of value creation. Nonetheless,

1_{A service network is constituted by several entities in order perform and deliver a specific service.} Entities could be included, buyers, suppliers, competitors, another firm providing after-sales services, sale partners and so on.

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offering useful products or services are not sufficient unless the providers could generate and capture value from those.

2.3.2 Value Capture within Circular Business models

Value capture lies at the heart of any business model. Osterwalder & Pignuer (2013) defined value capture as a profit formula of value proposition while considering multi-stakeholders’ perspectives. Likewise, NuBholz (2017) denoted that value capture in CBMs is designed to take advantage of additional revenue streams, cost reductions and non-monetary benefits related to improving resource efficiency and preserved value in products and services. Hereby, value capture is related to ‘providers value’, which is important to consider in order to transform traditional business models to circular ones, as mentioned by Rondini, et al. (2016). However, value missed or value destroyed also need consideration while designing activities for value capture (Geissdoerfer, et al., 2018).

As like all other business models, CBMs also allow companies to capture both economic and non-economic value (See table 3). Hopkinson. et al., (2020) discovered that economic value within CBMs is driven by three basic activities; “recovery and reuse of materials, pay-per use

remuneration and resale of parts and new high value performance services” (p. 3). As such,

both the cost structure and revenue streams change during the transition. Costs may include replacement costs for secondary production, reducing cost related to end of life disposal, recycling costs and customer incentives to encourage them to the practice (NuBholz, 2017). This might lead to increase in labor and logistics costs e.g. for product repairing (Bocken et al., 2016). However, reduced use of virgin materials, lowers the cost of new raw material procurement, lessens supply risks, thereby, gives negotiation power to companies, which further control and minimize price volatility of supplies (Moreno, et al., 2016). On the other hand, revenue can be gained from the payments of circular products and payment from the services (Lewandowski, 2016). Additionally, NuBholz (2017) confirmed that value can also be captured from secondary production, remanufacturing, repairing and reusing products and sale of durable and high-performance products at higher price.

In addition, in order to gain non-economic benefits, CBMs contributes to offer products and services in a resource-efficient way, which reduce resource extraction and causes for less environmental impairment (Lieder & Rashid, 2016). Moreover, as mentioned by Bocken et al.,

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(2016), CBMs services require more labour, that might facilitate job creation, as a result could improve individual’s standard of living. Accordingly, this would improve relationship between companies and the community with an enhanced brand image.

Table 3: Value capture in CBMs (own illustration based on the literature)

Value Capture Economic Non-economic • Reduced net materials cost • Minimized price volatility

• Less supply risks • New revenue flows

from services e.g. rent, repair, maintenance, new market segment • Resource efficiency • Less environmental impact • Improved relationship with community • Enhanced brand image

However, value capture is often uncertain, because the sources that generates an increased value from a specific product, service or task may not necessarily work in capturing a maximum of it in the long run or perhaps much of the value creation potential might get damaged or lost by lack of collaboration with other factors (Lepak et al., 2007). Therefore, Yang, et al., (2017) argued that creating and capturing sustainable values would start by spotting the damaged and lost values in companies’ business models. They also developed a framework and a tool to help integrating sustainability principles in companies’ business models. The following section will provide more insights on Yang et al., (2017)’s theory.

2.3.3 Sustainability in creating and capturing value

For the transition towards CBMs, many researchers studied the business model innovation in light of circularity (Pieroni, et al., 2019; Roos, 2014; Lewandowski, 2016; Evans, et al., 2017). Thereby, they claimed that through innovation in the business model, companies can create and capture new values. However, Yang et al., (2017) argued that basically the business model

Capability Perspective on Circular Business Models Implementation : From Capability Deployment to Value Creation and Capture