How circular business models can increase the use of 3R s - a shift towards circular economy

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Alva Eriksson & Elsa Pedersen

How circular business models can increase the use of 3R’s - a shift

towards circular economy

Case study in Swedish stone material industry

Industrial Management Master Thesis

30 ECTS

Term: Spring 2022

Supervisor: Mikael Johnson

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Acknowledgements

This report represents the final part of our education programme Master of Science in Industrial Engineering and Management at Karlstad University. The amount of work has been divided equally between us and close teamwork has been applied throughout the entire master thesis. There are persons to illuminate, who have been important for us to accomplish this study. First of all, a serious thank you can be directed to our supervisor Mikael Johnson at Karlstad University for the support during the project. Second, we would also like to express our gratitude to the supervisors at NCC Industry, Per Murén and Fredrik Elesand for their great commitment. Additionally, we appreciate the contribution from respondents in the study and student opponents.

Summarising, it has been a pleasure to finalise our education by performing this master thesis at NCC and with all of you.

___________________ _____________________

Alva Eriksson Elsa Pedersen

Karlstad, 31 May 2022

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Abstract

Circular economy (CE) is today gaining a lot of attention, which means to improve resource efficiency through reusing, recycling, and reducing (3R).

Increased CE is one step towards improved sustainable development. The aim in this study is to explain how circular economy can pursue sustainable development, by business model innovation. A qualitative study including a market analysis has been performed with 28 semi structured interviews. The context studied was the Swedish stone material industry (SSMI) through NCC and its division Industry, as case company. The participants were employees selected from the case company, competitors, customers, ordering parties, and independent actors.

The study highlights both barriers and opportunities for improving 3R’s on the SSMI. Strict regulations are seen as a strong obstacle whereas reduced climate impact is a great possibility. To contribute successfully to circular economy, a shift towards circular business models (CBM) is needed. Such strategical transformation can be accomplished through business model innovation, which this study shows difficult. A CBM is presented to the case company with for instance customer co-creation and developing new partnerships included.

Shaping take-back services are also recommended to be implemented in the CBM. A conclusion is that business models and strategy interrelate, and both concepts are affected by regulations. This imply both positive and negative consequences of the market development, concerning circular economy. Lastly, a conclusion is that the triple bottom line mindset must be improved in the industry to pursue sustainable development.

Keywords

3R (reduce, reuse, recycling), business model innovation, circular business model, circular economy, stone material, strategy, strategical transformation, regulations

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Sammanfattning

Cirkulär ekonomi (CE) får idag mycket uppmärksamhet, och det innefattar ökande resurseffektivitet genom återanvändning, återvinning och reducering (3R). Ökning av CE är ett steg i ökad hållbar utveckling. Syftet med denna studie är att förklara hur cirkulär ekonomi kan främja hållbar utveckling, genom affärsmodellsinnovation. En kvalitativ studie har utförts genom en marknadsanalys med 28 semistrukturerade intervjuer. Det studerade sammanhanget var den svenska stenmaterialindustrin (SSMI) och fallföretaget har varit NCC och deras avdelning Industry. Deltagarna var utvalda anställda från fallföretaget, konkurrenter, kunder, beställare och oberoende aktörer.

Studien belyser både hinder och möjligheter för att öka de 3R’n på SSMI. Strikta regler visar sig vara ett starkt hinder medan reducerad klimatpåverkan är en stor möjlighet. För att framgångsrikt bidra till cirkulär ekonomi behövs ett skifte mot en cirkulär affärsmodell (CBM). Sådan strategisk förändring kan åstadkommas genom affärsmodellsinnovation vilket i denna studie har visats sig vara svårt. En CBM presenters till fallföretaget innehållande bland annat samskapande med kund och utveckling av nya partnerskap. Utformande av återtagstjänster är också rekommenderat för implementation i CBM. En slutsats är att affärsmodeller och strategi interagerar och båda koncepten påverkas av regleringar. Det kan medföra både positiva och negativa konsekvenser på marknadsutveckling beträffande cirkulär ekonomi. Slutligen så är en slutsats också att triple bottom line mindset måste förbättras i branschen för att främja hållbar utveckling.

Nyckelord

3R (återvinning, återanvändning, reducering), affärsmodellsinnovation, cirkulär affärsmodell, cirkulär ekonomi, stenmaterial, strategi, strategisk förändring, regleringar

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Abbreviations

3R – Reduce, Reuse, Recycle BM – Business Model

BMC – Business Model Canvas BMI – Business Model Innovation CBM – Circular Business Model CE – Circular Economy

SBM – Sustainable Business Model SD – Sustainable Development

SSMI – Swedish Stone Material Industry TBL – Triple Bottom Line

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Contents

1. Introduction ... 9

1.1. Incentives and problematisation ... 10

1.2. Aim ... 11

1.3. Research questions ... 12

2. Theoretical framework ... 13

2.1. Business models ... 13

2.1.1. Business model innovation ... 14

2.1.2. Circular business models... 16

2.2. Circular economy and sustainable development ... 18

2.3. Strategy ... 21

2.4. Regulations impacting organisations ... 23

2.5. Theoretical connections and conceptualisation ... 25

3. Method ... 27

3.1. Research design ... 27

3.2. Empirical context ... 27

3.2.1. Demarcations... 28

3.3. Data collection ... 29

3.3.1. Interviews ... 29

3.3.2. Secondary data ... 30

3.4. Data analysis ... 31

3.4.1. Interviews ... 31

3.4.2. Secondary data ... 32

3.4.3. Themes ... 32

3.5. Trustworthiness ... 33

3.6. Ethical perspective ... 33

4. Findings ... 34

4.1. How can circular economy be promoted in the Swedish stone material industry by business model innovation? ... 34

4.1.1. Economy ... 34

4.1.2. Material ... 35

4.1.3. Geography ... 36

4.1.4. Organisational changes ... 36

4.2. How are strategical prerequisites regarding the 3R’s in the Swedish stone material industry related to regulations, and in turn how does it impact sustainable development?... 38

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4.2.1. Regulations ... 38

4.2.2. Market characteristics ... 40

4.2.3. Strategy ... 41

5. Discussion ... 43

5.1. Important perspectives for conducting business model innovation ... 43

5.2. Shifting towards circular business model ... 44

5.3. Opportunities in circular economy promoting sustainable development 45 5.4. Strategical considerations for circular business model innovation ... 47

5.5. Relations between regulations and strategy ... 48

5.6. Practical circular business model recommendations ... 50

6. Conclusions and future research ... 52

6.1. Managerial implications ... 53

6.2. Limitations and future research ... 54 References ...

Appendix A – interview questions ...

Appendix B – interview workflow ...

Appendix C – code schedule ...

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1. Introduction

The introduction chapter describes the problem intended to research, as well as the incentives for the study. Background information about the specific context is presented with a transition to aim and research questions. The chapter aims to get the reader introduced to the theoretical topics of interest.

Recycling creates opportunities for shaping circular business models, even though frames are set by customers’ requirements on good quality and durable materials (Corral-Marfil et al., 2021). A business model describes how a company creates value and also what is needed to create and deliver it (Osterwalder & Pigneur, 2010). The choice of business model can according to Casadesus-Masanell and Ricart (2010), and Teece (2010) be seen as a strategy and in turn may create competitive advantages. Additionally, a circular business model contains concepts in order to reduce waste in a system. Focus is on using products for a longer time, give them new life and offer services instead of using physical material to contribute to sustainable development (Geissdoerfer et al., 2020).

In the research and managerial field, the concept circular economy (CE) is today highly attractive. Circular economy is frequently described by including concepts as reuse, recycle, and reduce (3R) (Kirchherr et al., 2017), originated from Ghisellini et al. (2016). Circular economy is a concept with a holistic view on the economy that focuses on minimising waste and using renewable energy sources to optimise the system. This means having a deeper understanding of sustainability that goes beyond production and consumption (MacArthur, 2013). Furthermore, innovating business models is a central part of CE that aims to create benefits for economies, companies, and consumers (MacArthur, 2013). From this, why is concepts like business model interesting to pay attention to in a bigger context?

Attention on sustainable development (SD) has increased in society today, including in the Swedish stone material industry (SSMI). This is, in a big context, a perspective where everyone needs to participate actively. Companies can for instance contribute by creating opportunities that pushes sustainable development forward. The commitment can be derived from the coalition by the world’s leaders in the agreement of Agenda 2030, consisting of 17 goals (United Nations Development Programme [UNDP], n.d. d). One holistic definition of SD is to develop the society to meet the present needs without

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compromising the need of future generations (Elliott, 2012; World Commission on Environment and Development [WCED], 1987, p. 43).

More than half of the population worldwide lives in cities and UNDP (n.d. b) predicts that it will increase to more than two-third until 2050. According to Göransson (2018), Sweden has the fastest growing cities in Europe. This fact put large demand on the infrastructure expressed by the ninth goal of UNDP (n.d. a), to expand and enable this increasing urbanisation (UNDP, n.d. b). From societal strategical and infrastructural perspective, stone materials are an essential raw material. Except from water, stone material is the most used component in society and does not seem to decrease (Göransson, 2018).

Aggregates is the most frequently used stone material all over world and the need of use is increasing with five percent annually (Freedonia, 2017, cited in Göransson, 2018). The concept aggregate is in short, a collective name for stones used as a raw material, and is extracted from so called quarries (Göransson, 2018). Building- and construction industry answers to 40% of greenhouse gases emitted globally (Global Alliance for Building and Construction 2018) where stone material is included. Sweden has a climate goal to be fossil free until 2045 (Fossilfritt Sverige, n.d.), which in turn impacts the stone material industry.

1.1. Incentives and problematisation

Attention on the concept recycling has been high in recent studies within different material industries and countries. Recycling, and in turn CE has been investigated through testing new material mixes that can meet the quality of raw materials (Sohrabpour & Long, 2021; Vijayaraghavan et al., 2017). However, based on Mineral Products Association [MPA] (2022) report, it is remarkable that the amount recycled aggregates in Sweden are behind in comparison to other countries in Europe. Sweden adapts the 3R’s to an extent of about 12%

whilst that share is 26% in the Netherlands and 28% in the United Kingdom, statistics from 2020 with rounding to integers (MPA, 2022). This fact creates incentives for studying recycling in SSMI, since recycling and reusing is necessary parts for achieving CE (MacArthur, 2013).

There are barriers for adapting a circular business model as it requires extensive organisational change (Bocken & Short, 2016), technical capacity as well as innovation ability (Lehtimäki et al., 2020). Strategy is another aspect that impacts such organisational changes. For instance, companies needs to be aware of market forces (Porter, 2008) and rivals behaviour (Coyne & Horn, 2009).

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Though, according to Mintzberg and Lampel (1999) strategy is complex to study due to unpredictability. One vital aspect to not forget in order to achieve strategical success is to pay attention to customer perspective, described by Normann (2001).

Overall, the area of circular business models at the Swedish market has not been studied thoroughly, certainly not at the stone material industry. The combination of these areas is therefore another incentive for this study. Further, stone is a non-renewable material, meaning extracted rock cannot reproduce itself. Göransson (2018) though states that the asset of allowed extraction from quarries in Sweden will not be threatened before the next ice age. However, there are other incentives to encourage this industry to increase the recycling level of stone material. Extraction from quarries makes an infinite footprint on nature, by for instance the tremendous emissions. Additionally, during the extraction phase the quarry is unsightly and creates a lot of noise locally (Göransson, 2018). The transformation to increase the level of recycled stone is needed not least since there is shortage in other segments, like the current cement crisis (Byggföretagen, n.d.), where stone is a component.

From a business perspective, profit and gaining competitive advantages is of high interest. Demands from the market have a great impact when implementations generates organisational changes (Teece, 2010; Teece et al., 1997), such as adaption of a circular business model. Rosa et al. (2019) shed light towards the need of research on how to practically change business models from linear to circular. They mean that above all, there are theoretical recommendations for doing such transformation but however the practical part is missing. Together with the earlier described incentives and research gaps, a ground for this research is accomplished.

1.2. Aim

This study aims to explain how circular economy and its 3R’s can pursue sustainable development, by business model innovation.

For answering the aim, strategical and practical recommendations for such transformation in the Swedish stone material industry will be addressed. A market analysis will be performed to investigate prerequisites at the market, which in turn includes practical aspects which Rosa et al. (2019) describes as missing.

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1.3. Research questions

In order to tackle obstacles and to utilise opportunities to promote CE in the industry in best way, innovative circular changes in the business models may be needed which have resulted in the following research question:

RQ1: How can circular economy be promoted in the Swedish stone material industry by business model innovation?

The Swedish stone material industry must change, to meet the goals of (UNDP, n.d. d) as discussed. To tackle such challenges, it is of interest to search for the role of strategy and regulations on a market. On one hand, by knowing what obstacles there is, one can easier identify the root of the problem and enable improvement work. In same way, opportunities can support where to put effort for making strategically good decisions on competitiveness. Therefore, the second research question is constructed as follows.

RQ2: How are strategical prerequisites regarding the 3R’s in the Swedish stone material industry related to regulations, and in turn how does it impact sustainable development?

The research questions will be addressed by a qualitative case study to expand the research field with practical contributions in business model transformation.

Another contribution will also be increased knowledge within CE.

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2. Theoretical framework

In this chapter, relevant theory for the study will be explained and elaborated. The framework takes ground in business models along with business model innovation and circular business models. Furthermore, circular economy and sustainable development, strategy, and regulations impacting organisations is presented. Lastly, theoretical connections are summarised.

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.

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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.,

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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.

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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

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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).

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Figure 3. Linear business model combined with circular activities resulting in an interpretation of a circular business model.

2.2. Circular economy and sustainable development

Circular business model can in a deeper context belong to the field circular economy, which is a broader perspective. Characteristics of CE are minimising waste, using renewable energy resources, and to use system thinking above one- time activities, for creating economic and environmental benefits (MacArthur, 2013). In the study from Kirchherr et al. (2017), 114 definitions of CE were found and the authors concluded the concept into following summarised definition:

We defined CE within our iteratively developed coding framework as an economic system that replaces the ‘end-of-life’ concept with reducing, alternatively reusing, recycling and recovering materials in production/distribution and consumption processes. It operates at the micro level (products, companies, consumers), meso level (eco-industrial parks) and macro level (city, region, nation and beyond), with the aim to accomplish sustainable development, thus simultaneously creating environmental quality, economic prosperity and social equity, to the benefit of current and future generations. It is enabled by novel business models and responsible consumers.

(Kirchherr et al., 2017, p. 229)

There is a shift from consuming to using by adoption of the 3R’s, which create strong incentives for companies to start providing services instead of selling goods, according to MacArthur (2013). Circular economy enables wins for companies, customers, and economies. Furthermore, it is companies own choice to start operating circular, customers must change behaviours and be willing to purchase in new ways, and society at large have to set new rules and

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frameworks to drive the development of circular economy (MacArthur, 2013).

In a bigger context, Elliot (2012) describes sustainable development to include the concepts social-, environmental-, and economic sustainability. These three concepts intersects with each other and must be considered at the same time and not challenge the others (Elliott, 2012). Sustainable development affects all parts of the society and is a common challenge, whereby the 17 goals in Agenda 2030 was created (UNDP, n.d. d).

Moving on, definitions of circular economy, Kirchherr et al. (2017) definition included, have gained criticism for being too naive. Geissdoerfer et al. (2020) have been inspired by Geissdoerfer et al. (2017) and revisited the definition from Kirchherr et al. (2017). First and foremost, the criticism of the naiveness appears since Geissdoerfer et al. (2020) claims that it is impossible to achieve a completely circular system. Instead, the authors focus on minimising aspects like waste, energy leakages, and emission. This can be accomplished by for instance extending and intensifying the use of a product. Further, comments regarding the shift from disposal to end-of-life is seen as a confusing change.

The definition from Kirchherr et al. (2017) has therefore been further elaborated by Geissdoerfer et al. (2020) which additionally consists of straight forward approaches (e.g. digitalisation, servitisation and maintenance).

More hands on, MacArthur (2013) lists advice on actions for coming closer to CE. One tip is that businesses that control large parts of its supply chain can map out leakages and push others into circular setups. To catch the wave at the very beginning is another tip to design the future business landscape.

Communicate and activate the network for driving change and getting the customers onboard is also highlighted. The last proposal to achieve CE is to utilise on imbalances between markets and in turn make profit out of the opportunities (MacArthur, 2013). Furthermore, Elkington (1999) coined the mindset TBL in 1994 which consists of three P’s: profit, people, and planet and is not a concept to adapt once. Pastoors et al. (2017) describes that companies can adapt to this mindset in order to strive towards sustainable development. It is important to measure sustainable activities in order to achieve them. What aspects that are decided to be measured is also the aspects that most likely will prioritised (Pastoors et al., 2017). Therefore, it is vital for an organisation to be clear of where the areas for improvements exist.

Attitudes about sustainability has been shifted from threatening, increasing costs, towards opportunities to do good in broader terms than accounting, as Pastoors et al. (2017) describes it. Historically, the management segment

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considered sustainable activities as hampering the success and decreasing the profit and has mostly been performed to satisfy governments and non- governmental organisations. However, organisations have started to regard these different concepts as gainful also for the organisation itself (Pastoors et al., 2017). Summarising, the societal problem regarding sustainability throws everyone on board, including companies. Companies can measure and act on vital areas to contribute to sustainable development, by using the perspective of triple bottom line (Pastoors et al., 2017), which is presented in figure 4.

Nowadays companies have global and national goals to strive for and demands pushes the business area towards sustainable development (UNDP, n.d. c; n.d.

d).

Figure 4. Illustration of sustainable development with including parts and important improvement areas for organisations to start the journey.

In this study, focus will be on minimising waste and therefore take the Geissdoerfer et al. (2020) definition of circular economy into account.

Minimising waste will be grounded in the use of the 3R’s which is mentioned in both Geissdoerfer et al. (2020) and Kirchherr et al. (2017) expressions.

Explanation from directive of the European Parliament and of the Council (2008/98/EC) of recycling will be used and is referred to as reprocessed waste materials that become new materials or products. It can be used for same purpose or other purposes. An important demarcation of recycling is that it does not mean energy recovery or materials used for backfilling. The concept reuse on the other hand, directive of the European Parliament and of the Council (2008/98/EC) presents as products that is not seen as waste, which by operations can be used again for the intended purpose. This distinction between

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the two concepts is necessary to understand. The last R, namely reduce, focuses on minimising waste, energy and materials through streamlining production and consumption activities (Feng & Yan, 2007; Su et al., 2013).

2.3. Strategy

Casadesus-Masanell and Ricart (2010) connects the concept strategy, business model and tactics into a framework in order to understand dynamics in organisational field. From a managerial perspective it is of importance to have the ability to develop, corporate and define the organisations’ position and competitive advantages. These three concepts are distinguished by Casadesus- Masanell and Ricart (2010) in terms of business model expressed as an organisations logic, how it operates and how the value is being captured.

Strategy is in the same context the decision of which business model the organisation chooses to compete with in the field. Lastly, Casadesus-Masanell and Ricart (2010) describes tactics as the possible remaining choices within the acceptance of the already designed business model. Similar to these description, Teece (2010) describes strategy as the choice of the business model design. This is a more complex and fuzzy part of managerial operation than just designing the BM and Teece (2010) expresses the protection of the competitive advantages as the vital reason for taking these concepts into decision board.

There are always different prerequisites on a market that needs to be taken into consideration. In order to manage and strengthen the position, it is vital to be aware of both barriers and opportunities. The awareness creates possibilities to find potential competitive advantages in comparison to rivalry firms (Casadesus- Masanell & Ricart, 2010; Teece, 2010).

Mintzberg and Lampel (1999) describes strategy as a research field hard to analyse, study and is complicated because of unpredictability. Companies naturally strives to be unique at its market and with a successful strategy, the company develops forward creatively. Strategy is not according to Mintzberg and Lampel (1999) a new concept in research field, but it continuously evolving and integrated with both new and old perspectives. Progress in strategical management seems often follow some of the four principles that Mintzberg and Lampel (1999) identifies. Collaboration enables new strategical achievements since the parties can learn from each other. Strategy can also be shaped by competition climate since responding actions on market rivals promotes new ideas to arise. Beneficial strategies can be found by inspiration and reshaping

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old ones. Lastly, a big responsible for discovering new approaches is resting on the shoulders of the managers (Mintzberg & Lampel, 1999).

One strategic aspect is to estimate how the response from rivals in the field will be. Coyne and Horn (2009) expresses three questions: “Will the competitor react at all?”, “What options will the competitor actively consider?”, “Which option will the competitor most likely choose?”, as important questions to evaluate in order to maintain and to advance competitive advantage for firms.

There are four points to analyse whether reaction from rivals will occur at all and begins with if the rival will notice the move and if feeling of threat from the move will occur. The last two points of this analysis is the necessity of a potential response for the move and to what grade the rival organisation experiencing inertia, which creates challenges for changes (Coyne & Horn, 2009).

Competitive forces are described by Porter (2008) as important to understand and put attention on since both current and future profitability for organisations are affected of them. Porter (2008) continues and claims that profitability and strategy that are formulated in the industry is determined by the strongest competitive force in the field. There are five of these forces: threat of new entrants and substitute products or services, power of the suppliers and buyers, and rivalry among existing competitors. For instance, when new entrants enter an industry, the capacity will increase, and the market shares will be redistributed. This creates pressure and the prices are held down (Porter, 2008).

Porter (2008) continues and powerful buyers on the other hand, is also holding down the prices, can capture more value and demand higher quality at the same time. A market with powerful buyer is recognised by tough negotiation and high price sensitiveness with low margins. This decreases the profitability in the industry and the offers from the suppliers is often standardised and undifferentiated which means that the affection if a buyer change supplier are low (Porter, 2008). Also, high rivalry among competitors endanger to decrease profitability in the industry. Many competitors or when the competitors are quite equal regarding size and power, tends to create intensive rivalry at the market (Porter, 2008).

In order to increase value, Normann (2001) suggests that companies should focus on products life cycles and adopt total value co-creation from the customer’s point of view. Further, Normann (2001) highlights the importance of considering the company itself as a part of the customers business, in other words, pursue the company through the eyes of the customer. Traditional view

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on production is that an organisations’ portfolio is the customer offering.

However, changing the focus to the customers’ value creation instead, can increase the value chain of the organisation itself. Customer perspective can regulate the company’s offering which in turn shapes the product portfolio and the production for the organisation (Normann, 2001). Finally, strategy and an organisation’s business model are strongly related. Influencing factors from the market and how they impact the choice of business model are illustrated in figure 5.

Figure 5. Strategy work illustrated with market forces affecting the choice of business model.

A summary from cited authors.

2.4. Regulations impacting organisations

Public sector is according to Bozeman (1987, cited in Andrews et al., 2008) often characterised of being strictly regulated by the government. Andrews et al.

(2008) claims that because of this strict regulation, there is a responsibility and need for businesses with public sector to consider objectiveness and justice.

Procurements and purchases within the public sector are according to Konkurrensverket (n.d. c) partly financed by tax payment from citizens, therefore it is necessary to regulate fairly and to represent the majority of citizens wishes and interest. Further, Swedish Public Procurement Act aims to enable fair competition between performers and to disable bribery and corruption (Konkurrensverket, n.d. c). In Sweden, public procurement is a strictly governed process and is based on directive from European Union. Effective use of funds and promotion of free movement of products and services within the European Union are two parts that Konkurrensverket (n.d. b) highlights to consider in this law. Impartiality and no exclusion are ground principles in the law, national

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loyalty is not allowed, every actor needs to be given space to compete about the projects (Konkurrensverket, n.d. b). Andrews et al. (2008) argues that governmental regulations affect organisations strategy in the UK and since actors in Sweden cannot set requirements in procurements freely, it can be assumed to have impact on strategy for companies in Sweden as well.

Baldwin et al. (2011) describes different reasons for a country on a governmental level to regulate the market for organisations. One important ground is the economical perspective in order to avoid monopoly at a market and extreme rising prices. Further, Baldwin et al. (2011) states that regulation is of weight to promote a balance of competition by both private and public involved parties.

Additionally, in the Swedish Competition Act there are two main categories that regulate how companies at a market are allowed to act against each other. The first one prohibits cooperation that limits competition and the second prohibits companies with dominative market shares to abuse the power that comes with dominative status (Konkurrensverket, n.d. a). Agreements of prices for the reseller or limitation on geographical or customer segments are parts that is regulated in this act (Konkurrensverket, n.d. d). Adjustments regarding environmental impacts is an aspect that Baldwin et al. (2011) points out as a reason for governments to take actions about. Potoski and Prakash (2004) describes dilemma of regulations in terms of collision between private and public actors. In some situations, there are wins for both sides, but regulations might also create losses for both private and public segments. However, Andrews et al. (2008) discovers governmental regulations to mainly have positive impact on the company climate at a market. The performance of innovation and service improvement has increased in Andrews et al. (2008) research about regulations.

Despite these regulations, other policies such as Agenda 2030, have increased customer awareness and forced companies to meet this challenge. As a result, the interest in finding competitive advantages that responds to sustainable perspectives has increased (Pagell et al., 2007). Naturvårdsverket presents the different parts of the Swedish Waste Act which is based on directive from European union. Waste is defined as all objects that a performer either needs or is obligated to get rid of. Economic value, area of use or possibility for reuse has not necessarily an impact regarding if an object classifies as waste or not (Naturvårdsverket, n.d. a). Further, Naturvårdsverket has presented a hierarchy of wastes which consists of five levels: prevent waste, enable potential reuse, recycling of the material, secondary recycling such as energy combustion, place

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the material on landfill site (Naturvårdsverket, n.d. b). Regulation of waste affects the 3R’s which challenge companies to implement it. However, 3R’s is not new for organisations, but due to economic and other aspects it has previously been difficult.

2.5. Theoretical connections and conceptualisation

In the strategy chapter, it was seen that strategy and business models interrelate.

The BM expresses how a company operates, but the choice of BM is a strategy (Casadesus-Masanell & Ricart, 2010). Business models can be used to gain competitive advantages by building unique models that are difficult to copy (Zott et al., 2011). In turn, by using BMI such competitive advantages can be shaped. Analysing BM is therefore necessary which can be done by searching and identifying trends on the market (Osterwalder & Pigneur, 2010), since such demand can affect new organisational implementations (Teece, 2010; Teece et al., 1997). In such BMI work, customer perspective must through all stages be integrated, which is proposed by (Normann, 2001).

Incentives for governmental rules are for instance balancing competition as well as considering economic and environmental perspectives (Baldwin et al., 2011).

Andrews et al. (2008) and Potoski and Prakash (2004) claims that regulations have an impact on organisations and direct how companies act. Since companies mainly are driven by profit (Porter, 2008), such regulations affect companies’

choice of business model and in turn the strategy.

Today, sustainability demands are growing, which puts requirements on companies. This can be seen as a market trend that must be considered for innovating business models (Osterwalder & Pigneur, 2010), as previously mentioned. To analyse and implement sustainable activities into a BM fosters the shift to a circular or even sustainable BM. Since agenda 2030 strives to push companies today towards SD by the concept TBL (Elkington, 1999; Pastoors et al., 2017), there is value in trying to shape such updated business models. Hence, the strategy must consider sustainability aspects as drivers. From this, circular economy and in turn CBM and SBM can be intertwined with strategy work, since what is focused on is also what can be achieved (Pastoors et al., 2017).

Summing up, regulations affect organisations which in turn impacts its business models and strategies. In the bigger context, companies contribute to sustainable development in society. All this is a continuous ongoing process, which is illustrated by the big loop in figure 6. Hence, all theoretical perspectives

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interrelate and together shape the theoretical framework for this study. The relationships are illustrated in figure 6, with figure 4 and parts of figure 5 integrated.

Figure 6. Framework of connections between concepts and theories

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3. Method

This section presents research method used, as well as the methodology. The empirical context of the case company is also presented in this chapter. Furthermore, how data has been collected, handled, and analysed are described. Trustworthiness and ethics are also considered.

3.1. Research design

Qualitative research method will be used to be able to reach the aim of the study:

explaining how CE, through the 3R’s, can pursue SD by innovating business models. Qualitative methods are according to Gray (2017) preferable when there is a need for a deep and holistic understanding of a specific context.

However, social reality is often too complex to understand and can be seen as socially constructed within hermeneutics. Therefore, deep digging of information and data about the specific context are necessary for the researcher, to interpret reality in a good way. Furthermore, an inductive research approach was applied which means collected data choose direction and describe the reality to see if specific pattern emerges. Afterwards generalisability or even theories can be shaped, in the inductive process (Gray, 2017). In addition, important theoretical framework supported the data collection. The study builds upon a case study perspective which is preferable when answering “how-questions” in specific contexts according to Eisenhardt (1989). Though, the case perspective was in focus while analysing the entire market for increasing the possibility of generalisation.

3.2. Empirical context

This study was conducted on the SSMI as mentioned in the introduction chapter. It is an industry that extract stone material aimed to, for instance, act as bearing layer and for producing asphalt and concrete, to build and develop the infrastructure in society. There are several actors operating at the Swedish market and the companies that competes in all divisions concerning buildings, stone, and infrastructure are: NCC, Peab and Skanska (Marketline, 2021).

Furthermore, there are also other companies that operates within some of these fields, for instance companies that only build compete within the building sector.

Concentration was on generalisability within the Swedish stone material industry, however focus was also turn towards a case company to easier align conclusions into a specific organisational context. Business model changes is needed to transform into a CBM and recommendations for doing so it was

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presented in the context of the case company, resulting from a conducted market analysis. The focal firm is called NCC and more specifically the division Industry, which extract and sells stone material as well as provide paving services. The division consists of the departments: stone material and asphalt production. NCC Industry’s role is to provide the internal divisions Building and Infrastructure with stone and asphalt, and also other actors that want the products and services. NCC (n.d. a) is leading actor in the Nordics and had in 2021 around 13 000 employees. Challenges that NCC is facing for being able to adopt to sustainable solutions is that the solutions need to be economic defensible, hence customers must be ready to pay for eventual new sustainable offerings. Today, NCC Industry offers aggregates, sand and gravel, soil, sand, anti-slip material and recycled materials (NCC, n.d. c), see more about NCC Industry’s business in figure 7.

Figure 7. NCC Industry’s approximate, current linear business model applied into: 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.

3.2.1. Demarcations

Aggregates, demolition masses as well as excavate masses (non-homogenous excess masses from projects) were the main parts concerned. The geographical area of interest was the Swedish sone material industry. Since SSMI focuses on many different areas within stone material, demarcations are required to narrow

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down and achieve results within the timeframe for the study. Excluded areas was asphalt, soil, sand and gravel, and recycled aggregates. Asphalt was excluded because the case company already recycles it according to NCC (n.d. d).

Recycled aggregates are for instance mountain blasted for building a tunnel. It was overseen since the material must be carried away to be able to build the tunnel, and the material is already often reused, within the same or in another project. NCC (n.d. b) means that sand and gravel arise naturally and should no longer be used according to Sweden’s environmental goals since gravel ridges helps in water supply. That is the reason for why it was not considered in this study. Though, awareness should be thrown towards the recently presented business model for NCC Industry. Asphalt production is there included but, in this study, no new recommendations for becoming circular within the asphalt section (and all other demarked areas) was concluded. In other words, NCC Industry’s whole business model is presented (not only the stone segment), however, changes were presented at the focus areas in the study.

3.3. Data collection

When conducting a case study, different methods for data collection is vital according to Gray (2017). Therefore, both interviews and secondary data was collected to achieve triangulation and get reliable data.

3.3.1. Interviews

Gray (2017) describes that interviews often are used within qualitative research to grasp a picture of everyday life, in a specific context. The interviews were semi-structured since the technique create opportunities to understand the interviewees and elaborate on their answers (Gray, 2017). Further, all interviews were recorded and transcribed to facilitate the analysis work.

In total, 28 digital interviews with 31 respondents were conducted, where the first three interviews acted as pilot-tests. The goal with the first three interviews were to pivot the interview questions and themes, as well to understand if the intended research could be answered to. The interviews were done in Swedish, and quotations has been translated into English by the authors. Since this study was conducted as a market analysis from the focal firm NCC’s point of view, the sampling for the interviews aimed to reach competitors, independent actors, customers/ordering parties and internal employees. Therefore, sampling was purposefully chosen to reach these interviewees and achieve geographical and positional distribution. The distributions of interviewees can be seen in table 1.

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The main interview topics and questions can be found in Appendix A. An interview guide was also used to perform all interviews similarly and for giving all respondents the same information, see Appendix B.

Table 1. Distribution of interviewees

According to the amount of 31 respondents and the distribution (table 1), several interviews within the different groups (customers, ordering parties etc.) has been done to achieve data saturation. Arksey and Knight (1999) mean that a proper way for this type of research is to understand all relevant perspectives, and to expand the number of participants until no new viewpoint can be seen.

To accomplish distribution, the respondents’ positions varied. The interviewees roles were for instance: project manager, sustainability manager and business developer. Customer is here defined as companies that purchase stone material from NCC Industry, whereas ordering party is an actor that orders a whole project from NCC Industry’s customers. Further, independent actors are referred to as authorities, consult firms and member organisations.

3.3.2. Secondary data

The secondary data collected in this study was reports and website information from the SSMI. The aim with secondary data collection was to get deeper and broader understanding about the SSMI, and to expand the sources further from

Company Sector Respondent Date Time Company Sector Respondent Date Time Industry NCC Private 1 9/3 58:05 Ordering

party 2 Public 18 21/3 52:08

NCC

Industry Private 2 16/3 58:49 Ordering

party 2 Public 19 22/3 44:47

Industry NCC Private 3 29/3 55:51 Ordering

party 3 Public 20 22/3 41:06

Industry NCC Private 4 29/3 55:30 Ordering

party 4 Public 21 23/3 39:12

Industry NCC Private 5-6 29/3 47:23 Ordering

party 5 Private 22 28/3 45:22

Customer 1 Private 7 17/3 47:57 Competitor

1 Private 23 8/3 57:22

Customer 1 Private 8 28/3 48:14 Competitor

2 Private 24 9/3 32:59

Customer 2 Private 9 14/3 59:54 Competitor

2 Private 25 14/3 52:58

Customer 2 Private 10 22/3 50:55 Competitor

4 Private 26 31/3 51:59

Customer 2 Private 11 28/3 44:23 Competitor

4 Private 27 1/4 49:12

Customer 2 Private 12 1/4 46:37 Independent

actor 1 Private 28 7/3 59:07

Customer 3 Private 13 23/3 47:29 Independent

actor 2 Public 29 8/3 40:07

Ordering

party 1 Public 14-15 11/3 1:10:49 Independent

actor 3 Private 30 11/3 40:03

Ordering

party 1 Public 16-17 17/3 58:56 Independent

actor 4 Public 31 11/3 29:23

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interviews to achieve validation. This data could also confirm or neglect data from interviews which Gray2017) means create triangulation.

Different types of secondary data were collected, and its types can be seen in table 2. All data are publicly available, therefore no anonymisation was needed.

The collected data were two reports from Svenska Byggbranschens Utvecklingsfond (SBUF), one in collaboration with NCC and one with RISE.

These reports highlight what has been done and what is needed in the industry to become circular and discusses the quality of recycled material. Also, a report about Naturvårdsverkets government assignment has been collected to strengthen current initiatives and performances in the industry. Lastly, web page information about different services and definitions of rules was gathered.

Several more examples of initiatives in the industry have probably been done in recent years, but in this study, the data analysis will refer to the documents in table 2.

Table 2. Secondary data collected

3.4. Data analysis

The collected data must be analysed to see connections or patterns to obtain the meaning of the data (Gray, 2017). Interviews and the secondary data have been coded to find themes that have arose, by adapting thematic analysis.

3.4.1. Interviews

First of all, the 28 interviews were transcribed, read and sent out to respondents for agreement. The transcriptions were read through several times to become familiar with the data, which is proposed by Gray (2017). In total, the transcript documents amounted to 176 198 words. Thematic analysis has been used for analysing the data from interviews since it is a common way to analyse patterns

Title Document type Source Release date Document number Cirkulär hantering av

massor i bygg- och

anläggningsprojekt Report SBUF & NCC 2020 1

Kvalitet hos byggnadsmaterial i cirkulära

flöden Report SBUF & RISE 2017 2

Avfall som resurs Report – government

assignment Naturvårdsverket 2021 3

Pinpointer.se Webpage Pinpointer n.d. 4

NCC lägger ner Loop

Rocks News webpage Byggindustrin 2019-05-14 5

När avfall upphör att vara

avfall Webpage Naturvårdsverket n.d. 6

Avfall eller biprodukt Webpage Naturvårdsverket n.d. 7

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within qualitative research (Braun & Clarke, 2006). To be seen as a theme, the data must be important in terms of relating to the research question. Inductive thematic analysis has been used since the analysis was driven by data and not the theory per se (Braun & Clarke, 2006). The process used for thematic analysis in this study is as Braun and Clarke (2006) presents it: get familiar with the data, generate initial codes, search for themes, review the themes, define and name the themes and produce the report. Coding was conducted in the NVivo software from QSR International, which assist in storing, analysing, and organising data. From the thematic analysis, the emerged themes and its sub- themes are presented in table 3.

3.4.2. Secondary data

In general, qualitative data is analysed through breaking it down into smaller units (Gray, 2017). The secondary data was analysed through coding in the NVivo software and afterwards summarised into themes, using thematic analysis. In other words, the secondary data was analysed in the same way as the interviews. The resulting themes are presented in table 3.

3.4.3. Themes

Primary and secondary data was coded separately but during the thematic analysis, equal themes emerged. These are as mentioned, presented below. The whole coding process was done in three sessions to be able to create concluded themes from all collected data, see Appendix C. The coding schedule in Appendix C shows the codes for the primary data where the only codes for secondary data were economy, material, geography, and performance. These were therefore merged into the primary data’s codes with same name.

Table 3. Themes from thematic analysis on transcribed interviews

Theme Sub-theme

Economy -

Material -

Geography -

Organisational changes

Product portfolio Partnership

Planning

Regulations -

Market characteristics -

Strategy -

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3.5. Trustworthiness

In qualitative research, aspects of validity and reliability can be addressed through transferability, dependability, credibility, and confirmability (Skrtic, 1985, cited in Gray, 2017). First, dependability was achieved by a detailed context and method description which could lay ground for replicating the study. Secondly, all transcripts were sent out to respondents for member checks to ensure credibility. Third, the conduction of a market analysis help generalising conclusions and by sampling and context description, the transferability was strengthened. Lastly, by using a conventional coding method and through coding directly from transcripts, the conformability increased. Triangulation has been achieved by conducting both interviews and collection of secondary data, which in addition ensure credibility and conformability (Skrtic, 1985, cited in Gray, 2017). The translations from Swedish interviews to English quotations have been done by best possible ability to obtain the meaning of the sentences.

3.6. Ethical perspective

Ethical aspects are important in research since it considers how subjects and humans can be affected. Ethics means that the most suitable methodology cannot always be used, rather responsible research must come first. In sum, it can be said that four ethical principles must be considered. It is about avoid harming people participating in the research, to inform participant about what is intended to research, be careful and respect privacy and to not use deception (Gray, 2017).

These four principles have been respected through informing participants about the study, before participation. Participants have had the opportunity to choose whether to be a part of the study or not. Further, permission to record the interviews was asked to the involved persons and written “yes” was collected.

The transcripts were sent out to the respective respondent to have the chance to agree or disagree on their sayings. Recordings were only available for the two that conducted this study and was deleted after this study’s end. All information from respondents were anonymised, to secure participants from spoiling them or the company that they represent.

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4. Findings

In this chapter the outcome from interviews and secondary data collection will be presented.

Findings is a result from the thematic analysis. The aim with this section is to present the data for the reader so the discussion chapter becomes understandable.

Findings from the primary and secondary data collection is now to be presented.

The data are merged throughout the section and the structure is followed from the research questions. Themes is presented under each research questions.

4.1. How can circular economy be promoted in the Swedish stone material industry by business model innovation?

In general, the interviewees had a unified description regarding the definitions of the 3R’s: reuse, reduce, recycle. In the market analysis it was shown that there exists performance within all 3R’s. For instance, concrete is recycled by disassembling and crush it into fractions and use this as concrete aggregate.

Frequently mentioned reuse activities were excavated masses as filling and recycling aggregate as regular aggregate (which has been demarked from this study). Some respondents stated the tool Environmental product declaration (EPD) as an example that is used within projects and on specific stone material products, which aims to reduce the environmental impact.

Competitor, respondent 24 gives following example of performance:

We crush the concrete and sort out reinforcement and then we reuse the concrete in for instance road construction. So, it is possible, and it is happening.

Today, different services also exist that aims to increase circularity within the industry. For instance, Loop Rocks was a service that enabled efficient handling of masses between projects. It was owned by NCC, but absent investments led to decommissioning in 2019 (document 5). Another service, Pinpointer, is active today and operates in a similar way where it matches waste and masses with haulers through a big network. The services also secure environmental demands and documentation (document 4). Following, findings associated to question one is divided into its themes: economy, material, geography, and organisational changes.

4.1.1. Economy

Economy was a subject that occurred mostly as a barrier and the reasons for that was for instance expensive transports which leads to nearest quarry wins.

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