Ingvild Reine Assmann

May 13, 2024

Eight core themes that influence your company’s circular business model transition

If the benefits of circular business models are so clear, what is stopping companies from adopting them? In this article, we explore eight core themes that encompass both the key barriers and drivers to adopting circular business models.

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The necessity to move to a circular economy is more evident than ever, but the global transition is declining. To develop a functioning setup for a successful circular business model, companies must advance their situational understanding of the specific drivers and barriers that affect their transition.
Companies need to switch to circular business models to make it a success. Those who have already adopted circular business models report significant benefits, including cost reductions, more resilient supply chains, market differentiation, and increased reporting accuracy. Yet, the adoption of circular business models in practice is lagging.
So, what is stopping companies from adopting circular business models if the benefits are so clear? And which drivers can companies use to advance the adoption?
To answer these questions, this article provides an overview of eight core themes that encompass the barriers and drivers related to circular business model adoption. Companies can use this overview to map the drivers and barriers they are most affected by, and develop strategies to tackle these obstacles and capitalise on the opportunities.
This research was developed through a Ramboll PhD project collaboration. Published in the academic journal, “Business Strategy and the Environment”, it was co-authored by Ingvild Reine Assmann (Senior Sustainability Specialist at Ramboll), Francesco Rosati (Associate Professor at DTU Entrepreneurship), and Sandra Morioka (Lecturer at Universidade Federal da Paraíba).

Defining the eight core themes

Circular business models make a fundamental change to how the company makes money by moving from the typical linear model to a circular model. Circular business models are defined as how an organisation creates, delivers, and captures value by slowing, closing, narrowing, or regenerating resource loops1.
To create this overview of drivers and barriers, a systematic literature review was undertaken of all the articles ever published in peer reviewed journals that focused on drivers and barriers to circular business models. These articles were screened, and 966 individual drivers and barriers to circular business model adoption were gathered. These 966 drivers and barriers were then grouped down into 54 topics and subsequently classified into eight themes: culture, regulation, market, strategy, business case, collaboration, operations, and knowledge.
The figure below shows these 54 topics within the eight themes. The eight themes are ranged dependent on how the theme affects the company: from the most external factor, culture, to the most internal factor, knowledge.
1(Cetin et al., 2021)
Eight core themes that influence your company’s circular business model transition
Drivers and barriers to adopt circular business models belong to eight distinct categories: Culture, Regulation, Market, Strategy, Business case, Collaboration, Operations, and Knowledge (Assmann, Rosati & Morioka, 2023).

Eight themes that include both barriers and drivers to circular business model adoption

1. Culture
The adoption of circular business models by companies is heavily influenced by cultural factors. Societal culture, driven by changing public opinion and pressure on matters such as circular economy, strongly urges businesses to make change. Industry culture also plays a vital role, particularly if the industry lacks circular economy awareness and understanding.
Most industries and societies still operate with a primarily linear mindset, making the adoption of circular business models difficult. Cultural factors, including trust and compatibility issues between supply chain partners, can also hinder the transition.
Changes in customer and client attitudes and behaviour, as well as the willingness of employees and managers to engage in circular practices, also affect a company’s readiness to transition. This means that education and knowledge play key roles in strengthening public awareness of the potential of circular solutions, in turn leading to an increase in the adoption of circular business models.
2. Regulation
Regulatory barriers can be a major hindrance for companies wanting to adopt circular business models. In particular, the lack of defined targets and circularity-oriented frameworks coupled with unproductive policies and complex regulations hinder companies from adoption.
Lobbying groups for circular economy can play an important role in regulatory change. On the other hand, regulatory drivers can significantly push companies toward circular business models, showing how crucial its prioritisation is for governments. The fact that regulation plays a dual role both as a barrier and driver clearly suggests that initiating change at governmental and policy levels could help increase the adoption of circular business models.
3. Market
Currently, the market demand for circular solutions is increasing across industries, driving companies towards circular business models to keep up with market demand. This could be achieved, for example, by attempting to create a consumer market and build loyalty in new consumer segments.
As demand grows, so too does competition. But for those who adopt circular practices, there is less uncertainty, making it easier to compete. Embracing circular business models can help companies stand out as leaders in the circular transition.
4. Strategy
A company’s strategy, and in particular its focus on circular economy and circular value creation, determines if it can productively use circular practices in its business model. Although adopting a circular business model can position company as a leader in circular economy, there is a risk of cannibalisation of its own market share – i.e. that it might compete with its own existing products, resulting in reduced sales. Using novel performance indicator that measure overall organizational success on balanced ecological, social, and financial performance can help overcome this and assist in driving the adoption of circular business models.
5. Business case
A major barrier to the adoption of circular business models is the lack of access to financial resources and supporting financing models. Circular business model adoption requires significant up-front investments, continuous management, and operation planning processes, so having financial support from external parties and top management is crucial.
Although circular business models can prove costly to implement, companies are still reporting them as an opportunity to gain profitability and economic benefit for the company and society, such as job creation and boosting local economy. Perhaps one of the reasons adoption rates remain slow is because the business case and economic benefits remain difficult to envision. To strengthen the business case, access to financial resources can be increased through collaborative practices such as public–private partnerships, impact investing, and crowdfunding. The initial high investment costs can be reduced by sharing assets and resources within the value chain.
6. Collaboration.
To establish effective circular business models, all players within the supply chain need to work together, so open communication is key. Companies opting for collaboration might potentially face challenges, in particular when it comes to competition. To be successful, they will need to combine their resources and competences rather than competing. To deal with the complexity, companies must develop trust and aligned incentives. This way, stakeholders to collaborate constructively, sharing knowledge, resources, and risks.
7. Operations
When a company adopts a circular business model, it can increase complexity throughout the supply chain. However, the switch can also improve logistics, which can prove a to be a strong adoption incentive for companies. Some companies report that a lack of organizational resources, from expertise to facilities, e.g., human resources, knowledge, and facilities) obstructs their transfer to a circular business model. So, it is vital for companies to understand the tangible and intangible resources needed to make the change.
8. Knowledge
Knowledge is a crucial determining factor in the adoption of circular business models. There is a particularly strong need for training in skills associated with circular economy, as well as know-how in the execution of circular activities and practices such as how to repair and remanufacture products after sale. In some cases, there is also a lack of technology to facilitate recycling, optimisation, or remanufacturing. In essence, the general lack of understanding of circular economy and its strategic and operational implications is an ongoing issue that continues to slow down the transition toward circular business models.
Moving forward
Throughout this overview, we explore eight core themes and the factors within each that either help or hinder companies in adopting circular business models.
To increase adoption, companies must understand the specific drivers and barriers that affect them and develop strategies to create a successful circular business model, in turn assisting the global transition toward a circular economy.
We recommend companies wishing to adopt circular business models to:
  1. Use this overview to map out and critically analyse which drivers and barriers that influence their adoption journey.
  2. Focus on addressing the factors within their control, such as internal challenges that can be influenced or worked through rather than external ones like regulatory demands or market uncertainties.
  3. Develop strategies and tactics aimed to tackle the specific drivers and barriers, resulting in a highly targeted approach.
If your company is interested in adopting circular business models, read the full article developed by Assmann, Rosati & Morioka (2023) here.
Assmann, I. R., Rosati, F., & Morioka, S. N. (2023). Determinants of circular business model adoption—A systematic literature review. Business Strategy and the Environment,1–21.
Circle Economy. (2023). The Circularity Gap Report.
Çetin, S., De Wolf, C., & Bocken, N. (2021). Circular digital built environment: An emerging framework. Sustainability (Switzerland), 13 (11), 6348.

Companies must understand the specific drivers and barriers that affect them and develop strategies to create a successful circular business model, in turn assisting the global transition toward a circular economy.

Ingvild Reine Assmann
Senior Sustainability Specialist at Ramboll

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