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MIT Sloan Management Review Research Examines Circular Business Models' Benefit to Bottom Line and Increased Sustainability Measures
June 3, 2024
3 Min Read
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CAMBRIDGE, Mass. -- Roughly half of global emissions are linked to the production and consumption of goods such as food, packaging, buildings, and textiles. New research released by MIT Sloan Management Review shares how companies can adopt and implement circular business models to accelerate decarbonization by rethinking the materials and services sourced from suppliers, the distribution and use of products by customers, and what happens to products at the end of life.
The practical principles underlying circular business models can be simplified to use less, use longer, use again, use differently. "Find a Circular Strategy to Fit Your Business Model" details how these tactics can optimize the use of material resources in organizations and to reduce carbon emissions and the strain on natural systems. Circular models are critical enablers for organizations to meet their net-zero emissions and sustainability goals.
"Organizations need to change their mindset," say authors and researchers Samsurin Welch and Khaled Soufani, from the Circular Economy Centre at Cambridge Judge Business School, University of Cambridge. "Waste should not be wasted; it is a resource that has value," stated Soufani. "In a circular model, the organization should create capital from waste. Otherwise, money is literally being thrown away."
Circular models promise to enhance competitiveness by improving bottom lines through resource efficiency and boosting resilience against resource market volatility through closed-loop supply chains. Moreover, compelling circular offerings appeal to customers striving to meet their own sustainability goals.
Despite these advantages, circular businesses remain uncommon, largely due to the challenge of identifying and operationalizing suitable models that align with a firm's overall strategy and capabilities.
Drawing on their research into organizations implementing circular models, "Find a Circular Strategy to Fit Your Business Model" explains four routes to circularity and key considerations for effectively implementing them.
Extend Product Lifespan — Reuse, resale, repair, or refurbish are among the use-longer strategies that aim to maximize the usable life of products, reducing both waste and consumption of new resources.
Reclaim and Regenerate Resources — Operations choosing the use-again approach can capture value from waste materials of both technical and biological resources. Plant and animal waste can be composted to enrich soil health, and biogas can be recovered for energy production. Metals can be reused indefinitely, while plastics have limited reuse options but can be recycled.
Maximize Product Use — Companies can sell access rather than ownership; sharing, renting, and service-based approaches can replace product sales. This increases asset utilization and aligns incentives to encourage customers to use less, use longer, and use again.
Minimize Resources Use — Organizations can think broadly about how they can minimize the use of energy, materials, and water in operations.
"Companies are always building strategies and looking for models to support them. But the model already exists in a circular economy; we just have to change our mindset," concluded Soufani.
The Research
This research was based on qualitative case analyses of organizations that have implemented circular economy models. Data collection involved a mix of structured interviews with company managers, a review of company documents, and a review of in-depth case studies. The analysis identified key patterns in the successful adoption of circular models and the strategic decisions, challenges, and outcomes associated with circular economy practices.
The MIT Sloan Management Review article "Find a Circular Strategy to Fit Your Business Model" publishes at 8 a.m. ET on June 3, 2024.
About the Authors
Samsurin Welch is a research associate at the Circular Economy Centre at Cambridge Judge Business School, University of Cambridge, and a senior associate at the Cambridge Institute for Sustainability Leadership. He is also cofounder and chief operating officer at HyveGeo. Khaled Soufani is a management practice professor of financial economics and policy, director of the Circular Economy Centre, and director of the Cambridge Executive MBA Program at Cambridge Judge Business School. He is also a fellow of Clare Hall.
About MIT Sloan Management Review
MIT Sloan Management Review is an independent, research-based magazine and digital platform for business leaders published at the MIT Sloan School of Management. MIT SMR explores how leadership and management are transforming in a disruptive world. We help thoughtful leaders capture the exciting opportunities — and face down the challenges — created as technological, societal, and environmental forces reshape how organizations operate, compete, and create value.
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