Reading time: 6 minutes
Did you know that the world is 8,6% circular and The Netherlands 24,5%? According to the Circularity Gap Report, the current state of the circular economy has to be improved to meet global challenges and circular economy ambitions. In this blog we will explain how PaaS can help you build a circular business case.
Inspired by Nature
In nature there is no waste, as waste equals food which in turn is input for something else. This is a great analogy for a sustainable world, and a great inspiration for the circular economy. According to the Ellen MacArthur Foundation a circular economy is based on the principles of: designing out waste and pollution, keeping products and materials in use, and regenerating natural systems. A circular economy closes the value chain for materials and products and is ultimately powered by renewable energy.
Our current economy has been built in such a way, in which we still produce more than 90% in a linear way and throw it ‘away’ after usage. Annie Leonard said in the Story of Stuff: ‘There is no such thing as ‘away’. When we throw anything away it must go somewhere.’
With this take-make-waste model. We delve resources, use them and dump these at the end-of-use. This is not only a waste of resources but also of capital since there remains tremendous value in these products and materials.
How Product-as-a-Service (PaaS) can help break the linear paradigm and move towards Circularity
The circular economy has ‘(re)make-use-return-reuse’ as the goal, in which resources, production of waste are radically reduced. There is a systemic change in getting back resources and reusing them, again and again. Keeping the products and materials in the highest value possible at all times. In which recycling is one of the last resorts to fall back on.
To have products aligned with the incentives of the circular economy four principles have been set:
- Waste equals food
- Built resilience through diversification
- Energy out of renewables
- Apply system thinking
We will now go by each one of these points and take a look at how these principles are linked to the Product-as-a-Service business model.
Waste equals food
As explained in the introduction this is the most obvious principle. All materials should be able to be input for other products. So that in such a way resources start circulating within the current economy, where materials are used rather than consumed. This fits perfectly with the philosophy of Product-as-a-Service. In which a company remains owner of the product (and materials) and provides outcomes rather than selling products.
This is also why most often successful Product-as-a-Service (PaaS)-propositions (like Gerrard Street) have modular designs [i] in which the products are built for reassembly. This in turn makes, repair, reuse, refurbishment, remanufacturing, repurpose and finally recycling much easier to do. For Product-as-a-Service it is important to keep track of all your materials in a bill of materials or a material passport and to know what the possible use-terms are and how old every single component is.
Everything can be a resource, which can fit in either the biological or technological cycle. There are many certifications like Cradle to Cradle that can help guide internal processes to make products more suitable for circulation.
Built resilience through diversification
When waste is a resource you need to be smart in how this resource is delivered. If you are dependent on one source of resource or revenue this makes your business vulnerable. Versatility, more applicability and quick adaptivity are key here to create resilience (Pauli, 2010). Resilience means being able to face change while continuing to develop. To achieve resilience effectiveness it is essential that a good balance is struck between diversity and efficiency. [ii]
PaaS is a flexible model where you can shift with demands rather quickly because of the strong and recurring customer relationship. Resilience is especially important when components of a system react differently to change or disruption, which is often the case in the current economy.
PaaS can help build diversification to companies current portfolios and help them become more resilient and flexible, making them better equipped to handle uncertainty in future events.
Energy from renewable sources
The third principle of the circular economy is that systems should be powered by renewables (Braungart & McDonough; 2010). This is one of the most obvious ones in which the whole proposition should be powered by renewable energy sources. As long as you design a circular product, but power the production, transportation and consumption with fossil fuels, one does not really have a complete sustainable business case.
Especially for Product-as-a-Service companies should produce responsibly but also have an extended producer responsibility in which they have to take care of the product over time. PaaS providers have the chance to minimize their footprint, make energy efficient products and enable incentives for sustainable usage.
PaaS companies that want to meet the climate ambitions in the future do not only need to supply the current system with renewable energy but also decrease the current energy demand. PaaS is again such a model in which this can be done. Homie pay-per-use provides high energy-efficient machines in which the end-user is incentivized to wash only when necessary and in the lowest setting possible. Their washing machines are intended to be made with renewable energy in the future by Electrolux AB as well.
Apply system thinking
The fourth and last principle -thinking in systems- is the ability to understand how numerous components and actors influence, interact and work together with each other. This principle is crucial for all circular models (Pauli, 2010), as it helps understanding the concepts of effective stocks and flows of materials and information, the social context and relationships between them.
These underlying relationships have an effect on the systems as a whole, as one thing influences another, which creates interdependencies in complex ways.
For PaaS companies this means that a shift to this circular model can have a big effect on your total business. It will (positively) affect almost all your processes, but you will have to keep in mind that to create value for the whole system or value chain, PaaS companies need to understand their relationship with partners, their infrastructure, their current retail channels, the environment and the social context.
An understanding of system change is thus essential. Product-as-a-Service is named Product-Service Systems in academia for a reason; it has an effect on supply and demand and has deep consequences for a system as a whole. More on this can be read on one of our previous blog.
It is important to understand that a Circular Economy is guided by the natural system. This system has been functioning well for thousands of years. These principles mentioned are just a representation of the effectiveness and efficiency of the natural system on the circular economy. One needs to understand the natural system well to be able to launch a circular business model like Product-as-a-Service. Let us all work together in making this circular future a reality.
Want to know more about how Product-as-a-Service affects your business? Get in contact with us. At Firmhouse we have established an ecosystem especially for Product-as-a-Service propositions, we help orchestrate all operational processes and know what companies need to undertake for them to implement a systemic approach. With our software it has never been easier to launch the circular business model PaaS.
Enthusiastic to get started? Sent us an email at: email@example.com.
Pauli, G. A. (2010). The blue economy: 10 years, 100 innovations, 100 million jobs. Paradigm publications.
McDonough, W., & Braungart, M. (2010). Cradle to cradle: Remaking the way we make things. North point press.
[i] = What is modularity? It enables design for reassembly and helps facilitate: durability (longevity), repairability & maintainability, recyclability, sharing and upgradeability. Most often modularity requires design changes, or for new products, design considerations. This then needs to be compensated by reaping the circular economy benefits of a modular design. In other words; a higher likeliness of getting a broken device repaired, or by extending the lifetime through hardware upgrades and refurbishment. Again, keeping the product in circulation as long as possible.
[ii] = Most efficient systems have little to no connections and can operate fast, as connections make it more vulnerable and slow. However this in turn makes them more fragile and prone to shocks. More connections however will make a system a little slower but more resilient.