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Circular Business model innovation in industrial ecosystem: Opportunities, challenges and lesson learned

Vinit ParidaChaired Professor of Entrepreneurship and InnovationLuleå University of Technology

250~ Academic Publicat ions

30~ Industry Publicat ions News and blogs Policy contribut ions

Vinit Parida, Professor

• Digita liza tion and art ific ia l intelligence as enable rs for innovation

• Bus ines s model innovation• Circula r economy and sus ta inable product s e rvice-

s ys tem• Servit iza tion and advanced s e rvice innovation• Indus tria l ecos ys tems development and evolution

What is a circular business model?

CBM Characterist icsCBM Definit ion

“A circular business model is a business model in which a focal company, together with partners, uses innovation to create, capture, and deliver value to improve resource efficiency by extending the lifespan of products and parts, thereby realizing

environmental, social and economic benefit s”

• Combining physical products with services to offer a “funct ion on solut ion” to the customer

• Circular business models require ecosystem orchest rat ion that increases the possibilities of sharing, repair, upgrade, recycling, etc.

• No business model is perfectly circular. It is more correct to talk about circularness.

Parida, V., Burström, T., Visnjic, I. & Wincent, J. (2019) Orchestrating industrial ecosystem in circular economy: A two-stage transformation model for large manufacturing companies. Journal of Business Research. 101, 715-725Frishammar, J. & Parida, V. (2019). Circular Business Model Transformation: A Roadmap for Incumbent Firms. California Management Review. 61(2), 5-29.

Different types of circular business models

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Regenerate

Share

OptimizeLoop

Virtualize

Exchange

Circular Business

Model Types

• New technology exchnage • Energy Recovery• Circular Supplies• Efficient Building

• Dematerialized services• Maintainance and Repair• PSS: Product Lease• PSS: Availability Based• PSS: Performance Based• Sharing Platforms

• Remanufacture• Recycle• Circular Supplies

• Waste Reduction• Produce on demand• Activity outsourcing

Two central biases towards circular business model implementation

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Fallacy of the wrong level1

2 Endowment effect

‘The tendency to think of a circular business model a s compa ny-centric when in reality it operates across organizations and isecos ys tem-centric’

‘Tendency for companies to overvalue their own internal resources,capabilities, needs, and wants — and underplay those of theirecosystem partners’

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Four major challenges and their solutions

Challenge 1: Align incentives and motivesamong ecosystem partners

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Ensure well-designed alignment structure based on joint agreements (negotiationand nurturing)1

Solut ions:

Different companies want different motives and goals,and when they should work together to develop anddeliver a common circular business model, they mustreach consensus on:• Who should take which role and responsibility?• How design a fair compensation and incentives sharing

between ecosystem partners?

Involve ecosystem partners in business model design and development phase2

Challenge 2: Look beyond existing ecosystemrelationships

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Solut ions:

It's easy to get caught-up in industry traditions and existing value-chain relationships. Circular business models often require access to new collaborations with unfamiliar partners to realize goals related to upgrading, maintenance, reuse, recycling, etc.

Create an explicit value proposition and build an appropriate ecosystem around it1

Go beyond existing relationships and search for partners with new resources andcapabilities (e.g. innovation and technology start-ups)2

Challenge 3: Involve customers deeply

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Solut ions:

A circular business model requires a shift from transaction to relationship, from product sales to advanced service contracts. Both suppliers (e.g. technology push) and customers (e.g. lock-in effect) often have major problems with this shift in “business logic”.

Creating a “joint sphere” for solution co-creation between supplier, customers andecosystem partners1

Applying agile and iterative development cycles (e.g. micro services) for building trustand developing customized solution2

Challenge 4: Plan for extended implementation

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Solut ions:

A circular business model often has a strong advanced service focus (user-oriented or results-oriented services). These service contracts often extend over multiple years and calls for developing new delivery routines, technical support structure, customer training, and managing unplanned shocks/events, etc.

Jointly defined key performance indicators (KPIs) for implementation phase1

A multi-level (operational, tactical and strategic) delivery structure to promoteflexibility and adaptability2

What should you consider when int roducing CBM to your organizat ion?

Keytake aways

Assess diverse circular business model opportunities and value propositions

Ensure role and incentive alignment among ecosystem actors

Apply agile development approach to drive innovation

Leverage on ecosystem partnerships with existing and new partners

Key references

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1. Frishammar, J., &Parida, V. (2021). The four fatal mistakes holding back circular business models. MITSlone Management Review, 62(3), 68-72.2. Parida, V., Burström, T., Visnjic, I. & Wincent, J. (2019) Orchestrating industrial ecosystem in circular economy: A two-stage transformation model for large

manufacturing companies. Journal of Business Research. 101, 715-7253. Parida, V., Sjödin, D. & Reim, W. (2019) Reviewing Literature on Digitalization, Business Model Innovation, and Sustainable Industry: Past Achievements and Future

Promises. Sustainability, 11(391).4. Frishammar, J. & Parida, V. (2019). Circular Business Model Transformation: A Roadmap for Incumbent Firms. California Management Review. 61(2), 5-29. 5. Kamalaldin, A., Sjödin, D., Hullova, D., & Parida, V. (2021). Configuring ecosystem strategies for digitally enabled process innovation: A framework for equipment

suppliers in the process industries. Technovation. 6. Jovanovic, M., Sjödin, D., and Parida, V. (2021) Co-evolution of platform architecture, platform services, and platform governance: Expanding the platform value of

industrial digital platforms, Technovation, In press,7. Burström, T., Parida, V., Lahti, T., &Wincent, J. (2021). AI-enabled business-model innovation and transformation in industria l ecosystems: Aframework, model and

outline for further research. Journal of Business Research, 127, 85-95.8. Linde, L., Sjödin, D., Parida, V. and Wincent, J. (2021) Dynamic capabilities for ecosystem orchestration: A capability-based framework for smart city innovation

initiatives, Technological forecasting and social change, 166, 120614.9. Haefner, N., Wincent, J., Parida, V., & Gassmann, O. (2021). Artificial intelligence and innovation management: A review, framework, and research

agenda. Technological Forecasting and Social Change, 162, 120392.10. Palmié, M., Boehm, J., Lekkas, C. K., Parida, V., Wincent, J., & Gassmann, O. (2021). Circular business model implementation: Design choices, orchestration strategies,

and transition pathways for resource-sharing solutions. Journal of Cleaner Production, 280(2), 124399.11. Lahti, T., Wincent, J., &Parida, V. (2018). ADefinition and Theoretical Review of the Circular Economy, Value Creation, and Sustainable Business Models: Where Are We

Now and Where Should Research Move in the Future?. Sustainability, 10(8), 2799.12. Reim, W., Parida, V., & Sjödin, D. R. (2019). Circular Business Models for the Bio-Economy: A Review and New Directions for Future Research. Sustainability, 11(9), 2558.

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Thanks for your attention!Time for questions and reflections…

Contact: vinit.parida@ltu.se or LinkedIn

Special thanks to Vinnova, PiiA, Formas , and EU commission for research funding!

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