Circular economy innovation

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Circular economy innovation:

Untapped potential for Finnish companies

The use of our planet’s resources is exponentially increasing, while the supply of natural resources are not met. The mismatch in the development of the use of finite resources and the actual resources left poses some real global challenges, which drive companies towards sustainable development.

Blog: Riikka Poukka / Deloitte

The use of our planet’s resources is exponentially increasing, while the supply of natural resources are not met. The mismatch in the development of the use of finite resources and the actual resources left poses some real global challenges, which drive companies towards sustainable development. Could circular economy be part of the solution in order to deal with resource deficit, business profitability, and sustainable development all at once? How can circular economy enable new business models and support profit generation for companies in a sustainable manner?

Circular economy innovations are based on principles of a closed loop value chain rather than a linear system, where recycling is limited and material disposal frequent. Circular economy is an economic model, where companies develop new ways of designing products, reusing materials, and making money. Instead of discarding assets after only one product cycle, companies are developing ways to continually re-acquire and reintroduce these assets to the market. Circular economy is not only about efficient utilization of waste; it is about optimisation of value circulation and transformation of businesses. In order to achieve this, products must be designed so that its materials are separable and recyclable starting from the design of products and services. A circular economy company could therefore be one that is not selling tires for cars anymore, but instead selling driving miles for their customers. In short, circular economy mindset helps companies to renew, innovate and rethink opportunities. Many factors drive companies to innovate in the area of circular economy. Among these are costs for waste management, recovery, and materials, changing societal values, stricter legislative requirements as well as environmental benefits, and supplier security. Sitra, the Finnish Innovation Fund, has estimated that circular economy provides a growth potential of 1.5-2.5 billion EUR for the Finnish economy, while the investment opportunities of circular economy to the global markets has been evaluated to be over 800 billion EUR.

The realization of circular economy benefits requires innovation from all players along the value chain, including companies, public sector stakeholders, civil society, and universities. During the autumn of 2015, we performed a research study where we compared how international circular economy frontrunners and large Finnish companies are innovating in the area of circular economy. The research confirmed that there is untapped potential for Finnish companies to leverage on the opportunities related to circular economy business development.

In general, innovation related to circular economy seems to be focusing on companies’ processes and profit models as well as networks and products. The research demonstrated clearly that the international circular economy frontrunners – e.g. Michelin, Pepsi, Philips, Puma and Patagonia – have more different types of innovation than the Finnish companies, who traditionally focus on the improvement of process efficiency. The most successful companies have – through circular economy thinking and innovation – managed to change their business model completely in terms of what customers are paying for and how they are doing business. All businesses, Finnish ones included, have the opportunity to innovate more and in different areas. Circular economy is a current megatrend that is changing the global landscape, and we have most likely just seen the surface of how it will influence the economy as a whole.

I am confident that by utilizing the circular economy model, Finnish companies have an opportunity to take advantage of a completely new way of operating and succeeding. The Ten Types of Innovation, the innovation framework of Doblin (part of Deloitte), encapsulates the systematic and extensive nature of innovation. Innovation itself does not have an intrinsic value per se; the value is in the end-results enabled by innovation including new ways of operating, capturing new customers or new markets. I believe that these three opportunities can be realized if companies embrace circular economy through innovation.

Read more about circular economy from our leaflet (link to download on the page on the left).

Deloitte conducted a research study on circular economy during the autumn 2015 by using the methodology of the Ten Types of Innovation framework created by Monitor Deloitte. The study included an analysis and comparison of the 30 largest Finnish companies and 50 international circular economy front-runners by processing data from publicly available sources. You can get more information about the research study by contacting us at deloitte@deloitte.fi.

 

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