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PA OPINION

Thinking differently to embrace the circular economy

The Ellen MacArthur Foundation estimates that adopting circular economy principles could unlock €1.8 trillion of value for Europe’s economy by 2030. Achieving this will require transformational change on a massive scale and at pace. But with a shift in mindset, this is possible.

The Circular Economy decouples economic activity from the consumption of finite resources, instead seeking to re-use resources in an infinite loop. In macro-economic terms, a circular model improves economic productivity through better resource efficiency and can ensure a greater reliability of supply, reducing dependency on volatile commodity prices.

But organisations find it hard to move away from the linear model that’s delivered sustained growth for so long. Despite some pioneering organisations moving towards a circular model, most continue to operate as they always have. The reasons for this are varied; challenges associated with new business models and technologies, little awareness of the opportunities, difficulty in valuing them… The most limiting of all may be the Einstellung effect – our predisposition to solve problems using our preferred method.

The Einstellung effect: doing what we’ve always done limits transformational change

We strengthen the neural pathways in our brain when we repeat the same tasks. As such, we often feel it’s most efficient to solve problems by repeatedly using the solution we know. The trouble is, that’s not always the best solution and we can sometimes feel like a problem is insurmountable. This Einstellung effect means that, for centuries, organisations have iterated the linear economy, driving greater efficiency but rarely fundamentally changing how they operate.

How to overcome the Einstellung effect and embrace the Circular Economy

Organisations can change their attitudes to operate differently by focusing on four things:

1. Think beyond incremental change – reimagine your approach

When developing a new product, organisations operating linearly predominantly focus on profit. In fact, there’s a commercial incentive to design for obsolescence to drive future sales. The confirmation bias generated by the continued success of this approach often leads to a simple iteration of the same process, delivering only incremental change. This isn’t enough to mitigate dependence on depleting finite resources.

The UNGC’s Project Breakthrough (which we’re a partner to) developed The Breakthrough Pitch to help leaders build and present the case for change. It highlights organisations that have unlocked the benefits of drastically changing their approach, such as Levi Strauss & Co. The clothing brand found that a single pair of their jeans uses around 3,000 litres of water during their full lifecycle. By rethinking their approach, the company reduced water usage in denim finishing, a highly water intensive process, by 96 per cent. They’ve also introduced new revenue streams – such as repair and recycling – that prolong the life of products and reduce raw material demand. Such examples prove that a change of approach can deliver significant environmental benefits without negatively impacting the bottom line.

Reimagining your approach should start with a vision, unconstrained by how it will be delivered. Only with this open-minded approach can change really be transformational, building the businesses we need for the future.

2. Challenge your assumptions

Organisations base many decisions on the success criteria of today. But COVID-19 is an important reminder that what we know today may not be what we experience tomorrow. The crisis forced organisations to put aside the assumption that conventional workplaces are best for productivity as the way we work transformed overnight. While it’s rare for external factors to force such dramatic change on organisations, the pandemic proves assumptions based on the past aren’t always fool proof.

By challenging the traditional model of selling furniture in one bulky piece, at high expense to the consumer, IKEA has achieved great success. Flat pack furniture makes shipping much more efficient, reducing prices and opening the market to a wider audience. And now they’re rethinking their business model again, trialling furniture as a service to work towards their goal of becoming a fully circular business by 2030. Customers will be able to rent furniture that IKEA then refurbishes on return for future rental or sale, substantially increasing product lifetime.

Reframing assumptions into questions is an effective way to challenge them. By changing ‘hotels need rooms’ into ‘do hotels need rooms’, Airbnb has grown into a $31bn firm within 12 years, with more listings than the top five hotel brands combined.

3. Use limitations as a framework for innovation

For decades, organisations have seen sustainability largely as a tick-box exercise. While it’s increasingly recognised as integral to strategy, translating targets into reality can still be challenging.

Some organisations exploring change have concerns that their infrastructure or target market won’t be able to facilitate a circular product. Design that Matters, a not-for-profit that’s finding ingenious solutions to improve quality of life in the developing world, overcame this by understanding the resources available to the target market and adapting products accordingly. Recognising that the cost of replacing parts in donated incubators was prohibitive, they identified materials that were readily available – car parts – and developed an incubator using these and local skills.

Stuffstr, a start-up we’ve been working with, is another great example. Aiming to reduce the volume of clothing destined for landfill, they developed a reverse supply chain powered by a mobile API that lets brands buy back clothing from their customers. With consumers demanding convenience, Stuffstr developed a win-win solution rewarding them for trading clothes in. Returned items are cleaned, repaired and resold.

Innovative solutions arise when you focus on the opportunity and not the constraints surrounding it. Organisations should recognise limitations but not be hobbled by them, instead investing energy in finding ingenious ways to deliver benefits.

4. Embrace diversity and encourage cross-organisational collaboration

A static, siloed organisational structure can create an environment with limited change and restricted strategy diversification. In our experience, innovation thrives in environments where diverse sets of experiences, backgrounds and perspectives come together, both within and across organisations.

Project Trado is a diverse group of corporates, banks and tech start-ups working together to test whether blockchain can reward sustainability in supply chains. Tea farmers in Malawi provide data on social and ecological factors and in exchange, buyers pay suppliers sooner, lowering interest rates. The savings go into sustainability projects, all while maintaining the price to the consumer. The diversity of the organisations involved is crucial to ensure benefit to all stakeholders – Project Trado is unlocking a solution that’s far greater than the sum of its parts.

Partnerships can be a great way to diversify. At the core of any collaboration should be two things; a mutual goal and equal respect for everyone. These two ingredients will help ensure a healthy level of disagreement and challenge that will ultimately achieve a better outcome.

The Circular Economy holds many opportunities for those who embrace it

Forward-thinking organisations like Renault are already reaping the benefits of adopting Circular Economy principles, generating €500 million a year by remanufacturing old car parts.

The transition from a linear to a circular model must happen to mitigate a climate crisis. Organisations that embrace the Circular Economy will become less exposed to volatility of supply, have more certain operating terms, reduce their environmental impact and increase consumer demand for their products and services.

By reimagining your approach, challenging your assumptions, using limitations as a framework for innovation and embracing diversity, every organisation can overcome the Einstellung effect and seize the opportunities of the Circular Economy.

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