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Designing a circular business: 5 areas you need to work on
by Ben Reason and QSA Partners (Gerrard Fisher & Kristina Bull)
How can design contribute to a more sustainable future? More specifically, how can service design enable the circular economy that many people think is a vital element of that future?
Moving towards an ecological future model
Let’s explore the challenge a bit further. We need to move our businesses from current industrial forms that create waste to a more ecological future model. This is a future where materials cycle from one use to another mimicking the cycles of plants or water where waste is food for the next phase of the cycle. This idea was described by McDonaugh and Braungart in 2002 in their book Cradle to Cradle and is championed by the Ellen MacArthur Foundation.
Using the Horizon Framework to tackle the challenge
Our challenge is how to move from current models to future visions. Bill Sharpe’s Horizon Framework can help understand this challenge. Horizon 1 is our current business as usual, we expect this to decline as inevitable change occurs. Horizon 3 is the vision we have for the future, in this case one of low impact/high value circular businesses. Horizon 2 is the messy transitional space full of risks and sub-optimal solutions. We need to know how to approach this key transitional time in ways that enable us to learn and develop. How do we navigate those turbulent transitions?
This horizon 2 space is as much about the market changing as it is about changes in products and manufacturing which is often the focus of circular thinking. In simple terms, a returnable product is only as good as the rate of returns achieved with customers. This is where we need to consider and design changes to the services provided as much as to the products.
To move forward there are two key groups that have to travel through the turbulent horizon 2 landscape together: businesses and their customers. New models require businesses to risk trying new offerings and for their customers to change their habits and trust new propositions.
We have identified five key challenges that firms will face in developing and growing circular offerings. Each focuses on a key interaction between business and customers and how to optimise it for success.
Bill Sharpe’s Horizon Framework from a sustainable futures perspective.
1. Sell a compelling offer to create customer buy-in
A circular model requires a different offer to consumers and customers. It may seem as simple as rent or buy but the differences between these two are radical for customers in terms of finances, utility, and self expressive benefits.
You must identify how the new offer is better than the existing, more established options. It might not be better in all aspects but definitely must be in at least one. The benefit may only be for a specific customer group. Identify what improved value you can offer to whom and build your offer around it.
An example from the car industry
When designing for car clubs we initially focussed on the financial savings customers could achieve compared to car ownership. However, through early engagement of customers, we realised that early adopters were also attracted to the sense of being on the cutting edge of technology and urban living so we built a more compelling narrative around this benefit. As car clubs reach the majority of consumers and become commonplace, they will need to shift more towards financial and utility benefits.
2. Overcome adoption hurdles to ensure successful upscaling
Attracting customers is just the first step. They then need to transition their habits to the new offer instead of trying it once and reverting to more trusted solutions. It’s worth investing in the early stages of their experience to ensure that all issues are resolved and full value is being realised. Customers need to find the new way easy and beneficial.
Accelerating the adoption of circular services requires people to change their behaviour. Generally, people stick with or return to old habits unless the new habit is easier. Rational overrides are a type of behavioural intervention that can support people to establish new routines by creating small moments of reflection. These moments are necessary for customers to try out new things and create the follow-up that is crucial for implementing new habits.
An example from about oral care products
When designing oral care products and services for a large electronics firm who wanted to build more of a relationship with their customers, our qualitative research helped us understand how private oral care is. Providing oral care tips needed to respect people’s privacy and required a very careful design of the experience of the product service system. Ideas around circularity aim to build stronger relationships with customers. But they must also navigate the specific nuances of human behaviour and emotion to be able to engage people in new habits.
3. Optimise use to reduce your footprint and grow your business
The benefit of circularity is that you move from a sell and forget model to one where you can retain a customer relationship through many cycles. This could be the daily use of something like a shared city bike to the much more infrequent use of a power tool or a ballgown.
We will have to improve the performance of services in life. Circular models require a shift in our relationship to stuff. As we move towards subscription/lease/loan models, the meaning of ownership must shift from possession towards shared stewardship. This can lead to sub-optimal experiences and performance. It will be necessary to employ smart relationship dynamics to ensure that both customers and business get the desired benefits.
An example from the hospitality industry
The Student Hotel offers hotel and short stay accommodation throughout Europe and is rapidly expanding. Guests are offered additional services, like free bicycle sharing. As with many sharing economy models, the service suffers from less than optimal care for the bicycles. This causes impaired experience for users, annoyances in the streets and increased costs for the service provider. Livework is participating in a research project, led by universities of Eindhoven and Utrecht, to define ways to incorporate a sense of responsibility into the use of the bikes to mitigate against the “It’s not mine so I don’t care.” attitude.
4. Collaborate in networks to unlock true synergies
Circular business models require a more holistic approach to value creation. This approach may require partnerships between former competitors, parties in the lead that once may have been suppliers, and revenues shared where once they flowed to one key operator.
Circularity requires a large cast of actors to work in unison towards a shared goal. This is, to put it mildly, not how a winner-takes-all economy is used to operating. However, what may be quite disruptive for the individual players will contribute greatly to the network’s success. Embracing a shared purpose, constructing a multi faceted business model, designing a solid value network and ensuring a smooth collaboration between all nodes, will be key challenges to circular design. Where feasibility used to be about technology and manufacturing, it is now about collaboration and shared purpose.
Collaboration opportunities in the building industry
A government body in the Netherlands invited many different stakeholders to come together to openly discuss circular opportunities in the building industry. The network event led to interesting insights:
Manufacturers need governments to come with policies that help them finance reverse logistics without raising market prices too much.
Customers and end users need to be informed by market parties about the recycling and refurbishing options and how that affects their cost of ownership.
Installers need to expand their skill set to disassembly, and need expertise from manufacturers, refurbishers, and recyclers to do so.
Refurbishers can be seen as competition to manufacturers, but they need to intensively exchange information for both to be successful in circularity.
Banks need to think of financial risk in a new way, seeing market parties not as clients for loans but as partners in a venture.
Clearly partnership and shared purpose are key for the building industry to become more successful in circularity.
5. Create ends that are new beginnings to continue the relationship
Circular models require the end to be the start of something new. Most commercial relationships are skewed to the beginning with design, marketing, and service focussed on acquiring new customers. Effort will need to be reassigned to the ends to ensure that customers are able to easily return, renew, or recycle things in a way that continues the relationship.
This presents a significant challenge to circularity that will require innovative solutions. How do we shift people into behaviours that take care of things and return them at rates that ensure an effective system? Disposal is very ingrained into our consumption patterns and is also a very easy option. We will need to develop end of cycle propositions that engage people in the cycle of use. Incentives, social contracts, and mutual benefit will all come into ensuring that we transition from a linear to a circular form of consumption.
Return and repairs in luxury brands
For a leading luxury brand Livework designed the returns and repairs experience with the goal of making it as luxurious as shopping at one of their stores. Returning an item used to be an experience in a back room with suspicious minds wondering if your item was fake. The new experience was one of delight, respect and literal renewal as a repaired item would be presented as if it was a brand new purchase.
Breaking down the challenge of circularity into five areas.
There is no perfect model
We now know that there is no ‘away’ where we can dispose of our waste. We must build circular economies and businesses. Such a huge shift means that steps in the right direction will be imperfect. This can lead to hesitancy or worse, stagnation. Instead, we have to adopt an approach that is experimental, collaborative, and engages the customer on a journey. Trial and error will be required for all parties to change habits, business models, and relationships.
However hard this may sound, it has to happen if we are to achieve a sustainable future. Those who are able to rise to this challenge will be in the best place to thrive.
I am a founding partner of Livework having set-up the company in 2001. My focus on keeping Livework at the forefront of service design practice and ensuring we continue to create value for our clients.