What are the areas of value in the business world?

Value-creating transformation
What are the areas of value in the business world?

The transition to circular economy requires social transformation. Social transformation, and naturally cultural transformation as well, need to be carried out in line with a common goal and road map adopted by all stakeholders that make up social structures. Social transformation is a process that has no clear boundaries and is difficult to control according to the diversity in the reactions of individuals, but today it can be carried out more easily than in the past, especially with new media tools.

It is possible to see that circular economy is inevitably at the centre of social transformation thanks to its innovative and borderless structure. However, the road maps, duties and responsibilities of the stakeholders that make up the society are not as uncertain as in cultural transformation. In particular, the transformation processes of the business world and governments involve clear targets, regulations and specific roadmaps, which have been very much on the agenda recently.

This week, we discuss the steps that will create value in the transition process of the business world to circular economy, the points to be considered and the action areas that will accelerate the transition process. 'The Role of Business in Moving from Linear to Circular Economies' report prepared by the United Nations Environment Programme (UNEP) will accompany us in our discussion.

Is value-creating transformation possible?

The transformation of the business world, which started within the fight against the climate crisis and then took a broader framework by including social issues, unfortunately does not carry out the transition to circular economy as it should.

Circular economy, which is misunderstood as merely innovative waste management strategies, is of course far from realising the potential that exists within the concept. However, there are still steps that need to be taken to ensure a transformation that creates value for private sector representatives who are trying to carry out the transition to circular economy in accordance with its principles.

Search for new markets

With concepts such as R-strategies, biomimicry and cradle-to-cradle, circular economy is a concept that aims to completely change the existing ways of doing business and existing systems. This actually allows the private sector to create new business areas while changing existing business models.

The first step that companies should pay attention to while carrying out the transition to circular economy can be seen as entering innovative economies and markets by updating their existing business models with circular economy principles. In the current linear economy, manufacturers give ownership of their products to their customers after producing them, while the circular economy suggests the opposite.

Take a car manufacturer as an example. After the car is produced, it goes to the consumer, and after the consumer's use expires, the car is reintroduced to the market through second-hand sales. Although second-hand, in other words reuse, is critical in circular economy, it is only the first step in the process. Although it may seem like the right strategy to change owners many times, the value of the car decreases day by day until it finally becomes unusable, and when it does, it takes its place in the junkyard.

Circular economy aims to change this situation for manufacturers and keep the ownership of cars in the manufacturer. This allows the car to be renewed after each use, maintenance & repair practices to be carried out and the value of all the resources that make up the car to be preserved for a long time. Instead of making money by selling the product, manufacturers can enter new markets by renting the product permanently and continue economic growth with different revenue models.

Cost reduction

R-strategies in circular economy include steps such as less consumption, reuse, maintenance & repair, remanufacture and recycling. This is actually a strategic cycle that ensures that resources remain in the cycle continuously. Thanks to this cycle, producers can reduce the use of raw materials by incorporating the product they produce once into their production processes after use, while reducing their purchasing costs by purchasing a used resource at a more favourable price.

Risks of access to resources

The linear economy, which has been included in all our lives with the acceleration of industrialisation, supports production and consumption as if the resources on earth will never end. This is the main reason for the global shortages in access to many different materials and resources today. In addition, many studies show that in the coming years, there will be difficulties in accessing many different resources that we use in every aspect of our lives.

Circular economy is basically a strategy that ensures the correct use of resources instead of a waste management strategy. In other words, a system that will utilise resources in the right way must first be designed so that we can then manage waste in the right way. Thanks to this perspective, the faster and more accurately the private sector adopts circular economy principles, the easier it can avoid the risks of access to resources in the coming years.

Putting innovation at the centre

The sustainability of the business world involves the design of current processes in a way that will ensure the use of sufficient resources for future generations. Unfortunately, this reduces the concept of 'sustainability', which is widely used by the private sector, to continuing linear economy.

Circular economy is a concept that centres on changing existing systems from top to bottom. In order to change all systems, innovation should of course be at the centre of our ways of thinking. In other words, it is not necessary to 'improve' existing ways of doing business, but to design them in an innovative way from top to bottom. Innovation has an extremely important place in the circular economy, not only in finding new environmentally friendly business models, but also in innovative ideas that will increase the welfare of society, change daily life, and at the same time provide economic growth.

Acquisition of new skills

As circular economy is a concept that aims to change all mindsets, ways of doing business and even the education system, it has a lot of potential for new talent and employment.

For this reason, the private sector needs to develop or incorporate talents in many different areas, from innovative business models to circular economy principles. Employees with a linear economy mindset are unlikely to be able to truly implement the principles of circular economy.

Customer value

By taking product ownership away from consumers, circular economy actually enables new areas of value to be created for them. While the consumer who owns a product has the responsibility to maximise the value of that product for the longest time, they may not have the technical competences required for this.

In order to maximise the value of resources by extending the life cycles of products, manufacturers offering services such as maintenance & repair, and remanufacturing to their customers can offer innovative value propositions for them. This is likely to increase customer loyalty and satisfaction.

Societal expectations

One of the most critical areas for the private sector is customer expectations. The reshaping of customers' purchasing decisions based on issues such as climate crisis, loss of biodiversity, and gender equality makes it imperative for producers to move in this direction.

Thanks to business models designed with circular economy principles, it is possible to create environmental and economic benefits while meeting the demands of the consumers. In this way, the private sector, which contributes to the transformation of society, can guarantee economic growth while diverting to less consumption from more consumption.

🔎 Circular Economy 101's take: Of course, these shared value areas do not actually cover all the steps that need to be addressed for the transformation of the private sector. However, all these topics we have opened up for discussion are critical for a holistic transformation and the correct realisation of circular economy.

If the private sector adopts an understanding that centres these value areas in the transition to circular economy, it can be the biggest supporter of social transformation. The critical point to be considered here is to transform the 'profit-oriented' perspective of the private sector in the right way and to explain the financial return of circular economy in addition to its environmental and social impact. Although the design of a global circular economy system is a long and challenging journey, each stakeholder needs to understand circular economy correctly and fulfil their part.

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Value-creating transformation

🏢 What are the areas of value in the business world?

20 Eki 2022