The move to the so-called circular economy has been a very slow go. Can it be accelerated?
Yes, say Shirley Lu and George Serafeim, both of the Harvard Business School, in a recent article in the Harvard Business Review on-line.
A circular economy is in contrast to the traditional linear economy, which is characterized by the extraction, production, consumption, and disposal of materials.
This is a problem, say Su and Serafeim, “given that we live on a planet with finite resources.”
Yet the shift to a circular economy, in which businesses recover or recycle resources used in their value chain, has remained elusive, the authors add, despite offering trillions of dollars in potential value creation.
This is due to a variety of factors, including, Su and Serafeim say: : the low residual value of used products today; an inability to collect materials; prohibitive costs of separating and processing materials; and a lack of traceability of products and materials that are being recycled.
So how can this dynamic be changed?
One promising area, the authors say, involves product utilization, or extending the useful life of a product. This can be achieved through sharing economic platforms, product refurbishment programs, or enhancing product duration.
One tactic being used, the authors say, involves over-the-air software updates that increase the residual value of a product and extends its life.
Apple’s approach to the iPhone is cited as an example, noting the forward compatibility of the iOS operating system, which ensures a user can access the app ecosystem and all the new features that Apple releases, “maintaining iPhones’ appeal as a high-quality product in the secondhand market,” Su and Serafein say.
However, some companies may think such a strategy should be avoided, because it will decrease sales of new products. The smarter play, they might say, is for a strategy of planned obsolescence.
Instead, Su and Serafeim say, companies should look at benefits from this strategy to “for reaching new consumers, enhancing customer satisfaction, and building business models that monetize their efforts to create more durable products through services.”
Another promising area for more circular thinking is the adopting a product-as-a-service model. Rather than throwing a product away when it is no longer of use to a given consumer or business, it is returned to the selling company, which may be able to re-rent it, extending its life, or harvest its materials for re-use.
Another opportunity, Su and Serafeim say, is in great material efficiency, or making products with fewer materials. This is hardly a new idea. However, they say, a combination of artificial intelligence and new technology is opening new opportunities for the concept.
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 For example, an apparel company called SXD Zero Waste uses artificial intelligence to redesign garment mockups that generate less pre-consumer waste from offcuts during apparel production. The result is impressive - manufacturing of apparel items with almost no waste in fabric compared to 10–30% waste for traditional approaches, resulting in this case 55% lower cost per item.
Increasing the level of recycled materials also presents opportunities. Apple, for example, uses about 20% recycled materials.
But there are challenges. Those include low availability of recycled materials, and recycled materials that are often more expensive than their virgin counterparts.
As a result, “Technological enhancements to increase the availability of high-quality recycled materials and reduce costs are therefore huge opportunities, the authors note.
A major opportunity in this arena they say, is scaling up material recovery, which should make recycled material more available and affordable.
What is needed to get there is larger upstream feedstocks, and technology to sort and process the waste to be used downstream - and more downstream takers. Greater volumes of demand would allow greater use of automation, driving down costs.
High volumes for Apple products allowed the company to create Daisy, a robot that can breakdown an iPhone into reusable components in just 18 seconds, including gathering rare minerals such as cobalt, gold, and platinum.
However, Su and Serafeim say, “Opaque supply chains represent significant barriers to understanding the breakdown of materials at end-of-life for recovery and sorting.”
A company addressing this is Proctor & Gamble with its HolyGrail project that uses digital watermarks in products to make the sorting of recyclables easier at the end of life.
There is a trillion dollar opportunity for investors, Su and Serafein state, but most are leery due to the slow progress to date.
They quote on financier as saying that what is needed is the “emergence of multi-sector, sustainability-focused funds that bridge the gap between traditional venture capital and private equity.
Seems to us a circular economy is a long way off.
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