Circular Essentials Douwe Jan Joustra, director ICE (Implement Circular Economy)

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1 Circular Essentials Douwe Jan Joustra, director ICE (Implement Circular Economy) Circular economy is booming, though not yet too much as a booming business. Since the introduction of the concept circular economy by the Ellen MacArthur Foundation around 2010, one might say that the concept became a hype in politics, business, research and education. The why is quite clear and very relevant: create an economy that facilitates our needs and builds quality of life for nature and human culture. The economy for life might be the shortest way to say this. On the how and what I see a lot of confusion. Of course, everybody has his/her own way to describe their potential role in the circular economy, which is good as phenomena, since it is an open concept: not regulated nor the use of certification. It is a transformation on all levels, as well on technology as on processes and systems. On each level, someone (or a group of people) is responsible for the fulfilment of the next step and it needs redesign of the existing products, services and business models. Though Circular Economy is discussed in many conferences, workshops and meetings, there is a broad reluctance to direct implementation. So, let us facilitate the talking and make it start the walking! Understanding the essentials is key and I miss them very often in discussions on circular economy. CE Essential 1: provide service(s) Circular economy is about economy, more specific: changes in the economic system. These changes are aimed at a new system organization that embodies responsibilities, upgrading forms of contracting, renewal of relations with co-producers and redesign of management strategies. The impact is obvious: more continuity for the company, better use of all resources (human and materials) and growth of quality. The development of markets is nowadays based on delivery of services. Of course, the examples of Airbnb (stay at a grand diversity of locations) and Uber (transport to where ever you want) are widely known. They deliver the services and do not even own the assets (rooms, cars) that are supportive to the service. In Circular Economy, we see the same development: light as a service (pay per lux), wearing jeans (lease a jeans), pay per copy (Xerox) e.g. So, what we address as performance-based contracting is no more than finding and delivering good services! Based on a good service-level agreement! The key questions: what is the real service that you offer as a product? Which assets are needed to supply the services? How do you organize your asset management? CE Essential 2: sharing In the agricultural business, it is quite commonly accepted that investments and machinery can be shared: cooperative ownership is the practice. Not since this year but already for a century or longer. It has been professionalized, so the machines are operated by specialized personnel and the farmers pay per day for the use of man and machine.

2 On the other hand, we are all familiar with the neighbor-services where we ask for a lawnmower, drill or a supporting hand in care. No problem, everybody seems to be willing to help a neighbor in need. So, sharing is a normal thing to do. Companies do it in very few cases. In an industrial park, all companies have their own machinery, their own specialists, their own meeting rooms and sharing is not the rule of the day. In Circular Economy, this is a real option for a first step, it is low hanging fruit. Even new initiatives have been started to facilitate this development, like is the new Uber. Dare to share, share, share! The key questions: which assets of your company can be shared? Did you identify the income that might be part of the sharing? CE Essential 3: asset management Asset management is, of course, the art of management of assets of a company. Assets are the physical assets but can also imply people and information or data. Assets are needed to perform the services that are the base of the contract with your clients. Though information and people are key, we mostly speak in this context about the physical assets. These assets can be of all kinds of scale: a drill is one and an oilrig also. Asset management is key to creating the right and high value performances. Asset management and maintenance are often considered the same. In a circular perspective asset management goes a step further. The objection is to utilize the most optimum performance from the assets within acceptable risks and costs measured over its full lifetime, to provide the right services to the clients. Assets are the capital of the company and will be part of the resources that can be used for production over time and quality! The key questions: How is your asset management organized? Do you need an ISO certificate? Is your maintenance organized as service on location? CE Essential 4: energy Energy is value, and is the basic element of thinking/acting in Circular Economy. All aspects of production are based on supply of energy: mining, part-production, product development and maintenance. This is real energy, preferably based on energy from the sun (at least clean and sustainable) and labour as a specific form of energy. It is the embodied energy (or embedded energy ) that gives a product value and preserving this embedded energy is essential for guarding the value of products. For Circular business models, based on services, embodied energy analysis gives insight in what energy goes to supporting a consumer, and so all energy depreciation is assigned to the final demand of consumer. Different methodologies can be used on different scales of data to calculate energy embodied in products and services of nature and human civilization. International consensus on the appropriateness of data scales and methodologies is pending. This difficulty can give a wide range in embodied energy values for any given material. In the absence of a comprehensive global embodied energy public dynamic database, embodied energy calculations may omit important data on, for example, the rural road/highway construction and maintenance needed to move a product, human marketing, advertising, catering services, non-human services and the like. Such omissions make it difficult to calibrate the real value of products and services. Nevertheless, it is known that the preservation of embodied energy is key to circular economy.

3 The key questions: are you aware of the energy component of your products and services? How do you organize your management of embodied energy? CE Essential 5: ecology of things Coupling the concepts of smart and living systems, makes a new way of thinking about products dawning: The Ecology of Things. Design is the key to realization. In living systems all materials, all elements, all minerals are being used and re-used because they stay in the loop. That is the metabolism of life. In the Ecology of Things, we acknowledge the power of waste is food also on a higher value-level: products are feedstock for new products even before they become waste. Than it is about remanufacturing or refurbishment. It can be foreseen that products will have a materials-passport and are connected through the Internet of Things (IoT). In ecology one essential element is around everywhere: communication, interdependency and interactions between organisms. Resources become manageable even when part of a product. Insights in the need of maintenance of products becomes obvious. In the Ecology of Things, the connectedness, the interconnections (symbiosis) and the ability to track resources is becoming reality. As we say about ecology: everything is interconnected to everything. From a systems perspective, the interdependencies will appear and the grand challenge is to understand, manage and operate the Ecology of Things. The key question: create insight in the way products can be connected based on data, information, resources and design. CE Essential 6: company continuity The elementary change in the new economy is the change from a product-focus towards a focus on services and performances combined with high level maintenance. Service based contracting will be the new way to connect business to business or business to consumers. This implies long term contracts that regulate the service levels. SLA, Service Level Agreements, become the capital of the company. Working with SLA s brings continuity in temporal sense: when you need it, you get it: services in all forms. This is the essential part of the service that the company provides. These contracts will be long term oriented, the service will be performed over a range of years. That results in long term relations between the provider of the services and the users. Good for the relationship and continuity of the company. The key questions: Did you organize your client-oriented services? Do you have good Service Level Agreements to get the right contracts with your clients? CE Essential 7: the power of design Design of your products, services and business models is key to performances. It forces you to think about the way your products provide a service, can be maintained on a highperformance level, can be part of the different generations of service level agreements, will provide you materials and spare elements of your products and in the end how each product can be feedstock for new products. Service design is something that will help you to identify

4 the right way to connect to your clients over a longer period. Investment in service design is a good thing to do. Of course, the elementary step towards new business models is part of the design process. The key questions: is your product-, service and business design up to date? Are there new ways of connecting with your clients? CE Essential 8: needs and hidden needs Quality that fits to the client s needs and hidden needs, is key for circular, service based, business. Each client has a social perspective and position, he or she wants to consolidate this position or even see growth in it. Whatever the client wants in connection to its services, the provider will provide it! This implies a strong service based organization: no is not an answer, the answer is already there or the entrepreneur will create the needed answer(s). Within business sense of course. The understanding of the needs and hidden-needs of the customer is a key competence of a strong, circular based, business. For instance: does the client want to do shopping, cooking and eating as a daily routine or do they just want to have food of the right quality at the right moment? And, if you are a food-provider, do you know what quality the client really wants? Or how divers your offer should be throughout the week? Knowledge of the needs and hidden-needs of your clients is key to gain a position in the market. Hidden needs, also known as latent needs, are issues and problems that customers face but have not yet realized. When hidden needs are addressed by product or service design, customers are both surprised and delighted. Companies that are successful at identifying customers hidden needs are able to develop breakthrough products or services. Such products have unique features that excite customers because they solve issues or problems that customers face. (citation Financial Times Lexicon) The key questions: Do you really know your clients needs and hidden-needs? How can you diversify your services for individual needs? Do you have trained personnel to provide services? The KANO-model, based on the work of Dr. Noriaki Kano CE Essential 9: effective and efficient

5 Create an effective business model with effective service-product-maintenance combinations is the first step to make in your change towards a more circular business model. Effective in the use of assets, energy and labour is part of the real management of your company as every entrepreneur knows. This means also that you should take care of efficiency and optimization. Using less energy and materials to provide your services makes the business model worthwhile. But do not focus on just efficiency, that makes things work a bit better but is not always the way to gain real effective solutions. The focus on optimization means a focus on the existing. Something new might be better! The key question: did you already work on efficiency? Did you question your effectiveness? CE Essential 10: cooperative services What can be seen in circular economy is the value of cooperation. Not always you can easily provide the right services such as maintenance, installation or optimization. That where you might need local providers of supporting services or logistics. Also, services might be stronger if combined. Your market position has the potential of growing markets when combined with others. This can also be part of the whole value-chain you are part of: making it a common challenge might bring new insights, new services and new service level agreements. Do not hesitate to share the added values: be a partner that is open to sharing and you will see that competition changes towards cooperation! The key questions: did you discuss the changes in the market with your value-chain partners? Did you analyse the quality of new services when combining with other providers? Do you really dare to share? Is this part of your companies profile? Douwe Jan Joustra is managing director of ICE (Implement Circular Economy) and a wellknown speaker on circular economy in practice of companies, governments and institutes. He identifies trending topics in society connected to the development of circular policies and businesses. As a high-level consultant Joustra supports local and national governments in creating a strong, empowering, policy and supports companies in their circular business development. In the Netherlands, he is also one of the partners in development of the National Scientific Agenda on Circular Economy.