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Creating value from customer-centric circular business models - circularplaybook.fi EREK June 2019 Metropol, Helsinki Jyri Arponen, Senior Lead, Sitra
Creating value from customer-centric circular business models - circularplaybook.fi
EREK June 2019 Metropol, Helsinki
Jyri Arponen, Senior Lead, Sitra
Challenge and Demand of 10 Billion
Three drivers underpin the shift towards circular
Circular
TechnologyEnables new
solutions
Customer-centricityDelivers customer outcomes
SustainabilityImprovesresource
utilisation
Right purpose
Right efficiency
Rightdelivery
Source: Accenture
With the Circular Economy Playbook and tools
you achieve circular advantage and measurable
business cases www.circularplaybook.fi
Value case tool
Business model development toolkit
Capability maturity assessment
Technology maturity assessment
Roadmap development
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The playbook consists of 6 chapters with circular economy concepts, best practices and tools to guide your business to identify and define your circular economy opportunity and develop a plan to realize circular advantage
1. Why circular economy?
2. What opportunities exist?
3. Which capabilities are required?
4. Which technologies can support?
5. How to design the transformation
journey?
6. Industry deep dives
Business model canvas
1 Additional tools available in the playbook @SitraFund @jyri_Arponen www.circularplaybook.fi
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Circular economy is about turning inefficiencies in linear
value chains into business value
Source: Accenture, Appendix 2 for more details
5. UNEXPLOITED CUSTOMER ENGAGEMENTS
Sales organisation focus on selling functionality of product rather than the customer problem
– for example, missing opportunities to engage customers throughout the product life-cycle to offer additional services and add-on sales
1. UNSUSTAINABLE MATERIALS
Material and energy that cannot be continually regenerated
– for example, direct and indirect materials are not renewable or bio-based
2. UNDERUTILISED CAPACITIES
Underutilised or unused products and assets
– for example, products are not operating full hours or full functionality is not useful
3. PREMATURE PRODUCT LIVES
Products are not used to fullest possible working life
– for example due to new models and features or lack of repair and
maintenance
4. WASTED END-OF-LIFE VALUE
Valuable components, materials and energy are not recovered at disposal
– for example, not recycled or recovered at end of life
Inefficiencies of linear value chainsSourcing Manufacturing Logistics Marketing & sales End of life disposalProduct useProduct design
6. Deep dives1. Why 2. What 3. Capabilities 4. Technologies 5. HowExecutive Summary
Circular economy is about turning inefficiencies
in linear value chains into business value
- Source: Company websites
Michelin offers tire as a service (pay per mile) and sensor-based data analytics for predictive maintenance
Philips has several contracts signed for providing light as a service on a pay-per-lux basis or monthly subscription
Caterpillar acquired Yardclub, a platform facilitating equipment sharing
GM recycles 84% of its worldwide manufacturing waste and has 111 landfill-free facilities
Maersk introduced a Cradle-to-Cradle Passport for vessels, a database listing the material composition of the main parts of the ship, enabling better recycling of materials and parts
Bosch operates remanufacturing chains for high-quality components to ensure a high fraction stays in its loops
The Schneider Electric Circuit Breaker Retrofit-program modernises and updates electrical distribution centres
Konecranes provides a Lifecycle Care-program that includes consultation services, modernisation & maintenance
Volvo uses one third recycled materials in new trucks and designs them for recycling so that 90% can be recycled
Wärtsilä applies a modular engine design to enable increased commonality and backward compatibility of parts
PREMATURE PRODUCT LIVES
WASTED END-OF-LIFE VALUE
UNDERUTILISEDCAPACITIES
UNSUSTAINABLE MATERIALS
UNEXPLOITED CUSTOMER ENGAGEMENTS
Illustrative examples from manufacturing companiesInefficiency
Five business models reduce the inefficiencies
and create value for companies, investors and
environment
- Source: Accenture, Appendix 2 for more details
Reform use of resources
CIRCULAR SUPPLY CHAIN
Use of renewable energy, bio-based or potentially completely recyclable materials
Logistics
Marketing& sales
End of lifedisposal
Reverselogistics
Sourcing
Manufacturing
Product use
Circular value chain
Optimise capacity use
SHARING PLATFORM
Increased usage rates through collaborative models for usage, access, or ownership
Extend life cycles
PRODUCT LIFE EXTENSION
Extension of the life cycle through repair, maintenance, upgrading, resale and remanufacturing
PRODUCT AS A SERVICE
Offering of products for use with retention of product ownership which incentivises increase in resource productivity along the whole life cycle
Recover value in waste
RECOVERY & RECYCLING
Recovery of usable resources or energy from waste or by-products
Offer outcome oriented solutions
Business model specific sub-models modify
different steps of the value chain to make it
circular
Circular sub-models
Recycle/upcycle
Circular supplies
Build to last
Return
Repair & Maintain
Resell
Remanufacture
Product design Sourcing Manufacturing Logistics Product useEnd of life disposal
Share
Product as a Service
Performance as a Service
As a Service models are mostly concerned with the operation phase, but span across the value chain
Marketing & sales
Upgrade LEGENDLinear value chain
Circular Economy Value Chain
Circular Supply Chain
Product Life Extension
Sharing platform
Product as a service
Recovery & Recycling
@SitraFund @jyri_Arponen circularplaybook.fi
Source: Accenture
We engaged a large group of players in the Finnish
manufacturing ecosystem, time for global scale up NON-EXHAUSTIVE
@SitraFund @jyri_Arponen www.circularplaybook.fi
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Beneq: New Modular Product Designs
Sharing Platform
Product Life Extension
Product as a Service
Recovery & Recycling
Circular Supply Chain
✓
Applied business model
Beneq® is the Home of ALD. Its Atomic Layer Deposition solutions improve the performance and durability of electronics and optics. They are the invisible advantage in leading semiconductor, IoT, 5G and automotive applications.
Beneq was founded in 2005. The Beneq factory in Espoo, Finland, is where atomic layer deposition was applied in industrial production for the first time in 1984. Today, it is the largest ALD-dedicated production facility in the world.
In 2017, the turnover of Beneq corporation was 21.3 million euros, of which 97% came from outside of Finland. In the end of August 2018, Beneq employed 146 people.
Company description
The traditional project-based approach in the ALD equipment business has resulted in customized products that are not ideal for upgrading, maintenance and support. They are sometimes complex and slow to produce, too.
To tackle the issues, Beneq Thin Film Solutions set out to create a new modular product architecture that supports easier upgrades and recycling. The new product designs have been from the start planned so that they are will be easy to manufacture, repair and upgrade.
The target of the new product designs is to save space and materials and to make the equipment easier and faster to manufacture. The advanced product architecture will also allow new business models, such as take-back programs and pre-owned equipment offering. It will also serve as a basis for new lifecycle services and maintenance programs.
Benefits
The circular opportunity
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Piiroinen: Meeting room as a service
✓
Sharing Platform
Product Life Extension
Product as a Service
Recovery & Recycling
Circular Supply Chain
Applied business model
Piiroinen is a Finnish family-owned company that operates in four different business areas. Besides designing, manufacturing, selling and marketing its own collection of furniture for use in public spaces, the company also manufactures high-quality metal components, undertakes metal plating and offers form pressing and upholstery services for the furniture industry.
Piiroinen’s factory and headquarters are located in South-West of Finland, in Salo. The company has partners and clients around the world and one third of its turnover comes from exports.
Company description
High costs make investments in high-quality meeting room furniture challenging especially for small companies. Furthermore, due to high costs, meeting furniture is typically upgraded with very long time intervals, not following changes in needs.
To tackle these challenges, Piiroinen is exploring the opportunity to offer complete meeting rooms as a service, with high-end design furniture and other equipment tailored to customer needs. To deliver the solution, Piiroinen has partnered with three other companies, and is piloting the solution with a hotel chain.
The meeting room as a service solution allows Piiroinen’s customers to avoid large investments without compromising the quality of their meeting environment. At the same time, the solution facilitates upgrading and reusing furniture, extending the lifecycle of products. Overall, the solution brings Piiroinen closer to its customers, and enables the company to deliver on circular economy principles.
Benefits
The circular opportunity
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Sisu Axles: Predictive axle
maintenance
✓
Sharing Platform
Product Life Extension
Product as a Service
Recovery & Recycling
Circular Supply Chain
Applied business model
Sisu Axles is an independent axle manufacturer for heavy duty truck, military, container handling and industrial applications. The company specializes in heavy duty rigid planetary reduction axles and independent suspension systems.
Sisu Axles serves its international customers from its assembly plant located in the southern part of Finland, the town of Hämeenlinna. The majority of its products end-up being exported to various locations around the globe. The company’s axles can be found on virtually every continent, from the United States to Australia and Russia to Antarctica.
Company description
The products of Sisu Axles are often used in applications where the operators are selling availability or a certain output per operating hours. In this type of operations it is crucial to be able to minimize vehicle downtime and especially eliminate unexpected maintenance needs.
To help its customers in their continuous effort to increase productivity and availability, SisuAxles is now exploring opportunities of predictive maintenance.
Typically, customers of Sisu Axles are doing preventive maintenance based on a predefined maintenance regime. With predictive maintenance, operators can call vehicles into service only on a need to service basis, reducing unnecessary maintenance and allowing the vehicle to continue in operations. Furthermore, the operators can get early warning messages of commencing component problems, preventing potential catastrophic failures. As a result, vehicles have higher availability, and they can be kept longer in use.
Benefits
The circular opportunity
SUPREME AIR POWER
100% Oil-less High Speed Turbo CompressorsAir as a Service €/m3
EARLY MOVERS HAVE ALREADY STARTED
CIRCULAR SUPPLY CHAIN
SHARING PLATFORM
PRODUCT LIFE EXTENSION
PRODUCT AS A SERVICE
RECOVERY & RECYCLING
Machinery & Equipment Marine Energy Transportation
@SitraFund @jyri_Arponen cirularplaybook.fi
Why would you invest in circular business in addition to sustainability drivers and ecological impact ?
Impact on EBITDA- Operational efficiency & minimizing waste- Risk management- Waste as an input- Productivity
Impact on Revenue
- Expanded offering and new partnerships
- New markets - Increased customer
centricity & intimacy - Differentiation
Impact on
Brand Value- Investors
- Legal
- Employees- Partners
- Customers
Actors that make up the circular ecosystem
generates value and attracts investors
Linear
businesses
Circular
businesses
Enabling
businesses
NEW
NEW
Manufacturer of
automotive
Provider of automotive
sharing platform
Connected car platform
for services offerings
Illustrative example
Linear businesses Circular businesses Enabling businesses
Other Industries
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3 KEY AREAS OF DEVELOPMENT TO MOVE FROM
LINEAR TO CIRCULAR ECONOMY
Customer value delivery
Resource handling
Organisation and collaboration
Strategy & Leadership
Sourcing & procurement
(Re)manu-facturing
(Re)sales
AftersalesTake-back
Recycling
Design/R&D
A
B
C
#kasvuakiertotaloudesta @SitraFund @TechFinland @AccentureFI
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- EXECUTIVE SUMMARY
The Selected sectors have mature ecosystems across
Nordics for circular collaboration
• Nordic countries, including Sweden, Denmark, Finland, Norway and Iceland, have all defined ambitious targets to drive a transition towards a circular economy
• Four manufacturing sectors have a large footprint across all Nordic countries, mainly – Machinery & Equipment, Transportation, Energy and Maritime, with a strong case to transition to circular business models
• In addition, circular business models are broadening industry’s scope, as new actors are entering the market to exploit inefficiencies from linear models
• Circular and enabling businesses are necessary complements to the more traditional linear businesses to collaboratively close the loops in the manufacturing industry – a circular economy cannot be achieved by one actor alone
• Based on our research, we have found that all four sectors have the majority of ecosystem actors in place, operating across the Nordic market, in order to achieve ecosystem collaboration for circular economy
Machinery &
Equipment
Transportation
• Overall high maturity, some circular capability gaps in Norway &Denmark
• Ensure value chain oriented scoping to raise Nordic circular collaboration
• Build a cross-border ecosystem around Swedish OEMs since all actors are available in the Nordics
• Ensure customer engagement to close the loop at end-of-life
H
H
Energy
• Limit sector scope to one energy type
• Ensure involvement of customer and technology enablers to drive service-models during use phase
M
Maritime
• Engagement can be created if benefits from holistic life-planning is explained, mainly end-of-life phase opportunities currently not exploited
M
Ecosystem maturity
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The transition from the traditional to the new
circular business model is gradual and has three
phases
Source: Accenture
Bu
sin
es
s v
alu
e
Traditional business
Time
Explore & Shape
Attract & Win
Scale fast & keep growing
New business
II
I
III
Develop concepts for target business models, look for partners, design and test prototype(s)
Develop processes and partnerships and pilot new solution to convey benefits
Adopt multiple circular business models across own operations and value chain
I II IIIPhase
Transformation journey
#kasvuakiertotaloudesta @SitraFund @jyri_Arponen @TechFinland @Laura_Juvonen @AccentureFI @Pekka_Vanne
Circular business models have three funding
requirements that vary in level of risk and returnApplicability for Business models
Financial implications
Incremental investments to extend offering portfolio
Significant investment to finance new and potentially disruptive offering
Significant investment to finance balance sheet extension
• Investments to e.g. modify production equipment or set up reverse logistics processes are required
• Incremental revenue and/ or cost reduction opportunity exists
• If deposit system is introduced in take-back, additional cashflows are generated
• High investments are required for platform due to “winner takes it all” effect
• Potential to disrupt industry exists but with uncertainty of success for this strategy and related return on investment
• Required working capital increases due to changes in cashflow and extension of balance sheet (assets offered to customer as-a-service need to be pre-financed)
• Assets distributed to customers have limited value as collateral
Product as a service1
Sharing Platform
Circular Supply Chain
Product Life Extension
Recovery & Recycling
Level of Risk/ Return
high
low
Funding requirements
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Behaviour, values and mindset changes are
required to deliver outcome-oriented solutions
Behaviours
MindsetsValues
The things we believe are most important
We have some awareness of our own values, but they are largely invisible
to others
The outward signs of culture
They are informed by underlying values and mindsets
The assumptions we hold about the way the world is
These are often invisible to us and to others – the things we take for granted
Culture
“The way we do things around here”
Culture is the sum of how people in the organisation assume, believe, and act. This differentiates from competitors
1. Address all components of culture€
6. Deep dives1. Why 2. What 3. Capabilities 4. Technologies 5. How – Deliver and AdaptExec. Summary
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Ecosystem partners can help in bridging
internal capability gaps6. Identify partners to develop ecosystem
Development of Ecosystem over time
• Current or potential new customers• Reveal insights on needs and iteratively
improve solution
Customers Technology providersSuppliers & delivery partners
FinanciersCE Thought-leaders Public and societal actors• Universities, networks and peers with
extensive CE knowhow• Serve as source of inspiration, sounding
board and (peer-) learning forum
• Goods and services providers for internal use and collaborative solution delivery (waste/ material management, logistics, insurance, payment solutions, …)
• Grant access to circular material, are partners for joint generation of circular material or partners for service delivery
• Public institutions, banks, investment funds, supply chain partners
• Give access to funding required for offering the CE business model
• Providers of technologies and software enabling digital solutions or internal processes
• Engage in solution and production process design and supply required technology
• Governments, associations and other representatives
• Influence public perception and opinion and influence or set framework conditions
Company Partners
External ecosystem partners
€
Did you know?
On the Circular Economy site, there is a tool called Ecosystem partner identification, which helps you in identifying ecosystem partners to support with your circular business idea.
6. Deep dives1. Why 2. What 3. Capabilities 4. Technologies 5. How – Deliver and AdaptExec. Summary
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Circular engagement maximise customer value,
attracts investors and creates sense of purpose
sitra.fi
@sitrafund
Jyri Arponen
Senior Lead,
Business Development
Circular Economy
@jyriarponen
/in/Jyri Arponen
The Finnish Innovation Fund Sitra
PO Box 160 (Itämerenkatu 11–13)
FI-00181 Helsinki, Finland
http://www.sitra.fi/en
www.circularplaybook.fi
