Jyri Arponen WCEF2019: Creating value from customer-centric circular business models

Jyri Arponen WCEF2019: Creating value from customer-centric circular business models

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  Creating value fromcustomer-centric circular business models - circularplaybook.fi Investing in Circular Economy Businesses, WCEF 2019 Helsinki Jyri Arponen, Senior Lead Sitra
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  Three drivers underpinthe shift towards circular Circular Technology Enables new solutions Customer-centricity Delivers customer outcomes Sustainability Improvesresource utilisation Right purpose Right efficiency Right delivery Source: Accenture
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  Circular economy isabout 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 UNDERUTILISED CAPACITIES UNSUSTAINABLE MATERIALS UNEXPLOITED CUSTOMER ENGAGEMENTS Illustrative examples from manufacturing companiesInefficiency
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  Five business modelsreduce 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 life disposal Reverse logistics 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
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  Business model specificsub-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 use End 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 LEGEND Linear 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
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  Why would youinvest 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
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  EARLY MOVERS HAVEALREADY 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
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  Legend: Circular Economy valuechain Linear value chain Circular Supply-Chain Product Life-Extension Sharing Platform Recovery & Recycling Product as a Service Material Processing Component Manufacturing Use Phase Assembly Maintenance 2.0 Remanufacturing 2.0 Waste (eliminate) Collection Resell / Reuse / Refurbish Other loops Recycling & energetic recovery (minimize) Product Design Repurpose Other loops Closed-loop recycling Distribution Circular inputs Sharing Platform1 Product as a Service2 Recycled materials, byproducts 1.5-2.5% annual growth Annual growth rate from initially 30%, decreasing towards 10% $400-600 bn global additional revenues in 2030 through selected CE business models 4-6% annual growth Share of e-mobility at 25-50% in 2030 1) peer-to-peer car and ride sharing; 2) mobility as a service Business Models Redefines the Business Ecosystems Example: submodels and CE math in Automotive
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  Car sharing isjust the tip of the iceberg
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  Actors that makeup 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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  Circular business modelshave three funding requirements that vary in level of risk and return Applicability 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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  Circular engagement maximisecustomer value, attracts investors and creates sense of purpose
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  circularplaybook.fi