Making Money from the Circular Economy
I remember driving to Dunsink dump in north County Dublin many years ago. The car was loaded with junk, which included an old fridge, broken furniture and other household waste. Having paid our fee at the gate, we drove to the top of a hill and literally unloaded the crap and watched it rolling down the hill. Down below there were people, animals and birds scavenging for the scraps. There was also a bulldozer turning over the soil and burying the waste. And in our culture at that time, we thought that was okay.
Apart from returning glass bottles to the milkman, that was an age when the linear economy was the main game in town. Goods were manufactured for consumption – with no end-of-life consideration whatsoever for the various components and packaging that was required to market and sell such products. We already know about the negative impact of waste on the environment. You too will have seen the videos of the ‘plastic oceans’ and the whales with bellies full of waste.
But recycling is not just good for the planet. It’s also a potentially profitable business. Food, mobility and household goods make up about 60% of European household income. Their components are all dependent on commodity markets where pricing is becoming more volatile and scarcity a growing issue. There is an alternative that is good for our conscience and is also good for business. It’s the circular economy.
The German division of pay-TV broadcaster Sky – set out in 2014 to redesign its set-top TV box. Using the latest technology, its aim was to enhance the customer experience, improve operational efficiency and respect the environment.
“The typical set-top box lasted seven years or more. In that time, a customer’s needs for TV service might change and a box’s specifications can fall behind the requirements of our service. Or if something goes wrong with the box, the customer has to send it back, which interrupts viewing. We felt we could manage the boxes in a better way for customers” said Sebastian Hauptmann, Sky Deutschland’s executive vice president of operations, (speaking with McKinsey’s Eric Hannon).
They changed their returns process, so that used accessories such as remote controls, cables, and power-supply units could be recovered and refurbished for re-use. When a customer sent back a set-top box with a problem, they would replace the faulty component with a refurbished one.
They also found that they could lower the costs of repairs and give subscribers a better experience by switching to modular hard drives. Customers can now disconnect the hard drive from the box when something goes wrong and can retain it with all of their recorded programmes. If the hard drive itself fails, the customers can send it back while keeping the set-top box so they can continue to receive live TV service.
After they saw the benefits of decoupling the hard drive from the main unit, they applied the same logic to the entire design. The easier they made it to fix or replace just the faulty parts of a box, the more they could save by keeping functional parts in service. Extending the life of the box lowered the total cost of ownership. That’s when they started thinking of the set-top box as a circular product. And that’s when they realised that recovering, reusing and recycling was profitable.
Tips for Engaging with the Circular Economy
Recycling used to be seen as an added cost. I believe that with the right culture, organisations can improve margin, enhance the customer experience and help the environment in the new circular economy. You too could potentially improve margin by engaging with it. Take your ‘new product development’ (NPD) process as an example.
- Introduce ‘circular economy’ thinking into your culture. Kill several birds with one stone. You’ll help mankind, make your team feel good and you’ll improve margin. Set challenges for your NPD team that demand appropriate consideration be given to the circular economy.
- Broaden the NPD team beyond marketing and manufacturing departments. Include your logistics and ICT teams so that all touch points in the overall process are considered. Rather than see your process as a linear value chain, see it as a circular one. At the planning stage, consider recovering, re-use, recycling of all components. Also consider the disposal of waste.
- Consider including customers in some parts of this process, as they will add a different perspective.
- Use ‘design thinking’ or some other creative process to help you think outside the box.
Producers of electrical and electronic goods now have obligations to implement the European Union’s regulations on the recycling of electrical and electronic waste (WEEE Directive). The European Recycling Platform (ERP) was founded in 2002 as the first pan-European organisation and is Ireland’s only pan-European compliance scheme, providing WEEE and Waste Battery compliance and a B2B service to members. “We now manage a consolidated network and have developed vast international expertise, expanding our recycling services to include batteries as well as packaging” said chief executive Martin Tobin.
ERP is sponsoring The Green Alley Award, Europe’s first start-up prize for the circular economy. It is looking for the next generation of sustainable business ideas. “We are looking for Irish Start Ups that are about to launch new products or services or are already in the growth phase to enter. We are also welcoming start-ups who want to expand into other European markets” said Martin.
The sole condition is that the business idea must help recycle resources and help reduce waste. The winner of the Green Alley Awards receives a cash prize of €25,000. Check out www.green-alley-award.com