Value Creation In Digital Circular Economy Business
a Report by SAP
Inspire and shape a digital world that reinvents waste, recycling, and environmental services
Henry Bailey, Global Vice President Utilities Business Solutions, SAP. Raik Kulinna, Global Lead for Waste, Recycling, and Environmental Services, SAP
The global environmental services industry is transitioning into a “circular economy” of zero waste, with Internet-connected sensors on waste bins and a state of raw material scarcity. Citizens and enterprises are becoming aware that waste components are valuable and can be reused so as to reduce to the consumption of natural resources. This will replace the current “take, make, consume, dispose” linear economy approach that creates massive waste.
A circular economy transforms us into closed-loop material consumption without waste. One example is “closed supply chains,” which challenge the classic business model of collecting, processing, and depositing waste. Second, manufacturing companies are entering the waste market by extending the life cycle with “products as a service” and therefore avoid generation of waste. Third, digital disrupters have entered the market with an e-commerce marketplace, forcing incumbents to try to differentiate through pricing and unique service offerings.
New technology also transforms classical business models. Examples include Internet connected waste bins, smart devices, and real-time route optimisation. Innovators create new business practices with full transparency of execution status, reduce service execution costs, minimise environmental impact, and increase recycling efficiency. Technology can help save natural resources, but it can also help incumbents to avoid price wars and prevail against new competitors with better services and new solutions.
We find that leading players in the new circular economy are companies that are reevaluating their markets and key strengths to:
- Re-imagine business models to find new revenue and profit sources capitalising on omnichannel customer engagement and commerce, hand in hand with their asset management competences
- Reimagine business processes and use digital technology by converging all types of operational data to optimise business outcomes
- Reimagine the role and structure of their workforce to support their future business Digital technology will be a key enabler to transform new business models, business processes, and ways to work into sustainable revenue and profit drivers
Big picture: The digital circular economy is real, and it will continue to disrupt classic waste management concepts
The digital economy
Five technology trends have converged into the digital economy – hyper-connectivity, super computing, cloud computing, a smarter world based on outcomes, and cyber security. The resulting pace of change is staggering. In the next 10 years, 40% of the S&P 500 will no longer exist if they do not keep up with these technology trends.
Leaders are emerging quickly and from unexpected places
Industry boundaries are already blurring. What were previously relatively secure domains owned by waste management and environmental service companies are now being challenged by new market players. For example, e-commerce) with superior customer experience help already to extend the life cycle of goods and even broken parts. It is a small step for new market players to enter the market and provide re-commerce for goods together with ecological re-commerce (reverse commerce for waste including valuable raw materials) at the same time.3 An example of this is Uber, which does not own taxis. Its driver network has already used an UberRECYCLE event to collect e-waste.4 Second, Rubicon Global is a cloud-based environmental services trading platform that uses the analytical insights of customers’ waste streams.1 Outside the waste industry, producers make their own plans – the paper industry has now expanded into the collection of paper waste.5 Circular economy business models will address the full material life cycle and by definition will make classic linear economic business models obsolete.
It’s not about you – it’s about your customers
For many waste and recycling companies, executing high-quality services is the core focus. Customers now start to expect a new type of experience: one that is frictionless, where commerce is seamless, and where technology is invisible – one that makes their lives easier and that is good for the environment. Customers aren’t concerned about whether this experience is provided by a classic waste company or a new startup in the market.
Have you embraced the digital world? How can you disrupt your business and sector for profitability and performance? Can you collaborate in the supply loop to create more of a competitive advantage? Does your software infrastructure and partner allow you to continually change to the dynamic market conditions of the waste and recycling sector? Does your software infrastructure and partner enable you to profit from flexible models? Can you on-board new technologies easily and put your ideas into action?
Early adopters are winning
Research shows that companies that embrace the digital world and execute on their digital strategy outperform the average performance of other organisations in their industry by 6%–9%.6 A digitally powered circular economy will force all market players to rethink their role. Some key questions include:
- What business segments, trends, and technologies allow market leadership or differentiation in a new digital circular economy?
- Which tasks are better allocated to a partner in the network?
- What’s the best way to adapt continuously to changing market conditions?
- What are profitable business models based on these new technologies?
- What is the best way to capitalise on the new business models arising from new technology like Internet-connected smart waste bins?
The value chain in the linear economy is transforming, driven by various global trends.
- Increasing regulations put companies at risk of noncompliance, which can not only cause fines but impact brand, image, and social license to operate.
- Energy and resource constraints are forcing all industry sectors to find new circular economy business models. Zero waste philosophy and circular economy action plans will make linear economic business models obsolete.
- Smart equipment: “Intelligent” Internet-connected waste bins, vehicle telematics sensors, the Internet of Things (IoT) for waste equipment, and traffic data are available now and provide insights into increased efficiency and new business models.
- Lack of skilled workforce: The waste and environmental services industry competes with more traditionally attractive industries for talent.
- Customer expectations: Customers want to be responsible, and they like to interact. They expect instant answers and easy-to-use communication channels, with the user expertise from their private commerce.
The digital circular economy requires new business processes and new process best practices. Digital leaders are motivated to re-imagine their business processes. They are driven by rethinking their internal processes and the transformation of IT, they are searching for business innovations based on new business models, and they want to differentiate at their customer experience. Additionally, leaders are seeing in today’s processes a large risk factor for becoming unattractive for talent and the contingent workforce. The new digital technologies will increase the operation efficiency based on the new process insights into customer and market demands as well as the real-time insights into operations. The digital circular economy will establish new best practices with transformed intern processes, with a transformed IT and with differentiating customer experience on all channels.
The Digital Circular Economy Enterprise
Fulfilling the volume of services was the core principle for classic waste and environmental businesses in a linear “take, make, consume, dispose” economy. However, this is no longer sufficient, and leading businesses are aiming to design a system that better balances profitability of services execution, using new technology including consumer-grade customer experience and the Internet of Things. Early adopters have already started to establish new digital business models – more environmentally friendly. Digital circular economy enterprises leverage these new real-time insights and control to differentiate in the market.
Road Map to Run Simple: Steps to Digitising Your Business
Do you have the right strategy? Start by reimagining your current enterprise with innovate business outcomes and customers at the centre.
Reimagine Business Models
Digitisation, regulations, and globalisation destroy established linear economic business models without a clear road ahead. Alternative business models like re-commerce and ecological re-commerce combined with a zero waste philosophy will make their way. Our digital circular economy business model toolkit helps early adopters to find their place in the changing circular economy.
This comprehensive toolkit combines:
- Circular business models
- Classic linear business models
- Enabling business models
- Digital transformation business models
Reimagine Business Process
Changing business models and digital technology drive business process efficiency and innovation that inspire new business approaches and accelerate breakthrough technology in planning, service execution, recycling, storage, raw material trading, and disposal.
The fundamental transformation to empowered consumers – including their role as waste generators – profoundly changes what people do and how they learn, interact, engage, and grow. Many tasks in commerce and planning processes will be automated, but engaged employees will become an even greater asset in shaping the customer experience as their roles change.
Do you have the right platform?
Leaders are investing in digital capabilities that are congruent with their strategy. The shift to digital business will provide all participants the right platform to drive efficiency, accelerate energy innovation, and develop new business models. We help ensure solutions align to desired outcomes. SAP’s digital business framework is based on the five key pillars of a digital strategy:
- Customer experience across all channels
- Supplier collaboration and business networks across all spend categories (maintenance, repair, services, and expenses)
- Core business processes (finance, procurement, supply chain, and work management)
- Workforce engagement, including employees and contractors
- Assets and the Internet of Things to drive real-time insights and new business models
ROI drives this significant phase of the transition to digital. It’s not about any one of the above five pillars, but rather how they all interconnect to achieve business outcomes. We apply design thinking as our key approach during the reimagining phase. Design thinking can be described as a discipline that uses the designer’s sensibility and methods to match business needs with what is technologically feasible and what a viable business strategy can convert into customer value and market opportunity.
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