Rinnakkaistallenteet Yhteiskuntatieteiden ja kauppatieteiden tiedekunta
2019
Catalysts for the Circular Economy Business - Case Destaclean Ltd.
Piispanen, Ville-Veikko
Artikkelit tieteellisissä kokoomateoksissa
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Catalysts for the circular economy business – Case Destaclean Ltd.
Ville-Veikko Piispanen: University of Eastern Finland, Business School, P.O. Box 1627 FI- 70211 Kuopio, Finland
Email: ville-veikko.piispanen@uef.fi
Profile: Ville-Veikko Piispanen, D.Sc. (Econ. and Bus. Adm.) is a postdoctoral researcher, whose research focus is on circular economy, strategic entrepreneurship, business
development, business opportunity creation and business models. He is interested in SMEs, start-ups, robotics and health technology. He has taught innovation management,
entrepreneurship and qualitative methods. He has worked in several multidisciplinary research and business development projects.
Kaisa Henttonen: University of Eastern Finland, Business School, P.O. Box 1627 FI-70211 Kuopio, Finland
Email: kaisa.henttonen@uef.fi
Profile: Kaisa Henttonen (D.Sc. Econ. and Bus. Adm.) is Senior Researcher and Adjunct Professor, whose expertise areas are business aspects of circular economy, innovations, (academic) entrepreneurship and digitalisation. She has published in various international journals related to these themes. She has worked in candidate, master's and doctoral levels and in expert and management education. She has been involved in and managed company R&D projects, Academy of Finland projects, Business Finland projects and consulted as an entrepreneur for over fifteen years. She has also worked as an acting innovation management professor.
Hanna Lehtimäki: University of Eastern Finland, Business School, P.O. Box 1627 FI-70211 Kuopio, Finland
Email: hanna.lehtimaki@uef.fi
Profile: Professor (Ph.D. School of Management, University of Tampere) Hanna Lehtimäki works at the Business School, Department of Social Sciences and Business Studies,
University of Eastern Finland. She has close to twenty years of research and teaching experience from the University of Eastern Finland and the University of Tampere. Her research examines strategic management, leadership, social networks, stakeholder
management and organizational innovation. She has extensive international experience from working as a visiting scholar at the University of Toronto, Fulbright Senior Scholar at George Mason University, and the Strategy Practice interest group leader at the Strategic
Management Society. Her research articles have appeared in academic journals
internationally and she has authored and co-authored several books on strategic management and leadership. She is currently a vice PI of research consortium “Circular Economy
Catalysts: From Innovation to Business Economy Catalysts”, CICAT2025.fi.
Abstract
The purpose of this case study is to explore catalysts for circular economy- based business development. More specifically, we ask, first, what are the critical catalysts in the circular economy business development process and, second, what is their dynamics in the process? The circular economy business requires different logics and premises because of the inherent value creation opportunities for waste materials. The previous literature has not addressed the catalysts for circular economy business development and business
opportunities. Moreover, little is known how these catalysts affect the company´s managerial decisions on business development. Our case company operates in construction waste
recycling business and they also produce and sell bio- and recycled fuels. An in-depth interview was conducted with the CEO and the development manager. Content analysis was used to analyse the interview and secondary data. The results show, that in business
development and creating new business opportunities in circular economy, the catalysts have a significant role in that process. The catalysts have a twofold distinctive role, first, the catalysts enable circular economy business in waste recycling and second, the catalysts can be external and internal. We contribute to the circular economy literature by showing the dynamics of catalysts and moreover, what could be the critical development phases and the critical catalysts for circular economy business development.
Keywords: circular economy, catalyst, sustainability, adoption factor, business model, change management, innovation, business opportunity, value creation, case study
Introduction
There are recent studies, which have focused on internal and external factors affecting the adaptation of business models to circular economy (CE) principles (e.g. Piispanen et al., forthcoming; De los Rios & Charnley, 2016; Lewandowski, 2016; Weissbrod & Bocken, 2017). However, there has not been many empirical studies on how companies themselves see and develop CE (Liu & Bai, 2014). Previous research has also not explored the dynamics between those changes required, when pursuing a move towards circular business models and the internal and external factors influencing their adoption (Lewandowski, 2016). In this study, we call these internal and external factors “catalysts”. Catalysts can be customer behavior, technological, regulative or even management and strategic changes that can influence the organization performance.
CE principles can be introduced from top down, when policy makers take force implementation, or bottom-up, when organizations innovate and make changes in their business operations (Ruggieri et al., 2016). In this study, we focus on the bottom-up
transitioning towards CE. It will likely mean a radical change in the companies, because new ways of thinking and doing business are required (Bocken et al., 2016). We define a circular business model as a business strategy in which the logic for value creation comes from utilizing the residual economic value of products post-use in the production of new offerings (Linder and Williander, 2017).
Bocken et al. (2016) identified main business model strategies supporting both slowing and closing resource loops. Business model strategies for slowing resource loops focus on extending a product life-cycle and reuse. On the other hand, business models for closing resource loops focus on capturing value from “waste” in a linear business. In this study, we will focus on the closing resource loops, but implementation of any of these new
business strategies requires company to take on a variety of internal changes. These are discussed next.
This paper is structured as follows. The next section outlines the theoretical framework of the study, in which we elaborate on the internal and external changes and related catalysts in the implementation of CE business. Subsequently, the qualitative research approach and data are presented. The following section describes the case study and provides the findings. Finally, the paper concludes with theoretical and practical implications.
Theoretical Framework Catalysts for business development
The concept of catalyst originates in chemistry where it refers to mechanisms that trigger transformation and change. In social sciences it is used as a metaphor to refer to an agent that creates the necessary conditions for transformation or a radical change. In
chemistry, the agent can be any trigger that creates a reaction or a change of rate in a reaction (Cabell, 2011). In social sciences, a catalyst can be any triggering event that creates
conditions for transformation. The reaction refers to enabling a production of new meanings, in other words, a potential to see things in a new light and a relevance of doing things
differently than before. In business and organizations, catalysts can be external or internal triggers of change.
Greve and Taylor (2000) studied format changes in radio broadcasting between 1984- 1992 and showed how radio stations in U.S. radio markets responded to market innovations with strategic and operational changes. Their study showed that market innovations acted as external catalysts for change by creating uncertainty in the market. What were catalysed were the managerial cognitions on what innovations in the market caught managers attention, what actions they considered as possible and beneficial and what strategic and operational
decisions they made. The authors argued that examining innovation as a catalyst rather than a mimetic change as theorized in institutional theory is particularly relevant in uncertain
environments where sudden changes in the market occur due to, for instance, customer preferences or technological change.
Hunt and Ropo (2003), in turn, discussed internal catalysts and autocatalysis in organizational change. They sought to build novel theorizing on change in complex and dynamic systems. They argued that in systems, where unpredictability inspires creation and renewal, depicting change as causal relations is not sufficient in capturing the mechanisms of change. Instead, attention is to be directed to interactions and resonance between people and units, because they create an emerging order into the system. This leads to autocatalysis where behaviours mutually stimulate each other and lead to a new cycle of catalysis (p. 317).
A catalyst can be operational for a short period of time or it can be a trigger that creates iterative change over time – autocatalysis. Attention to autocatalytic forces allow for addressing unpredictability and non-linear change that are typical in complex systems.
Internal changes and related catalysts in the implementation of CE business Implementation of circular business models need comprehensive knowledge on creating new business strategies (Lewandowski, 2016). This requires taking part in various collaborative circular networks and engagement with suppliers, manufacturers, retailers, service suppliers, and customers to comprehend where and how value is created (Lacy et al., 2014). Integration related to business models, product design and supply chain, and product lifecycle management is needed (Lieder & Rashid, 2016). Collaboration is a key aspect for the implementation of CE principles (Witjes & Lozano, 2016).
New capabilities are also required in implementing a circular business approach (Lacy et al., 2014). Organizational capabilities play an important role in adaptation of a business
model to CE principles (Lewandowski, 2016). The development of capabilities needed for circular business model implementation highlights the importance of intangible resources in the company, such as team motivation and organizational culture, knowledge, and transition procedures (Lewandowski, 2016). Activity-related capabilities in manufacturing, in addition to the above-mentioned human resource related capabilities, include focus on material inputs for product design, that is, e.g. if they are renewable or if they can be restored (Lacy et al., 2014).
Sales and marketing need to develop new ways to get customers involved in both using and disposing of products properly (Lacy et al., 2014). The role of after-sales is also important to support service levels, manage lifecycles, and maximize retained value (Lacy et al., 2014). Information and communication technologies (ICT) are needed for product monitoring in multiple lifecycles (Lieder & Rashid, 2016). Cultural aspects are also likely to influence CE implementation (Liu & Bai, 2014; Rizos et al., 2016).
For the circular business to be successful, also cost efficiency capabilities are needed as well as implementing enterprise resource planning (Gebauer et al., 2016). Reverse logistics systems to close material a loop must be also created (Lewandowski, 2016). In addition, the reduction of logistics and waste management costs, increased consumer retention with good end-of-life return programs, operating according to government regulations, quality control capabilities, and the determination of the optimal return and reprocessing chain need attention (Lacy et al., 2014). Finally, there are also risks involved (Linder & Williander, 2017) and they must be managed.
Although previous literature has identified many factors important for CE
implementation, the understanding of the connection between changes required for circular business development and the catalysts that facilitate this change is still limited
(Lewandowski, 2016). We focus on the challenges for purposes of this study in order to highlight the catalysts and actions that can be taken in order to facilitate circular business development and implementation. We expect challenges, also named here critical incidents, and related catalysts to interact in complex ways.
Objectives
The objective of our study is to explore catalysts for CE business development and what is their dynamics in the process.
Methodology
The case study was based on the intensive case study method (Eriksson &
Kovalainen, 2016) to gain narrative interpretation of the case. The data comprise two semi- structured interviews with the CEO (CEO 2017) and development manager (DM 2017) of the case company. The company was chosen because of their focus on CE business and their interesting business development story. The collected data consists of a 34-page transcription of one 81-minute interview, our observations during the interview and pages of the
company’s public website. The data was analysed using the qualitative content analysis technique (Eriksson & Kovalainen, 2016).
The Case Study
Destaclean Ltd. operates in material recycling and bio- and recycled fuel production and sales. They highlight CE in every aspect of their business. The company was founded in 1998 and the turnover was around 8 Million € in 2017. The company had 20 employees in addition to contractors’ 20-30 employees. The main office and two recycling centres are located in Southern Finland near the largest cities in the country. The core business is
recycling mixed-construction, wood and wholesale and industrial waste and innovating and designing useful recycled materials for customer usage. The company has developed a social responsibility Destaclean®-concept which consists of solutions for different materials in CE as the way of management and procedures. In addition, the concept is based on a long-term business partnership with other companies and with the concept the idea is to provide benefits for all partners in learning about business responsibility and creating profitable responsible businesses.
Findings
“From the view of circular economy (...) we want to give old construction materials a new life.” (CEO 2017).
From the start of the company, the business model was based on recycling. Recycling was growing in Finland and thus there were business and value creation opportunities in that business sector. Hence, the internal catalyst to establish the company was to exploit the new opportunities in the market. It was 2001 when the company started to take in wood waste, and their business model then was based mainly on recycling wood, mainly stumps and sticks.
This was an important catalyst, because later, they started to take in other kinds of wood waste from construction. This decision lead to biofuels and accelerated the CE business further. However, there is another side of reusing materials and capturing value from waste, the CEO explains this:
“Because those re-use possibilities are actually quite weak now. In practice, most of the [wood waste] goes to burning [for heat and electricity power plants]. Rather, let´s do something out of it [wood waste] but if we don´t come up with anything sensible, then it is ok to burn it for energy.” (CEO 2017)
To strengthen the CE business, in 2007 the company made a strategic decision and invested heavily in wood crushing and the business grew steadily for years. The catalyst for this decision was the market changes and opportunities. The CEO described this decision as
“a big, and well, a risky opportunity for the company” (CEO 2017). While a risky decision, this turned out to be the most important and defining catalyst for the company’s CE business development towards the future. Year 2009 was the first year that the company started to take in construction waste and started to research more on business opportunities on different recycled materials like construction materials, wood, composites, plastics and cement.
External regulative catalysts had an impact on the CE business development. In Finland, the regulation on dealing with recycled materials is rather strict. This was reflected by the DM:
“And especially in those cases, when we want to improve our [business] and to make it better for the environment. The regulative process (…) could take over half a year (…) or perhaps it is a year and more.” (DM 2017).
In 2014 the company decided to invest on cement production facilities. Based on this investment, the R&D and studies with universities on composite materials in 2014, the company continued to develop wood fibre solution. This resulted to new business in developing value from waste and products that combined wood fibres and recycled stone materials for the consumer markets. A strategic decision to develop the CE business towards consumer markets with an innovative waste reuse solution was made. The company applied a patent and certifications for their innovation. However, this business development process was not as successful and profitable as anticipated. The company faced several difficulties in the R&D phase, and eventually investment became too big. Moreover, the commercialization process was not very successful. Thus, this line of business was terminated. The CEO
explains the process as the following:
“Launching a new product, bringing a totally new product to markets (…) it was a huge work. We were known for waste management, in our own business (…) but not [known] in the way that we sell [these kinds of consumer
products]” CEO 2017).
In 2018 the company decided to sell cement production business and concentrate more on their core CE business. This was catalysed by the managerial cognition of the commercialization process challenges they faced. This eventually led to decisions on personnel responsibility changes and the company also appointed a new CEO. When
analysing the future business, one main catalyst for the CE business was the waste-directive of the European Union (EU) which demanded that 70 % of all construction and demolition waste must be recycled by 2020. This created business opportunities for businesses like Destaclean which have a proven record of operating in recycling business. In table 1, based on the analysis, we have included chronological and significant catalysts in our case
company´s business development that influenced their transition to pursue CE business.
Table 1: Catalysts for CE business – the roadmap.
Year Internal catalysts External catalysts CE business
solution
1998
The company was founded in 1998.
They focused on recycling business at the very start.
Recycling was growing in Finland and businesses started to see more business
opportunities in waste management.
The company was founded on the principles of CE.
Their core business was from the very beginning recycling and waste management.
2001 The company started to take in wood waste.
Recycling was growing in Finland and businesses started to see more business
opportunities in waste management.
Wood waste and recycling materials for e.g. biofuels accelerated the CE business.
2007
The company invested in wood crushing technology.
The investment was substantial compared to company´s turnover at that time.
The management made a strategic decision to extend their business.
Wood crushing was a growing business because the usage of crushed wood in energy production has started to increase.
The company strengthened their CE business with the heavy investments.
2009
The company started to take in mixed construction waste.
Regulations open new business opportunities; however, the regulations were also restrictive.
New EU directive for waste materials.
Strict regulative barriers for business development.
Authorization processes were quite slow.
The company expanded
recycling business and strengthened their CE business model.
2014
The company invested in concrete business to create new customer products based on composite materials.
Studies, reports and R&D were made on composite materials that utilized the side streams of construction waste.
The company made efforts on new business opportunity creation for new consumer products, first in Finland and then international business.
Regulation opened new business opportunities.
Composite materials started to gain interest and markets started to show demand. In addition, the new waste law in Finland from the year 2012 had an influence on recycling and sorting different materials.
This opened new business opportunities for recycling companies.
The company produced new sustainable - value from waste - products for the consumer markets.
Products were made of recycled waste.
2018
The new product launch was not as successful as they planned. The
The consumer markets for sustainable products are
branding was not successful either.
This all influenced that the
company decided to sell parts of the business.
They also decided to concentrate on the core CE business.
The management made a risk management decision when they terminated and sold parts of the business.
perhaps not yet at the level of profitable business.
The company was well known in waste management and in construction business, but not in the consumer markets.
They saw new external catalysts in urbanization, digitalization, online purchasing and consumer behaviour change.
The company concentrated only for CE business.
They expected the recycling business to grow fast in the future.
Conclusion
Based on the analysis, we identified the most important internal and external catalysts that influenced the CE business development. The dynamics of the internal and external catalysts were more than intertwined. The management made decisions based on both internal and external catalysts to drive the CE business, and the catalysts had a clear impact on the managerial cognitions. However, the cyclicity of the catalysts was both a driving force and an obstacle to fully transition to CE business. This contributes to the CE literature by showing that CE business development is difficult to manage and navigate through the catalysts such as regulation, commercialization, sustainable and profitable business.
The purpose was to understand, what are the critical catalysts in the CE business development process and what is their dynamics in the process? The transition from engaging from B2B (business-to-business) to B2C (business-to-consumers) was difficult and ended up being the turning point and the most critical catalyst for the company. The strategic plan of becoming a company with a major part of the turnover coming from reusing waste products was not as successful as planned. The main reasons for that was, first, that the
commercialization process was more difficult than anticipated, second, that the brand was in
the B2B rather than in the B2C, and third, that products made from waste material were not yet well received and valued by the customers.
To continue this case study, the challenging commercialization process would be examined to gain understanding on how business development process went when creating products from waste material to customer markets. Moreover, the impact of catalysts on CE business development would provide more understanding on their complexity and dynamics.
Acknowledgement
This paper is part of CICAT2025 (Circular Economy Catalysts: From Innovation to Business Ecosystem) project funded by the Strategic Research Council at the Academy of Finland, 320194, 320209.
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