Hello and welcome back to User/Use Case! If you haven’t had a chance to (and happen to be curious about makeathons, design thinking or IDEO) check out my last entry. In it, I go over my impressions after participating in the IDEO CoLab makeathon in Cambridge, MA.

In fact, as you’ll be able to glean from the piece, I enjoyed the whole experience so very much I applied to the London IDEO Circular Economy makeathon and was invited to participate. This upcoming makeathon is part of the inspiration for this post.

What is the circular economy?

Our current economy is linear in nature, with few exceptions. This means, we create products, consume them and then discard them.

As you can imagine, this type of “take, build, use and discard” economy is very wasteful which can have quite serious deleterious effects on the environment. Not to mention, the raw materials used to build our products are finite and depending on availability (and other factors) can vary in quality and cost.

In stark contrast, the circular economy doesn’t destroy value at the end of the product life cycle, it emphasizes minimizing waste and increasing resource efficiency, as well as designing products with multiple life cycles in mind. In short, a circular economy is a regenerative system in which the input resources and waste are minimized by slowing, narrowing or closing material and energy loops. A few ways to do this include (but are not limited to) recycling, upcycling, re-manufacturing, repairing/refurbishing. collaborative consumption, etc.

There are several ways to implement the circular economy. The modality used depends on the stage of the product life cycle and the type of product involved. The word “circular” easily evokes images exclusively related to recycling, but the circular economy goes so far beyond reusing or re-purposing. Let me give you a short rundown of one of the bigger ideas of the circular economy.

The Transformation of Ownership

What if instead of buying products, we had a performance-based service economy? The way people currently consume is geared toward finding cheap products that we ultimately dispose of shortly after. In order to maintain a recurrent source of revenue, some companies have even resorted to designing products with a limited useful lifespan in mind (known as premature or planned obsolescence).

Imagine if companies never ceased to be the owners of their products. You go to a store, or a store’s website, order the product you need and its delivered to your home. However, because the ownership is never transferred to you, you’re paying to use the machine plus a service contract fee. If your laundry machine is on the fritz again, in comes LG/Whirlpool/whomever to repair it or replace it with a new one.

This type of model would incentivize companies to make durable, high quality products that won’t require them to spend precious resources in constant repairs and replacements. It would also force them to get creative in terms of design and manufacturing efficiency, materials sourcing, and stretching the life of the components of these machines as much as possible. Thus creating less waste, a decrease in their negative environmental impact and adding value for customers.

Benefits of a Circular Economy

Less Risk for Businesses, More Savings

In order to produce the goods we all consume today, businesses rely on a steady stream of materials. However, you can see how this is not a sustainable system as a lot of these materials are finite in nature.

In fact, according to a World Economic Forum report, this linear economy of ours is showing signs of distress which is costing businesses dearly in terms of supply disruptions and hiking resource prices.

The finite nature of the raw materials used to create the products you use every day not only means there is a limit to this take-make-dispose pattern, but the variability and unpredictability of resource costs for companies means we pay higher prices for lower quality products/services. Companies are truly feeling the pressure to cut costs. This figure from the World Economic Forum report I mentioned above illustrates it quite well:

Sharp price increases in commodities since 2000 have erased all the real price declines of the 20th century

You may be thinking that companies can save money in all sorts of ways, like process innovations and improvements in efficiency. It turns out in modern manufacturing processes, investments in improvement of efficiency are costly and render marginal results that don’t provide companies with any real competitive advantage.

Less Landfill Waste, More Smiley-faced Planet

As we just saw, there are many financial benefits to the circular economy, for goods manufacturers as well as consumers. Beyond lowering costs and increasing margins, which could result in those savings being passed onto you, employing circular economy principles could result in a happier planet.

As you might have guessed, increasing the life cycle of products and their components will decrease the rate at which we dump waste into landfills, which means less pollution entering the earth via said landfills. Beyond waste products, another issue that could be resolved by circular economy principles is the reduction of harmful side-effects of resource extraction (deforestation, non-renewable energy source depletion, soil erosion and pollution, etc) and dependence on imports.

More People Will Have Access to the Stuff They Need

If implementing the circular economy could change the nature of ownership to a more subscription or service-based model, what would this mean for the average person? It would mean no longer shelling out a large amount of money, for a product you won’t necessarily get the most out of before you have to dispose of it to get a new one. Pay-per-use, leasing or communal use of products could vastly increase access and improve quality of life for a large percentage of the population.

Imagine trying to hold down a couple of jobs, needing to shuttle your family around town, while also playing all of your bills, including car payments (or spending hours on public transportation). Imagine saving every last penny of your disposable income to buy a washing machine, a TV, a new oven, a phone. What if you could pay a small fee, to use these essential items when and where you need them, without the commitment, cost or hassle of ownership? How much time would it save? How much money? What would you do with those extra hours? Those extra dollars?

Neat! Is anyone already working on it?

There are a number of companies (AirBnb, ThredUP, Starbucks, BMW, Alaska Airlines, HP, Southwest Airlines, Unilever, etc.) already realizing the benefits of applying circular economy principles, one example is the French automaker Renault.

Remanufacturing and Upcycling

Renault set up a remanufacturing plant near Paris where they reengineer different mechanical subassemblies and sell them for 50-70% of their original price. Furthermore, Renault redesigns and standardizes components in order to increase reuse and improve the ease of sorting. These operations have generated revenues of $270 million per year and though additional labor went into these processes, they are profiting from these changes as there is no need for additional capital expenses. As a result of remanufacturing, Renault has also seen significant reductions in energy (80%), water (88%) and waste (77%), not to mention improvements in materials yield.

Renault has also implemented tighter controls over the raw materials used in their vehicles. They have adjusted the design specifications of parts to allow for functional recycling or upcycling. This allows for end-of-life cars to be used as sources of high grade materials for new cars.

The benefits of implementing circular economy principles to their business model, in the words of Philippe Klein, Renault’s Executive VP of Product Planning, Programs & Light Commercial Vehicle Division:

The circular economy now impacts our business in a positive way. The peaks in raw material costs, similar to those experienced in 2004 (when steel price rose 40% in one year) have had a serious impact on production costs. It is extremely difficult to price this volatility, as it does not represent an immediate functionality for the customer. Therefore, closed- loop recycling is an important lever of risk management for the company. Another example is re-manufacturing of parts: the profitability of Choisy le Roi is far higher than the average profitability of Renault’s industrial sites. If you look at Choisy as an individual business unit, the business model is already very profitable.

Access-over-ownership Business Model

Renault was the first car manufacturer to lease batteries for their electric cars. This was done to aid in retention of residual value of these vehicles (to increase demand) and make batteries traceable, enabling a higher collection rate to be used in closed-loop reengineering or recycling.

I thought you said this was a love letter.

It is! Applying circular economy principles is full of lovely things. Better value for the things we use every day in the form of cost savings and improved quality (love!), less damage to our environment (love!) and a better quality of life for people who can’t currently afford/access essential items (love!). The most romantic part? It’s already happening out there, the transformation has begun.