Sustainable business models in the context of the circular economy. How can a company produce and deliver products using sustainable methods?

Table of Contents

Abstract

Table of Figures

List of Tables

1 Introduction

2 Theoretical Foundation
2.1 The Circular Economy
2.2 Osterwalder’s Business Model Canvas

3 Cases
3.1 A Modular Mobile Phone
3.2 A Refurbishment Service for Mobile Phones

4 Analysis
4.1 Methodology
4.2 The Business Model of Fairphone
4.3 The Business Model of Mazuma Mobile

5 Discussion
5.1 Fairphone and Mazuma Mobile in the Context of the Circular Economy
5.2 Implications for Theory and Practice
5.3 Limitations

6 Conclusion

References

Abbreviations

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Abstract

This bachelor thesis contains a case study of two Business Models in the mobile phone industry. This industry is an example for the responsibility Business Models have concerning the excessive use of resources and negative social impacts by exploiting workers in manufacturing companies and in the mining industry. We select two Business Models whose aim is to produce and deliver products using “sustainable” methods. The first case is the smartphone retailer Fairphone, who provides a long-living, modular, and transparent mobile phone. The second case is Mazuma Mobile, a refurbishment service that provides second-hand mobile phones and the possibility to sell an old or broken electronic device. In the analysis, we conduct a case study based on Osterwalder’s Business Model Canvas, containing Nine Building Blocks that explain the business logic a company. The goal is to better understand how companies propose, create, deliver, and capture value. We select the Circular Economy and their principles in order to assess the sustainability of the cases in the discussion. The Circular Economy is seen as a condition and a beneficial relation for sustainability. Discussing the question of how the Business Models correspond to the principles of the Circular Economy leads us to the conclusion that there are improvements necessary in both cases. Nevertheless, the modular design of Fairphone provides self-made repairing possibilities, long use, and recycling and reusing activities are implemented by partners. The transparent value chain leads to an improvement of the working conditions and exploitation of resources. The gap-exploiting model of Mazuma Model reveals a lack in the industry and extends the life of mobile phones. The company focuses on reusing, refurbishing, and recycling activities and since millions of unused mobile phones exist, the company is crucial for the development in a circular direction.

Table of Figures

Figure 1: The Self-Replenishing System

Figure 2: The Technical Cycle of the Circular Economy

Figure 3: The Nine Building Blocks

Figure 4: The Nine Building Blocks of Fairphone

Figure 5: The Nine Building Blocks of Mazuma Mobile

Figure 6: Fairphone in the Circular Economy

Figure 7: Mazuma Mobile in the Circular Economy

List of Tables

Table 1: Value Proposition

Table 2: Value Creation and Delivery

Table 3: Value Capturing

Table 4: The Value Proposition of Fairphone

Table 5: The Value Creation and Delivery of Fairphone

Table 6: The Key Partnerships and shared Projects of Fairphone

Table 7: The Channel Phases of Fairphone

Table 8: The Value Proposition of Mazuma Mobile

Table 9: The Value Creation and Delivery of Mazuma Mobile

Table 10: The Channel Phases of Mazuma Mobile

1 Introduction

“If it can't be reduced, reused, repaired,

Rebuilt, refurbished, refinished, resold,

Recycled or composted

Then it should be restricted, redesigned Or removed from production.”

– Song by Pete Seeger in 2008

This song by Pete Seeger has not been written particularly for the mobile phone industry, but still deploys a realistic vision of it. Can you imagine that people in Germany store around 124 million mobile phones at home without using them (Bitkom, 2018)? Retailers sell hardware for low prices, combined with long-term contracts. This industry is an example of how a business model leads to excessive use of resources with a negative social impact. The consequence is an excessive use of resources because a mobile phone includes raw materials such as rare earths and the so-called conflict minerals. Tin, tantalum (cobalt), tungsten, and gold are the most commonly mined conflict minerals also known as “3TG”. The negative social impacts stem from bad working conditions in manufacturing companies in China and the conditions in the mining industry (Boons & Lüdeke-Freund, 2013). The challenges around sustainability, the use of conflict minerals, the repairability and the reduction of waste have become part of the public debate and smartphone manufacturer are pressured to develop more sustainable systems of production (OECD, 2012; Dießenbacher & Reller, 2016). However, this is not only a problem of the mobile phone industry, but the linear model of resource production and consumption is a global economic problem (EMF, 2012). In 2010, 65 billion tons of raw materials were processed by the economic system. In 2020, this amount is expected to increase to 82 billion tons, which would correspond to 8.2 million times the Eiffel Tower (EMF, 2012; Spiegel Online, 2017). It is obvious that we are in dire need of changing this linear system of using materials to manufacture products for consumers to dump the products when they no longer serve their purpose.

This bachelor thesis contains a case study which analyzes two Business Models (BM) in the mobile phone industry that have declared their goal to produce and distribute mobile phones using “sustainable” methods. Sustainability became an increasingly important concept for the strategies of companies and a goal of their development. It originates in the French verb “soutenir”, which means to hold up or support (Brown et al., 1987). The first BM to analyze is the “Fairphone 2”, a smartphone from the Netherlands. The company aims at producing a sustainable smartphone, focusing mostly on improvements in their supply chain management. The company is focused on long-lasting designs, materials that do not come from areas of conflict, reusing and recycling and safe working conditions in their supplying companies (Fairphone, 2018). Besides that, the Fairphone 2 is a modular designed phone. This means that a specific module of the hardware, e.g. the camera, can be changed if it is faulty, instead of changing the complete device. The second case is the company “Mazuma Mobile”, an online service platform founded in 2006. The British company focuses on the collection, refurbishment, and sale of old or broken mobile phones. They buy old mobile phones from people, to directly resell or first refurbish them if necessary - in case the mobile phone cannot be reused, the company will recycle it (Mazuma Mobile, 2018). According to the company, they return the large majority of their received phones (~150,000 every month) back to the market (EMF, 2011).

In order to analyze the BMs of the described manufacturers, we conduct a case study in which we will apply Osterwalder’s Business Model Canvas (2004) to the two cases. Business Model concepts have become a new unit to analyze the business logic of firms (Stähler, 2002) which can improve measuring, observing, and comparing the business of a firm. In Osterwalder’s Canvas, the Business Models encompass Nine Building Blocks (BB) that can be comprised by three dimensions: the value proposition, the value creation and delivery, and the value capturing (Richardson, 2008; Osterwalder et al., 2005). In order to embed this analysis in the right context, we interpret the crucial findings of the analysis with the principles of the Circular Economy (CE). The conceptual relationship between sustainability and the CE is regarded as a beneficial relation, a trade-off, or even a condition for sustainability (Geissdoerfer et al., 2017). The CE can lead to sustainable development by minimizing resource inputs, waste, emission, and energy leakage (Mathews & Tan, 2011). The so-called “closing-the-loop” production, long-lasting design, maintenance, repair, reuse, remanufacturing, refurbishing or recycling are ways to achieve a circular system (Ghisellini et al., 2016; Geissdoerfer et al., 2017).

The paper is structured as follows. In the second chapter, we start with the theoretical foundation by giving an overview of the Circular Economy and Osterwalder’s Business Model Canvas. This thesis is focused on mobile phones that are produced largely by using technical nutrients. Therefore, I highlighted the Technical Cycle of the Circular Economy and the most common principles of the CE. This enables us to assess the BMs. In the third chapter, the two cases are shortly presented. For the analysis in the fourth chapter, Osterwalder’s Business Model Canvas is crucial. The goal is to better understand how Fairphone and Mazuma Mobile propose, create, and deliver value based on the BM Canvas. The focus of the analysis is on the crucial BB, that enable circular developments. The Value Capturing (revenues and costs) is noted, but not deeply analyzed and discussed, due to the fact that they are not implemented in the BM in a circular way. Afterward, in the fifth chapter, we discuss and compare the circular developments of both cases and explain different outputs related to the principles and concepts of the CE that are based on the Technical Cycle of the Circular Economy, the three R’s (Reduction, Reuse, Recycle) and the Design. Before we draw the conclusion, implications and limitations will be given as well.

2 Theoretical Foundation

2.1 The Circular Economy

In 1966, the CE was mentioned for the first time in academic literature by Boulding, an ecological economist. He proposed to use a circular material system as a way to guarantee human life on earth (Boulding, 1966). Pearce and Turner (1989) described on Boulding’s idea how natural resources become the input for production and after they are consumed, the resources go to waste. At that time, it was already obvious that the traditional linear economy without recycling is not sustainable (Pearce & Turner, 1990). A few years before, Stahel and Reday (1976) formulated an industrial loop economy to show strategies for waste prevention, resource efficiency, regional job creation, and dematerialization in the economy. Stahel (1982) proposed to sell utilization instead of ownership, the first idea for a sustainable BMs in a loop economy, as well as the spiral-loop system in Figure 1: The Self-Replenishing System (based on: Stahel 1984). This system shows a material production with virgin resources. Within the loops, resources should first be manufactured, then used, and finally replenished.

Abbildung in dieser Leseprobe nicht enthalten

Figure 1: The Self-Replenishing System

(based on: Stahel 1984)

In recent years, the CE has increasingly drawn public attention to itself when it comes to discussing sustainability (Geissdoerfer et al., 2017; Lieder & Rashid, 2016). The potential of the CE can be a possibility to overcome the current linear production and consumption model that is known as the economy of “take, make, and dispose” (EMF, 2015). This means that companies take resources, e.g. raw materials, make a product out of it and the consumer disposes of it after using. One of the most popular definitions of the CE is:

“A circular economy is one that is restorative and regenerative by design and aims to keep products, components, and materials at their highest utility and value at all times, distinguishing between technical and biological cycles”

(EMF, 2012, p. 2).

This thesis will focus mainly on the technical cycle of the CE, which is explained in Figure 2: The Technical Cycle of the Circular Economy (adopted from: EMF 2012).

Abbildung in dieser Leseprobe nicht enthalten

Figure 2: The Technical Cycle of the Circular Economy

(adopted from: EMF 2012

The Ellen MacArthur Foundation (EMF) designed the Technical Cycle of the Circular Economy comprising maintaining, reusing, refurbishing and recycling activities as an overview of how to use technical materials in the CE. The model works as follows. Mined or manufactured raw materials are delivered to the “parts manufacturer”, who produces parts and delivers them to the “product manufacturer”. The product manufacturer finishes the product and delivers it to the distributor (service provider). The distributor delivers the product to the customer/user. After using a product in the CE, the product is collected and allocated to the appropriate cycle. In other words, the product has to follow a principle contained in the CE. This is important for our analysis in the following. Sequentially, the main principles of the Circular Economy will be explained.

The Maintaining principle is applied when the use of a product is prolonged as long as possible and the product preserves most of its value. A product can follow the Maintaining principle as long as the product does not return back to the company. This principle comprises cleaning, repairing, and upgrading by the user (Van den Berg & Bakker, 2015). However, optimal maintenance starts with designing the product with lifetime prognostics in order to forecast the future performance of the product. Improvements in the original design of products can lead to scale economies and efficiency in the reverse cycle. Maintaining technical nutrients at higher quality throughout the cycles extends the longevity and overall material productivity (EMF, 2015).

The Reduction principle is part of the so-called three R’s: Reduction, Reuse, and Recycle. Reduction means to improve the efficiency of production and consumption of waste, energy, and raw materials e.g. simplified packaging (Su et al., 2013). Next to the packaging, companies can increase their eco-efficiency (keep or increase the value of your product while reducing its environmental impact) on the production side. This strategy seeks to maximize the value of a good with decreased environmental impact (Figge et al., 2014).

The Reusing principle encompasses “any operation by which products or components that are not waste are used again for the same purpose for which they were conceived” (EU, 2008, p. 527). Product reuse also encompasses the product redistribution and implicates that the physical qualities and functions remain unchanged. Reusing leads to a product manufacturing that requires fewer resources, less energy, and less labor compared to products that are manufactured with virgin, or even recycled or disposal resources. This is attractive for companies in terms of environmental benefits (Castellani et al., 2015). Companies could implement incentives like take-back programs, fostering marketing of remanufactured products and the design of durable products for multiple cycles of use (Prendeville et al., 2014).

The Refurbishing principle comprises product repair, remanufacturing, and refurbishing. It describes the process of returning a product back to working. This can be achieved by replacing or repairing major components that are faulty. However, refurbishing is needed when the product is not directly reusable and first has to go back to the product manufacturer. Either the product can be used for the same purpose or it enters a remanufacturing system that takes back and dismantles it, so its parts and modules can be used as input for other products (EMF, 2015).

The Recycling principle is “any recovery operation by which waste materials are reprocessed into products, materials or substances whether for the original or other purposes. It includes the reprocessing of organic material but does not include energy recovery and the reprocessing into materials that are to be used as fuels or for backfilling operations” (EU, 2008, p. 527). Product recycling has to be considered when the product cannot be used again. The product has to be recycled and then delivered back to the appropriate manufacturer in the economy. Companies can extract resources through recycling and safe expensive mining of virgin resources. This recycling process of valuable resources is critically important in the mobile phone industry (Deutsche Umwelthilfe, 2018). Iron, aluminum, copper, gold, and platinum can be recycled in a profitable way, but other metals like gallium, indium, tantalum, or the rare-earth elements are less likely to be recycled. This is because of the complex and expensive recycling process and the fact that there are only small amounts used in the electronic devices (Deutsche Umwelthilfe, 2018). There is no official public information about how many devices are recycled by the companies in the mobile phone industry but metals like copper, iron, gold, and silver are often recycled because of the high value of these materials (Deutsche Umwelthilfe, 2018).

A general possibility to implement a circular system is the Designing principle. Products can be designed for maintenance, repairing, reusing, refurbishing, or recycling. The way the product is designed can already influence the number of raw materials and energy being used in its product lifecycle. Modularity provides a popular possibility to design a circular product or service. The basic idea has been part of older concepts like the “near-decomposability” concept. Near-decomposability means that a system should be divided into several parts organized in a hierarchical way (Simon, 1962). Modularity has different definitions and can be applied to several fields. In the case of smartphones, we understand it as product design modularity. This modularity provides a set of changeable hardware parts to allocate a maximum possibility of repair and minimum production of waste (Campagnolo & Camuffo, 2010). In general, tighter circles (e.g. maintain) are preferable to broader circles (e.g. recycling), because the energy and material leakages of the circuits are lower, and the value of the products is preserved. Additionally, the life of a product can be easily extended with little effort of repairing measures, while new production e.g. refurbishing or complete recycling is more complex (EMF, 2012).

2.2 Osterwalder’s Business Model Canvas

“A business model describes the rationale of how an organization creates, delivers, and captures value” (Osterwalder & Pigneur, 2010, p. 15). Following Osterwalder (2004), a BM can be described with nine Building Blocks (BB) that are visualized in Error! No bookmark name given. Figure 3: The Nine Building Blocks (adopted from: Osterwalder 2004). This visualization provides a concept of the most important parts that describe how a company conducts its business. The nine BBs can be separated into three dimensions. The Value Proposition consists of the value itself (products and services) and to whom (customer) the value is proposed. The second dimension is the value creation and delivery, which consists of four BB, the key partnerships, key activities, key resources and channels in order to deliver the value. The last dimension consists of the costs and revenues and explains how a company captures the value.

Abbildung in dieser Leseprobe nicht enthalten

Figure 3: The Nine Building Blocks

(adopted from: Osterwalder 2004)

2.2.1 Value Proposition

The Value Proposition corresponds to the question of which value is provided and to whom it will be delivered. It encompasses all services and products of the company and the value a company offers to its customer. In other words, it shows how a company differentiates itself from its competitors. Another important feature of the Value Proposition is the target group and the kind of relationship a firm wants to establish with its customers. The BBs of the Value Proposition comprises the Value Proposition (VP), Customer Segments (CS), and Customer Relationships (CR) (Osterwalder & Pigneur, 2004).

Abbildung in dieser Leseprobe nicht enthalten

Table 1: Value Proposition

(based on: Osterwalder 2010)

2.2.2 Value Creation and Delivery

This section shows how a firm creates and delivers value to the customer. The BBs of this part are the Key Resources (KR), the Key Activities (KA), the Key Partnerships (KP), and finally the Channels (CH). The Value Creation encompasses all activities, resources, and partnerships that are crucial for a company to organize the production, infrastructure, and logistics. The Value Delivering can be described as the means and ways a firm gets in touch with its current and prospective customer to deliver created value (Osterwalder, 2004).

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