Business strategy for the circular economy Mrta Somogyvri

Business strategy for the circular economy Márta Somogyvári Ph. D University of Pécs, Faculty of Business and Economics Department of Quantitative Management

Economy – Business -Strategy Society Economy Legal, cultural, societal, etc. framework Business org. Goods, services Biosphere 12: 11 Business org. Customers (B 2 C, B 2 B, B 2 G, etc) 2

Switching from linear to circular economy Society Expectations Government Company Shareholders Expectations Strategic foresight Image Legislation Customers Expectations Driving forces from the stakeholder 12: 11 point of view Switching the focus from product to production process 3

Linear versus circular value chain Customer Company 01 Natural resources Company 04 Company 02 Company 05 Company 03 Value chain 12: 11 Company 06 Waste 4

Linear versus circular value chain Customer Company 01 Natural resources Company 02 Company 04 Company 05 Company 03 Company 06 Closing the loop („R”) • • Waste Value chain 12: 11 • Decreasing the amount of waste Transforming waste into input to the same or other material flow Decreasing or eliminating the use of natural resources 5

Direction of circularity in the value chain Downstream circularity 12: 11 Upstream circularity 6

Strategic challenges for a business company Downstream circularity: • Managing the value chain in the company • Managing the supply chain • Etc. Upstream circularity • Managing the sales channel • Managing the product in the remaining life cycle • etc. How to harvest the created value? Circularity creates new value for society Consumer? ? ? 12: 11 7

Harvesting the created value Cost. L < Linear product Cost. C Circular product Price. L < Price. C Leg is (pe lation n tax alty, , et c. ) Possible actions: • Decreasing the price advantage of the linear product • Communicating the extra value of circularity Company marketing 12: 11 8

Harvesting the created value Cost. L < Linear product Cost. C Circular product Price. L < Price. C Leg is (pe lation n tax alty, , et c. ) Possible actions: • Decreasing the price advantage of the linear product • Communicating the extra value of circularity Company marketing 12: 11 9

Harvesting the created value Cost. L < Linear product 12: 11 Cost. C Circular service ? Price. L < ? Price. C Leg is (pe lation n tax alty, , et c. ) Possible actions: • Decreasing the price advantage of the linear product • Communicating the extra value of circularity • Service instead of product New business model Company marketing 10

Managing the value chain 12: 11 11

Geothermal cascade Perfect candidate for circular economy? 12: 11 12

Cascade: energy flow District heating Greenhouse Geothermal well Injection well Geothermal reservoir 12: 12 Earth heat 13

Cascade: energy flow + material flow District heating settlement d o o F ste wa Bio Geothermal well Greenhouse Injection well Geothermal reservoir 12: 12 Earth heat 14

How many companies? 1 company Geothermal well District heating Greenhouse 2 companies Geothermal well District heating Greenhouse 3 companies Geothermal well 12: 12 15

1 company solution Indicator: Specific contribution margin HUF/GJ Strategic Business Unit 01 12: 12 Core competence: Energy Strategic Business Unit 02 Geothermal well Distric Heating Greenhouse Investment risk High – Drilling Low- installing Low Moderate Operational risk Low High Revenue Steady, predictable Volatile Core competence: Growing, selling vegetables 16

2 company solution Indicator: Specific contribution margin HUF/GJ 1 Company solution Geothermal Energy Company How to distribute the contribution margin? 12: 12 Greenhouse Company Ø Lower contribution margin, because the fix costs are increasing Ø Market Power of the Energy Company is high Ø Strategic pricing of energy 17

3 company solution Ø Investment risk of the energy company is low Ø Market power of the energy company is broken Ø Distribution of the contribution margin fits the level of operation risk Nonprofit Company E. g. community or state-owned If the EU would subsidize it Geothermal cascades 12: 12 18

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