Capsule 5: Overcoming the obstacles to implement a circular business model

• This fifth and final edition of the knowledge capsules created by the UPF-BSM’s Mercadona Chair analyzes the barriers and obstacles to implementing the circular business model.

The main barriers for the implementation of the circular business model have been categorized and grouped together by various studies in the field, with a total of six types of barriers currently being specified: structural, operational, financial, attitudinal, technological and institutional barriers.

1. Structural barriers: these are obstacles caused by misguided distribution in roles related to the circular economy in the company, and a lack of communication and cross-cutting interaction between them.
2. Operational barriers: low predictability in terms of the quantity and quality of the products to be remanufactured, which often generates inefficiencies in the remanufacturing system.
3. Financial barriers: uncertainty with respect to the profits and potential profitability generated by circular concepts. Adopting circular models often involves a greater operating risk for the members of the value chain.
4. Attitudinal barriers: the agents’ perception of sustainability and their level of risk aversion. A key barrier is the low level of acceptance among customers, due to factors such as shopping habits or the perception that reused products are inferior to new ones.
5. Technological barriers: product design and production processes. Some products are better suited to circular commercial models than others.
6. Institutional barriers: the lack of support regulations and social awareness.

Obstacles and drivers of a circular economy from the perspective of SMEs.

SMEs have to tackle significant obstacles when trying to adopt circular business models. Many of these challenges relate to financial matters. The high investment costs required to implement sustainable practices and difficulties to get financial support are the main barriers faced by these companies along their journey towards sustainability.

These barriers are particularly significant for companies that have not yet taken the leap towards the circular economy as, in many cases, they perceive sustainability more as just an additional expense rather than an investment. However, a key solution for making sustainability more attractive to SMEs could be access to incentives and financial support.

While these financial difficulties are a reality, there are encouraging signs from some studies and researchers that identify drivers of the circular economy, particularly in the technical sphere. These motivating factors include the creation of new jobs, increasing knowledge, and employee education and training.

How could technology held companies in the agrifood sector achieve a circular economy?

Digital transformation can be an important driver of sustainability and, as a result, the circular economy. In the agrifood sector, digitization enables information technologies to play a crucial role and involve many different agents.

The digitization of the agrifood sector will snowball as technologies improve the quality and sustainability of crops. There is a positive correlation between digital technologies and the circular economy, reaffirming that the data generated in organizations through technology can facilitate the systematic transition towards the circular economy.

The studies identify five aspects of digitization directly linked to the circular economy:

1. The IoT (Internet of Things) helps prolong the useful life of products. A circular designed IoT architecture promotes the collection of data, improving the monitoring and maintenance of the useful life of products and helping companies make decisions to improve product durability.
2. The integration of Big Data and large-scale group decision-making can facilitate circularity by integrating physical and virtual interactions between the stakeholders.
3. AI and Machine Learning generate a wide range of benefits, from cost reduction and identification of hidden patterns to improving response quality and capacity. The architecture of AI-based platforms enables us to gather, explore and disseminate knowledge related to the dynamics of circular systems.
4. Blockchain can facilitate the design of incentive mechanisms to encourage ecological behavior among consumers, enhance visibility, improve efficiency and reinforce monitoring and the presentation of performance reports. Blockchain technology enables the development of platforms for things such as shared leasing, which fosters collaboration between companies, and the redistribution of their surplus resources. Moreover, this technology helps companies measure their processes by enabling decision-making based on scientific data.
5. Other technologies such as digital marketing, digital platforms and supply chain automation software known as ERPs (Enterprise Resource Planning) can facilitate communication between the company and the market by adopting the circular economy and enabling process optimization and reductions in resource consumption and costs.

Promoting the systematic shift towards the circular economy in SMEs

The circular economy has emerged as a cutting-edge approach for leading the transition towards sustainability. This process entails a multifaceted transformation that strives to shift the existing sociotechnical systems towards sustainability-oriented production and consumption patterns. The sociotechnical dimension involves a series of "complementary technological and non-technical innovations" that not only modify the structure of the current system, but also have an impact on social practices.

The promotion and governance of this transition towards the circular economy have generated a lot of interest due to its potential to tackle crucial challenges, such as energy efficient and water and transport management, among others. Managing this transition in companies involves a series of process that include experimentation, learning and adaptation, with the aim of developing more sustainable governance practices.

Within this context, a key factor is the interrelation between social and technical change, with agents and their networks interacting under the supervision of institutions, both formal and informal, that strive to accelerate the development and implementation of new technologies that boost circularity. The different agents in social groups connect and synchronize through sociotechnical aspects and the tensions and instabilities between them generate "windows of opportunity" for radical innovation, even at the level of small and medium enterprises.

The research highlights that achieving the circular economy requires a cultural change, promoting responsibility among producers and influencing consumer attitudes towards recycling. As a result, companies that adopt circular practices, whether they are large corporations or SMEs, that adopt circular practices will gain a positive social image, which is now considered a vital asset.

Another decisive factor for driving a systematic shift towards the circular economy is the active participation of entrepreneurs who, with a sustainability-oriented mindset, embrace the challenge of tackling present and future problems, such as the depletion of natural resources and deforestation. Therefore, sustainability is becoming a critical driving force behind new practices in contemporary society. In this respect, the circular economy approach emerges as an innovative economic concept that can contribute significantly towards mitigating environmental problems and restoring the balance of our ecosystems, for both SMEs and larger organizations.