Managing the Transition Toward a Circular Economy: The Role of Firms in Realizing the Transformation

Abstract

In the light of the continuously worsening climate crisis and society’s increasing awareness of the severe negative effects of our current economic system on the planet’s natural ecosystem, calls for a transition to a sustainable economic system have been becoming louder. Among the different approaches to realize such a transition, the concept of a circular economy has gained significant attention over the last years among practitioners, policy makers, and academics alike. A circular economy represents a fundamental departure from the prevailing linear ‘take-make-waste’ economic mode, as it aims to eliminate waste generation and minimize resource consumption by continuously looping materials back into the system. Realizing a circular economy requires a paradigmatic change in the way we structure and conduct economic activity. Consequently, firms play a central role in achieving this transition. Not only do firms need to adapt their own business activities and find ways to decouple value creation from resource consumption in an economically viable manner, but they also need to collaborate with each other to jointly transform value chains and industries. Given the magnitude of change, this transformation is considerably challenging to realize. On the firm level, pursuing circular economy-oriented innovations can be cumbersome for firms as they create tensions with established organizational structures. Beyond the organization, firms need to define new ways of working together to collaboratively reconceptualize established value chains. Yet, the dynamics and challenges associated with this transformation remain poorly understood. This dissertation aims to contribute to a better understanding of these dynamics, guided by the following research question: “How do firms engage to transform their own organizations and to collaboratively reshape economic activity within and across industries to realize the transition from a linear to a circular economy?” In four academic papers, this dissertation adopts different perspectives to shed light on the management of this transition. Paper I focuses on the individual firm level, adopting the lens of disruptive innovation to analyze the challenges of incumbent firms in driving circular innovations and potential responses to overcome them. Paper III further analyzes the interplay of circular innovation activities and the organizational context across the different phases of the innovation process. In each phase, the paper analyzes organization-level barriers, activities of change agents, and associated changes in the organizational context to provide a deeper understanding of the evolving organizational embedding of circular innovations. Paper II focuses on the collaboration between firms to transform a linear value chain into a circular one. Drawing on the concept of interorganizational sensemaking, the paper analyzes how interdependent stakeholders interact with each other to reach alignment on a common pathway for the circular transition of the value chain. Finally, paper IV analyzes different collaboration formats between firms, by first identifying major archetypes of interfirm collaborations in the circular economy context and then discussing their main characteristics and the dynamics of managing such collaborative endeavors. Based on these four papers, this dissertation makes several contributions to the literature: Paper I finds that incumbents engaging in circular innovation may face an ‘innovator’s dilemma’, as the circular ideas create tensions with the established organization tailored to the mainstream linear business, which appears economically more attractive in the short run. A 2 separate organizational structure can facilitate the pursuit of circular innovations, but it requires both a deliberate preparation as well as careful navigation of the relationship between the established linear and the emerging circular business and a reevaluation of existing partnerships and competencies. Paper III contributes to a deeper understanding of the influence of the organizational context on circular innovation activities. The analysis identifies five elements of organizational embedding, revealing how they evolve over time as they are shaped by and also shape the organizational barriers and the activities of change agents. Paper II provides a detailed analysis of the alignment process between firms from one value chain collaborating to transform their industry. The analysis suggests that firms engage on three levels to jointly make sense of the circular economy transition that each provide different reference frames for the sensemaking: organization, value chain, and ecosystem. Engaging on all levels is important to motivate stakeholders to engage with each other, gain a holistic understanding of the topic, and enhance their willingness to compromise. Power dynamics between stakeholders and considerations of identity influence the process but play out differently across these levels. Paper IV finally suggests a typology of interfirm collaborations, outlines typical challenges of each collaboration type, and derives relevant tasks and competencies needed to manage such collaborations. This dissertation also provides insights for practitioners: To successfully drive circular innovation on the firm level, practitioners need to integrate it into their corporate strategy, scout for ambitious ideas both internally and externally, and create the organizational embedding that caters to the needs of the selected circular ideas. In addition, companies need to reevaluate and potentially reconfigure their core competencies and partnerships to prepare the organization for the long-term transition to a circular economy. To further advance the transition of value chains and industries, practitioners can actively support the formation of circular economy-oriented collaborations between firms by raising awareness of the topic, by supporting the creation of ties between distant stakeholders, and act as facilitator to provide tailored support to the developing collaborations.