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Islam, M.T.; Iyer-Raniga, U. Circular Economy and Circular Business Model. Encyclopedia. Available online: (accessed on 14 June 2024).
Islam MT, Iyer-Raniga U. Circular Economy and Circular Business Model. Encyclopedia. Available at: Accessed June 14, 2024.
Islam, Md Tasbirul, Usha Iyer-Raniga. "Circular Economy and Circular Business Model" Encyclopedia, (accessed June 14, 2024).
Islam, M.T., & Iyer-Raniga, U. (2023, August 15). Circular Economy and Circular Business Model. In Encyclopedia.
Islam, Md Tasbirul and Usha Iyer-Raniga. "Circular Economy and Circular Business Model." Encyclopedia. Web. 15 August, 2023.
Circular Economy and Circular Business Model

Circular business models (CBMs) are integral to the concept of the circular economy (CE). 

circular economy business model theory sustainability Sustainable business model Circular business model Business model innovation

1. Circular Economy

According to Ellen MacArthur Foundation [1], “A circular economy is an industrial system that is restorative or regenerative by intention and design. … It replaces the ‘end-of-life’ concept with restoration, shifts towards the use of renewable energy, eliminates the use of toxic chemicals, which impair reuse, and aims for the elimination of waste through the superior design of materials, products, systems, and, within this, business models”. Thus, from this definition, it is seen that the business model (BM) is an essential part that must be considered to have a CE. There are three main principles of CE, (P1) eliminate waste and pollution, (P2) circulate products and materials (at their highest value), (P3) regenerate natural ecosystem, and there are two distinct cycles with the concept (e.g., technical (P1 and P2-based) and biological cycle (P3-based) [1]. Subsequently, Kirchherr et al. [2] analyzed 114 different definitions of CE, indicating the research field’s intensity. At the same time, Potting et al. [3] proposed ten separate Rs contributing to circularity (including R0—refuse).

2. Circular Business Model

An Organization for Economic Co-operation and Development (OECD) document published by Ekins et al. [4], named these strategies as circularity strategies (within a production chain). Therefore, a business model that incorporates Rs (hereafter R-strategies of CE strategies considered in this research) and essentially follows the principles in its operations (both internally and externally) should be called a CBM. Geissdoerfer, Pieroni, Pigosso, and Soufani [5] defined CBM as “business models that are cycling, extending, intensifying, and/or dematerializing material and energy loops to reduce the resource inputs into and the waste and emission leakage out of an organizational system. This comprises recycling measures (cycling), use phase extensions (extending), a more intense use phase (intensifying), and the substitution of products by service and software solutions (dematerializing)”. In this definition, Geissdoerfer, Pieroni, Pigosso, and Soufani [5], applied the CBM strategies—cycling, extending, intensifying, and dematerializing. These strategies were the modification or further characterization of the strategies (of slowing and closing the loop) that were previously provided by Bocken et al. [6] in two segments: (a) at the circular product design level and (b) at business model-level strategies. By adding “narrowing” and “regenerating” to the previous two strategies, Konietzko et al. [7] called them resource strategies (i.e., the flow of energy and material). The CBM archetypes and typology are still an emerging research area. There are a lot of definitions and typologies that have been developed. The most simplistic categorization in the Nordic Innovation Playbook has been made for CBM. According to Nordic Innovation [8], commonly, there are five types of CBM—(1) circular inputs, (2) sharing platform, (3) product as a service, (4) product use extension, and (5) resource recovery.

3. Theories in Circular Business Model

Analyzing theoretical perspectives is also critical when developing a tool and analyzing specific case studies. Lately, CBM has received tremendous attention among researchers from various disciplines, such as business, operations management, and social and political science. As an evolving research stream and urgency of the issue, researchers are combining various pre-existing theories with the concept. There are various schools of thought around the theory of the business model. According to Teece [9] business model “reflects management’s hypothesis about what customers want and how an enterprise can best meet those needs and get paid for doing so”. At the same time, Chesbrough and Rosenbloom [10], mentioned that “the function of a business model is to ‘articulate’ the value proposition, select the appropriate technology and features, identify target market segments, define the structure of the value chain, and estimate the cost structure and profit potential”. When it comes to CBM, which has been recently popularizing and still has ample opportunities to flourish, many of the authors mentioned that their contribution by developing frameworks and circular and sustainable business model innovation enriching BMT and its derivatives (i.e., sustainability-related business model) [11][12][13]. Hofmann et al. [14] mentioned that the business model itself is a central theoretical construct that exceeds more than just a vogue expression, which is also agreed by Joyce and Paquin [15]. Lewandowski [16] considered the circular economy concept as a contributor to the development of BMT. Authors who developed various tools (in the form of canvas) and frameworks mentioned that they directly contributed to BMT, such as Daou et al. [17]. Pollard et al. [18] mentioned that they contributed to the circular economy business model canvas theory and practice by developing a canvas focusing on the electrical and electronic sectors. Okorie et al. [19] also mentioned that CBM is a theory, and a firm can be considered a “bundle of value” when seen from the resource-based theory lens. The BMC components were considered the basis for the CBM theory. On the other hand, Nußholz [20] expressed skepticism around integrating resource efficiency within CBM as an implementable theory, which is left for future research consideration. There are still gaps in understanding and theoretical development about what makes a business “circular”.
Specifically, stakeholder theory is being applied by researchers in CBMI-related aspects. For risk assessment and management and triple bottom line perspectives by Wit and Pylak [21], for SBM (synergies in value creation) and strategic sustainability aligned with stakeholder interests by Kurucz et al. [22]. However, in developing the “Strongly Sustainable Business Model Canvas”, Kurucz, Colbert, Luedeke-Freund, Upward and Willard [22], have not mentioned or included any specific theory. Bocken [23] integrated stakeholder theory and other concepts such as system thinking, SBM, and value mapping for the conceptual framework development around shared value creation. According to the authors, authentic collaboration with critical stakeholders is optimal for creating shared value by understanding their concerns and requirements. Basile et al. [24] referenced economic, complexity, networks, and stakeholder theories. The author identified that the business model is a standalone theory related to business strategy, innovation management, and economic theory.
Hoveskog et al. [25] highlighted using experiential learning theory (ELT), in which learning occurs through action/reflection and experience/abstraction. Using the theory, the author developed a practical visual collaborative tool within an educational institution environment. Bocken et al. [26] considered the “Lean Startup” approach as a theory that directly links lean startup thinking, triple bottom line value creation (economic, social, and environmental), and the organizational capability of experimentation. Lewandowski [16] referenced force field theory as a driver for change management (behavioral change among staff) in organizations.
From the social enterprise perspective, Rahdari et al. [27] focused on entrepreneurship theory, considering such entrepreneurship as a social and economic catalyst. The authors mentioned the political theory that deeply explains business–society relationships. The authors also drew attention to corporate citizenship theory defining business and societal relationships. The economic development theory was also highlighted as a critical aspect of business research encompassing innovation, value creation, and changing value systems. The authors argued that Schumpeter’s general theory of entrepreneurship [28] clarifies social standpoints on the entrepreneurial processes of such enterprises. The authors included the corporate citizenship theory for their framework (i.e., best practices for agents of change). Brown et al. [29] have referenced entrepreneurship theory integrating decision-making principles into their collaborative circular proposition canvas. They argued that they contributed to theory by integrating effectuation, design thinking, and lean experimentation approaches into the canvas.
It is clear from research by Hernández-Chea et al. [30] that canvas-like business model innovation tools, such as their SBM-IP canvas, contributed to emerging interdisciplinary theory around IP, business model, and sustainability. Here, the business model was considered a standalone theory. By showing the value hill framework, Achterberg et al. [31] mentioned that more insights, both theory and practice, would be gained by connecting CBM with collaborative organizations and potential business logic.


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Subjects: Business
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