Stage 2 UNDERSTAND
Before establishing your future vision and CE ambition for your business, it is imperative to establishyour starting point. Therefore, firstly you need to get a clear view of what is happening in the world around you – your business context. For instance, you need to understand the impact that changes in customer needs, demographics or technology can have on your future business. Your business model exists precisely within this context and as such, it is under its immediate influence. Therefore, your second task is to understand your current business model, its core strengths and weaknesses and evaluate how well these are aligned with your current context.
2.1 Current Business Model
This stage is designed to document the current state of your business by breaking down all activities into 9 digestible building blocks. This provides an overarching view of all aspects of your current business.
Business Model Canvas
The business model canvas is a shared language for describing, visualising, assessing and changing business models. It describes the rationale of how an organisation creates, delivers and captures value. This adaptation adds a special focus on social and environmental costs and benefits to highlight the importance of sustainability and circularity in providing value also, to people and planet.
It is important that the canvas is completed, one section at a time, in the following order:
Customer Segments: Who are your customers? List at least your top three segments. Look for the segments that provide the most revenue.
Value Propositions: What are your products and services? What is the job you get done for your customer?
Revenue Streams: List your top three revenue streams. If you do things for free, add them here too.
Channels: How do you communicate with your customers? How do you deliver the value proposition?
Customer Relationships: How does this show up and how do you maintain the relationship?
Key Activities: What do you do every day to run your business model?
Key Resources: The people, knowledge, means, and money you need to run your business.
Key Partners: List the partners that you can’t do business without (not suppliers).
Cost Structure: List your top costs by looking at activities and resources.
Social and Environmental Positives: What are the key positive impacts that you have on people and planet?
Social and Environmental Negatives: What are the key negative impacts that you have on people and planet?
Clear and common understanding of the current state business model. This will give a clear view of the resources available when considering Value Network and your Current Context in 2.2
Strengths & Weaknesses
Developed as part of the WP3 Methodology, drawing inspiration from the previously tested project tool in H2020’s Maribe Project – this tool allows you to focus on the core aspects of your business and consider.
Questions on the tool are respectively split into the 9 existing building blocks of the Business Model Canvas. In relation to each question:
Assess the respective building block on your current business model and score on the template (on a scale of 1-5), whether you think this aspect of your business as usual is weak (1) or strong (5).
Reviewing the completed template, identify what you believe to be the top 2 strengths and top 2 weaknesses within the canvas. Apply to SWOT Analysis see end of 2.2
Clarity of strengths to be utilised and weaknesses to be improved on in your current business model with focus on the top 2 of each.
Value Network Mapping
Companies cannot work in isolation to enable circular economy models. This requires suppliers, partners, customers, and other organisations along the value chain to collaborate directly or indirectly. These relationships all involve an exchange of value (financial or non-financial).
Please see Stage 3: Circular Economy Business Model (CEBM) Patterns for reference to the terminology of different types of material flow.
Discuss and map out the flow of key materials which relate to the value proposition and business model being examined in the case study.
Discuss and map out the relationships among key players which influence the material flow and the nature of the relationship in terms of value being exchanged. The ‘value mapping’ will be done from the perspective of economic/financial value as well as social and environmental value.
Clarity on how material and value is currently flowing as well as a better understanding of the key relationships necessary to enable more circular flows.
2.2 Current Context
Before diving straight into creating new business models, you need to have a good understanding of the existing context in which you operate (i.e., broader market, value networks, industry or economy). Your business model does not exist in a vacuum and as such is shaped and influenced by a myriad of external factors. By mapping out the current trends (i.e., factors that affect your business now), you can predict future ones with more accuracy. Context mapping will help you to look for drivers outside of your own organisation and identify the forces that (could) shape your business now and in the future.
When most teams begin to unpack the context of their product or organisation, they take a myopic point of view that is rooted in the here and now. The Context Canvas® is meant to help you and your team expand your thinking beyond the boundaries of your product and organisation, to have a deeper conversation about what’s going on in the world and what’s changing that will affect your business in the future.
Your Company: Your own company or organisation stands in the centre of the image.
Demographic Trends: Look for data on the demographics, education level, employment situation. What are the big changes in these areas?
Rules & Regulations: What policies, rules, and regulations do you think will be applied in the (near) future? What is the government up to? Any new taxes?
Economy & Environment: What is happening in the economy? And what is going on in the larger environment? Are there economic trends that will impact your business? Do you think climate change will have an impact?
Competition: What about the competition? Take the time to find the unexpected competition. Are there new entries? Competition coming from unexpected sources?
Technology Trends: What new technological trends do you see emerging that will impact your business?
Customer Needs: How will the customer needs change in the future? Do you see new trends? Do you see any big shifts in customer behavior? Are there new trends going mainstream?
Uncertainties: Do you see any important uncertainties? Things that potentially have a huge impact but it is unclear how or when?
Opportunities & Threats: Reviewing the completed canvas, individually identify (1 idea per post-it) what you believe to be the top 2 opportunities and top 2 threats within the canvas. Apply to SWOT Analysis see end of 2.2
Clear and common understanding of the current context that surrounds your business model, it’s greatest opportunities to be harnessed and it’s greatest threats to take into consideration moving forward.
This section contains an analysis of the Strengths, Weaknesses, Opportunities and Threats (SWOT) associated with the current business model. As is customary in SWOT analysis, the Strengths and Weaknesses are internal to the case organisation’s business model. Whereas, the Opportunities and Threats are external to the case organisation, coming from the context in which they operate (exemplified in the diagram above ).
Having identified Strengths & Weaknesses within your current business model See 2.1 Current Business Model: Strengths and Weaknesses and Opportunities & Threats within your current context See 2.2 Current Context: Step 9 , place them in the appropriate section of the SWOT analysis template to map out your internal and external, barriers and enablers to circularity.
Common understanding of the factors important to this business model as well as potential for improvements in future state business models.
2.3 Circular Vision
Equally, as it is important to know where you are starting from, you need to know where you are going. Therefore, you need to establish a circular vision so that your organisation has a clear direction of travel (i.e., integrated with core principles of a circular economy). A clear vision brings focus and provides an anchor point for making bold strategic choices. It drives the search for new circular business models. Clear and compelling circular vision provides direction in everything your organisation does moving forward.
5 Bold Steps Vision Canvas
The vision canvas will help you co-design the vision as well as the 5 bold steps to achieve that vision. Additionally, using this tool, your team will be able to clarify what supports your vision, what challenges your vision, and what opportunities are created in working toward your vision. Best of all, the vision canvas will help you derive design criteria for your business model(s) and strategy.
It’s important that the canvas is completed, one section at a time, in the following order:
Vision Statement: What’s your guiding circular vision? Your north star that you’re going to aim towards at all times.
Essential Themes: What are the essential themes supporting your vision Describe them in 1 or 2 single words.
How it shows up: How will the themes show up in your company? How will they make the vision themes concrete and how will they inspire others?
Supports: What are the supports that enable you to reach your future?
Challenges: What are the challenges that could potentially hinder you from reaching your future?
5 Bold Steps: What are the 5 bold steps to take in order to achieve your circular vision?
Key Values: What are the crucial values that form the foundation for your vision and steps? How can you align those values?
A clear vision and 5 concrete steps for you to take, that will get your company closer to the envisioned ‘north star.’
Confidence & Ambition Level
This simple template is used to grade how ambitious you believe your circular vision is and how confident you are in that vision. Completing this as a team, identifies how aligned everyone’s thoughts are surrounding the vision and whether or not there’s reason for further discussion.
Using coloured sticker dots or simply writing their initials straight onto the canvas, each team member notes on the canvas, where they believe their collective vision scores in relation to confidence and ambition.
- Clarity and evidence of whether or not your team are aligned on your (circular) vision.
- A view of whether or not your (circular) vision is ambitious enough, as per popular consensus.
- A view of how confident your team are, that you can achieve this (circular) vision and perhaps identifies whether you need to work to get your team on board or reconsider why your team might not be confident.
2.4 Set Design Criteria
The various outputs from the business modeling, context mapping, and circular vision setting exercises will inform your design criteria. This helps to provide clarity and focus in playing to strengths in your business model or addressing weaknesses. Equally, what are the important and relevant contextual trends that inform your design of future state business models? The direction of travel, boldness and ambition levels indicated by your vision will also flavour your design criteria and help you understand what must be, should be, could be and won’t be part of your future state circular business model design.
This is also an opportune point to review the circular business model patterns and select which one(s) you believe should/could be designed into your new business model as your current state has proven potential for these types of circular activities. See Stage 3: Circular Economy Business Model (CEBM) Patterns for reference .
Design Criteria Canvas
The design criteria you capture will likely first come from the vision you’ve formulated with your team. You’ll find that some of the elements in that vision are so important that they are non-negotiable. Yes, that also means that some elements are a bit more flexible (maybe not totally flexible). To find the most important elements in your vision, use the “MoSCoW” method: categorize every element under “Must,” “Should,” “Could,” or “Won’t.” This will help you prioritize.
Must Haves: Non-negotiable elements that you can’t leave out.
Should Haves: Non-vital criteria you would love to have.
Could Haves: Anything not immediately connected to realizing your vision.
Won’t Haves: Non-negotiable things you definitely will NOT do.
Clarity and focus of design intentionality to inform future state (circular) business model options.
2.5 Self Assessment
Using the R2Pi circularity and business model assessment tools, complete both worksheets to identify areas of interest that may need attention. This assessment is also helpful to understand readiness and to provide a baseline for future benchmarking.
Business Model Circularity Diagnostic
The Business Model Circularity Diagnostic Tool was developed for the methodology based on research conducted on methods for assessing circularity at product, business model, and system-level, as they relate to the conceptualisation of CEBMs (several product metrics were drawn from and validated by C2C Institute’s methodology). This tool forces you to look at your current model through a circular lense. Where you may have previously been less aware – this allows you to assess and identify aspects of your current business model that already possess circular-centric strengths that can be leveraged during the innovate stage ( See stage 3.2.2) and helps focus your mindset on the shift from linear to circular.
Noting the key at the top of the spreadsheet, record the following on the linear to circular scale of 1-5, beside each of the: Product, Business Model and System elements. If it’s below 3, you are tending towards a linear model. If it’s above 3, you are tending towards a circular model. If the particular factor is not applicable to you, put a cross under ‘NA’:
Record the ‘S’ ( – Status today) on the range of 1-5 based on where your organization is today.
Record the ‘O’ ( – Objective) on the range of 1-5 based on where you would like to be within 3 years.
Review your answers. Ideally, your ‘objective’ should be (at worst) the same as ‘status today’ or one or more steps towards becoming more circular.
- Overview of where there are elements of your current business model that are already leaning towards circular, that can be leveraged during your transition journey
- Encourages you to consider which aspects of your business you would like to improve through circularity and acts as a record of that