Optimising Circular Value (OCV) to Benefit People & the Environment
This article was first published on April 23rd 2017 for the Circular Economy Club, our partner in Europe, and published on their website. The original article can be found here. Below is its extended version.
“Ever since I spoke with Dame Ellen MacArthur back in 2012 during our knowledge exchange talks between Cisco Systems and The Ellen MacArthur Foundation, I knew the positive social impact of a well-designed circular economy could be huge.
The Social Value of the Circular Economy
Obviously when we start mentioning the word “social”, many linear centric businesses seem to show some listlessness. But beyond the word “social” you have the word “value”. The understanding of why we want to invest into a circular centric business world is critical to everything we will do from now on. Something has value when it is perceived so by the people themselves.
For those reading these lines on the Circular Economy Club website, you already know that Circular Economy might drive us towards this better world we are all looking for because only you know better: as a person who wants to thrive in a world with limited resources, as a human who does not want to fight with other humans for resource access, as a customer who want to enjoy a well-designed economic system not threatening younger generations, and so on.
You know that Circular Economy will be creating value. And this notion of value — or Circular Value — exists because you, as a person, has decided that everything aligned with Circular Economy Principles and Concepts is something to care for and invest in.
This graph is explained here.
Thus, a strong social dimension fully embedded within the concept of the Circular Economy is of critical importance to ensure all decisions made for this next economic framework will be in accordance with the creation of value aiming at people well-being. Reaching such level of well-being for all of us will require environmental services that are fully functioning and regenerating themselves, building strong foundations for a benefiting economy.
Optimising Value rather than Profit
By benefiting economy we understand the design of an economy which is no longer based on profit maximisation but on value optimisation. Kenneth Boulding, the father of the Spaceman Economy (1966) — now called the Circular Economy — said in 1973 “Anyone who believes in anything physical, on a physically finite planet, is either a madman or an economist”. This sentence resonates even stronger today in a world of instability given the lack of vision of our leaders.
The issue lies on the way to frame the meaning of economic success. Most of us have grown up with the perception that, at the end of our own life, we will be seen as “fulfilled” by the amount of financial wealth we have managed to amass. The issue with this thinking is not about the financial gains themselves. The issue is about the narrow-minded decisions that were taken during that person’s life so that money was made in profusion at any cost. In a money centric world, destruction of other values such as social value, environmental value, cultural value and so on has had to happen to generate these profits. Today, we should be able to bring about financial profits however from a systemic view: at the conditions that other values are growing at a faster pace than the financial gains making sure that future generations will also enjoy a blossoming life.
To achieve such a goal, we will have to evolve within a system-thinking approach where we comprehend that our decisions have ripple effects on several layers of our economies, societies and ecosystems. Today, we are busy equipping the Circular Economy with principles and concepts that gives us a great vision of what the future of our economy should look like to flourish.
These different building blocks are detailed here.
Measuring Success on how much Value is Generated for Stakeholders
To ensure this future economy is a benefiting one for all, we will have to jointly consider measuring our “success” on how much value am I creating for its extended stakeholders so that the company could grow organically. And that is where the Circular Economy changes everything in the way we have conceived our productive tools today: our extended stakeholders.
In a Circular Economy, our direct stakeholders may be groups of partners expert in specific fields building on and from a company product or product-of-services. Often, these partners will be known to us, the company, but it might become lesser of a case as we grow deeper into a circular scenario. Our indirect stakeholders will most probably not be known to the company. If you take the example of the electric car, people walking in a street or city where electric cars are preferred are some of your indirect stakeholders. They breeze a fresher air thus they might develop less health issues in relation with a poor air quality environment, thus doctors could concentrate on other diseases. These doctors also become your indirect stakeholders of the electric car manufacturer, and so on. Should you create circular solutions that embed negative externalities, they will generate multi-layered benefits to the society, to the environment and thus to the economy without the original company being fully aware of all of them.
This is what is new about the Circular Economy: the possibly of optimizing the creation of value not only to increase the resilience of your business, but the resilience of many businesses, strongly linked with the pre-condition of benefiting the people and the environment.
The Need for Regenerative & Collaborative Ecosystems
Creating value in a linear economy is often about ensuring revenues and profits are made first to the company by investing in the supply chain productivity, while protecting the communities and environment to avoid reputational risks.
In a circular economic context, the paradigm is very different. We have realised that business survival depends on the regenerative ability of ecosystems and societies to thrive. In this paradigm, businesses will increase their resilience thus develop collaborative advantages by focusing on outcomes instead of the current output based metrics they use. Outcomes are often long-term and behaviour based.
Outcome focused companies offering circular solutions will develop collaborative advantages as their long-term vision will be ahead of the game, driving well-earned revenues and profits upon circular value creation.
The Circular Thinking of designing waste + poverty out is explained here.
Here, ensuring that the environment and the people are thriving is the pre-condition to a resilient business. This is the reason why I have recently suggested ways to embed the social dimension within the Circular Economy “Butterfly Diagram” as well as aiming at the eradication of poverty in parallel to waste in the concept called the “Circular Economy 2.0”. Indeed, both poverty and waste do not exist in nature, they should therefore be eradicated at the same time using the “Circular Thinking”. Eradicating both of them will lead to the Optimisation of Circular Value (OCV) unbridling multi-layered benefits, starting with business benefits in the first place.”