ECO SPECIAL Developing products
for a circular economy
·
Cross-functional
collaboration and customer-focused design thinking can help companies reap more
value from the energy and resources they use.
Over the past 150 years, companies
have steadily refined their ability to invent products and produce them
efficiently, delivering a wide range of goods to consumers and improving
financial returns to shareholders. In other respects, however, this system is
far from optimal. Specifically, companies have hardly begun to reckon with the
waste that occurs after products are purchased. When a consumer uses a product
infrequently or discards it because it has worn out, at least some of the
energy and material that went into making the product has been wasted.
Things don’t have to be this way. Some businesses are
using circular-economy
principles to create products that are durable, easy to reuse
or recycle—and profitable. Nothing about this is easy, but two tactics can
help.
The first is devising a highly collaborative
product-development process that both accounts for and helps to determine
sourcing requirements, production methods, marketing, sales, and other aspects
of how goods are made and how they are handled at the end of their lives. The
second is to use design thinking,
which can help companies discover unexpected ways of meeting customers’ needs
with much greater resource efficiency than in the past.
In this article, we explore how these tactics can help
companies capitalize on the opportunities that the circular economy presents.
How collaboration
helps companies develop circular-economy products
Few companies consider what happens to their products
after they are purchased. The tacit assumption is that people will eventually
throw them out and buy new ones; local waste collectors will take care of the
discards.
Mechanical components, for instance, tend to be designed
with ease of manufacturing in mind, because that makes them less expensive.
This priority leads to design choices like snapping pieces together rather than
joining them with removable fasteners. Making a part easy to manufacture,
though, can make it all but impossible to disassemble or repair. Its fate is to
be discarded, then replaced.
Now suppose the product-development process were to begin
from a different premise, derived from the idea of a
circular economy. Instead of considering only functionality and cost and
assuming that products will be thrown out, a company would look at how it might
manage the entire life cycle of its products in order to maximize the value of
them and their component materials. For mechanical components, a manufacturer
might give customers rebates for returning end-of-life parts so the
manufacturer can refurbish them for resale at a lower price or dismantle them
for recycling.
Circular-economy principles can be seen at work today in
the mobile-phone sector. Some handset makers sell refurbished units of their
own phones at a discount. Independent companies have also emerged to capture
the residual value of used, older-model phones that still function. They
collect these phones, fix them, install fresh software, and sell them,
especially in markets where many people cannot afford or do not need the latest
models.
The secondary market for mobile phones hints at the
opportunity for consumer companies to retain more of the value of the material
and energy they use to make their products. It also points to the
business-model changes required to seize that opportunity, which begin with
product development. Developing a product that a company can manage over its
life cycle requires more collaboration than is customary. The product design
has to be conducive to reuse, repair, and recycling. And the company needs
processes and systems for helping customers when products wear out, approach
obsolescence, fail, or no longer provide satisfaction.
Since these matters affect procurement, marketing,
sales, and other company departments, as well as suppliers, freight carriers,
distributors, retailers, and entities all along the value chain, all those
departments and organizations need to have a say in product development. This
is seldom the case today. Product developers typically receive specifications
and design products accordingly.
When product development is a collaborative process
involving the whole value chain, profitable breakthroughs are more likely to
occur. At one medical-equipment company, for example, the sales department was
given ambitious targets in emerging markets—and a portfolio of high-priced
products. Bringing together sales, product development, and other teams
revealed this problem and gave product developers a chance to help solve it.
They figured out that by refurbishing used medical equipment from developed
countries, the company could offer a lineup that would be appealing and
affordable in emerging markets.
The medical-equipment company’s experience illustrates
another benefit of making the product-development process more collaborative:
it helps companies center the process on customers’ needs rather than product
specifications. And when it comes to creating products with customers first in mind, one especially
effective method is design thinking, a user-centered
design approach that focuses on finding the best way to meet customers’
needs, rather than the best way to design products.
How design thinking
reinforces circular-economy principles in product development
Design thinking starts with observing customers in their
everyday lives to learn about their material needs and about how well (or
poorly) those needs are met by existing products. Product designers, marketing
specialists, engineers, and others involved in making and selling products use
the resulting insights on customer needs to rapidly prototype, test, and refine
new concepts for products and services, without relying on old assumptions that
might constrain their ideas.
With respect to the circular economy, design thinking
also means asking how to provide value to consumers using a minimum amount of
material. Sometimes the answer is to offer services rather than products: think
of how some people choose to store digital files in the cloud rather than on their
own devices. If a physical unit is needed, design thinking might suggest that
companies make their products more durable by using better materials, or make
them easy to maintain with designs that allow critical components to be
replaced when they wear out.
These concepts led the flooring company Desso to
introduce a carpet-leasing service. Instead of buying carpet, customers now
have the option to lease carpet from the company, which takes care of
installation, maintenance, and removal. This arrangement gives Desso an
incentive to manage materials efficiently. Indeed, Desso has cut waste and
reduced its consumption of virgin material by treating old carpet as a valued
commodity. The company collects carpet from its customers and other sources,
including its competitors, and removes the fibers from the backing. The old
fibers are recycled into new fibers; the backing is used as an ingredient in
roads and roofs.
Understanding the possibilities associated with
circular-economy ideas requires the expertise of many company departments as
well as business partners. Design thinking thus relies on the sort of
collaboration that is central to developing circular-economy products. In a
design-thinking process, the company would start with a one- or two-day working
session with all the affected departments and other organizations in the value
chain. Participants would discuss customer needs and relevant business
operations—particularly manufacturing and service—and come up with ideas for
new offerings as well as the business-model changes needed to support them.
Given those concepts, the product-development team would
create prototypes. The prototypes would be shared with the same groups from the
initial meeting and discussed in another working session. Product developers
would then refine their designs for further consideration by the wider group of
stakeholders. This process would continue until the product is ready to be made
and the business changes required to support it have been defined by the
relevant departments. The final decision to bring out the product is also thus
a choice about reorganizing the business so it can capture maximum value from
the new product over its entire life cycle.
Reorienting business models and practices along these
lines requires levels of collaboration and creative thinking that are far from
familiar. So why should companies bother? One reason is that they face
increasing pressure from consumers and governments, particularly in developed
countries, to be better stewards of resources and the environment.
Another
reason is to pursue a major financial and economic opportunity. Research
suggests that each year some $2.6 trillion worth of material in fast-moving
consumer goods—80 percent of the material value—is thrown away and never recovered.1In
a circular economy, more of this material would be used again in some form. In
Europe, the net benefit of applying circular-economy principles could be as
much as €1.8 trillion
annually by 2030. Companies that successfully design products for a
circular economy stand to capture considerable value and create lasting,
rewarding relationships with customers.
By
Eric Hannon, Marianne Kuhlmann, and Benjamin Thaidigsmann
http://www.mckinsey.com/business-functions/sustainability-and-resource-productivity/our-insights/developing-products-for-a-circular-economy?cid=sustainability-eml-alt-mip-mck-oth-1611
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