Circular value creation architectures: Make, ally, buy, or laissez‐faire

Erik G. Hansen and Ferdinand Revellio

Journal of Industrial Ecology, 2020, vol. 24, issue 6, 1250-1273

Abstract: Slowing and closing product and related material loops in a circular economy (CE) requires circular service operations such as take‐back, repair, and recycling. However, it remains open whether these are coordinated by OEMs, retailers, or third‐party loop operators (e.g., refurbishers). Literature rooted in the classic make‐or‐buy concept proposes four generic coordination mechanisms and related value creation architectures: vertical integration, network, outsourcing, or doing nothing (laissez‐faire). For each of these existing architectures, we conducted an embedded case study in the domain of smartphones with the aim to better understand how central coordinators align with actors in the value chain to offer voluntary circular service operations. Based on the above coordination mechanisms, our central contribution is the development of a typology of circular value creation architectures (CVCAs) and its elaboration regarding circular coordination, loop configuration, and ambition levels. We find that firms following slowing strategies (i.e., repair, reuse, and remanufacturing) pursue higher degrees of vertical integration than those following closing strategies (i.e., recycling) because of the specificity of the assets involved and their greater strategic relevance. The typology also shows that higher degrees of vertical integration enable higher degrees of loop closure (i.e., from open to closed loops) and better feedbacks into product design. Furthermore, we differentiate the understanding on third‐party actors by distinguishing between independent and autonomous loop operators. Overall, we strengthen the actor perspective in product circularity literature by clarifying the actor set, their interrelationships, and how they form value creation architectures.

Date: 2020
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