In this 6-minute video, Frans van Houten, the President and Chief Executive Officer of Netherlands-based Royal Philips, discusses the opportunities for business model innovation that the circular economy could present. He explains what such innovation would look like, and the economic potential it would bring.
“Traditionally, the business model was I make the product, I sell it to you, you use it and you discard it,” van Houten begins. “In circular economy thinking, we take a different notion. We actually will recuperate the value of the product when it comes to the end of its lifecycle.”
Van Houten provides brief overviews of how the circular economy will require a shift from short-term to long-term value creation, and will result in more service-based business models. He provides examples from companies including Rolls-Royce and Philips.
“If I build up my business with recurring revenues that come out of customers that take my product as a service – rather than only the ‘hit and run’ of the linear model – I can build a very profitable and recurring revenue stream,” he adds. “And shareholders like that.”
He concludes with a recommendations for leaders to assemble a small multi-disciplinary team for a workshop where they can brainstorm opportunities for the business, and involve customers to determine their needs and optimize the company’s transition to new models.
This video was produced as part of a series on the circular economy by the World Economic Forum, which also featured cradle-to-cradle thought leader William McDonough, Patrick Wiedemann, the CEO of Reverse Logistics Group, and Arthur Huang, the Founder of MiniWiz, a closed-loop material innovation company.