How financial performance is addressed in light of the transition to circular business models - A systematic literature review

Abstract

Circular business models are increasingly seen as enablers for the transition towards a circular economy. Perceiving financial benefits is an important driver for companies to make this transition, which is why knowledge of financial performance is required to support decision-makers. However, a lack of understanding of financial performance for circular business models has been identified as a barrier to transitioning. Therefore, this paper uses a systematic literature review to identify the state-of-the-art of how financial performance and its underpinnings are addressed concerning circular business models for each transition phase (i.e., ideate and design, implement and test, evaluate and improve). By analyzing the extent, context, and content of the financial performance discussions in relation to circular business models, the review identifies reasons for perceiving the transition as financially challenging and suggests specific research paths for each phase of the transition, to pinpoint where more efforts are needed. First, there is a lack of studies on prospective financial performance evaluation in the ideate-and-design phase. Second, retrospective evaluation of prototypes for circular business model experimentation lacks guidelines, and evidence and further investigations are needed on upscaling outcomes. Third, although retrospective evaluation gains more interest in the literature, guidelines and empirical evidence on selecting and designing prospective and retrospective indicators are still needed. Fourth, setting the evaluation scope is a key area for future studies. This involves having a long-term perspective and considering the offering from a business model level.