Strategic Decisions Related to Circular Business Model in a Forerunner Company: Challenges Due to Path Dependency and Lock-In

Abstract

Circular economy (CE) entails a radical change in companies because new ways of thinking and doing business are required for value-creation opportunities. There is a lack of empirical studies on how companies themselves see and develop the CE business. Furthermore, the dynamics between the changes required when pursuing a circular business model (CBM) have not been sufficiently studied. This intensive case study examines the strategic business decisions of a forerunner company in CE over 20 years. Questions: What were the strategic decisions related to CE business model in the case company over 20 years? What internal and external factors impacted the strategic decisions and how? Theory: The theoretical framework of this study is built based on CBM strategies and capabilities in the CE business. Basis of the Case: Phenomenon. Type of the Case: An intensive case study of a forerunner company in CE. Protagonist: Not needed. Findings: First, the results of the analysis show that the company engaged in both slowing and closing resource loop business model strategies in the CE market. Second, the results of the analysis imply that the path dependency in the market was too strong, and the company was not able to break the path dependency of the closing loop strategy. Third, the results show that the case company was, however, able to challenge the path dependency and lock-in in the closing resource loop strategy with internal factors that included strategic management capabilities, such as making decisions within the current market conditions, organizational capabilities, such as developing new positions and knowledge, technological capabilities, such as investments on improving and upgrading recycling and waste management, and business model innovation capabilities. Discussions: This study contributes to a call for further research on how companies themselves see and develop CE business. This study sheds light on the ways by which path dependency and lock-in contribute to CBM innovation and can explain a CE strategy failure. Furthermore, this study provides evidence that by drawing on company-internal and company-external factors, a company can challenge path dependency and lock-in and go forward in developing the CE business despite difficulties. For the case company, it was easier to maintain the closing resource loop strategy and stay with the original core business idea of providing recycling and waste management services to construction businesses and selling waste material for energy and heat production than engaging in slowing resource loop strategy. Finally, the results of this study suggest that path dependency theory is useful in projecting future risks in CBM innovation.