Supporting Adoption of Circular Business Models in Small and Medium Enterprises: Circular Readiness Assessment Framework

Abstract

The circular economy (CE) is widely acknowledged as a highly promising and powerful alternative to the linear economy, representing one of the most significant advancements toward sustainability. Accelerating the transition to the CE requires the adoption of new circular business models (CBMs) by small and medium-sized enterprises (SMEs), given their central role in sustainable development and global economic growth. Despite extensive research on the CE and CBMs reported in the literature over the past decade, there have been limited publications focusing on the transition of SMEs to the CE through the adoption of CBMs. Specifically, there is a lack of frameworks, models, and practical tools for assessing the CE readiness of SMEs and supporting them in the adoption of CBMs. This paper presents an approach to conceptualizing and subsequently operationalizing the circular readiness assessment framework (CRAF), which provides a conceptual foundation for the development of a tool to assist SMEs, aiming to adopt new CBMs, in evaluating their current readiness to perform business processes and activities following CE principles. The framework consists of five key dimensions: sustainable use of materials, efficient utilization of capacity and resources, extended life cycle of machines and equipment, maximizing product and material value, and leveraging customer relationships. These dimensions represent the identified business process and activity areas essential for the effective adoption of CBMs but are often underperforming. The framework was operationalized by developing and testing the self-assessment tool through interviews with the most knowledgeable members of 19 Finnish SMEs across various manufacturing industry and service sectors. Subsequently, it was refined based on the findings, which complement previous research on challenges SMEs encounter in adopting CBMs. Although the 19 SMEs were already taking significant steps toward implementing CE principles in their processes, particularly in resource-efficient production development, many firms still faced difficulties in identifying a suitable CBM and aligning their processes with it. The findings also revealed that many SMEs, despite lacking in-depth expertise and familiarity with CE principles and related terminology, have integrated these principles into their processes and activities, indicating a strong motivation to renew their businesses with CBMs.