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Posts Tagged ‘Business Strategy’

The Circular Economy Model: Developing Environmental and Organizational Long-term Value

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A hundred billion tons of materials enter the global economy every year. Only 8.6% of the total amount of the materials are cycled back into the economy. This is the result of  the linear economic model. In a case study written by Thibaut Wautelet, he refers to the linear economic model as a production and consumption model based on the “take-make-waste” scheme. He explained that raw materials are collected, then transformed into goods that are used and finally discarded in landfills or incinerated as waste. This approach turned out to be broken, enabling overconsumption to the detriment of planetary health.  

Governments and businesses are looking to adopt the circular economy model and start repairing the damage created by unsustainable production and consumption. According to a published research in “Cleaner Environmental Systems Journal”, authors define circular economy as a catalyst for sustainable business. Moreover, the circular model  promotes “…the use of resources within closed-loop systems, reducing pollution or avoiding resource leakage while sustaining economic growth.” 

The pressure to adopt sustainability compels companies to implement the “reduce, reuse, and recycle” practices from the design stage to post-sales activities. Based on the same research, “Circular economy as a driver to sustainable businesses”, the influence of the circular economy can be seen in many business areas:

  • Cost management – The circular model leads to the transformation of products at the end-of-life cycles into resources for new products. Integrating material recycling into new components production can close the loop, reducing waste and the usage of more expensive raw materials.
  • Supply chain – The circular management of the supply chain is based on the coordination across the different members in closing, slowing, or narrowing energy and material flows. Additionally, the packaging system is an important aspect of the distribution process circularity. 
  • Process management – The business processes are rebuilt to make them more circular, facilitating the reusing and recycling out of the desire to extend product life and reduce environmental impact.
  • Service management – The Product-Service system is considered an enabler of the circular economy by offering services instead of products aiming at pro-environmental outcomes.
  • Research and development – The achievement of circular goals relies heavily on design, which determines the circular potential. The life-cycle-based research and development allows the selection of the type and quantity of materials and determining how they are combined – a process that affects the product life and the possibility of repairing and recycling it.  

Figure 1. Product Lifecycle in Circular Economy Model | News European Parliament

Companies Leading  the Change

Companies embrace the concept of circularity in response to the growing interest of customers in green practices and concerns about the global waste problem. Philips is one of the companies that are successfully paving the way toward the circular economy in their industry.

Philips was one of the largest electronics companies in the world. But it has changed its focus on health technology, looking to improve people’s health and well-being. Its products include large-scale and small medical equipment and home care products. The company developed new business models to adapt to the circular principles organized on seven strategic pillars:

  1. Close the loop with current products through take-back, refurbishment, and recycling
  2. Further circular practices across Philips sites, including zero waste to landfill policy
  3. The circular design of products and business models
  4. Technical competence building
  5. Driving change with external coalitions and supply chain
  6. Embedding in the Philips Business System

In 2016, the company set goals to generate 15% of revenues from circular products and services and send zero waste to landfills in internal operations. At the end of 2020, Philips achieved their circular goals. Therefore, they set three greater targets for 2025: to generate 25% of revenue from circular solutions, send no waste to landfills, and  close the loop by offering a trade-in on all professional medical equipment.

The Benefits of Adopting the Circular Model

The Circular Model and its principles are still new to the business ecosystem, and the market penetration of circular business models remains limited. But the potential to scale up the model is considerable in many industries. 

Besides the environmental impact that the circular model creates through the reduction of greenhouse gas emissions or the use of fewer nonrenewable resources, or achieving zero waste, shifting toward circularity can help companies secure a competitive advantage and create long-term value.

The circular model enables new revenue streams by accessing new markets or cutting off costs from waste generation. It reduces the dependency on raw material suppliers and increases the resilience in the face of supply chain disruption.

Additionally, by implementing a circular model, businesses can attract new clients and improve the retention of old ones, as sustainable practices are becoming an influencing factor in customers’ buying decisions. Also, customer loyalty is favored due to servitization, product-as-a-service offerings or take-back programs.

Based on the survey conducted by Deloitte, more consumers this year are pursuing a better sustainable lifestyle. Results show that 40% of the consumers choose brands that promote sustainable values and practices, which increased by six points compared to 2021. The number of consumers who stopped purchasing from a specific brand due to their ethical or sustainable issues and concerns towards the company has also increased by six points in 2022, which is 34%.

Going in circles is the way forward. It is time for companies to rethink how they do business, considering the industrialization’s impact on the environment, relevant international initiatives, such as the UN Sustainable Development Goals and the EU Circular Economy Action Plan, and  the increasing importance of sustainability to everyday customers. The change may be difficult for organizations used to operating in the linear economy but not impossible as seen in the above examples. In order to thrive in the market, companies must establish circular business models and adapt their strategies to the circular economy.

To advance your knowledge in establishing an effective strategy and planning for organization, enroll in The KPI Institute’s Certified Strategy and Business Planning Professional course. Invite your colleagues and sign up now! 

Why Innovation Needs a Strategy

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Image source: Mario Gogh | Unsplash

Needless to say, innovation has become a necessity for organizations. Innovation influences a firm’s performance and helps them to gain a competitive advantage and become market leaders. Companies claim to exert tremendous efforts in embracing innovation, yet many still do not have a clear innovation strategy and are unable to clearly align it with their overall business strategy. Some would opt to just embed it within their values or cultures, or as a business attribute, without having a clear plan and system for its effective implementation.

PwC’s Innovation Benchmark (2017) showed that 54% of the surveyed companies (>1200 respondents) reported that they are struggling in bridging the gap between business strategy and innovation strategy. Companies would make enormous investments in innovation, however, they do not see the returns from these investments. This is mainly because there is no alignment between their innovation strategies and their business strategies. 

There is no such thing as the “right innovation strategy”. Companies need to determine and create their own innovation strategy to fit their business needs such as business strategy, culture, and organizational structure. But why would companies go through all this hustle? Why is there a need for companies to create an innovation culture when they may already have a strong business strategy in place? 

The answer is simple: it helps companies to have successful innovation management. Innovation strategy aids organizations to know whether there is a need to innovate, to what extent, and in what areas. Accordingly, a company’s innovation strategy should be communicated across their organization; all the way from the CEO down to the most junior person in the workplace. 

Katz, Du Preez, & Schutte (2010) highlighted that innovation strategy can be described in two roles: the first one is an improvement role or, in this case, the “improvement innovation strategy”. The second role is a future business role or the “future business innovation strategy”. For the improvement role, innovation strategy does the following: 

  • Aligns a firm’s objectives with innovation objectives;
  • Acts as a guide for the type, level, and influence of innovation needed to attain a firm’s objectives;
  • Allocates a firm’s resources between daily operations and innovation initiatives; and
  • Creates a road plan for a firm to effectively utilize resources for innovation.

In relation to the future business role, the innovation strategy aids firms to determine when and how to selectively abort the past (such as old methods and actions). This will also enable firms to direct their attention towards future business. In other words, the future business strategy would oblige a company to alter its pattern, position, or perspective strategy, which, in turn, pushes the firm to move from the current business and develop future business.

Consequently, there is no doubt that firms today need to innovate permanently within their organizations. However, they must do so in a strategic way. Here are some ideas on how you can do that within your firm:

  • Revisit your business strategy and make sure it is updated to your current business context.
  • Analyze your organization’s assets, competition, market opportunities, and the firm’s culture. 
  • Consider the following components when defining your innovation strategy: type, level, impact, risks, collaboration, place, maturity, resources, and drivers. 
  • Determine the right timing for market entrance in case of product or service innovation.

To sum up, there is no such thing as the perfect innovation strategy. It is a strategic management decision that should be carefully taken by the most senior leaders in the workplace. It has to be shared with each and every individual so that it is reflected right from the beginning of the innovation process. Considering the nine components mentioned above is essential to be able to develop your innovation strategy. 

The first four components (type, level, impact, and risk) help the company to have the right blend of innovation needed to bolster the firm’s objectives and goals. As for collaboration (impacts the level of financial and human resources), place (assists the balance between the types of resources) and resources (divides the resources between the daily operations, innovation initiatives, and innovation capability improvement), they provide a guideline of the allocation of resources for innovation. The last two components are drivers and maturity which make the company ready to innovate their future business.

Effective Corporate Strategies for Building Knowledge Management Performance

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knowledge management

Corporate Strategy Development  

Executives are familiar with Alfred Chandler, one of the more prominent strategic management scholars, along with Henry Mintzberg. Chandler perceives corporate strategy as the determining factor behind a firm’s long-term goals, after which you allocate capabilities and adapt actions & activities in a fashion that can achieve them in both an effective and efficient way.

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