Idea in Brief

The Problem

Manufacturing companies attracted by the promise of circular business models—in which used products can be recovered and reused or recycled—may struggle to make them sustainable.

Why It Happens

Managers all too often select circularity strategies that don’t align with their resources, capabilities, and constraints.

The Solution

The three basic strategies for creating a circular business model are retaining product ownership, product life extension, and design for recycling. In determining what combination of these to adopt, managers should consider the ease of gaining access to used products and the ease of recycling materials, components, or the complete product. These factors, together with how much value is locked up in the product, determine how much value can be recovered from a given pathway to circularity.

It’s easy to see why more and more manufacturing companies are talking about what’s often called the circular economy—in which businesses create supply chains that recover or recycle the resources used to create their products. Shrinking their environmental footprint, trimming operational waste, and using expensive resources more efficiently are certainly appealing to CEOs.

A version of this article appeared in the July–August 2021 issue of Harvard Business Review.