Smart circular economy as a service business model: an activity system framework and research agenda

Abstract

The circular economy is a new sustainability paradigm and a major driver of innovation in industrial firms. Digital servitization, enabled through smart products and their embeddedness in Internet of Things networks, represents a significant lever to generate product life cycle information and achieve collaboration between actors in the value cycle. Empirical studies on how product‐service system business models enable smart circularity are bourgeoning, but a gap exists regarding their microfoundations. Against this background, we adopt an activity system perspective to explore boundary‐spanning and interdependent business model activities. We conducted a qualitative interview study in business‐to‐business industries, from which we derived a funnel framework of smart circular systems (SCS) that spans three layers of the activity system. This contributes to theory in three ways: First, we identify 20 distinct microlevel activities. Second, we explain their interdependencies by classifying them based on the product life cycle into smart use, smart circular, and cross‐strategy activity sets. We also order these activity sets by their data transaction frequency, environmental and economic value, and a firm's typical learning pathway, as well as link them back into circular product design. Third, we highlight increasing servitization to develop the activity system across multiple circular activity sets. Managers can use the funnel as a template to drive circular business models on multiple levels, from adopting individual activities to redesigning the entire activity system.