The Impact of Going Circular: A Financial View of Circular Economy Programs in the ICT Industry

Abstract

The circular economy is a strategy for encouraging growth while minimizing the use and waste of finite resources, hence its growing popularity within the corporate sustainability sector. However, the information and communications technology (ICT) industry must adopt this business model faster. This lack of commitment to the circular economy comes from the side of the buyer and the seller. While this may have to do with the mission-critical significance of the technology in this industry, it begs the question of the financial impacts of the circular economy for ICT companies and the plausibility of this business model transition. This study reviewed the programmatic side of the circular economy for ICT companies, their effectiveness in engaging sellers and customers in circularity efforts, and their financial impact on the company's profitability and bottom line.

To do such, the research addressed the following questions: Is it feasible to operate a 100% circular business model? What are circularity programs’ most profitable usage rates versus the standard linear business model? What programmatic elements are necessary to increase adoption to meet the optimal percentage of circularity? These questions were answered by testing the following hypotheses: Operating a 100% circular business model is financially profitable but not feasible in the near future; a successful transition to a circular economy requires gradually increased adoption across the value chain and throughout the industry; and to achieve optimal operational circularity, the circular program adoption rates must increase by adjusting and enhancing the incentive structures, including third-party involvement, and increasing supportive resources and marketing efforts.

To test these hypotheses, I first reviewed the necessary elements of successful corporate circularity strategies and programs, followed by a case study of a simulated ICT company based on actual ICT companies with active circularity programs. The identified and studied programs were those involving product takeback, remanufactured resale, and hardware leasing. My methodology included running and analyzing financial models of the programs’ impacts on revenue and profit margins. Six models were created to review the economic effects of adjusting discount levels, adoption rates, and incentive structures. Additionally, personnel were interviewed to identify program gaps and opportunities and inform the structural changes necessary for the programs’ growth and success.

The results showed the programs to be extremely underutilized currently due to poor incentive structures, conflicting priorities, and lack of program awareness. The financial models revealed that remanufactured products have an average of 8% profit margin increase compared to built-new products; however, due to high discounts on remanufactured resale, a 100% circular business model based around remanufacturing would be too detrimental to annual revenue. I determined, instead, that a fully circular economy can show an extreme profitability increase for the ICT industry when it can produce and sell a full portfolio of closed-loop products rather than remanufactured products. This study details a benchmark model to emulate in the transition to being able to achieve a fully closed-loop, circular system.