By Thomas Singer

By 2030, the global middle class will grow from 2.4 billion to 5.4 billion people. That surge not only threatens the health of the environment, but also the health of businesses, through resource shortages disrupting supply chains and spiking the cost of raw materials. Metals, minerals, water – the list goes on.

Despite the looming economic and environmental consequences, why have most U.S. companies taken few steps to up their sustainability game plans? In large part, inaction comes from a deep misperception in corporate America: Sustainability and profit mix like water and olive oil.

But a growing shift in consumer preferences has begun turning conventional thinking and operating models on their head. Now, the linear economy – the long-standing model in which companies merely take and make, with waste going in landfills or oceans – has started giving way to the circular economy. Under this approach, companies keep resources in use for as long as possible, so products, components and materials maintain their highest use and value.

For some guidance on the sustainability front, look to the headway being made in the tech sector. Consider the following examples of the circular economy in action at three leading companies: Royal Philips Electronics BV, Dell Technologies Inc. and HP Inc.

Philips makes lighting a service business

Philips recently moved toward a “light as a service business” – a pivot from its decades-long focus on selling light fixtures. And whereas it once merely sold equipment to hospital chains, it now leases many of its products through service agreements that include maintenance and consulting services. By retaining ownership and having more skin in the game, it steers customer behavior to better resource efficiency – good news for the environment. Moreover, the service-oriented model enables it to gain insight into customer usage patterns, resulting in data that helps keep it profitable and innovative.

The product-as-a-service model responds to a growing change in consumer preference for operational, rather than capital expenditures. One survey found that a third of respondents agreed that, compared with three years ago, their companies show more willingness to use a pay-per-use service rather than buying the product itself. The model makes an especially good fit for companies in the business of selling large-capital products. Those looking to follow suit can start small with pilots, then go big and bold. The practice could help gain or maintain that needed edge over competitors.

Customer demand drives Dell recycling

Under Dell’s Reconnect partnership with Goodwill Industries Inc., free electronics recycling collection points have been set up for consumers across 2,000 Goodwill locations in the U.S.  At these collection points, Goodwill determines if any returned electronics can be resold; those that cannot be are collected, bundled and sent to a Dell recycling partner. Dell recently expanded this initiative to create a closed-loop recycled-plastics program, whereby the recycling partner returns the plastics for mixing and molding to create new parts for new products. This closed-loop program began with one product and has now expanded to more than 90 cumulative product models that contain up to 15 percent recovered plastic.

Customer demand is one of the primary drivers of Dell’s circular economy initiatives. For Dell and others, circular economy initiatives provide an important edge on requests for proposals that measure sustainability performance, especially given that, in some cases, sustainability factors are weighted to account for as much as 15 percent of a bid.

HP’s Instant Ink delivers before customers ask

Finally, there’s HP’s Instant Ink service. Through this online service, consumers’ printers recognize when ink cartridges are low. HP then receives the signal and automatically ships new cartridges to them. The new cartridges include return envelopes – a key component of this circular economy practice. This enables HP to incorporate as much as 80 percent of the plastics from returned cartridges into new cartridges.

The business benefits are nothing to sneeze at, either: The subscription service has surged in its membership since 2013 and has a high retention rate. Companies looking to follow in HP’s steps must have a crystal-clear understanding of their customers’ pain points. After all, when was the last time you ran out of ink at a convenient time?

Business imperative

As these three companies are finding, the supply chain and environmental pressures from looming demographic shifts, coupled with evolving customer preferences, are creating an imperative for business transformation. Companies that wish to remain relevant and competitive in the long-term need to anticipate the risks and challenges inherent in a linear economy model. The lesson from companies like Philips, Dell, HP and others is that investing in pilots that incorporate circular economy attributes can offer important business benefits. These initiatives are not simply “the right thing to do,” they are increasingly the necessary thing to do.

Circular economy initiatives can lead to significant cost savings, new revenue generation and heightened engagement with customers and value chain partners. And if these benefits are not enough, consider that in the ever-increasing war for talent, investments in circular economy initiatives – and sustainability initiatives more broadly – can be a key asset to finding and retaining the best people.

Thomas Singer is principal researcher in corporate leadership at The Conference Board, a global business research organization. He is the author of a new report on the business challenges and opportunities around the circular economy.

Main image: Pixabay