This study examines how incumbents are responding to sustainability transitions through the process of creative accumulation. The research finds that these organizations are adapting by integrating new and existing knowledge to develop circular value propositions. The study emphasizes the importance of aligning around sustainable principles and shows that established players are well-positioned to collaborate and capitalize on changes.
Keywords
Sustainability transitions, circular economy, sustainable business model, creative accumulation.
Introduction
In today's world, the increasing challenges of climate change and resource depletion have made it evident that the conventional approach to production and consumption, which follows the "take-make-dispose" model is no longer sustainable. In response, the circular economy (CE) is emerging as a more environmentally-friendly and economically viable alternative (Ellen MacArthur Foundation, 2015). The CE represents “an economic system that is based on business models which replace the ‘end-of-life’ concept with reducing, alternatively reusing, recycling and recovering materials in production/distribution and consumption processes, thus operating at the micro level (products, companies, consumers), meso level (eco-industrial parks) and macro level (city, region, nation and beyond), with the aim to accomplish sustainable development, which implies creating environmental quality, economic prosperity and social equity, to the benefit of current and future generations” (Kirchherr et al., 2017, pp. 224–225).
As highlighted in the definition, business models are widely recognized as critical enablers of the transition from a linear to a CE (Bocken et al., 2016). Circular business models (CBM) differ from traditional linear business models in that they prioritize closed-loop resource use to minimize waste and maximize value. As Geissdoerfer et al. (2018) explain, CBMs integrate circular principles into the very design process of a business. The 9R framework by Potting et al (2017) captures the key principles of CBMs and stands for: Rethink, Refuse, Reduce, Reuse, Repair, Refurbish, Remanufacture, Repurpose, and Recycle.
The concept of the CE has emerged as a key topic in the literature on sustainability transitions and sustainable business models. As previous research suggests, achieving a CE requires fundamental socio-technical transformations (Markard et al., 2012), where established regimes are reconfigured or replaced with others, that are better aligned with the CE principles of closing and slowing down resource flows (Bocken et al., 2016; Hofmann, 2019). The consequences of these transformations often trigger processes of “creative destruction” (Schumpeter, 1939), that result in discontinuities of established technologies and business models. Such creative-destructive forces are put into motion by the transitions literature with the help of the Multi-level perspective (MLP) which set the roles of incumbent actors in defending the status quo, and niche actors in driving the transformative change (Geels, 2010). In fact, many incumbents are struggling to adapt to the undergoing complex and daunting transitions towards circularity (Geissdoerfer et al. 2017). On the other hand, the failure to adopt circular practices is becoming increasingly risky due to the growing public awareness and new regulations that are pushing incumbent business models towards obsolescence (European Commission, 2020; Kuhlmann et al, 2022). Hence, CE can be seen as a discontinuity that creates serious challenges at the strategic and management level of incumbent actors and misaligns their existing business models and technological experiences with disruptive changes.
Despite existing research on the dynamics of sustainability transitions and business models (e.g. Bidmon and Knab, 2018, Aagaard et al.,2021), the approach has mainly been on industry incumbents as a collective body, often neglecting their firm-level heterogeneity (Turnheim and Sovacool, 2020). The potential of incumbent actors to strategically react to and effectively drive disruptive changes often tends to be downplayed (Späth et al, 2016). The scant knowledge in this area limits our understanding of the organizational perspective of transitioning towards CE, as well as the challenges and opportunities that incumbents encounter during this process (Franco, 2017; Kuhlmann et al., 2022). Therefore, it is crucial to gain further research insights into how established companies combine and leverage their knowledge and experience to drive industry transformations towards circularity.
To fill this void, we delve into the research on creative accumulation, which provides valuable insights into the challenges that incumbents encounter when they need to simultaneously evolve their existing technologies and resources while also developing new ones at a fast pace (Bergek et al., 2013). Innovation research suggests that in a period of creative-destructive forces, incumbent actors may either lose their competitive grip or transform their competencies and reorient market positions (Tushman and Anderson, 1986). While still valuable, existing knowledge alone isn't enough for incumbents to remain competitive in the light of CE (Franco, 2017). Under the CE transition, established companies face the challenge of both improving their expertise in established technologies and exploring directions outside the range of existing practices. This process has the inherent tension between knowledge accumulation that builds on existing practices and new knowledge creation that obsolete established ones. Such cases where existing knowledge becomes a foundation for expanding a firm's available options rather than a source of inertia are known as “creative accumulation”. In this light, Bergek and colleagues suggest that incumbents should simultaneously: “(a) fine-tuning and evolving existing technologies at a rapid pace, (b) acquiring and developing new technologies and resources and (c) integrating novel and existing knowledge into superior products and solutions” (Bergek et al. (2013: 1210).
Since the challenges incumbents face in adopting circular innovations are perceived to be similar to those encountered during discontinuous technological changes, these recommendations may also be beneficial to companies seeking transitions towards circularity. Consequently, we pose the following question: How do incumbents are shifting towards CE?
To answer this question, we conducted a multiple-case study (Yin, 2018) within the Swedish construction industry. We analyzed four different cases which have distinguished roles in the value chain. Each case consists of established actors that have prior experience in the traditional construction of large-scale buildings and are currently shifting towards more circular technologies and practices.
The results of the study highlight the difficulties of transitioning towards a circular economy and show that the emergence of discontinuous innovations does not necessarily mean that new entrants are leading the change while incumbents are maintaining stability. In fact, periods of discontinuous innovation can often result in greater collaborative efforts for industry incumbents, allowing them to drive transitions and strengthen their competitive positions. Therefore, achieving a successful transition towards a CE will require a nuanced understanding of the incumbents’ role as well as their willingness to collaborate and innovate.
This study contributes to the “Exploring the system level” theme of the NMB 2023 Conference and specifically to the “The transformative capacity of business models through collaboration”. The presented paper followed the reviewers' suggestions (we are thankful for the constructive comments of reviewers #1 and #2).
Methodological approach
This study aims to explore how incumbents are driving transitions towards circularity. To achieve this objective, we adopted a qualitative research design using a multiple-case study approach. Such a research design enables us to explore a limited number of instances of a particular phenomenon in depth, providing rich empirical descriptions based on multiple data sources (Eisenhardt and Graebner, 2007, Yin, 2018). The study is built on four cases, representing different actor types involved in the development and implementation of engineered wood technology on large-scale construction projects. Such as technology has been shown to improve resource efficiency, reduce waste, and lower the carbon footprint of building projects (Green & Taggart, 2020) and can therefore be considered a circular innovation (Bocken et al., 2016). Given the objective of advancing the research domains of CE and sustainability transitions, we selected cases that represent various actors and their efforts in driving the industry towards circularity. The adoption of multiple cases enables the development of robust theory since the propositions are grounded in a diverse range of empirical evidence, providing a deeper level of validation (Eisenhardt and Graebner, 2007).
Case selection
To ensure a comprehensive representation of the wood construction value chain, we employed a theoretical sampling strategy to carefully select four, including (A) architecture, engineering and construction (B) material producers, (C) regional and local governance, and (D) Universities and research centres. All four cases are presented in Table 1. Ultimately, our sample consisted of 13 organizations, each representing one of these eight different cases within the construction industry. The theoretical sampling strategy ensured that the cases selected are relevant to the research question and illuminate the relationships among the theoretical constructs (Eisenhardt and Graebner, 2007). The multiple-case selection was based on extreme cases (Flyvbjerg, 2011). Within each case, we identified organizations that strategically exhibit a strong position towards wood-based innovations in construction, with a particular focus on circularity. Specifically, we selected organizations that have been key players in large-scale wood construction projects, demonstrating a depth and breadth of technological and practical knowledge. Such selection allowed us to collect a wealth of information with strategic importance in relation to the development of wood-based innovations and their role in the industry transitions towards circularity.
Table 1. An overview of the multiple cases
Data Collection
We collected data on the development of engineered wood technologies in large construction projects and the related organizational, business, institutional and sustainability challenges. To increase the validity of the study, we complemented the semi-structured interviews as our primary data source with participant observations and company documentation. The triangulation of multiple data sources allowed us to increase the trustworthiness of the data and increase the study’s validity. (Eisenhardt, 1989; Yin, 2018). We present the multiple data sources below. In Table 2 we summarized the data sources of the multiple-case study.
Table 2. Data sources of the case study
Data Analysis
The first step of our data analysis involved conducting within-case analyses to develop comprehensive case narratives, following the procedure proposed by Eisenhardt (1989) and Langley (1999). The within-case analysis involves a detailed examination and description of each case to identify patterns and themes, with the aim of developing an in-depth understanding of the phenomenon under study (Eisenhardt, 1989). We provided case descriptions that detailed the application and rationale behind wood-based innovations in large-scale construction projects, with a specific focus on sustainability.
The second step of the analysis involved between-case analysis, which compares the cases to identify patterns and themes across cases. The goal of the between-case analysis is to identify commonalities and differences between the cases and to develop a broader understanding of the phenomenon under study (Eisenhardt & Graebner, 2007).
To comply with the short-paper format of this conference, we have limited the presentation of our findings to a cross-case analysis only.
Findings - Cross-case analysis
Despite the challenges faced by the industry traditions, all four groups of incumbents have made the decision to embrace more disruptive sustainable innovations and strive towards creating a more sustainable future for the construction industry and the built environment it serves. The actors integrate circular economy principles with the adoption of sustainable innovations, aiming to create more closed-loop systems where resources are kept in use for as long as possible. For example, engineered wood become a preferable construction alternative that can contribute to the decarbonisation of building projects. Its technical properties allow it to attract market segments not typically associated with wood construction, such as high multi-storey buildings, sports halls, and other large-scale projects. The high level of prefabrication is possible with engineered wood saves both time and money, making it a viable alternative to traditional materials. Hence, by relying on wood-based technologies the organizations are trying to create a more sustainable pathway for the industry.
The circular principles and more concrete BM strategies are mapped out in Table 3 to compare them across all four empirical cases. The table shows that, overall, the highest strategy alignment was encountered under the first group of circular principles - Useful application of material (8 out of 8), followed by the second level - Extending the lifespan of a product and its parts (9 out of 12), and third level - Smarter product use and manufacture (10 out of 16).
Table 3: Exploring recurring themes in circular principles across analysed cases
Discussion and Conclusion
Previous literature often portrays incumbent firms as obstacles to sustainability transitions (Geels, 2014). This perspective suggests that business organizations entrenched in neoliberal market economies are unlikely to be involved in achieving a sustainable economy and society in the future (Aagaard et al, 2021). However, our findings showed a more nuanced understanding of the regime actors, which goes beyond Schumpeter's dichotomy of new entrants only doing radical versus incumbents only doing incremental innovations. Our data reveals that incumbents have a proactive role in the transition towards a circular economy, which goes beyond being supportive. They can act as a driving force by leveraging their resources, expertise, and market power. By utilizing their established networks and partnerships, incumbents can aid in the development and adoption of sustainable practices and technologies. They also collaborate in research and development to create innovative solutions that contribute to sustainability. Furthermore, incumbents can influence regulations, policies, and industry standards to advocate for more environmentally-friendly practices.
All four empirical groups of incumbents have a strong experience in the traditional mainstream construction market. In the past and at the moment, they are realizing traditional building projects using carbon intense materials such as concrete and steel. The companies have an established base of knowledge, practices and value chain connections with the traditional type of construction. However, the industry is undergoing a change, spurred by urgent issues such as climate change, social responsibility, and economic challenges. These external forces are significant disruptors, with the environmental movements and the general public, amplifying the need to adapt to the evolving landscape. The organizations from all four empirical cases are trying to formulate an internal response to these disruptive forces.
Our research reveals that old technologies and practices have not become obsolete. Instead, they have been constantly improved and combined with new technologies and competencies at a rapid pace. As underlined in the findings, hybrid structures with combinations of both old and new materials and technologies are the future of sustainable construction. Throughout this process, existing competencies have been maintained and evolved while organizations have actively sought out and acquired new complementary technologies and knowledge. By integrating new and existing knowledge, these organizations have been able to develop optimized and more circular value propositions.
Our research builds upon prior studies that have shown organizations often grapple with multiple collective identities, which can sometimes lead to conflicting logic that influences their behaviour (Laasch, 2018; Palzkill and Augenstein, 2021). Actors' strategic identities are not fixed but rather undergo reconfiguration (Geels and Turnheim, 2021). External pressures from other actor groups are often necessary to bring about this identity reorientation, which is often difficult and contested. Hence, some incumbent firms, despite their regime commitments, show the potential to play a more productive role in sustainability transitions by reorienting themselves towards green niche innovations under the conditions of economic opportunities (Berggren et al, 2014).
This study represents possible cases where disruptive CE innovations do not necessarily lead to the emergence of successful new entrants or increased competition. In fact, the established industry players are better positioned to adapt and capitalize on these changes, particularly when they have already invested in new knowledge development and established strong partnerships with other stakeholders.
Moreover, our findings have gained a deeper understanding of the circular principles necessary for effective business model strategies and practices. All actors within the examined cases have aligned around the principles of sustainable material use, extending building lifespans, and smarter construction material design and manufacturing. By integrating these principles, waste can be reduced, and valuable resources can be recovered, promoting a more circular and sustainable approach to construction.
A general implication is that the established organizations within the construction value chain are adapting by integrating new and existing knowledge to develop optimized and circular value propositions. One of the main triggers for this shift is the hope to decouple environmental impact from economic development, but using CE for a narrow pursuit of growth may prolong or even deepen the sustainability-related issues (Jackson, 2009). The study also highlights the importance of aligning around sustainable principles and shows that established players are well-positioned to capitalize on changes.
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