C OPING WITH THE T RANSFORMATIONAL C HALLENGES

To further understand the transformational process, we examine the common challenges identified in the interviews and ways for the leaders to deal with these complications. These approaches comprise both the different means identified in the interviews as well as our additional

suggestions, both of which contribute to the framework for how leaders can approach the change from linearity to circularity.

Managing Circular Product Development

As described in the Findings chapter, almost all of the interviewees impressed upon the need for new product development, consistent with most literature on circularity (e.g., Burgon &

Wentworth, 2018; Kalmykova et al., 2018). Not only did the products have to be made from environmentally friendly materials and be designed for re-integration in the reverse supply chain, they also had to embrace the customers’ general expectations for such a product (Hitchcock &

Willard, 2009). For instance, jeans not only had to be recyclable and made from sustainable materials, they also had to fit the customers’ taste in jeans. Consequently, the CVP (Johnson et al., 2008) had to coincide with the original value proposition and additionally include the sustainable circular elements as well. In line with the value proposition being linked to the organizational identity (see Working with the Culture), the company had to balance the original identity with the new focus on embracing a circular business model strategy. Furthermore, the necessary new product development, as well as the need to adjust the facilities and conditions of the suppliers, meant that almost all of the interviewees considered the transition to be a long-term and expensive investment. This meant that the companies often had to find capital for the investments, which further prolonged the process due to the difficulty in obtaining funds for circular investments. In this regard, some interviewees described applying for capital through various green investment funds, as well as the interviewees described engaging in strategic partnerships with actors that would otherwise have been competitors, to share the research and development costs. Combined with findings stating that customers do not necessarily perceive products to have an added value

86

based on circularity (Atasu et al., 2018), this is congruent with some interviewees stating that the company had to absorb the costs itself. Part of having to obtain data and documentation on what works regarding the product development could be connected to encouraging experimenting and failing. Through experimentation, additional data is gathered – also through the failing

experiments (Chesbrough, 2010). One interviewee describes this in regards to the employees developing the new circular products: “So you need to make sure that all those people are included in the decision-making and have a chance to test out the decision and [are] happy to go ahead and build that into the job they’re into”. Associated with the business model, the basic value proposition of a company (Geissdoerfer et al., 2018; Johnson et al., 2008), is inherently related to the notion of ‘what we do’ (Magretta, 2002), regarding both the organizational identity and the work processes.

The notion of ‘what we do’ colors every aspect of how the different departments within the company carry out their work, i.e., how the marketing department presents the products, what aspects the research and development department attempt to improve, etc. Additionally, the organizational identity functions as a culture generative (Gioia et al., 2013), and the fundamental question of ‘what we do’ is associated with the ideals and goals for the company, i.e., the

espoused values and beliefs (Schein, 2004), the organizational identity is part of the negotiated order of the organization. Thus, changing the identity entails changing the culture, which will be expanded on in the Working with the Culture section.

Answering to Negative Responses

This extensive change process, requiring every aspect of the business model to be altered and requiring a fundamental shift in the organizational culture and the work processes meant that the leaders were confronted with initial negative responses and resistance to change.

Internally, such resistance was evident in employees being suspicious about the sincerity and seriousness of the circular intentions – exemplified by employees trying to find cracks in the strategy, arguing for why they should prioritize misaligned sales opportunities, or just not considering it in their daily work. In line with scholars such as Ford and colleagues (2008) presenting resistance to change as important feedback, half of the interviewees underscored the significance of listening to the employees and being able to admit when they were wrong and adapt the change process accordingly. However, the other half of the interviewees focused on

87

approaches meant to only overcome this resistance (as described by e.g., Coch & French, 1948;

Kotter, 1995), i.e., getting the employees on board. These approaches included presenting the employees with the business case for the circular strategy and acting as banner carriers (see Acting as a Strategic Transformational Leader), as well as educating the employees on circularity to involve them in the process. Nonetheless, as described in the Implementation Plans section, the interviewees portrayed approaches that embraced both aspects. The section Reinforcing the Transformational Drivers expands on how the leaders were further able to foster the circular strategy.

Externally, the interviewees described the challenges related to convincing their suppliers to adhere to the C2C standards, as becoming circular is also dependent on the supply chain (Masi et al., 2017; The Ellen MacArthur Foundation, 2014). This meant new requirements for the suppliers to align their business model and way of working (see also Opportunities Through Collaboration), which on some occasions led to negative responses towards the case companies. Therefore, it was perceived as challenging by the case companies to convince the suppliers to adopt a circular approach, to be transparent regarding their recipes, and to invest in their facilities, which was necessary for the five assessment categories and the associated product development. The challenge to convince the suppliers to be part of the circular strategy is of course of bigger concern, when having a long supply-chain, according to Eriksson and Svensson's (2015)

suggestion that the ‘longer’ the supply chain is, the messier it becomes to ensure transparency and control that the facilities adherence to the circular standard. A CEO described how they

experienced the requirements towards the supplier:

“We are setting requirements reversely into our supply chain and that has been harder than we initially assumed it would be […] They need to invest in product

development, because we ask them […] ‘Can we replace the red ingredients with some green ingredients?’ So, it requires investments from our suppliers […] so getting them to understand that this is a continuing process, where we continuously need to do it better was hard”

As the suppliers need to act on change, the initial negative response from some suppliers to the transformation is to be expected (Karp, 2006). The root of this resistance can be manifold (Kotter

& Schlesinger, 1989; Watson, 1971), consistent with the experiences of the case. However, for the suppliers, this change might be imposed on them by outsiders rather than a chosen strategy, as opposed to the focal companies’ case. The main resistance to change, which became evident in the data material, derived from the suppliers; the interviewees described struggling to have

88

ingredients disclosed and sometimes even having to end supplier relationships. The resistance could be due to the case companies being external to the suppliers, yet still imposing their strategy on the suppliers. In this regard, our interviewees were utilizing open communication to

acknowledge the negative responses from the suppliers and trying to make them understand why the change is needed. This both resulted in sharing the vision and including the suppliers in the transformation process, as suggested by change scholars to successfully implement a change (Hiatt, 2006; Kotter, 1995) and act as a transformational leader (Bass & Avolio, 1994).

Additionally, the interviewees also underlined communicating the opportunities and the business case as important when wanting to convince the supplier to act on circularity (see the Business Case for the Change and Opportunities Through Collaboration).

Accordingly, the collaborative approach and fostering trust, elaborated on in the Opportunities Through Collaboration section, was one way for the case companies to approach negative responses. In line with Reinke's (2003) suggestion that trust can even lower resistance to change, as well as Neves and Caetano’s (2006) suggestion that trust can help overcome feelings of low control, the close partnerships based on trust and teamwork may play an important role.

Furthermore, the collaborative approach and initiating dialogue also aligns with Waddell and Sohal (1998) arguing that negative responses to change needs to be examined by the leaders who have to consider the changes proposed. Arguably, the leaders should not only involve their employees, facilitate teamwork, and actively involve the employees to increase acceptance for the change (Waddell & Sohal, 1998), but do the same for the suppliers.

The above-mentioned CEO further described that when adding a new supplier, these discussions are not even required anymore: “With a new supplier […] there are clear criteria on what we need regarding documentation, usage of material, heal, customer protection and so on. It’s not up for discussion but a part of the process and way of thinking”. The interviewee thus refers to having the change ingrained within the way of thinking, which is an indicator for a successful and institutionalized change (Hiatt, 2006; Kotter, 1995).

Drawing on the experiences made by interviewees that elaborated on co-opetition, i.e.,

collaborating with competitors, an additional suggestion could be a collaborative approach similar

89

to that of the automotive industry³, thus establishing a database on circularity with information on suppliers, material libraries, and knowledge sharing on an industry wide scale. Adding to the suggestion of best practice sharing, this would prevent using time and resources on similar issues that according to most of our interviewees are lacking. This type of collaboration and database could be broadened in regard to adopting a multi-stakeholder approach, also including NGOs, institutes, and others, seeking to solve the same problems related to circularity.

Coping with Continuous Challenges and Improvements

These challenges related to convincing the stakeholders of the circular approach were predominantly related to adapting the work processes and, by association, the culture to the circular strategy, in addition to the above-mentioned challenges related to finding capital to invest in the green strategy. The interviewees furthermore described being faced with continuous

challenges to the company, congruent with the continuous and emergent change that shapes the evolution of the change process towards circularity (see Figure 4). The adoption of a circular business model strategy necessitates a constant sensitivity to the where and how the company can advance its efforts. Consequently, the leadership continuously has to tend to the reinforcement of the drivers and the management of new upcoming challenges.

The continuous change linked to the ripple effects of continuously pushing for improvements, as well as the C2C Institute requiring a documented continuous improvement, presented the case companies with the challenge linked to the fact that the certification requires a lot of

documentation (see External Demands). The time-consuming and resource intensive obtaining and gathering of data both internally and externally was experienced as challenging. Regarding the challenge to receive data and documentation from the suppliers, our interviewees managed this challenge by building up a good and long-lasting partnership, based on transparency, collaboration, and trust (see Transparency and Teamwork Driving the Change and the Opportunities through Collaboration). This is summed up by an environmental specialist:

“There’s quite a lot of time and energy spent in talking to suppliers and reassuring them that we’re

3 The collaborative approach of the automotive industry denotes official co-option models that include databases for transferrable experiences (Holzer et al., 2019)

90

not trying to steal their magic formula and that we’re not trying to share it with the competition”, which aligns with other interviewees underlining the communication with the suppliers as important to receive the needed documentation. Moreover, the extensive workload connected to the documentation also meant that some of the case companies had hired additional employees, who were in charge of gathering and organizing the data.

Considering the continuous nature of being confronted with challenges, we suggest not only taking advantage of consultants, NGOs, and others, but also using student networks as problem solvers. As the students are not within the organization themselves, their perspectives on the challenges might help the leader to manage these better, by approaching them in a different way.

Often, organizations use forms of case competitions, where the students try to solve problems within teams. These increase the recognition of the organizations among students, while being cost-effective and directly connected to new potential talent. Furthermore, once the students become aware of the sustainable profile, this initiative might additionally function as talent attraction (Aguinis & Glavas, 2012).

Closing the Loops

More than half the interviewees referred to how the customer or user (The Ellen MacArthur Foundation, 2014) needs to act and be involved as a responsible citizen. Having a circular business model leaves some responsibility to the customer, as they are a link for closing the loop (The Ellen MacArthur Foundation, 2014). Therefore, the case companies were reliant on the consumer playing an active role and using the take-back systems. A sustainability expert

explained the challenge: “[…] I can design for circularity, but if the customer doesn’t return their garment into the system where we can extract the value […] then it is a bit hard to keep the circularity going”. Similar to educating the employees (see Education Fostering Change), the case companies tried to educate the consumers on circularity matters both by training the sales team to take the dialogue with the customers, but also by promoting powerful information, such as explained by an environmental specialist:

“[…] over 90% of the impact of any product are the raw materials. So this is really key and a visible light-bulb moment, because […] you understand why it is so important to incorporate recycled content, to extend the life cycle of the product and to embrace the circular economy. So I think explaining details like these to people is quite powerful in terms of the decision they make and also how they think about products”

91

Educating the customers aligns with Hörisch and colleagues (2014) claiming that if properly educated about sustainability, stakeholders will make decisions with sustainability in mind, resulting in decisions being based on circularity. This could also be achieved through conducting educational marketing (Bocken & Short, 2016).

Closely related to the responsible citizens was the fact that our case companies had to consider the need for infrastructure, aligned with the need for a system that needs to be put in place to re-integrate the resources into the supply chain and facilitate that these are sent back from the users into the loop (Hopkinson et al., 2018; The Ellen MacArthur Foundation, 2014). Some of the case companies had implemented take-back programs, while others suggested involving the B2B customers and incentivizing taking back materials through, e.g., deposit systems, involving the governments in implementing legislation, and setting up internal systems, such as recycling waste (see External Demands). However, getting the customers to re-integrate their products into the cycle was still one of the major challenges.

Creating clear incentives for the customers to engage in the take-back systems, thus becoming responsible citizens and adopting the role as a user rather than consumer, would address the recurrent challenge in the interviews; the companies struggling to engage the consumers in the reverse supply chain. Such incentives could take many forms. Facilitating pick-ups where the focal company is responsible for expediting the pick-up, for instance through setting up a standardized schedule or upon contact from the client. Mail-back systems and retailer drop-offs would both involve more engagement from the consumers, so to increase their commitment this initiative could be combined with discounts on the next sale if the clients return their products to the loop.