Abstract
The circular economy is seen as a way to replace the dominant linear business models, which are based solely on increasing economic value. However, organisations transitioning to a circular business model usually face multiple tensions arising from the paradoxical relationship between achieving circularity and creating economic value. Therefore, we combine the literature on circular business models and paradox theory to systematise knowledge on paradoxical tensions that occur while transitioning to circular business model. Following an abductive approach, the research methodology employs semi-structured interviews and observation in the cross-sectorial manufacturing context. The research results allow us to identify novel insights into organisational-level tensions, namely, goal setting, performance orientation, compliance, in-network collaboration, and innovation adoption. In addition, we define the concept of a strategic paradox in the circular economy, which acknowledges the tension between true circular products and products as usual.
Introduction
Sustainability challenges, industrial and societal reliance on natural resources, and social inequality have fostered the incorporation of the emerging concept of the circular economy (CE) and circular business model (CBM) into corporate strategic agendas (Fehrer & Wieland, 2021). The CE can be treated as a response to one of the grand challenges depicted in the UN’s Sustainable Development Goal (SDG) 12 of sustainable production and consumption and related overexploitation of shared natural resources (Patala et al., 2022). The CE is considered as an industrial economy in which resource use, waste, emissions, and energy losses should be reduced through proper management and integration into closed energy and material chains (Geissdoerfer et al., 2017; Kirchherr et al., 2017). Currently, the CE is considered an important contribution to sustainable development (Gladwin et al., 1995), which requires essential changes in dominant linear business models (Stahel, 2019).
While contributing to the creation of environmental and social value, business models can simultaneously create a competitive advantage (Centobelli et al., 2020; Schneider & Clauß, 2020). CBMs emphasise the need to move from a company-centric value chain approach to a broader systemic logic (Fehrer & Wieland, 2021) that includes value creation for more actors (Freudenreich et al., 2020). The transition to CBM is a highly uncertain process, like a black box (Hofmann & Jaeger-Erben, 2020). In this article, we frame the business model as a transformation process towards circularity (Bocken & Konietzko, 2022; Hofmann & Jaeger-Erben, 2020; Pieroni et al., 2019). CBM can be considered as the disruptor of the linear industrial economic system (Hofmann & Jaeger-Erben, 2020) that intends to shape markets and the society.
However, implementing circular innovation and transitioning to a CBM can cause a significant number of paradoxical tensions. CBM, unlike linear business models, need to take into account and achieve multiple objectives that may conflict with each other. For example, tensions between balancing environmentally viable and economically viable solutions (Edwards, 2021) often prevail in organisational sustainability practices (Hahn et al., 2018; Hahn et al., 2014), which results in the fragmentation of managers’ attention into multiple objectives (Schneider & Clauß, 2020). Global competition and environmental regulation require organisations to sell high-quality products at low prices and to provide global services that are tailored to different local needs (Marquis & Battilana, 2009). In addition, linear business models are validated as soon as sufficient sales of products or services have taken place, whereas a CBM is not validated until recirculated products have been sold (Linder & Williander, 2017). CBM require greater collaboration along the value chain, but there are tensions between cooperation and competition, and between different stakeholders seeking different environmental and economic benefits (Manzhynski & Figge, 2020).
In this article, we seek to join the scientific debate (Corvellec et al., 2021; De Angelis, 2022; Dzhengiz et al., 2023) regarding ignorance of CE ambiguity and limitations due to the rebound effect and entropy. Therefore, transition to a CBM should not be seen as a panacea (Corvellec et al., 2021), but rather a deep and reasonable examination of the potential tensions in moving towards a more CE.
The paradox of the CE is that it claims to present a radical challenge to linear business models, with the strong support of policy agendas and international organisations; however, it may actually be trapped with unsustainable growth (Edwards, 2021; Mah, 2021) and risks increasing resource consumption (Dzhengiz et al., 2023). That is, an increase in resource efficiency might lead to an even greater use of resources (Figge & Thorpe, 2019). In CBMs, tensions may arise due to the paradoxical relationship between circularity as environmental sustainability and economic value creation. Several scholars (Daddi et al., 2019; De Angelis, 2022) have analysed CBMs from the paradox management perspective. Based on the categories of paradoxical tensions derived by Smith and Lewis (2011) and combined with practical examples, De Angelis (2022) explains how different types of paradoxes emerge when implementing CBM innovation. Daddi et al. (2019) identify the prevalent performance and organisational paradoxes related to the CE in the luxury leather industry. Although the tension between the economic and socio-ecological aspects of CBM is more prevalent in the literature, tensions may also arise with the social dimension (Corvellec et al., 2021; Murray et al., 2017). For example, transitioning to CBM can thus create potential tensions for indigenous populations from the Global South to build their regenerative systems (Corvellec et al., 2021). Although waste is often seen as an opportunity to take active responsibility for cleaning up and rebuilding the world, many people have been forcibly resettled in environments where garbage accumulates and livelihoods are threatened (Valenzuela & Böhm, 2017). Companies producing high-fat and high-sugar foods and beverages, which typically represent high-margin and best-selling products, face strategic socio-economic tensions (Pinkse et al., 2019).
The CBMs need to take into account and pursue multiple objectives that may be conflicting. Therefore, paradox theory enables better understanding of these contradictions in a form of paradoxical tensions, and thus can help companies to make appropriate decisions (Van der Byl & Slawinski, 2015). Paradox theory adopts an alternative approach to tensions, exploring how organisations can simultaneously meet competing demands (Smith & Lewis, 2011). In this article, we use paradoxes and tensions interchangeably because management scholars often refer to organisational tensions as paradoxes or paradoxical tensions (Hahn & Knight, 2021; Schad et al., 2016).
Knowledge systematisation and the empirical understanding of paradoxical tensions (Hahn et al., 2015; Smith & Lewis, 2011; Smith & Tracey, 2016) is scant in the CE context (Daddi et al., 2019; De Angelis, 2022) and the broader corporate sustainability literature (Hahn et al., 2015, 2018). As a meta-theory, a paradox perspective provides a deeper understanding of the constructs, relationships and dynamics surrounding the organisational tensions (Schad et al., 2016) around multiple sustainability issues (Hahn et al., 2018). These paradoxes can be materially constructed and inherent in the underlying reality (Schad & Bansal, 2018), socially constructed by actors’ perception (Jennings & Hoffman, 2021; Putnam et al., 2016), or both (Hahn & Knight, 2021; Smith & Lewis, 2011). Given that tensions can lead to both challenges and opportunities (Smith & Tracey, 2016), it is important to understand how a paradox perspective might foster a shift towards a CBM.
Against the abovementioned background, we combine the literature on CBMs and the lens of paradox theory to systematise knowledge on organisational tensions that occur while transitioning to CBM. We intend to fill a gap by raising the research question:
To answer RQ1, we conducted 25 interviews with Lithuanian manufacturing companies and international experts, took part in a 15-month observation, consisting of a series of 8 events, to develop a CE roadmap for the transition of the Lithuanian manufacturing industry. Based on an abductive analysis of the data, we identified challenges and dualities of challenges that lead to paradoxical tensions.
This article contributes to the literature on tensions and paradoxes in the field of CBMs. Due to the complex and dynamic nature of organisations, tensions are not found as discrete or separately functioning elements; rather they are interrelated and cascade over time and space. Therefore, the novelty and theoretical contribution of this research relates to its exploration of the nature of paradoxical tensions (Schad et al., 2016) that arise in both spatial (inside organisations and outside organisations within their operating value chain) and temporal dimensions. Our real-time study shows the paradoxical tensions experienced by manufacturing companies in transitioning to CBMs. As we have had the opportunity to observe the CE co-creation process in the context of the entire manufacturing industry, we have noticed that some tensions are latent. We contribute to the literature of paradoxes by systematising CE paradoxical tensions around three dimensions, that is, strategic, temporal, and spatial.
The article also makes a strong empirical contribution because research using a paradox management perspective often tends to be detached from the reality of the company (Smith & Tracey, 2016). In addition, it often focuses on just one sector or company cases, such as the paradoxical tensions inherent in preventing and reducing food loss and waste (Somlai, 2022). Due to the fact that the CE is inherently complex and multidimensional, the focus of this study is on the cross-sectorial manufacturing context, that is, textile, plastics, recycling, food, and furniture. We discover five groups of CE paradoxical tensions, namely, values/goals setting, performance orientation, compliance, in-network collaboration, and innovation adoption, in the cross-sectoral manufacturing context. From the CE point of view, a strategic paradox may arise because of tensions between circular products and products as usual.
The article is organised as follows. We start with the literature on business model innovation for the CE. We focus next on the paradox theoretical framework and explain it in the context of the CE. Section “Research Methodology” presents and explains the qualitative research methodology. Section “Discussion” provides an overview of the research results. The discussion, conclusion, and directions for future research are presented in the last part of the article.
Theoretical Background
Business Model in the CE
The scarcity of natural resources and the development of new enabling technologies have spurred the emergence of CBM to turn waste back into raw material at different stages of the value chain (Patala et al., 2022). Typically, business models are designed and managed to create value (Freudenreich et al., 2020; Zott et al., 2011). Business models are basically stories explaining how companies work (Magretta, 2002). To gain long-term competitiveness in the market, managers should focus on choosing the right business model (DaSilva & Trkman, 2014). In the CE context, business models are often identified as set of activities that a company chooses to perform (Massa et al., 2017) around circular value proposition, value creation and delivery, and value capture (Centobelli et al., 2020; De Angelis, 2022; Linder & Williander, 2017). An emerging stream of research emphasises the systemic and symbiotic perspective of CBMs (Fehrer & Wieland, 2021) as well as resilient complex adaptive systems (De Angelis, 2022). CBMs are considered here as linguistic schemas (Massa et al., 2017) that organise a managerial understanding of how companies create and deliver value (Magretta, 2002). CBMs can be seen as open systems that co-create value with external actors (Schneider & Clauß, 2020).
CBM innovation should be understood as a change process or disruption of existing business models in response to market, environmental, and societal conditions (Bocken & Konietzko, 2022; Saebi et al., 2017). The CBM innovation requires that sustainability is monitored constantly and that the product design needs to be adapted so that it can be easily repaired or updated (Bocken & Konietzko, 2022). Recent research emphasises the importance of innovations in fostering CE (Bocken et al., 2016; Kuhlmann et al., 2022; Suchek et al., 2021). De Angelis (2022) points out that systems thinking aligned with the business model is important for the transition to CE. Establishing sustainable production and consumption patterns may require the creative disruption of existing innovation systems and technological and social innovation (Suchek et al., 2021). Eikelenboom and de Jong (2021) stress the need to integrate circularity into corporate strategies and importance of managerial interpretations in translating environmental strategies. To reduce the risks associated with circular innovation, Linder and Williander (2017) emphasise the importance of product adaptability to fashion changes and business models designed to reduce risk and uncertainty, as well as financial support (Gusmerotti et al., 2019). Bocken et al. (2016) argue that any business model innovation is closely aligned with product and service innovation and offer several strategies for CBM innovation based on slowing down and closing resource cycles. Finally, innovation and collaboration across the value chain to extend the lifespan of products and components (Frishammar & Parida, 2019) are essential. Overall, CBM innovation enhances to move from a company-centric to a network-centric operational logic (Pieroni et al., 2019), by creating value based on retained products after use to make new products (Linder & Williander, 2017). The CBM literature has become increasingly crowded. However, we found only several papers that particularly focus on paradoxical tensions that arise while transitioning to CBM. Table 1 presents the paradoxical tensions previously identified in the literature. The critical discussion of these studies is integrated into the next section of paradox theory.
Taxonomy of Paradoxical Tensions for the Circular Economy.
Theoretical Framework Based on Paradox Theory
Paradox Theory
Paradox theory is used in organisational decision-making processes in the context of corporate sustainability and environmental politics (Gao & Bansal, 2013; Hahn et al., 2015, 2018; Van der Byl & Slawinski, 2015). Paradox theory offers a framework with which to explore the tensions among multiple logics (Marquis & Battilana, 2009). Sustainability tensions (Joseph et al., 2020) may create a paradox due to conflicting goals (e.g., increasing recycling rates while simultaneously increasing the use of raw materials), but not all conflicting goals result in a paradox (Schad et al., 2016). Organisational-level tensions that emanate from the plurality of stakeholders’ inconsistent demands usually result in competing strategies and goals (Iivonen, 2018; Smith & Lewis, 2011).
Tension is typically the broadest concept used to signify diverse paradoxical dynamics (Putnam et al., 2016). Paradoxes are defined as “contradictory yet interrelated elements that exist simultaneously and persist over time” (Smith & Lewis, 2011, p. 382). Paradox theory recognises the utility of acknowledging the existence of paradoxes or tensions, as they can help companies identify new opportunities and make appropriate decisions (Van der Byl & Slawinski, 2015). Smith and Tracey (2016) explore how institutional complexity and paradox theory can together provide complementary insights to explain an organisation’s ability to address competing demands. Ivory and Brooks (2018) use a paradoxical lens to explore corporate sustainability management in which contradictory elements are managed simultaneously.
Based on a comprehensive literature review, Smith and Lewis (2011) classify organisational paradoxes into learning, organising, belonging, and performing paradoxes. Learning paradoxes arise during organisational change and innovation, as these processes involve the destruction of the past to create the future (Smith & Lewis, 2011). An example of a learning paradox is exploitation versus exploration (Andriopoulos & Lewis, 2009; Hansen et al., 2019). This tension arises because organisations have to decide how to allocate the limited resources available and because companies have different knowledge management processes (Andriopoulos & Lewis, 2009). Organising paradoxes emerge from processes that are initiated to achieve a desired goal (Smith & Lewis, 2011). Examples of organising paradoxes include contradictions between alignment and flexibility, employee control and empowerment (Schad et al., 2016), and market and regulatory demands (Jarzabkowski et al., 2013). Belonging paradoxes emerge from the presence of competing identities (individual vs collective identity), values, roles, and memberships (Smith & Lewis, 2011). Performing paradoxes reflect the conflicting goals and needs of internal and external stakeholders (Hahn et al., 2015). More specifically, De Angelis’s (2022) paradoxical approach to the CBM is based on the aforementioned categories of paradoxical tensions (Smith & Lewis, 2011), circular value loops, and the principles of CE, such as the preservation of natural capital, the optimisation of resource yields, and the promotion of system efficiency through the removal of negative externalities. However, De Angelis (2022) has not explored what tensions related to CE implementation might arise in a real business environment.
Materially Constructed, Socially Constructed Paradoxical Tensions, and the Quantum Approach
Organisational paradoxes are characterised by duality (Hahn & Knight, 2021). Paradox theory scholars debate whether paradoxes are inherent, that is, materially constructed (Quinn & Cameron, 1988; Schad & Bansal, 2018), socially constructed (Putnam et al, 2016), or both (Hahn & Knight, 2021; Smith & Lewis, 2011). Inherent paradoxes are seen as embedded in complex human systems (Quinn & Cameron, 1988), existing irrespective of whether organisational actors have experienced them (Smith & Lewis, 2011). In organisations, inherent paradoxes may exist in a latent state until the organisations recognise them (Hahn & Knight, 2021) because they reflect the systemic and material underlying reality (Schad & Bansal, 2018). In complex systems, actors are more likely to notice tension, but these systems also contain latent tensions that actors do not notice (Schad & Bansal, 2018). Paradoxically, while major petrochemical and plastics companies across the plastics value chain are coordinating their efforts to reduce plastic waste, they also tend to invest in unsustainable projects with implications for environmental justice and climate change (Mah, 2021), such as risky chemical recycling technologies that are plastic-intensive and highly polluting. This case illustrates the inherent paradoxical relationship between the growing use of primary resources and the growth of recycling (Figge & Thorpe, 2019).
Those who view paradoxes as socially constructed maintain that they are created by cognitive frameworks (Putnam et al., 2016) and perceived as embedded in ongoing practices (Knight & Paroutis, 2017) as managers construct and make sense of tensions. As long as organisational actors do not frame paradoxes, they do not exist, and hence the latency dimension is absent (Hahn & Knight, 2021). Organisational actors cognitively frame and communicate about paradoxical tensions as they experience them (Putnam et al., 2016). Tensions are therefore accentuated by the use of language in social interactions and texts (Putnam et al., 2016). For example, Jennings and Hoffman (2021) examine how the social construction of the phenomenon of climate change truth influences the observed paradoxes and the communication of truth in the social sciences.
The dynamic equilibrium model of organising (Smith & Lewis, 2011) combines these two perspectives, arguing that system-level contradictions and sensemaking processes come together to render latent tensions salient. In this study, organisational paradoxical tensions are understood through the quantum approach of Hahn and Knight (2021), who maintain that the nature of paradoxes is both inherent and socially constructed. Organisational paradoxes are considered to be latent before they are consciously recognised by organisations. When interpreted from the quantum approach, “latency implies that all possible paradoxical and non-paradoxical situations are inherent in an organisational setting simultaneously but exist in an indeterminate state” (Hahn & Knight, 2021, p. 372). Meanwhile, paradoxical tensions that affect everyday aspects of organisational life and management practices are considered to be salient. A quantum approach that incorporates the competing material and discursive aspects (Hahn & Knight, 2021) validates the paradox as a meta-theory (Lewis & Smith, 2014) and can be applied to a variety of organisational phenomena, including the CBM.
Temporal and Spatial Contexts of Paradoxical Tensions
Organisational tensions form, evolve, and change over time and space (Gao & Bansal, 2013; Putnam et al., 2016; Slawinski & Bansal, 2015). Organisations are social systems that are simultaneously stable and dynamic and, therefore, have a temporal dimension in decision-making (Hofmann & Jaeger-Erben, 2020). The temporal dimension is important in an organisation’s relationship with the natural environment (Good & Thorpe, 2020). Temporal tension is created when a need exists to allocate attention to long-term goals rather than the short-term goals that dominate corporate decision-making (Hahn et al., 2015). Instead of polarising these issues, companies can also juxtapose the short- and long-term aspects of sustainability and climate change decisions as permitted by short-term business pressures (Slawinski & Bansal, 2015). Analysing the paradoxical tensions that arise from the interaction between print and digital business models, Knight and Paroutis (2017) explain how the temporal context differs in terms of whether tensions are latent or salient. Chen and Eweje (2022) also stress the significance of temporal tensions and financial dominance over social and environmental issues in Chinese and New Zealand business partnerships. Temporal ambidexterity (Slawinski & Bansal, 2015) might also be applied to CBMs. It will therefore take time for the reuse of products and materials to become economically viable, while managers’ goals are often limited to product manufacturing cycles or financial reporting cycles (Gao & Bansal, 2013).
The spatial element reflects tensions related to equitable development opportunities (Hahn et al., 2015), for example, in the value chain between developed and underdeveloped regions as well as within both regions. Spatial tensions arise depending on whether different aspects of a company’s activities, such as research and development, logistics, marketing, and communication issues, are connected in a holistic manner. Importantly, Daddi et al. (2019) discover an organising paradox in the luxury leather industry due to the tension between creativity and efficiency (Smith & Lewis, 2011) as well as a performing paradox due to the tension between the intensive use of secondary raw materials and perceptions of product quality and profitability.
Importantly, not all tensions are strategic. A tension is only considered strategic if it affects the company’s core business and competitive advantage (Iivonen, 2018; Pinkse et al., 2019). Most research on paradoxical tensions (De Angelis, 2022) and rebound effects (Figge & Thorpe, 2019) in the CE is conceptual. Yet, we know little about specific paradoxes that appear transitioning to CBM and how they are inter-related. Exploring paradoxes in “real environment” reveals complexity, unexpectedness and unintended consequences (Schad & Bansal, 2018). Therefore, by using the concepts and assumptions of paradox theory (latency, salience, temporal, and spatial dimensions), we can systematise the paradoxical tensions that arise in the transition to CBM, and better understand the underlying reasons why these tensions occur.
Research Methodology
Lithuanian Manufacturing Industry Context and Sampling
This research focuses on one small EU country with an open economy, Lithuania. The country’s sectors with a high potential for circular activities include electronics and information and communication technology (ICT), batteries and vehicles, packaging, plastics, textiles, construction, furniture, and food. Our main criterion for sampling was the application of CE practices. To determine which companies could be considered rich data sources, we primarily tried to reach companies that use the terms “circular economy” and “sustainability” (Kirchherr et al., 2017) on their web pages and explain how they implement CE principles in their activity. Second, we had the possibility to confirm our sample in relation to performing certain CE practices. A 15-month project was organised to develop a roadmap for Lithuania’s industrial transition to CE. Thus, we observed that the companies engaged in developing this roadmap are more advanced in terms of CE and we could state that we focused on forerunners of circularity of Lithuania. Finally, we focused on the expertise of the representative, which had to be related to CE or sustainability activities within that organisation.
To ensure the homogeneity of the sample, we considered the following aspects: involvement in a sector that creates a high economic value added, the company’s age and number of employees. Therefore, we focused on the manufacturing sectors that create the highest economic value added, such as textile, furniture, and plastics. The Lithuanian textile industry is mainly based on subcontract production and is characterised by relatively large volumes of imported, sorted, and exported flows of secondhand textiles. Moreover, the textile industry in Lithuania, like that throughout Europe, suffers from a technological unreadiness for recycling. Meanwhile, the Lithuanian furniture industry is highly technologically developed with an increasing focus on digitalisation and advanced waste management. The Lithuanian plastics and packaging industry is also highly technologically developed with an increasing focus on recycling innovation and the usage of secondary materials. In addition, our focus was not to reach start-ups whose main activity may have been focused on sustainability or circularity from the very beginning. Hence, we focused on manufacturing companies that seek to implement CE principles in their current activities/processes. Due to this, the average age of the analysed companies was 25 years. Further, it was important to us that the manufacturing companies were similar in size, so our sampled companies were medium companies (with between 74 and 217 employees).
Data Collection and Analysis
We adopted an abductive approach (Mantere & Ketokivi, 2013), which allows to develop constructs depending on a continuous dialogue between theory and the empirical data. The abductive research strategy was put in place (a) to explain how new ideas are created by conceptualising paradoxical tension (Philipsen, 2018) and (b) because research using paradox management approach tend to be detached from the “reality” of organisational life (Smith & Tracey, 2016).
Following an abductive approach, we iteratively collected data over a 17-month period (June 2020–October 2021) by employing diverse research methods to enhance data triangulation. Table 2 summarises the key sources and uses of our data.
Description of Data.
Note. CE = circular economy.
Data Collection
We chose (a) semi-structured interviews with manufacturing organisations and experts and (b) observation in the cross-sectorial manufacturing context.
Interviews
First, to gain insights into the challenges companies face in the transition to the CE, we conducted interviews. The interview protocol was prepared based on the literature on CBMs (Centobelli et al., 2020; De Angelis, 2022; Fehrer & Wieland, 2021; Frishammar & Parida, 2019). It contained broad themes, such as the organisation’s strategy (e.g., How CE issues relate to your organisation’s vision and strategy?), structure (e.g., How do the drivers/challenges affect the transition to CE business for your organisation?), operations (e.g., How do CE issues relate to your organisation’s raw materials, secondary raw materials, and eco-design/cleaner production/consumption/waste management/etc.?), and relationships with key stakeholders across circular value chain (e.g., How relationships in the value chain influence the transition to CE business?). Then, the interview questions became more focused on the challenges of CE implementation. Following Andriopoulos and Lewis (2009), an interview protocol was designed with organisational (paradoxical) tensions in mind; however, it did not include explicit terms like “tension,” ‘paradox’ or “contradiction.” During the interviews, follow-up questions (depending on the answers given) were asked to prompt participants to elaborate on specific topics. According to Gioia et al. (2013), these questions enable concept development by allowing the interviewees to lead the discussion regarding the analysed topic. The interview protocol for experts reflected the same themes as for the manufacturing companies since they had expertise regarding CE in manufacturing industries.
The primary empirical data came from 25 semi-structured interviews (Gioia et al., 2013) at 16 manufacturing companies and with six experts from environmental international organisations. Our research unit of analysis was the company as a whole organisation. The data collection took place through semi-structured interviews with key respondents from manufacturing organisations who could provide information related to the CE activities in their company; due to their expertise, a single interviewee could be expected to provide reliable data. Moreover, according to Holt et al. (2017), it would likely be impossible to reach others in the company with relevant knowledge, as Lithuanian manufacturing companies are currently taking their first steps in transitioning to a CE. We also reached out to international experts from prominent environmental associations (such as Ellen MacArthur Foundation), acting as facilitators between businesses and policy in the implementation of environmental policies, to enhance data triangulation. To collect supporting data, we conducted six semi-structured interviews with representatives of international environmental associations. As 25 interviews could be considered a small number from which to achieve comprehensive results, it should be noted that the information obtained from the interviews is rich and comprehensive. The average duration of the interviews was 72 min (the longest interview was 110 min and the shortest—48 min). The interviews were conducted in 2020 in the local language (Lithuanian; English translations were not made because the research group was local) or English language. The research was conducted both in person and virtually (mainly using the Zoom platform). To ensure the anonymity of the companies and experts, their names have been coded. All interviews were conducted by the researchers, recorded with permission (if needed) and transcribed for further analysis. The interview transcripts contained detailed information received during the interviews. The average number of transcript pages for one interview was 14.20 (using single-spaced, 11-point Times New Roman font).
Observation of CE Roadmap
The research–practice gap can be bridged through the co-creation of knowledge by researchers and managers (Sharma & Bansal, 2020). Therefore, observation, in which researchers and practitioners spent time together in workshops, was conducted as well. The CE roadmap project implementation period was from 2020 October to 2021 December (15 months) (Science, Innovation and Technology Agency, 2022). The co-creation of this roadmap was based on the stakeholder map, a voluntary coordination group of 50 representatives and experts from government, industrial, business, non-governmental, municipal, waste management, consumer, science, and educational institutions. Representatives of various industries (such as food and agriculture, construction, textile, furniture and wood products, plastics, and packaging) were actively involved. As a result of this project, the following documents were prepared (Science, Innovation and Technology Agency, 2022): (a) an analysis of the circularity of Lithuanian industry, (b) the vision of Lithuanian industry based on the principles of co-creation and partnership, and (c) the Roadmap for Lithuania’s Industrial Transition to CE.
As we, the researchers, were involved in this roadmap co-creation project, we had the opportunity to participate in each of the project’s eight remote events (2–8 hr each) and to observe this process by taking notes about collective insights. These notes were also incorporated in the ongoing process of analysis. During these events, we talked with a number of companies in charge of different activities. The data from the observation process were analysed via the same logic as for the interview data, the same codebook was supplemented by the insights of each researcher separately. The observations allowed us to gather data on collective behaviour and were key to further grounding our findings in the data. Participation in this project provided us with a collective sharing of knowledge about the CE, which leads us to consider that we have reached almost all of Lithuania’s manufacturing companies which have taken some actions in relation to the CE.
Data Analysis
We then analysed the data from the interviews and observations by using a three-stage coding process (Gioia et al., 2013) with the help of Maxqda 2020.
Accordingly, we first coded the interviews with codes implied by the data from manufacturing companies implementing CE to identify relevant themes in the process (the detailed information is given in Table 3). By finding out about companies’ strategy, goals, and market situation, we asked about challenges (aka paradoxical tensions although did not express like this, not to be over complicated), that companies face by transitioning to CBM. As we analysed the data, it became clear that identified challenges had similarities. Following Gioia et al. (2013), we call these identified challenges as first-order codes (Figure 1).
Identified Challenges While Implementing CE in Manufacturing Companies.
Note. CE = circular economy; TI = textile industry; PI = plastics industry; IEA = international experts; RI = recycling industry.
Code System of the Research.
In the second stage, we grouped descriptive codes into more interpretative second-order themes. Applying abductive reasoning (Mantere & Ketokivi, 2013) and reflecting the dominant use of paradox, we focus on underlying tensions as dualities between two elements (Ford & Backoff, 1988). At this stage, we also conducted the observation in the cross-sectorial manufacturing context to compare the themes and the emergence of dualities of challenges between the analysed manufacturing companies. This involved abductive reasoning in a dialogue between existing literature on paradoxical tensions and our data and allowed us to describe and explain the observed phenomenon. To illustrate this stage, topics related to “profitability,” ‘cost optimisation’ or “investments” in the CE context were grouped into the “prioritising economy-driven objectives” theme. But in some cases, one topic could reveal two types of emerging concepts. For example, tensions between environmental issues (e.g., “environmental requirements”) and social issues (e.g., “responsibility”) were grouped into the “Integrating sustainability-driven objectives” theme.
Figure 1 depicts how we arrived at the concepts and illustrates our data structure. It shows the coding scheme, which moves from first- and second-order codes to the aggregate codes for paradoxical tensions. We relied loosely on Smith and Lewis’s (2011) and De Angelis (2022) categorisation of organisational tensions, such as organising tensions (in our case—tension in goals setting) and learning tensions (in our case—tension of collaboration in network). However, belonging tensions, which appear between individual and collective identities, were not evident, as we did not investigate tensions among employees within an organisation, but rather took an overarching approach. Moving back between our empirical data and the theory of paradox (Smith & Lewis’s, 2011), we were able to infer three new explanatory constructs: tension of performance orientation, tension of compliance and tension of innovation adoption. According to these criteria, the paradoxical tensions were divided into five groups (Figure 1).
As our focus included both materially and socially constructed paradoxical tensions (Hahn & Knight, 2021), we additionally looked for both the salient tensions experienced by manufacturing organisations, as well as latent tensions that organisations might experience but have not yet clearly articulated (Smith & Lewis, 2011). In addition, we paid more particular attention to the temporal dimension as well as the space dimension (Schad et al., 2016). We tried to code the paradoxical tensions under these dimensions. However, this has been difficult to accomplish because all tensions are interrelated in terms of time and space dimensions, and it is needed to think and understand them as a system. One can observe the tendency of which dimension (temporal or spatial) is more relevant to the tensions analysed. For example, tension in goals setting is more related to the temporal perspective, while tension of collaboration in network is more related to the spatial perspective. As we were following an abductive approach, which consists of iterations from empirical data, analysis and theories, we first prepared the coding draft table which relates a specific pre-determined systemic approach (abduction) to the development of new theoretical insights. The coding process is not linear and rational but is characterised by iteration, detours, and regression (Grodal et al., 2020). Figure 1 shows the final data structure of the findings on paradoxical tension in the CE context, which was updated during the process of data analysis.
Analytical Procedure, Validity, and Reliability
The primary and supporting data were analysed using an abductive approach (Åsvoll, 2014), interactive coding (Saldaña, 2015), data categorisation (Grodal et al., 2020), and the Gioia methodology (Gioia et al., 2013). To ensure the quality of the analysis, a minimum of two researchers participated in each interview and each observed event. The main insights gained were discussed by the researchers after the interview or event. In addition, the interview transcripts and event notes were analysed by the researchers separately. After this analysis stage, we organised a researchers’ discussion, which pushed the analysis forward by critiquing the interpretations (Gioia et al., 2013), presenting the data in more structured way and clarifying the theoretical insights.
It could be argued that research saturation was achieved as the analysis of some of the last interviews revealed that the information was repetitive and new knowledge was no longer being obtained. Therefore, we concluded that theoretical saturation had occurred (Patvardhan et al., 2015), which led us to proceed with the aggregated dimensions of the research.
The reliability of this research was ensured by using the Gioia methodology (Gioia et al., 2013). Although the validity was achieved by ensuring construct validity (using multiple sources of data, namely, interviews, expert interviews, and observational data) and internal validity (pattern matching by considering raw data [quotes], codes, and aggregated dimensions).
Main Findings: Discovery of Paradoxical Tensions in the CBM
The research results allowed us to identify novel insights about the CE paradoxical tensions we discovered, namely, goal setting, performance orientation, compliance, in-network collaboration, and innovation adoption (Figure 2).
Circular Economy (CE) Paradoxical Tensions: (A) Values/Goals Setting, (B) Performance Orientation, (C) Compliance, (D) Collaboration in the Network, and (E) Innovation Adoption.
Goals Setting/Values
The research results showed that one reason for embracing circular innovation relates to the company’s values and its development strategy to improve business processes or develop/change products. The main motivations include sustainability values or economy (economic efficiency) driven values (Figure 2A). A brief discussion on values revealed that manufacturing companies are more focused on economic efficiency, which enables them to meet financial targets and adapt to environmental regulations, rather than on environmental values.
We have observed that in the context of the CE, organisations are focused on balancing multiple objectives, including financial, environmental, and social objectives. Tensions among multiple goals led us to determine that economy-driven or financial goals are more important than social or environmental goals, particularly in the short term. Sustainability-driven goals are more of an accompanying objective.
Textile industry: It is important that the manufacturer still finances and takes care of the further maintenance of his products that he puts on the market. Well, there is a lack of financing for this flow, there is a lack of economic incentive for the circular economy to develop.
Alignment with financial objectives often acts as an impetus for the development of circular solutions. In line with research by Chen and Eweje (2022) about financial dominance over triple bottom line tension, high importance is given to financial results, which in turn can contribute to improving environmental and social indicators, but not vice versa. Importantly, such tensions are often experienced from a temporal perspective, as financial or economic goals are usually short-term oriented. In contrast, organisations tend to frame their values and objectives related to sustainability-based goals in the long term. Manufacturing companies have a clear financial interest and a shorter time horizon and generally play a more passive role in educating and changing consumers’ perceptions of circularity. Interestingly, the requirements of the value chain as a spatial dimension can also lead to pressure for companies to pursue not only higher financial targets but also higher environmental targets set by value chain stakeholders.
Another salient tension can arise between the pursuit of corporate environmental and social objectives. Companies seek to optimise by “cleaning up” industrial waste by transferring residues to disadvantaged groups or countries.
Recycling industry: [. . .] We sell large quantities of paper waste throughout China, Thailand, India, Vietnam. Textile industry: [. . .] We actually took orders, developed them, and in that case we shared the production in other countries. It is in the surrounding neighbouring countries, such as Belarus, Moldavia, Bulgaria, Romania, because the labour force is really significantly cheaper [. . .]
Furthermore, the tension between environmental and social objectives can be particularly salient in areas such as national defence and security. For example, firefighters’ clothing has to be made of special, non-combustible materials that are often not recycled at all. However, such non-recyclable materials with chemical additives are necessary for firefighters to fulfil their social mission.
Textile industry: [. . .] On the other hand, we have a specialty related to raw materials, we basically produce clothes for firefighters, and the structure of the raw materials is chemical, non-flammable fabrics. And in this case, if we talk about the processing of those raw materials that are left, I have no idea how they can be remanufactured. They are not recyclable at all. It is a product of the chemical industry.
Performance Orientation
The majority of salient performance orientation tensions occur while making decisions about development processes (Figure 2B).
Manufacturing companies are confronted with tensions arising between technological efficiency and small-scale processes. Technological efficiency can be understood as technological production innovation, zero emissions, efficient production processes and high automatisation, while small-scale processes are oriented to less technological innovation and more labour-intensive process. Technological efficiency enables companies to optimise production and logistical processes and therefore achieve a mass economy of scale.
Food industry: In manufacturing companies where the latest technologies are installed, everything is robotic, we try to do as little manual work as possible, both due to the technological advantages and the requirement to remain competitive in the market, to maintain low costs. There is now talk about the fact that you will create additional jobs due to the circular economy. I cannot see it.
Paradoxically, CBMs should be based on local contexts and small-scale and regional industrial processes to prolong the lifetime of products and their components and to stimulate sufficient demand. However, manufacturing companies operating on a smaller scale are less likely to invest in technological innovation or to look for opportunities for design creativity in a CE context. Thus, the digitisation of production and technological efficiency, mainly linked to recycling, also lead to economies of scale and global value chains.
Food industry: It’s probably no secret that our market orientation is 100% export, not the local market.
However, companies may decide to improve their technological efficiency in terms of product environmental performance when they have a strong collaboration with focal companies, see themselves as leaders in the value chain, or seek a competitive advantage.
Compliance
Our research also revealed a temporal tension over compliance with market or government requirements (Figure 2C). Companies implement circularity-oriented actions and activities because they are bound by legal regulations (e.g., directives and national legislation related to waste management, packaging, or product safety) or by requirements in the value chain (e.g., environmental requirements for a product set by focal companies). On one hand, legal regulation creates a strong compulsory incentive for companies to integrate circularity into their activities. However, regulatory uncertainty, including sudden changes in legislation (e.g., the use of secondary raw materials in food packaging), or confusion over legal definitions can hinder companies’ compliance and transitions to more CBMs. Compliance with government requirements is therefore another temporal tension that can arise between current regulation and future regulation. This tension shows that some manufacturing companies are simply complying with existing regulations, choosing to do nothing or to do the minimum when the regulations are ambiguous. However, other companies are just as proactive, taking a responsible role and engaging in the development of new rules, norms, and practices for the future to ensure more circular solutions. This temporal tension is underlined by the fact that many EU countries are setting CE targets for 2030 and 2050 (future compliance), but current regulations do not always allow them to achieve this.
Plastics industry: [. . .] In reality, everything is on the shoulders of the industry and the market. We ourselves have to form consortia, submit applications to the European Commission, we have to conduct research, collect data, make reports and prove that this technology meets the legal requirements and then wait for regulation that will define chemical processing and its benefits for fossil plastic raw material conservation and waste reduction.
Besides government compliance, companies are “forced” to implement more circular solutions not only by the government but also by the market to stay in that particular value network. When manufacturing companies are dealing with market compliance, usually they have to adapt to a series supply chain-related requirement, such as product certification and accreditation schemas, environmental audits, traceability, and materials certification.
A more detailed analysis of compliance tensions reveals that compliance with market requirements is more important than compliance with government requirements. This result is closely related to another emerging tension: collaboration in network.
In-Network Collaboration
In terms of the tensions arising from collaboration, several important insights emerged. The tension relates to a company’s ambition to collaborate in a value chain or with society (Figure 2D). This tension, which is also closely linked to the paradoxical tensions related to the pursuit of sustainability-driven goals, arises from the fact that companies prioritise the requirements of the value chain in the development of their products, rather than meeting the needs of the future consumer and of society in a broader planet-centric context. Importantly, manufacturing companies mainly seek to serve their value chain, and rarely recognise their proactive role in educating/nudging consumers to change their buying preferences or influencing the mindset of the broader society. This can also be explained by the fact that the majority of the manufacturing companies in the study were from business-to-business (B2B) sectors rather than dealing with the final consumer directly. However, some companies note that solving society’s maturity problem is possible only through education, and they feel responsible for such activities.
Textile industry: [. . .] We educate our customers (directly—more business customers) about the use of more sustainable, environmentally friendly materials. Plastics industry: [. . .] although it may be inconvenient for the end user [human] to drink from a thinner bottle, it is an educational matter. Buyer awareness. [. . .] We go to schools, universities, give lectures, try to explain something about the circular economy and our connections, share our experience, but we cannot change the attitude of the whole of Lithuania on our own.
This tension between the value chain and society stems from an understanding and orientation towards meeting the requirements of a specific value chain or the broader mission of society. Typically, products are developed from a user perspective and a demand-driven perspective. This latent tension, therefore, points to the need to think about how to shift users’ perspective towards more sustainable products.
Another interesting insight relates to the tension between standardisation and creativity that might arise across the value chain. In general, transitioning to a CBM implies being a part of the value network. When a manufacturing company is a part of a value network (not a focal company), then the company’s decisions related to the CE mainly involve “following the leader.” Our research indicated that there are both leading companies (or those seeking to become industry leaders) and entrepreneurial companies (e.g., small linen manufacturing firms) which are motivated to implement CBM innovation because they see it as a rational way to evolve based on environmental and economic constraints. However, other companies tend to copy the activities of the leaders or competitors or across the value chain. In most cases, they have insufficient knowledge and invest only minimally in environmental technologies, instead waiting for solutions from other actors in the value chain. As collaboration appears to be essential, this exploitation might slow down the shift towards the CE. The standardisation versus creativity tension indicates that if contractual manufacturers do not collaborate with their focal companies to meet certain products’ environmental performance requirements or to create compatible recycling standards and waste streams, they will not be able to operate in that value chain. Indeed, their business strategies depend on cooperation and industry leaders.
Furniture industry: [. . .] We now have such a big plan—by 2030s, the level of CO2 emissions must be reduced by 60% or 80%. The monitoring system was created by IKEA. They collect information, and now IKEA sees the biggest portion of pollution in the work of all our companies. . . Well, we have a plan, where a lot of attention is paid to domestic transport, for example, to give up gas, diesel cars, to use only electric ones. It might be more expensive, but it will be greener. There are those who, after analysing and collecting the information of all the companies, can orient themselves and hit directly [. . .]
Similar collaboration patterns and dynamics in the plastics industry were observed and described by Mah (2021). If manufacturing companies project themselves as a part of a wider value chain, it might be more difficult to retain their independence by making decisions about the choice of materials and packaging or product design.
Plastics industry: [. . .] Business partners also have a big influence, who also have long-term plans for reducing plastic, but this sometimes limits you in terms of creativity in design [. . .]
The paradoxical tension arises because being a part of a global value chain makes companies more standardised and often leads to better environmental performance, but at the same time, companies become more dependent and less free to experiment, and it can be difficult for them to innovate. Companies must find a way to integrate and find synergies between available resources and competencies with partners across the value chain. One way is to ensure cooperation with partners along a company’s value chain, which could result in preventing value loss or capturing more value. The intensity of tensions across the value chain depends on a company’s readiness and integration into the whole value chain. The research results showed that a lack of external collaboration combined with a lack of collaborating infrastructure (e.g., recycling capacity) causes disruptions in the value chain.
Due to the fact that products and components are sourced worldwide, collaboration plays a significant role among different value chain actors—namely, strategic partners, suppliers, and recycling companies—to recover the materials, as highly globalised supply chains influence differences in location due to their distance. The manufacturer, the recycling company and the consumer are located in distant regions.
Textile industry: [. . .] Raw material suppliers are subject to the highest requirements. About 30 different raw material suppliers plus suppliers of additional details (e.g. buttons). Raw materials are brought from various countries, everything depends on the order. [. . .] Textile industry: [. . .] Our main raw materials, if we talk about yarn, all suppliers are from abroad. [. . .]
Innovation Adoption
Tension related to innovation adoption, which is more temporal and latent, is the tension most commonly identified by companies while implementing CE innovation. The adoption of circular innovation creates significant tension because of the broad scale of interdependent yet contradictory decisions. We discovered levels of organisational tensions, namely, revolutionary versus evolutionary (innovation degree or intensity) and product design innovation versus production innovation (innovation type) (Figure 2E).
Innovation-type tensions occur between production process innovation and product design innovation. Importantly, manufacturing companies note that the focus should be on integrating CE principles as early as the product design stage. Product design issues such as eco-standardisation, maintenance, development and adaptation, and the ability to prolong a product’s life cycle (through reuse, repair, remanufacturing or recycling activities) are all essential. Failing to take these aspects into consideration at the product design stage means that innovative decisions are focused on environmental impact consequences, that is, the optimisation of waste management. However, when we consider the types of innovations that companies are adopting, production process innovation dominates. In many cases, it is difficult for companies to change the products they produce because they have little influence within the value chain (collaboration in network). Again, the complexity and limitations of product design, the quality of returned products, a lack of recycling capacity, and a lack of infrastructure also limit product innovation.
Recycling industry: [. . .] The product itself, it has become more complex. The more complex it gets, the more details, the more all kinds [. . .] Textile industry: Our organisation’s involvement in the circular economy is very, very minimal. In our case, we don’t even have any possibility to use those raw materials in some other way, because one, they are not ours. . . . When it comes to raw materials, we don’t even have anything to process. Everything that comes to us from production, everything is burned.
The deployment of innovative services must reflect B2B or consumer expectations; otherwise, the company may need to educate consumers to create demand for the service created. In addition, innovation type tensions seem to be affected by the organisation of processes in the value chain, stakeholder’s goals or performance perspectives.
Instead of product design innovation, companies choose to change their production process due to limited company financial resources or the availability of technology. The acquisition of new equipment or the optimisation of existing processes by applying new technologies helps to save production resources and to reduce waste and CO2 emissions. However, additional costs or market conditions may limit the attractiveness of this option.
Finally, a company may be faced with the choice of saving primary materials by changing a product’s design and using secondary materials. As a result, durable (high quality) products and secondary materials (less quality) tension might appear and limit companies’ use of more secondary raw materials in production out of fear that this will reduce the quality and value of the product for the customer.
Plastics industry: [. . .] Both the business and the end user as a customer are very important. [Retailer], for example, has a strong environmental strategy focused on saving resources. They reacted very positively when they switched to thinner bottles. For a long time (a few years) they were interested in this possibility. So a strong incentive from the consumer (brand) led the company to rethink its strategy as well [. . .]
In addition, this tension could result in higher expected costs (e.g., R&D, testing) and thereby in reduced profitability in the short term, leading to increasing uncertainty regarding circular decisions.
Importantly, revolutionary versus evolutionary innovation degree tension is closely related to other tensions connected to innovation adoption. For example, the majority of evolutionary changes are related to product innovation, but process innovations are implemented together with evolutionary and revolutionary changes, which occur almost at the same frequency.
Plastics industry: [. . .] Because until now all chemical processing projects either ended or got stuck at the stage of laboratory tests, because people simply lack knowledge, know-how or money, because the creation, testing, patenting and then transfer of such innovations to the industrial the production process costs a lot [. . .]
For the CE transition, more radical business model innovations in both products and processes are necessary. Meanwhile, companies tend to develop incremental innovation related to product design (such as zero plastic packaging), passively adjusting to the focal company’s requirements in the value chain.
Framework of CE Paradoxical Tensions
Our findings have shown that five types of CE paradoxical tensions can exist in manufacturing companies while implementing circular innovation and/or transitioning to a CBM. These paradoxical tensions and their interrelations make up the framework explaining tensions from temporal, spatial, and strategic perspectives (Figure 3).
Framework of Circular Economy (CE) Paradoxical Tensions.
Indeed, all CE paradoxical tensions can be related to temporal perspective, as they refer to the change in the time frame in which manufacturing companies can change their core activities and elements. In some cases, the temporal dimension is sharper. CE-goals setting, compliance, and innovation adoption tensions are usually experienced from a temporal perspective. From these findings, the following proposition can be made:
Performance orientation and collaboration in network tensions are usually experienced from a spatial perspective. We found that CE paradoxical tensions might emerge through external and internal spatial contexts. From these findings, the following proposition can be made:
Surprisingly, our empirical data showed that manufacturing companies also pointed out that a wide range of challenges contribute to a company’s ambition to be more circular, and that they can also lead to various paradoxical tensions. This suggests that the influence of different factors can lead to significant complexity in understanding the links among CE paradoxical tensions. Hence, by analysing tensions arising due to transitioning to CBMs, we observe that tensions are interrelated in terms of time and space, and it is needed to think and understand them as a system. From these findings, the following proposition can be made:
The strategic tension between “true” circular products and products as usual become a key point for transitioning to CBM, thus leading to the other types of tensions as well. For example, if the company decides to implement product design innovation, it also faces tensions such as performance orientation (prioritise the technology efficiency over small-scale processes), innovation degree (to do it incrementally by coping some innovation or starting/creating new product by being a leader in industry).
In the discussion part, we will more reflect on key paradoxical tensions from the temporal, spatial perspectives, as well as give some insights for strategic paradox perspective.
Discussion
Our study aims to explore in depth the CE paradoxical tensions in the CBM using paradox management theory (Hahn & Knight, 2021; Smith & Lewis, 2011; Smith & Tracey, 2016) focusing on real businesses.
Our findings have shown that five types of CE organisational tensions—either salient or latent—can exist in manufacturing organisations while implementing circular innovation and/or transitioning to a CBM. In this section, we seek to explain the nature of and interrelationships among CE paradoxical tensions by emphasising temporal, spatial, and strategic perspectives.
Temporal perspective
Means that current organisational phenomena shape the boundaries of tomorrow’s natural environment, and that natural phenomena that have occurred shape the boundaries of organisational phenomena occurring today (Good & Thorpe, 2020). Managers typically recognise them and need mechanisms that can help to manage temporal ambidexterity (Slawinski & Bansal, 2015) such as reconciliation of economic and circularity goals with the help of external funding or innovation programmes. We also discover that compliance (either governmental or market) constitutes an important part of corporate CE-related decisions. In the CE context, of particular importance are tensions between government and market. Previously Jarzabkowski et al. (2013) explored tensions between market and regulatory demands experienced by a telecommunications utility. A specific circularity-related consideration is that the EU CE policy is influencing the transformation of the traditional manufacturing sector to change the circularity of its products and resources accordingly, with a time horizon as far as 2030 or 2050. However, companies need to produce products that meet market expectations now, which makes it difficult for them to reconcile compliance issues. Furthermore, the tension between current and future regulation shows that, on one hand, it is difficult for companies to find their way between different aspects of regulation at different levels. On the other hand, it shows the position of the company in terms of decision-making, that is, whether the company chooses to follow the current minimum regulation or whether it chooses to be a leader and contribute to the initiation of future regulation. We also theorise that paradoxical tensions of compliance and goal setting may reinforce each other because often companies set their goals based on government regulations or value chain (industry) requirements.
As a consequence, a tension exists between the need for companies to comply with institutional regulations and established practices and the need for companies to embrace innovations for more sustainable business practices (Hahn et al., 2015). Circular innovation adoption tensions are closest to learning paradoxes (Smith & Lewis, 2011), because they involve organisational change and innovation. Closer to our study, Kuhlmann et al. (2022) investigated how incumbent companies experience salient disruptive circular innovation. This tension arises because manufacturing companies have to choose, whether they implement more radical or incremental changes due to product and service innovation or process innovation. Incremental changes actually do not lead to CBMs.
Spatial perspective
The spatial dimension is a feature of the continuous relational formation of boundaries and companies (Good & Thorpe, 2020). The transition to CBMs requires companies to rethink their value chains to create multiple reverse cycles and extend lifecycles of products and materials (Lüdeke-Freund et al., 2019).
In-network collaboration tensions are especially salient for manufacturing companies that seek to align their mindset and seek to “serve” for focal companies and the external network. A paradoxical tension arises from the fact that, as part of the value chain, companies are becoming more standardised and can achieve better environmental performance, but at the same time they are becoming more dependent and less free to experiment and create. Companies need to find a way to integrate existing resources and competences and find synergies with partners along the value chain. The intensity of tensions along the value chain depends on the company’s readiness and integration into the whole value chain. In-network collaboration tensions emerge through external spatial dimension.
Internal spatial tensions arise depending on whether different aspects of a company’s activities, such as R&D, logistics, local, and global sourcing issues, are linked in a sustainable way. CE performance orientation tensions are specifically related to the way how companies implement circularity-oriented activities, whether through the focus on technological efficiency or focus on small-scale processes. These tensions are interlinked with goal-setting tensions, as they emerge from processes that are initiated to achieve a desired goal (Smith & Lewis, 2011). Performance orientation tensions emphasise spatial perspective that arise from how companies organise their performance. As noted by De Angelis (2022), in the transition to CBM, incumbent organisations will face a tension between efficiency and resilience. In the CE, resilience is enhanced by small-scale processes and decentralisation, while efficiency refers to the economies of scale of highly concentrated and efficient traditionally established linear operating production systems. Thus, in-network collaboration and performance orientation tensions are interrelated as manufacturing companies seek to meet the requirements of the value chain set by more powerful actors in the value chain.
Strategic Paradox Perspective
The CBMs are relatively slow to be implemented in business (Fehrer & Wieland, 2021). As previously explored (Gusmerotti et al., 2019; Linder & Williander, 2017), circular transition poses a number of practical challenges (e.g., regulatory, technological, market). This complexity manifests itself in the very slow uptake of circularity in business (De Angelis, 2022). In our case, manufacturing companies also highlighted the complexity of circularity.
Typically, a strategic paradox may arise when a company’s core product or main activity is perceived as dangerous or harmful, and consequently their economic goal paradoxically conflicts with a particular environmental or social goal (Iivonen, 2018). We found that the core value proposition (usually a product) does not necessarily correspond to the CE principles, although the companies implement CE oriented innovation and consider themselves interested in discovering CE opportunities. Modifying product components or switching to biodegradable packaging are incremental changes that may lead to new eco-efficiency practices but do not change the prevailing principles of BM (Hofmann & Jaeger-Erben, 2020). Iivonen (2018) emphasises externally created strategic paradoxes, when due to the environment (e.g., the growing negative perception of single-item plastics, and post-consumption plastic waste) a latent paradox is made salient (Smith & Lewis, 2011). When the main activities of the organisation are visible from the outside as negatively related to a particular sustainability issue requirement (as was evident in the case of the plastic industry), it is the company’s traditional practices that create the negative association and the basis for the paradoxical tension (Iivonen, 2018). We discovered the overarching strategic paradox that arises between “true” circular products and products as usual. Our research focused on manufacturing companies from conventional sectors, which are experiencing increasing sustainability demand to overcome grand ecological challenges. From the CE point of view, a strategic paradox may arise because “convenient” products or products as usual are not embedded in closed-loop systems and have little improvements regarding resource circularity (Lüdeke-Freund et al., 2019), though at the core of the CE is the need to change dominant business models (Fehrer & Wieland, 2021; Stahel, 2019) to encourage responsible consumption and production. Stated differently, although companies make positive efforts regarding recyclable packaging and waste management, quite often they do not fundamentally change their products (Stahel, 2019), either for a lack of demand reasons (e.g., consumers would not be willing to buy such products because of their higher price) or economic profitability related reasons (e.g., using secondary materials might lower the product’s quality (Daddi et al., 2019)). For example, although textile companies may innovate their manufacturing process through the use of energy-efficient technologies, textile products are often produced from virgin mixed materials, that is, difficult to recycle at the end of product’s life. This can be treated as a strategic paradox from a CE point of view. Strategic paradox might include design challenges or specific challenges due to constraints which are conditioned by the nature of the business model, such as relying on waste as a raw material.
Therefore, we argue that a strategic perspective should not be overlooked to deal with multiple CE paradoxical tensions. Hence, resolving goal setting and compliance tensions can largely contribute to the transition to CBM. In addition, the CE innovation–related tension is strong when companies choose between product innovation and process change. This tension is intertwined with the degree of innovation because companies that opt for revolutionary change usually drastically change the entire production process and/or product design.
Theoretical Contribution
Our research advances knowledge about paradoxes and tensions in the field of CBMs. According to Schad et al. (2016) “paradox studies have moved toward an evolution of increased simplification” (p. 33). The previous literature has usually focused on one or several paradoxical tensions, lacking research in conventional manufacturing (Andriopoulos & Lewis, 2009). Hence, a paradox perspective allows us to describe and explain how manufacturing companies face multiple tensions around circularity issues. Based on Smith and Lewis’s (2011) typology of organisational paradoxes, De Angelis (2022) grouped CE organisational paradoxes in learning, performing, organising, belonging. They are linked to the core activities and elements of an organisation, such as knowledge, identity, goals, and processes (Smith & Lewis, 2011). However, De Angelis (2022) particularly explores “the challenges that become salient in the process of CE implementation from a paradox perspective” (p. 3). Meanwhile, our research allows us to include both latent and salient CE organisational tensions, and how they are related to temporal and spatial perspectives. As noted by Hahn and Knight (2021) “latency and salience mutually shape and enact the experience of paradox” (p. 378) in the CE. In this way, our article summarises the salient CE tensions that organisations experience in their daily activities and identifies the latent CE tensions that can be seen from a broader perspective (e.g., the strategic paradox between circular products and products as usual). This study highlights an emerging strategic paradox in CBM. Often studies focus on the case of a single sector or firm (Iivonen, 2018), but our findings are relevant for researchers studying the transition to CBM in a cross-sectoral manufacturing context.
Research results confirm the organising paradox, and performing paradox, where there is a tension between short-term profitability and long-term prosperity (De Angelis, 2022). According to De Angelis (2022), if organisations project themselves into the wider social and ecological system in which they operate while retaining their independence, a tension arises between the organisation as a “separate entity” and a “part of the wider system..” Perhaps, because of the specificity of the sample, virtually all manufacturing organisations have seen themselves as part of the system and have not experienced these tensions. We acknowledge that a latent tension between standardisation (to follow the standards given by focal companies) and creativity might occur. However, important multiple tensions arise between value chain and society, environmental and social goals. The CE suggests extending the period of time during which materials, products and components are kept in use, but it might appear at the cost of social sustainability. Our results are also novel because we specifically identified the CE paradoxical tension between current and future regulation. Companies have to decide between allocating resources to meet current and future legal requirements.
This study only involved manufacturing companies that have been established in the past and that are trying to introduce circularity-oriented innovation in their business model, that is, they are not start-ups. Previous research, for example, De Angelis (2022) explored organisational tensions both for start-ups and established companies that want to apply a CE-oriented strategy. Incumbents are tied to previous investments, existing supply chains and business models that are difficult to transform once they are developed and economically viable (Henry et al., 2020). Therefore, they face difficulties to disrupt the current known processes, routines, and structures for uncertain one. By contrast, start-ups are less likely to be dependent on a particular technological mindset and more likely to try innovative approaches and are not at risk of cannibalising market share or devaluing previous investments (Hockerts & Wüstenhagen, 2010). While start-ups also face economic-social or economic-environmental pressures in their decision-making (DiVito & Bohnsack, 2017), we would suggest that the paradoxical tensions should be different between long-established companies and companies whose core business has been circular from the start.
The originality of the article lies in its identification of CE paradoxical tensions in the transformation of business models into circular ones through the prism of real organisational actors and observed systems. Our contribution is to theorise and demonstrate the paradox approach as an important mechanism that can help traditional and established manufacturing companies to move towards CBMs. Viewing paradoxical tensions as interconnected system, the article shows that manufacturing organisations simultaneously face multiple interconnected tensions that arise in both spatial and temporal contexts.
Managerial Implications
The results also have practical benefits because CBMs, despite sounding promising, are not progressing rapidly. The identified paradoxical tensions may help companies develop relevant strategies towards creating more circular production processes and products. For managers seeking to improve organisational performance (Knight & Paroutis, 2017), it is important to identify paradoxical tensions in a timely and effective manner. Our study captured both salient paradoxical tensions that are already experienced by managers as well as latent tensions that may emerge if companies introduce more radical circular business innovations. The analytical propositions could be used to discover organisational-level tensions in conventional manufacturing. If the company needs to adopt more environmentally friendly solutions, the propositions of organisational tensions indicate areas for improvement as well as boundaries where special attention is recommended.
Even if organisational actors deny that a systemic transformation towards a CE is taking place and therefore do not feel any tension, value chains, and ecosystems are still changing. Real ecosystem dynamics (e.g., shortages of critical materials) lead to perceived tensions and perceived paradoxical tensions often reflect the underlying system dynamics (Schad & Bansal, 2018). Finally, to successfully adopt CBM, companies need to reconcile a short-term and a long-term perspective (Slawinski & Bansal, 2015).
When a company acknowledges the paradoxical tension, it is easier to manage it. Hence, companies could focus on setting up the strategies for tension management. Our findings might be important for corporate strategic management and leadership. Circularity leadership varies, with some being more of a follower and others tending to be the first to take certain steps to become circularity innovators.
Conclusion
The research results allow us to identify novel insights into paradoxical tensions, namely, goal setting, performance orientation, compliance, in-network collaboration, and innovation adoption. Also, we explain the nature of and interrelationships among CE paradoxical tensions by emphasising temporal and spatial perspectives. In addition, we define the concept of a strategic paradox perspective in the CE, which acknowledges the tension between true circular products and products as usual.
Our qualitative research identified strategic paradox and organisational-level tensions in the field of CBMs. The paradox management perspective may also help to explain how companies respond to and deal with the complexity of the CE. Therefore, further research could help to identify relevant strategies and actions to enable companies to cope with paradoxical tensions.
While analysing the tension related to innovation, we assumed that companies would be interested in innovating their products or processes. But some companies face a dilemma in terms of changing their product design, their manufacturing process or both simultaneously. Moreover, we purposely selected companies that have already implemented some circular innovation. The specific sample might be the reason why we found significant innovation adoption tensions.
In future research, it would be worth investigating how tensions appear and differ in leading companies and coping companies. In the literature we found organising paradoxical tensions related to process management (centralised vs decentralised), attitudes of employees (flexible vs. controlled), and internal processes (integrated vs. separated). However, based on our dataset, these tensions appeared to be weakly expressed. The reason is that we investigated and analysed the company as an entire unit and did not consider the activities of different departments or employees. Therefore, in-depth case studies involving interviews with different level employees in the same organisation could extend our knowledge to include the abovementioned paradoxical tensions. Another line of research could focus on strategic responses that tackle long-term and complex circular paradoxical tensions and enable better decision-making.
Footnotes
Declaration of Conflicting Interests
The author(s) declared no potential conflicts of interest with respect to the research, authorship and/or publication of this article.
Funding
The author(s) disclosed receipt of the following financial support for the research, authorship, and/or publication of this article: This research has received funding from the Research Council of Lithuania (LMTLT), under the project “Managing paradoxical tensions and developing organizational capabilities in a circular economy” (no. S-MIP-23-53). The authors extend their sincere gratitude to editor Michael Russo and two anonymous reviewers whose constructive comments and support greatly enhanced the quality of this work. Additionally, the authors wish to acknowledge the valuable feedback received on an earlier version of this paper presented at the European Academy of Management (2022) and the Academy of Management (2022).
