Why Circular Economy Success Depends on Ecosystems, Not Companies

For nearly a decade, the circular economy has been promoted as the blueprint for sustainable business. Companies have redesigned products for durability, invested in recycling technologies, experimented with product-as-a-service models, and embraced remanufacturing. Yet despite thousands of pilot projects and billions of dollars in investment, truly circular business models remain the exception rather than the rule. The reason is surprisingly simple: most organizations have been trying to solve a systems problem with firm-level solutions.

A recent conceptual synthesis of literature argues that the future of circularity lies not inside individual organizations but within circular ecosystems—networks of independent yet interconnected actors that collectively create, preserve, and recapture value. Their analysis of 45 definitions from the academic literature demonstrates that while the concept of circular ecosystems has become increasingly popular, it has also become increasingly fragmented. Unless organizations develop a common understanding of what these ecosystems are and how they function, both research and practice risk speaking different languages about the same phenomenon.

The shift from firm-centric thinking to ecosystem thinking represents one of the most important conceptual advances in sustainability strategy.

Traditional business models assume that firms largely control their value chains. They focus on suppliers, customers, shareholders, and internal capabilities. Such models work reasonably well in linear economies where products flow predictably from production to consumption. Circular economies operate differently. Materials move backward as well as forward. Waste from one actor becomes input for another. Repair organizations, digital platforms, municipalities, logistics providers, universities, regulators, investors, and consumers all become active participants in creating value. No single organization possesses the authority, capabilities, or resources to orchestrate these relationships alone. Consequently, circularity emerges only when multiple organizations coordinate their activities around shared objectives.

This insight explains why many circular initiatives fail despite technological feasibility. The challenge is rarely the absence of innovative products. Instead, it is the absence of coordinated systems capable of supporting those products throughout their lifecycle. The literature identifies an important weakness in current scholarship. Although the term “circular ecosystem” has become fashionable, researchers frequently use it to describe different phenomena. Some emphasize industrial symbiosis, others focus on innovation networks, entrepreneurial communities, digital platforms, or urban sustainability initiatives. Without conceptual consistency, comparing studies becomes difficult, and practical implementation becomes confusing.

To address this fragmentation, the researchers systematically examined forty-five published definitions. Their review reveals remarkable convergence around two fundamental ideas. First, circular ecosystems consist of independent actors rather than vertically controlled organizations. Second, these actors exchange multiple forms of value—including materials, information, knowledge, services, and economic benefits—through complex relationships. Yet they also identify significant gaps. Many definitions fail to distinguish ecosystem roles from traditional stakeholder categories, and surprisingly few explicitly connect ecosystem thinking with earlier work on circular business models or industrial ecology despite their obvious theoretical interdependence. Rather than viewing ecosystems simply as larger supply chains, the authors argue that ecosystems represent fundamentally different organizational structures.

Four characteristics distinguish them.

1. The first is organizational autonomy. Participants remain legally and strategically independent. Suppliers, customers, universities, municipalities, startups, and regulators each pursue their own objectives while simultaneously contributing to collective outcomes.
2. The second is complex interdependence. Value creation depends on complementary capabilities distributed across multiple organizations. Removing one participant often weakens the performance of the entire system.
3. The third is synergistic value creation. Ecosystems generate outcomes that individual organizations cannot achieve independently. Environmental performance, innovation, resource productivity, and economic value all emerge through collaboration rather than isolated action.
4. The fourth is dynamic ecosystem roles. Organizations do not occupy fixed positions. The same actor may simultaneously function as supplier, customer, knowledge broker, investor, regulator, or orchestrator depending on context. This fluidity differentiates ecosystem actors from conventional stakeholder classifications.

These characteristics transform how managers should think about competitive advantage.

Instead of asking, “How can our company become more circular?” executives should ask, “What ecosystem capabilities are required for circularity, and which organizations must participate?”

Previous researchers identified numerous ecosystem variants—business ecosystems, industrial ecosystems, innovation ecosystems, entrepreneurial ecosystems, knowledge ecosystems, service ecosystems, urban ecosystems, digital ecosystems, construction ecosystems, and food ecosystems. While useful individually, these categories often overlap substantially because material, information, and economic value circulate simultaneously. Attempting to classify ecosystems according to only one dominant flow oversimplifies reality.

1. The first consists of multi-actor ecosystems, which focus on coordination among organizations such as producers, suppliers, governments, customers, and civil society.
2. The second comprises platform and knowledge ecosystems, where digital infrastructures, research institutions, and collaborative learning mechanisms facilitate innovation and information exchange.
3. The third encompasses sector-specific ecosystems, including urban, entrepreneurial, food, industrial, and service ecosystems tailored to particular contexts and industries.

This classification reflects how ecosystems actually function rather than imposing artificial conceptual boundaries.

Equally revealing is the study’s analysis of what researchers actually investigate when studying circular ecosystems.

Most studies concentrate on stakeholder relationships and interactions, followed by material flows, knowledge exchange, and economic value creation. Governance, incentive alignment, risk sharing, and ecosystem management receive increasing attention but remain comparatively underdeveloped. Similarly, most ecosystem research operates at the meso level—examining networks of organizations—although some studies investigate micro-level organizational arrangements or macro-level national systems.

For practitioners, these findings highlight an important reality: successful circular transformations require much more than technological innovation.

Managers must design governance mechanisms that align incentives across organizations. They must establish standards for information sharing, coordinate investments, develop trust among partners, and create institutions capable of resolving conflicts. Circularity therefore becomes as much a governance challenge as an engineering challenge.

Perhaps the most insightful observation concerns the nature of ecosystem actors themselves.

Most studies identify familiar participants—producers, suppliers, customers, governments, universities, and investors. However, the authors argue that focusing only on stakeholder identities overlooks a more important question: what role does each actor play within the ecosystem?

Some organizations function as orchestrators that coordinate collaboration. Others pioneer innovation, broker knowledge, provide legitimacy, mobilize investment, or facilitate experimentation. These ecosystem roles often matter more than organizational identity because the same company may perform different functions across multiple ecosystems simultaneously. This distinction has profound implications for ecosystem design, governance, and performance measurement.

The broader lesson extends well beyond circular economy research.

Business strategy has traditionally emphasized competitive advantage within firms. Increasingly, however, competitive advantage emerges between interconnected networks of organizations rather than within isolated companies. Digital platforms, artificial intelligence ecosystems, renewable energy systems, healthcare innovation networks, and smart cities all exhibit similar characteristics. The circular economy simply makes these interdependencies impossible to ignore because material loops cannot close unless organizational relationships also close.

The recent literature therefore propose a unified definition of circular ecosystems as heterogeneous communities of largely independent actors connected through complex interactions and complementary roles that collectively create synergistic circular value. This definition brings conceptual clarity while acknowledging the diversity of ecosystem forms found across industries and geographical contexts.

The implications for executives are clear. Circular economy initiatives should no longer be evaluated solely through firm-level metrics such as recycling rates, waste reduction, or product redesign. Organizations must instead assess the health of the ecosystems in which they participate: the quality of collaboration, governance mechanisms, knowledge exchange, institutional support, and the alignment of incentives across multiple stakeholders. The transition from a linear to a circular economy is therefore not primarily a technological revolution. It is an organizational revolution. Companies will certainly remain important actors, but they are no longer the central unit of analysis. The real engine of circularity is the ecosystem itself—a dynamic network of organizations whose collective capabilities exceed the sum of their individual contributions. In the coming decade, the organizations that lead the circular economy will not necessarily be those with the most advanced recycling technologies or the most innovative products. They will be those capable of building, governing, and continuously adapting ecosystems that allow circular value to emerge at scale.

Reference:

Geissdoerfer, M., Kanda, W., & Kirchherr, J. (2026). Conceptualizing circular ecosystems: an analysis of 45 definitions. Business Strategy and the Environment, 35(2), 2368-2394.

Işık, C., Ongan, S., Aydın, R., & İmamoğlu, İ. K. (2026). Economic, environmental, social, and governance (ECON‐ESG) strategies for sustainable development: theory and a holistic evidence from Germany. Business Strategy and the Environment, 35(4), 5133-5157.