Circling the Squares : Radical Innovation and Management Control Systems in the Circular Economy

Abstract: An economic system built upon the sale of tangible goods produced using finite resources is inherently unsustainable. The idea of a Circular Economy (CE) as a viable pathway to sustainability has gained considerable attention from academia, policymakers, and the business community. The CE builds on a new logic in the business environment in which industrial firms operate that requires substantial changes. We face a significant knowledge gap concerning how firms internally manage the implementation and adoption of CE. Filling in this knowledge gap is critical to understanding how to implement CE at large and established firms with a considerable history of a linear logic, which are known to favor incremental improvements to existing business opportunities over radical innovation.This thesis aims to delve into the managerial challenges that large, established industrial firms encounter when implementing CE principles, and how they address these challenges, particularly through managerial controls. Additionally, it aims to provide insights into how management can facilitate radical circular innovation and support the circular transformation of incumbent firms. To accomplish this aim, existing knowledge on barriers to CE has been synthesized through a systematic literature mapping and a systematic literature review. Next, interviews (n=68) at five large and established industrial firms provide empirical insights concerning the implementation and adoption of CE principles. In addition to the four appended papers, this comprehensive summary theorizes about the empirical findings using literature on radical innovation, sensemaking, and managerial controls. Building on the empirical papers, this analysis sheds light on two distinct patterns in how managers frame CE: incremental framing versus radical framing. It is argued that this has considerable consequences concerning with respect to ambitions, operationalization, and the means used to achieve a CE. In addition, the thesis theorizes about the relationship between the management control systems and the prevailing framings of CE. Based on an understanding of this relationship and the tensions and conflicts associated with the different framings, it is argued that managerial controls can act both as barriers to and enablers of CE adoption at incumbent firms. In addition to the practical and theoretical implications of this finding, the thesis pinpoints limitations and assumptions concerning managerial control systems in relation to CE and propose new avenues in light of this. Finally, the analysis is synthesized into an integrative framework that differentiates three different modes of organizational behaviors within the context of CE transitions: optimizing, transforming, and systems building. This framework integrates the theoretical foundations of the thesis, acknowledges the identified issues, and offers actionable implications for researchers and practitioners.