Modularity for circular economy: Four circularity pathways for industrial firms

Abstract

Transitioning toward improved circularity is a complex challenge for industrial firms, where modularity is emerging as a promising strategic approach. Although modularity has been acknowledged in prior circularity research, the current understanding of the specific practices industrial firms can adopt and the corresponding capabilities they must build to support modularity is limited. Addressing these gaps, this study adopts a multiple case study with data from 47 informants in 11 Southeast Asian power sector firms and their ecosystem partners. The analysis identifies two modular strategic orientations: traditional modularity architectures and complex modularity practices. It also identifies two capability-building approaches named: internally driven capability development and ecosystem-enabled capability enhancement. By examining the interlinkages among these, we propose a framework comprising four circularity pathways, modularity innovation pathway, alliance-driven pathway, organizational embedding pathway and circular leadership pathway, that offer novel insights into how varying configurations shape circular benefit realization. These findings contributes to circular economy literature by conceptualizing modularity as a strategic orientation and articulating how diverse pathways support circular transformation. It further extends modularity research by linking it to capability building and circular benefits beyond traditional operational domains. The study offers actionable managerial implications for manages engaged with circularity, sustainability and operations in traditional industrial firms seeking improved circular benefits.