Renewable Energy Focus 45 (2023) 259–270

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Renewable Energy Focus

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Circular business model, technology innovation and performance: A

strategic-based theoretical framework in the Indonesian energy
transition
Nareswari Sumarsono a,⇑, Rhenald Kasali b, T. Ezni Balqiah c
a
Doctoral Candidate at Faculty of Economics and Business, Universitas Indonesia (FEB UI), Indonesia
b
Professor at FEB UI, Indonesia
c
Lecturer at FEB UI, Indonesia

a r t i c l e i n f o a b s t r a c t

Article history: Along with the popularity of the environment, social and governance (ESG) concerns, the circular econ-
Received 31 August 2022 omy concept has gained tremendous attraction from the industries, policy makers and academicians. On
Revised 28 April 2023 a firm level, this is implemented through the so-called Circular Business Model (CBM), which is seen
Accepted 1 May 2023
through various initiatives. This includes firms in the energy industry, who are transitioning from con-
Available online 5 May 2023
ventional to renewable energy sources. Nevertheless, despite of the importance and the omnipresence
of the practice, there is still lack of empirical research within the CBM topic. In particular, empirical
Keywords:
research combining the CBM and technological innovation topic within energy industry (as
Renewable energy
Energy transition
technology-intensive and high risk industry) in developing country such as Indonesia, is still lacking.
CBM To answer this gap, using literature review as research method, this paper has arrived into the following
Technology innovation propositions as main result; (1) there is a positive relationship between firm’s level of CBM and technol-
Leader’s innovativeness ogy innovation adoption to firm’s performance, where (2) the two antecedents that are positively impact-
ing firm’s level of CBM and technology innovation adoption are leader’s innovativeness and perceived
level of technology. For academicians, this research is expected to provide contribution to the energy
transition literatures within CBM and technology innovation adoption topic. Propositions provided in this
paper is expected to serve as valuable basis in conducting further empirical research. For practitioners,
this research is expected to provide valuable insights to make improvements and/or innovations in terms
of business model, technology adoption, and strategy. At last, this research is expected to support energy
transition.
Ó 2023 Elsevier Ltd. All rights reserved.

Introduction tion, and emissions. As Geissdoerfer et al. [23] stated, this concept
is ‘‘an economic system in which resource input and waste, emis-
The continuous global awareness of the ESG term emphasizes sion, and energy leakages are minimized by cycling, extending,
further the sustainability concern, which is to also care about envi- intensifying, and dematerializing material and energy loops”. For
ronment on top of the economics. In order to achieve such balance, academicians, such attraction is seen from the substantial increase
the circular economy topic emerged to be important. Previous lit- in both journals and articles covering this concept within the last
eratures, including that of Geissdoerfer et al. [23], stated that the decades. For policy-makers, this is seen through the results, such
concept of circular economy has gained tremendous attraction. as the ‘‘European Circular Economy package” (European Commis-
Not only for the academicians, but also for stakeholders within sion, 20151) as well as the ‘‘Chinese Circular Economy Promotion
the industry, including policy makers and firms Geissdoerfer Law” [34]. Furthermore, the Paris agreement (2015) that was
et al. [23]. This is due to this concept is seen as an alternative adopted by 196 parties at COP 21 (followed by the recent COP26),
model, which enables the minimization of waste, resource deple- which has the goal to ‘‘limit global warming to well below 2, prefer-
ably to 1.5 degrees Celsius, compared to pre-industrial levels”2, is

⇑ Corresponding author.
1
E-mail addresses: nareswari.sumarsono18@[Link] (N. Sumarsono), rhenald. [Link]
2
kasali@[Link] (R. Kasali), [Link]@[Link] (T. Ezni Balqiah). United Nations Climate Change (2021)

[Link]
1755-0084/Ó 2023 Elsevier Ltd. All rights reserved.
N. Sumarsono, R. Kasali and T. Ezni Balqiah Renewable Energy Focus 45 (2023) 259–270

also seen as one of the results of the circular economy concept. Fol- achieve competitive advantage. As Damanpour and Schneider
lowing this agreement, energy industry in many countries, including [15] highlighted, innovation is a source of competitive advantage
in the developing countries such as Indonesia, started to push the as well as the growth of the economic. In line with this, Si and Chen
energy transition from the conventional fossil fuels to the renew- [52],Damanpour and Wischnevsky [14]; and Nagano et al. [41] also
ables (Maulidia, 2019). In line with this, Gitelman et al. [25] also sta- explained that the great effects of innovation in economic develop-
ted that the energy sector plays a great role in achieving the circular ment and sustainable competitive advantage, is well-known. Fol-
economy concept, which is through a ‘‘closed-loop-energy produc- lowing the importance of CBM and technological innovation for
tion”, which includes prioritizing renewable energy sources. Such the performance of the firms, it is then becoming critical to also
situation creates expectations from the stakeholders in the industry understand what factors are impacting both the implementation
for firms to re-think the way of running their business. of CBM and adoption of technology innovation by firms in the
Zomer et al. (2018) stated that the concept of circular econ- industries.
omy is implemented at 3 (three) layers, which are the micro
(firm’s level), meso (industrial network) and macro (in cities/
provinces/regions). The focus of this research will be on the firm Research gaps
level. On a firm level and within the strategic management con-
cept, which highlights firms’ strategies to achieve competitive Despite of the importance and omnipresence the circular econ-
advantage or an above-average performance, Mutezo and omy practice, in which in the firm level is depicted as CBM, to the
Mutopo (2021) stated that firms need to include the circular best of our knowledge, to date, there are still several research gaps
economy concept in their business activities, with objective to in the topic. First, as Kirchher and van Santen (2019) stated, there is
generate additional value, as well as to make decisions that are a lack of empirical work on circular economy. For instance, several
less costly to society and the environment and society. They also literatures such as Geissdoerfer et al. [23], have come up with
stated that, through integrating circular economy with business strategic dimensions of CBM. Nevertheless, these set of dimensions
model, they have delivered to a new concept, which is known as have not yet been empirically tested. Second, many previous
the CBM. researches have studied the effect of adoption of technology inno-
Following the emergence of the term CBM, several literatures vation to performance (e.g. the work of [15,26,52], business model
attempted to define this term. For instance, Mutezo and Mutopo to performance (e.g. the work of [53]; and [19], circular economy
(2021) described this as business models, which are suitable for to performance (e.g. [47] and business model innovation as an
circular economy, through the incorporation of elements that implementation of circular economy (e.g. the work of Aminoff
are narrow, slow, and close-resource loop. This has the objective et al. [1], Geissdoerfer et al. [23], Si et al. [52], and Rossi et al.
to decrease the resource input (into firms) and the value net- [47]). However, to the best of our knowledge, no empirical research
work, as well as to minimize waste and emissions leakage out on the specific relationship between CBM and performance were
of the system. Rosa et al. [45] defined this as a new type of busi- found. Considering the above, in terms of research gap it can holis-
ness model, where the value creation is based on ‘‘keeping the tically be said that the relationship between CBM and technology
economic value embedded into products after their use and innovation (including their antecedents) to firm’s performance is
exploit it for new types of market offerings”. To maintain this not yet empirically tested, nor constructed as a theoretical frame-
economic value, several actions can be done, which according work together.
to Rosa et al. [45] is through (1) decreasing dependency on vir- This is especially within the context of energy industry, which is
gin materials, (2) shifting from non-renewable energy systems a long-term technology and capital-intensive industry with neces-
into the renewable ones, (3) adopting more practices that are sary improvements in terms of renewable energy as well as GHG
sustainable oriented, and (4) greening the whole value chain. emission to be made. As also stated by Mutezo and Mulopo [40]
Geissdoerfer et al. [23] defined it as business models that are circular economy can encourage energy transitioning and greater
dematerializing, cycling, intensifying and/or extending material uptake in renewable energy in an economically and environmen-
and energy loops, with the aim to reduce the inputs of resources tally friendly manner. Academic-wise this is considered as an
into and the waste and emission leakage out of an organizational interesting industry and context to be researched on, particularly
system. Whereas Fogarassy and Finger [21] further emphasizes within the circular economy topic, as according to Kircherr
that the new business models within the circular economy, is (2019), most of the CE works are focusing on manufacturing indus-
no longer concerned on the value chains (as what is reflected tries and only 5% is focusing on developing countries (e.g. the work
in the traditional/classic/linear/one-way life cycle business of [43] – which is a sector specific research of circular economy).
model), instead, the concern is the circular value circle (as what Considering this, it can be said that the third research gap is the
is reflected in the CBM). lacking of CBM research within the energy industry, particularly
The above elaboration shows that CBM is seen as an innovation in the developing country such as Indonesia, which is considered
in terms of business model. As Christensen (2018) stated, ‘‘innova- as a medium-ranked country (rank 27 out of 64) in terms of Cli-
tion does not only mean high-tech or feature-rich product”, instead mate Change Performance Index (CCPI)3. Such rank shows that
can be something more specific, for instance process or business despite the fact that Indonesia has started to push the energy tran-
model change in which a firm transforms capital, labor, materials, sition from the conventional fossil fuels to the renewables (Maulidia,
as well as information into services and products that has a greater 2019), improvements in terms of renewable energy as well as GHG
value. Where innovation is defined by Rogers [44] as ‘‘an idea, emission still needs to be made. This emphasized further the impor-
practice, or object that is perceived as new by an individual or tance of CBM and technology innovation adoption, particularly in the
group” and that adoption of innovation is a decision to fully use context of energy transition in Indonesia. Considering the above,
the innovation as ‘‘the best course of action available”, and rejec- which emphasizes the lack of research within the CBM and technol-
tion is a decision to not adopting the innovation. This confirms that ogy innovation topic in the Indonesian energy industry, as well as
CBM is an innovation in terms of strategy and process within an the afore-mentioned improvements to be made in the country,
organization. In 2018, Christensen emphasized that when it comes Indonesian energy industry has been chosen as the context of this
to the terms of innovation, ‘‘technologies and business model go research.
together”. This shows that technological innovation and business
model innovation should go hand in hand together in order to 3
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Fig. 1. Literature review protocol and criteria. Source: Adapted from Jabbour et al. [31].

Research objectives and questions Literature review were conducted on papers that were selected
from the Scopus index. Search codes that were used to find the
Having the above-mentioned research gaps in mind, this paper papers includes ‘‘adoption AND innovation”, ‘‘technology AND
has the objective to provide literature review-based research innovation AND adoption”, ‘‘innovation”, ‘‘disruptive AND innova-
model and propositions as main result, which is expected to be a tion”, ‘‘disruptive AND innovation AND renewable AND energy”,
valuable basis to conduct further empirical research on CBM and ‘‘circular AND economy”, ‘‘circular AND economy AND industry”,
adoption of technology innovation in the Indonesian energy indus- ‘‘circular AND business AND model”, ‘‘business AND model AND
try. Where to achieve this objective, the following research ques- innovation”, ‘‘circular AND economy AND energy transition”,
tions were built in place: ‘‘business AND model AND energy AND transition”, ‘‘renewable
AND energy AND circular AND economy”, ‘‘entrepreneurship”,
(1) Is there any positive impact of CBM to firm’s performance? ‘‘paradigm AND shift AND energy”, Indonesia AND energy AND
(2) Which factors are impacting firm’s implementation of CBM? industry”, ‘‘renewable AND energy AND Indonesia”. These papers
(3) Is the adoption of technology innovation capable to enhance were then synthesized and used as reference to build a compre-
the performance of firms that are implementing CBM? hensive research model as the foundation of this study (refer to
section 3). In addition to that, relevant industry reports, such as
To answer those questions, this paper starts with elaborating the the Indonesia Power Market Report 2020 and Asia Pacific Power
research methodology and followed by literature review (including and Renewables Market Outlook 2020 H1, from Wood Mackenzie
propositions obtained from the literature review as study result), search tool, as well as related books were also being included in
discussion, further research, and at last closed with a conclusion. the analysis. The objective was to understand deeper the contex-
tual 4phenomena, including the paradigm shift in the source of
energy, both globally and in Indonesia. Furthermore, to also under-
Research methodology stand the factors impacting CBM and technology innovation, the fol-
lowing search codes were also used: ‘‘innovation AND circular
In order to answer the above-mentioned research questions, lit-
erature review on the topic was conducted using the strategic
management framework as theoretical basis. 4
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economy”, ‘‘innovation AND performance”, ‘‘technology AND inno- not only government should play the role, but the whole ecosys-
vation AND performance, ‘‘circular AND economy AND perfor- tem including the private sectors/ firms (either as incumbents as
mance”, ‘‘business AND model AND performance”, ‘‘factors AND well as disrupters) should also play a role. This phenomenon indi-
innovation”, ‘‘factors AND innovation AND adoption”, ‘‘antecedents cates a moving forward trend of the Indonesian energy industry
AND circular AND economy”, ‘‘leadership AND innovation”, ‘‘leader- towards a circular economy concept, in which at the firm’s level,
ship AND business AND model”, ‘‘circular AND economy AND is implemented through a CBM [25]. This confirms the importance
indicators”. of conducting research on CBM using the Indonesian energy indus-
Consequently, over 100 papers were found and analyzed. Out of try as context.
those papers and reports, most relevant ones (56 papers) were To understand deeper the aforementioned contextual phenom-
used as reference for this study. Fig. 1 provides the summary of lit- ena, this paper will also provide an overview and analysis on the
erature review protocol and criteria (adapted from Jabbour et al. Indonesian energy industry (both the oil and gas sector as the
[31]. mature industry, as well as the renewables sector as the emerging
one).
Nowadays most of oil and gas company has re-declared them-
Research result
selves as energy company, instead of oil and gas company. This
is following their shift/ transition in their business focus from only
Results gathered from literature review of this research will
oil and gas towards all energy sources, which includes both the
start with elaborating the research context (including elaboration
conventionals and renewables. In Indonesia, this include both local
on the paradigm shift in the source of energy and Indonesian
energy companies (including SoEs and private companies), as well
energy industry analysis). This is then continued with the theoret-
as MNCs (the energy majors) that are operating in Indonesia. As
ical framework (including technology innovation adoption, CBM
elaborated by Sumarsono et al. [59], considering the demand, tech-
and firm’s performance) and at last, continued with elaboration
nology, products, manufacturing and distribution, trade, as well as
on the proposition deriving from the literature review result, as
the key success factors, in terms of industry life cycle, the conven-
well as the research model as summary.
tional energy business are now in its maturity stage and will con-
tinue this way for at least the near term. Whereas for the
Paradigm shift in the source of energy and Indonesian energy industry renewable energy business, it is currently still in its introductory
stage moving forward towards the growing stage, especially for
In Indonesia, the government has set a target to achieve an solar and wind energy. Fig. 2a supported this by illustrating the
energy mix with 23% of energy sourced by renewables (Wood capacity growth of each technology in the Indonesian energy
[65,64]. Several efforts were made by the government to achieve business.
this target. This includes; (1) the roadmap to accelerate renewable Whereas Fig. 2b also supported this by illustrating how at the
energy development 2015-2025; (2) the plan of having a one stop moment the key power plants in Indonesia are still dominated
investment portal for renewable energy opportunities; (3) PLN’s by coal and gas as energy sources.
4.7 GW renewable energy projects in 2019 with focus on solar In line with the above, as depicted in Fig. 3, Wood Mackenzie
PV, geothermal, and hydro power plants; and (4) government’s [65,64] stated that based on the Indonesian ‘‘Electricity Business
plan to replace coal plants that are older than 20 years with renew- Supply Plan” (RUPTL) prediction, Indonesia will achieve a 23% of
ables, which is accounted for around 11GW (Wood [65,64]. Mauli- renewable energy mix by 2025” (See).
dia et al. [38] stated that without government intervention, it is Having compared the circumstances of the conventional and
almost impossible to achieve the target and to expect private firms the renewable energy business in Indonesia, it is understood that
investing in electricity in the remote areas. They also emphasized the renewable energy business is still on its introduction moving
that a large-scale investment in a quite short period is needed forward to the growth stage. Whereas the Indonesian conventional
for this industry. Hence, cost and time is the highlight here. This energy business is now in its maturity stage.
is shown through the fact that the 23% Renewable Energy Target
(RET) in 2025 requires an investment of around 1.6 trillion IDR
or around 120 billion USD (76% of GoI’s expenditure in 2016). To Theoretical framework
achieve this, PLN’s business plan (called the RUPTL) 2015-2024
estimated the need of private sectors’ investment in electricity Having understood the research context, this section will con-
generation of 63 billion USD (47% of total investment). This elabo- tinue with the elaboration on the theoretical framework being
ration indicates a phenomena within the Indonesian energy indus- used in this study that was rooted from the entrepreneurship the-
try, through the existence of a paradigm shift in the source of ory, as one of the strategic management domains. This theory
energy. Also, it emphasizes that for Indonesia to achieve the RET, points out how firm manage its resources to achieve superior per-

Fig. 2a. Capacity growth (2019-2050) of each technology in the Indonesian energy business. Source: Indonesia Power Market Report 2020 (Wood [65,64]).

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N. Sumarsono, R. Kasali and T. Ezni Balqiah Renewable Energy Focus 45 (2023) 259–270

Fig. 2b. Map of key power plants and transmission lines in Indonesia. Source: Indonesia Power Market Report 2020 (Wood [65,64]).

Technology innovation adoption

Innovation, according to Drucker [18] is the specific tool of
entrepreneur, which is needed by firms to create wealth or to
enhance performance (which according to [35] includes both
financial and non-financial). Green and Newman [26] further
added that innovation is a form of change in technology, which
leads to major change in the system. This is henceforth called as
technology innovation. Where Huang [28] stated that technology
innovation is key in pursuing sustainability that is considered
important for environmental protection, economic growth as well
as social stability. This is due to the ability of technology innova-
tion to influence prosperity, lifestyle, consumption pattern, cul-
tural development, as well as social relation. In the context of
energy industry, the importance of technology innovation is sup-
ported by Gallagher et al. [22], who mentioned that academicians
agreed that energy technologies have provided an impact on both
social and environmental outcomes, at least during the past 200
years. Globally, the level of innovation might vary between coun-
tries, commonly ranked through the Global Innovation Index
(GII) published by the World Intellectual Property Organization
(WIPO). For instance, measured through several aspects (e.g., insti-
tutions, human capital and research, infrastructure, market sophis-
tication, business sophistication, knowledge and technology
Fig. 3. Indonesia’s 2025 generation mix forecast. Source: Indonesia Power Market outputs, and creative outputs), in 2021, Indonesia is ranked as
Report 2020 (Wood [65,64]). the 87th (out of 132). This can be said that in terms of innovative-
ness, Indonesia is still considered as lower if compared to other
formance with opportunity seeking as main focus [50]. Where one nearby countries, such as Singapore and Malaysia, who were
of the way to achieve such superior performance according to ranked as the 8th and 36th, consecutively [20]. Hence, room for
Drucker [18] is through technology innovation, which is the focus improvements in Indonesia, in terms of this aspect, is still there.
of this research. Furthermore, according to Isenberg [30] and Mar- In terms of its circumstances, innovation in general (including
oufkhani et al. [37], the success of firms is highly depended on its technology innovation), according to Christensen [10], consisted
ecosystem, which includes policy, industrial dynamics, finance, of 2 (two) types. The first one is sustaining innovation, where the
culture, supports, crowdsourcing, human capital and markets. By competition is about creating better products, which can be sold
linking this to the energy transition phenomena (as research con- for money to attractive existing customers. Technology innovation
text), the focus of this research is on the industrial dynamics, that is adopted by firms in the energy industry that aims to
where the concept of circular economy is being part of it. On a firm increase oil and gas production (e.g. the different categories of
level, such concept is implemented through the CBM, which is Enhanced Oil Recovery method5 and deep water technology) is an
henceforth also becoming the focus of this research. example of this. Another example of this is various decarbonization
Henceforth, this section will start with elaboration on technol- technologies adopted by conventional oil and gas firms with aim to
ogy innovation adoption, CBM, and understanding on firm’s perfor- sustain in the industry by limiting CO2 emissions. For instance
mance (as a strategic management-based research). Furthermore, through the introduction of Carbon Capture, Utilization, and Storage
this will then be continued with the theory tree as summary of (CCUS), technology to calculate CO2 emission, technology to recycle
the theoretical framework, where at the end of the section, propo-
sitions and research model will be provided therefrom. 5
Yudha et al. [69]

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waste, engine efficiency to reduce fuel and flare, thermal oxidizer to 114 (one-hundred fourteen) definitions of circular economy, Kirch-
limit/reduce CO2 emission6. The second type is disruptive innova- herr et al. [33] proposed to define circular economy as an economic
tion, where the competition is about commercializing a simpler system, which is based on business models where the ‘end-of-life’
and more convenient products/ service, which can be sold for less concept is substituted by (1) recovering and recycling materials in
money and unattractive (or new) set of customers. In the context the process of production, distribution and consumption, (2)
of this research, example of this among others includes the different reducing, and (3) reusing. Rosa et al. [45] defined circular economy
types of renewable energy technology that are adopted by firms in as minimizing or reducing negative impacts of non-renewable con-
the energy industry. This includes bioenergy (biomass and biofuels), sumption of resources, through an intelligent design of systems,
geothermal energy, hydropower, ocean energy, solar energy and products and materials. In line with this, Stahel [57] stated that
wind energy. Also, this includes the green energy station (started the objective of this concept is to manage the resources as well
with Solar PV in its rooftops) and the combination of Solar PV (or as to maintain the values of assets originated from human, cultural,
any renewable energy) and Battery Energy Storage System (BESS)7. natural, and financial. He added that humans in the circular econ-
In order to make use of technology innovation, it should either omy (where scarcity exist) are driven by need and that it is the
be adopted and/or used to create a meaningful innovation that is in most sustainable business model that is available for the post-
line with the firm’s objective. In which, according to Rogers [44], industrial economy. The definition of the circular economy concept
adoption is a decision to make a full use of an innovation as the was continued when Geissdoerfer et al. [23] revealed several short-
best course of action available. Henceforth, adoption of technology comings of Kirchherr et al. [33]’s definition. They redefined this
innovation in this research can be defined as firm’s decision to concept as an economic system, where input of resources and
adopt new technologies that are available in the market, either energy leakages, emission, and waste, are minimized through
to be fully used directly as its technology innovation or to be used cycling, intensifying, extending, and dematerializing energy and
to create another new technology innovation. More specific, in the material loops. They further added that this can be attained
energy industry, Dutra and Barbalho [19] stated that ‘‘in the energy through servitization, digitalization, sharing solutions, mainte-
transition, technology allowed changes in the behavior of the con- nance and repair, long-lasting product design, reuse, refurbishing,
sumers”. This shows the importance and relevancy of adoption of remanufacturing, and recycling.
technology for the context of this research. In the context of energy industry, Gitelman et al. [25] stated
The process in achieving this decision to adopt or reject an inno- that the energy sector plays a crucial role in achieving the circular
vation, according to Rogers [44] started from the stage when a economy concept, which is through a ‘‘closed-loop-energy produc-
decision making unit or an individual is exposed/ aware of the tion”, which includes prioritizing renewable energy sources. More
availability (or existence) of an innovation. At this stage, firm’s per- specifically, in the energy transition from the conventional oil and
ceived availability of technology is the highlight. Also, Rogers [44] gas towards the renewable energy source, Mutezo and Mulopo [40]
emphasized that individuals and organizations (which includes stated that the circular economy concept is capable to enable a
leaders of the firms) in a social system adopt innovation in an greater renewable energy transitioning and uptake. This is also
‘‘over-time sequence” (hence not at the same time). Consequently, supported by Su and Urban [58] who stated the importance of cir-
basing on their innovativeness, both individuals and firms could be cular economy measures in accelerating the transition of clean
differentiated into adopter categories/level. Innovativeness as energy. Mutezo and Mulopo [40] also added that this concept
defined by Rogers [44] is the degree/level to which individual (or can speed up energy transitioning through the optimization of
as well as other unit of adoption) is relatively earlier compared resources and achieving efficiency, in an economically and envi-
to the others, in adopting new ideas. He mentioned that innova- ronmentally friendly manner. This confirms the importance of cir-
tiveness ‘‘is the bottom-line behavior in the adoption process”. cular economy concept within the energy industry in order to
The afore-mentioned elaboration emphasized the importance of achieve a smooth energy transition.
both perceived availability of technology as well as leader’s inno- On a firm level, the concept of circular economy is implemented
vativeness in the adoption of technology innovation by firms. through an innovation in terms of business model, called the CBM.
Furthermore, Christensen (2018) stated that in terms of innova- As Geissdoerfer et al. [23] stated, the CBM is derived from both the
tion, ‘‘technologies and business model go together”. This is sup- circular economy concept as well as business model innovation. In
ported by Antikainen and Valkokari [2] who stated that other words, CBM is an innovation in terms of business model that
technologies and new ideas in firms are commercialized through is implementing the circular economy concept [40]. Mutezo and
their business models. In support to this, Teece [61] also stated that Mutopo (2021) and Geissdoerfer et al. [24] further emphasizes that
in order to profit from innovation, business model also plays a role. it is necessary for firms to include the circular economy concept in
Considering this, having elaborated innovation in terms of technol- their business/ operational activities, with the objective to make
ogy, the next section will elaborate innovation in terms of business decisions that are less costly to the environment and society, as
model, which will be focusing on the CBM (as a firm’s level imple- well as to create additional value. In line with this, Fogarassy and
mentation of circular economy). Finger [21] elaborated that in the new business models of circular
economy, the focus is no longer about the value chain, instead it is
the circular value circle. Here, a product/service is not merely
CBM delivered to users, but its leftovers of energy and materials are
Geissdoerfer et al. [23] stated that the circular economy concept transported back towards the system. They further elaborated that
has achieved an increasing attention from the academicians in this concept is applied through the design and implementation of
2013 and starting that moment, different definitions of the concept the business models that is based on using resources as little as
has emerged. For instance, in its research on Africa’s energy transi- possible, for as long as possible, while at the same time also
tion, Mutezo and Mulopo [40] stated that the circular economy extracting value from the process as much as possible.
concept was initially invented as a ‘‘self-replenishing system”, Business model, according to Rosa et al. [45] and Osterwalder
which reduces negative environmental impacts as well as energy and Pigneur [42] is the rationale of how a firm creates, delivers,
and material input. Furthermore, upon reviewed and analyzed and captures value. It is used as mean or tool to achieve competi-
tiveness and to set up firm’s market strategy [45]; and [66]. Daou
6
FGD held with energy experts held on 26 October 2021. et al. [16] illustrates further the differences between the tradi-
7
FGD held with energy experts held on 26 October 2021. tional/ original versus the CBM. Basing on the original business
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model canvas of Osterwalder and Pigneur [42], Daou et al. [16] has Firms’ performance
created the CBM canvas, which is called as the ecocanvas. Fig. 4a In line with Daou’s (2020) ecocanvas, Geissdoerfer (2020) stated
depicted the original business model canvas, which classifies busi- that firms that are applying sustainable business model innovation
ness’ internal activities and processes in 9 (nine) interlinked build- are expected to be able to improve their financial, social, and envi-
ing block. Whereas Fig. 4b depicted the CBM canvas, which ronmental performance. Whereas in terms of technology innova-
according to Daou et al. [16] is seen as a sustainable business tion, Huang [28] also stated that it has a significant impact to
model and was created as a circular upgrade of the original one. economic growth, environmental protection, as well as social sta-
Based on extant literatures in circular economy, the ecocanvas bility. Henceforth, for the purpose of this research, in terms of
(which has been tested and optimized multiple times) took the cir- firms’ performance, the paper will not only look at the angle of
cular economy concept one step further through enabling a more financial performance, but also the non-financial performance,
structured and deeper rethinking of how additional environmental such as social and environmental impact. This is also to be in line
and social values can be created or captured in a firm’s business with the Indonesian energy context, where the ESG has started to
model [16]. It is more than targeting customers and shareholders play a major role in measuring the performance of the firms.
groups as it also takes environmental and social into account, in
an explicit manner, which normally are overlooked in the tradi- Theoretical summary
tional model. In this business model canvas, 3 (three) core building To sum-up the above elaborated literature review, Fig. 5 illus-
blocks were added, which according to Daou et al. [16] includes trates this strategic management-based theory tree that is used
environmental (e.g. consideration on climate change and pollu- as basis for the theoretical framework of this study.
tion), economic and legal (e.g. business risks due to the introduc-
tion of emission tax to fight climate change, technological risk Research propositions
caused by lack of technology in mitigating carbon emissions, as Deriving from the literature review, this section will provide
well as related costs stemming from fossil fuel-based power gener- several research propositions. It will start with the antecedents
ation) and social forces. of technology innovation adoption and CBM, and followed by the
In line with the previous elaboration, Geissdoerfer et al. [23] relationship between technology innovation adoption, CBM and
defines CBM as business models that involves cycling (recycling performance. At the end of this section, those propositions will
measures), intensifying (more intense use phase), extending (use then be summarized in form of research model.
phase extensions), and/or dematerialising (substitution of products
by service and software solutions) energy and material loops with Antecedents of technology innovation adoption and CBM
the objective to reduce the inputs of resources into and the emis- Acknowledging the above mentioned importance of both tech-
sion and waste leakage out of an organisational system. In the con- nology innovation adoption and CBM to firms’ performance, it is
text of energy industry, example of the first dimension of CBM also important to understand the antecedents that are impacting
(cycling) may include the use of renewable energy sources either both of those two factors (technology innovation adoption as well
as the source of power for the conventional oil and gas business, as CBM).
as well as for the emerging renewable energy firms. Other than To date, previous literatures indicate that the antecedents of
that, re-using the spare parts of old wells in the oil and gas busi- innovation adoption is clearer than that of CBM. In terms of inno-
ness can also be considered as cycling. Examples of the second vation adoption in general, several academicians have made an
dimension (extending resource loops) may include the use of tech- attempt to explore the most suitable antecedents. As the purpose
nologies to prolonged the lifespan of an asset (e.g., wells, solar PVs) of this research is to analyze firm’s actual adoption of technology
as well as maintenance and repair of materials/components used innovation, innovation adoption theory that will be used in this
for the operation. Example of the third dimension (intensifying research is Rogers [44]’s diffusion of innovation theory (DoI).
resource loops) may include sharing facilities, warehouses or rigs Rogers [44], through its well-known diffusion of innovation theory,
among the production sharing contractors. At last, example the pointed out that individuals (which includes leaders of the firms)
fourth dimension (dematerializing resource loops) may include and organizations in a social system adopt innovation in an over-
reduction (or efficient use) of raw materials and toxic substances time sequence (hence not at the same time). Consequently, basing
as well as prioritizing service system instead of purchase. on their innovativeness, both individuals and firms could be differ-

Fig. 4. Figure 4.a (left). Business model canvas (original) and figure 4.b (right). CBM canvas. Source: 4.a. Adapted from Osterwalder and Pigneur [42] and 4.b. Adapted from Daou
et al. [16].

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Fig. 5. Strategic management-based theory tree used as basis for this study. Source: Authors. (See above-mentioned references for further information.).

entiated into adopter categories/level. Innovativeness as defined literatures that directly specify the antecedents of circular econ-
by Rogers [44] is the degree/level to which individual (including omy, or in more particular, the CBM. Nevertheless, in terms of
leaders or as well as other unit of adoption) is relatively earlier innovation in general, it is argued that leader’s innovativeness is
compared to the others, in adopting new ideas. He mentioned that not only impacting the adoption of technology innovation, instead
innovativeness ‘‘is the bottom-line behavior in the adoption pro- it is also influencing firm’s innovation in business model. Although
cess”. The relevancy between leaders’ innovativeness in the inno- the impact of leader’s innovativeness to CBM is not yet literally sta-
vation adoption process is also supported by Christensen [9]. ted in previous literatures, several studies has however provided
Also, in more particular, Chen et al. [7] supported this by stating an indication regarding the importance of leaders to business
that leaders’ innovation willingness is needed for innovation adop- model innovation. For instance, Chesbrough [8] elaborated the
tion. Whereas Si and Chen [52] confirmed this by explaining that important of leaders for business model change. Doz and Kosonen
many scholars considered managers’ characteristic as key factors, [17] has discussed leadership actions that are expected to con-
which influence how firms respond to innovation. tribute to firm’s business model renewal. Also, Sniukas [55], stated
In terms of CBM, specific factors impacting it, is barely found in that firm’s business model innovation is created by the leaders and
previous literatures. The processes that firm use in implementing hence leaders’ understanding on how to leverage from technology
CBM, are still unclear [70]; and [63]. Also, it was unclear in the lit- is key in the creation of business model innovation. Henceforth,
erature, which the antecedents were there for the implementation based on the above-mentioned literatures, this research provides
of circular economy at the micro-level, and empirical evidence the following proposition:
concerning specific issues on the adoption of circular economy
principles’ adoption in manufacturing firms is still limited [70]. Proposition 1a. -b: Leader’s innovativeness is positively impact-
There are, however, several academicians who attempted to ing (a) firm’s level of technology innovation adoption and (b)
explore antecedents that are indirectly related to circular economy. firms’ level of circular business model.
For instance, Bhatia and Srivasta [4] stated that critical success fac-
tors of the closed loop supply chain that has a significant positive Furthermore, several previous studies have emphasized the
effect on performance includes sustainable production, environ- importance of availability of technology in the deployment of
mental concerns, product design and collection, demand and new business models, together with the technological innovation
inventory management and raw material prices. Whereas in the (e.g. the work of [19,69]). This is especially within the context of
context of industry 4.0., the impact of technologies such as big data energy industry. This is in line with Roger (2003)’s DoI theory,
and/or internet of things (IoT) towards circular economy is still which stated that to make use of technology innovation (or to cre-
debatable. For instance Cwiklicki and Mojnarowska (2020), Jab- ate a meaningful innovation), it should first either be adopted and/
bour et al. [31], Sassanelli [49], Taddei et al. [60] and Yang et al. or used. Whereas the process in achieving this decision to adopt or
[67] have indicated a positive impact. Whereas Tseng et al. [62], reject an innovation, he stated that it started from the stage when
Rosa et al. [45] and Basile et al. [3] demonstrates that the impact an individual (or decision-making unit) is exposed/ aware of the
of big data to circular economy is still subject for future research availability (or existence) of an innovation. Henceforth, based on
or yet to be verified. This shows a very limited number of previous these, this research provides the following proposition:
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N. Sumarsono, R. Kasali and T. Ezni Balqiah Renewable Energy Focus 45 (2023) 259–270

Proposition 2a. -b: Perceived availability of technology is aiming to reduce CO2 emissions) can also play role in this. Based
impacting (a) firm’s level of technology innovation adoption on the above explanation, this study provides the following
and (b) firms’ level of circular business model. proposition:

Additionally, relationship between both of the above- Proposition 5. Firm’s level of technology innovation adoption is
mentioned antecedents to firms’ performance is also important positively impacting performance.
to be assessed. As previous research (e.g. [68] has stated that both
leadership style and innovativeness is impacting business perfor- Furthermore, as elaborated in the earlier sections, circular busi-
mance. Yildiz et al. [68] stated that their conclusion, particularly ness model is an innovation in terms of business model that is
the one that is related to innovativeness, has shown some similar- implementing the circular economy concept [40]. Whereas accord-
ities with previous studies. Whereas for perceived availability of ing to Christensen (2018), in terms of innovation, ‘‘technologies
technology, Huang [28] stated that technology innovation has a and business model go together”. This is supported by Antikainen
significant impact to economic growth, environmental protection, and Valkokari [2] who stated that technologies and new ideas in
as well as social stability. In more specific, he stated that to a great firms are commercialized through their business models. Also by
extent, technology determines raw materials and energy demands, Chesbrough [8] who stated that technology on its own has no sin-
manufacturing ways and efficiency, performance of products, gle objective value, which in more detailed he elaborated that the
waste reduction and handling, and many others. Also in support economic value of a technology remains dormant until it is com-
with this, specific in the context of energy industry, as elaborated mercialized through a business model. This indicated that both
earlier, Gallagher et al. [22] stated energy technologies have pro- technology innovation and business model innovation should go
vided an impact on both social and environmental outcomes, at hand in hand together in order to achieve the desired performance.
least during the past 200 years. These emphasized that the exis- Concerning circular business model, empirical research testing
tence or availability of technology is essential for the economy, the specific relationship between circular business model and per-
social and environment, through firms. Based on this this research formance are very limited. There are however several previous
provides the following propositions: research that elaborates the relationship between business model
to performance, as well as between circular economy to perfor-
Proposition 3. Leader’s innovativeness is positively impacting mance. For instance Si et al. [53] who stated that the cause of many
firm’s performance. bike sharing companies’ failures is due to failures in improving
their services and products, as well as failures in building an effec-
tive business model. Whereas Hao et al. [27], in the context of coal
Proposition 4. Perceived availability of technology is positively
industry, have stated the positive impact of circular economy to
impacting firm’s performance.
the sustainable development of economy, society and environ-
ment. This is in line with Rossi et al. (2021) who stated that ‘‘circu-
Relationship between technology innovation adoption, CBM and firm’s lar economy is the optimal point of sustainability”. The argument
performance of this is because the circular economy provides a set of practices,
The great impact of innovation in achieving sustainable com- which create more sustainable operations and also make sustain-
petitive advantage, as well as the development of economy, is glob- ability feasible in firms. Geissdoerfer (2018) stated that for firms
ally known [52,14]; and [41]. This involved both, innovation in to be able to create additional value, as well as to make decisions
technology and others. As Damanpour and Schneider [15] stated, that are less costly to the environment and society, they should
innovation is the adoption or creation of new ideas, new service, be including circular economy in their operations. Furthermore,
product, technology, process, structure, policy, or even administra- Geissdoerfer et al. [23] through their review of relevant literatures,
tive system. Specific for innovation in technology, Si and Chen [52] stated that ‘‘the capability to quickly and successfully innovate and
elaborated that firms that take the first actions in adopting tech- introduce business models can create an important competitive
nologies (which later on becoming dominant) normally prosper advantage for organizations. In more specific they added that firms
and survive. Whereas those who refuse adopting such technolo- that are engaged in sustainable business model innovation (such as
gies, will potentially fail. Furthermore, Sassanelli et al. [48], in the circular business model) can improve their firms performance,
the context of energy management, have also demonstrate the which includes financial, social, and environmental.
benefit of technology innovation. This shows the importance and Furthermore, Dutra and Barbalho [19] through its contextual
positive effect of technology innovation to the performance of analysis (in the energy industry) stated that, new business models
the firms adopting it. deployment can facilitate the path towards a smoother energy
In addition to this, Maulidia et al. [38] stated that Indonesia has transition. They further added that ‘‘emerging technologies are dis-
taken important steps in climate change policy (e.g. in 2016, rupting well-established approaches and the underlying land-
Indonesia submitted its voluntary GHG emissions reduction plan scape” and that the energy transition is changing the electricity
to the UNFCCC and in the NDC document, and that Indonesia system worldwide and provide key consequences for stakeholders
pledged to reduce its GHG emissions of 29% against 2010 baseline (e.g. boundaries that traditionally existed between producers, dis-
to be achieved by 2030) with one of the action plans is to achieve tributors, and customers are blurred). Dutra and Barbalho [19]
the pre-set RET. This shows that innovations in energy business in elaborated that, the energy industry, based on a value chain model
Indonesia could also provide a positive impact towards environ- that is over a 100 years old, is perceived as a framework with a cen-
ment. Hence, environmental impact can also be considered as tralized system planning, which is highly subjected to tariff-based
one of the outcomes of successful innovation. In the context of services to compensate operators as well as asset-based regula-
Indonesian energy business, Yudha et al. [69] also stated that if tions. Whereas in the energy transition, technology allowed
the 35,000 MW megaproject (to be supplied by renewable energy changes in the behavior of the consumers. They argued that,
sources, coal, and gas) is consistently implemented, it can provide instead of destroying values, the new business models may actu-
multiple effects. For instance, to directly absorb 650 thousand (and ally increase the possibilities of new transactions as well as higher
indirectly 3 million) workers. In terms of environmental impact, as returns. Also, the coexistence of new entrants and incumbents pro-
stated earlier, not only the renewable energy sector that plays role vides room to a new ecosystem. This study emphasized that both
in this. The conventional energy sector (e.g. through the innovation incumbents and entrants does not necessarily need to destroy/
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N. Sumarsono, R. Kasali and T. Ezni Balqiah Renewable Energy Focus 45 (2023) 259–270

compete with each other, instead they can coexist and provide an performance – by especially referring to Christensen (2018) who
additional value to the ecosystem. Most importantly, this study mentioned that ‘‘technologies and business model go together”,
explained the link between business model, technology innovation (2) applying existing technology innovation and CBM theories
and performance within the context of energy transition. Hence- within a more specific context, which is the Indonesian energy
forth, based on the above, this study provides the following industry, and (3) extending the understanding of firms perfor-
proposition: mance, which includes not only financial performance, but also
non-financial ones such as social and environment. In more speci-
Proposition 6. Firm’s level of circular business model is posi- fic, proposition 5 and 6 believes that through implementing CBM
tively impacting firm’s performance. and adopting technology innovation (such as technologies to
increase oil and gas production, various decarbonization technolo-
gies to limit/reduce CO2 emissions, and the different types of
Summary renewable energy technologies), energy firms are expected to be
To sum up, Fig. 6 visualized the research model, which has able to improve both financial and non-financial performance.
incorporated the above mentioned 6 (six) propositions. In addition to the above, proposition 1-4 have also provided
value in terms of indicative antecedents that can improve firms’
Discussion performance either directly or indirectly through the implementa-
tion of CBM and adoption of technology innovation.
From the research result, it is understood that the study has
derived into 6 (six) propositions. Proposition 5-6 is highlighting
the positive impact of firm’s level of firm’s technology innovation
adoption to the performance of firms within the Indonesian energy Further research
industry. Proposition 5 is in support of the work of earlier studies,
such as Rogers [44],Damanpour and Schneider [15], Christensen Considering the discussion above, it will be interesting to fur-
(2003, 2018); Green and Newman [26], Huang [28]; and Gallagher ther conduct empirical research using the 6 (six) above-
et al. [22]. Whereas for proposition 6 (where empirical research on mentioned propositions as basis. Nevertheless, further in-depth lit-
CBM to firms performance is limited), this is expected to serve as erature review on indicators for each constructs would be required.
value-added for the researchers, in a way that it provides a positive Looking at the early stage of this topic (especially the CBM part),
sign to conduct further empirical research on this topic. clear definition of indicators will aid the researchers to clearly
Also, apart from the above mentioned value added of proposi- define the most suitable measurements to be used for the research
tion 5-6, these two propositions (as one of the research result of context. Also, following the limited number of the conventional
this paper) have also provided value added in terms of (1) combin- energy firms in Indonesia, plus the introductory or the emerging
ing both technology innovation and CBM in a complimentary and state of the renewable energy in Indonesia, sample of such
holistic manner as variables that could positively impacting firm’s research needs to be clearly defined and well-planned in advance.

Fig. 6. Research model.

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