Dynamic Capabilities and Microfoundations to Overcome Barriers to Circular Economy Implementation

ABSTRACT The circular economy ( CE ) aims to reshape production models, aligning them with environmental and social goals. Recent analyses show that global economic systems in 2023 are recycling only 7.3% of their material usage. One reason is the existence of barriers to CE adoption at multiple levels, which in turn require appropriate dynamic capabilities to be overcome. This research explores the connections between barriers and dynamic capabilities, with a focus on their microfoundations, with the aim to develop a comprehensive framework supporting firms to implement CE business models. The study employs a multiple case study on seven Italian companies that successfully undergone the circular transformation across diverse manufacturing industries belonging to Made in Italy, that is, fashion, food, furniture, and paper. The research outlines seven microfoundations linked to the three dynamic capabilities of sensing, seizing, and reconfiguring. These microfoundations allow firms to overcome barriers at the institutional, supply chain, and firm levels.