A dynamic capabilities framework for building circular ecosystems by focal firms

In the context of Circular Economy (CE) and sustainable transitions, firms are exploring innovative ways to create value. Circular ecosystems have emerged as a strategic response, enabling firms to navigate CE transitions by fostering collaboration and alignment with diverse actors despite market uncertainties. Dynamic capabilities (DCs) play a pivotal role in addressing these challenges, yet there is limited understanding of how focal firms develop and leverage DCs to establish and sustain circular ecosystems. To bridge this gap, we identified the DCs of focal firms in the process of circular ecosystem creation. Using a grounded theory approach, we conducted a multi-case study across seven firms leading circular ecosystems. We collected empirical data through 24 semi-structured interviews and analyzed iteratively through a triangulation process, cross-case analysis, and a conceptual framework structuration. Our analysis identified four key DCs categories: sensing circular opportunities, seizing circular solutions, reconfiguring internal practices, and integrating ecosystems. These findings reported the development of a theoretical framework that highlights the micro-foundations facilitating circular ecosystem creation. Our study demonstrates how focal firms harness circular innovations and learning processes to foster knowledge exchange, optimize resources, and co-create value with external stakeholders. The insights presented offer practical guidance for managers and policymakers to accelerate the transition to sustainable circular ecosystems, emphasizing the importance of actor alignment and collaborative strategies to advance CE practices.