Towards circular economy through innovation: the role of entrepreneurial orientation and human resource management

The development of the circular economy (CE) has become a strategic priority for the EU to achieve the UN’s Sustainable Development Goals. While the number of CE-based start-ups is burgeoning, established companies seem to be slower to adopt CE. Incorporating CE principles requires established firms to transform their business processes and activities from a linear to a circular approach, which often requires the introduction of significant and complementary technological and non-technological innovations, as well as significant investments that may hamper the firm’s overall performance. Thus, the disruptive nature of CE adoption may make established firms reluctant to embrace this process and underlines the need to identify its drivers and to clarify its potential benefits. Accordingly, we analyze the role of entrepreneurial orientation (EO) in promoting circular human resource management (CHRM), circular product innovation and circular manufacturing. This study is the first to define and measure CHRM and one of the few to apply the concept of EO in the context of CE. Using seemingly unrelated regressions (SUR), we find that EO promotes circular innovation directly and indirectly through CHRM. This factor represents a non-technological innovation which directly impacts on circular product innovation and circular manufacturing, whilst reinforcing the complementarity between non- technological and technological innovation. This research also addresses concerns about potential conflicts in achieving different types of CE performance simultaneously. By analyzing firm performance from a holistic perspective, our study confirms that CE implementation leads to environmental, market and social performance improvements together with the moderating role of technological turbulence.