Published on 28 March 2018


The functional economy: from selling goods to selling solutions

At the end of March, the French government will present its roadmap for the circular economy. The goal is to break from the linear consumption model - extract, produce, consume, discard - and encourage businesses to develop a functional economy based on selling the use of a good rather than the ownership of it. Ultimately, this functional logic could be much more profitable, and above all, better for the planet. This logic, however, is rarely applied.

In a functional economy, value creation is based on intangible resources, not profit margins.

Imagine it is 2050. By this time, the market vendor is no longer benefiting from the sale of its products but from the integrated solutions it has put in place, with community actors and other market vendors, concerning sustainable nutrition. The market’s revenue comes from performance results based on the reduction of food waste in canteens, the fight against obesity or the reduction of soil pollution. And it is the beneficiaries of these positive effects (citizens, industries, communities, ...) who participate in its financing. This is called the Functional and Cooperation Economy.

"The goal is to get out of low-cost volume production logic, where we are currently, and move towards service logic, in which we create value from environmental and social performance. Where the first has negative social and environmental impacts and increases the competition, the second constitutes an infinite source of value and preserves resources ", explains Patrice Vuidel, consultant/researcher at Atemis. He participated in a prospective study with Ademe (the French Environment and Energy Management Agency) on the Functional and Cooperation Economy in 2050 (1).

"We sell light"

Meanwhile in 2018, the government plans to present its roadmap on the circular economy at the end of March (2), which intends to push companies towards a functional economy, even though few have taken this step. Philips Lighting France is one company to have done so. They just signed a "performance" contract with Amsterdam Airport. Their lighting renovation is thus entirely financed by the energy savings made.

"We do not sell lamps but light", says François Darsy, marketing manager for Philips Lighting France. "We offer lighting solutions in the form of performance contracts, which are based on the reduction of energy consumption or failure rate by monitoring the use of buildings, which has completely transformed our model. We sent our products to our customers hoping to resell them very quickly. As the luminaire is our own and it has to function as long as possible, we have made it more modular, so it is easily dismountable and repairable, or if necessary, upgraded using a circular approach."

Compensated with every move

Another example is La Palette Rouge, one of the leading pallet-pooling companies in the logistics market. "We are compensated from the time the pallet starts moving, so it is essential to optimise workflows", explains Gaël Gonzalez, Quality and CSR Manager, "To recover as many pallets as possible, we had to build cooperation and a long-term relationship with our distributors." Thanks to this approach, the number of empty returns has reduced by 10% and pallet losses have been cut in half compared to the results from a conventional pallet exchange system.

For 2025, the goal is to reduce CO² emissions by 20% per movement. "We will develop the use of multimodal transport and mutualize the flow by connecting our clients with one another to reduce wasted mileage and improve their logistics", explains Gaël Gonzalez. "Our value will be based more and more on efficiency in our customers’ value chains." And not simply pallet-pooling.

Focus on the function of goods and services

This logic "life cycle" has been tested at Michelin for several years. The group no longer sells tires, but kilometers traveled and manages the entire life cycle of their products: inflation, which has a strong impact on wear and tear, advises drivers on tire retreading if necessary. Similarly, Xerox charges for the use of its photocopiers; Rolls Royce sells propulsion function and no longer aircraft engines; and Textifloor focuses on flooring maintenance and contracting.

"With the Functional and Cooperation Economy, value creation is based on intangible resources, not profit margins. We should not be driven by results but by the value the solution creates. It is this aspect which is complicated to change because it involves changing our accounting methods and finding new indicators " says Franck Sprecher, national delegate to the Center for Young Business Executives (Centre des Jeunes Dirigeants D’entreprise). "Unfortunately, regarding public purchasing offers, we still prefer to buy windows rather than air quality."

Concepcion Alvarez @conce1


All information was gathered during a conference organised by Orée on 16 February 2018.

(1) See Ademe study

(2) See circular economy pre-launch roadmap, currently available for public consultation

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