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- Herausgeber: John Wiley & Sons
- Kategorie: Wissenschaft und neue Technologien
- Serie: ISTE Invoiced
- Sprache: Englisch
Functional Economy is a concept that is often associated with ecological transition and sustainable development. It prioritizes the use of a service or good rather than its sale, and tends to encourage cooperation. This model supports the transition to a more ecological and equitable economic and social environment.
This book presents the different approaches to the Functional Economy and the ways in which the various players (companies, public institutions and citizens) are adopting and adapting them through innovation. Depending on their degree of sustainability and their scope, these innovations can have major economic, social and environmental impacts.
Particularly at the local territorial level, those involved in innovation need to be supported as closely as possible if they are to overcome the hurdles they face and reap the rewards of the transformations brought about by this socio economic model, which is built around functionality.
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Table of Contents
Cover
Table of Contents
Title Page
Copyright Page
Foreword
Acknowledgments
Introduction
1 The Emergence of the Functional Economy: Context and Approaches
1.1. Towards a service and environmental model
1.2. The Functional Economy approaches
1.3. The Functional Economy and its applications
2 Economic Model and Innovation Dynamics
2.1. The Functional Economy as an economic model
2.2. Innovation dynamics
3 Functional Economy Challenges and Difficulties
3.1. The Functional Economy challenges
3.2. From traditional difficulties to great obstacles
Conclusion
References
Index
Other titles from iSTE in Innovation, Entrepreneurship and Management
End User License Agreement
List of Tables
Chapter 1
Table 1.1. The different types of PSS and examples (source: inspired by (Tukke...
Table 1.2. Forms of collective consumption (source: Serra (2018, p. 279))
Table 1.3. The typology of functional models proposed by (Buclet 2014), simpli...
Table 1.4. Categorization of strategies relating to the Functional Economy (so...
Table 1.5. Common principles and limitations to industrial ecology and the Fun...
Chapter 2
Table 2.1. The four post-Fordian economic models (source: Du Tertre (2008))
Table 2.2. Presentation of retention strategies complementing those by Porter ...
Table 2.3. Nature of innovation and scale of the supply system (source: Merlin...
List of Illustrations
Chapter 1
Figure 1.1. Evolution of employed workers by sector of economic activity (in t...
Figure 1.2. Growing share of services in household consumption expenditure (so...
Figure 1.3. Electronic sharing of information by company size, in 2017, in % (...
Figure 1.4. Resource efficiency strategies in a service economy focusing on “u...
Figure 1.5. Tukker’s typology (Tukker 2004)
Figure 1.6. The circular economy: three domains, seven pillars (source: ADEME ...
Chapter 2
Figure 2.1. The product–service continuum (source: Oliva and Kallenberg (2003,...
Figure 2.2. Production estimate of natural resources and their apparent reserv...
Figure 2.3. The product as a vector of characteristics and skills (characteris...
Figure 2.4. The product as a vector of characteristics and skills (meso-econom...
Chapter 3
Figure 3.1. Knowledge capital (Source: Laperche 2017).
Guide
Cover Page
Table of Contents
Title Page
Copyright Page
Foreword
Acknowledgments
Introduction
Begin Reading
Conclusion
References
Index
Other titles from iSTE in Innovation, Entrepreneurship and Management
WILEY END USER LICENSE AGREEMENT
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Smart Innovation Set
coordinated byDimitri Uzunidis
Volume 44
Functional Economy
Economic Models, Challenges and Innovation Dynamics
Céline Merlin-Brogniart
First published 2024 in Great Britain and the United States by ISTE Ltd and John Wiley & Sons, Inc.
Apart from any fair dealing for the purposes of research or private study, or criticism or review, as permitted under the Copyright, Designs and Patents Act 1988, this publication may only be reproduced, stored or transmitted, in any form or by any means, with the prior permission in writing of the publishers, or in the case of reprographic reproduction in accordance with the terms and licenses issued by the CLA. Enquiries concerning reproduction outside these terms should be sent to the publishers at the undermentioned address:
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John Wiley & Sons, Inc.111 River StreetHoboken, NJ 07030USA
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© ISTE Ltd 2024The rights of Céline Merlin-Brogniart to be identified as the author of this work have been asserted by her in accordance with the Copyright, Designs and Patents Act 1988.
Any opinions, findings, and conclusions or recommendations expressed in this material are those of the author(s), contributor(s) or editor(s) and do not necessarily reflect the views of ISTE Group.
Library of Congress Control Number: 2024943332
British Library Cataloguing-in-Publication DataA CIP record for this book is available from the British LibraryISBN 978-1-84821-877-2
Foreword
Céline Merlin-Brogniart has successfully attempted to write a book on the Functional Economy. Since the emergence of this concept, there has been a lack of works accessible to the large number of readers, offering them a state of the art on this subject. Almost 20 years later, this has now been achieved.
Finding myself in the right place at the right time – the University of Technology of Troyes in the 2000s – I had the chance to hear Walter Stahel share his thoughts with us. Dominique Bourg was unrivaled in detecting innovative ideas and convinced ADEME to finance a series of study days on the sustainability potential of the Functional Economy. During those workshops, companies came to discuss their initiatives with researchers on the environmental impact of their activities. For me, they represented a revelation as to the Functional Economy’s potential. Since then, I have come across many other people who share the same reaction who have asked me why this model has not become widespread, both in people’s minds and in practice. We have also held debates on the need to continue work in this area, since the adoption of the Functional Economy model on the part of a company stems from its strategic choices in terms of financial profitability and, more rarely, from environmental considerations. In this case, for a researcher like me (mainly interested in ecological sustainability), all that was left was to believe in the creativity of certain entrepreneurs, in their ability to invent new ways of carrying out their activities to increase profitability. The barriers to change were, it seems, in people’s minds. Thus, the executives of a large company producing goods on an assembly line told us straight away that they could not envision their company deciding to produce less – even though this meant earning more – while the internal culture was marked by the myth of the absolute superiority of mass production. This is also one of the factors that Céline Merlin-Brogniart rightly emphasizes in Chapter 2, namely the need for a major cultural shift in manufacturing companies.
Céline Merlin-Brogniart is an economist who is interested in business strategies and chose to work in management sciences. Her research work can be found at the core, the dual capacity of companies: modifying their economic model in order to reconcile profitability challenges with lower resource consumption and persuading customers that the proposed new economic model also has their interests at heart. One of the avenues we explored is the cooperation between actors at the scale of the territory. This model involves each party being driven by the major categories of needs: mobility, thermal comfort, healthy food, etc. In no way is the territorial scale an imperative for the implementation of the Functional Economy. What matters – and this is what Céline Merlin-Brogniart clearly shows in her work – is understanding the response offered to the customer in a systemic way, thus broadening the scope. This involves, for example, no longer offering a specific mode of locomotion (a car, a bicycle, etc.), but a mobility supply whose use justifies the implementation of various modes of locomotion, or even supplies of virtual mobility, if we take the model a step further. We believe that by moving beyond the corporate world, we can embrace a more complete systemic scope and, in this way, better reflect upon needs in the broadest possible way. But, as economists will have to understand someday, the best is undoubtedly sometimes impractical, and the optimum, rare in this world. Cooperative relationships between actors driven by diverse considerations (and occasionally with opposing goals) are likely not to materialize. For this reason, as the reader will be able to see in this work, great emphasis is placed on experiments conducted by companies, even though this means establishing cooperation with other actors. We need a master or mistress on board, and companies seem best suited to play this role, due to the strong interest they find in it. One of the contributions of this work is that it explores the systemic question, while showing the complexity of the relationships it implies.
Even when interested in the world of business, Céline Merlin-Brogniart does not miss the opportunity to address the territory or major societal challenges. Readers who are new to (or already have an interest in) the Functional Economy will discover the richness of a model that goes well beyond the simple “selling a service associated with a good, rather than the good itself”. They will discover the entity of the challenges faced by any actor who intends to use the concept. This is where we must particularly thank Céline Merlin-Brogniart. Not only does she trace in the most honest possible way the contours of what the Functional Economy is and the various debates between researchers regarding its interest and boundaries (enabling the reader to understand its characteristics quite distinctly), but she also fully grasps the question I raised previously: why hasn’t the model become more widespread? Céline Merlin-Brogniart revives the path of the relationship we intended to build between the Functional Economy and territorial development. This is one of the most ambitious and stimulating avenues: making the Functional Economy one of the means of transforming society, in order to respond to the social, economic and ecological challenges that we face.
Now, why is it so difficult to develop this model? Leaving aside the fact that, like Mr. Jourdain, many actors implement similar strategies, we must get to the heart of the challenges. Through the notion of knowledge capital, Céline Merlin-Brogniart allows us to understand that there is a correlation between the development of complex proposals in the Functional Economy and profound changes in the métiers within the structures. The necessary change has to take place in people’s minds, which is, as usual, the most difficult aspect to accomplish. Let me naively pose the question of a structural change in métiers. Nolens volens, confronted with the rather sudden introduction of artificial intelligence into our daily lives, should we not consider that a change in métiers is inevitable and that this work on the Functional Economy is a great opportunity to reflect upon the best way to adapt to a world in full transformation? Following this reasoning, and without falling into localism, linking the Functional Economy with territorial development challenges makes sense. Increasing the territory’s capabilities via the deployment of the Functional Economy means taking seriously the need to reshape our thoughts on the needs expressed and the responses provided. Let us thank Céline Merlin-Brogniart for this, in that she dares to relaunch the debate by trying to bring together the daily concerns of businesses with the main societal challenges.
Nicolas BUCLET
University ProfessorInstitute of Town Planning and Alpine GeographyUMR PACTE Laboratory,Grenoble Alpes University
Acknowledgments
This work is the result of several years of research on the Functional Economy, and, more generally, on sustainable models. Part of this research was conducted in collaboration with colleagues and friends, whom I would like to warmly thank (in alphabetical order): Sophie Boutillier, Antje Burmeister (departed too quickly), Fedoua Kasmi, Blandine Laperche, Muriel Maillefert and Dimitri Uzunidis. Furthermore, I would like to thank the group of experts from the Coop’ter program, funded by ADEME and directed by Christian Du Tertre, for the mutual and multidisciplinary enrichment of our knowledge capital on the Functional Economy.
This work transcribes a large part of the research work conducted as part of the ToDo Circular project, in collaboration with Blandine Laperche (Université du Littoral Côte d’Opale, ISI/Lab.RII). This work was financed by the Hauts-de-France region. I would like to sincerely thank Jack-Yves Delsert from that institution, who encouraged this project and facilitated our connection with certain entrepreneurs and organizations supporting the Functional Economy, as well as Nathalie Bardaille from APES (Acteurs pour une économie solidaire), who facilitated the contact with the actors from the ESS (Economie sociale et solidaire). I would also like to thank all the directors and managers who opened their doors to us and answered our questions at length. Their infectious enthusiasm and the narrative of their pilgrimages to accomplish their project hold great value for our study and for the Functional Economy community.
My sincere thanks to Nicolas Buclet for the foreword to this book, as well as for our very interesting discussions on the Functional Economy and the dynamics of territories.
I specially thank Blandine Laperche and Monique Merlin-Philippot for their unfailing support and proofreading of this work. Finally, a special thanks to Dimitri Uzunidis, honorary president of the Innovation Research Network and publication director of the “Smart innovation” collection, for the stimulating discussions he encouraged within the group. It was Dimitri who one day suggested I take a closer look at the question of the Functional Economy, and without whom this book would not have been written.
Introduction
For the last 15 years, the Functional Economy1 has been presented as an alternative model to the dominant one. It has positioned itself in opposition with some of the grounds of the Fordist organizational model (production, consumption, environment) (Vaileanu-Paun and Boutillier 2012). In France, the Ecological Transition Agency (ADEME 2017) defines it as:
[A model which] provides companies, individuals or territories with integrated solutions including services and goods based on the sale of a usage performance or function, rather than the mere sale of goods. These solutions should enable a reduced consumption of natural resources from the perspective of the circular economy, as well as an increase in the well-being of people and economic development.
More and more institutional actors are supporting this model to achieve the ecological transition (Grenelle, the regions, ADEME, the French Ministry of Ecological Transition). However, Functional Economy approaches are still poorly implemented by companies and organizations. Several observations explain this reluctance on the part of entrepreneurs: a lack of visibility on the benefits provided by this approach, a reluctance to change, as well as ignorance of this model. The purpose of this book is to compensate for this lack of knowledge by presenting the model’s theoretical, operational and methodological facets.
On the theoretical level, this model’s context of emergence, the theoretical approaches having invested this notion and the conceptual content of the Functional Economy will be studied. As the concept of Functional Economy is still under construction, the scope of this notion is extensively debated and the terms encompassing this form of exchange may vary. This book will present the different approaches claiming to embody or relying on this not yet stabilized notion, without favoring one approach over the other. Not only is it aimed at students or teacher-researchers looking for information, references and explanatory elements of this concept, but also entrepreneurs, organizations or communities looking for benchmarks and practical advice to fuel their reflection on this model.
On an operational level, this work takes stock of current practices and their application modalities. Let us note that companies having embarked on this path do not necessarily use the term “Functional Economy” in their communication documents. They generally use an expression related to the product associated with the supply. Xerox uses the term “delegated information management”, Michelin “fleet solutions”, Bridgestone “total tire care”, and for in vitro diagnosis, the Roche group uses payment per unit cost of lab product (paramètre prescript rendu) (Serra and Buclet 2020). This choice of vocabulary is related to the lack of knowledge of this model, but this time on the customer’s side. As this model is quite recent, entrepreneurs are obliged to demonstrate pedagogy and innovation to sell their solution. As will be explained in Chapter 3, this lack of awareness is one of the many reasons for the slow development of the Functional Economy. The different forms that the Functional Economy takes are analyzed in light of the innovation dynamics underpinning this model, as well as the different scales of analysis involved (micro, meso, macro).
On a methodological and political level, this work lists the frequent boundaries encountered by the actors, as well as the major challenges for this model to find its place in the economic landscape, still predominantly marked by the intensive material growth model inherited from the Fordist period.
This book is divided into three chapters. Chapter 1 will be dedicated to the presentation of the context that favored the emergence of the concept and the different French and English-speaking terms used in this form of exchange. This diversity of origin is associated with a plurality of common languages drawn from different epistemic communities. An ever-increasing number of scientific disciplines are interested in the experiments associated with this new development model (economics, ergonomics, law, engineering science, ecology, etc.). Finally, these scientific actors are joined by other organizations with their own language (institutional and political actors, consulting firms). This chapter will introduce the main theoretical approaches relating to this concept, as well as its associated notions. We will discuss the origins of the Functional Economy, as well as the main conceptual constructions that refer to, or claim to, embody the Functional Economy. We will classify them into three categories. First, works related to the service society (primacy of the third sector) and to product-service systems, which are predominant in the literature from English-speaking countries and attached to commercial activities. Then, we will present the works associated with the functional and cooperative economy. They position this model as a break from the Fordian consumption and production regime. The emphasis is on the modes of cooperation and work challenges. The third category of works (classified under the term Functional Economy) will analyze non-market modes of coordination, as well as the challenges for creating territorial value. Chapter 1 will conclude this state of the art in specialized literature by comparing the Functional Economy to other similar sustainable models, such as the circular economy and industrial ecology. To what extent are these models integrated or, on the contrary, move away from one another?
Chapter 2 will present the different operationalization forms for this economic model. From an operational viewpoint, the authors of the different approaches presented in Chapter 1 often rely on the same empirical applications to illustrate the distinctive characteristics of the economic models they explain. These characteristics may vary depending on the approaches. This chapter will present the main elements making up value creation and towards which these companies are oriented (the service logic and the associated cost structure, co-production of the supply with the customer, environmental performance, cooperation and the construction of an ecosystem). In practice, all these elements are not necessarily put in place by the experiments. Some experiments only focus on certain elements – which can explain the emphasis on specific theoretical approaches – while other experiments are enriched with elements in the form of development stages. Few experiments manage to implement and reconcile all the constituent elements of value creation. These elements will then be analyzed from the perspective of innovation. Innovation will first be examined statically, in the form of a desired result, after which the innovation process will be studied. The dynamics of innovation will be exposed in light of the three scales that can be involved in the implementation of a function (micro-economic, meso-economic, macro-economic). For the most part, the examples proposed in this book to illustrate the characteristics of these models and of innovation have been drawn from interviews conducted as part of the ToDo Circular program (FRATRI program supported by the Hauts-de-France region). Other interviews from secondary sources (notably ADEME) will complete this empirical picture.
Chapter 3 analyzes the challenges that companies or groups of actors venturing into this new model will have to face. Will these actors be able to provide themselves with the means to build this transition? Will they be able to develop this model over time, by establishing cooperation with other partners? Functional Economy projects invest in new fields of experimentation and cooperation, such as the social and solidarity economy, territorial development or even the management of the commons. These new areas highlight other challenges, appealing to the notion of capabilities and making new systems necessary for evaluating the new values generated. This third chapter will list the main difficulties encountered by the actors trying to deploy such models. Some of the limitations related to resource management are common to other sustainable models. These difficulties will be presented gradually, depending on the scale of analysis considered. Some problems develop at the level of the company; others arise when the supply system takes on a partnership dimension. Other limitations (or even obstacles) are considered at the macro-economic scale, since the solutions to these problems require reflection on the functioning of society. To be overcome, these problems will engage other actors apart from those in the supply systems.
Note
1
Throughout the book, the term “Functional Economy” in its capitalized form will be used to denote the whole of the approaches explored (the “Functional Economy”, the “functional and cooperative economy” and “product-service systems”).
1The Emergence of the Functional Economy: Context and Approaches
The Functional Economy and product-service systems are theories that emerged as a response to the Fordist model crisis. The oil crises of the 1970s evidenced the dependence of our societies on certain raw materials. Some companies became aware of the limitations of generating value solely from the volume of products sold. The financial crisis of 2008, a crisis of “governance without a government” (Rosenau and Czempiel 1992), raised awareness about the fragility of financial systems as well as the place and responsibility of public authorities (the federal reserve’s monetary policy, the role of states as victims and accomplices of the chain of events) and the precariousness of economic equilibria.
Confronted with these crises, the industrial system responded in several ways. Some companies explored growth drivers for industrial production, without calling into question the Fordist growth standard nor the relationship to work. Other companies looked for a new model to break away from industrial productivism (section 1.1).
The development of the Functional Economy (in the broad sense) was initiated by servitization movements, whose performances significantly increased with the use of new information and communication technologies. Services also became professionalized, and new, more cognitive services complemented the range of traditional services (e.g. consulting companies). The second movement that boosted the Functional Economy was the actors’ growing concern for the environment and the ecological transition. Companies explored new ways of producing to better respect the environment. Some of them incorporated clean technologies. From a theoretical viewpoint, those companies continued to believe that research and innovation would solve sustainability problems. However, and despite the efforts made, the companies continued to proceed according to the Fordist growth standard. Those technologies were often “end of pipe”, and the production model was not overhauled. In theoretical terms, other thought patterns exist, such as the proponents of degrowth, who consider that reducing the production of goods and services is the only way to preserve the environment (Georgescu-Roegen 1979). This model is interesting insofar as it challenges the idea that an increase in the GDP (produced wealth) leads to an increase in social well-being and highlights the rebound effect and the dangers of recycling. Finally, other authors have attempted to set in motion an alternative development model to Fordist growth; let us now highlight these developments. These new production dynamics will be the subject of our first section (section 1.1.1).
In the last 15 years, the Functional Economy has encountered increased legitimacy, with the political recognition of its interest in the energy transition. The Grenelle Environment Forum (Worksite 31 from Grenelle 2 was entirely dedicated to the Functional Economy), the REP (Extended Producer Responsibility) streams, recognized by the law since 1975 and updated with the AGEC law (French Law No. 2020-105 of February 10, 2020), the ample political and financial support for these new models coming from certain regions, ADEME, from the French Ministry of Ecological Transition are all approaches that contribute to the institutionalization of the Functional Economy in political decisions (section 1.1.2).
Research work does not use the same language, and does not have the same scope, for designating and identifying the Functional Economy, to the point that we could speak of various functional economies. Different epistemic communities claim to be part of this form of exchange or can be included under this notion. We will specify them in this section (section 1.2).
The main conceptual constructions that refer to or claim to belong to the Functional Economy can be separated into several categories. After discussing the origin of the Functional Economy, we will present the research related to the service-based society and to product-service systems, more akin to the Functional Economy in the context of market activities. These works are dominant in the English-speaking world. We will then present the functional and cooperative economy (FCE) as an alternative to the Fordian production and consumption model. This work emphasizes the importance of cooperative relationships (or even “coopéraction” within and between “functional ecosystems” or “business ecosystems”) and territorialized value, which involve a non-market dimension (trust, creation of common heritage). This work is highly present in France and Belgium. We will then present the framework research related to the Functional Economy, who is also essentially French. French research differs from previous works because it addresses broader questions than just the Functional Economy and explores more non-market modes of coordination.
The notion of Functional Economy is intertwined with other concepts, such as the circular economy or industrial ecology. Since the concepts of circular economy and Functional Economy are not stabilized, depending on the authors, different boundaries exist between these notions under construction. We will discuss the common features between these notions and the accompanying phenomena (section 1.3).
1.1. Towards a service and environmental model
The emergence of the approaches in Functional Economy and product-service systems took place in a context of transformation of the productive system (section 1.1.1). First conducted by researchers, then studied by large companies attentive to societal developments and tested by visionary business leaders, these approaches are being institutionalized by public organizations. These organizations seek to support projects inspired by these models and to include the use of these models in legal texts (section 1.1.2).
1.1.1. New production dynamics
Experiments with the Functional Economy have developed in the last 15 years. Companies have shifted towards this model along different paths (Corporate Social Responsibility, the circular economy, sustainable development). The awareness of the need to change models (section 1.1.1.1), made possible the search for new growth opportunities without truly changing the standard, or the search for an alternative model. Whatever the path, these experiences are based on new production dynamics, and in particular on the economy’s tertiarization and servitization (section 1.1.1.2), the information processing and movement enabled by (new) information and communication technologies (section 1.1.1.3), the development of the cooperation and knowledge society (section 1.1.1.4), as well as an increasing concern for the environment (section 1.1.1.5).
1.1.1.1. Calling Fordist growth into question
The Fordist industrial model, which sustained growth during the 30 years post World War II, is based on the dissemination of mass production and consumption. Mechanization, automation and the search for economies of scale promoted productivity gains. The standardization of products made quality control easier. Profitability, based on the ratio between profit and capital, corresponded to the managers’ expectations. The sustainability of this model is based on the sale of an ever-increasing volume of production, related to an increase in the consumption of consumer and capital goods (Buclet 2010). Fueled by wages from these industries, households were able to follow this movement.
This growth standard, based on productivity gains and the production of an ever-increasing volume of goods, became anchored in people’s minds especially after the 1980s, when the domination of financial markets based on short-term financial profitability reinforced that pattern. However, several socio-economic developments called this model into question:
The saturation of the capital goods markets in industrialized countries, and the subsequent international competition on this type of product – fueled by the emergence of new industrial countries with a high intensity of unskilled labor such as South-East Asia, China, Latin America – limited the chances of increasing consumption by market extension. Rising competition and market fluctuations led companies to quickly diversify their products for them to stand out using incremental innovations, but the need for speed called into question the relocation of large companies, as well as the organization of Taylorist production.
In the 1960s, the Fordist organization of work and production was heavily criticized by unions and workers (who accepted the arduousness of factory work less and less). In addition, the absence of social recognition led to a profound questioning of labor (appearance of strikes, absenteeism, high staff turnover, etc.). Even though enriched and improved by task rotation, the relationship to work became decreasingly accepted.
The oil shocks of the 1970s resulted in a gradual decline in the industry share in the GDP and in the destruction of a third of industrial jobs after 1973
1
. This deindustrialization
2
process first affected the sectors in crisis (textiles, shipbuilding, steel, etc.) and continued well into the 1980s. The end of Fordist growth, marked by these early 1970s crises, is considered by economists as a cycle transition based on a new technological regime (Nelson and Winter
1982
). Large companies become aware of their dependence on energy resources and raw materials and started pondering new growth opportunities.
Often dependent on orders from large companies, Small and Medium Enterprises (SME) become exhausted trying to respond to more random orders on time, while managers struggled to motivate their employees, who found their jobs meaningless. Companies had to look for new growth models.
Reflection on these new models went hand in hand with the evolution of service activities, as will be shown in section 1.1.1.2.
1.1.1.2. The development of services
In parallel to the industry’s decline, a phase of economy tertiarization continues to develop. Since the first oil shock, the productive organization of industrialized countries has been transformed.
Today, service activities represent over 75% of GDP and absorb employment in the majority of developed countries (almost 79% in France in 2022, compared to 60% in 1970)3 (Figure 1.1). In fact, in 60 years, employment has become overwhelmingly tertiary and governed by wages. According to INSEE, in 1978, a quarter of French employment took place in the industrial sector (58. 7% in the tertiary sector), whereas it represented only 13.3% in 2018 (76.1% for the tertiary sector)4.
Box 1.1.Definition of a service activity (source: INSEE)5
A service activity is essentially characterized by the provision of a technical or intellectual service. Unlike an industrial activity, it cannot be exclusively described by the characteristics of a tangible good acquired by the customer. Its final product is intangible, neither storable nor transportable. Also called “tertiary activities”, services comprise a vast field of activities: commerce, transportation, financial activities, real estate, business services, services to individuals, education, health and social action.
Figure 1.1.Evolution of employed workers by sector of economic activity (in thousands). See: http://www.statapprendre.education.fr/insee/emploi/secteurs/secteursevolutionsecteur.htm.
Service activities have always been an integral part of industrial systems. By means of outsourcing practices, industrial systems try to improve their performance and reduce costs (Le Cotonnec and Vinet 1998). In this way, business services (and also to individuals) continued to develop in order to meet new needs (financial, insurance, distribution, etc.). These could be activities outside the company’s nucleus (catering, cleaning) or support activities essential for the service (transportation, logistics, maintenance, temporary services). The reorganization of production models, like the just-in-time flow strategy, had led to the massive development of new needs in terms of transportation and logistical means related to tertiary activities (Boutillier et al. 2014). After the 2000s, company demands increased further, together with service professionalization, made possible by improving technologies and developing company skills (Merlin-Brogniart 2021). The complexity of the economy and market fluctuations generated the need for expertise and the search for flexibility (Fimbel 2003). Outsourcing concerned non-strategic functional positions in the company (such as IT, payroll, logistics), as well as strategic functions (certain commercial tasks, R&D services) (Hoarau 2004).
This consumption of market services was caused both by industrial companies, which reorganized themselves on the basis of outsourcing (mainly services), as well as by service providers, who themselves resorted to outsourcing. Thus, the content of the companies’ production evolved, increasingly rich in intangible components (INSEE 2008).
The development of service activities also targeted households. Since the 1960s, the distribution of the household budget has changed. Households devote an increasingly larger share, in value, to services. More precisely, the shares reserved for food and clothing have been reduced, in favor of housing, transportation, health, communication and leisure. Nowadays, services represent a preponderant part of the household budget.
Figure 1.2.Growing share of services in household consumption expenditure (source: National Accounts, Base 2000 (INSEE 2009)) (budget coefficients are calculated here, including imputed expenses).
The question of the Functional Economy is closely related to the development of tertiary activities in the economy. It is also articulated with the reorganization of the production of industrial activities. In this service dynamic, new ways of understanding customer expectations (either from professional or individual customers), are emerging. Some companies simply add services to the production of existing goods (insurance, maintenance, etc.), without their productive system being too disrupted. This new organization makes it possible to increase the value of production and to build customer loyalty. Other companies consider restructuring their services by providing a global response to their customers’ needs. No longer is it a question of selling goods to the customer, but of offering a service including the maintenance of goods, or a resource supply service, such as the proposal of thermal comfort. These new service proposals fall within the characteristics of the service economy. These characteristics are co-production (the solution is co-produced with the customer), the absence of an exchange of property rights (the capital goods used by the customer remain in the possession of the service provider), the service relationship (which induces geographical and cultural proximity constraints and implies a notion of trust) and the need to synchronize production times between the service provider and the beneficiary’s availability.
The service economy encourages reflection on the creation of value associated with such services. It is in this shift that the service relationship plays the essential role we designate as the Functional Economy. It requires the implementation of a different economic model and company management. The best-known companies having chosen this transformation are Michelin, Rank Xerox and IBM (Du Tertre 2007
