Often part of a CSR (corporate social responsibility) strategy, the functional economy has been booming in recent years. It has many economic and ecological benefits and multiple applications. To explain…
The functional economy: from ownership to use
The theory was developed in the 70s but the functional economy has been riding higher than ever in 2020. It consists of buying the use of an asset rather than owning it. It is also called the "circular economy" or "service economy". The circular economy contrasts with the linear economy, which has been in place since the Industrial Revolution and which aims to extract resources, produce, use and throw away. It is therefore a source of waste. Today, we no longer want to buy a product only, but a service. Products can have several lives and have different users, whether it be IT equipment, a car or industrial equipment. They can be recycled or reconditioned.
What are the benefits of the functional economy?
Why is the functional economy seeing such success?
First of all, because businesses and individuals have understood that above all their need is to use an asset, not necessarily own it. A business needs a fleet of vehicles so that its sales representatives can travel and make deals; it does not need to own a lot of cars. Likewise, IT equipment should enable a company to conduct its business efficiently; ownership is not an end in itself.
Moreover, the functional economy has been encouraged by the authorities, particularly since the 2007 Grenelle Environment Forum. One of the main benefits of the system put forward today is, of course, the concept of sustainability.
It is a way of countering waste because, once we no longer need a product, instead of throwing it away, we can return it to be refurbished or recycled. It therefore helps to preserve resources. Finally, the functional economy promotes service: a boon in a society dominated by the service sector!
By buying the use of an asset, you are also purchasing the related services. For example, use of IT equipment is often accompanied by a maintenance service, which is essential for it to work properly.
Applications of the functional economy
Today, the functional economy takes many forms. One of the most effective is probably the operating lease, whereby a company leases the use of an asset for a long period of time.
Lease contracts generally include various services: help with sourcing, maintenance, refurbishment of devices, etc. They can be used for industrial equipment, car fleets, medical devices or the like
Operating leases are similar to finance leases. Finance leases are long-term leases, but with an option to buy. At the end of the lease, the company can choose whether or not to buy the asset. In this case, we are closer to the ownership economy than to the functional economy. The functional economy is also growing fast among individuals.
It takes many forms in large cities: car-sharing services, self-service bikes and scooters, etc. You pay for the journey to be taken, before another user uses the same means of transport.
Some start-ups have developed services to optimise company parking spaces, via an app to book a free space in a specified time slot before freeing it up for another employee. The occupancy rate of parking spaces thus increases considerably, and this makes it possible to save space. Today, we are experiencing a paradigm shift.
The ownership economy is losing ground to the functional economy. The functional economy is in line with the sustainability challenges we are experiencing but is also proving to be an opportunity for companies that can offer innovative services to their customers.
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