2
Economic Model and Innovation Dynamics

Chapter 2 analyzes the characteristics associated with the economic models inspired in the Functional Economy, in an operational manner. Economic models are a social construct. Terms like economic model or business model are often used synonymously by certain authors, particularly in management sciences. According to Demil and Lecocq (2008), the term economic model was quickly adopted by business leaders, consultants or analysts. The significations of these notions were varied until the 2000s, a period when academic authors took up the issue, notably in the context of e-business models. Business models can be defined as:

The choices a business makes to generate income. These choices relate to three main dimensions: the resources and skills engaged (which make it possible to propose the supply), the offer made to the customers (in the broad sense) and company’s internal organization (value chain), and its transactions with external partners (value network). The choices made on these different dimensions determine the company’s income and expenses structure (Lecocq et al. 2006, p. 99).

Generic business models are identifiable in certain sectors or across several sectors, as in the case of airlines, with major, low cost, charter and regional companies (Demil and Lecocq 2008). However, unique models are also specific to certain companies.

In this book, we consider that the term economic model covers a broader scope than the term business model. The business model analyzes the three dimensions described by Lecocq et al. (2006) and Demil and Lecocq (2008) at the level of an entity (in general, a company): income generation as a consequence of resource valorization, a combination of resources and skills, as well as the choice of organization related to the cost structure of the entity in question. An economic model also takes into account transformations on a meso-economic scale. It takes into account the ecosystem of actors and objects (standards, legislation, conventions, etc.) required to implement changes. This perspective is important for identifying innovation processes. In the context of innovation, “the connections between knowledge actors play a central role in the success, performance, development and continued existence of an economic system” (Attour and Burger-Helmchen 2014, p. 1). This perspective of the economic model is essential in the context of the study of the Functional Economy, which is reflected by changes on a systemic scale.

Among the authors interested in business models, few have analyzed servitization strategies. The attempts are mainly based on the Canvas business model by Osterwalder and Pigneur (2011), designed to reflect on improvements and innovations to be made to the business model and less adapted for analyzing the interrelationships between the different elements (Peillon 2016). According to Peillon (2016), the model by Lecocq et al. (2006) also known as RCOV – RC stands for resources and skills, O for organizational structure and V for value proposal – would be better suited to account for the consequences of a change in company value, because it analyzes the firm’s transversal “meso-economic” level (Demil and Lecocq 2008). In this model, the emphasis is placed not only on the interrelations between the components, but also on the model’s dynamization (its evolution over time). The ATEMIS-LIR firm, together with EI-FCE, suggests analyzing a six-component model within the framework of the functional and cooperative, un modèle à six coeconomy: the financing model, governance, the value proposal created by the organization, the mobilization and development of resources (notably tangible, intangible ones), the organization of work (internal and external relationships, type of hierarchy), contractualization (type of transaction, monetization or not, sharing of income with stakeholders).

The goal of this chapter will not be to analyze these components in detail, as they may vary depending on the organizations considered, but to emphasize the main elements where lies value creation in the Functional Economy. These elements, coupled with the main innovation trajectories followed by these organizations (as well as changes in their environment at a meso-economic or even a macro-economic scale), shape the main characteristics of the economic model associated with the Functional Economy.

In section 2.1, we will present the mechanisms as well as the elements associated with value creation. We have chosen six dimensions: the value proposal (based on a service and systemic logic); the new cost and income structure; supply co-produced with the customer; the model’s cooperative nature; environmental performance; and finally, the construction of a territorial ecosystem and collective heritage. These elements will be presented gradually, starting with the Functional Economy approach a minima (a service logic) towards more encompassing cooperative models. These latest models include a series of actors, some of which integrate the functional supply in a territory. These analyses will be illustrated by examples from field studies and case studies, conducted within the framework of different research programs.

These distinctive elements will then be considered in terms of the dynamics of the innovation sought. Not only will we study static innovation, but also the complexity of dynamic innovation, including the three scales involved in the implementation of a function (micro-, meso- and macro-economic scales).

2.1. The Functional Economy as an economic model

Chapter 1 of this book presented the context of the tertiarization of economies, as well as the servitization movement experienced by certain industrial companies. In studies on business models, business servitization strategies are mainly described as having the creation of an income stream and profitability as their primary goal. Thus, the search for classic financial performance to capture value seems to be an essential element in the strategic choice of these companies (Lüdeke-Freund 2010). This is what happens with service industries or companies trying to differentiate themselves from the competition by means of this business model, by maximizing service value and reducing the costs to achieve it (particularly within the framework of the product–service system approach). Introducing a service or moving into a service activity requires an investment in “relational skills” (soft skills as well as skills linked to contact service functions). These skills can become strategic. The value thus created, which integrates new stakeholders (including the customer), is called “extended customer value” (Lüdeke-Freund 2010). However, reasons other than financial performance can be identified. In recent years, companies have been tilting towards this model in the context of the ecological transition. This transition, considered essential to preserve the planet, is advocated by government authorities. This strategy, announced as environmental, also involves a question of survival for large companies, which can no longer generate productivity gains according to the Fordist model and see their competitors heading towards this transition. Finally, other companies (or collectives of actors) are venturing towards this economic model due to social or societal reasons. For these companies, like those from the social and solidarity economy, the search for cooperation and reduction of negative externalities is part of their DNA. The reflection towards a Functional Economy model seems natural, but the social dimension takes precedence over the environmental dimension.

The companies shifting towards this model are very different, whether in terms of size (large company, SME, VSE), company name or type of entrepreneurship. This variety of situations, coupled with the multiplicity of reasons why these companies are venturing towards the transition, requires us to be cautious in analyzing the operationalization of this economic model. This is why we have chosen a gradual presentation of the constituent elements of the Functional Economy models in the broad sense, from the constructions a minima – which, in certain theoretical approaches presented in Chapter 1, can be included under the Functional Economy movement – up to the most advanced Functional Economy constructions.

For our part, we consider that servitization alone does not fall under the scope of the Functional Economy. To be considered as such, it would be necessary for it to take into account the dimensions we will subsequently describe in this gradation – in other words, a supply co-produced with the customer, the search for environmental performance, internal cooperation between employees from different departments and, to a certain extent, external collaboration with other stakeholders. The dimension regarding the construction of a territorial ecosystem, and especially the creation of intangible collective heritage, or common territorial heritage, is a plus, but currently applies to a fairly small number of empirical experiments. Furthermore, Functional Economy experiments evolve by means of continuous improvement. For example, some companies interrupt partnerships which do not work very well, whereas others, on the contrary, develop new partnerships with a broader...