Conceptualising the functional service economy

Abstract

The objective of this thesis is to highlight the value potential for companies to move into FSE; this value can be linked to the value offering, the productivity, the profitability, the competitiveness, etc. The managerial and strategic approach to the concept as well as a clear definition and its historical emergence are the value of the thesis since they have not been discussed yet. This thesis aims at conceptualising the Functional Service Economy (FSE) by providing a renewed definition, characteristics and strategic stakes for FSE. Our research enabled us to develop this FSE definition:

FSE is a shift in business models, integrating products and services into complex adaptive system (the solution), that aims at providing functional use of products while optimising processes and maximising value creation, wealth, and resource productivity.

To recount the evolution of FSE, we have first studied surrounded and grounded concepts: Servitization, Product-Service System (PSS), and Service-dominant Logic (SDL). Servitization, the umbrella concept, sets the stage to PSS and FSE, near concepts with some particularities, especially their vision about the position of the product in the system/solution and the value conception. FSE goes beyond because of its vision of value, originated from a Service-dominant Logic. Therefore, we can consider that FSE is a PSS that is settled with value conception and grounded logic from a SDL perspective. The importance of the function of the solution is driven by the aim at generating as much value as possible, combining products and services, like the SDL suggests it.

We also found that the central aspect of FSE is that it enables an improved resource productivity, leading to surplus generation. This surplus induces a wealth creation on the long term, spread among parties who have incentives to pursue the partnership. Besides, we designed a renewed typology composed of two main categories: Sale of use (function)/Use-oriented service (including Functional sales), and Performance contract/Result-oriented service (including Least cost supply such as Chemical management service).

Then, we have strengthened the theoretical research by an overview of three case companies, well-settled companies that have decided to embrace FSE in parallel with their traditional business. These companies are Xerox, Michelin-Michelin Solutions, and Dow Chemical-SAFECHEM.

Finally, in addition to the FSE conceptualisation, we highlighted some strategic interests for managers. These are linked to the fact that FSE provides optimised functional solution. Briefly they can be summarised as the possibility of: locking in customers, locking out competition and increasing the differentiation level; catching residual value lost in product when sold; aligning incentive with customers; decoupling resource use and value creation/economic success; optimising processes; developing more customised offering, etc. All together, it leads to a better resource productivity and an improved structural productivity, resulting in enhanced profitability and competitiveness.

Nevertheless, we are only focused on B2B market. We also decided to orient the research on a theoretical point of view. Additional researches providing in-depth analysis of case companies would be useful to go further on this concept of FSE.