Unprecedented economic changes are making significant impacts in economic systems that have led to revision, and creation of new policies and business models. The advent of the industrial economy for instance, has caused both turbulence and growth to businesses which paved the way for experts to develop, improve, and create sustainable business models and principles that we are actually using and adopting today.
The industrial economy in gist
The industrial economy can be categorized into three types – linear, circular, and performance economy. Linear economy is characterized by a straight and close-ended procedure. We extract raw materials from nature, turn these materials into products, sell them, use them, and then eventually throw them away in landfills. This process has led to tremendous environmental problems that have also created concerns on the availability of raw materials and their increasing costs. This became a precursor to the circular economy – the antithesis to the wasteful and environmentally threatening linear economy. Unlike in a linear economy, products and services in a circular economy are designed in ways where materials can be reused in new products or services of equal or higher quality. Going a step further from the circular economy is performance economy which focuses on selling the use of a product instead of selling the product itself.
Performance economy is a strategy?
We’re all likely familiar with the idea of selling a good. However, are we familiar with the idea of selling the use of a good? Performance economy consists of the idea that instead of selling the goods, we sell the usage value of the goods. It focuses on the goal of generating the highest added value possible of goods for the longest time while consuming few materials and little energy as possible. Swiss architect Walter Stahel, the genius behind this notion, came up with this idea as part of his circular economy strategy. The performance economy is basically an extension of his circular economy vision which is about preventing wastage and creating jobs through reusing and extending the service-life of goods.
Performance economy pioneers
Walter Stahel and Genevieve Reday were the brains behind what we now know as economy in loops or circular economy. They created an economic vision that focused on competitiveness, waste prevention, resource saving, employment generation, and economic competitiveness. Industrialized countries were among the first to adopt a circular economy model since it was because of the negative impacts of industrialization that circular economy came to be. In 2014, the executive body of the European Union adopted a zero-waste program that became the legal framework for a circular economy in EU-member countries. Countries in the EU are slowly adopting a circular economy and creating circular economy legislations that projects a savings of around 600-billion Euros. EU members Denmark, the Netherlands, and Sweden are leading in terms of crafting and applying strategies and laws on reusing and recycling wastes. Non-EU member Scotland and Asian economic giant Japan are also among the leading countries that are adopting circular and performance economy practices.
Companies like GE, Elite, 3M, Michelin, Target and Dow are integrating circular and performance economy policies and strategies to address environmental and economic challenges. For instance, Michelin is offering mobile tyre regrooving and replacement services and retreading worn tyres for reuse. Furthermore, when you see a product or service being advertised nowadays, you’ll notice the emphasis on what you’ll get when you get such item or service. Consumers have become more conscious about the products they buy or services they avail hence, the focus is now more on the value you get rather than on the product you just bought.
Employment and Entrepreneurship
Apart from waste and resource management efficiency, the performance economy also envisions providing sustainable and efficient job opportunities. Employment has been greatly affected by the shift in economic policy and the shift has seen improvements in terms of providing job opportunities for more people. Today’s dominant economic paradigm deviates from the take-make-use-dispose feature of the linear economy that once ruled the industrial era. The shift from a linear economy to a circular one enabled the transformation of consumer behavior and production chains – ensuring that resources are enough for all and for future generations. Activities under circular and performance economies are projected to create jobs and reduce unemployment by a significant number. In fact, a joint study by the Waste and Resources Action Programme (WRAP) and Green Alliance reported that improvements in resource efficiency can help improve Britain’s employment situation. The findings also state that by 2030, Britain could require over half a million jobs and reduce unemployment by over 100,000. That’s if Britain is consistent with its circular and performance economy development plans and activities.
World economies have come a long way. The challenges brought about by industrialization has led to countless possibilities and opportunities, including sustainable outcomes. Performance economy has led organizations into thinking smart – by economically profiting while at the same time contributing to sustainable development. Organizations and companies get a big financial benefit by reusing, remarketing, remanufacturing, repairing goods and materials. Consumers on the other hand benefit from reduced costs of goods and services. Both ends also positively impact the ecological systems that’s why in a sense, it’s a win-win situation.
Patrick Roupin is an expert in innovation, design, strategy & entrepreneurship.
Ashrefunisa Shaik is an expert in organizational transformation & sustainability.