9780230_584662_01_prexxiv.pdf 1/12/10 2:41 PM Page i The Performance Economy 9780230_584662_01_prexxiv.pdf 1/12/10 2:41 PM Page ii Also by Walter Stahel COMMON UTILIZATION INSTEAD OF SINGULAR CONSUMPTION – A NEW RELATIONSHIP WITH GOODS Stahel, Walter R. and Gomringer, Eugen (editors) ECONOMIC STRATEGY OF DURABILITY Börlin, Max and Stahel, Walter R. (authors) HANDBUCH VON BEISPIELEN EINER HÖHEREN RESSOURCEN-EFFIZIENZ Stahel, Walter R. (author) JOBS FOR TOMORROW, THE POTENTIAL FOR SUBSTITUTING MANPOWER FOR ENERGY Stahel, Walter R. and Reday, Geneviève (authors) LANGLEBIGKEIT UND MATERIALRECYCLING Stahel, Walter R. (author) RESSOURCENPRODUKTIVITÄT DURCH NUTZUNGSINTENSIVIERUNG UND LEBENSDAUERVERLÄNGERUNG Stahel, Walter R. (author) THE LIMITS TO CERTAINTY, FACING RISKS IN THE NEW SERVICE ECONOMY Giarini, Orio and Stahel, Walter R. (authors) Translated into French, Italian, Rumanian, Japanese and German 9780230_584662_01_prexxiv.pdf 1/12/10 2:41 PM Page iii The Performance Economy 2nd Edition Walter R. Stahel 9780230_584662_01_prexxiv.pdf 1/12/10 2:41 PM Page iv © Walter R. Stahel 2006, 2010 All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. No portion of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, Saffron House, 6–10 Kirby Street, London EC1N 8TS. Any person who does any unauthorized act in relation to this publication may be liable to criminal prosecution and civil claims for damages. The author has asserted his right to be identified as the author of this work in accordance with the Copyright, Designs and Patents Act 1988. First edition published 2006 Second edition published 2010 by PALGRAVE MACMILLAN Palgrave Macmillan in the UK is an imprint of Macmillan Publishers Limited, registered in England, company number 785998, of Houndmills, Basingstoke, Hampshire RG21 6XS. Palgrave Macmillan in the US is a division of St Martin’s Press LLC, 175 Fifth Avenue, New York, NY 10010. Palgrave Macmillan is the global academic imprint of the above companies and has companies and representatives throughout the world. Palgrave® and Macmillan® are registered trademarks in the United States, the United Kingdom, Europe and other countries ISBN 978-0-230-58466-2 hardback This book is printed on paper suitable for recycling and made from fully managed and sustained forest sources. Logging, pulping and manufacturing processes are expected to conform to the environmental regulations of the country of origin. A catalogue record for this book is available from the British Library. A catalogue record for this book is available from the Library of Congress. 10987654321 19 18 17 16 15 14 13 12 11 10 Printed and bound in Great Britain by CPI Antony Rowe, Chippenham and Eastbourne 9780230_584662_01_prexxiv.pdf 1/12/10 2:41 PM Page v Behind every author and his book are numerous supporters. The Performance Economy is dedicated to the many people who have encouraged and inspired me in my research over the last 35 years, to my family and friends who have tolerated and supported, corrected and tried to falsify my ideas, and to those who share my vision. Without them, this book would not have risen from the mist of daily chores and taken the structured shape it has now. This page intentionally left blank 9780230_584662_01_prexxiv.pdf 1/12/10 2:41 PM Page vii Contents List of Tables xi List of Figures xii Acknowledgements xiv List of Abbreviations/Glossary xvi Preface xxii Introduction 1 Chapter 1 Producing Performance 8 1.1 Why the shift to Producing Performance? 8 1.1.1 The Stone Age Economy – cents per kilogram 12 1.1.2 The Industrial Economy – € per kilogram 12 1.1.3 The Performance Economy – (million) € per gram 13 1.2 Producing performance: How it works! 14 1.2.1 Smart solutions – Creating wealth from knowledge 15 1.2.2 Exploiting scientific and technological progress – 16 Living with uncertainty 1.2.3 Prevention strategies 43 1.2.4 Sufficiency strategies 49 1.2.5 Systems solutions – Smart solutions 56 1.3 Systems solutions through radical changes in 66 framework conditions 1.3.1 Radical changes by court order 66 1.3.2 Radical changes by new national legislation 68 1.3.3 Radical changes through people’s power 70 1.3.4 Radical changes through partnerships 71 1.4 Change drivers 76 1.4.1 Daring 76 1.4.2 Environmental impact as facilitator 77 1.4.3 Social sciences as facilitator 77 1.5 How to overcome obstacles 80 1.5.1 Insurance as enabler of technology 81 1.5.2 Regionalisation of the economy 83 1.6 How to measure it! 84 vii 9780230_584662_01_prexxiv.pdf 1/12/10 2:41 PM Page viii viii Contents Chapter 2 Selling Performance 86 2.1 Why the shift to selling performance in the Functional 86 Service Economy? 2.1.1 The ‘Factor Time’ 88 2.1.2 The case for internalising the costs of risk and 90 of waste 2.1.3 Incentives for integrating ‘Factor Time’ into 92 the economy via extended performance responsibility 2.1.4 Selling performance versus the sale of goods 95 2.2 Selling performance in the Functional Service Economy: 97 How it works! 2.2.1 The origins of the Service Economy 97 2.2.2 From the Service Economy to the Functional 99 Service Economy 2.2.3 From the supply chain to the performance chain 100 2.3 The structure of the economy selling performance 101 2.4 Markets and economic actors selling performance 104 2.4.1 Performance services in Business-to-Business 109 (B2B) markets 2.4.2 Performance management services in B2B 125 markets 2.4.3 Performance services in Business-to-Government 140 (B2G) markets 2.4.4 Performance services in Business-to-Consumer 153 (B2C) markets 2.4.5 Generic performance management services 158 2.5 Change drivers 165 2.5.1 Competitiveness in the market as change driver 165 2.5.2 Corporate memory can be a strong driver 166 2.5.3 Supply-driven performance selling is still the 167 norm 2.5.4 Demand-driven performance buying is growing 168 2.5.5 Legal frameworks as change driver 168 2.5.6 Exploiting science and technology as change 170 driver 2.6 How to overcome obstacles 170 2.6.1 A global competition of corporate culture 170 2.6.2 A global competition of legal systems 172 2.6.3 Market-inherent obstacles 173 2.7 How to measure it! 175 9780230_584662_01_prexxiv.pdf 1/12/10 2:41 PM Page ix Contents ix Chapter 3 Managing Performance Over Time 179 3.1 Why the shift to managing performance over time? 179 3.1.1 Using goods in the Lake and the Loop Economy 181 3.1.2 Managing performance over time – creating jobs 183 at home 3.1.3 Pursuing cost efficiency 183 3.1.4 Managing performance over time – increasing 184 corporate and national competitiveness 3.2 Maintaining performance over time: How the Lake and 186 the Loop Economy work 3.2.1 The Lake Economy 189 3.2.2 The Loop Economy 192 3.2.3 The principles behind the Lake and the Loop 194 Economy 3.3 The Lake Economy – Optimising the management of 201 physical assets 3.3.1 The shift from consumption to utilisation 202 3.3.2 The Lake Economy of infrastructure and durables 206 3.3.3 Fleet managers of the Lake Economy 208 3.3.4 The Lake Economy of molecules 222 3.4 The Loop Economy – The art of reuse, remanufacturing 222 and remarketing 3.4.1 The shift from cradle-to-nature to cradle-to-grave, 223 then to grave-to-cradle 3.4.2 The case for loop 1 – Product-life extension of 225 goods 3.4.3 The case for loop 2 – The Loop Economy of 241 molecules 3.5 Change drivers 251 3.5.1 The quest for the highest competitiveness 251 3.5.2 Science and technology innovations 252 3.5.3 Commercial innovations 253 3.5.4 Cultural innovations: The ‘caring’ index 254 3.5.5 Autarky as driver 256 3.6 How to overcome obstacles 258 3.6.1 Creating the missing tools 258 3.6.2 Creating the missing support 259 3.6.3 Creating incentives for product reuse and 261 remanufacturing 3.6.4 Creating the missing university curricula and 263 educational support 9780230_584662_01_prexxiv.pdf 1/12/10 2:41 PM Page x x Contents 3.6.5 Creating incentives for innovation – The role of 264 framework conditions 3.7 How to measure it! 266 Chapter 4 Sustainability and the Performance Economy 269 4.1 In praise of chaotic self-regulating systems 269 4.1.1 The market economy as a dynamic self-regulating 269 system 4.1.2 Nature as a chaotic self-regulating system 270 4.1.3 Society as a dynamic self-regulating system 270 4.1.4 Innovation as a chaotic self-regulating system 271 4.2 The concept of sustainability 271 4.2.1 The Quality Cube of the Performance Economy 273 4.2.2 The OECD’s decoupling and composite indicators 273 4.2.3 World resource consumption 275 4.2.4 Sustainability benchmarks and metrics 278 4.3 The relevance of the Performance Economy to emerging 278 economies 4.4 The relevance of the Performance Economy to 280 industrialised countries 4.5 What are the drivers of change? 282 4.5.1 Interdisciplinary solutions 282 4.5.2 Intersectoral solutions 282 4.5.3 Sustainable investments 282 4.6 The link between performance, culture and sustainability 283 4.6.1 The five pillars of a sustainable society 283 4.6.2 Sustainability is also a competition of cultural 285 models 4.6.3 The need for a dynamic model 286 Notes 288 References 294 Index 299 9780230_584662_01_prexxiv.pdf 1/12/10 2:41 PM Page xi List of Tables 1.1 The shift in the value-per-weight ratio from bulk goods 9 to smart goods 1.2 Value-per-weight – a new metric for economic 10 sustainable productivity