The concept of the value

To understand the EVR model, and to understand the de-linking of economy and ecology, it is essential to understand the concept of value in modern management.
Each product and each service has 3 economic dimensions: the costs, the price and the (market) value. These dimensions have all € as unit, but must strictly be kept separate (it is obvious that adding components of the cost to the price has no practical meaning at all; the same applies to the value).

The classical management paradigm to describe the function of costs, price and value is depicted in Fig. 3.1a .
In the eyes of the producer, profit is a result of the difference between the costs of a product and its price. Managers try to reduce the costs as much as possible and get a price as high as possible. However, managers know that the end user (consumer) will buy the product only, when the price is equal or lower that the fair price in the eyes of that consumer.
In the classical management paradigm, the manager has no choice: when the price gets too high, there will be no buyers, so the only thing he can focus on is reducing costs ("cost cutting").
Note that the customer has no idea what the costs of a product are. He only buys a product when the value in his/her eyes is more than the price. The value is related to the product quality, the service quality and the image of the product as perceived by the customer. The value is the use and fun the customer expects to have after the purchase. The market value is the "fair price" in the eyes of the customer.

In the modern management approach, the strategic focus is on the ratio of value and costs, as is depicted in Fig. 3.1b . A big difference between value and costs create a variety of strategic options for setting the right price (more profit by optimization of margin per product versus sales volume).

In the classical management paradigm, higher value ("quality") leads always to higher costs. In the modern management paradigm that is not the case: there are many management techniques that lead to a better value/costs ratio. Examples are: logistics (better delivery at lower stock levels), complaint management (satisfied customers with less claims), waste and quality management (less materials better quality). All these examples - there are many more in the field of Total Quality Management and Continuous Improvement - lead to more value at less costs. This is called "the double objective" for managers and opens new perspectives to support eco-efficiency (it supports the first part of the eco-efficiency definition of the WBCSD, as given under the tab "general").
Note that this modern management philosophy is much more than just "adding services" to existing products. It is about carefully improving the quality of products and services (as perceived by the customer!) by eliminating the "non value added" energy, materials and work.

A fact is that these modern management techniques not always lead to better eco-efficiency (e.g. the use of pesticides in agriculture results in a better value/costs ratio but not in a better level of environmental protection). That is why the aforementioned definition of eco-efficiency of the WBCSD adds: "….while progressively reducing ecological impacts …..".
For this reason, the eco-costs are indispensable for companies which aim at good governance.

Literature: see under tab data, reference 1.0, 1.5 and 1.8.

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