Introducing and developing a Product-Service System (PSS) concept in Sweden

Abstract

Business challenges today are becoming more numerous, and more urgent. Many companies are expanding beyond their traditional product and market boundaries, while others are forming new alliances or outsourcing supporting functions to other producers. The concept of product-service system (PSS), analysed in this study, has the potential to improve companies’ competitiveness and provide new business opportunities. It gives the possibility to find new profit centres for companies, to establish closer and longer relationships with customers, to organise feedback from the sale and use phase back to the design phase, to apply a systems approach that widens the scope from one company to a chain of companies collaborating on providing a function to the customer, and to incorporate environmental considerations into the system design. This feasibility study presented the PSS concept to a range of Swedish companies from different industry branches and engaged them in discussions about the pros and cons of the concept and about the potential benefits and foreseeable problems with the introduction of the concept to business. The main finding of this feasibility study is the acceptance of the PSS concept (functional thinking) by companies. The main conclusion is that the product-service system concept seems to be a feasible business strategy, which could be adopted in several industry sectors. The study indicated that the PSS concept requires a new way of strategic business thinking, but also that it could utilise some of the existing practices in companies as a starting point. The study revealed three groups of companies, which are familiar with the functional sales idea and who also have the potential for improvement in this area. The functionality idea has been explored mostly by utility companies in business to business interactions, driven by low margins in a deregulated and highly competitive market. Companies, producing chemicals of different sorts, are also familiar with selling functionality of chemicals and chemical management services to other businesses. Provision of chemical services is driven by strict regulations and high costs of chemical management for clients. Companies, producing durable consumer goods, have somewhat varying familiarity with the concept, but can envision the possibilities of the concept application to their products. Three models for introducing the PSS concept to these groups of companies were developed. The study showed that it is difficult to create general, widely applicable PSSs. Usually product-service systems are very much specialised, depending on the product characteristics, organisational structure, chain actors, network support and infrastructure in place. Besides, product-service systems would be likely to differ considerably depending on the type of customers they are provided to: business to business, business to tradesman, or business to customers. Most of existing examples confirmed that the functionality-based arrangements are introduced exclusively as a possibility to find new business opportunities. The potential environmental improvements associated with the PSS concept do not serve as a key driver for companies, partially due to the few attempts made to evaluate economic and environmental effects of selling functions. What is clear is that services are not environmentally superior to products per se, thus, it is important to ensure in the future that existing functional arrangements and newly developed product-service systems are more environmentally apt than corresponding products. Analysing the way companies market themselves, it could be concluded that functionality, customer relations and added value through additional services has become almost a fashion. There is, however, a difference between how companies represent themselves and how far they have proceeded in practice. While quite a few examples of functional sales were found in business to business relations, very few attempts can be named in business to customer interactions. Existing attempts show that it is more difficult to develop functional alternatives for consumer products, and therefore, special attention is needed in this domain. The largest challenge seems to be to make the value of the function provision more attractive to customers as opposed to owning products. Instruments and practices are needed that would allocate higher status to buying services than owning products. There is an urgent need to develop a methodology for the practical introduction and development of PSSs in companies based on real cases. Demonstration projects can stimulate introduction of the concept and help companies to find networks and partners. Authorities may assist in investigating possibilities of developing economic incentives facilitating the shift away from selling products and towards providing service. They may present functional thinking at the policy level and encourage the retention of ownership of durable goods by producers or sellers in order to support the PSS concept..

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