40.3 Product-Service Systems: Opportunities to Improve Sustainability

Daniela Buschak , Industrial and Service Innovations, Fraunhofer Institute for Systems and Innovation Research, Karlsruhe, Germany
Marcus Schröter , Industrial and Service Innovations, Fraunhofer Institute for Systems and Innovation Research, Karlsruhe, Germany
Katrin Ostertag , Industrial and Service Innovations, Fraunhofer Institute for Systems and Innovation Research, Karlsruhe, Germany
Carsten Gandenberger , Industrial and Service Innovations, Fraunhofer Institute for Systems and Innovation Research, Karlsruhe, Germany
1. Introduction
Manufacturing companies have to meet contradictory demands of their environment: On the one side, customers demand latest technology equipment guaranteeing a high efficiency level over its entire life span at a low price. On the other side, the growing corporate environmental consciousness demands long lasting products using fewer resources in their development phase and use phase which lend themselves easily for closed-loop-concept in their end of life span. In solving this dilemma the concept of product-service systems (PSS) is often suggested in the literature: Products and services are combined as inseparable package to deliver superior value to customers, enhance the competitiveness of the manufacturer and reduce environmental impacts. Although it seems that PSS generate win-win potential for all stakeholders, research providing theoretical background for these assumptions as well as empirical proof in the business-to-business area are lacking. Thus the aim of the paper is to provide an overview of the large variety of PSS concepts in business-to-business relationships and to examine their effects on the three pillars of sustainability – ecological, economical and social dimension. Therefore a set of hypotheses on the effects of PSS derived by institutional economics and the resourced-based view of the firm will be tested by conducting semi-structured interviews with stakeholders of selected industries (sewage treatment, chemical industry, compressor and machine tool building industry). The results to be presented show how PSS impact upon sustainability, drivers and constraints of this impact and reveal potential positive or negative side effects.

2. Types of PSS and their Effects on Sustainability
Servicizing describes a new transaction type no longer focusing on the “sale of product“ but on the "sale of use", resulting in new arrangements of customer-supplier relationships. This shift of manufacturing companies from product-focused to service-focused operations has been of interest to researchers from various fields for at least a decade - inevitably resulting in a multitude of classifications coalesced under the servicizing trend. Within the research arena dedicated to sustainability issues, innovative business relations between equipment suppliers and their customers are discussed predominantly under the term "product-service systems" (Goedkoop et al. 1999). Most concepts of PSS refer to a classification into three sub-categories: product-oriented services, use-oriented services and result-oriented services. While product-oriented services comprise traditional services like maintenance, financing, and consultancy services, use-oriented services and result-oriented services are more advanced and, as such, require new business concepts. Use-oriented services, such as shared utilisation services, aim at increasing the capacity utilisation of products by bundling intangible services and physical goods. Result-oriented services imply that customers buy a result instead of a product, or the use of a product.

Whereas PSS in its original context were closely linked to the possibility of realizing positive environmental effects, the term is widely used in the literature for describing new business concepts stressing the economical benefits for customers and suppliers without a clear focus on an environmental dimension. The "Performance-based contracting" concept in the aerospace and military industry – also known as "power by the hour" in the private sector – for example pushes the high level of availability to be reached by new business concepts. Although PSS have been promoted as solution to contribute significantly to improve sustainability, the results so far are not clear in that point. While the economical potential of PSS in the capital goods industry is subject to much scientific research, empirical analysis of environmental aspects is much more limited, mostly to the chemical and the energy sector. Hardly any research has been done to analyse social sustainability aspects.

3. Research Approach
Thus far a stable and consistent PSS theory offering explanations why PSS lead to economical and ecological benefits is lacking. A theoretical framework will be proposed, providing answers if PSS can lead to improved sustainability. First approaches in this field by Toffel (2008) and Hockerts (2008) using insights from institutional economics are taken as starting point and extended by a review of the resource-based-view of the firm. Transaction Cost Theory and Property Rights Theory seem to be promising, because compared to the traditional sale of products PSS imply changes in the mode of transaction as the supplier keeps part of property rights and hence the responsibility of the good. Furthermore the stock and coordination of internal resources, such as knowledge and expertise by the supplier determines the delivered service quality. Therefore, the resourced-based view of the firm might contribute to explain why efficiency gains can be achieved through PSS. Against this background a set of working hypotheses are elaborated in the full paper. Based on those, semi-structured interviews with stakeholders from the selected industries (e.g. industry associations, labour unions, policy makers and also scientists holding expertise with PSS) will be done to explore multiple perspectives on PSS.

4. Expected Results
The aim of this research is to contribute to the already existing approaches in establishing a theoretical framework for PSS. Beyond a theoretical explanation of possible effects by these new business concepts, this work intends to extract recommendations for practical use of PSS. Through the interviews we identify a trend on how individual PSS influence social, economical and ecological sustainability. In addition, factors that can be seen as promoter or barrier for the impact – in a positive or negative sense – will be disclosed. Further research activities encompass the testing of hypotheses using case studies conducted with company representatives of each of the four industries.

Literature

Goedkoop, M.J. et al. (1999): "Product service systems, ecological and economic basics", Rapport van Pi!MC, Storrm C.S. & Pré Consultants. Hockerts, K. (2008): "Property Rights as a Predictor for the Eco-Efficiency of Product-Service Systems", Academy of Management, ONE Interest Group, 3-5 August 2003, Seattle (US). Toffel, M. W. (2008): "Contracting for Servicizing", Harvard Business School Technology & Operations Mgt. Unit Research Paper No. 08-063.