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Drivers and barriers for shifting towards more service-oriented businesses: Analysis of the PSS ﬁeld and contributions from Sweden
Oksana Mont The International Institute for Industrial Environmental Economics at Lund University, Sweden
Oksana Mont is a research associate and a Ph.D. student at the International Institute of Industrial Environmental Economics at Lund University. She has a M.Sc. in Biology and Chemistry and a M.Sc. in Environmental Management and Policy and is writing her Ph.D. on Product-Service Systems. She was involved in a number of projects that studied environmental and economic potential of product-service systems, as well as regulatory frameworks for introducing the product service system (PSS) concept to companies. Her particular interest lies at the crossroads of consumers’ and companies’ involvement in developing more sustainable business models. The central interest is the design of a product service system that embeds consumers’ perceptions of the function, provides business opportunity to companies, and has lower environmental impact than traditional business models.
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This paper reviews the discourse and research in the area of product service systems. It shows how the idea of shifting from products to services has evolved during the last decade and identifies potential areas for further advances. The paper then analyses and systematises drivers and barriers for companies to engage in devising strategies and developing business applications based on service-oriented solutions. It then further tests the perception of Swedish companies about these factors, substantiates them with examples, and analyses their relative importance based on results of interviews and focus group discussions. The paper closes with a set of lessons learned from the study and critical factors that companies and designers should be aware of when devising strategies for providing service-oriented solutions.
Introduction There are an increasing number of businesses that, driven by economic opportunity and innovative ideas, are shifting from a reliance on selling products towards the provision of services. Recently, these examples have become a topic of interest in the research community, as the potential for environmental gains and the possibility of decoupling economic growth from environmental damage was recognised. It has however been shown that realising these gains has not been automatic. Currently, it is difficult to say that all existing examples are more environmentally benign, but there are some successful companies that have managed to capitalise on new business ideas and at the same time have reduced the environmental impact of their production and products.
The Journal of Sustainable Product Design 2: 89–103, 2002 © 2004 Kluwer Academic Publishers. Printed in the Netherlands.
THE JOURNAL OF SUSTAINABLE PRODUCT DESIGN
what their environmental proﬁles are. The fact that these businesses exist provides us with an opportunity to study them. very few real life changes were initiated with environmental considerations in mind. as well as focus group discussions with companies experienced and inexperienced in the PSS area. 1983 . although its potential has already been acknowledged by a recent publication by UNEP UNEP 2002 . This obviously creates confusion in academic circles and can potentially prevent profound development in businesses. Several attempts were made to THE JOURNAL OF SUSTAINABLE PRODUCT DESIGN . they proposed to substitute products with services. we need to know what factors initiated and sustained the shift towards more serviceoriented models. and possibly to devise scenarios and strategies for developing more sustainable ways of doing business. as PSS vocabulary is of limited understanding to companies and private customers Manzini et al. several attempts have been made to deﬁne what a product service system PSS is. We then conducted a range of direct personal contacts and group interviews. in which we tested the drivers and barriers identiﬁed in the literature. many agreed that every offer embraces both products and services and what is needed is a more systematic perspective on the combination of products and services. Giarini and Stahel 1989. but still no consensus has been found. This work is intended to assist in further design efforts of developing scenarios and practical business models. Advancement of PSS concept The idea of shifting from products to services is now more than 40 years old Becker 1962 . This article aims to answer the question about critical factors that contribute to the companies’ decision to provide more service-based solutions or develop a PSS. We conﬁrmed most of the factors identiﬁed in the literature and collected Swedish examples that illustrate the drivers and barriers and in some cases. what were the pitfalls that followers could avoid and what is needed for supporting initiatives of more environmentally progressive companies. how companies have overcome these problems. Since then. Additional sources of primary data were generated while working with the Functional Program of the Swedish EPA and during 3 workshops with a range of Swedish companies in 2000–2002. SchmidtBleek 1993 . In order to develop scenarios. implying that the latter were less environmentally burdensome. It is to a large extent still a conceptual proposition and it is difficult to devise experimental. As a solution to environmental problems. despite the effort of many respected scholars and organisations. We ﬁrst conducted a literature analysis and systematised drivers and barriers for companies to become involved in providing service-oriented solutions. it has resurfaced into a more rigorous discourse. The problem is that the concept of product service systems PSS is today too vague. It primarily builds on a project with Swedish companies conducted in the year 2000 and funded by the Swedish National Board for Industrial and Technical Development. More recent research in the area of product service systems emerged from several authors Lovins 1985.ANALYSIS As with all innovation. As the scientiﬁc discussion developed. So far. accelerating the process of introducing service-oriented solutions to businesses depends on successful transfer of research results to ﬁeld use Tornatsky et al. evaluate what business opportunities are created. These questions are still unanswered and open for exploration. 2002 . Braungart and Engelfried 1992. In the last decade. We were able to gain new insights and to obtain some indication about which of the identiﬁed factors were perceived as more signiﬁcant than others. One possible reason for this lack of follow-up may be our limited 90 understanding of what perceptions companies unfamiliar with the PSS concept have about it. yet practical real life case studies that would be initiated in companies after the economic and environmental feasibility of the initial ideas were tested. This idea initiated a discussion about differences between products and services and their environmental performance.
On the other hand. few attempts have been made to devise a methodology for developing PSSs Brezet et al. Macklon 2000 . which implies that it is possible to develop services with lower environmental impact than traditional models if environmental considerations become a parameter in their design. Belz 2001. 1998. Thus. 1999 . These services are often called ecoefficient services or eco-services. Britton 2000. These companies often do not see added value in evaluating environmental parameters of these operations and in using gained knowledge in order to strengthen their image through green marketing strategies. which are now studying services and systems for private consumers. as these studies investigate existing systems of collective use. Sperling and Shaheen 1999. SIFO 2000. Since then many studies and projects have been conducted to collect and study existing cases. 1997. Prettenthaler and Steininger 1999. and environmental beneﬁts are often difficult to calculate. who do not claim to provide function or service to business customers. However these exam91 THE JOURNAL OF SUSTAINABLE PRODUCT DESIGN . Littig 1998 . These attempts and the conceptual framework of PSS provide some ideas for moving towards a more sustainable society. It is doubtful that we will be able to proceed in disseminating functional ideas without overcoming the resistance of the critical mass of companies on the market. Mont 2000. There is again a problem with the name. little empirical data were available. 1995. Furthermore. many arguments from cases that present business and environmental beneﬁts are not very convincing or there is a clear lack of methods that combine both the economic and ecological evaluation van der Horst et al. Nonetheless. it was also recognised that many successful examples from the business-to-business area are difficult to directly apply to the market for private customers. EcoPlan and The Commons 2001 . Hirschl et al. Hockerts et al. Others go further and develop closed-loop systems to complement provision of services and functions. Klintman 1998. In real life. In the mid-90s. 2000. Hence. and to ﬁnd new ways to generate proﬁt. 1998 . there is little doubt that many companies. and are called as ecoservices simply to indicate the environmental research community’s interest and belief in their environmental superiority over products. This is mainly due to the fact that business customers often prefer services to product ownership Alexander 1997 . but who are nevertheless involved in traditional operational leasing. Schrader 1999. recent projects indicate that eco-efficient services are not necessarily better than products European Commission 2001 . Stoughton et al. Zaring et al. washing services Meijkamp 1996. The possibilities for a wider range of companies from different sectors to emulate the examples are rather uncertain. the latter still represents a more desirable situation than a clear theory or practical guide for implementation. Lately. independent from their environmental aspirations. The most common classiﬁcation divides serviceoriented offers into use-oriented and result-oriented. demand-side management and least cost planning Nichols 1999. which were often set up without environmental considerations. 2001 . chemical management services Kauffman et al. are positioning themselves as service providers see examples in Fishbein et al. These realisations are reﬂected in recent projects. Stoughton et al. However. 1999 . 1997. However. there are also many traditional companies.ANALYSIS classify different types of PSSs Meijkamp 1994. 2001 . the main problem with the way the PSS area has evolved so far in the businessto-business area is the generalisation of the results that come from a limited number of successful companies in several sectors. they represent pure services. A wealth of studies can be found on car sharing Meijkamp 1994. White et al. 2000. Economic and ﬁnancial ﬁgures are available only for a few companies. Chesshire 2000. 2001 . while according to some studies it is a formidable challenge for private customers to adopt “ownerless consumption” Schrader 1996. such as renting and leasing. They show that the environmental impacts of such services depend to a large extent on user behaviour.
External drivers Constant public concern and development of legislation has been the driving force for many companies.g. especially in the chemical industry. One reason could be the fact that these services are usually organised without producer involvement. and context-related barriers. Chemical Manage- THE JOURNAL OF SUSTAINABLE PRODUCT DESIGN . Volkswagen Simon 2002 . A limited number of companies spin off from projects on PSS Brezet 2000 . management drivers. concept design barriers. regulatory barriers. Internal barriers were categorised into cost-related barriers. Brown et al. we need to have an understanding of driving forces that stimulate companies to explore new business possibilities and barriers that can hamper companies’ efforts. In order to stimulate the developments outlined in this literature review. which are subject to health and safety and environmental legislation. products are not adapted for high intensity and multiple-customer use. In order to design and stimulate the development of such case studies. Unfortunately. in the SusHouse project a number of scenarios for housing functions were developed in close cooperation with actors who are directly interested in practical realisation of the developed business models Bode et al. There are clearly external forces that either coerce companies for actions or hinder them from reaching their goals Hoffman 2000 . and drivers to improve environmental performance. Drivers identiﬁed in literature Literature analysis identiﬁed two types of external drivers coercive and market drivers and they are presented below. The external barriers to shifting towards service-oriented solutions were divided into barriers related to relations with actors along the value chain. and internal drivers into resource drivers. This example shows that in order to provide system solutions companies need to collaborate with other actors. We divide the external drivers into coercive and market drivers. 2002 . development of product service systems or service-oriented solutions in companies is not a simple process. Vergragt 2000 . Drivers and barriers for service-oriented solutions As was stressed above. can possibly bring desired results. this section attempts to organise the available data. There also exist examples that show how producers organise systems of shared use for individual consumers. and organisational barriers. A recent example of a practical design experiment is the Mitka case Berchicci et al. On the other hand. e. these examples are still excep92 tional accomplishments. more informative and solid case studies are needed that could provide data for evaluating economic and environmental potential of service-oriented strategies and hopefully be detailed enough to serve as a background for establishing new businesses. Analysing the literature on product service systems has revealed a number of external and internal drivers. Barriers and drivers identiﬁed in various studies can be classiﬁed into two large categories. What we have found to be lacking is a systematic account of this scattered knowledge. The results show that it is a challenging task to practically implement developed scenarios Vergragt 2001 . Many companies and researchers have already identiﬁed a number of important drivers and barriers that companies have to overcome when devising new business solutions. 2000. The recognition of the need for partnerships and strategic alliances was reﬂected in a number of projects that brought together potential stakeholders in order to devise scenarios of alternative business models. we need to be fully aware of possible pitfalls and the driving forces that trigger companies to proceed in this direction. 2002. The following section identiﬁes and categorises these critical factors. there are clearly internal pressures within a company that also both propel and hamper their development. Only optimisation of the whole system. Therefore.ANALYSIS ples do not offer expected reduction of environmental impacts of factor 4 and higher. For example. and thus. In order to assist companies in moving towards more sustainable solutions. not merely its elements.
Some companies. In the USA. The top management decision is often named as the decisive factor in deﬁning whether the company will explore possibilities of providing serviceoriented solutions and to what extent. CEOs of IBM and Xerox made a decision to search for business opportunity and be a market leader by providing services in lieu of products Fishbein et al. Internal barriers were categorised into costrelated. and drivers to improve environmental performance.ANALYSIS ment Services were developed in response to strict regulation.g. Only two companies – Electrolux and Interface Inc. Another reason is that customers can proﬁt from sharing the savings from efficiency improvement. varying from 3 to 80% Hutchens and Hawes 1985 . can be used for further production. like Dow Europe. Currently 50% of total revenues at Xerox are coming from the service-oriented strategy Fishbein et al. IBM and Xerox perceive serviceorientation as a survival strategy and enjoy revenues from high volume of leasing and remanufacturing operations White et al. 2002 . an American study of Energy Services Companies ESCO shows that revenues of ESCOs were increasing annually by 24% since the early 1990s Goldman et al. the company is currently experiencing economic difficulties with operating the system. However. Having a secondary source of raw materials directly from the market can be especially proﬁtable when there are large ﬂuctuations in raw material prices. allowed the company to develop a closed loop system and to provide customers with a system solution Interface 1998 . 2000 . the business model of Xerox. An important market driver mentioned by several companies from mature industries. after certain treatment. THE JOURNAL OF SUSTAINABLE PRODUCT DESIGN 93 . Internal drivers The internal drivers identiﬁed in the literature were resource drivers. For many companies ﬁnancial savings and revenues generated from shifting to serviceoriented solutions of different kinds ranging from efficiency services to leasing and closed loop systems are an important driver. When service-oriented solutions are based on leasing arrangements. 1999 . Electrolux 2001 . utilising specialist expertise in product operation and economies of scale in product servicing White et al. e. concept design and organisational barriers. which. inﬂuenced the entire production process and. For example. customers are relieved from the responsibility for a product that stays under ownership of a producer for its entire life span. Closing product cycles. allows companies to have a constant ﬂow of “raw materials”. regulatory barriers. Barriers identiﬁed in literature The external barriers in shifting towards service-oriented solutions identiﬁed in the literature are barriers related to relationships between actors along the value chain. state that environmental improvement is the main driver for the shift towards service-oriented solutions Interface 1998. Xerox Corporation 2001 . companies need to create customised solutions and establish closer relations with customers. is to ﬁnd new possibilities for growth and extend the range of offers into services. management decisions that mobilise companies for actions. DuPont. remanufacturing costs for many products are much lower than manufacturing costs. The decision of the CEO of Interface Inc. the savings from Xerox remanufacturing operations are estimated to amount to about $ 250 million per year Azar 2001. Many companies report that customers demand extensive services and expect reduced risks and liabilities associated with handling the product. and as an effort to prevent future legislation James and Hopkinson 2002 . and context-related barriers. In order to stay competitive on the market. manage to comply with legislation and to make proﬁts at the same time Jacobsson 2000 . 1999 . despite initial technological difficulties. According to Hutchens and Hawes. 2000 .
McGarry et al. Customers’ behaviour appears to be more complicated than expected and is greatly underresearched in the context of functional solutions. has not yet been a proﬁtable activity. THE JOURNAL OF SUSTAINABLE PRODUCT DESIGN . Diffıculties of gaining customer acceptance of serviceoriented solutions are among the most often cited barriers. does not seem to always correctly represent reality. and organisational barriers. Some studies show that producers of consumer goods perceive the risks associated with service-oriented solutions to be higher than the actual business risks European Commission 2001 . Due to technological progress. Fishbein quotes some companies that mention the fact that many governmental agencies demand procurement of new products discourages leasing and remanufacturing activities Fishbein et al. but also status. For example. Some sources claim a serious barrier as the conﬂict of interest between companies that often explicitly aim to reduce sales volume of material product and traditional interests of retailers to sell more products Cooper and Evans. Votta shows that for each US dollar the company spends for purchasing chemicals.and long-term amortisation periods in serviceoriented solutions based on leasing contracts. 1999. A number of literature sources mention that customers lack knowledge about life cycle costs of product ownership White et al. 1999 . Lack of demand from public procurement for more environmentally benign solutions creates a barrier for companies to develop such solutions. it spends an additional 6 US dollars on the chemical management and treatment. many customers also demand the possibility to buy products Fishbein et al. an important barrier is uncertainties about the cash ﬂow that stems from the changeover from short-term proﬁt generation at the point-of-sale to medium. image and a sense of control James and Hopkinson 2002 . 2000 . especially in cases when they do not have control over them and have no possibility to inﬂuence the way their products are used. 2000 . The producers are sometimes reluctant to internalise use related costs. Product ownership not only provides function to private users. The assump94 tion that the customer is more interested in the product function rather than in its ownership Braungart and Engelfried 1993. Also. Internal barriers Internal barriers identiﬁed in the literature were cost-related barriers. lack of customer’s knowledge about cost structure. There is a general agreement in the literature that in order to gain higher customer acceptance of serviceoriented solutions. reducing the cost-effectiveness of remanufacturing processes Fishbein. producing goods from virgin raw materials becomes cheaper. Companies that sell their products to ﬁnal users through retailers state that their margins are eroding as a consequence of increasing power of retailers Hartley 2000 . High prices on labour are an important barrier for many companies who provide labour intensive repair and maintenance services. customer acceptance of service-oriented offers and trust building. One possible solution to this problem is sharing of proﬁts among the actors that participate in the provision of a service Weitz and Jap 1995 . 1995 . 2000 . because the raw materials for carpet production are relatively inexpensive and thus carpet recycling is more costly than production based on the use of virgin materials. For many companies this clear cost structure was a convincing argument to buy Chemical Management Services Votta 2001 . concept design barriers. Hockerts et al. companies need to provide more attractive offers or at least the same level of function and comfort as products Schrader 1999. Setting the right price is mentioned in several studies as a vital step for service-oriented solutions. European Commission 2001 . carpet recycling at Interface Inc. Xerox shows that together with the possibility to lease products. One of the most important external context-related barriers is a relatively low price of resources.ANALYSIS External barriers Barriers related to relationships between actors along the value chain included conﬂicts of interest between different actors. Meijkamp 2000 . White et al. and lack of demand from public procurement.
offering customers to trade in their products when buying a new product. An interesting opportunity for securing the return product ﬂow is by inﬂuencing consumer behaviour in a certain direction by product design Jelsma 2000. Environmental beneﬁts that can be provided by service-oriented solutions are sometimes reached by lowering the comfort level for the customers Roy 2000 . Jelsma and Knot 2001 . 2000 . For companies that do have remanufacturing activities an often-mentioned problem is uncertainty about the return ﬂow of products from customers back to producers. An illustration of this possibility is the design of single use cameras of Fuju and Kodak that requires the customer to return the camera with the ﬁlm for processing Kodak 1999. Diffıculties of balancing environmental goals with satisfying customer priorities can be problematic for some companies. Interface Inc. an overview of important drivers and barriers 95 THE JOURNAL OF SUSTAINABLE PRODUCT DESIGN . A third possibility. varying degrees of internal conﬂicts between business functions are observed White et al. Another ﬂow of products comes from products that are still on warranty. 1999. at the same time degrading their core competencies . Electrolux mentions that there might be conﬂicts between development of products designed for traditional use and for functional sales Fishbein et al. Fishbein et al. What we have learned from Swedish companies In this section. The following table presents and structures the identiﬁed drivers and barriers found in the literature. Adding environmental considerations and service development to the product development cycle is often seen as lengthening time to market Stoughton et al. Partnerships with other companies that can together with the initiator provide the system solution may alleviate that problem. 1998 . Organisational resistance to change that is required to extend responsibility for products beyond point of sale has been identiﬁed as a major barrier in some studies Stoughton et al. 1998 .. where traditional product sales coexist with service-oriented systems. In a number of companies. FujuFilm 2002 .ANALYSIS Figure 1: Drivers and barriers for development of service-oriented systems in companies The need to balance core competencies and the desire to provide system solutions represents the problem related to the product service system concept per se.over-diversiﬁcation. 2000 . Some companies spread their expertise too thin over a wide range of activities in the effort to provide an entire PSS. highlights that it is diffıcult to provide operational leases for some products that have low residual value at the end life Interface 1998 . is for producers to extend the ownership for the products throughout the product life Jacobsson 2000 . at least from a business-to-business perspective. Companies solve this problem in several ways. The most widely spread approach for reversing the ﬂow of products has been through exchange programmes .
Drivers identiﬁed and conﬁrmed by Swedish companies External drivers Conﬁrming the ﬁndings from the literature. All companies we met agreed on the importance of top management commitment in initiating the shift towards service-oriented solutions Swedish EPA 2001 . sold instead of electricity by the utility industry. They aim at maximising efficiency while lowering electricity costs to the customer. there is THE JOURNAL OF SUSTAINABLE PRODUCT DESIGN . 1999 . which were not mentioned by the Swedish companies. Energy conservation programmes are an example of these activities. and they even may be able to prevent customers from moving to another provider. Many interviewed Swedish companies indicated that there is a clear demand from business customers for diverse service offers in some sectors. Simões 2001 . provision of diversiﬁed service offers that generate revenues is a survival strategy Ottosson 2000 . there is also a general consensus among the Swedish companies we interviewed that legislation is the main driver for recycling/reuse activities. For example. and discussed. illustrated by examples. to provide updated information about the company’s offers or even to expand services into customer’s facilities. Finding new business opportunities outside traditional markets is seen as a driving force and viable strategy by some enterprises. Signing a contract provides the producer with an opportunity to contact the customer and get direct feedback. the company has a clearer understanding of cost structure and can introduce certain incentives to reduce costs Källrot 2001 . Andersson et al. like Sydkraft. Internal drivers For all interviewed Swedish companies business opportunity based on ﬁnancial saving and revenue generation is the main driver of company progress. repair and upgrading Swedish EPA 2001 . Akzo Nobel Decorative Coatings AB also shows that Chemical Management Services have been developed as a response to the pressure from health & safety and environmental legislation. These services postpone product disposal and the costs of new product manufacture. Alfa Laval. the producer of baby prams ENG revealed that gaining control over the second-hand market represents a potential business opportunity Råberg 2000 . companies indicated that beside top management support. A number of interviewed companies. In many cases. ITT Flyg and others. provide supporting services to extend useful product life through maintenance. The possibility to obtain information about product use phase and costs associated with repair provides companies. ITT Flyg.. New drivers and barriers will be identiﬁed. stated that in mature industries the possibilities of inventing new solutions within the technical realm have to a large extent been exhausted and that new service solutions can stimulate growth in mature industry. To reduce these costs companies. As a result. clearer cost structure within the functional arrangements allows long-term planning for both business and private customers Agri. Demand Side Management and Least Cost Planning are energy efficiency services. Competition drives companies Bertilsson 2000 and the need 96 to protect market share was mentioned as a driver for companies to ﬁnd new opportunities for improvement of the quality of their offers Mont and Ryan 2000 . will be discussed. e. Atlas Copco AB.ANALYSIS that are perceived by Swedish companies are presented. By doing this. like Electrolux. The deregulation of the energy market led to ﬁerce price competition and low proﬁt margins. some will be conﬁrmed and illustrated by Swedish examples. As was stressed by Volvo. an opportunity to allocate responsibility and replacement costs between the company and its customers more effectively. and the drivers and barriers. like Alfa Laval. thus reducing total costs of function provision. producers build up knowledge about the needs of the customer. For companies. which spurred the development of Demand Side Management and Least Cost Planning activities by many companies Ottosson and Akkermans 1999. Our interviews show that some companies perceive the reduction of costs associated with function provision as a key driver.g.
In several countries. It was also stressed that governmental agencies can create a pulling effect by creating demand for service-oriented solutions. ENG competes on quality of its products and has a well-known and established brand name. There was a common concern among the producers of consumer products during the group discussions that private customers might have problems with accepting refurbished products. the trend in the medical care sector is towards dialysis treatment in cost-effective. producers often need to develop support services and systems for monitoring products at customer production sites Källrot 2001 . by experienced personnel who have the right equipment to ﬁx the problem or can upgrade or repair the products on-line Ruiz 2001 . Alfa Laval raised another concern that when providing system solutions. avoiding initial investments Andersson 2000 . The possibility for development of new ideas and their acceptance within the company greatly depends on the openness of the company culture with regard to innovative ideas. For these cases. Some companies themselves are reluctant to get associated with refurbished products. Gambro is continuing a policy of owning and equipping entire dialysis clinics. and Gambro revealed that due to the detainment of the ownership they were able to develop more expensive. For example. Wihlborgs Fastigheter AB. These people may come from any business function – design. Atlas Copco AB. Association with second-hand products might possibly damage the company’s image Råberg 2000 . Electrolux sells refurbished products for on average 35% lower price Brotto 2001 . Volvo shows that beneﬁts from services being delivered by specialists are that products are taken care of regularly. the company developed a socalled “price per treatment” strategy. is not sure whether customers can understand the new role of a company and accept the fact that the producer can now also contribute with knowledge and new service offers Ottosson 2000 . This issue was also mentioned in our interviews with other companies. For example. in which price is most important” Pettersson 2000 . privately owned units Esser 2000 . Environmental improvement is one of the drivers identiﬁed in discussions and interviews with the Swedish companies. after-sales department. etc. meaning that doctors are paying per treatment. such as the provision of a constant temperature to the house. not only developing push-policies Knutsson 2000 . which customers can afford as they are paying per unit of function not for the product. This means entering customers’ facilities and getting access to potentially sensitive information about some of the performance parameters of the processes. an energy producer. as a very delicate matter and a 97 THE JOURNAL OF SUSTAINABLE PRODUCT DESIGN . otherwise the purchasing will be made according to their traditional criteria and preferences. Electrolux. Barriers identiﬁed and conﬁrmed by Swedish companies During the discussions and interviews with Swedish companies. higher quality and more environmentally benign technology. Reducing risks and liabilities associated with handling of hazardous materials was pointed out as a key driver for both business and private customers. With private customers the task of explaining the new concept becomes a challenging one as “The producer usually has ﬁve seconds or one line written on a paper to get the customers’ attention to a particular product-service characteristic. Sydkraft. External barriers Lack of market demand for service-oriented solutions was named by several Swedish companies as a barrier to developing such solutions Swedish EPA 2002 . marketing. is easy for tenants to understand Salmhofer 2000 . In order to attract customers. For example. for example. a real estate company. meaning that Gambro’s equipment might be quite expensive for such units.ANALYSIS usually a “catalyst” in the company – a person or a group of enthusiasts who develop the idea and market it within the company. not for the unit of equipment bought. is not convinced that payment structure for functions. barriers related to relationships between different actors along the value chain were identiﬁed.
as an issue of concern. as costs are changing at the same time as negotiating power of involved parties alters. Personnel may feel that the service provider takes over their functions. thus depriving them of their job. s/he can also bring back the old one and get a rebate of up to US $100. identiﬁed in the literature. because providers get access to customer information by supplying computer memory and software Lundberg 2000 . They pointed out that these costs might also become problematic in the long run. Salmhofer 2000 . Internal barriers A number of Swedish companies interviewed point to reluctance of providers to internalise use related costs. Swedish EPA 2002 . only a few of them make changes in the actual product. which entail higher expenditure on labour. High prices on labour are also often mentioned in our discussions with Swedish companies Swedish EPA 2002 . Electrolux stated that EPR programmes that do not set individual producer responsibility could deter closing the materials loop unless a system 98 is in place that ultimately directs products to its original producer for reclamation.ANALYSIS strong sense of trust has to be built in relations with customers. Thorn Lighting and Wihlborgs Fastigheter AB indicated that a factor that can deter companies from provision of serviceoriented offers are potential conﬂicts of interest between different actors in the complex chains Björklund 2000. It became clear from the interviews that although a number of companies provide serviceoriented solutions to their customers. and in some cases software. it is not easy to build trust. Our interviews show that a number of Swedish companies are concerned over potential lack of care from the customer side when they do not own products they use Swedish EPA 2002 . Electrolux only remanufactures consumer products that are still on warranty. A study of Volvo Penta indicated that THE JOURNAL OF SUSTAINABLE PRODUCT DESIGN . Swedish companies also recognised as a critical issue the problem of over-diversiﬁcation of offers. Product ﬂow from business customers is ensured through leasing contacts. Companies that already provide service-oriented solutions try to avoid that problem by establishing alliances with other companies. e. some companies expressed concern that this might affect their revenues. An interesting observation that was made in one of the Swedish studies within the Functional Programme of the Swedish EPA is a potential opposition of the personnel at the site of a business customer when a service provider enters with its activities Ölundh and Ritzén 2002 . During our focus group discussions. Recently. Electrolux has been lobbying for development of individual producer responsibility development for many years. Xerox and Electrolux expressed concern over uncertainty regarding the return ﬂow of products from customers. services. Electrolux solves this problem in a number of ways. Thus. In the case of application service providers. Supporting services require additional personnel. they highlighted the need to develop approaches that would facilitate comparing traditional systems of sales with service-oriented solutions Swedish EPA 2002 . During the workshops. A number of Swedish companies expressed the need to learn more about how to manage different development periods for designing products. the company started advertising the exchange scheme for private customers – when a customer comes to a shop to buy a new machine. Xerox collaborates with HP and Sharp Hultin 2000 .g. no incentive is created to adjust product design for end-of-life management. Recent approval of the EU WEEE Directive will become a clear driver for these changes ENS 2002 .. Those companies that have met such behaviour started to develop economic incentives for customers to stimulate more considerate use of products Ölundh and Ritzén 2002 . An issue of bringing venture capital to support the extension of the ownership to new product life stages is often discussed as a potential way of reducing the risk for companies Swedish EPA 2001. One of the reasons is that many companies sell the goods after the leasing period. During the interviews.
The most important external driver identiﬁed both in literature and in the discussions and interviews with Swedish companies was legislation. either by increasing competition or by creating customer demand for extended services. and stringent chemical regulations. Many companies stress the need to attract venture capital to support the new business ideas. conﬂicts of interest between actors in complex chains may deter companies from even considering the provision of more serviceoriented offers. The two latter types of regulation create market pressures. as many companies are not sure whether risks of embarking on the service-oriented journey are surpassed by beneﬁts. Conclusions This study conﬁrms that there is a range of factors that inﬂuence companies in their decision to develop more environmentally benign business practices. deregulation. in order to attract venture capitalists thorough ﬁnancial analysis would be required. Nilsson 2000 . Alfa Laval also perceives that functional sales might create internal competition between new sales and after-sales. On the other hand. and what factors were not found to be equally signiﬁcant. in the case that the company charges a fee per unit of function delivered Beijer 2000 . Lack of competition among servicised solutions in some sectors also contributes to high prices. while building core competencies and avoiding dangerous diversiﬁcations. to obtain support from decision makers and help overcome low receptivity to new ideas – was found to be equally important. including various instruments of the Extended Producer Responsibility principle. There is a clear need for strategies on how to manage different development periods for designing products. as well as between the sale of products versus the sale of efficiency. However. we have attempted to summarise what factors both drivers and barriers are perceived by Swedish companies as the most signiﬁcant and most problematic. The company observed that producers of ﬁnal products have bigger chances of gaining economically from servicised offers. favourable political framework conditions that 99 THE JOURNAL OF SUSTAINABLE PRODUCT DESIGN . Equally important for provision of service-oriented solutions is to ﬁnd partners and establish alliances based on trust. we found that implicit conﬂicts of interest between different departments of utility companies that sell energy and that provide energy efficiency services can develop Beijer 2000. and software. Lack of market demand for functional solutions is a signiﬁcant barrier for companies who are willing to explore the new opportunities. Clear understanding of costs and beneﬁts involved in shifting towards provision of service-oriented solutions is an essential factor. It provides a systematic account of drivers and barriers and contributes new examples and insights from Swedish companies to the existing body of literature. who often lack knowledge of the life cycle costs and for who prices of service-oriented offers may appear to be prohibitively high. the company. services. Partnerships allow companies to develop competitive solutions and share revenues. Top management commitment was conﬁrmed as a vital success factor. The ability of companies to secure market for more sophisticated and more environmentally benign technologies through leasing arrangements is a vital asset. The role of an internal ‘catalyst’ – a person who helps to introduce and disseminate the idea within Critical factors for shifting towards servicised solutions Based on available literature and collected experiences of Swedish companies. Companies experience difficulties in attracting customers. The critical factors that frame the decision of companies about developing service-oriented solutions are customer demand.ANALYSIS producing components instead of ﬁnal products could be a limiting factor Lissinger 2000 . Equally important is to have precise ﬁgures or even estimations of savings or profits that may potentially be generated by new business practices. Bergström 2000. Conﬁrming the literature studies.
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