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Product Service systems, Ecological and Economic Basics

Authors:
Product Service systems,
Ecological and Economic Basics
(Authors in alphabetic order)
Mark J. Goedkoop MSc.
Cees J.G. van Halen MSc.
Harry R.M. te Riele MSc.
Peter J.M. Rommens MSc.
March 1999
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STORRM C.S.
Ontwerpers en adviseurs
This paper is on Product Service systems (or product service combinations),
commercial deals containing both a material product and an intangible service. The
writers propose a method to analyse the economic and ecological qualities of these
systems. They believe an understanding of product service systems is a next step on
the way to econology: the junction of ecology road and economy lane. This text
gives basic observations and definitions, offers an outline of a new assessment
method and ten case descriptions. This paper has been written to stimulate
discussion on this promising subject. It has been commissioned by the Dutch
ministries of Environment (VROM) and Economic Affairs (EZ).
AUTHORS:
Mark J. Goedkoop MSc. (3)
Cees J.G. van Halen MSc. (1)
Harry R.M. te Riele MSc. (2)
Peter J.M. Rommens MSc. (1)
(1) PricewaterhouseCoopers N.V. / Pi!MC
P.O. Box 30715
2500 GS The Hague
The Netherlands
tel: +31-70-3426194
fax: +31-70-3426225
(2) Storrm C.S.
St. Annaplaats 25
5211 NT Den Bosch
The Netherlands
tel: +31-73-6901907
fax: +31-73-6901912
(3) PRé consultants
Plotterweg 12
3821 BB Amersfoort
The Netherlands
tel: +31-33-4555022
fax: +31-33-4555024
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Summary
In the Dutch Policy Document on Environment and Economy, Product Service
systems are recognised to offer favourable prospects for sustainable economic
growth in the medium and long term. The policy document describes a phased policy
plan to evaluate the potential of product-service systems with respect to
environmental policy. The project reported here is the first step in this plan.
The project explores the subject ‘products and services’ in relation to sustainability,
economy and environment. The project partners are PI Management Consultancy1
(Pi!MC) in the Hague, STORRM C.S. Designers and Advisors in Den Bosch, and
PRé Consultants in Amersfoort. Pi!MC was the project leader. First, the project
focused on developing a solid theoretical framework. Next, new analysis methods
were developed and case studies were described and studied. The project was
externally oriented, including discussions with experts of industry, science and
policy. The project is finalised February 1999 by means of a presentation of the
results to the project steering committee.
A Product Service system (PS system, or product service combination) is a
marketable set of products and services, jointly capable of fulfilling a client's need.
Understanding PS systems is interesting for companies as well as governments. PS
system knowledge enables governments to formulate a next step in policy
concerning sustainable production and consumption patterns. PS system knowledge
enables companies to find strategic options for business growth, renewal, innovation
and diversification. PS systems knowledge is especially inspiring for those
companies who regard sustainability as a co-pilot for management strategies.
PS systems can prove beneficial to the environment in combination to creating (new)
business. Key-factors of success are similar in many cases, e.g.:
Creating value for clients, by adding quality and comfort,
Customising offers or the delivery of the offer to clients,
Creating new functions or making smart or unique combinations of functions,
Decreasing the threshold of a large initial or total investment sum by sharing,
leasing, and hiring,
Decreasing environmental load. Often this will bring additional and perceived
Eco-benefits,
Increase the quality of the contacts with clients.
Moreover, the study shows a potential to unlink environmental pressure from
economical growth.
The project Product Service Systems has resulted in ten case descriptions. Three of
these have been worked out quantitatively in terms of economic and ecological
characteristics. For these descriptions a new analysing method has been used. Each
case is characterised by four axes: an ecological axis, an economic one, an
identity/strategy axis and a client acceptance axis. These axes are described in the
report. For the ecological and economical axis quantitative methods are proposed
as well.
To get an appealing representation of two core parameters, the economy and
ecology axes have been combined. This has resulted in the ratio economic added
value (of companies on the network) per unit environmental load, which can be
plotted graphically as what has come to be called the E2 vector.
1 All activities and advisors of Pi!MC are since September 1999 part of PricewaterhouseCoopers N.V. Subsidy- and
Technology Advisors
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The E2 vector enables benchmarking between a company's departments, between
companies, between economic sectors and between different product service mixes.
Apart from case descriptions, the project has resulted in definitions, a database with
examples, and policy recommendations for governments and companies. One of the
recommendations is to discuss the PS theory in multidisciplinary sessions and to
develop practice with PS systems.
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Samenvatting
In de Nota Milieu en Economie worden product dienst combinaties genoemd als een
kansrijk perspectief voor een duurzame toekomst. De nota beschrijft een
stapsgewijze aanpak om hun potentie in het milieubeleid vast te stellen. Dit rapport
schetst de resultaten van het project dat als eerste stap ter realisering van dit
perspectief in opdracht van de Ministeries van VROM en EZ is uitgevoerd.
Het project is een breedte-verkenning van het onderwerp ‘producten en diensten’ in
relatie tot duurzaamheid, economie, ecologie. Het is uitgevoerd door PI
Management Consultancy2 te Den Haag, STORRM C.S. Adviseurs & Ontwerpers te
Den Bosch, en PRé Consultants te Amersfoort. Projectleiding was in handen van PI.
In het project is allereerst gewerkt aan de theoretische kaders. Vervolgens zijn er
nieuwe methodieken ontwikkeld en praktijkcases beschreven en bestudeerd. Hierbij
is een open strategie gevolgd, waarbij een groot aantal deskundigen is gesproken uit
het bedrijfsleven, de wetenschappelijke wereld en het beleid. Het project is in
februari 1999 afgesloten middels een presentatie van de projectresultaten aan de
begeleidingscommissie.
Een Product-Dienstsysteem (PD-systeem, of product-dienstcombinatie) is een
verkoopbare verzameling producten en diensten, die gezamenlijk een functie vervult
bij een klant. Inzicht in PD-systemen is van belang voor overheid en bedrijfsleven.
De overheid kan kennis van product-dienstsystemen aanwenden voor een nieuwe
stap in het beleid rond duurzame productie en consumptie.
Kennis van PD systemen biedt bedrijven mogelijkheid om nieuwe wegen te
bewandelen bij het zoeken naar nieuwe strategieën voor groei, vernieuwing, en
diversificatie. Ze is met name inspirerend voor bedrijven die duurzaamheid zien als
centraal onderdeel van de management strategie of als grote nieuwe marktkans.
PD systemen biedt bedrijven een ‘win-win’ kans voor milieu en economie.
Sleutelfactoren voor succes zijn veelal hetzelfde:
het creëren van waarde voor klanten (kwaliteit en comfort),
customising aanbiedingen aan de wensen van klanten,
het creëren van nieuwe functionaliteit of het leveren van unieke combinaties van
functies,
verlagen van de investeringsdrempel door sharing, leasing of verhuur,
verlaging van de milieubelasting. Vaak kan hierdoor ook een hogere (eco)-prijs
worden gerekend,
verbeteren van de contacten met de klant.
Het project laat tevens zien dat ze kunnen bijdragen aan het ontkoppelen van
milieudruk en economische groei op macroniveau.
Het project Product-Dienstsystemen heeft geresulteerd in tien
voorbeeldbeschrijvingen waarvan er drie cijfermatig op economische en
ecologische kenmerken zijn gekarakteriseerd. Voor deze beschrijvingen is gebruik
gemaakt van een nieuw ontwikkelde analysewijze op vier assen, te weten een
ecologische as, een economische as, een bedrijfsidentiteits/strategie-as en een
afnemersacceptatie-as. Elk van deze assen wordt beschreven. Voor de assen
ecologie en economie worden er tevens methoden aangereikt voor kwantificatie.
De economie- en ecologie-as zijn samengebracht. Dit maakt een eenvoudige
grafische weergave mogelijk van het kengetal toegevoegde waarde (van bedrijven in
2 Sinds 1 september 1998 zijn alle activiteiten en adviseurs onderdeel geworden van PricewaterhouseCoopers N.V.
Subsidie- en Technologie-adviseurs.
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het netwerk) per milieubelasting. Deze grafische weergave heeft de naam E2-vector
gekregen. De E2-vector maakt benchmarking binnen een bedrijf tussen
bedrijfsonderdelen, tussen bedrijven onderling, tussen sectoren en tussen
functievervullingen inzichtelijk.
Naast de voorbeeldbeschrijvingen heeft het project werkdefinities opgeleverd, een
database met voorbeelden uit de praktijk, en aanbevelingen voor overheid en
bedrijfsleven. Tot de belangrijkste aanbevelingen hoort de toetsing van het
gedachtegoed in multidisciplinaire bijeenkomsten en het verder opbouwen van
ervaring.
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Contents
Summary ................................................................................................................... 3
Samenvatting............................................................................................................. 5
1. Introduction.....................................................................................................11
1.1. Why has this document been written..........................................................11
1.2. Dutch policy background........................................................................... 12
1.3. Scope .......................................................................................................... 12
Goal of the project.............................................................................................12
Scope of the report ............................................................................................12
How we have worked, in short..........................................................................13
Outline of this report .........................................................................................13
1.4. Why PS systems? Theoretical embedding and motivation......................... 14
Understanding economic growth and value creation processes........................ 14
Analysing the macro picture.............................................................................. 15
2. What are PS systems?..................................................................................... 17
2.1. Basic definitions.........................................................................................17
2.2. Characteristics of PS systems ....................................................................19
What’s known about PS systems already?........................................................ 19
What are Product Service systems?................................................................... 20
PS systems have unlinking potential................................................................. 21
Positioning interactions of products and services.............................................. 21
2.3. Driving forces for PS systems ....................................................................22
Business drivers for PS systems........................................................................22
Eco-drivers for PS systems................................................................................ 22
Identity drivers ..................................................................................................23
Trends matching the PS systems concept.......................................................... 24
Conclusions chapter 2 .......................................................................................25
3. PS Systems: Analysis on four axes model...................................................... 27
3.1. Qualitative assessment using four axes...................................................... 28
Expert panel....................................................................................................... 28
The ecological impact qualitatively judged (Axis 1)......................................... 30
The economic effects qualitatively judged (Axis 2).......................................... 31
Identity and strategy qualitatively judged (Axis 3)........................................... 34
Customer acceptance qualitatively judged (Axis 4)..........................................36
3.2. Quantitative analysis of first two axes: introduction .................................39
3.3. Quantitative assessment of the economic aspects...................................... 39
Economic analysis at company level................................................................. 40
Economic analysis at the profit pool level ........................................................40
3.4. Quantitative assessment of the environmental aspects ..............................41
The use of LCA for PS systems ........................................................................41
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LCA's applied on PS systems............................................................................41
The Eco-pool concept........................................................................................43
Further development of the Eco-pool concept for the assessment of lifecycles 44
3.5. Analysing the unlinking effect with the E2 vector ......................................45
Interpreting the E2 vector..................................................................................46
4. Ten examples of PS systems............................................................................51
4.1. How we've selected the cases .....................................................................51
Aim....................................................................................................................51
Case selection process: our criteria....................................................................51
Cases selection...................................................................................................51
4.2. Categories of cases.....................................................................................52
Categorising the markets ...................................................................................52
Categorising the PS-ratio...................................................................................52
4.3. How we've worked......................................................................................52
Source of information........................................................................................52
Panel assessment................................................................................................52
In-depth analysis................................................................................................53
Description of the cases.....................................................................................53
4.4. Organic food by subscription: ODIN.........................................................54
4.5. Hotel Office of Gispen in co-operation with
Dutch State Buildings Agency ....................................................................57
4.6. Stybenex layout plan and return system for EPS........................................61
4.7. The mobile phone set by Libertel offers freedom........................................65
4.8. Douwe Egberts Coffee Systems international BV.......................................68
4.9. Wascators by Electrolux.............................................................................71
4.10. Carsharing..................................................................................................74
4.11. Timesharing of luxury yachts .....................................................................78
4.12. The Chipper electronic purse of Postbank .................................................81
4.13. Koppert: Biological Pest management.......................................................85
4.14. Conclusions on ten examples......................................................................88
5. Quantitative analysis of PS system examples................................................89
5.1. Carsharing..................................................................................................89
5.2. Laundry-services ........................................................................................94
5.3. Vegetables by subscription.........................................................................96
5.4. Conclusions regarding three cases.............................................................97
E2-vector concept..............................................................................................97
Results................................................................................................................97
6. Conclusions and recommendations................................................................99
6.1. Conclusions ................................................................................................99
General conclusions...........................................................................................99
Relation with macro-economic trends.............................................................100
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Business opportunities and drivers..................................................................100
Ecological impact of PS systems..................................................................... 101
(Ecological) methodologies............................................................................. 102
E2 vector.......................................................................................................... 102
6.2. Recommendations .................................................................................... 104
Communication ............................................................................................... 104
Pilots................................................................................................................ 104
Policy making.................................................................................................. 105
Literature and references..................................................................................... 107
Definitions and abbreviations..............................................................................111
Contacted Persons ................................................................................................113
Guidance Committee............................................................................................115
Annexe 1: How we have worked, into more detail..................................................i
Annexe 2: Analysis of PS Systems: What do target groups expect......................ii
Annexe 3: Reflection on economic growth ............................................................iv
Annexe 4: Analysing the macro picture.................................................................. v
Annexe 5: Estimating the economic merits of a PS project within a company.vii
Annexe 6: Lifecycle assessment..............................................................................ix
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1. Introduction
1.1. Why has this document been written
Western policy aims at sustainable economic development. Long-term economic
growth in combination with a reduced pressure on the environment asks for changes
in our production and consumption systems and for commitment of all actors in
society.
Key question is how environmental impacts can best be disconnected from
economic activities. In the recent decade already many successful approaches have
been followed. Examples of key concepts that are successful, are: ‘cleaner
production processes by new technologies’, improved products by ‘Ecodesign
methods’, ‘improved technologies for waste processing’ and the introduction of
environmental (product) lifecycle management.
Many cost-effective environmental measures have now been taken. That creates the
risk that the reduced environmental load per unit product will fall behind the growth
in consumption, with the danger that pollution will start to rise, even in those sectors
where reductions have been achieved in recent years. 3
The next step in the process of sustainable development has to include new and
powerful concepts. The accelerated transformation of production systems and
consumption behaviour towards services and product-service combinations is
recognised as a potentially powerful concept. Why?
It is expected that services can be produced and consumed against low
environmental burden. Development of services is expected to contribute to
more effective use of resources.
The combination of products and services can exceed the traditional
functionality of products, in terms of quality and cost performance.
The introduction of services can create new jobs near to home or even at home.
New ‘environmentally sound’ service opportunities arise as result of the rapid
progress of information and communication technology (e.g. Internet).
Transforming products into services and the combination of products and services
are no new concepts in itself. Services are added in many cases to increase customer
satisfaction. This will increase the overall value of the product that was sold. In
general, markets steadily move towards production and consumption of more
luxurious goods and services and this paves the way for new services.
What is new, is recognition that the service-based strategy could be a powerful
concept towards sustainability. Basic idea is that a company's commercial value
creation goes beyond the spreading of material goods. It's about function fulfilment
of a business’ clients. Or more beautiful, as Prof. Manzini has put it, it's about doing
sustainable business, which means doing business enabling clients to live better,
consuming less4.
Experiments with added services reveal this potential.
Leasing carpets (by Interface, U.S.), sharing cars (in Switzerland,
Germany and The Netherlands and other European countries) and furniture
maintenance subscriptions (by Wilkhahn, Germany) seem exciting
examples from an environmental point of view.
3 Dutch Policy Document on Environment and Economy, 1997
4 Prof. Ezio. Manzini (Politecnico Milano) at O2 Challenge in Rotterdam 1998.
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This report will set footsteps into this New World of services and sustainability:
by describing a number of exciting business cases,
by describing new methods of analysis,
and by trying to analyse of the real environmental benefits of selected cases in
relation to their potential contribution to economic growth.
1.2. Dutch policy background
In the Dutch Policy Document on Environment and Economy, Product Services
systems are recognised to offer favourable prospects for sustainable economic
growth in the medium and long term. The document describes a phased policy plan
to evaluate the potential of Product Service systems with respect to environmental
policy. If the outcome is positive, this may be followed up by specific incentives:
- Phase 1: making an inventory, examining the possibilities and impossibilities.
- Phase 2: setting up pilot projects on the basis of the above.
- Phase 3: if the results are positive, developing a systematic approach directed
towards the realisation of new Product Service systems.
The project reported in here is part of Phase 1.
1.3. Scope
Goal of the project
Objective of the project was to assess the economic and environmental relevance of
Product Service systems and their suitability and value in the context of the Dutch
environmental policy. This assessment should be made by means of a simple
method that is easy for businesses and government to apply.
Scope of the report
This report is the result of a project that started in December 1997 and continued
until January 1999.
The scope of this report is a company in interaction with its clients and suppliers.
Although the main targeted audience is the industry, the report addresses
policymakers of governmental organisations as well.
The report describes the concept of Product Service (PS) systems. Interesting
business opportunities are illustrated, many of them resulting in a significantly lower
environmental impact. The report investigates the value of PS systems as general
concept for unlinking economic growth and environmental impact.
1. For governments understanding PS systems could ultimately lead to new
instruments towards an environmentally efficient society.
2. For product-oriented companies, PS systems could offer new growth of business
by adding services to their products with lower ecological impact in absolute
terms.
3. For service-oriented companies, PS systems could open new opportunities to
improve their connection to the physical world, by offering their qualities as
service provider or expending business by adding hardware.
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For all of these actors the tools presented in this report can clarify, at least in part,
whether changing towards PS systems will result in a decrease of ecological impact.
How we have worked, in short
After a concise literature study and discussions with selected experts, we came to a
set of basic definitions. Next we concluded to apply a set of four viewpoints for the
assessment and description of any PS system: the economic aspects of the PS
system, the ecological aspects, the company’s identity and strategy and the market
acceptance.
We developed a four-axes model based on this finding. Next, we invested to expand
our ideas related to the economic and ecological aspects and their mutual
relationship in PS systems making new models based on a model described in recent
literature.
In the third step, ten selected cases were discussed in interviews with the
representative industrial managers. These cases are all described in this report in a
merely qualitative manner. From three cases the environmental/economic aspects
were analysed quantitatively (but at a general level), in order to get an indication of
the quantitative relation between economic potential and ecological impact.
General conclusions and recommendations were postulated as a last step. Parallel to
this work, ideas were exchanged with specialists in the field of services, industrial
innovation and product-design, from The Netherlands, Sweden, Germany, Belgium,
USA, France, Canada and Italy. The annex ‘Contacted persons’ lists the people we
have spoken for this project. Further information can be found in the Annex ‘How
we have worked, into more detail’.
Outline of this report
This report will provide basic understanding of the concept of PS systems.
Chapter 2 describes what we are talking about. Definitions are given here, e.g. for
products, services, Product Service systems. Also a classification scheme for PS
systems is given. Some social, governmental and business phenomena that stimulate
Product Service systems are viewed.
Chapter 3 outlines a qualitative methodology that enables analysis of new or existing
cases. The four-axes model including environment, economics, identity and strategy,
and consumer acceptance, is introduced there. Next the chapter provides quantitative
tools on two co-ordinates: environment and economics. This chapter closes by
explaining a tool for looking at the potential for unlinking economic growth and
environmental pressure.
Chapter 4 describes ten cases of real-life PS systems and a qualitative assessment on
the developed 4-axes model.
Chapter 5 illustrates the quantitative analysis for three selected cases.
Chapter 6 gives general conclusions from this project and recommendations for
future work to be done.
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1.4. Why PS systems? Theoretical embedding and
motivation
Before we will start to describe our ideas and work in the next chapters, in the last
part of this chapter we will ask the reader to reflect on the structure and mechanisms
of our economy. Why is it so difficult to unlink environmental pressure from
economic growth? What strategies could be followed? This will explain the ‘Why’
of our work.
Understanding economic growth and value creation processes
World-wide, industry is spending money and human effort in making production
processes cleaner and more efficient. So far, most companies and countries have
been quite successful in solving more or less isolated environmental problems.
There is an almost infinite list of examples: polluted rivers are clean again,
packaging materials are collected separately and recycled, many process specific
emissions have been reduced significantly (RIVM, 1997; EEA, 1996).
However, environmental benefits of improved technologies or products, can be
counteracted by increase of consumption. For instance, the today’s car is less
polluting than the car of the 70-ties. Car emissions have been reduced drastically per
km travelled. However, there has been an increase of the number of cars in our
society and cars are more intensively used. Also, the average size and weight of cars
counteract the positive engine development, as result of requested comfort, safety
and functionality.
This simple example illustrates that the process of transformation towards increased
sustainability includes the behaviour of all actors: producers and consumers.
The phenomenon of increased consumption that can counteract the efficiency
benefits gained elsewhere is a quite general phenomenon. It is usually referred to as
rebound effect’.
We can distinguish two elements that contribute to this rebound effect:
General economic theory predicts that the longer a product exist, the more items
are produced. The product gets less scarce. Often, the number of competing
producers will increase. Additionally production costs will decrease as result of
economy of scale. Consequently, the longer a product exists, the cheaper it
becomes and more people will buy and use it.
Improvements that make products and services more effective (e.g. energy
consumption) will generally lower purchasing cost or operational costs. The
money a consumer saves will be spent elsewhere and reduced costs will attract
new applications.
Both elements are closely linked to economic growth. In our socio-economic
system, economic growth is considered as an essential requirement for prosperity
and social stability.
In the Annex ’Reflection on economic growth’ we will reflect upon the basics of
economic growth mechanisms.
On the one hand, economic growth is enabling producers to make investments in
cleaner products and technologies. On the other hand, increased consumption is an
obstacle for reduction of the overall environmental load. Economic growth and
increase in environmental load seem difficult to unlink. It is clear that solutions need
to include both production and consumption patterns. In the past emphasis was put
on improving environmental performance of production. So it is time to shift focus
to consumption: to start looking for sustainable fulfilment of consumer’s needs.
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Economic growth is linked to perceived value creation and not necessarily to
material or product streams circulating in the economy.
This is the ‘working hypothesis’ of this project. This hypothesis will be carefully
checked. In the following paragraph a general check will be made at a macroscopic
level. In the next chapters we will develop tools for more in-depth analysis at the
company and production chain levels. Hereby, we will focus on PS systems
(combined market offers of products and services).
Analysing the macro picture
In a macro perspective, we can raise the following question: Can we analyse the
environmental load per unit of economic value for different industrial sectors, and if
so, are service sectors really outperforming industrial sectors?
‘First estimate’ answers to this question have been achieved by the following
approach:
we have considered energy consumption use as representative for the
environmental load of a sector,
and we made use of traditional sector information of the Dutch Statistics Office.
The results of this analysis are given in Annex ’Reflection on economic growth’.
They show that on average services are to be preferred over products as a means to
perceived value creation. However, there are many exceptions. This implies that we
should analyse PS systems case by case.
An even more important notion is that the macro perspective of sectors does not
cover the complete life cycle of products. Therefore, incomplete or false conclusions
can be drawn on the environmental performance of sector activities. To determine
sound strategies towards sustainable production systems, we need to include the
‘chain perspective’.
These conclusions and the limitations of this sector analysis have guided us towards
the methodology that will be elaborated in this report.
We have to find ways to increase the perceived value of all transactions without increasing
the environmental load of products involved. The solution could be to dematerialise
economy. One strategy for this seems a shift from an economy based on production and
consumption of physical products to a services-based economy.
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2. What are PS systems?
2.1. Basic definitions
We have experienced that in discussing products and services there is a serious risk
of miscommunication. Therefore, we decided that it is important to share our frame
of reference with our readers. We ask you to take notice of our definitions for a
better understanding of our work.
We have found that there is not always full agreement on key definitions in
literature. Furthermore, some of these are too broad for our purposes, other
(classical) ones seem to be out-dated in the light of modern production and
distribution patterns. Therefore, we have formulated our own set of definitions
suitable for our project, based on literature and our ideas. These will be introduced
and briefly documented below.
A product is a tangible commodity manufactured to be sold. It is capable of falling
onto your toes and of fulfilling a user’s need.
A brick is a product, so is a computer or raw materials that have been processed by
human activity. Other kinds of products are ingredients, like coffee powder or paper
and auxiliaries.
In our context, we skip the often-used second definition ‘immaterial result of
something’. Therefore, in our project a product is neither a happy customer nor a
standard insurance policy. Traditionally products are said to be having a pre-defined
specification. Today, the shift towards ultra-lean and flexible production networks
offers a more open customer interaction. This property has eroded somewhat and is
left out of our definition.
A service is an activity (work) done for others with an economic value and often
done on a commercial basis. In this project, we include work done by human beings
as well as by automated systems.
Shoe polishing is a service; as is transporting buckets; and distribution of money
through a cash dispenser (ATM).
Literature shows numerous definitions of the word ‘service’. A practical one stems
from Prof. Bullinger of the Fraunhöfer Institute: a service is anything you can sell
and that is not capable of falling onto your toes. Interaction between provider and
client is often seen as a key item. Other descriptions concentrate on production and
consumption occurring simultaneously, on direct contact between provider and
consumer and on specifications being influenced by the end-user. Kotler and Bloom
(1997): a service is any valuable activity a party can provide, that is essentially
intangible and that does not result in the ownership of something. Krozer (1996): A
service is an element of consumption with a relatively high work or capital content.
A system is a collection of elements including their relations.
Elements can be material and immaterial. The hierarchic level, system boundaries
and relations are defined mainly as a result of the researcher’s aim.
A product system is a set of material products needed to jointly fulfil a user’s needs.
A microwave and cooking bowls make up a product system. All products in a
kitchen too. In this project we regard food delivery services not to be part of the
product system.
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A Product Service system (PS system) is a marketable set of products and services
capable of jointly fulfilling a user’s need. The PS system is provided by either a
single company or by an alliance of companies. It can enclose products (or just one)
plus additional services. It can enclose a service plus an additional product. And
product and service can be equally important for the function fulfilment. The
researcher’s need and aim determine the level of hierarchy, system boundaries and
the system element’s relations.
Interface (a US based company) leasing carpets sells a PS system. A car dealer
offering lease service too. Just like a GSM provider offering free GSM devices. So
is the catering company on board of trains, using a dedicated trolley especially
designed for the catering service. Examples of product systems change are:
switching from analogue photographs infrastructure to digital imaging and switching
from coins to virtual money (information embedded in magnetic cards, and in
computer memories).
For practical reasons, in our project we have applied restrictions to the ‘service part’
of PS definition. The ‘service part’ has to come on top of essential and unavoidable
service activities in the production chain and should contribute for a substantial part
to the economic value creation. We will use the following restrictions:
1. Since we focus on unlinking economic growth from ecological impact, our
interest lies mainly in services delivered on a commercial basis. This implies
that we refer to activities with a direct positive economic value in the market
place. Extra services offered for free (for instance to increase brand image or
customer’s loyalty) does not qualify for the PS system definition.
2. In PS systems we only regard services provided for benefits of end-users (end-
users can be private consumers or businesses).
3. Common distribution and sales activities do not qualify for the PS system
definition. Including them would have weakened the PS systems concept: the
research field would have become too broad and included all products. Also,
services like product-related advertisement and image building communication
do not qualify. However we realise that increasing these service based activities
will increase the perceived value and acceptance of products. The benefits and
costs of all these shall, of course, be included in our analysis method (under
economy and customer acceptance).
A product substituting service is a service that enables need fulfilment in such a
way, that it brings a significant decrease in the materials component needed for the
fulfilment.
Philips Medical Systems switching from one-way to reusable packaging for their
NMR scanners in hospitals introduce a product substituting service by taking back
the crates. Video on demand by MTV, instead of buying pre-recorded videos in the
local store can be resigned as a product substituting service too. 100% substitutes are
quite rare. A singer replacing a jukebox could be an example.
Dematerialization is changing a user’s need fulfilment in such a way that material
flows and energy flow of this need fulfilment decreases significantly.
Note that we have chosen to take both materials and energy into account in this
definition.
The (environmental) rebound effect is the effect that the world's environmental load
increases as an indirect result of a function fulfilment optimisation in both ecological
and economic way.
19
If a car manufacturer doubles fuel efficiency, the environmental load and expenses
per kilometre decrease both: a clear win-win situation. In absolute terms however,
consumers will use their saved money for additional consumption that will have
environmental impacts. This is indicated as the (environmental) rebound effect.
The size of rebound effect depends on the behaviour of the customer and is hard to
predict. Sometimes the saved money is spent in the same way (travel more by car
having a large rebound effect). In general this is not the case. When spending the
money in buying violin lessons, the rebound effect is small. When spending it on air
flights, the rebound effect is large.
A value creating pool is a set of mutually connected economic activities jointly
serving a user's needs.
The pool washing clothes contains activities such as selling machines, producing
detergents, printing packaging, delivering drinking water, purifying water, recycling
steel scrap. The pool analogue photography contains set of activities totally different
from the pool digital photography.
Functional unit, or unit function fulfilment: a standardised quantity of measurable
function fulfilled by both PS system and reference system.
A proper choice of the functional unit enables fair comparison between different design
solutions. Functional unit will be a key word during the environmental and economic
analyses of PS systems.
2.2. Characteristics of PS systems
What’s known about PS systems already?
Ecology-oriented philosophers and researchers have been a rich intellectual source
to us (e.g. Factor 4). Long term sustainable concepts of Stahel and Giarini (1991),
Manzini (a.o. 1997, 1998) and Jansen and Vergragt (1997) have been inspirational.
Stahel has delivered the concept of the service society as a means for growing
towards sustainability. Manzini proposes the strategic product system, involving
product, service and communication, as a means for companies to present
themselves to the market and participate in society. Jansen and Vergragt worked on
Blurred borderline between product & service
The difference between product and service is clear in most cases. Closer observation
however shows a transitional area. This puts up the conclusion that product and service
are to be regarded as two means for adding value (or function fulfilment).
Work done at a bank for a customer is definitely a service: a counter clerk starts
working as soon as I get in, there is a direct contact between end-user and
provider, and interaction influences the service specs. The automation of this
(ATM) is regarded as a service too. As a contrast, an ice cream bought in a super
market is commonly perceived as a product. Even if the ATM offers me eight
different money sums while the supermarket offers me twenty types of ice cream
and the store has to provide the service of cooling the merchandise.
N
ow how about databases and executing computer software? Service or product?
Databases perhaps being a product (not showing any activity at all, they are dead
collections of data). Executing software perhaps being products, since thousands of
copies of the same program are sold without any interaction at all during the sale process.
Or is an executing program a service since it is doing a job at my command with the
specifications that I alone want, adapting to my personal need? For practical reasons, we
regard executing software as a product.
It can be concluded that any tangible product contains a large amount of service-value
embedded. All products have been built up by a series of services added to amounts of
raw material.
20
the DTO concept that crosses the company’s borders and takes all relevant parties
into account.
Our concise international literature search and the additional interviews with Dutch,
American, Australian and Italian specialists have brought us to the following
conclusion:
Systemic integration of environmental load, business economics and client value
design through PS systems is only found in a very few studies5. Most of these studies
are still ongoing and not published at the moment of writing. For the PS system
concept we need to combine partial knowledge.
What are Product Service systems?
A PS system is described as a marketable
set of products and services capable of
jointly fulfilling a user’s need. The
product/service ratio can vary, either in
terms of function fulfilment or economic
value. The first illustration shows a
representation of this.
The P/S-ratio varies from case to case,
but it can also vary over time, due to
technological development, economic
optimisation and changing needs of
people. This is visualised in the second
illustration.
5 car-sharing (a.o. Meijkamp, 1997)
Related projects and groups
At the time of writing, a joint project commissioned by the EC is carried out by four
research institutes in Germany, Italy, UK and The Netherlands on eco-services for
industry. The focus is on renting, pooling, and sharing of durable consumer goods. No
results are reported yet. We contacted the researchers and exchanged ideas and discussed
our intermediary results.
The Institut für Zukunftsstudien und Technologiebewertung (Berlin) carries out a project
on the role of services in efficient recycling. In Sweden the Servus Research programme
focuses on need fulfilment opposed to product sale. At the time of writing, no results
were available from these projects either.
Suggestions came from German and Dutch projects. We made use of publications from
the Institut für Ökologische Wirtschaftsforschung (IÖW Germany), the Wüppertal
Institut on Material Inputs per Unit Service/MIPS (Germany, Schmidt-Bleek), Delft
University of Technology on Function fulfilment versus product sale (Faculty of
Industrial Design Engineering, The Netherlands, Meijkamp), and on business motivation
to start environmentally oriented design (same Faculty, Van Hemel), The Loep Project
on product life optimisation (CEA, the Netherlands), The Eternally Yours Foundation on
product life extension (a.o. Achterhuis et al, 1997), Syntens The Netherlands concerning
Design Plus Service (1997), The United Nations Working Group on Sustainable
Development (Amsterdam) concerning a survey on Sustainable Service Design. We also
noticed that the concept of PS systems is discussed by designers and environmental
organisations (a.o. Teleac, 1998; O2, 1998, Milieudefensie, 1998).
21
PS systems have unlinking potential
Different product service mixes can fulfil the same function. A new PS system with
similar functionality can score a decrease in environmental pressure. In case this is
combined with an attractive economic value of the new system, a system change has
potential for unlinking environmental pressure from economic growth.
In The Netherlands one can subscribe to a weekly deliverance of ecologically grown
vegetables. Compared with traditionally grown and distributed vegetables, this is a
different PS mix serving the eater's need. Chapter five shows the environmental
impact is excitingly different in both cases.
Today, digital photography is rapidly gaining market share. This means a totally
different PS mix and value creating pool. No more vans driving from shop to
photofinishing laboratories. No more silverbromide layers, chemical processing of
films and waste management of film housing. From now on it's Flash ROM
memories, e-mail and inkjet printers instead.
Positioning interactions of products and services
The relationship between products and services can be clarified by making use of
the stages of the lifecycle. Visualising this leads to what we have come to call the
Product-Service Cross. The vertical axis shows the product’s lifecycle stages:
specification phase, sale, production, distribution, installation (set-up), use,
maintenance, repair, update (function extension) and the end-of-life management.
Horizontally the design phases of the service are visualised: services are designed as
well, tools are made for them, they are tested and redesigned, although the character
of the horizontal ‘creation’ process differs significantly from the vertical one.
In the first category, services are connected
to products. We will label PS systems in this
category as ‘Ps’. More detailed labelling
could be done according to the product
lifecycle stage where the service is provided.
In a second category, a service provider can
add products. PS systems in this category are
labelled ‘Sp’. One way of more detailed
labelling is to distinguish whether the
product is handed over to the client, or
whether it is used as a production aid for
service provision. Example of the first: a free
GSM set or a credit card. Of the second: an
ATM cash dispenser.
In the third category, products and services
are developed in combination to provide
their function fulfilment (Code PS).
For the last group, innovation takes place by
change of system, substituting a PS system
by an improved system (Code STCH).
22
2.3. Driving forces for PS systems
Business drivers for PS systems
Service providers as well as product providers can introduce a PS system. On a
company scale, the new PS system should improve business. Literature gives a good
view on the major business drivers for introducing services additional to material
products (for example Mathijssens, 1997).
For product-oriented companies, adding services is done in order to:
- escape from a commodity market searching for unique selling points (USPs)
- create superior value for clients
- build up direct customer relations, to intensify contact or to increase contact
frequency
- supply a total offer: product plus lease service, plus insurance, plus ingredients,
plus product upgrading, plus repair, plus call centre, plus take-back, plus
refurbishing
- discourage newcomers by increasing the quality level throughout the supply
chain
- anticipate or respond to new or expected policy, legislation or fiscal measures
For example: subscription systems can be used to intensify client contact. Philips
and Beiersdorff work together in Coolskin: a shaver with a subscription to the
shaving lotion.
For service manufacturers, adding products is done in order to:
- protect market share (most services can be copied in a wink)
- reduce costs (automation)
- extend service
- communicate innovations (hardware innovation is easier to communicate than
an intangible innovation)
- lower the (financial) entrance threshold for new clients
Some of the reasons for companies to reject a PS system are:
- the company’s unique selling points (USPs) lie in technical knowledge and
product quality control rather than in providing service or vice versa
- for a service provider, the company's USP lies in direct contact with the clients,
not in automation or product infrastructure
- the company is not large enough (in means of locations or in-house disciplines)
- the market simply does not accept the PS system
Eco-drivers for PS systems
Apart from business drivers, we have a special interest in the Eco-drivers. Some
drivers are generic for environmental improvements (not necessarily being PS
systems).
Generic eco drivers
- image improvement
- practising producer's responsibility
- covenants with authorities
- health and safety management (a.o. HACCP)
- practising societal marketing principles
23
- environmental costs reduction
- published product tests
- feeling responsible for the company's environmental load
- NGO and societal pressure
- green purchasing by authorities or consumers
Eco drivers specific for PS systems
We found in some cases specific drivers for PS system introduction:
- legislation threat, client's wishes, feeling responsible, image building and
competitor's dominance (for instance in case of take-back systems, Te Riele,
1996)
- servicing client's environmental problems
- covenants with authorities
- green purchasing by authorities
With regard to Ecodesign, Van Hemel (1998) has found that in small and medium
sized enterprises (SMEs), the drivers for Ecodesign success are merely internal
stimuli. She shows environmental benefit, cost reduction and image improvement
are dominant. Amongst external stimuli, although less important, market demands,
laws forcing and supplier developments are most important. We have found that for
innovations towards PS systems this last category is of much higher importance
compared to the ecodesign innovations.
Identity drivers
Not every company desires to combine services with products. Not every company
is capable of combining them. Not every PS system initiative is accepted by the
surrounding network and the clients. Financial and eco-drivers are important, but
identity issues like management style, company structure, employee properties and
surrounding network characteristics play a key role too.
A product organisation differs from pure service providers. A service organisation
can fully concentrate on a positive client's relation and satisfaction. Service
organisations have a direct interface with end-users and therefore interact to a higher
extend with the client.
At the end, a product organisation has the same goal, a satisfied customer. This is
translated to a general strategy to make good quality products that meet the client’s
expectation. Therefore, much attention of a product organisation is focused on the
development, production and distribution processes in itself. Generally, product
organisations make use of many suppliers, and are more oriented towards
intermediate organisations like distributors and knowledge sources.
The Ecodesign II program (by Syntens, The Netherlands) shows that in SME’s the option
of changing the product-service ratio is typically neglected by manufacturers, whereas it
is mentioned by experts as a serious opportunity for environmental and economic gain in
about 15% of the cases.
An example: a small manufacturer provides wooden cases for moving high-value
paintings. The company sells these cases to museums. Art museums tend to store them.
Room is scarce, so museums have to destruct them every now and then. The suggestion
that perhaps renting cases would be of more value to the museums than selling, was not
picked up by the SME. Nor the suggestion that a safe & reliable transportation service of
art objects might be offered instead of wooden products. Main reason: ‘not our type of
business’. Perhaps the company was right, but the financial chances were not even
investigated (Meijkamp, 1997 and Brezet et al, 1996).
24
Already we have seen in the Product-Service Cross that the lifecycle of products and
services are different. The innovation risks are different. Development lead times
differ dramatically, as do the innovation budgets (generally speaking).
Staff and supporting systems (like ICT networks) are selected to contribute to
different core competencies. They will be different, or at least will be used
differently.
Generally, for service organisations management styles are highly based on
commercial data and motivating people versus more skill and controlling oriented
styles for product organisations.
Trends matching the PS systems concept
The PS systems concept matches with global trends in consumption and production,
as well as in government policy making.
For consumers it is the era of mass customisation. End-users select commercial
offers that suit their individual needs at lower-than-ever costs. Fast deliverance is
demanded from producers, retailers, logistic service providers, and other chain
players. The client has come to regard product and service as two parts of the same
commercial deal, thus blurring the borderline between product and service.
Product industry adapts with increasingly flexible production networks. Lean
organisations serve quickly changing individual’s preferences. Increasingly, the
production chains are directly steered by actual market demand. In the sector of
durable goods, it is already quite common that the consumer decides which products
are being made (e.g. Dell computers) and the actual time of production. This is a
major shift from the situation in the past where the producer made these decisions
alone. In the new situation, you could say that the producer allows the consumer to
make use of his production and distribution processes to afford the goods of choice.
Services are regularly brought in, to bridge the gap between production
infrastructure and individual demand. Services can contribute in improving the
relation and communication between manufacturer and individual customer.
Implementing new logistical tools and methods often based on information and
communication technologies (ICT) can eliminate some links that were essential in
the production chains of the past.
Global competition puts the product industry under severe pressure to shorten the
design, development and production time, even of most complex products such as
GSM telephones. The adequate use and introduction of new ICT-tools in industry is
indispensable for surviving in this competition. The sequential introduction of new
models and software induces a new need for assistance, training, update and take-
back services.
Service industry makes more and more use of hard- and software to raise service
level or to reduce costs. Efficiency will pay, as in Western economies personnel is
expensive. Although automation of mass-services will eliminate people’s jobs at
first, the automation quite often results in a de-personalised (which means a loss of)
contact. New ways to preserve the relationship with the individual client are needed.
In traditional services (such as administration, accountancy, insurance) competition
is increasing. Margins are under pressure so new concepts are needed. Recent
developments within the IT industry have resulted in an explosion of new service
techniques and service segments. PS systems can offer huge and stable market for
specialised service providers.
25
In Western society, services, already vital for the gross national product, are gaining
share.
In environmental policy, policy documents refer to the need for combined change of
production and consumption habits. Visionary documents announce the need for
system changes. The PS system concept introduced in this report can contribute in
the realisation of these future scenarios.
Conclusions chapter 2
Definitions of common key words like product and service were given, based on
literature. For contemporary words like dematerialization, product service system
and product substituting service we have drawn up a new consistent set.
Relevant literature (e.g. environmental of services, PS business economic and value
design through PS systems) is still scarce. However, several groups are carrying out
valuable work.
‘Product’ and ‘service’ appear no entirely separated fields but rather two poles of
the same axis called means for adding value. We offer some basic ideas and models.
Product as well as service providers can introduce PS systems. Driving forces can
vary. PS systems can be driven by strategic business, ecological or legislative
reasons. Today’s (perception of) company's identity can be a serious drawback for
introducing a PS system.
Last conclusion is that the PS systems concept and the opportunities that it offers
matches well with trends in environmental policy and international consumption and
production. Therefore, the timing could be right for the broader introduction of the
product service system concept.
As examples: internet services and service providers, car navigation systems need
to be in contact with data that need to be kept up-to-date constantly by service
providers, many new information and assistance services are provided by GSM
companies.
26
27
3. PS Systems: Analysis on four axes model
This chapter describes the qualitative and quantitative tools that were developed in
this project to assess existing and potential PS systems. The qualitative tools are
applied on 10 cases in chapter 4-, the quantitative tools are applied on three cases in
Chapter 5.
The real value of a PS system cannot be determined in isolation. Assessment of a PS
system should be made by comparison with a reference. Often this reference is
today’s leader in the relevant market segment. By making the comparison, you will
learn about the relative strengths and weaknesses of the PS system on each of the
four axes. The reference acts more or less as the ‘mirror to the market’ for the PS
system. Selection of a good reference is a crucial element in each assessment.
First a clear description of the functions fulfilled by the PS system is to be made.
Then the reference is selected and described by answering questions such as:
Which alternatives does a client have?’ or
’Which competing systems are available in the market?
In the process of selecting a reference system, the following remarks can be of help:
1. Sometimes, the PS system can not be compared with a simple reference system
available in the market. The PS system can only be compared with a set of
individual products and services that have the same combined functionality to
the consumer. But even if we can construct the same functionality, comparison
can be difficult, as the PS system has important effects on the convenience level
or on the perceived quality. For instance how do we compare fast delivery with
flowers with super fast delivery of flowers? In some cases it is not even easy to
match the function fulfilment of a PS system with a combination of other
systems. A GSM telephone combines freedom and tele-speech, but it also helps
you to memorise names and number lists, or even provide you with connecting
services. So the mobile telephone can be compared with a combination of
traditional telephone infrastructure, phones boxes, address book with telephone
numbers and part-time secretary connecting with unknown numbers.
2. In contrast with these difficulties, for the environmental and economic
assessment, the reference situation chosen should not be over-complicated, as
this will make the analysis too difficult and time-consuming. Simplification is
sometimes needed. This can often be achieved by asking: ‘What is the essential
property that the client is willing to pay for?’ In case the reference situation
does not fully cover the PS system’s functionality, this should be well
documented. The extra features of the system should be rewarded in the strategy
and identity and consumer acceptance analyses.
Comparing systems basically can be done qualitatively and quantitatively. First, we
will describe a qualitative method for assessment.
28
3.1. Qualitative assessment using four axes
For the qualitative assessment, we developed our tools in such a way that they
include the most relevant issues for companies, consumers and society. In the Annex
Analysis of PS Systems: What do target groups expect’ these issues have been
addressed. As a result, we concluded that PS systems must be assessed on four
aspects:
1. What are the environmental characteristics at function fulfilment level and how
do these relate to overall environmental load on society?
2. What are the economic characteristics at company level, and at the level of the
business sector (“the pool”)?
3. To which extend does the PS system match the company’s identity and strategy?
4. To which extend would the market accept the PS system?
These questions form the basis for our ‘Four-axes model’. In this chapter, we will
explain how to work with the four-axes model and how to analyse the PS system for
each axis.
We believe the four-axes model should be useful in two ways:
a) For analysis of already existing PS systems, on benefits for society as well as for
the providing companies.
b) For assessment of new PS systems and fur guidance during implementation.
Both authorities and companies are expected to be interested to do so.
In this project we could only test the tools for the assessment of existing cases.
Qualitative analysis is specifically of interest in the following situations:
in the phase of idea generation,
when quantitative computing would be too time-consuming,
when crucial data are missing.
Goal of the qualitative analysis is to get a rough indication of the scores on all four
axes, which however meets the required level of reliability of the specific situation.
Before we will explain how to get reliable scores on each axis, we will first discuss
the process of the qualitative assessment.
Expert panel
To compensate for the lack of quantitative data, it is advised to make use of a panel
assessment by a multidisciplinary expert panel. These experts should have good
insights in the case.
The experts discuss the PS system on each axis in comparison to the reference. On
each axis, they give a final score, preferably on consensus basis. The advantage of
the panel method is that all available knowledge can be taken into consideration and
discussed, without the need of quantification first. Furthermore, the method allows
‘soft’ arguments such as management intuition. The quality of the results depends
on expertise and mix of the panel team and time available for the panel discussions.
Furthermore, the members of the panel discussion are expected to have an open
mind and should not be too biased.
29
We have chosen to represent the outcome of this panel discussion graphically, as
shown in the next diagram:
Each axis can be scored neutral, positive (1, 2 or 3) or negative (1, 2 or 3). A plus-
score means: stimulating for introducing the new PS system. A negative score
means the opposite. A neutral (zero) score mean that the new PS system does not
affect this item.
In the overall assessment, these four items cannot be integrated to a single score, as
each score is of a totally different nature. In spite of this, the graphical representation
of the PS system offers a clear overview of its potential and weaknesses.
When the method is used for assessment of a new PS system, the final decision to
accept or reject a PS system depends on the decision-maker’s strategic goals and
values. The assessment can be used to select the best alternative form a set of
different PS system concepts, or to help focus on further improvements in the
proposed PS system.
When the method is used for assessment of an existing PS system, the model
summarises the relative strength of the chosen concept and may be of help for
management to implement improvements or to develop appropriate commercial
strategies.
Qualitative assessment suggestions
The qualitative assessment includes the following steps:
- formation of an multidisciplinary panel
- defining clear goals and boundaries for the assessment (company or production chain)
- describing the PS system
- defining a reference system
- assessing the PS system through comparison with the reference on each of the four axes
- discussing and evaluating the outcome
- final assessment, taking the pro's and con's into account. This assessment may lead to a
quantitative assessment, starting the new PS system project, a further development of the
PS system, or support programs for the PS system, etc.
30
As a test we have tried this within our project team after having in-depth interviews
with representatives of the companies that offer PS systems. These have already
been introduced in the market. These PS systems were selected as cases for this
project and are described in the next chapter (including the results of our internal
panel discussions).
We will now start explaining how to judge the PS system on each axis of the 4-axes
model.
The ecological impact qualitatively judged (Axis 1)
The relative environmental performance of the PS system is a score of increasing
importance to both producers and consumers. The environmentally score is a
measure of the effectiveness and efficiency of the system towards exploitation of
natural resources, energy consumption and other environmental pressures.
A positive relative environmental score contributes to a good image. It may offer
additional advantages: the system could be targeted into the ‘green’ market segment,
or could offer financial advantages in the future as taxes on energy and waste are
constantly increased in almost all countries.
To avoid environmental sub-optimisation, it is usually advised to determine the
environmental score at the chain-level (life-cycle level), although basically it is no
problem to replace this by the level of company only.
Experienced environmental specialists, with experience in Life Cycle Assessment
(LCA) studies, should be included in the panel team that gives the environmental
score. They should pay attention to the bottlenecks in service based systems as
explained later.
The first step in the qualitative analysis is the determination of the lifecycle phase
with the most dominant environmental effect for the reference system. This results in
a lifecycle profile as shown below. The next step is to determine how this profile is
expected to change when a PS system is introduced.
Three main types of environmental life cycle
profiles exist for products:
- U-profile. This is the case where
environmental burden is caused in the
production and end-of-life of the product.
This product ‘does’ nothing during its use.
Examples are packaging, building materials
etc.
- I-profile. This situation is very common as
well. In this case, environmental burden is
caused during the use products. These
products mainly have energy consuming
functions like cars, televisions, light bulbs
and buildings. For example, stand-by
equipment is a large-scale consumer of
energy.
- W-profile. Over here environmental burden
is caused at all stages of the life cycle of the
product. Examples are pens, scarcely used
energy devices such as the lemon press or
consumer goods that ask for constant care
such as clothes and bicycles.
31
By shifting to the PS system, at some stages in the life cycle environmental pressure
increases while at other stages, the environmental pressure decreases. Of course,
most interesting cases arise when the overall environmental pressure (per function
fulfilment) decreases.
In most simple cases, the service is added to an existing product, new environmental
burden will arise because of the service, e.g.:
the extra mobility by a repairman or delivery service,
the impact of or by serviceman installing software or hardware updates,
solvent emissions because of repainting in case of furniture refurbishment.
However due to the renting, sharing, delivery, repair, update or repainting, the life
span of the product is prolonged or multiple consumers can share the product.
Overall, the environmental burden expressed can either increase or decrease.
In the case of introducing a completely new PS system, the situation may turn out to
be more complicated as the environmentally picture may change completely.
The economic effects qualitatively judged (Axis 2)
The qualitative economic analysis should both include:
1. the potential of the PS system to compete successfully in existing markets based
on costs and revenue comparison with the reference system,
2. the potential to create new markets as result of the added perceived value of the
PS system.
When assessing the competitiveness of the PS system, we should take both the
producer's and client's perspective into account.
The producer is striving for the highest revenues against lowest costs and risks.
The economic analysis for the producer should focus on costs, that should be
balanced by revenues. These include development costs, market introduction
costs, advertisement and communication costs.
The consumer provides the revenues of the producer. What is the price that the
consumer is prepared to pay? He wants value for money. So, in first estimate we
may assume that the price the consumer will pay is the same as in the reference
system, as calculated on basis of a unit of ‘fulfilment of function’. However, this
picture might be to simple, as the PS system often adds quality. In this case, the
value perceived by the client may be higher and a premium payment has to be
included in the economic analysis. As the price a consumer is willing to pay is
influenced by the total offer, following aspects should be taken into
consideration:
influence of costs saved or paid later during the lifetime of the PS system;
32
Production
Cumulative value
Profit margin
Interest, tax and insurance
service
Waste disposal
Gasoline use
Public transport
positive or negative effects to the image of the client provided by the PS
system.
Depending on the goal of the study the economic characteristics of the PS system
can be analysed at two levels:
- Company perspective: the object of analysis is the organisation or alliance that
introduces the PS system. The company perspective is rather straightforward
and asks for a logical analysis of all changes in costs and revenues. The
company perspective is essential for any investment decision.
- The “business sector” perspective: the objects of analysis are all mutually
connected economic activities in the business sector of the company. We include
this perspective in order to show the strategic possibilities for companies to
generate value and profit in other sectors than those that seem obvious. We
believe it is very important to get an overview of the “pool” of alternative
business decisions before deciding to embark on a new venture of creating PS
systems.
Economic analysis at the business sector level
A very interesting way of looking at business alternatives is the Profit pool concept
described by Gadiesh and Gilbert in the Harvard Business Review (Gadiesh and
Gilbert, 1998). Profit pools can be helpful to identify the business activities in a
market where the profit is made.
The key of a profit pool analysis is the composition of a graph in which all relevant
commercial activities in the business area of a company are plotted. It is up to the
compiler of the pool to determine which business activities are to be included.
For each activity, turnover is plotted on the horizontal axis and profit margin is
plotted on the vertical axis. The profit pool clearly shows the places where money is
being made. For this the operational profit, or the return on investment is used, but
also other definitions of the term profit can be used. The example shows that for
some economic activities the value creation is high, while the margin is low and vice
versa. For an in depth description of the profit pool we refer to the original article by
Gadiesh and Gilbert.
Illustration: imaginary profit pool for a car, using the lifecycle perspective (this does not
need to be so). Several actors in the pool add value. Each activity has a different value
creation and operational margin. Service brings just a small turnover, but a high margin.
Thus for a car company, this may be a profitable service to add. Financing and insurance
may be interesting too, e.g. for the producer of cars
Later we will see how the profit pool approach can be adapted in such a way that it
is highly suitable for assessing the economical and environmental aspects in a life
cycle perspective. In the original concept of the profit pool, the lifecycle concept is
not used, but there is no reason not to use it.
33
For the qualitative analysis however, we recommend to use the profit pool in its
original form. This means one can choose to plot not only the PS system, but any
other business alternative that seems to be in reach of a company in the graph. This
will allow the analyst to compare the PS system with other alternatives and to get a
judgement on the value (turnover) and profit creating potential of the system.
If the profit pool perspective shows that the PS system is indeed a favourable option,
the economical axis deserves a high mark.
Profit pool concept as tool to find most profitable markets
Gadiesh and Gilbert illustrate how the profit pool can be used as a tool to search for more
profitable business activities in a highly competitive market. They show that it is often
more important to have a larger share of the profit than a large share of the market.
Two examples, presented by these authors that refer to the introduction of PS systems:
1. U-haul is one of the USA's largest consumer truck rental companies. Traditionally
U-haul and its competitors concentrated on cost control in order to provide the best
prices in this highly price competing market (operating margin in this sector is
typically 3%). However, recently U-haul reports an operational profit of 10%. This
remarkable achievement was obtained by integrating services consisting of boxes,
insurance, rental of trailers and storage space. The basic idea is that, although
consumers shop for the lowest rates when selecting a rental truck, they are not very
critical towards the price of extra services. In fact, once they have signed the rental
contract there is no competition anymore, as they have been become captive of U-
haul.
2. Dell has always been strong in selling computers directly, but around 1990 the
company started to sell computers via retail channels. The growth strategy worked:
the company grew 50% per year between 1989 and 1993. However profits declined
and in 1993 the company reported losses. From that experience they concluded that
although the market share increased, the share in the total profit pool had been
eroded. After carefully examining the profit pool for their industry, Dell pulled out
of the retail marketing. By now they achieve an operating margin of 9% (three times
the industries average). In fact they now earn 10% of all the profit that can be made
in the industry. Dell does not aim at market share but profit share.
When the profit pool concept is used as search tool, the search can include any activity
that has a good match with the current position in the market. For instance, a second hand
car dealer is probably not interested in analysing the opportunities to produce cars.
However, he could be very interested in analysing opportunities of servicing, hiring,
leasing or disposing cars. It is up to the business or researcher to define a pool that is
wide enough not to overlook opportunities and narrow enough to keep the analysis
manageable. In this respect, the application as ‘search tool’ is different to our use of the
profit pool concept in the qualitative and quantitative economic analysis of PS systems
closely linked to function fulfilment.
34
Identity and strategy qualitatively judged (Axis 3)
The identity of a company, the skills and qualities of its employees and the relative
power of its surroundings actors (suppliers, competitors and authorities) may largely
influences the company’s decision to introduce a new PS system. Most of these
factors relate to the operation of the company over a long period of time. They
include key management issues like management style, company structure and
values, ways of hiring, training and rewarding personnel and the ways of building
and managing relationship with actors in the surrounding network. The situation of
today should be accepted as the starting point for tomorrow. Good insight into the
company’s identity and its strategic position is a prerequisite for a sound analysis of
the chances of the company to achieve the defined goal of successfully introducing a
PS system (or to shifting from products to services).
Do I wish? Can I? Do they allow me?
Not every company desires to combine services with products. Not every company
is capable of doing so, and the surrounding network accepts not every new PS
system initiative. Therefore, three issues are worth analysing:
- To what extent does the PS system match with the company’s strategy?
- Is the organisation capable of introducing PS systems?
- Do important third parties accept the PS system?
Strategic motives for PS systems
What business am I in? What value do we deliver to our clients? What are we good
at? The PS has to show a good fit with these questions. Our case studies show that
identity drivers can be very strong and often are important.
Is the organisation capable?
The introduction of a PS system needs the combined strength of a traditional product
manufacturer and a traditional service provider. Some specialists state that no
organisation can combine the capacities needed for producing products as well as
services in their eyes. Since we see counter evidence in the market, we don’t follow
that statement. There seem to be two potentially successful models: alliances or
integration of the missing competence into the own organisation.
One example of a viable alliance in the market is the EMS Techno courier service.
With this service, couriers do not only deliver computer components, but also install
components or repair the computer. Laser Computers uses the EMS Techno Courier
as an extra marketing instrument. Hewlett Packard uses this service in big, time
limited projects.
Matching missing competencies
In most cases a manufacturer adds a service, the company needs extra
communication with clients. Often new decentralised service-providing centres are
needed. Training, motivation and constant introduction of new marketing and sales
techniques become key competitive factors. As services can be (and are) copied in
an instant, the value of a services merely lies in the quality of the organisation
structure providing the service and the established network of clients. Patents are no
longer of use. Time-to-market period for pure service organisations is typically three
to six months with very low capital investments. For comparison, tangible product
developments ask one to even fifteen years. This leads to a very different
management and development culture. When introducing services, the manufacturer
has to learn to pick up new ideas from the market fast.
35
Service organisations often need a quite civilised front office where the interface
with the client lies, plus a heavy back office to take care of administrative
processing. Alliances with specialised front office service providing organisations
could offer solutions that could accelerate the introduction of new systems.
However, often alliances with these companies are regarded as a threat. For
instance, the facilities of banks and lease companies are often distrusted.
The table below can be used as checklist for the strategy analysis. This table shows
organisational differences between the traditional product and the traditional service
organisations. With this table in mind, answering the following three questions will
show to what extent the organisation is capable and ready to introduce the PS
system.
- To what extent are the company’s structure and level of decision making
appropriate for sale and after-sale care of the PS system?
- To what extent do the employee’s skills, knowledge and attitude match the
demands of the PS system?
- Is the company’s innovation routine capable of renewing products as well as
services?
Traditional organisational differences between pure service and pure product
organisations (Archetypes, composed from various literature sources)
Pure service providers Pure product providers
Product and client
interface Intangible product
Easy to copy
Specified interaction with client
Direct interface with end-user
Client relation is the core
Material product, often with
standard specification
Intellectual protection (patents)
Indirect interface with end-user;
often via intermediates
Organisation Servuction organisation:
Heavy administrative department
Heavy process optimising
department
Heavy information management
department
Flat organisation
Decision making is more
decentralised
Orientation of organisation:
Towards end-user
Towards competitor
Production organisation:
Heavy hardware production
department
Heavy product development
department
‘High’ organisation
decision making is centralised
Orientation of organisation:
Towards distribution channels
Towards sources of technical
knowledge
Marketing and PR Aims at trust and trustworthiness Aims at informing on product
specifications and qualities
Employees Discipline-integrating during client
contact
Communicating
Civilised
High degree of specialisation
Controlling measurable quality
Management style Well aware of employees being the
company’s investment capital
Improvements aims at process
improvement; at the way the
company is perceived by clients
Controlling product quality
Improvement aims at product
quality improvement
Innovation routine Mostly centralised
Short lead-time
Little formats in innovation routine
Small investments
Extreme Me-Too conduct (copying,
not developing)
Cross-selling
Mostly de-centralised (business
units)
Long lead time
High financial risk
Using project management tools
Thorough testing
Systems (automation,
assessment, information
management, etceteras)
Facilitating the above mentioned Facilitating the above mentioned
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The introduction of the PS system can bring a lot of changes to the internal
organisation. The analysis should determine the expected rate of success and the
way to move forwards. Not always it is possible or wise to change slowly and
stepwise. In some urgent situation, destructive innovation6 is needed to survive in
the longer term. If so, often a new and relatively independent organisation needs to
be build up.
Role by third parties
As we have seen in chapter 2, PS systems will sometimes find strong support by
environmental policies. On the other hand, authorities and certifying or
standardising organisations can influence market conditions or can slow down the
introduction of a PS system. If the new PS system changes existing structures, such
as the distribution network, a powerful distributor can seriously put you under
pressure and threaten the PS system’s chances.
All kinds of external actors can be driving forces of the PS system. On the other
hand they can also block the system with success. Therefore, it is important to trace
all external actors that could act as driver or obstruction to the market introduction.
This can be done by the following procedure:
Step 1. Make a list of all actors that play a role in the old and new situation,
excluding the producer and customer (customer acceptance will be studied
in the fourth axis of our model). This list has to be prepared case by case and
can include local, national and European authorities, distributors,
competitors, environmental groups and press.
Step 2. Imagine what kind of changes the introduction of the PS system would bring
to each of these actors.
Step 3. Predict the reaction of each of these actors and the actor’s opinion on the
changing situation. When needed, estimate their power and influence.
Step 4. Check whether parties should be informed in an early phase, or even
included in the system.
In case a competitor decides to introduce a new service or product that offers extra
convenience to his clients, you have to decide how to react for not risking loss of
market-share.
Customer acceptance qualitatively judged (Axis 4)
How do clients react to product-service innovations?
Are customers willing to change from buying products to consuming PS systems?
Do they appreciate the new features of a PS system compared to the old product?
Or rephrasing these questions in terminology of Kotler (1997), using his 5P-
approach, will the total offer (consisting of product/service, price, package,
promotion and place) be accepted by the market. If so, what selling arguments in the
PS system’s offer contributes most to the actual change of behaviour to become a
client of the new offer?
6 Destructive innovation (a.o. Clayton Christinson): an innovation that cannibalises the company’s current products,
knowledge and market share. Sometimes necessary to defend from new-comers using new technology
37
Between countries or even regions a difference in acceptance is possible. Skala
television rental is big in the United Kingdom, while in the Netherlands it is a niche
market player only. The market acceptance for sharing a car in the Netherlands is
bigger in a city like Amsterdam than in smaller cities and the countryside.
Determine the market segment and customise the PS system
The realisation of consumer acceptance for a PS system is a complex process. Key
elements are a good knowledge of market characteristics, and a good set of features
of the market offer. Features should closely match demands of selected market
segments.
In case of assessing customer acceptance of a PS system that has already been
introduced, part of the job is rather straightforward: an effective way to determine
selling arguments for the customers already won, is asking these clients what
features of the PS system they like most. However, to determine additional potential
for new markets the situation is more complicated and more or less similar to the
introduction of a new PS system. This situation will be described next.
Each customer has its own characteristic wishes and needs. However, customers can
be clustered into rather homogeneous market segments. The introduction of the PS
system should be clearly defined in terms of the targeted market segments, as this
will be importance in establishing matching commercial offer. It makes quite a
difference, whether the producer aims at a volume market or a niche market with a
high added value.
For the introduction of a new PS system, a general procedure that can be proposed to
maximise consumer acceptance:
Step 1. Determination of market segments where the PS system could be introduced
with a reasonable chance of success.
Step 2. Determination what selling arguments are most highly appreciated by the
customers in each of the selected market segments.
Step 3. Matching the PS system’s offer to the demands of these customers and trying to
get a clear view of all advantages and drawbacks of the PS system, compared to
the reference system.
Step 4. Estimation of the expected rate of acceptance for the PS system in each of these
segments to provide reliable market input data, needed for the economic
analysis of the second axis.
How does a company sell a PS system? PS systems are sold by their perceived
characteristics (Siderius, 1992). Similar to the sales of services, several arguments or
characteristics of a PS system turn out to be important:
- Functionality
- Financial benefit on short or long term
- Comfort improvement
- Status improvement
- Reduction of complexity
- Tryability
- Fit to attitudes and values of the customer
Especially in the case of added services, new questions could be important:
- Do clients accept the closer relationship with the producer?
- Are they charmed by the total-offer-idea? Do they recognise the PS system as a
superior value?
- Are signals for innovation picked up sooner by the PS system-provider?
- Has it become possible for the manufacturer to identify the individual’s needs?
38
Furthermore, situations for the introduction of a PS system can be differentiated
according to the available knowledge of the market segment. Ranging from the
introduction into a well-known market of existing customers to a launch into a new
market segment with (still) unknown customers. The more you know about your
clients, the more you can customise the PS system’s features to their demands, thus
increasing perceived value. The less you know, the more market research is needed
to reduce the risk of a failure.
Market approaches
The promotion and communication is integral part of the PS system, offered to the
market. Thus, costs of promotion and communication are included as standard
production costs in the economic analysis of the second axis.
Whenever the provider of a PS system knows both his potential clients, their wishes
and the PS system’s feature, a marketing campaign can start. Communication is
essential to demonstrate trustworthiness, similar to pure service providers. Client’s
trust is the basis for sale. Brochures, corporate image and ads are designed very
carefully.
Popular common market approaches are:
- wide propaganda towards a big potential clientele
- direct approach of existing clientele
- direct approach of relations of existing clientele
- personal contacts between company and potential customers, e.g. by
telemarketing or salesman visits
- discount strategies
This situation is quite common. It could arise when the PS system is introduced into an
existing market, either to displace today’s product or to create a new offer with new
features (cheaper, higher convenience, etc). The reason for the introduction could be a
better profit margin, or to increase customer loyalty. In this situation, the clients are known,
as are the features of the old product and its competitors. In case of product displacement, it
is strongly advised to ask the clients whether they will accept the PS system, before the
actual transfer is made. By termination of the existing offer, the producer takes the risk of
loosing a customer.
To win customers for the PS system, the producer should see that his new offer is perceived
as equal or better that the alternatives. In the first case, the PS system could even be
introduced at a higher price than the current offer.
Introduction of the PS system into unknown markets
The new features of the PS system attract new customers. It is quite common that the new
interest is coming from a new market segment. The company needs to identify the
characteristics of these clients. Characteristics of the potential clients to be described are
socio-economic situation, personalities, and communication behaviour. In order to assess
these characteristics the company can use questionnaires, interviews, theoretical models,
client discussion groups, or even more advanced techniques.
In some cases, PS systems are complex and thus difficult to explain. This complexity will
result in additional cost for communication and a slower market introduction. To eliminate
complexity, some companies prefer to innovate stepwise, by adding a service to the
traditional offer. American designers like Loewie and Dreyfuss already in the fifties stated,
that customers are often more perceptive for step-wise innovations than for the leaping
ones. They called this the MAYA-principle: the most advanced, yet acceptable innovation.
39
Assessment of the customer acceptance
At the moment of the assessment of the 4-axes model, it is assumed that the
producer has already selected the optimal mix of features of the PS system,
including the communication and marketing strategy. In the assessment, the best
offer the producer could think of will be tested against the reference system.
It is advised that assessment by marketers and the sales personnel is included in the
analysis of the score on the customer acceptance axis.
A simplified four-step process can do this assessment:
Step 1. Rank most important features of both offers. These are the features that the
customer in (potentially) successful market segments definitely requests or
appreciates most.
Step 2. Score the PS system and the reference system according to these features.
Step 3. When the score of the PS system in Step 2 is good, check whether the
proposed communication and marketing strategy of the PS system is
expected to be effective.
Step 4. Determine the relative strength of the PS system.
3.2. Quantitative analysis of first two axes:
introduction
In this project we have developed methods to quantitatively assess the
environmental and economic axes, but we have not done so for assessing the axes
identity and strategy’ and ‘customer acceptance’. Emotion, experience and instinct
play an important role in these two scores two right axes and these are virtually
impossible to quantify. In stead we propose to use these axes as go/no-go criteria
when contemplating the introduction of a new system. As we have explained before,
they are a kind of traffic lights. It is important to check that both traffic lights are
green, before the quantitative environmental and economic analysis should be
started.
‘Red traffic light’ example
The bike-rental service offered by Interliner Bus Company.
This service was expected to be sold to commuters travelling long distances as a
means of pre and post transportation. Environmental score would have been
positive. The bike renting would provide additional service to clients, would have
solved a major drawback of public transportation and would have matched with
identity and strategy of Interliner. Unfortunately during the first year just one single
bike had been rented, so the service was stopped. Customer acceptance was
definitely low. Close prior assessment of customer acceptance would have saved a
lot of money and time.
3.3. Quantitative assessment of the economic
aspects
There are two ways to assess the economic aspects. The most obvious is the
assessment at company level, a more exciting perspective was found using the profit
pool concept.
40
Economic analysis at company level
Preceding the actual PS system development project, a project has to be assessed
according to the accepted set of corporate investment criteria.
Service providers generate income at the moment of service providing. Product
manufacturers generate money at the point of sale. This means although investment
patterns can be similar, revenue patterns and total income can differ. The time
horizon for computing is set at the sum of the development time plus the estimated
lifecycle time of the PS system to compensate for both this difference and the time
lag between costs and revenues. Traditional accounting methods can be used.
The annex ‘Estimating the economic merits of a PS system project within a
company’ offers a general scheme for this. The result of the analysis is a decision
tool for the board of directors.
Economic analysis at the profit pool level
As we have seen in the qualitative discussion of the 4-axes model, the profit pool is
a key element for the analysis of alternative business activities. However, we have
found we can also use the concept to analyse business activities in the lifecycle
perspective.
A profit pool analysis requires three steps:
1. Define the elements of the value-creating pool on the horizontal axis
Choose which activities should be included in the pool, according to the function
fulfilment analysed.
The activities may include the value creating chain (from product cradle to grave),
but this is not necessary. Setting the pool boundaries requires a good “feeling” for
the goal of the analysis, as there are no straight criteria on what to include and what
to exclude.
2. Quantify the value created in each pool activity
The volume and financial contribution of transactions must be estimated for each
value creating activity. This will result into the total value created by all activities in
the pool, and the (estimated) value creation of the individual products and services.
3. Determine the profits in each pool activity
Profits (operational margins) generated must be estimated for each of the activities.
This results in an estimated total profit realised within the pool, and in the estimated
profit of each production and service.
After determination of value creation and margins, the profit of each activity can be
calculated and presented in a graph. In this graph on the horizontal axis the value
creation per activity is given. The horizontal axis can be presented in percentages of
the total value creation as well as in a monetary unit. On the vertical axis the margin
in percentage is given.
The calculations should be repeated for the reference system. Comparison will learn
which of both systems is most profitable and creates most profit and value, in the
relevant parts of the lifecycle. If a PS system is developed by a strategic alliance of
companies, the profit pool can also show how much the partners can benefit from
their contributions to specific parts of the lifecycle
41
3.4. Quantitative assessment of the environmental
aspects
As we have seen, the economic aspects can be assessed in two ways, the traditional
company oriented approach and the profit pool approach. When we want to analyse
the environmental aspects in a quantitative way, we also used two alternative
perspectives:
The traditional LCA approach
The Eco-pool approach, based on the profit pool.
As we will see the Eco-pool approach can be used in a similar way as the profit
pool; it allows companies to look for business opportunities that cause a relatively
low environmental load.
Later we will see how the Eco-pool approach is used to develop a synthesis between
economy and ecology in the so-called E2 vector.
First however, we need to discuss the application of the traditional LCA
methodology for PS systems.
The use of LCA for PS systems
As a starting point we will first have to explain briefly the theory of environmental
LCA, as we will make full use of life cycle thinking. The application of LCA for PS
systems is discussed in more detail in Annexe 6.
LCA's applied on PS systems
In the analysis of PS systems we will discuss some particular points of attention in
these cases especially in relation to the functional unit:
Quality aspect. As we have seen at the start of the qualitative analysis, it is
difficult to define the exact functionality of PS systems, as such systems often
include rather intangible elements to the product.
Measuring a mental construct
There is no single, easy-to-use and generally accepted environmental indicator (yet):
1. The environment does not exist. The term ‘environment’ is a mental construct in
which anyone can include almost anything that has to do with nature, health, future
welfare, etcetera.
2. Scientific knowledge of the processes in nature that keep our ecosystems healthy is
very limited yet. Humankind is just beginning to grasp the basic relations.
3. Our ability to analyse the exact interaction between product lifecycles and the
environment is very limited too.
The most systematic way to analyse the interaction between a product and the
environment are methods based on LCA methodology. This methodology is far from
perfect and complete, however proves valuable in many cases. Moreover, there is no
better alternative when dealing with environmental effects in a systematic way.
We use two methods, for reasons explained in the annexe.
1. Default method is the Eco-indicator 95 method (Goedkoop, 1995). Although far
from perfect, this approach is reasonably accepted and it includes most effects that
are related to emissions. It does not include raw materials depletion or the effect of
land use caused by roads and for instance final waste.
2. If this method overlooks or distorts aspects, or if no data are available, it is advised
to use energy, as an indicator for all effects, and in some cases the amount of waste.
42
The inclusion of changing behaviour patterns. A particular difficulty is the
role of consumer behaviour. When we want to compare the situation before and
after the introduction of the PS system, we must be aware of the fact that the
consumer behaviour will probably change. For instance, the introduction of a
carsharing system will certainly cause changes in the way some people will use
cars, bicycles or public transport. In a traditional LCA approach this is too often
neglected.
In LCA the functional unit must be described in such a way that it is relevant for the
purpose of the study (ISO 14040). This means we have a wide range of options to
choose:
- In a narrow definition we compare transport systems on a basis of a certain
transport distance. For instance, we compare the environmental effects of a
passenger km of a car in comparison with a passenger km on a train.
- In a wider definition, we can compare the environmental effects of two persons
travelling the same distance, using a car or public transport during a month. In
this analysis, we would include trains, busses and perhaps bicycles.
- In a very wide definition, we could use the actual monthly transport activities of
two persons, one car owner and one that does not own a car. In this analysis, we
can see differences in transport behaviour, in use of public transport and bicycle
etc.
The advantage of the narrow definition is that it is very well defined, but the value
may be limited, as it is focused strictly on technical aspects. It does not show that
usually people have to make efforts to get to and from the station. The second, wider
definition is more complete, but also more uncertain. It gives a better picture on the
system, for instance if we want to compare options for commuters.
The third option is the definition that allows us to include the behavioural aspects,
for instance that car owners usually drive more often. In case you make use of the
wide definition you should strive for equal levels of consumer satisfaction in both
situations of the comparison. Poor men without cars will travel less than rich men
with Mercedes’ will. However, as levels of satisfaction will differ, this is no basis
for a fair comparison. It is best to search for situations of similar free choice.
The LCA methodology does not prescribe how wide the perspective should be. Each
choice of perspective can be justified, when it is compatible with the purpose of the
study and the information needed is available.
In case of the analysis of PS systems it is advised to choose a wide definition of
functional unit. This is necessary, as the introduction of PS systems will have many
and perhaps unexpected effects on other product systems. By choosing a functional
unit that includes all or most of the systems to be affected we get a complete picture
on the changes. Thus, in our analyses in chapter 5 we have chosen for a very wide
definition of the functional unit.
Other problems
Other methodological problems include the inclusion of human labour, capital goods
and some specific allocation problem. These are described in the annexe.
In spite of the fact that these points ask for extra attention, the LCA methodology
seems to be a valid and suitable systematic way to analyse PS systems in the
lifecycle perspective. Consensus on how to deal with these problems is growing as
the ISO process has already produced one standard and two draft standards (ISO
14040, ISO 14041 and coming soon: ISO 14042).
43
Profit margin
Environmental load
Production
Interest, tax and insurance
Service
Waste disposal
Gasoline use
Public transport
Cumulative value
Environmental load
Pro-
duction
Interest, tax and insurance
service
Waste disposal
Gasoline use
Public transport
The Eco-pool concept
Similar to the profit pool concept we can also plot the environmental impacts of
economic activities against the cumulative value that they create.
The basic concept is the same as in the profit pool; the only change is that in stead of
using the profit margin, we use the environmental load on the vertical axis. In the
example below we have plotted an imaginary Eco-pool for a car. Again a lifecycle
has been used to define the pool, but this need not to be so.
We suggest to use the Eco-pool as an addition to the profit pool. Once the profit
pool has been defined, an LCA practitioner will be able to generate an Eco-pool of
the alternative business options a company has.
Imaginary Eco-pool for a Car. The use of gasoline generates a relatively high environmental
load. Other business opportunities, such as financing and insurance, or service and waste
disposal generate a much lower environmental load per unit of value.
One can also plot the environmental load against the profit in a single graph. This
perspective is interesting for business as it shows the opportunities to maximise
profit at the lowest environmental load. If environmental aspects of businesses are
really taken seriously, it will be a strategic advantage to base the business profits on
activities that have a low environmental load.
Shifting to activities with lower environmental pressure
This Eco-pool can be used similar to the profit pool. Instead of looking for sectors with
maximum profit, industry can search sectors with a minimum environmental load. By
reorganising their business, they can shift into a direction in which they have the lowest
environmental load share of the pool they are in, this leaving other industries in a position
where they have a much less favourable performance. On the long run this could be a serious
threat for industries when governments and consumers start to realise that these sectors
produce a high environmental load while adding little value to the economic system.
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Further development of the Eco-pool concept for the assessment
of lifecycles
In the first part of this chapter we have shown how the PS systems can be analysed
on 4-axes model in a more or less qualitative manner. Secondly, we have shown
how to quantify the economic and environmental effects of the introduction of a PS
system, on basis of the profit pool and Eco-pool concepts explained before.
Until now we have been looking at how a business can analyse its profit and its Eco-
pool. The developers of the profit pool allow the performers of the analysis to
determine which business activities are to be included. Similarly, the Eco-pool can
present the environmental load in relation to the value per activity.
Although they are very powerful tools for strategy development, the Eco-pool and
profit pool concepts are in general not based on the full lifecycle of a product or
service. These concepts are based on the total volume of business sectors. So they
are not intended to compare complete lifecycles of PS systems with a reference. This
means we cannot compare systems on the basis of a unit function fulfilment, as
perceived by the consumer. In addition, the pools are best suited to model a static
situation. We miss a perspective on the actual changes that occur due to the
introduction of a PS system. A most important aspect is the change in consumer
behaviour.
The Eco-pool analysis and the three-step profit pool analysis can be repeated to
determine value creation and margin for unit function fulfilment, instead of the pool
based on the estimate of total market size. Therefore, we will introduce ‘LCA-based
pool tools’ slightly modified to the profit pool and the Eco pool we presented before.
This will be done by:
a) shifting to an analysis of the full lifecycle of the products and the services in the
PS and reference system,
b) comparing the PS system with a reference on the basis of a functional unit.
The aim of the LCA-based pool analysis is threefold:
1. Analysis of the economic effects: does the PS system create more value per unit
of functionality?
2. Analysis of the environmental effect: does the PS system create more
environmental load per unit of functionality? This is the typical field of an LCA.
3. Analysis of the ratio of economic value creation and environmental load. This
ratio elucidates whether the introduction of the PS system does contribute to
unlinking environmental load and economic growth.
LCA-based Eco-pool
The selection of the activities in the pool is determined by the functional unit under study.
Basically all products and processes in this functional unit, taken from cradle to grave are to
be included in the pool. Sometimes, it is useful to group these into a limited number of
larger steps for practical purposes.
45
3.5. Analysing the unlinking effect with the E2 vector
We have developed a new tool, the E2 (Economy-Environment) vector, by slightly
changing the LCA-based Eco-pool graph. The E2 vector can be used to assess the
unlinking of economic value and environmental load, as described in chapter 2.
In the Eco-pool concept we plotted the cumulative value that was created against
environmental load. For the E2-vector, we plot cumulative value against cumulative
environmental load. The result of these changes can be seen in next figure. The
blocks form a slope that can be characterised with a vector, which connects the
origin with the top right-hand corner of the last block.
These vectors can be combined to generate the overall vector.
A system with a vector that is less steep then the reference can contribute to
unlinking, as the ratio between environmental load and value is better. This
unlinking is shown in next figure.
Cumulative value creation over the lifecycle
Environmental load
Production
Interest and insurance
service
Waste
disposal
Gasoline use
Sales
Cumulative value creation over the lifecycle
Environmental load
Production
Interest and insurance service
Waste
disposal
Gasoline use
Sales
46
Interpreting the E2 vector
The E2 vector is a very powerful instrument to study the effects of the introduction
of new PS systems. Let us analyse a few hypothetical cases in order to demonstrate
the power and the surprising new insights the instrument gives. In each case we have
plotted the vector of a reference system as a red arrow, while a blue arrow represents
the system under study:
Situation A: Lower environmental load at (almost) equal value
If the value remains constant, while the environmental load decreases, we can be
sure that the system has a positive effect on unlinking. The consumer is spending an
equal amount of money for the requested function fulfilment in both situations. As
there is no financial difference to the consumer, it may be assumed will that there
will be no changes in other consumption habits as result of the transfer to the new
system.
Situation B: (Almost) equal environmental load, at lower value.
In this situation, we will see that consumers save money, while the environmental
load remains constant. In a market economy, the money saved will be spent for other
purposes. In next figure we have plotted this "alternative" consumption vector. (As a
first estimate, this vector could be chosen to have the average E2-angle of day-to-
day consumer behaviour (see text box ‘alternative consumption vector’).
The picture clearly shows that in this case the total environmental load will increase.
This representation clearly shows the working of the rebound effect. Money saved
because of cost reduction will be spent on alternative consumption. Later we shall
discuss ways to address the effect of alternative consumption.
Value creation
Environmental load
Production, use, disposal
Production, use, disposal
Unlinking
Value creation
Environmental load
Reference
PS System
Line A
Load decrease
47
Situation C: Increased value at (almost) equal environmental load
In this situation where consumers are prepared to pay extra for the new system, they
will have less to spend on other consumption. This means that the ‘alternative
consumption’ vector has an opposite direction. The net effect is that, even as the
environmental load for the system itself remains constant, the overall environmental
effect is positive as result of the reduced consumption. Of course a consumer will
only be prepared to make the extra payment when he sees clear benefits (e.g. PS-
systems that add quality or comfort).
Situation D: both the value and environmental load are decreased in (more or
less) the same proportion; the E2-angle remains same.
This fourth situation is quite common in the industrialised Western economies:
products and services are both more efficient and cheaper at the same time. Huge
environmental gain can often found in Ecodesign projects. This is the typical win-
win situation. Thus, the new system may be expected to gain market share rapidly. If
you look at the new system in isolation, it proves to be beneficial for the
environment.
In such a situation we cannot see if there is an overall sustainability gain for society.
This is determined by the angle of the additional alternative consumption vector in
the new situation. If the alternative consumption is less steep than the E2-vector of
the reference system, we assume the overall environmental effect is positive, as is
shown in next figure. If the alternative consumption vector is steeper, we will see an
overall increase of the environmental load.
Value creation
Environmental load
Reference
PS System
Equal value
Load increase
Alternative consumption vector
Value creation
Environmental load
Reference
PS System
Load decrease
Alternative
consumption
vector
48
With these four examples we can define a more general interpretation of the E2
vector. In next figures we have plotted both the vector for the reference system and
the vector for the alternative consumption. The latter vector is plotted through the tip
of the vector for the reference system.
If we now plot the vector of the PS system in this picture, we can see that:
- All vectors ending in area 1 or 2 will have a positive effect on the total
environmental load created in society. All vectors in area 1 will have a lower
value, but the alternative consumption will not create a higher environmental
load than the reference. All vectors in area 2 will have a higher value, therefore
displacing some of the alternative consumption.
- All vectors ending in area 3 or 4 will have a negative effect on the total
environmental load generated by society.
All arrows of systems that end below the "alternative" consumption line have a
positive total environmental effect. All vectors ending above this line will have a
negative total environmental effect. This rule holds for both situations plotted here.
This relation can also be expressed mathematically with
Where:
G Environmental gain at equal value of the reference system
LR Environmental Load of the reference system
LS Environmental Load of the system under study
tan AC Tangent of the Alternative Consumption vector
VR Value of the reference system
VS Value of the system under study
Value creation
Environmental load
Equal value
Angle for the alternative consumption
1
2
3
4
SR
SR VV AC
LLG
= tan
Value creation
Environmental load
Reference
PS System
Alternative cons. 2
Alternative cons. 1
Increase
Decrease
Value creation
Environmental load
Angle for the alternative consumption
1
2
3
4
49
A surprising conclusion of this picture is that some PS systems that are both cheaper
and have a lower environmental load could (indirectly) result into a negative overall
effect on the environmental load of the society. Sustainable concepts ask for high
perceived value, in combination with low environmental impact.
Alternative consumption vector
The steepness of the alternative consumption vector turns out to be a crucial factor in
our analysis. The vector is meant to show the effect of alternative consumption if a
consumer gets more or has less money to spend. There are several ways to assess this
phenomenon:
1. The average approach: a simple way is to calculate the average environmental load
per unit of value. Look at the average behaviour of customers. Although this is a
straightforward approach it has a drawback. When people have more or less money
to spend they are not going to purchase more or less "average" products. One
should expect that the consumer to purchase more or less luxurious goods.
2. The marginal approach: if we want to take into account the marginal changes in
consumption patters we try to observe what people really do if they have more or
less money to spend. This marginal consumption is not easy to determine. For
instance, we should make a difference for:
- Long term marginal effects. If a consumer reduces the expenditure cars by
changing to a carsharing system, he or she can change long-term consumption
patterns; for instance he or she could purchase a bigger house.
- Short term marginal effects. A consumer who experiences a cost reduction or a cost
increase as a one time benefit or burden will not change its long term consumption
pattern. He will not invest in a bigger house, but will for instance go out dining, or
go on safari.
Marginal consumer behaviour is probably highly income, age and gender dependent.
It is clear that marginal data is fundamentally much better than average data. However it
is also clear that it is very difficult to get reliable marginal data. Similar discussions are
also occurring in the LCA methodology debate.
In this project we have not been able to come up with reliable figures for average and
marginal alternative consumption vector data.
50
51
4. Ten examples of PS systems
4.1. How we've selected the cases
Aim
This chapter shows ten examples of Product Service systems. Today, each of them
has been introduced (more or less) successful into the market. Our aim has not been
to redesign or investigate each example in-depth. The chapter just aims to describe a
variety that can be found in practice. Redesigning PS systems looks like an exiting
next step to us.
We have chosen not just to give examples of lending, pooling, sharing and hiring.
We feel that in the long term, any PS system deserves to be investigated on
environmental potential.
Second goal of the chapter is to build practical experience in the application of the
4-axes model and the profit- and Eco-pool concepts. Each case description contains
a panel assessment. In complex judging and decision making processes, panel
assessments are not uncommon. This was confirmed in several of our interviews. As
we explained before, any panel assessment is essentially subjective. Results
therefore are our results. The panel assessments are to be regarded as a first trial
assessment in this new matter. In some cases, they had to be made lacking in-depth
knowledge of the market situation.
Case selection process: our criteria
First a list of 140 PS systems has been gathered. Ten PS systems have been selected
from this list using the following criteria:
- cases must be understood by the general public as well as professionals,
- cases must be put into practise or at least be in a pilot stage,
- both product and service component must be economically interesting for the
providing company,
- cases should have macro-economic potential,
- the ecological potential is unknown or seems promising,
- as a set, the cases must offer a variety of products, market segments,
applications and characteristics of the provider (product provider, service
provider or a mixture).
For the latter we've used our PS-categorisation described in chapter 2.
Cases selection
The following ten subjects have been selected:
- Odin subscription to eco-vegetables for consumers
- Gispen hotel-office for governmental bodies
- Stybenex polystyrene insulation lay-out plan, prediction model and take-back
service
- Libertel GSM-telephone subscription with free device
- Douwe Egberts professional coffee systems
- Electrolux laundrette products and services
- Carsharing
- Timesharing of luxury yachts
- Postbank Chipper card payment systems
- Koppert pest-free guarantee service.
52
4.2. Categories of cases
Categorising the markets
Five cases are focussed on professional markets: Gispen, Stybenex, Electrolux,
Koppert, Douwe Egberts.
The consumer market cases are: Odin, Libertel, Carsharing, Postbank, Luxury
yachts.
Categorising the PS-ratio
In chapter 2 of this report we have described a simple categorisation scheme for PS
systems, according to the weight that product components have for the economic
impact compared to the service components. The category of each case is given
below, and illustrates that a wide selection was made.
Product with additional service (Ps)
- Service provided during product distribution: Odin subscription to eco-
vegetables
- Service provided during product specification and retribution: Stybenex
insulation layout plan, prediction model and take-back service
- Service provided during product specification, sale and use: Gispen hotel-office.
Service with additional product (Sp)
- Product offered by service provider, in order to lower the entrance threshold:
Libertel GSM-telephone subscription.
Product and service equally important in fulfilling a function (PS)
- Entire client satisfaction by providing products, auxiliaries, ingredients and
services: Douwe Egberts Coffee Systems International, and full service
Electrolux laundrette
- Part-time use, part-time ownership of products: Carsharing
- Part-time use, shared ownership of products: Timesharing of luxury yachts
- Functional use, non-ownership of products: Electrolux laundrette (self-service).
System change (SC)
- From coins to electronic purse: Postbank Chipper card
- from selling pesticides to selling pest-free guarantee: Koppert.
4.3. How we've worked
Source of information
For each case we have interviewed the responsible manager or representative of the
PS system provider. The interviews had been pre-structured and detailed enquiry
forms were drafted as supportive tools for the interviews.
Panel assessment
For each case we have applied the panel assessment method. After the interviews
took place, we have formed an internal expert group. With this group we tried to
come to consensus about scores on the four axes. We have found that after having
examined all cases it's wise to compare the panel assessment outcome between the
cases.
Unless explicitly stated otherwise, the scope of the assessment is as follows:
- company level for the economic, strategy and identity and customer acceptance
axes
53
- life cycle level for the environmental axis
In-depth analysis
For three examples we've detailed the economy-ecology-axis quantitatively. The
results can be found in the next chapter.
Description of the cases
The description of the cases in this chapter will follow a fixed format, including:
1. Introduction with short background information
2. Function of the Product Service system
3. Reference situation and functional unit
4. Panel assessment on 4-axes model, including environmental effects, economic
effects, strategy and identity and customer acceptance
5. Epilogue: what can be learned from this PS system?
54
4.4. Organic food by subscription: ODIN
Odin Holland supplies organically grown food to consumers by subscription. Once a
week the consumer receives a paper bag with assorted vegetables and accompanying
recipes from a store in the neighbourhood. Often the collection point is an organic
food store. The traditional greengrocers and supermarkets offering this service is
growing quite fast.
The bag serves the need of two persons for about four days, leaving freedom to the
consumer to buy other foods.
Odin only sell organically grown vegetables with the “EKO” label certified by
SKAL. Further Odin supply regionally grown food, aiming to minimise
environmental impact caused by transport. For variation purposes a small amount of
food is imported, especially in wintertime.
In the Netherlands three distribution-centres have been realised. The supply is based
on fixed price contracts between Odin and farmers, without intermediates such as
auctions or wholesalers. This enables planning in advance and distribution
advantages. Contracts with consumers are the firm basis to offer this advantage.
To be able to offer enough variation, Odin uses planned cultivation of vegetables.
Therefore, Odin’s people are always in close contact with their farmers. Odin can be
regarded as a “chain manager”. This extends to giving agricultural and horticultural
advice to farmers by Odin experts.
Functions of the vegetable subscription
The primary function is to supply food with low environmental impact. Odin has
identified several supplementary functions for their subscription service:
- Financial: by guaranteeing a fixed price for their produce, Odin enables farmers
to convert from traditional farming to organic or bio-dynamical farming.
Additionally, Odin consults with agricultural and horticultural advice. For the
consumer, the price of the subscription is lower than buying vegetables
separately in an organic food store. Due to the introduction of Odin’s service the
organic food stores experienced 15% additional growth due to increased shop
traffic, mainly by new customers. Odin itself has experienced revenue growth of
50% in 1998 only.
- Proper amounts: the consumer gets a fixed amount of food, enough to feed 2 or
4 persons for 4 days, for a fixed price. Currently the price is about 5 Euro (10
Dfl.) for a weekly bag for 2-persons. A 4 person’s bag is priced 8 Euro. Odin
tries to put as much variation as possible in the composition of the bag; in
wintertime some food from Italy is imported to assure variation.
- Surprise effect: some of the subscription holders experience a surprise effect
when they get their bag with vegetables for the next week. The bag includes
recipes that encourage cooking with less known vegetables such as parsnips or
squash, offering new tastes. Each week Odin includes about 5 to 7 original
recipes especially for the vegetables in the bag.
- Availability: the subscription service improves the availability of ecologically
grown food for the customers. Consumers don’t have to search special organic
shops that are found only in urban areas. Market share of ecologically grown
food increases.
- Known history of produce: Names and addresses of the farmers are
communicated to the customers, who can visit a farmer in their neighbourhood
55
just for curiosity reasons. So, they know the origin of the vegetables in the bag
and that the product has been grown ecologically or bio-dynamically.
- Freshness: Odin claim their vegetables to be fresher than those sold in
supermarkets, since they are delivered directly to them. In addition the
vegetables are organic season products that are mostly regionally grown.
Reference situation
As reference situation, we selected the buying of non-organic vegetables from a
supermarket or green grocer in The Netherlands (as only few supermarkets offer
ecologically grown vegetables).
In contradiction to Odin’s bag, the consumer has a free choice of vegetables. The
way these vegetables are grown or handled is not always clear. Most of the food
originates from The Netherlands, although during winter the amounts of food
imported increase. Imports come from all over the world, such as southern Europe,
Africa or South America.
Assessment by the panel
Environmental analysis
If the subscription service is compared with traditional purchase of vegetables, the
following significant environmental gains of the subscription service are identified
(PRé, 1998).
No use of pesticides
Organic farming tries to avoid the use of pesticides. In case of severe pests natural
pesticides are allowed. Traditional farming in Holland uses 30 to 220 mg pesticides
per kg produce, for import vegetables this is claimed to be at least a factor 7 higher.
No use of artificial fertilisers
Traditional farming has high phosphor (P) and nitrogen (N) losses to surface and
ground water. The Dutch government has set limits to the losses that will be stricter
in the future. Due to the use of manure rather than fertilisers, organic farmers can
already meet the requirements for 2000, with N and P losses respectively 36 and
22% lower than traditional farming. However on a kilogram basis the differences
would not be that significant due to the lower production in organic farming.
Less transport
Especially in wintertime the differences are significant as traditional supermarkets
obtain part of their vegetables from countries like Spain, Italy, Morocco, Egypt and
the Sudan. Especially from Egypt and the Sudan produce is flown in. On average
Odin has 30% less transport and 60% less transport energy use than traditional
vegetables in wintertime. In summer time the difference is small.
Less packaging
The subscription service uses 4 times less transport and product packaging than
vegetables bought in a supermarket. This mainly due to the reduced use of one way
56
packaging for imported vegetables. Nearly all other vegetables are transported in
reusable crates. For the subscription service the paper bag is both a product
packaging and shopping bag this is used to transport the vegetables home.
Economic analysis
Odin offers a product with high emotional value, which is interesting from an
economic point of view. Analysis of the margins for food obtained from the
supermarket, organic food stores and the subscription service reveals that both the
farmer and the shop gain from the subscription service. As “chain manager” Odin
can guarantee sound margins for food store and farmer. The food is supplied in such
a way that ‘losses’ (mostly unsold food) are kept to a minimum. Odin takes the
financial consequences of these losses.
Approximate margin in %
(based on price incl. VAT) Supermarket Organic food store Subscription Service
Farmer 25 40 45
Wholesale/Odin 45 35 30
Shop (incl. food losses) 30 25 25 (no food loss)
Identity
The ODIN organisation has started practically from scratch. It all started by a small
group of highly motivated people trying to improve market acceptance for eco-food.
Identity can be recognised as major driving force. The company’s identity is closely
connected to the product.
Consumer acceptance
Eco-food is still a niche market. For the organic food stores the subscription service
was a success. Mostly, it is a new customer for the store making use of the Odin
service. After 6 years there are 20,000 subscription holders at 440 collection points
for the Odin bag. This number is still growing. Questionnaires that are regularly sent
with the bags (90% response) and telephone feedback at Odin’s information line
learn that consumers are highly satisfied and very much involved. Odin's customers
are genuinely concerned about the environment and personal health and they feel
this service is a contribution to a better world (and a clean consumer conscience).
Epilogue
Key of the success of the vegetable subscription lies in the fact that Odin manages
the whole chain from growing, distribution and packing up to retail efficiently. Odin
offers products with a high emotional value and has distribution advantage through
fixed contracts with suppliers and clients.
57
4.5. Hotel Office of Gispen in co-operation with Dutch
State Buildings Services
Many of the buildings of the Dutch Ministries house temporary project groups that
work as flexible and rather independent units. Often the moment of installation of
these groups is rather unpredictable (e.g. as result of certain political developments).
Thus, ministries need to reserve room for their eventual housing. The Dutch State
Buildings Services (Rijksgebouwendienst, Rgd) has initiated an experiment to house
these temporary groups more efficiently in a separate building: the Hotel Office.
Interior and communication systems are adapted to the temporary needs of the
groups. If these change, the Hotel Office will adopt its facilities, interior and systems
as well. One doesn't only hire space in the Hotel Office, one hires the right to use all
means available: (cordless) telephones, desks, lounge chairs, informal meeting
spaces, secretaries, DTP assistance, and so on.
In order to get this all done, the Dutch State Buildings Services has
started an alliance with the department of facility management of the
Ministry of VROM, Gispen office furniture, ESD networks and
Groeneveld Sign Systems. Here we focus on Gispen's role
(Venneman, 1998).
Gispen is a well-known Dutch producer of modern style furniture.
Today, Gispen focuses on producing office furniture. During the
design phase of the building Gispen provided a consulting service as
a working process specialist. Gispen has worked out a new furniture
concept. Furniture is not sold, but leased.
The concept
Initially, Gispen offers an expert consulting service specifying the furniture concept
for a new client. Next, the selected set of chairs, tables, cabinets and mobile walls
are delivered and are leased by the client. Subsequently, for the period of use of the
furniture configuration changes and moving is assisted by Gispen. As soon as a new
group moves into the building new furniture functions will be needed and the
process repeats itself.
Function of the hotel office
The primary function of the Hotel Office is to house temporary project
groups. For the State Buildings Services, the intention is to reduce the
amount of net dwelling space needed and provide means that are perfectly
adapted to the specific working processes of temporary project groups. For
Gispen the Hotel Office is a means of getting in contact with the client
earlier in their decision making process and to add value by providing
service.
Traditionally, people from the ministry select and buy standard furniture
themselves, make reservations in the number of officer’s working places to
cover unforeseeable claims to house project groups. The expected result is
that rooms, tables and chairs are not effectively used.
Reference situation
As a reference the housing and facilitating of 10,000 public servants, including their
temporary groups could be taken.
58
Assessment by the panel
Environment
For administrative organisations such as ministries, the environmental bottleneck is
not pencils, erasers or floppy disks. If one analyses the actual loads, it is merely the
emissions from energy used inside the building (electricity and gas needed for
cooling, heating and lighting), and emissions from transport (in case the tasks
demand mobility).
By flexible space hiring instead of maximum space reservation the average
occupancy rate of office buildings may rise. The Hotel Office has reached an
occupancy rate of over 90%. That is extremely high for an administrative building.
Housing concepts capable of raising the occupancy rate will bring environmental
improvement.
Leasing and exchanging furniture means furniture is not constantly in use. For
a single building, these quantities probably equal the amount of spare
furniture needed in the traditional situation. If several buildings share a pool
of furniture, the amount of tables, chairs, etc, not in use would be minimised.
The assessment panel considers that this PS system scores slightly positive
(+1) on the environmental axis. Main arguments are:
- A more efficient use of both furniture and office building.
- Advantages of building a pool of furniture: only needed furniture is
installed. If the next client has different needs furniture will return to the pool
and is refurbished when necessary.
- Partial consumption of these environmental benefits of the newly created
furnishing services and additional logistics.
Economics
Reducing overall office space saves money. On the other hand, leasing and services
have to be paid extra. In this case, sound exploitation (break even) is reached at
occupancy rates of at least 65%. With an actual average rate of 90%, the Hotel
Office meets this financial criterion with ease. The Dutch State Buildings Services
has decided to continue after this experiment.
At first, making money by providing services was not the first goal of Gispen. In
fact, their aim was to increase customer value by individual support to clients and
building partnership relations in an early stage of the decision making process. This
is expected to offer long term strategic advances, rather than short-term income.
Economic axis: slightly positive (+1):
- Sales of furniture by Gispen will be put under pressure by the competing
concept.
- Revenues of providing furnishing services and leasing contracts will steadily
grow.
59
Strategy and identity
The Hotel Office enables Gispen to change the nature of its contacts. From the
traditional role of vendor of furniture at the moment a new building is ready, to the
role of facility manager, decision-maker and office-architect from the moment that
the first plans for a building concept are being discussed. Gispen thus upgraded from
supplier to partner. This implied a change from innovative furniture maker to fully
equipped interior and facility management expert. Additionally the Hotel Office has
lead to new options for strategic alliances.
This is quite a big step for the furniture producer. It is understandable that initially
scepticism could be heard within parts of the Gispen organisation. Moreover, the
organisational structure needed a change. If someone is used to get cash on the nail,
he will regard an advice period before purchase as dangerous and might react
impatiently.
New disciplines, new skills and new knowledge had to be built up and spread within
the company. It has taken Gispen some years to change from furniture maker to a
recognised partner in the market. Many fellow companies have not (yet) followed
the moves Gispen made. Gispen is playing the game with new rules, which they
decline or not appreciate at their real value. Time will learn who holds best cards.
Strategy and identity axis: positive (+2)
- Gispen has set a goal to shift from production and sales, to providing a
customised office furnishing service. The aim is to realise the best working
environment for the client (including needs, aspects of organisation culture,
budget, etc).
- For this, an organisational change and internal support is needed. The service-
oriented strategy will partly supersede the old product oriented strategy. The
process can be qualified as merely ‘bottom-up’, and seems well on schedule.
Still, it needs time and real arguments (and market response!) to convince the
director's board that the new strategy offers business advantage in the end.
Customer acceptance
The customer himself (the State Buildings Services) has initiated the innovative
concept, so customer acceptance has been guaranteed. In the world of facility
management, experiments with flexible interiors and in specific cases, with the
absence of dedicated working places are well known. A (upper and middle) part of
the market is ready for change. This supports experiments in the field of flexible
working space, leasing, renting, and distant-working.
Consumers have to change their purchase system. In the past, a purchase decision
was simple and included the furniture only. In the future the scope will be broadened
to include all aspects of the office’s working space, since that’s where the real
advantages are. They have to involve different experts from start.
The strategy is not without risks: Gispen has found the outcome of services is
difficult to protect. Once an interior plan is drawn, clients could shop for furniture
from price sellers. ‘All-in’ contracts or declarations of intent can be a solution.
Client acceptance axis: positive (+2)
- For the client investment costs decrease, while operational costs increase.
- Client loyalty will increase because of regular contacts with the maintenance
and furniture experts of Gispen. RSI (repetitive strain injury) and low back pains
have become serious problems in administrative organisations. Their financial
impact has opened the eyes of organisations for the importance of professionally
furnished working places.
60
Epilogue
Gispen is a good example of changing from supplying goods to PS systems. Though
the company is well aware of Ecodesign practice, environment has not been leading
in this case. Building customer relations was the key issue.
The environmental potential of the Hotel Office concept is clear. Acceptance
depends on the willingness of ministries to co-operate towards more flexible office
planning.
The unfolding of the strategic decision of Gispen will take years. It's yet unclear
where the changes will ends in the long term. Coming from a production
organisation, Gispen might finally transform into a service and consultants
organisation.
61
4.6. Stybenex layout plan and return system for EPS
Stybenex is the Association of Manufacturers of EPS-construction products, formed
in 1976. Six manufacturers work together in Stybenex to promote and improve to
use of expanded polystyrene (EPS). For example, Stybenex publishes communal
technical advice and supports the members to improve the environmental
performance of EPS throughout the life cycle (van Zuilekom, 1998).
EPS has two main applications: 20% is used as packaging material, 80% is used as
construction and insulating material. The primary function then is the insulation of
roofs, floors or walls. In building applications, producers deliver insulation materials
in different forms so the product has also a more constructive function. Insulation
products are foam EPS, sandwich elements and laminated EPS. In 1996, all
producers together sold 40,000 ton EPS on the Dutch market. When using EPS
building elements, waste arises due to the size of the EPS elements and holes that
are made for windows, exhaust pipes, electricity pipes etc. The waste is about 400
ton annually.
Functions of the Product Service system
EPS is easy to recycle so all producers recycle production waste on site. Next,
several producers have return systems for their materials7. A 1993 LCA compared
EPS with other insulation materials. From this study, it was concluded that several
possibilities exist to improve the environmental performance. Producers introduced
layout plans and started to deliver increasingly custom-made. According to
Stybenex, savings up to 5% can be reached in this way.
In 1997, Stybenex carried out a study to a common return system for EPS from
building applications (Stybenex, 1997). This in-depth study was part of the national
reuse of waste research program (NOH) and partly financed by Novem/RIVM8. In
this study, several logistically feasible return systems were described. Considering
ecological, economic and logistic aspects, two routes turn out to be feasible. In one
route EPS producers take the leftovers when they return from delivery. In a second
route, specialised waste separating
companies store EPS. After acceptance at
the producer’s gate, EPS is shredded and re-
used in building materials. For the
producers it is important to guard the quality
of the secondary materials. Since these
materials are used in certified products,
quality of the final construction product
should be high and constant. Due to this, the
maximum amount of secondary material is
about 5%9.
In 1998, Stybenex carried out a pilot study
together with a few large building
contractors and wholesalers of building
materials to optimise the return system. The
contractors were approached by means of
7 In addition, a national return system for EPS packaging materials and Garden Trays exists.
8 In the case no financial support would be given, a more transient study would have been carried out.
9 If the take-back service is fully operational, this can cause a surplus of secondary EPS. This means, other
applications are to be found.
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the existing contacts. In the pilot, most attention was paid to separation on the
building sites. Only the route, in which producers take back leftovers themselves, is
used.
In the future when a take-back service is fully operational, the role of Stybenex itself
is still undefined. Most probably, Stybenex will carry out communication towards
other parties.
The central user in the system is the building contractor. He is responsible both for
the purchases of materials, and the building process, as well as the waste
management at the building site. He receives EPS directly from the producer on-site.
In the preceding study, a so-called prediction model was developed. With this
model, the building contractor together with the architect can forecast the amount
and moment EPS leftovers will be released. EPS is collected in special plastic bags
for foam and metal racks for laminated EPS and sandwich elements.
Since the primary function of EPS is insulation, the PS system is focused on the
installation phase of the product. Services (layout plan, prediction model, and take-
back) are added to the product, so in this survey we consider this PS system as a Ps.
Reference situation
In the reference situation roofs are insulated, without using a layout plan or take-
back service. Waste is removed together with other building wastes by a specialised
waste remover, and taken to a waste incinerator10.
For case analysis insulation and building of a roof is considered, where sandwich
elements EPS/chipboard are used. One such roof element is shown in the
illustration. It is considered that in the reference situation no layout plan is used.
The amount of waste is 10%, due to dormers, cut-offs and exhaust pipes. In the PS
system situation the amount of waste is 5% and this waste is returned to the
producer.
In a normal building project several kinds of EPS are used. An average project uses
65 m2 roofing, 50 m2 walls and 50 m2 flooring having an average thickness of 9
cm. The total costs for this is about € 2300, having a 2% margin for the producer.
The average amount of all EPS waste is 1%11.
Panel assessment
Environmental
Stybenex presumes that the highest environmental gain of the PS system is the waste
prevention and reduced logistics due to the custom-made delivery and the layout
10 This situation did not exist in the past, when building waste was partly dumped and partly burned. Due to a Dutch
regulation from 1997, it is no longed allowed to dump high caloric wastes like EPS.
11 This low amount is mainly caused by delivery on specification, and the fact that spare parts of foam EPS are used
to fill holes etc within the construction.
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plan. The take-back service is only beneficial if extra transport of leftovers is
minimised.
The researcher’s panel thinks the system scores slightly positive (+1) on the
environmental axis:
- the layout-plan will decrease sawing residues
- effects of collection and recycling EPS wastes for recycling are estimated to be
negligible (in comparison to transporting a mixture of combustible residues to a
mixed waste incinerator for energy recovery).
Economics
Since this PS system is still in a pilot phase, remarks about its economy should be
made with care. However, some producers already offer partial individual systems.
As said above, the chosen route also turns out to be the most promising in financial
sense. Due to the PS system the building contractor saves waste management costs,
purchasing costs and an environmental friendly image. The saving on waste
management will be more important in the future since incineration costs will be
increasingly based on volume instead of weight.
For EPS producers a national return system is cheaper than several individual
systems. It will save start-up costs like research and promotion. The benefits of
avoided costs of virgin materials are supposed to balance costs made for extra
handling and machinery.
Producing layout plans is a service with commercial value. It is applied as a
marketing tool. Today, no additional price is asked. For clean residual materials,
investments needed for feeding into the existing production lines are small and raw
material expenses are saved.
The economic score for the producer of the PS system by the panel is neutral (0)12:
- Layout plans improve the efficiency of the application of insulation materials
thus reducing both sale volume and redundant volume to take back.
- Transport costs for the producers will increase marginally, as trucks that deliver
can take-back residues of this (or a nearby) building-site.
- In general, the added service does not seem to increase the price of the EPS
insulation.
Strategy and identity
During the last decade the EPS producers have worked hard in order to improve
their environmental image. Architects are sensitive to this image. LCA-studies,
process improvements, and other activities have indeed resulted in an image
improvement. From this history it's logical to make the next steps:
1. The service to provide layout plans builds customer loyalty and positively
differentiates EPS producers from suppliers of competing products.
2. Product responsibility is a key factor to offering return systems. Stybenex aims
to start a communal project, which is profitable for all member EPS producers
and will give them a strategic advantage to other insulation and building
materials.
The researcher’s panel scores the PS system slightly positive (+1) on strategy and
identity:
- The environmental debate has been crucial for this PS system. The sector
successfully participates in environmental debates and LCA projects. The
former defensive strategy has transformed into a leading environmental strategy.
12 The economic assessment is expected to give a slightly positive score when the life cycle perspective is chosen.
The customer may benefit most from the improved system. The system improves the efficiency of the application of
insulation materials and thus reduces costs for the building company.
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- The PS system doubles the number of client contacts.
- Transportation is already a well-known core activity.
Client acceptance
The PS system is a new activity for building contractors. The most important issue
for them is the return system, including the separation of EPS from building waste.
Though not difficult, it demands a change of attitude. Since several separating
systems already exist, two scenarios are foreseen: either separation of EPS is
accepted very easily or ‘separation tiredness’ will arise.
Overall, the researcher’s panel considers the client acceptance slightly positive (+1).
Epilogue
A national PS system should include all major producers. These kinds of actions
contribute to the competitive positioning of the product. In the insulation industry
product many quality aspects have become comparable, so service becomes a selling
point. Providing tailor-made solutions is distinguishing. The customisation has
environmental potential. This is due to the fact that the services added result into
more efficient use of the product.
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4.7. The mobile phone set by Libertel offers freedom
Currently the market for mobile phone systems in The Netherlands is rapidly
growing. Brand names are well known, but consumers do not have a brand
preference yet. The geographical network coverage of the Libertel GSM network is
over 98% and it offers enhanced full rate, the best quality of sound. This is not
regarded as the only USP distinctive anymore; besides network quality, it is also the
service and costs that count in the eyes of the consumer.
Costs are the main drawback for private end-users to subscribe. The price of GSM
hardware blocks a fast market penetration. Therefore sales organisations of GSM
networks like Libertel offer a GSM device for free (or at reduced price) to any new
client. The free GSM device is an example of a service provider who offers a
hardware product, in order to serve the client better. The device itself could be of
any brand: Sony, Ericsson, Philips, Nokia, Siemens and Motorola.
The Libertel Groep is a young (since 29 September 1995) and innovative player in
The Netherlands. This mobile specialist owns a GSM network (the hardware out in
the country). Capacity on that network is sold to clients by the Libertel sales &
services organisation. Libertel has been founded by Vodafone Group (UK), ING
Groep (NL), LIOF Limburg, Vendex, Internatio Müller and Macintosh Retail
Group. Nowadays shareholders are Vodafone Group UK (70%) and ING Groep
(30%).
Function of the GSM system
For a client, the primary function of a mobile phone is to make and receive
telephone calls at any time and any place. So the main function is combining
mobility and distant speech.
As the market grows, technological innovation continues and services are expanded,
additional functions are integrated rapidly. The current system provides features like
car sets, sending written messages, personal phonebook, personal organiser, watch,
vibrating function, voice recognition, connect services, and so on.
Primary function
For distant speech, the traditional situation is the corded telephone. Device on the
wall, copper wire or glass fibre underground, digital connection stations, operators
and satellites in space. Mobility is traditionally served through public telephone
booths, telephones in restaurants, gas stations and pubs, pager/buzzers and
semaphones.
Secondary functions
For the secondary functions, the options are answering machine, paper agenda, phonebook,
letter, fax and email.
Other competing systems for the primary function (speech telecommunication) are:
- cordless home set (a reach of about 300 meters)
- walkie talkie
- the NMT analogue network
- satellite systems
- GSM 900 and GSM 1800 networks
- (coming up) Internet.
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Reference situation
With so many features, a standard functional unit becomes quite arbitrary13. A valid
choice could be:
the ability for 1 million people to call and be called mobile during one year, to send
and receive small written messages, to store phonecalls temporarily and to keep up a
personal phonebook.
Assessment by the panel
Environment
Currently there are 3 million phone sets in use in The Netherlands. The average
product life is about 3 years. Each set has a battery, a battery charger and a voltage
adapter. Weights: about 100 gram for the battery, 150 gram for the GSM device, 300
gram for the adapter. Without taking into account spare batteries, car kits and other
accessories like cases, this results in an annual waste of about 550,000 kg. A battery
is charged each three days. Most of the adapters are continuously connected.
A new organisation has been founded (energy and waste). Libertel has built 1500
antenna stations in The Netherlands (energy, view disturbance and electromagnetic
radiation). But there is no copper in the ground. Devices are far more energy
efficient, and hardly any GSM user uses a telephone book anymore. Semaphones
seem to have become obsolete.
Macro level
If one chooses the macro perspective, the environmental picture gets very complicated. GSM
changes behaviour patterns of consumers completely. It offers a large added value as a
service organisation and it is used as an additional infrastructure and service system.
GSM makes people more mobile (emissions, more traffic jams), workers more flexible (less
traffic jams, less working space needed) and car drivers more productive (productivity and
disconnection economy/ecology). It stimulates replacement of desktop computers by laptops
(materials and energy).
At last, GSM is not only replacing traditional devices; often it is additional to the existing
phonebook, corded telephone, fax, etc.
The panel considers that GSM phones score slightly negative (-1) on the
environmental axis (with a high level of uncertainty):
- The communication infrastructure is additional to existing infrastructures (1500
to 2000 transmitting stations for each GSM network in The Netherlands).
- Annual waste of 550 tons is additional.
- No copper wiring needed underground.
- Each battery loading system requires stand-by energy.
- The battery waste contains heavy metals.
- Electromagnetic radiation is under suspicion of being harmful for the human
body, however no research could ever prove that GSM might have harmful
effects on your health.
13 GSM offers a new functionality and behavioural change. Therefore, it is difficult to select a reference system. For
our qualitative analysis, we have chosen the combination of phone booth and semaphone. We realise that GSM
offers more features than that.
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Economics
The market shows an enormous growth. But market share has a high price. The
Libertel distribution shops buy a GSM device for about 160 to 360 €, depending on
the model. They ‘give them away’ additional to a subscription contract.
Additionally, for each new subscription the distribution receives up to 225 € from
the network operator Libertel and the Libertel Service provider. Each month a client
receives a bill. Average fixed amount is about 15-30 €. The calls made and services
used are billed on top of the monthly subscription fee (other subscription formulas
exist also).
It might be interesting to compute the ratio between economic achievement and
ecological impact (E2-vector) of fast growing businesses like mobile phone
companies. A booming company like Libertel invests large sums for building up a
full-covering network. An investment of 500 million € for just the Dutch GSM
network (to be written down in eight years; Telecom magazine June 1997), an
annual turnover of 300 million € (Planet Multimedia, 23 April 1998) and of course a
double-digit return on shares value in the near future could lead to a conclusion that
although to environmental impact is negative at first glance, the E2-ratio probably
has a far better score than within the traditional phone companies. In this project we
do not have the opportunity to research the details necessary for such computations.
Identity & strategy
One of the shareholders of Libertel is a communication specialist. There is no
discrepancy between the organisational strengths and the product requirements.
Libertel goes for an innovative image. Emotional aspects have been provided via a
donation contract for the World Nature Fund (score +3).
Consumer acceptance
In The Netherlands there is a nearly general acceptance of GSM use. Large groups
desire to use it, males more than females. Acceptance in public domains (trains,
streets, and shops) seems lower than in other European countries. It is a product with
a very high-perceived value.
Mobieliquette
In June 1997, Libertel issued a book named Mobieliquette, in which the etiquette of
mobile telephony is described by famous Dutch soccer player and columnist Jan
Mulder. On the last page of the book, the Libertel advice is stated: ´call as much as
you like, but do not disturb anyone else´.
Client acceptance axis: highly positive (+3)
- Clients highly appreciate the new functionality of GSM that guarantees maximal
mobility and freedom.
- Big business, providers all together sell 80,000 subscriptions per month in The
Netherlands.
- However, E/M-risks are taken seriously. New medical results could be a threat
for client acceptance.
Epilogue
We are talking about a system change here. Libertel is a service organisation using
hardware to provide added value. The system change induces behaviour change,
which makes a detailed environmental analysis a hard job. Although we have not
been able to work out a detailed environmental accounting here, from an unlinking
point of view we estimate Libertel to deliver a far better E2-ratio than traditional
phone companies.
GSM does not fit the needs perfectly. The dis-functions are inability to transmit
large data files, battery operation, stolen or damaged devices and a sound quality
lower than traditional phone system against a higher price. But mobile speech
appears to be a value highly priced and worth paying. Offering free GSM devices
help consumers with their initial decision. Just like Gispen adding service as a
producer in the specification phase of interiors.
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4.8. Douwe Egberts Coffee Systems international BV
Douwe Egberts Coffee Systems international BV (DECS) is a division of Sara
Lee/DE. Operating world-wide, DECS is currently successfully supplying coffee
systems to over 40 countries. The head office is in Utrecht, including the majority of
the R&D staff (DECS, 1998).
DECS develops and offers a range of coffee systems for the out-of-home market.
Branded, high quality ingredients (coffee) is the core of the systems approach. The
dispensers and servicing are added for securing the supply of top quality for each
cup of coffee.
Customer requirements significantly differ from location to location. In the
commercial sector (hotels, restaurants, and cafés) demands differ from the industrial
(offices, factories) or institutional (hospitals, education) sector. Therefore, DECS
offers a wide range of solutions.
The Product Service system
In 1986, Douwe Egberts decided to enlarge their scope of activities from
producing and distributing coffee ingredients (beans, sugar, etc), to the
development, production, distribution and maintenance of coffee systems
according to the triangle concept as shown. Development of the dispensers,
cleaning systems, maintenance programs and promotion all became
responsibilities for DECS. Also accessories like coffee cups, ashtrays etc
and training have been offered to the user. Brand and image have become
increasingly important compared to traditional selling points like technical
features.
This strategy has had two important
purposes:
- To be able to control the quality
of the entire coffee making
chain. A stimulation for café
owners to buy a complete coffee
system, is the fact DECS takes
care of issues like HACCP.
DECS considers HACCP as a
trigger or stimulus for their
business.
- To offer total solutions for the
customer and maximise added
value.
With this Product Service system, DECS aims at fulfilling needs rather than selling a
product or a separate service. In our methodology this PS system is considered as a
product and service equally important in fulfilling a function (code PS).
The strategic decision has had a large impact on the customers and the organisation.
Although the user is still responsible for making and serving the coffee, each
dispenser is equipped with a system to assure regular cleaning and maintenance.
An important feature for nearly all owners is the speed of coffee brewing. As a
reminder one should think about the break in a theatre or cinema.
Ingredients
ServiceEquipment
HACCP
HACCP (Hazard Analysis Critical Control
Points) is a prevention system on safe
consuming of food and drinks. The focus of
this system is the consumer. A company
assesses all processes from growing of raw
ingredients to the processing, packing, storage
and preparing of food. All processes are
assessed and administrated on risks and
dangers of biological dangers (fungi, bacteria,
yeast and scum), physical dangers (glass,
metal particles, wood, etc) and chemical
dangers (insecticides, herbicides and
pesticides, cleaning agents, natural toxins).
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The primary function is to serve coffee in a commercial setting. In a traditional
system, a restaurant or café owner buys a coffee maker, coffee and additional
ingredients, and repair services from different parties. The equipment is an oversized
coffee maker like those used in households. Coffee is made in batches of 10 to 20
cups and kept until served in a glass coffee-pot.
Additional functions are to reach a constant quality, to clean and maintain the
equipment, to supply the ingredients and to control safety aspects throughout the
chain.
Reference situation
As a functional unit for comparison 100,000 freshly brewed cups of coffee can be
defined. The user does the brewing and serving: the tender in a hotel, café or
restaurant. In order to be able to sell out coffee he needs al the ingredients next to
equipment that works and is clean.
Assessment by the panel
Environment
DECS believes the PS system to have a slightly positive effect on the environment.
Hygiene aspects are performing better since just just one party controls the entire
chain.
In the panel assessment this PS system has been considered slightly positive too
(+1):
- Environmentally the dominant phase is the use and maintenance stage
- The efficiency of the coffee machine is improved. No heating plate is needed.
- No or less surplus coffee will be brewed and thrown away.
- The service and supply visits by DECS reduce the environmental benefits
somewhat.
Economics
When introducing a new PS system (new brand or concept) DECS takes a time span
of five to ten years. The economic lifetime is very much determined by the hardware
and fashion. Since new concepts are to be introduced all over Europe or even world-
wide, quite some time is needed to achieve a considerable market position.
DECS launches market concepts once in several years. Each needs a lot of training
and human resource management. While some concepts have failed, others are
highly successful. This risk is taken into account during investment decision
processes.
In most cases the user becomes the owner of the equipment. This strategy is chosen
by DECS since owners are considered to be more responsible users. Besides, in the
catering industry it is common to use cash money for relatively small investments. If
a café owner needs to lend money, a bank is a more obvious way.
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For both DECS and the café owner the PS system is considered highly profitable
(+3):
- Due to the guaranteed quality, the brand impact and the product line, the
consumer price per cup of coffee is higher
- DECS role changes from a producer of ingredients (with a relative low price)
into a function fulfiller.
Strategy and identity
DECS have started to develop the PS systems because of market development
reasons and a wish to increase turnover. The system approach has turned out to be
adequate today, when companies focus on their core business.
The strategic change required an organisational change. DECS have become more
internationally oriented and has set up a much larger service organisation. A lot of
training has been necessary and a shift has been made from a retailer organisation to
a project organisation.
The company's identity has been broadened from ‘DE’ to ‘DECS’. The extension
‘Coffee Systems’ to emphasise the business-to-business focus.
The panel considers that the system approach scores positive (+2) on Strategy:
- The internal motivation has been important for the change.
- Internal acceptance has been high.
- DECS have changed rules of the coffee game.
- Introduction has initiated a differentiated market approach.
Customer acceptance
A majority of the users has accepted the system approach. They spend less time on
coffee brewing, thus being able to focus on the core business: taking care of
ambience and atmosphere. When the visitors appreciate the ambience, there is
willingness to pay more for drinks and food. However, scrooges still prefer to keep
everything in their own hands.
As a spin-off consumers buy the same brand for home consumption.
In the panel assessment the client acceptance was considered positive (+2):
- Constantly a higher quality of coffee.
- DECS takes care of hygienic issues throughout the chain (HACCP).
- Speed of deliverance a cup of coffee is higher.
- Differentiated market approach is needed; some consumers will not accept the
higher price.
Epilogue
DECS’s strategy gives them a higher influence and responsibility of the market.
They take care of some of the difficulties of the clients, but charge a price for that.
Outdoor food and drink markets offer big opportunities for PS systems. The
turnover of food and drinks consumed is in the Netherlands already higher than the
turnover for home consumption. In the near future also the amount of food and
drinks consumed outdoor will be higher than home consumption.
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4.9. Wascators by Electrolux
Electrolux is one of the world leaders in the market for home appliances
(refrigerators, washing machines, ovens, vacuum cleaners, etc), powered devices for
gardening and forestry and commercial appliances (products for professional
cooking, refrigerators, cleaning and washing). Electrolux has 106,000 employees
world-wide, together manufacturing and selling more than 55 million appliances.
Annual sales are more than 13 billion Euro.
The Product Service system: planning and running a laundrette
Electrolux washery services are part of Electrolux Professional appliances14. Since
1988, they work on upgrading laundrettes in the Netherlands (Van der Linden,
1998).
Very often laundrettes are dingy places in grimy areas. Electrolux now helps
initiators to start a new laundrette in attractive areas (in shopping areas), or to
upgrade old ones. These laundrettes look more attractive, are equipped with modern
machines, and offer extra services like ironing and delivery. Electrolux supply
complete solutions for customer’s laundry requirements. This approach includes
equipment, installation, training, suggested layouts, support on environmental
permits, market survey, service, guarantees, and financing.
The initiator becomes the owner of the laundrette and is therefore responsible for the
running and the financial risk. He can have a contract with Electrolux for
maintenance and repair of the machinery.
Electrolux have its own internal bank for financing laundrette entrepreneurs. This
bank can offer more attractive loans than a regular bank. Regular banks do not
consider laundrettes as a viable way of business. Since most initiators of laundrettes
are newcomers, Electrolux use the lease concept as a sales tool. The number of lease
contracts nowadays is about 10% of the laundrettes, but is expected to rise to 20% in
five years. This goes also for institutional washing services, e.g. homes for elderly
people and disabled.
Laundrettes have a small piece of the complete washing market in the Netherlands.
Most of the professional washing is done in washeries or on location, in which
Electrolux have a market share of 25%. Most of consumer washing is done at home.
A modern Electrolux laundrette, called a ‘Electrolux Wascator’, has on average six
machines with six-kilogram capacity, one machine for 12 kilogram, three or four
tumble-dryers for 14 kilograms. Such a laundrette is sufficient for an area of about
15,000 people. To make a laundrette feasible it would be advisable to have some
professional customers (butcher, small hotel) within this area. Equipment for
laundrettes is more advanced than washing equipment for household applications.
This not only goes for the washing machines, but also for dryers and ironing
equipment.
Electrolux washing machines have a capacity varying from 5.5 to 32 kilograms and
cost between € 3600 and € 450,00. These machines are constructed in such a way
that water use is based on the load of the machine. Due to the fact that in a
laundrette several washing machines are installed it is profitable to use a central ion
exchanger. By removing calcium and magnesium from the water, less detergent is
14 Electrolux Professional Appliances is the Dutch name for Electrolux Commercial Appliances
72
needed. Another feature of laundrettes is the use of an industrial water boiler with a
fuel gas valve15. In the past, less economic gas dryers were used.
Washing machines for laundrettes have a lifetime of about 30,000 hours; three times
higher than washing machine for household applications. Electrolux are willing to
take care of discharged machines. Up till now these machines are taken to a scrap
yard.
Functions of the Product Service system
The primary of a Wascator is to have one's garments washed and dried. Additional
functions are the ironing of clothes, delivering and even offering social contact.
In the case of the Electrolux Wascator, two Product Service systems can be
distinguished:
1. Selling professional washing equipment accompanied by a support
program for those entrepreneurs who start a new laundrette. This can
include a lease contract. The producer helps retailers to improve the
performance and image of the products and services.
2. Selling washing equipment to laundrettes for consumer washing.
Most laundrettes have full-service as well as self-service possibilities.
Most laundrette owners prefer service, since the professional handling
reduces total charge time of a washing load.
For this report we have chosen just the washing in the laundrette,
because it is expected to have an environmental effect.
We have made the following assumptions:
- The consumer (self-service) and the laundrette staff (full-service)
both handle half of the laundry.
- At the laundrette, laundry is washed and dried.
- Washing is done in an average Electrolux Wascator laundrette as
described above. In the case a laundrette has five machines of 6.5 kg
and one of 12 kg the average load is 7.4 kg.
In a self-service laundrette consumers share the use of washing and drying
equipment. This is functional use, not owning the product. In the case of full-service
laundrettes, it is considered entire client satisfaction by provision of products,
auxiliaries, ingredients and services.
Reference situation
In a traditional system, washing and drying is done at home. Assumptions for home
washing are:
- laundry is done in an average home washing machine for 4.5 kg or 5 kg
- 40% of the laundry will be dried in a home tumble dryer (current market
penetration of tumble dryers is 53% (EnergieNed, 1998), although thumble-
dryers are not used for all laundry. 60% will be air dried
As a comparison between a laundrette and home washing an average washing
amount of 1000 kg per year is taken. This means 135 charges at a laundrette or 210
charges (between 4.5 and 5 kg) at home.
15 When using a fuel gas valve, the exhaust pipe is closed as soon as the input of gas is closed. The hot fuel gas
present will fully be used to heat water, instead of disappear to the surroundings.
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Assessment by the panel
Environment
The environmental effects of a laundrette are considered slightly positive (+2) by the
panel. The washing process, including to use of water, detergent and electricity is
much more efficient than home washing. Electrolux presumes the same based on the
water efficiency, the central ion exchanger and central heating of water and dryers.
On the other hand, laundrettes will give rise to more mobility to the laundrette by the
customer or the laundrette owner (in case of a delivery service).
Economics
Succeeding in bringing household work into the economic loop indicates a growing
perceived value for clients. The panel regards an increase of washing (and related)
services therefore as highly beneficial (+3 on the economic axis). The washing
becomes an economic activity, instead of being a household occupation. For
Electrolux the turnover for household washing machines decreases; on the other
hand lease contract offered to laundrette owners bring revenues. Producers of
detergents, water and electricity find their delivery to decrease. For them, the
changes are marginal to their total market.
Strategy and identity
The decision to support laundrette entrepreneurs is a strategic one. It is beneficial to
the entrepreneurs as well as to Electrolux. For the new comers, the support enables
them to start their own business. For Electrolux it is a means of getting revenues
from bringing a household activity into the economic network. In addition, a
successful laundrette works as a selling window for other Electrolux products.
Consumer acceptance
Laundrette services are addressed to well-specified groups of consumers: students,
‘dinky’s’ (double income, no kids), singles and small businesses having a lot of
laundry (hotel, restaurants, etc). Upgrading laundrettes won't bring a massive change
in acceptance within these groups. It just helps to (re)gain market share.
Epilogue
The economic and environmental aspects of this Product Service system will be
discussed in detail in Chapter 5.
For Electrolux the Wascator is a dominantly strategic PS service. Both
environmental and economic affects are regarded as promising by the panel. The
market opportunities of laundrettes are household activities that are increasingly
professionalised. In this context we can refer to custom made curtains and boarding
out cleaning, children parties, baby-sitting and walk-a-dog (professional services for
taking out one's dog).
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4.10. Carsharing
In Europe most cars are only used to drive 3 to 5% of their life span. They stand still
for about 23 hours a day (Muheim, 1996). Already in the 1940s, experiments were
carried out with sharing systems like Sefage (Zurich), coin-cars, and experiments in
Montpellier and San Francisco. Due to the demand-oriented and market-proof
mobility strategies, car sharing started a new life during the 1980s. Arguments for
participants in these systems are lack of parking place, ecological motives, and
flexibility in mobility. The first successful European initiatives started in
Switzerland.
In cars haring, a group of participants uses a pool of cars. This pool can
be as small as one car in the case of a private initiative. In commercial
situations, the participants pay a subscription and a fee for the time
and/or the distance driven. In the Netherlands, many carsharing
systems exist, which together had 23,000 participants in June 1997.
Over 500 parking places for shared cars exist in the Netherlands
(Mentink, 1998).
Commercial carsharing is offered by traditional car rental companies as well as new
businesses and within companies (KLM’s Wings-and-Wheels as an internal
carsharing system, ANWB has a fleet of cars for internal and private use). One of
the best known new businesses in this field is Greenwheels who offer carsharing in
the four biggest cities of the Netherlands: Amsterdam, The Hague, Rotterdam and
Utrecht. The motives for the entrepreneurs are care for the environment, offering a
solution for parking problems as well as expansion of turnover.
The Dutch government stimulates carsharing. Local authorities consider carsharing
as one possible solution for parking problems in densely populated areas. A normal
car takes an average of more than 3 parking places, which is an area consuming
phenomenon. In Amsterdam however, one parking place is offered for a carsharing
initiative for at least 10 participants.
The central government is interested in the environmental spin-off, as well as the
reduction of mobility in general. For instance the Dutch ministry of Transport,
Public Work and Water management supports the organisation for shared car use
(Stichting voor Gedeeld Autogebruik) and contributes to promotion campaigns.
Definitions for shared use of cars:
- Autodate: Dutch word for different forms of carsharing.
- Carsharing: a group of people uses a pool of cars. This can be commercial
(Greenwheels) as well as within a company (KLM’s Wings and Wheels) as non-
commercial within a group of friends or neighbours.
- Carpooling: people driving together in a car at the same time, the car is owned (or
leased) by one person.
- Carrenting: hiring a car for a period of a day or more from a commercial
organisation. Often these organisation offer subscription services as well as
delivery at home (Call-a-car, or AutoDelen Amsterdam)
- Shared car use: the British word for carsharing.
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Functions of carsharing
The essential feature of carsharing is the fact that mobility instead of a car is offered.
One uses a car when one needs one, without owning one. Also costs are in
correspondence to the travelled distance (or time). In contrast to hiring, carsharing
uses a pool of cars for a group of participants and the using time can be as low as
one hour. The cars are equipped with electronic devices so the user can take the car
from a parking, drive it, filling the petrol without the intervention of someone else.
Once a month the user receives a bill in which all costs are included (petrol, time of
use, insurance, contribution to raid service, etc). Carsharing suits people with a low
mobility demand (about 10,000 km per year) and a low user’s frequency (less than 3
times a week) (Stichting voor Gedeeld Autogebruik, 1997).
Since carsharing sells the utilisation of the product, it demands a new approach to
product design. Carsharing provides part of the mobility of its participants: this is
part-time use and part-time ownership. Since essentially mobility is offered,
companies like Greenwheels co-operate with the Dutch railways.
In the traditional situation, either someone owns a car or uses the public transport
system and uses a car occasionally. In the Netherlands, the following
picture holds:
- about 6 million cars are privately owned,
- 800,000 cars are under a lease contract,
- many use a car on a temporary basis. This means lending from
friends, family or neighbours (450,000 people per year), 50,000
lending on a regular basis (sometimes with paying), and more than
100,000 people per year hire a car for a period of a day or more,
- new car-sharing concepts (pooling a car within a private initiative
and commercial carsharing) have approximately 25,000 participants.
Reference system
Changing (from own car or no car) towards carsharing has consequences for the
number of cars needed to fulfil a certain need for mobility. It even turns out to cause
a total change in mobility patterns.
The reference situation can be determined by looking at the mobility of participants
before they were participants of commercial carsharing systems. In this case study, a
person is considered who wants to choose between replacing his old car, buying his
first car or becoming a participant of a carsharing system. Non-commercial activities
are not considered.
The user or participant does not own a car himself, but becomes a participant of a
fleet of cars. In the Greenwheels and other carsharing systems 1 car is used for about
15 participants.
ad hoc
lending
non-
commercial
carsharing
regular
lending
renting carsharing
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Panel assessment
Environment
The researchers estimate that carsharing has a small positive effect on the
environmental pressure caused by mobility: +1 on the axis:
- Dominant environmental load by using the car (environmental effects per km)
- Less mobility by cars , more public transport
- Less cars need to be produced, maintained, repaired and disposed
- Less parking space.
Economy
On company level, carsharing has a positive score (+1):
- Carsharing introduces a new service that is appreciated by a small but growing
number of client (niche market).
- The new system adds economic value (high km/hour-price plus monthly
subscription fee) that covers the costs of the system at growing number of
subscribers
- Increase of employment due to service back-office.
From a macro perspective the picture is less positive (-1):
- Due to the reduced use of cars, economic activities like production,
maintenance, repair and disassembling will come under pressure. Suppliers of
Total mobility or car mileage of (potential) car sharing participants is difficult to define.
Results of others are listed below:
- A Dutch evaluation program concluded that the average auto mobility of participants is
10,080 km, for those who had a car before (Meijkamp and Theunissen, 1997). This
represents the average need of prior car mobility of a participant who chooses between
buying a car or becoming a participant.
- Financial breakpoint between owning a car and a representative way of car-sharing
(Greenwheels, or discount possibilities at regular car hiring companies) is between 10
and 15,000 km per year (Consumentengids, 1996). International surveys show cost-
effectiveness at varying between 6830 km (Baum and Pesch in Muheim, 1996), 9000
km (AutoTeilet Genossenschaft Switserland), and 18193 km Peterson in (Muheim,
1996).
- CBS assesses the yearly average mobility per vehicle in the Netherlands. This is of
course an averaged distance, which causes a few difficulties: participants of car-sharing
systems are not average. The number of persons per vehicle is unknown. Meijkamp
studied frequency of car use. This information was hard to translate into car mobility
per year.
- It is assumed is that participants of a car sharing system drive 30% less compared to the
reference situation. Meijkamp and Theunissen (1997) found 33%, while in a car sharing
system in Berlin a 42.1% reduction was achieved). Since the average Dutch mobility by
car is 16,560 kilometre per year (CBS, 1995), the mobility of car sharing participants
should be 11,592 km per year.
77
car parts will generate less turnover, etc. As a positive effect, more people will
take lessons to get a drivers-licence.
- Car sales can be expected to go down on the longer term.
Strategy and identity
For the automobile sector, carsharing is a new player. Therefore new strategies and
identities arise:
- As the traditional actors in the automotive industry (sales and hiring) showed
much hesitation to embrace the carsharing concept, new organisations such as
Greenwheels had a leading role. They are small and lack financial power.
- Initially there were aggressive responses of car hiring organisations. Today, the
new actors meet growing competition from traditional player with similar
market offers.
- Support of Dutch Railways.
Overall this gives a positive score (+1) on this axis.
Customer acceptance
For a specific group of clients, carsharing offers a new possibility for their need for
mobility. This group however, is small compared to the total auto mobility in the
Netherlands. For this reason the client acceptance is slightly positive (+1).
- A car is a status symbol (high emotional value) and many people want a car in
front of their home (convenience).
- Small market, but annual market growth is high (30% additional subscriptions).
- Parking problems are solved, no need for individual parking permits (limited
and expensive in the big cities).
- The client has a wide choice how to fill in his needs for mobility
- Today, carsharing subscribers are mainly critical highly educated people in big
cities. They could have an emanation to a greater audience.
- Carsharing can be a good alternative for small villages were public transport is
not available (any more).
Epilogue
Carsharing is a interesting and promising concept. The market for mobility is very
large. Even a relative small market share could bring interesting business
opportunities.
Transport is responsible for major expenditure in both the household and company
budget. The environmental impact of transport is high. Carsharing is expected to
provide more effective mobility solutions, mainly as result of the changing habit
patterns of its participants.
Chapter 5 will describe this case into more detail, providing a better understanding
of the economic and the environmental effects.
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4.11. Timesharing of luxury yachts
Luxurious goods like yachts, large caravans and private aeroplanes are not
particularly associated with good environmental practice. Often, responsible
environmental care is synonymous with austerity. Especially design and architecture
disciplines have expressed that for decades by a very strong modernism and
supermodernism style. So a private (wooden) sailing boat in the eyes of the Dutch is
definitely a sign of civilisation. Powered (polyester) yachts are quite the contrary.
Reality of today is that our harbours are filled with luxurious yachts, our campings
with caravans, and private jets do exist even in Northwest Europe.
We see that a growing number of people participates in what we can qualify a
luxurious way of recreation. They want to travel, rest, spend time with friends or
want to meet new people (social aspects).
In this report we focus on collective ownership (time-sharing) of boats, whether
powered or not.
The average use period of yachts is annually 30 to 35 days. That's not even 10% of
the time. These 10% days apparently are so important to the owner that the 90%
non-use is accepted. TMC is a consultancy specialised in adding financial,
organisational and legal services to yacht-owners in such a way that collective
ownership becomes a very serious option (Lohman, 1998). This makes boats a
means of recreation for a larger population and a means of social club forming.
Function of timeshared boat ownership
In case of subscribing to a carsharing system, function fulfilment is offered. One
buys the use of a car, not the ownership. The user group usually stays anonymous.
There is no strong bond between product and payer. Therefore, it may not be the
answer to your basic desire to possess a luxury good.
In case of timeshared ownership this differs. A distinct legal entity, an association, is
founded in order to buy the durable. This enables to make legal arrangements for a
wide variety of events. Co-owners (approximately 8 persons) buy shares and
attached to these, the partial right to use the durable, for instance during 80 days.
Co-owners are the association's officers.
The function of a timeshared ownership () is to own a product that serves you
during holidays, to have the legal right to call it yours, to share experience with a
selected group of co-owners and to reduce boat costs.
Traditionally one buys or rents a boat. Boats that are bought generally stay in the
harbour for over 90% of their time, not being used. In case of renting, the average
application rate is of course much higher.
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Panel assessment
Environment
Defining the reference system is quite tricky. The simplest reference is a part of the
co-owners buying a cheaper yacht on their own, and others hiring it every now and
then. Every owner pays for stalling and maintenance services (e.g. anti-fouling)
separately.
However this is likely an unrealistic reference. Since boats do not represent basic
needs people probably switch very easily spending their savings on other products or
services: a cruise, high-end travelling, or even buying an old-timer car. So perhaps
the best would be to compare with the average environmental load that is caused by
this consumer group during spending their leisure time. Here our defined E2-vector
is useful.
Adding the legal service is supposed to be insignificant for the environmental.
Since this case represents a group of solutions, the panel has no opinion in general
about the environmental burden of timeshared boats. It should be judged case by
case.
Economics
For owning a ship of, say 12 meters, fixed costs are about € 14,000 per year (costs of
buying, maintenance, dock dues, etc). Timesharing this ownership divides this
amount by the number of co-owners. Each co-owner funds his or her buying share.
As result of the legal construction, a co-owner is not liable for other’s stupidities or
accidents.
In the concept of TMC each co-owner buys ''usetime tickets'' and has the right to sell
these to or trade them with his/her fellow owners. Prime time tickets are more
expensive than others are.
At company level, the panel expects overall economic potential to be limited (0)16:
- On the one hand a timesharing system will compete against traditional hiring of
a boat and selling a boat to a single customer. From both sites, the market is
under heavy pressure.
- Overall, we expect that the commercial value of time-sharing will remain
limited. However, a perfect network, communication and selling approach could
prove that our score is to negative.
Identity and strategy
Strategy and Identity aspects are judged as negative (-2).
16 From a macroscopic level, time-sharing will yield into reducing the total amount of added value as hiring
and selling to single clients are expected to create more value. For regional economy, the economic value could be
positive in case the co-owners would spend their holiday time here instead of in exotic countries.
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- The yacht building industry is a traditional sector. Timesharing is a new
‘service’ concept. Specialised intermediates are needed to deliver the PS system
to the market. Compared to the situation of a single buyer, it is a complicated
way to sell a boat.
- Third parties like TMC consultants could catalyse the introduction of
timesharing, but they will need strong partners to turn over the sector to
incorporate this concept.
Consumer acceptance
TMC states that over 20% of the cases a Dutch private yacht is owned by more than
one owner. TMC estimates the market for renting six times larger than buying. This
should indicate a large market for timesharing.
Client acceptance is regarded as slightly positive (+1) by the panel.
- Most yachts are used only several weeks a year; the system offers almost full
functional use of a luxurious yacht, sharing the costs with others.
- A yacht is a status symbol, with high emotional value. Timesharing people are
considered to be smart entrepreneurs.
However there are serious drawbacks for market acceptation of the sharing option:
- Regularly hiring a boat is much easier and does not ask long-time commitments.
- Many discouraging examples of corrupted real estate agents in exotic countries
have made consumers and NGOs very suspicious. Additionally private boats do
not fit automatically in our cultural communis opinio.
- Finally, timesharing is still a white spot in the Dutch law.
Epilogue
Time-sharing offers functions that match the human desire to own luxurious goods
and build up an emotional bond. Focussing on time-sharing of luxurious goods
shows dilemmas of traditional environmental optimisation thinking. Our E2-vector
concept (connecting environmental load with economic value) turns out to be useful
rather than LCA alone, although the reference situation is quite hard to define.
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4.12. The Chipper electronic purse of Postbank
In The Netherlands, Postbank has a share of 50% of all bank accounts. This means
about 7 million clients. Electronic payment in shops has been organised quite
differently from other countries. While in most countries credit card companies like
Visa and MasterCard have taken over the electronic payment market, Dutch banks
(Postbank included) have defended themselves effectively with a distinct card
system, the so-called PIN-pas. A magnetic stripe on the card identifies the user. The
shop-owner automatically contacts the bank to see whether the client's balance is
favourable, and then instantly money is electronically transferred from the user's to
the shop's account. It's a debit system rather than a credit system. The Dutch have
adopted this system massively, since it's cheaper and faster.
In 1997 Postbank introduced the Chipper as a card for small amounts. The well-
known PIN-pas had been enriched with a microchip and memory positions. This
memory acts as an electronic purse. Other Dutch banks have since then introduced a
similar card: Chipknip (Dutch for Chip Purse).
Function of the Chipper
The Chipper is a product. It's part of the PS system called giro account. For this
case, we concentrate on private use having four functions. Firstly it acts as the
familiar PIN-pas: a handy means of identification needed during real-time giro
transactions in shops and pubs. This part of the system is used for payments between
35 and 500 guilders.
Secondly the Chipper acts as electronic purse for small change. The memory
contains information representing ready money: bits and bytes in stead of coins and
paper. The charging of the Chipper is done in public (adapted and everywhere
available) and private telephones and special chargers for home-use. The Chipper's
small payments are not made instantly, but transmitted batch-size. PIN-transactions
are cheaper than credit card transactions. Chipper-transactions are faster and cheaper
than PIN-transactions.
Postbank's aim is to introduce the Chipper in all places where electronic payment is
possible: parking, vending machines, libraries, public transport, and so on.
Thirdly the Chipper is meant to be introduced as a safe and cheap means of distant
identification (where signatures are now needed) and distant authorisation for distant
payments. Useful for renewing your driving license, tele-ordering by telephone or
Internet, etceteras. In case of moving, the user can change the address and town
name data himself in the microprocessor (in the near future).
Fourthly the Chipper can contain data for third parties. The chip's memory positions
can be rented out by Postbank, for instance for trading stamp book use or
subscription details.
Reference situation
Just now the Chipper is slowly gaining market share. The charger infrastructure has
been put up. As a reference we take the situation where the Chipper is massively
used as a means of small change payment and identification (which might be the
case over five years from now).
As a reference we chose:
1. Payment of 2000 amounts of € 16 (Dfl. 35) with an average of € 8 (Dfl. 17.50.)
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2. Take out of € 16,000 by 200 portions of € 80 (Dfl. 175).
3. Identification in 100 various situations.
4. Keeping up of two trading stamps books during 2 years.
Alternative options
The end-user has options for all four functions.
Payments
The traditional purse delivers small change up to € 16 (Dfl. 35). This system
includes: coins and notes, cash register, safe and sorting machines at the local bank,
security vehicles, check and packing machines at the Dutch National Bank. The
Dutch use the PIN-system occasionally for small amounts. Credit cards are hardly
used for this.
Despite the rich possibilities, the Chipper lacks some functions as well. The
substantial feeling of coins and notes (weight, symbols, and tradition) disappears.
Tips reduce. Street musicians won't favour the system either.
Taking out cash
Taking out cash (typically € 80), with the Chipper is done in:
- public phone booths on the streets
- chargers developed by Postbank
- home used chargers (connected to PC with modem or telephone)
This will partly take over the cash points in the centres of town.
Identification
The identification now is done by means of:
- travelling by bike, car or public transport to town hall, post office, etc.
- credit card identification via Internet or telephone.
Trading stamp books
Trading stamp books are mostly designed as electronic card programs.
Qualitative assessment by the panel
Environment
The panel discussion has lead to an environmental score as slightly positive: +1.
The Chipper replaces any traditional identification papers like passports. It replaces
notes and coins, and travelling by bike, car or public transport to townhall,
postoffice, etceteras.
Postbank expects a decrease of ready money: less nickel, chrome, copper, paper,
security transports, people driving their vans to empty vending machines. For help
yourself sites like parking meters and vending machines Postbank foresees a market
share of chipcard-payment of nearly 100% within 5 years. The change from guilder
to Euro will contribute to that: the machines must be changed anyway. For public
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transport Postbank foresees a dominant share as well. Shops will keep up four
systems: cash, PIN, Chipper/Chipknip and, with a small share, credit card. In shops
Chipper/Chipknip should be able to take 50% of payments under € 11,5 (Dfl. 25)
within 10 years.
A new administrative organisation has been established for the Chipper. About 225
employees have tasks like: service the infrastructure and market the Chipper system
abroad. Parts of the client service department (i.e. card supply) and the call centre
are carried out by the back-office organisation of Postbank.
21,000 public phone booths do not need extra materials or energy use due to the
Chipper extension. About 4.500 outdoor chargers from competitive banks have
especially been installed for their competitive Chipknip infrastructure.
The home chargers have especially been designed. About 12,500 have been sold up
to now. This charger has dimensions like a small telephone. This telephone should
partly be accounted to the Chipper system, since it's a normal telephone as well, with
storage of phone numbers and an answering machine. Dimensions and materials of
this phone: about an average telephone. In 10 years about 2,5 million Chipper
telephone-chargers will be needed.
An electronic reader (dimensions like a key ring), enables to read the user's balance.
About 3 million readers will be supplied (for free) with an exchangeable battery.
A few million Chipper cards (PVC laminate) have been provided. It has been a
complete update of all traditional PIN-cards. Each Chipper has been send together
with paper memory help for five 4-digit identification codes.
Economics
The panel discussion has lead to an economic score of neutral (0).
As far as we know no ROI estimates have been done. Aim has been to reduce
payment costs. Chipper/Chipknip can be regarded as medium-term investment by
the banks.
Postbank hardly earns from the Chipper; cards are supplied for free and the price of the
charger is sponsored. Chipper pays the installation costs at the retailer (average installation
costs € 70). If 150,000 retail spots accept Chipper payment, Chipper expects 7 million Euros
installation costs. Charging the card through telephones costs € 0.10 per minute. The seller
can choose: either to pay 8% per transaction, or € 0.05.
Since transactions are transmitted batch-wise, very low amount telephone costs are
accountable to each client's payment. Each retailer pays monthly € 7 (Dfl 15) for
subscription. The end-user only pays as soon as he (she) buys the Chipper telephone or a
dedicated charger. A charger costs him € 23 (Dfl 50). A Chipper telephone costs € 70.
Supplying free balance readers costs Postbank about 1.1 million Euros.
Chipper telephones are sold via a distinct distribution channel (so-called Primafoon shops).
Adapting public telephone booths did not lead to explicit costs.
General promotion costs about 5 million a year. Helpdesk costs are difficult to estimate
since it has been integrated in the general helpdesk of Postbank.
Costs for collecting and recycling cards as well as recycling of electronic devices are
unknown yet.
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Identity and strategy
The panel discussion has lead to a strategy & identity score: highly positive (+3)
The Chipper organisation has been established 3 years ago, especially for the
Chipper-system. For this, Postbank, KPN Telecom and ING-bank had formed a joint
venture. Strategically spoken the aim has been to innovate in order to defend against
new entrants in the market: other banks and creditcard companies. The Chipper is a
strategic offence. Chipper has helped to strengthen the innovative image of
Postbank.
Client acceptance
Panel discussion has lead to a client acceptance score of: slightly positive (+1)
Hardware enthusiasts amongst all target groups have adopted the system first. (“But
they are only 100,000 amongst 6.5 million clients”). Massive client acceptance is
not yet realised and is not expected at short term. Slowly payments are rising each
month. The media still react very sceptical. Advantages over ‘real money’ are still
small. Chipper still has quite some way to go towards general adoption. The panel
believes that acceptance will rise (more or less by force) as soon as public
transportation will be paid electronically by chipcard, as parking meters and vending
machines.
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4.13. Koppert: Biological Pest management
Biological pest management using natural enemies
Koppert, a family business established in 1967, is the international market leader in
the field of biological crop protection and natural pollination. Large-scale
production of natural enemies and pollinators takes place in modern production
facilities. Systematic testing in Koppert's own laboratories ensures both quality and
continuity. In the field of packaging, transport and storage-life, Koppert proves to be
innovative and authoritative time and time again.
Customer satisfaction is essential for Koppert: growers must achieve results with
biological control and natural pollination. Advice, guidance, provision of
information, and training helps to achieve these goals.
Today, integrated pest management is used by approximately 90% of the Dutch
growers. This is a good step toward growing fruit and vegetables with fewer
pesticides. However, the use of chemicals is not abandoned.
"Bio-plus" of Koppert is state-of-the-art in biological control. It includes a
"biological system" that describes how different natural enemies can best be
introduced for different diseases or pests. Insecticides or acaricides are no longer
needed, not even in the nursing of the plants.
It is the latest type of service currently tested and offers a complete biological pest
management solution for greenhouses. It needs strict checks (so called “scouting”)
on the condition of the plants, done by Koppert’s advisors or by the growers. The
success is depending on many factors such as the climate in the greenhouse,
sunshine, type of crops and the use of pesticides (also by neighbouring growers).
In the test phase farmers paid an fixed fee per hectare with no additional charges for
the use of natural predators.
Functions of the PS system
Koppert identified several supplementary functions for their Bio-plus service:
Marketing
Complete biological pest control is attractive for supermarkets that wish to promote
themselves as environmentally responsible. Growers who follow the Bio-plus
programme hope to obtain market reference in a highly competitive market.
Educational
Regular courses are given to teach growers ho to recognise certain pests and how to
control them with natural enemies. CROP-it software is developed to support this.
Further posters and a website are developed as additional information sources.
Mentoring
A personal advisor/mentor visits and advises the grower on a regular basis.
Reference situation
There are several methods to control diseases and pests. In decreasing order of
application of chemicals, these are:
1. Supervised control: Chemical control when observations show that a disease or
pest may cause economic damage.
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2. Integrated control: Control of diseases and pests at acceptable levels, using a
number of techniques (including biological control). The techniques used are
chosen from an economic point of view, but are nevertheless environmentally
sound. The use of chemicals is minimised.
Other ways the PS system can be described are simply not spraying, giving huge
product losses. It is also possible to buy loose “natural enemies”, but this doesn’t
give the support Koppert gives and involves a great risk as generally a farmer does
not have sufficient expertise.
Assessment by the panel
Environmental analysis
Koppert identifies as most important environmental aspects of the Bio-plus system:
1. -no pesticide use
-no residues left on the produce
-no sprays to the environment
2. better occupational health
As greenhouses have a high consumption of pesticides the environmental gain can
be high (highest panel score: +3).
Pesticide use in the Netherlands
Farm type Active substance (kg/ha)
Open air vegetables 16.3
Greenhouses 77.7
Mushrooms 106.9
Economic analysis
Currently the Bio-plus option is € 0.7 per square meter (Dfl.1.50). This is € 0.1
more expensive than normal integrated pest management. For first experiments
subsidies were given and Koppert agreed to cover all costs above € 0.7. However the
difference is too much for commercial success without any subsidies or regulatory
measures. For this reason Koppert had the Bio-plus nominated as a environmental
reference project17 (Senter, 1998).
Currently a certification scheme and label is set up to enhance the visibility and
marketability of biologically protected produce, so that higher prices might be paid
to cover for the higher costs (Slightly positive score by the panel: +1).
Strategy and identity
The PS system is mainly strategically driven (highest panel score +3).
Koppert’s change to a more market and service oriented company was started by a
change in management. Development of new products is now related to market
demand. In the past it used to be research driven. The change involved additional
training for personnel and investments in classrooms and supporting tools like
17 This Subsidy program is for market introduction of environmental technology from SME’s and financed by the
Ministry of Economic Affairs.
87
software, a website and Intranet facilities for customers. Responsibilities have been
delegated from management levels to lower levels.
Consumer acceptance
Most clients of Koppert do accept the approach, but price differences may still be
too high in some situations. This yields a slightly positive score (+1)
Epilogue
Koppert has incorporated a very innovative strategy that has positive contribution to
the environment. Customer acceptance turns out to be the critical factor, partly as
result of higher prices, partly as result of the new concept. Growing interest of
consumer for eco-food and quality food may be expected to stimulate the acceptance
of this new PS system.
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4.14. Conclusions on ten examples
The ten cases in this chapter illustrate the potential of PS systems for a more
sustainable economic growth in the future. In six of the analysed cases, the panel
assessment shows positive scores on both the environmental and economic axis.
These are printed bold in the table below that summarises all panel scores. Again we
emphasise that the panel discussion always yield subjective results.
In the next chapter, three of the cases with both positive ecological and economic
scores are analysed quantitatively by the E2-vector concept. These are: Odin’s
organic food subscription, Greenwheels’ carsharing and Electrolux’ Wascator.
Environmental
effects Economic
effects Identity and
strategy Customer
acceptance
Odin Holland B.V
Organic food by subscription +3 +1 +2 +3
Gispen and Rgd
Hotel Office +1 +1 +2 +2
Stybenex
EPS lay-out plan and take back service +1 0+1+1
Libertel
Free mobile phone set -1? +3 +3 +3
Douwe Egberts Coffee System
Coffee systems +1 +3 +2 +2
Electrolux
Wascator +2 +3 +2 +1
Greenwheels
Carsharing +1 +1 +1 +1
TMC
Timesharing luxurious yachts ?0-2+1
Postbank
Chipper electronic purse +2 0+3+1
Koppert
Bio-plus, biological pest management +3 +1 +3 +1
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5. Quantitative analysis of PS system
examples
Our project started with the idea that a shift to Product Service systems is a good
way to lower environmental load per unit of value. We have taken three examples to
study the value of this premise. These examples were also described in the previous
chapter.
- Carsharing
- Laundrette-service
- Vegetables by subscription
The environmental load is expressed as milli-Eco-indicator points (Goedkoop,
1995), abbreviated as mPt.
5.1. Carsharing
On page 74 a description and assessment of carsharing was given. As we already
noticed the functional unit in a carsharing system is a complex one.
If we want to compare the competitiveness of the carsharing system in combination
to the environmental impacts, it is best to select a representative group that decides
to join the system. This can be done both byselecting people who did and who did
nothave a car of their own before joining. For the first group the mileage will
decrease, for the second group the mileage will increase (Meijkamp, 1997). If we
want to analyse the full effect of the introduction of this PS system, we will have to
take both groups into account. For both groups it seems valid to assume that their
appreciation of the carsharing system is high as they made the transfer to the new
system by free choice.
In this case we are fortunate to have a very elaborate and detailed study at our
disposal: (Meijkamp, 1997) compared the behaviour of people who joined a
carsharing system with the behaviour they had before. For people that joined the
system Meijkamp observed the following average effects:
- A decrease in the average transport distance by car: from 708 to 475 km that is
33%.
- A very modest increase of the use of public transport, from 660 to 730 km per
month, or an increase of 11%. This low increase can probably be explained by
the fact public transport is mostly used for commuting. The data only specifies
the frequency of use, so the distances can only be estimated, when we assume a
train ride is 42 km, a regional bus ride is 10 km and a city-bus ride is 3 km.
- A decrease of the number of cars. Before the system was introduced the number
of cars in the group was 1296, after introduction of the system the number was
380. This means a reduction of 75%. Although this figure tells us how many
cars are used at the same time, the total consumption of new cars is not
determined by this figure, as th