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Product Service systems, Ecological and Economic Basics

March 1999

Authors:

Mark Jacob Goedkoop

PRé Consultants BV

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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

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

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

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.

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.

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.

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

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

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

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.

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.

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.

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.

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.

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.

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.

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.

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.

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).

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).

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

- 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).

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.

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.

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.

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.

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.

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.

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;

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.

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.

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.

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

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

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?

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.

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.

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

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.

− 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).

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.

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.

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

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

Unlinking

Value creation

Environmental load

Reference

PS System

Line A

Load decrease

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

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

SR VV

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

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.

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.

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

- 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?

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

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

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.

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.

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.

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.

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.

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.

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.

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.

- 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.

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.

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.

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.

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).

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.

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.

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

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.

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).

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.

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

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.

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.

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.

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.

- 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.

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.)

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

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.

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.

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.

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.

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.

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

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 these shared cars are used more intensively. Thus,

they can be expected to be replaced faster. In first estimate, the replacement rate

can be based on the mileage of the car only. As we have observed that the total

distance travelled by car is decreased by 33%, the total consumption of new cars

by the introduction of the carsharing system is (only) reduced by 33% compared

to the reference situation.

We have chosen to take the following functional unit:

the actual transport behaviour of a person before and after joining the carsharing

system, during a month. With this very wide definition we take into account the

distances driven by car and public transport before and after the system is

introduced, for the average user.

Thus, our analysis is not comparing the system on the basis of a fixed driving

distance. It is not comparing the difference between the average owner of a private

car and the user of a shared car, nor is it comparing the difference between having a

car and carsharing. Instead this functional unit means we analyse the actual societal

changes that occurred due to the introduction of the system.

To calculate the environmental load for the public transport, we use the following

simplified approach. According to Meijkamp train covers 80% of the public

transport distance. For trains it is relatively easy to calculate the electricity use,

using CBS data. It shows that the electricity use is about 0,12 kWh per passenger

km. We have little information of the environmental load of bus transport. As their

share in the transport distance is relatively small we assume they have the same

environmental effects as trains per km. The costs are based on a return ticket for a

distance of 46 km (the average).

In the table below we have gathered the environmental data and the value creation

data for a normal car owner, who drives 708 km per month in a small car (Peugeot

106) (Consumentengids, 1998). This type is often in use in carsharing systems like

Greenwheels. We assume the car is used 5 years before it is sold as second-hand car.

Then, the total driving distance is 42480 km. The environmental data is expressed as

Eco-indicator points. We used several data sources for these calculations.

Services included in car use

In order to estimate the environmental load of the services we use (Vringer, 1997),

who calculated the energy use per unit of value creation for professional services.

This figure is 2.2 to 2.6 MJ per Euro.

For car repair he estimates 3.3 to 5.5 MJ per Euro. (this figure excludes spare parts).

The Eco-indicator value for average energy is about 0.1 mPt per MJ.

Car owning per month Value creation

(in € = 2,2 Dfl) Env. Load

(in mPt) Comment

Production (depreciation) 110 120

Interest 32 7

Insurance 47 10

Tax 17 4

Gasoline use 71 250

Maintenance 18 12 Env. Ef. of tire and oil change, plus service

Disposal 2 -48 Negative environmental load due to recycling

Public transport 80 45

377 400

For the carsharing system we can produce a similar table. We will use additional

data, based on the average use habits and the description of the procedures in the

Greenwheels organisation.