Product services for a resource-efficient and circular economy – a review

Abstract

Since the 1990s, Product Service Systems (PSS) have been heralded as one of the most effective instruments for moving society towards a resource-efficient, circular economy and creating a much-needed ‘resource revolution’. This paper reviews the literature on PSS in the last decade and compares the findings with those from an earlier review in this journal in 2006. Close to 300 relevant papers were identified, over 140 of which have been referenced in this review. Research in the field of PSS has become more prolific, with the output of refereed papers quadrupling since 2000, while on average scientific output has only doubled. PSS has also become embedded in a wider range of science fields (such as manufacturing, ICT, business management, and design) and geographical regions (Asia now produces more papers than Europe). The literature of the last seven years has refined insights with regard to the design of PSS, as well as their business and environmental benefits, and confirmed the definitions and PSS concepts already available in 2006. A major contribution of the recent literature is research into how firms have implemented PSS in their organization and what the key success factors and issues that require special attention are (such as a focus on product availability for clients; an emphasis on diversity in terms of services provided rather than the range of products; and the need for staff to possess both knowledge of the product and relationship management skills). The reasons why PSS have nonetheless still not been widely implemented, particularly in the B2C context, seem to have already been explained fairly well in the literature available in 2006. For consumers, having control over things, artifacts, and life itself is one of the most valued attributes. PSS are often less accessible, or have less intangible value, than the competing product, in part because PSS usually do not allow consumers as much behavioral freedom or even leave them with the impression that the PSS provider could prescribe how they should behave.

Introduction

Product-service systems (PSS) are a specific type of value proposition that a business (network) offers to (or co-produces with) its clients. One definition of PSS is ‘a mix of tangible products and intangible services designed and combined so that they are jointly capable of fulfilling final customer needs’ (Tukker and Tischner, 2006a). From the mid-1990s, PSS became a popular subject for researchers engaged with sustainability and business alike. Sustainability researchers argued that if one were to focus on final user needs or the service a user wants, rather than the product, it would become much easier to design need-fulfillment systems with radically lower impacts. In product-oriented business models firms have the incentive to maximize the number of products sold. This is their principal method of boosting turnover, increasing market share, and generating profits. However in service-oriented business models, in theory the incentive differs. Firms then make money by being paid for the service offered, and the material products and consumables that play a role in providing the service become cost factors. Hence, firms will have an incentive to prolong the service life of products, to ensure they are used as intensively as possible, to make them as cost- and material-efficiently as possible, and to re-use parts as far as possible after the end of the product's life. All of these elements could lead to a minimization of material flows in the economy while maximizing service output or user satisfaction.

Authors such as Walther Stahel (1982) and Friedrich Schmidt-Bleek (1993) were pioneers in identifying these benefits of the PSS concept in terms of sustainability and resource-efficiency. This interest in PSS for environmental reasons has received a new boost from the recent revival of interest in resource-efficiency among important actors in civil society, business and government. With up to three billion people likely to join the global middle class by 2050 (WBCSD, 2009, McKinsey, 2011), competition for resources will inevitably grow. Improving the productivity of resources such as water and land by around a factor of two, and energy by a far higher factor, would make a substantial contribution to reducing resource depletion and the threat of climate change (McKinsey, 2011; BIO Intelligence Services, 2012, Tukker, 2013). The European Union (EU) has therefore designated resource-efficiency as one of the flagships of its Europe 2020 strategy (EC, 2011). For the reasons given above, influential authors from civil society and policy makers see PSS-like business models as one of the most important means of creating a ‘lease society’ (a term coined by Member of the European Parliament Judith Merkies (2012)), a circular economy (as championed by the Ellen McArthur Foundation (2013)) or simply a ‘resource revolution’ (McKinsey, 2011).

For the business community, the growing interest in new PSS business models initially arose from the growing realization that in most markets products became all of similar and high quality making the room for product differentiation limited. Design and manufacture of products could no longer be a source of differentiation and competitive advantage. To overcome sheer price competition, firms had to offer integrated solutions, or even experiences, which would allow them to improve their position in the value chain, increase their innovation potential, and enhance the added value of their offering (Pine and Gilmore, 1999).

Given the promise held out by PSS, around 2000 a wave of major research projects started, mainly in Europe, where a few dozen major research institutes tried to develop a structure for classifying PSS. Their aim was to create a rigid scientific foundation for the concept and to learn from case studies when it would and would not work (e.g. Tukker, 2004). One of these projects was ‘SusProNet’, a network that served as one of the hubs in which PSS scientists could exchange experiences and views. At the end of that project, Tukker and Tischner, 2006a, Tukker and Tischner, 2006b wrote a review that was quite critical of sustainability-oriented PSS research:

• Case research was often driven by normative sustainability goals and failed to analyze the reasons for poor PSS implementation, such as a lack of consumer acceptance or business interest.

• There was too much concentration on individual case studies and conceptual development, and no rigorous quantitative or statistical analysis of large numbers of cases.

• The sustainability-oriented PSS research community paid only limited attention to business management literature.

The result of these shortcomings was that PSS was at that time a pre-paradigmatic field that still lacked clearly tested hypotheses and insights. Since then, attention to the PSS concept has deepened, particularly in the business research community. Organizations like Cranfield Business School received major grants and started to work with large companies such as Rolls Royce to analyze their service-oriented business models and to understand what would work and not. Since 2000, this has led to considerable advances in the field.

It therefore seems appropriate to follow up the reviews performed in 2004 and 2006 with a new paper that takes stock of developments since then and answers questions such as:

• Is there a clear, uniform definition of the PSS concept?

• Is there a clear, common approach to PSS development?

• What do case studies and other scientific approaches tell us about

  • the conditions under which PSS contributes to sustainability?

  • the conditions under which PSS enhances competitiveness?

• Are these insights more specific or do they reveal more than hypotheses formulated some eight to ten years ago (e.g. Mont, 2002; Mont, 2004a, Halme et al., 2004, Tukker and Tischner, 2006a, Tukker and Tischner, 2006b? Can these insights help to determine whether PSS contribute to resource-efficiency and to answer the main question addressed in this special issue: ‘Why have sustainable Product-Service Systems not been widely implemented?”

• Is PSS now a consolidated science field with a clear paradigmatic concept and tried and tested research hypotheses?

In this paper I review the vast majority of the literature dedicated to PSS from a business and sustainability perspective available today. I selected 278 relevant papers and use them to provide some quantitative insights into how research in the PSS field has developed in the last 15 years (Section 2). This section also includes a discussion of how the selection of papers and the research approach differ from another recent review published in this journal (Boehm and Thomas, 2013).¹ We then use a selection of these references to answer the key questions posed above (Section 3) and end with a discussion of the findings and some conclusions (Section 4). Where relevant, we do so with other major reviews in the PSS field in mind (Boehm and Thomas, 2013, Berkovich et al., 2011²; Pawar et al., 2009, Cavalieri and Pezzotta, 2012, Baines et al., 2007, Baines et al., 2009a, Sakao et al., 2009, Park and Lee, 2009, Meier et al., 2010).