Product/Service-Systems: Proposal for models and terminology

Over recent years a growing number of studies and research programmes have been conducted on the issue of product/service-systems (PSS) [1, 2] and results have been presented at this row of symposia [3, 4]. These studies usually analyse the potential of integrated solutions to reduce the environmental impacts of human consumption activity or optimise a company’s ability to cope with the influences arising from the emerging globalisation of economic and business activities. Since there has not been worked on a coherent terminology for the terms and concepts used in PSS research, the area remains very blurred and ill defined. This paper will try to identify the fundamental characteristics of PSS and propose a system of concepts that can be used to describe and discuss the phenomenon, for the purpose of developing new PSS solutions. Coming from a tradition of product development research, the terminology will originate from and be inspired by the German design methodology, Theory of Technical Systems [5], Systems engineering [6] and the Domain Theory [7]. Our considerations will lead to models showing the different development dimensions to be considered in PSS development, compared to existing development models. Furthermore, the models should be able to integrate with the existing models and concepts of new product development. 1 Why PSS and why PSS research? The ever increasing integration of the global economy and adaptation of information and communication technologies is changing the way companies conduct business. For most manufacturing companies cost, timely delivery and technical quality have traditionally been the main factors in competition when offering products. Companies today are focusing more on how to develop innovative solutions to attract customers, to fit and individualise products and compete on the global market. One innovation strategy that has attained increasing attention the past years is transforming business from being based on the sale of goods to business based on offering a combined product-service system that continuously provides value to the customer. This approach has been dubbed “product/service-systems (PSS)”. The term is related and shared with other terms such as “functional economy” [8], “functional (total care) products” [9] and “service engineering” [10]. The background for the concept of PSS mushrooming these years may be the emerging recognition by many traditional companies that they beneficially could move from product orientation to a more service based orientation, combining product and service delivery. Seen in this light PSS is a metaphor, created by consultants and researchers, for an approach, which has been known and utilised by several types of companies for many decades: suppliers of aeroplane engines, large software installations, transport and logistic systems, etc. From this point of view there is nothing new then, except for the purpose and the way of using PSS. An underlying principle in a PSS approach is to offer the customer what he really demands, not the ownership but the functionality, utility and performance of the physical product and 2 Bitte nichts eintragen services that enhance PSS. All this is delivered while the company maintains ownership and responsibility for the physical artefact. The customer thus pays only for the use of the product when needed and does not have to worry about operation, maintenance and disposal. This enables and motivates companies to reuse, rationalise and enhance their products and services more efficiently throughout their life phases. An argument often used in favour of development of PSS is the ability to achieve more environmentally sustainable business models, as the objective is to create the highest possible use value of products for the longest possible time while consuming as few material resources and energy as possible. [1] This ability is obtained by linking a higher number of opportunity parameters (Ge: Strategische Handlungsparameter) to the company, giving higher degrees of freedom for influencing environmental problems. 1.1 Description of different dimensions of a complex phenomenon This paper is concerned with a system of views on PSS, to be able to define the necessary dimensions to consider in the course of PSS development. A PSS is a complex aggregation of systems and system dimensions: • Integrating strategy amongst business partners What the customer sees as a delivery may be composed of offerings (products and services) from several companies. Each of these companies decides for a PSS strategy. • Organisation of development, creation and delivery of PSS The company creates a system development which builds up a system for delivering (over time) products and services. As part of this delivery over time, a channel for the transfer of services is established. The service channel or PSS delivery system is characterised by alertness, constantly ready to assist the customer in his activities. The delivery system is implemented so that the concurrent support of different customers can yield benefits for all customers as well as the providing company. For companies it is a challenge to manage the “front stage” delivery of solutions with the “back stage” development of products that support the delivery. • Activities in the system where product(s) and service(s) are used The activities and their effects in a PSS are the value carriers of a company’s offering. The functions and quality of how they are delivered and perform determine the value on which a company bases its business. From the customer viewpoint, the PSS activities must yield a higher value than competing offers. Therefore the product offer’s function and quality must be well aligned with the demands of the customer. • System interaction and relationship between company and customer The customer integrates the offer into his system development and his support system and utilises the PSS over a time period. The provider’s and the customer’s activity systems are aligned through out the service period of the PSS, demanding continuous adjustments of interactions. Through the transfer of responsibility of the product offer from customer to provider, the customer can focus on other issues of his operation. At the same time, the customer must assess the performance of the provider’s services. Bitte nichts eintragen 3 The PSS-approach, illustrated as a complex aggregation of systems may therefore be identified or defined by defining the contents of the cuts shown in Fig.1. Figure 1: The PSS-approach as a complex aggregation of systems. Each cut shows different dimensions of PSS. 1.2 Case used throughout this paper To give an actual example of what a PSS can look like, and how it fits into the concepts and models presented in this paper, we have chosen a business division of the Danish company Danfoss A/S as a case throughout this paper. This case is an example of a PSS established in a business-to-business (B2B) environment. The models presented in this paper will reflect this, but we will discuss later on how if this may be considered for business to individual consumer relationships. Danfoss A/S produces components for the refrigeration industry, traditionally as a sub supplier of OEM producers of refrigerators and refrigeration contractors. In recent years Danfoss has built a PSS based on the retail refrigeration market. Through a venture company, Danfoss Retail-CareTM now approaches supermarkets directly. Danfoss refrigeration components and systems have the ability of network communication enabling monitoring, efficiency optimisation and failure detection through electronic networks. Utilising this technology, Danfoss offers refrigeration services to supermarkets on a global scale, promising optimised reliability and energy efficiency. To realise this promise, Danfoss sets a number of different systems in operation: • The company installs refrigeration systems in the customer’s retail supermarket. The components of this installation are partly manufactured by Danfoss, partly delivered by partners of Danfoss. The installation work itself is usually carried out by companies partnering with Danfoss. • The installed refrigeration systems are connected to a worldwide network, enabling Danfoss technicians continuous monitoring of the system’s performance. This monitoring network gives Danfoss the ability to detect threatening system failures at an early stage. • On a regular basis Danfoss sends performance reports to the customer, giving advice that aids the customers to optimise the operation of their plant. • In case of failure, Danfoss sends maintenance technicians to the affected plant. The technicians will usually be informed of the type of failure by the monitoring experts, enabling them to quickly repair the customer’s plant. In the optimal situation, the 4 Bitte nichts eintragen plants operation (concerning the refrigeration of goods) is not affected by the breakdown of components. • In the contract between Danfoss and the customer, the expenses saved by the optimised plant operation are usually split between the customer and Danfoss over a defined period of time. Hereby both customer and Danfoss have an incentive to cooperate on the optimisation tasks. 2 Basic views on PSS Commencing a journey into the research of integrated product and service development, the first issue to consider is the difference between product and service, and whether these terms are adequate for describing the phenomena considered. Following a business oriented approach, a service offer might be defined as product, in the same way as a product’s usage might be defined as a service to the user. Though different, products and services are both modes of delivering satisfaction, each with its specific set of artefacts, context and consumer behaviour. Acknowledging the different definitions and viewpoints throughout media and academia, we will present a basic representa