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As an upcoming industry, Product-as-a-Service (PaaS) suffers from the term being widely used in different applications. The abbreviation PaaS is also used for Platform-as-a-Service, popularised via Cloud Computing and other systems offered on a service basis. Additionally, there are a multitude of different terms used to describe the same business model as Product-as-a-Service (PaaS)[i]. The academic field refers to Product-Service Systems (PSS). A unique term that fits the characteristics of the total transition needed for the business model.
The term PSS became popular around the 2000s in academia when an increasing number of papers were written on this topic. The term became most widely known by the dutch paper from Goedkoop et al. (1999). Yet, the term is built upon the works of Walter Stahel, already starting in the 1990s with coining the concept of the Performance Economy (Stahel, 1997; Stahel 1998).
In the beginning, PSS was defined as a resource-efficient business model, that enabled sustainable production and consumption. However, over time, thoughts arose that the business model was not always more sustainable. PSS was found to have a large sustainability potential, but could also be easily misused in an unsustainable way. Oksana Mont, now a professor at the Lund University, wrote her Ph.D. thesis on the potential panacea that people claimed PSS to be (Mont, 2004). Little by little more information became known on the topic and Product-Service Systems became institutionalized as a concept.
It is unclear why in recent years the term Product-as-a-Service is being used more prominent by businesses. A possible explanation is a connection with servitization (Baines et al., 2007; Vandermerwe & Rada, 1988). The process of providing a service instead of selling a product. Companies are thus increasingly adding service components to their existing products, creating the notion of selling your product as a ‘service’. However, as explained before, this term does not entail the difficult processes a company has to undertake to be able to put a product on the market ‘as-a-Service’.
Why Product-Service System might be better than Product-as-a-Service
Providing a Product-as-a-Service offering has large implications for a company's activities. It will have large advantages for the company, but it will also totally change the way they need to do business. They will have significant changes to their cash flow, they will have to adapt their product design, they need to start building extensive internal processes to enable ‘as-a-service’ models, they need to rethink their supply chain, and to change their customer relationships.
In short, the whole value chain, from the supply side all the way down to the customer (demand side), needs to be re-aligned to fit the business model. This is a difficult process in which the whole system needs to change. Not only the product, not only the added services but the whole system of value creation. That is why the term Product-Service System (PSS) in itself captures the difficulties of starting with this business model much better. PSS already implies the full transformation of a business model and incorporates systems thinking better. Coincidentally, this term inherently creates a better fit with the systemic approach needed to enable the circular economy (MacArthur, 2013).
To conclude, product-as-a-service can - if wrongly implemented- be just another business model to generate additional revenue. It does not have to entail the circular potential and does not imply the difficult transition in the total value chain and ecosystem. Product-Service System (PSS) does however implicitly entails the changes needed in the whole system; in the company, the supply-side, and the demand-side.
Nonetheless, we cannot simply ignore the current trend of Product-as-a-Service (PaaS) in business. However, it might be time to add Product-Service Systems to our dictionary. We need to start using Product-Service Systems (PSS) as a term that shows the full complexity of the transition towards this (circular) business model.
Firmhouse is the platform that forms the core of Product-Service Systems. Looking to learn more about how we can enable yours? Get in contact with us! We gladly help you on your way to a successful launch.
Baines, T. S., Lightfoot, H. W., Evans, S., Neely, A., Greenough, R., Peppard, J., ... & Alcock, J. R. (2007). State-of-the-art in product-service systems. Proceedings of the Institution of Mechanical Engineers, Part B: journal of engineering manufacture, 221(10), 1543-1552.
Goedkoop, M. J., Van Halen, C. J., Te Riele, H. R., & Rommens, P. J. (1999). Product service systems, ecological and economic basics. Report for Dutch Ministries of environment (VROM) and economic affairs (EZ), 36(1), 1-122.
MacArthur, E. (2013). Towards the circular economy. Journal of Industrial Ecology, 2, 23-44.
Mont, O. (2004). Product-service systems: panacea or myth?. Lund University.
Stahel, W. R. (1997). The functional economy: cultural and organizational change. The Industrial green game: implications for environmental design and management, 91-100.
Stahel, W. R. (1998). From Products to Services: Selling performance instead of goods. IPTS Report, 27(1998), 35-42.
Vandermerwe, S., & Rada, J. (1988). Servitization of business: adding value by adding services. European management journal, 6(4), 314-324.
[i] = Alternative terms for Product-as-a-Service are: access-based consumption, subscription service/model, collaborative consumption and off course Product-Service Systems (PSS)