Members of Green Angel Syndicate invest in early stage companies that benefit the green economy. We get involved because we want to see more efficient and sustainable use of global resources.
One of the interesting ways in which businesses are capitalising on the opportunity this represents is through Product-as-a-Service business models. Instead of basing success on selling as much product as possible, suppliers enter into a service agreement with the customer that focuses on the desired outcome or performance that the customer needs. It is an approach that has potential to offer significant improvements in both resource and performance efficiency.
Product-as-a-service is one of the core business models of the Circular Economy, as described by Accenture (1). It is also one of six key trends identified in Microsoft’s 2019 Manufacturing Trends Report (2), going hand-in-hand with advances in connectivity, big data, and the expansion of the Internet of Things (IoT). According to the report, there are projected to be over 36 billion connected IoT devices by 2021, and the number of manufacturers and processors offering Product-as-a-Service platforms continues to rise.
Customer focus for commercial benefit and resource efficiency
Product-as-a-Service offers inherent performance efficiencies, especially for high value, technically complex products being used in a role that is crucial to the customer but is not a core competency. Traditional engineering companies such as Rolls Royce, Alstrom, Xerox and Caterpillar were some of the first to make extensive use of leasing models and advanced customer-focussed service contracts. For them the benefits include increased revenue through diversified income streams, better commercial resilience and more stable cash flow (3).
Increasingly, wider benefits of the model are being recognised across the entire life cycle of a product from design to end-of-life. When ownership remains with the manufacturer, reliability and the ability to repair, upgrade and remanufacture become core design principles, in preference to more short-term commercial goals. Operational performance and energy use are improved through specialist expertise in set-up, management of maintenance schedules and use of individual and big data powered by IoT connectivity.
In an age when people increasingly value access over ownership, Product-as-a-Service has the potential for disruptive impact across an entire sector. A good example is transport (see the GAS blog on Transport-as-a-Service) where, in European cities at least, we are already seeing a shift in consumer behaviour away from mass car ownership towards mobility solutions including car clubs and car sharing.
Phillips offers Lighting-as-a-Service, most notably for Amsterdam Schiphol airport where energy efficient LED lamps are used to reduce electricity consumption by 50% and the whole system is designed for serviceability. The Philips system monitors each lamp individually, replacing faulty units in a timely manner, only when necessary. The result is 75% longer life. Hear more about the project in this short video.
Extending the model - from technology to fashion
Entrepreneurs are experimenting with the idea of Product-as-a-Service in other sectors too. One of the most innovative examples of Product-as-a-Service is MUD Jeans, a Dutch fashion company pioneering a model for leasing and remanufacture of organic cotton jeans. Textiles, particularly cotton production, account for high levels of resource consumption and contamination; cotton is one of the most water intensive and pesticide intensive crops grown on the planet. According to the Ellen McArthur Foundation, textile production and processing accounts 1.2billion tonnes of CO2 and for 20% of all industrial water pollution globally. And yet more than half of the ‘fast fashion’ clothes we buy are disposed of in under a year.
Access over ownership
To create an economy that meets the needs of the world’s expanding populations equitably within the boundaries of the natural resources of our planet, we will need to do things differently. Product-as-a-Service, with its focus on customer needs and opportunities for efficiency gains, is one of the business models being exploited to help us get there.
Green Angel Syndicate is interested to hear from Product-as-a-Service businesses that offer investable opportunities for the benefit of the green economy.
(1) ACCENTURE. 2014. Circular Advantage:
Innovative Business Models and Technologies to Create Value in a World without Limits to Growth. Available
(2) 2019 Manufacturing Trends Report
(3) BAINS, T. & LIGHTFOOT, H. 2013. Made to Serve: How manufacturers can compete through servitisation and product-service systems, UK, Wiley.