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Slide 1

ENT202 / Innovation: Strategies and Systems

Week 10: From Products to Use-Oriented Services

College of Business and Law

Karmen Lužar

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Slide 2

Recognition of Traditional owners and Indigenous cultures

Charles Darwin University acknowledges the traditional custodians of the land on which we’re meeting and pays respect to Elders both past and present and extends that respect to all Aboriginal and Torres Strait Islander people.

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Introduction

• Scarce resources – effectiveness required.

• In Western societies planned obsolescence still encouraged.

• Consumers thirsty for innovation and change?

• Circular economy has limitations.

• A shift to a service model.

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Transition to use-oriented services • Use-oriented services aim to redefine the relation with the

tangible goods that surround us by making them available without transfer of ownership, and by invoicing their use.

• Examples: hiring, leasing, pooling, self-service bicycles, public transport, etc.

• This transition is potentially very important on economic, sociological, anthropological and even philosophical level.

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Economic point of view

• Modified relation with the object and to time.

• Recurring revenue throughout its life - the profitability generated by a single good.

• Goods developed to be robust and easy to maintain or repair.

• Eco-design encouraged - longevity.

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Sociological point of view

• A good shared among several users – increased intensity of use.

• The service rendered for the same amount of physical material in use.

• Reduce the demand for physical material while still providing a service.

• A company keeps the control of the material - the circularity principle is simplified.

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Environmental point of view

• The economic and environmental benefits of a transition to a use-oriented service are not automatic.

• American and European economies have seen a continuous growth in the service sector during the 20th century, without any reduction in their environmental impact.

• To reap environmental benefits along with economic benefits, the substitution of sales of the product with the provision of these same products in a service system presupposes a reliance on principles of eco-efficiency and circularity.

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Example

• Added-value and potentials for innovation.

• Example: SFpark - collects and distributes real-time information about where parking is available through a phone application so drivers can quickly find free spaces.

• Primary benefit: reduction of time spent looking for a parking space.

• Associated benefits: less congestion, reduction of pollution, time saving, faster public transit, more safety for pedestrians and bicyclists. -> better quality of life.

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Customer readiness – B2B

• Beyond the simple question of “make or buy”.

• The relationship to ownership is less emotional.

• Use-oriented services also offer many advantages appreciated by companies, e.g. guarantee for a quick management of any service disruption.

• Suppliers are responsible for piloting and optimising maintenance costs, as well as the management of the product at the end of its lifetime.

• Payment can be based on the equipment’s effective use.

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Slide 10

Michelin example

• The traditional business model of a tire manufacturer rests on the sale of a product.

• A new business model for professional fleet operators; an outsourced management service of the fleet’s tires, based on the provision of tires remaining the ownership of Michelin and invoiced on the basis of distance travelled.

• The customer benefits include: elimination of hidden costs related to internal management, binding of the cost to the volume of activities, improved productivity of the fleet, improved safety of drivers and goods, fuel savings enabled, reduction of CO2 emissions.

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Customer readiness – B2C

• The service presupposes a renouncement of ownership. – Sacrifice?

• Ownership has an extrinsic and intrinsic value.

• The relation to ownership has evolved in advanced economies in recent years, especially among younger generations privileging access and collaboration to ownership.

• Example: Airbnb

• Positive social spin-offs by promoting solidarity and enhancing the social fabric.

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Clothing/footware example

• Buying second-hand clothes has long been around.

• However, online platforms have enabled physical barriers to be overcome to connect people and enact new offers.

• Examples: buying/swapping FB pages, eBay, Swapstyle, Thredup, Refashioner, Bag Borrow or Steal, etc.

• Second-hand market is still linear flow of materials.

• Upgrade: formal wear rentals as CE model, ski hire, skates, golf shoes, bowling shoes hire

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Acceptability of use-oriented services • These services are an innovation and as such, their

adoption depends on variables identified by Everett Rogers: • the services’ relative advantage over competing solutions,

• their complexity,

• their compatibility with established or usual practices or possessed equipment,

• the observability of their benefits or characteristics, or

• the perceived risk associated with the innovation.

• User-specific context: integration rather than invasion.

• Evolution of lifestyles privileging the here and now.

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Acceptability of use-oriented services cont. • Additional motivations include psychological freedom,

flexibility and variety of choice, absence of financial and nonfinancial costs related to the possession (cleaning and maintenance, insurance and so on), gain of space and access to material of a better quality for a specific use.

• Factors conditioning acceptability:

1. Characteristics specific to the product

2. Characteristics specific to the service offer

3. Characteristics specific to the consumer

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The Internet of objects

• An innovation supporting the deployment of use-oriented services.

• Allows manufacturers to monitor and control the use of products and therefore control the market while optimising the system.

• 3 key elements of the Industrial Internet:

• Intelligent machines

• Advanced analytics

• People at work

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Actors and partnerships

• Use-oriented services may be managed by a single company or a network.

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Impact on the business model

• Use-oriented service demands a complete reconfiguration of the business model.

• Implementation of B2C offer is generally more complex than in a B2B setting.

• Why change?

• A new value proposition for a specific market.

• A mandatory product redesign.

• An entirely revisited value chain.

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Impact on the supply chain and distribution • Identify the actors who will take part in the service value

chain.

• Strongly atomised nature of the market will condition logistic choices. Configuration of these flows ban be:

• A direct relationship between the company and the final customer.

• The retailer stays in the value chain, but with a radical change of role.

• Selecting the best option requires developing a business case analyzing the organizational, technical and financial feasibility of each option.

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Impact on the supply chain and distribution cont. • Redefining the role of the actors in the value chain.

• The role of the intermediary redefined as well.

• The configuration of such value chain has impact on the other business blocks, e.g. customer relations.

• Importance of staff training and marketing.

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The economic model

• The cost structure results from the whole of the activities to deploy and the resources to be mobilised.

• The main difference between a sales model and a service or leasing scheme lies in the revenue streams and the level of the cash flow.

• The manufacturer is no longer remunerated by asset sales, but by a monthly rental subscription.

• The price must be attractive to prospective clients and not exceed the price of a new, lower quality product or a good quality second-hand product.

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The sustainability impact

• Use-oriented services also have:

• Costs for society and environment, e.g. sourcing raw materials and negative environmental spin-offs (e.g. manufacturing), etc.

• Shared costs, e.g. energy and transportation costs, waste, etc.

• Benefits for society and environment, e.g. development of local activities, recycling, etc.

• Shared benefits, e.g. positive financial returns, increased added value of the value proposition and new areas of differentiation, cost-saving through improved efficiency, etc.

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Developing economies

• Earth’s resources are finite - a constraint and an opportunity.

• Use-based services provide access to individuals not able to afford the cost of ownership. -> The rise of ‘social’ business models.

• However, cognitive barriers related to transition from ownership to usership.

• The role of the group vs the role of the individual.

• Collaborative web platforms and online social networks are powerful drivers of change, e.g. Sina Weibo. - United States and Europe are no longer perceived as role models.

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Slide 23

Bibliography

• Sempels, C & Hoffmann J 2013, ‘Chapter 5’ in Sustainable Innovation Strategy: Creating Value in a World of Finite Resources, Palgrave Macmillan.

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