Sustainable Services

Sustainable development & services

„Service is an action or an activity which can be offered by a party to another party, which is basically intangible and can not affect any ownership. Service may be related to tangible product or intangible product“.

This conventional services marketing definition only draws little attention to the element of sustainability. However, starting in the 1980s and especially growing since the 1992 Rio Earth Summit stakeholders and customers likewise increasingly considered the environmental and social consequences of the products they bought. The consumer green movement imposed tremendous pressure on both businesses and governments to reduce the environmental impact of their production and consumption, leading to an increasing demand for developing concepts for a more sustainable future. These early ideas later on developed from cleaner and greener improvements to processes and products and new products and services-mixes.

In fact, companies already have started reviewing their organizational performance by adding environmental quality and social benefit to economic prosperity as part of their business evaluation process and adopting green services and products to reach ever-increasing environmentally aware consumers.

Definition

Sustainable services are “offerings that satisfy customer needs and significantly improve the social and environmental performance along the whole life cycle in comparison to conventional or competing offers“.

Thus, a service is environmentally favorable when the total amount of environmental impact prevented as compared to an alternative is larger than the amount of environmental impact generated by the service. Related concepts include eco services, eco-efficient services, product-service systems, sustainable service systems and sustainable product service-systems.

An eco-efficient service (EES) is a certain product-service mix which has a higher added value (economics) and a smaller environmental impact compared to a similar product-service mix or a situation in which the activity was not performed at all“. Added value applies for consumers as wells as producers. It is usually defined in terms of higher profit margins, improved image or the ability to comply with governmental rules for producers. Added value to consumers consists of the perceived extent to which consumer needs are satisfied. Examples are, lower costs, increased flexibility, shifted responsibility or increased convenience.

Characteristics

Sustainable services own a certain set of characteristics, which clearly distinguish them from regular services. There are six main factors:

Sustainable Services must satisfy consumers’ needs or otherwise will become redundant and economically irrelevant.

For labeling a service as sustainable it is required to address and fulfill both ecological and social issues.

Services function as customer solutions. Therefore, they must constitute holistic offerings, providing suitable and sustainable solutions to the consumer at all stages of the lifecycle (including extraction of raw materials that might be need to make the service possible in the first place, transportation, manufacturing, distribution, use and post-use). This closed-loop approach contains the principle of reusing and recycling products in order to manufacture new products while skipping a new extraction of (limited) raw materials and the need for transportation.

Sustainable services need to make a significant long-term contribution on a broad social and ecological scope. This means the benefits created should preferably be measurable and take place on a global rather than on a local level.

Sustainable services are interdependently located within the flow social and institutional norms, state-of-the art technology and the amount of knowledge humankind owns at a certain point in time. This means that sustainable services can never be assessed in absolute ways due to their changing environment. Only if these services continuously improve as over time technologies improve, knowledge expands and normative influence changes, they can be considered sustainable services.

Even if all the previous mentioned points are successfully implemented there is no guarantee that the sustainable service of interest will be positively valued regarding other competing offers. It must see and define itself always using similar offers as a benchmark and try to keep up to these offers in order to keep customers attention and satisfaction secured.

Considering the characteristics of added value (economics) and environmental impact, four different service options can be distinguished. However, as figure 1 shows only high additional value and low environmental impact actually constitute sustainable or eco-efficient services.

Service Categories

Concerning the product-service-mix there are three main categories of sustainable services: product-, use- and result oriented. Each of them is characterized by a different composition of product and service components.

Product Oriented Services

Product oriented services represent a business model that is mainly focusing on product sales. They can also be described as “product-life-extending services” as they enhance the utility of ownership e.g. by warranties or maintenance services. As a consequence for the increasing lifetime of a good less energy, materials and machines are needed for production, which means a positive impact on the environment. However, besides this environmental motivation there is also an economic incentive as the usage of less resources is also connected to lower production costs and higher business profits. Product oriented services especially suite well to products that are difficult to handle, respectively need technical expertise, or to products that require regular maintenance or supporting infrastructure. The good’s ownership meanwhile remains completely with customer. Therefore, these services also only represent a small variation of the classical buyer-seller relationship.

Subcategories:

A provider does the sell the product but offers use related services like maintenance or financial plan.

A provider gives information on the product’s most efficient use (e.g. organizational or logistical advice).

A provider offers users (and sellers) information about their processes and activities, about the product’s environmental performance, about markets and system conditions (e.g. traffic or storage conditions).

Use Oriented Services

Use oriented services differ from product oriented services as the focus is not put on selling products. Like for example in classical renting systems the physical good stays in the provider’s ownership and is only made available to the consumer in different forms. Sometimes usage is even shared by several users. Car sharing is a typical example. However, while the consumers obtain the product’s function the responsibility for maintenance and disposal remains with the provider. The eco-efficiency impact of these services is due to the product’s high use intensity. This reduces the total number of needed products and consequently also lowers the material and energy input required for production. Further the payment system in which customers only pay per unit of used service leads to an additional economic incentive for producers to decrease the amount of processed resources.

Subcategories:

The product stays in the producer’s ownership and in his repair and maintenance responsibility, while the lessee pays a fee for usage and has unlimited individual access to the product.

Similar to leasing but there is no unlimited individual access to the product as it is sequentially used by others.

Similar to renting and sharing but characterized by a simultaneous product usage.

Result Oriented Services

In the case of result related services the product sale not only becomes less important but even the product itself on plays minor role. Here client and provider both focus and agree on a result instead. There is no determined product involved. Instead the focus is put on the satisfaction of the consumer need – how it is satisfied is not relevant. The product is owned and operated by the service provider. Profits are therefore correlated to efficiency and providers get a high interest in an optimized and efficient product use to achieve a long service life. In addition to this the offering of a result instead of a pre-specified product makes it possible that sustainable solutions (e.g. low material and energy consumption) can be included from the beginning on.

Subcategories:

Not the product but its output is bought according to the usage level (e.g. pay per print formula of copier producers).

Provider and client agree on a result, while the provider stays more or less free in the way how to deliver this.

Limitations and Barriers

In regards to services, there are many barriers and limitations as to why more companies and organizations do not or cannot adopt a more sustainable system. These barriers can be classified into five main areas, business vision development, policy formulation, idea finding, design, and realisation.

Business Vision Development

Business vision development refers to how a company or organization envisions the future development of their company. In order to innovate on a system level, people and companies need to have a long-term vision. This can be a barrier to many companies who may not have clearly defined long-term plans. Possible solutions to this barrier include formulating strategy and policy for the short, medium and long term which can be done using strategy and policy tool, scenario writing, back casting and road mapping.

Additionally, system level innovation required by changing a service to become sustainable involves high risks because of high levels of uncertainty. The high financial risk is one of the greatest barriers for many companies, as the financial rewards of providing a sustainable service can be difficult to predict.

Moreover, when developing a more sustainable service, many companies face barriers of forming new business coalitions in order to maintain a more sustainable service at every level of their service chain. It may be difficult to form new business alliances, and possibly even harder to end old partnerships. Two tools that can help overcome this barrier include network management and general process management.

Policy Formulation

Policy formulations for businesses include the goals, strategies and principles implemented to achieve rational outcomes. A policy barrier to sustainable services is that goals and strategies need to be formulated in such a way that an eco-efficient combination of products and services is a possible outcome. A possible solution to this barrier is the need for companies to view their service issues from a higher level of abstraction and ask themselves what kind of functionality or added value they want to deliver to their customers. Companies also need to formulate an environmental goal they wish to achieve. First the current situation of the company needs to be analysed on the basis of environmental impact. Afterwards, new goals for providing sustainable services can be formulated. This can be done with the help of tools such as current eco-design tools, Life Cycle Assessment scenarios, and the adapted MET-matrix.

Idea Finding

One of the most essential functions of a company is to generate new ideas that incorporate customer wants and needs while maintaining a competitive advantage over their competitors. Oneway companies can establish or maintain a competitive advantage is by increasing the added value of their products for the consumers by means of environmental improvements in their products and services. As important as idea finding in an environmental sense can be for a company, it can also be a barrier to developing sustainable services. The idea generation phase can be more complex when innovating at function or system level, because the ideas need to be found on a higher level of abstraction, meaning not ‘design an artefact for transportation’ rather ‘design a new mobility concept’. One important consideration companies should have is that products as well as services should be regarded as possible part of the solution, and that environmental gain could be the starting point for idea generation. This can be done using tools such as Blueprinting, Adapted MET-matrix, Adapted LiDS-wheel, Green options generation, Benchmarking and eco-costs or the value approach. The development of different elements of the solutions to sustainable services should be planned in advance, which can be another barrier for companies. The most important tool companies can use to overcome this is by utilizing project management tools to establish a course of actions and ideas for the future (Brezet et al. 2001).

Design

The actual design of a sustainable service may be a barrier for companies as the development of the overall design will be split up in several parallel sub processes, which may make it difficult to control or see the overall impacts. Many companies need to see the immediate impact their changes are having on the company, which can be difficult when implementing a large-scale design change to offering sustainable services. The transition from idea to design can be difficult, especially when trying to translate the new ideas in concrete sustainable ideas and short-term strategies. The phase of strict development no longer consists of one product, but of a combination of products and services, which can be completely different from the current situation. The requirements for each of the elements have to be known, as well as which part of the functionality will be fulfilled by services and which part by products, before one can start with the strict development phase.

Realisation

It is important for both the reputation and usefulness of the sustainable service that all components are completely developed and tested before the sustainable service is finally marketed. This change needs to be announced to the customer through the use of different media functions. The resulting version is environmentally evaluated on market success and environmental impact. This final stage can be judged with environmental evaluations, life cycle assessments, and of course seeing whether or not profits for the company have increased.

Rebound Effects

Included in the realisation of the sustainable service includes possible environmental rebound effects caused by implementing a sustainable services change. When a company is considering offering sustainable services, there can be ‘rebound effects’. Meaning, environmentally negative second order effects from an initial service activity. Four important types of rebound effects are as follows: cost effects, respend effects, space effects, and time effects.

Cost Effects

Cost effects occur when the cost of certain activities or goods decrease. Energy-saving lightbulb require may result in higher demand due to lower cost, which will subsequently not reduce the amount of materials being extracted from the environment.

Respend Effects

Respend effects occur when the money saved from environmentally friendly services, such as energy saved, are then taken and used to buy more of other unrelated products, negating the environmentally friendly impact of requiring less energy.

Space Effects

Take, for example, a bookstore that wishes to reduce the number or stores they build to reduce their impacts on the environment. As an alternative, they offer an online store. The online store may result in an increased amount of customers ordering books from a longer distance away, creating more transportation needs and pollution. While the online store may reduce some physical impacts associated with retail stores, these may be outweighed with transporting the books over longer distances to an increased amount of customers.

Time Effects

Many consumers in Western society are said to be cash rich but time poor. By offering online stores, many companies are giving customers the opportunity to use their time more effectively, IE they do not need to drive to the store. However, the rebound effect is that in general customers may purchase more goods online, which then need to be shipped, possible back and forth in regards to returns.

Classification into Marketing

Conventional marketing is often criticized for its narrow focus on customers and market dimensions. A sustainability management perspective, however, demands corporate strategy to center not only around economic management but also around ecological and social issues. By fostering socially equitable and responsible use of global resources and sustainable consumption, sustainable services as part of a firm's overall sustainable customer solution, offer more strategic marketing effectiveness through an increased understanding of societal and ecological systems, adding sustainable principles to existing marketing theory.