We at Combient Pure drive low-carbon and circular business transformation through multi-company collaboration. Product-as-a-Service (PaaS) is one enabler in the circular economy. It is a business model where the producers shift from selling products, volumes, or units into selling services, access to usage or results enabled by their products. PaaS business models can decouple resource use from economic growth and, with the support of digitalization, improve the use of existing products through innovative and digital services.
At the end of 2023, Pure joined forces with Chalmers University of Technology and the Digitala Stambanan Project to study the current state of PaaS business models and servitization within Combient Network companies. We interviewed 10 Combient Network companies and 4 stakeholder companies, revealing us the ways in which PaaS has already been promoted in the Combient network.
On May 14th we welcomed interested Combient company representatives to Combient Zenit to learn and discuss the study results. During the session, we also heard a commentary speech from Christopher Lyrhem, who provided insights based on his experience from studying future developments as well as analyzing Nordic manufacturing companies at SEB over the past 15 years. In addition, participants engaged in a lively discussion and continued to explore the topic in smaller groups in the latter part of the event.
The Current State of PaaS in Combient companies
In the Combient Network, the majority of companies operate in the manufacturing industry, where the potential for PaaS offerings is evident. PaaS is not a new phenomenon and has been explored in relation to efficiency initiatives and new ways of making contracts that incentivize both the customer and the seller towards joint targets, such as decarbonization.
In the Nordic manufacturing industry, services account only a fraction of overall revenues, compared to product sales. And the role of more advanced services, like PaaS, is much smaller, mostly remaining under 1% (not in every case though). Despite this, almost half of the interviewed companies are exploring and implementing advanced and more complex PaaS business models, such as offering outcomes from a business process or business platform. This indicates that companies see significant potential in PaaS and believe it will become a more appealing way for customers to purchase their offerings.
Drivers
While PaaS is not yet generating significant revenue, companies are exploring it actively. Why? Because companies see that PaaS can result in totally new, stable and recurring revenue streams. PaaS offerings are seen to deliver more long-term value for the manufacturers, and the customers. "Selling our equipment only transactionally (as products) misses out on the extensive value potential it has," noted one respondent.
Selling our equipment only transactionally (as products) misses out on the extensive value potential it has
Companies also recognize that to be future-proof and to meet growing customer demands for easy and effortless business, they must offer access or results instead of physical products. "We believe that at some point, there will be a tipping point where customers are no longer interested in buying products; they want to buy the service or get the result. That's why we need to stay prepared for it", claims one of the interviewees.
We believe that at some point, there will be a tipping point where customers are no longer interested in buying products; they want to buy the service or get the result. That's why we need to stay prepared for it
Challenges
Companies face several internal challenges in creating conditions for PaaS. One major hurdle is failing to design the product lifecycle and the offering for PaaS and circularity. To be suitable for PaaS, a product must be designed with its entire lifecycle in mind. "It’s very difficult to implement PaaS with something that is not designed to be a service, such as not being designed to be repairable. When you design PaaS, you need to design something that will be very easy and quick to repair," explained one respondent.
Another struggle is defining and quantifying the value, including addressing Scope 3 emissions, and communicating this value to both customers and internally. Strong leadership and intrapreneurship are necessary to drive PaaS initiatives, along with recruiting and upskilling the workforce to adapt to new roles and business models, which often still are challenges in companies.
It’s very difficult to implement PaaS with something that is not designed to be a service, such as not being designed to be repairable. When you design PaaS, you need to design something that will be very easy and quick to repair
Enablers
Recognizing these challenges allows companies to focus on building the necessary enabling conditions to overcome them. Key enablers identified by the interviewees include developing a partner ecosystem with financial entities and infrastructure partners to support operations.
Strengthening organizational capabilities is crucial at both the organizational and individual levels, requiring strong leadership, conceptual understanding, and networking skills, alongside recruiting, and upskilling a workforce capable of adapting to new PaaS roles and responsibilities.
Products must be designed with circularity in mind, incorporating features that facilitate easy maintenance, repair, and next-life utilization. Additionally, external conditions such as operational infrastructures, supportive legislative frameworks, and advanced technological solutions, like robot technology, autonomous vehicles and sensors in products are essential to accelerate the transition to PaaS models.
A Way Forward
Companies do possess the building blocks for moving forward: strong, committed leadership and a long-term vision, along with a new set of KPIs to measure the realization of PaaS. Embedding design and offering development into the core of the business ensures products are tailored to be circular and durable in PaaS usage, ensuring resource efficiency for the producer.
Close partnerships, including those with customers, are crucial for developing new value distribution mechanisms that meet evolving customer needs. Finally, an effective digitalization and data strategy is needed to exploit the power of technology, facilitating better decision-making and enhanced service delivery.
More best practice sharing and world-class examples are needed to encourage companies further faster. Additionally, research is needed to better understand and demonstrate PaaS’s role in circularity and in reducing Scope 3 emissions.
If you are a representative of a Combient Company, you can access the event recording and the study results from the Combient Twin page.
Source: Combient Pure & Chalmers University of Technology interviews
