Is servicization a win-win strategy for sustainable biz?

Dr. Vinayak Deshpande

Dr. Vinayak Deshpande

As sustainable business becomes more attractive, the companies that stand out are the ones that integrate innovative processes within their business models.

Lindsay James (AB ’98, MBA ’03), vice president of restorative enterprise at Interface, a modular carpet production company, and UNC Kenan-Flagler professor  Vinayak Deshpande presented on sustainability research in practice, specifically about the concept of servicization.

Servicization is the idea of selling the functionality of a product instead of selling the product itself. Dr. Deshpande explained that it can be in the best interest of the company, the consumer and the environment if the consumer did not own the product, but rather paid the company for the service of the product. This is not to be confused with leasing a product. Using XEROX copiers as an example, leasing and servicization are two very different concepts:

  • Leasing – the consumer would lease the copier for a fixed amount of time and it would be the consumer’s responsibility to maintain it.
  • Servicization – XEROX comes up with a servicization fee based on the value of the copier, would come to maintain the copier and would charge for using the copier itself (i.e., number of copies, pay-per-print).

Sustainability image for blogThe sustainable outcome of servicization comes from the consumer’s incentives to save on costs by using the product only for what is necessary. At the same time, the company providing the product recycles their products so that once a consumer’s demand for it diminishes, the company can reuse the product for another customer, reducing waste.

Although there are evident benefits to servicization, it doesn’t always make sense to use it. Interface tried to servicitize their carpets to universities, but ultimately struggled to increase the appeal of its servicization model. Dr. Deshpande sought to research the discrepancies between these difficult relationships and concluded his lecture by stating that the success of servicization is variable across industries. Using relative use impact (how high the negative impact is of using the product) and relative operating efficiency (measures whether the consumer or the company is more efficient at operating the product), he determined that servicization was a smart strategy if:

  • Products have low relative use impact AND the firm has high enough relative operating efficiency.
  • Products have high relative use impact AND the firm has low enough relative operating efficiency.

As an environmentally sustainable company, Interface could use servicization to further their sustainability-driven mission. Servicization can create numerous environmental benefits under the right context, and if Interface wishes to continue pursuing that strategy, it must consider these relationships.

By Ting Ting Eeo (UNC ’15), president – Undergraduate Net Impact Club