Industrial Marketing Management 42 (2013) 693–704

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Industrial Marketing Management

Employing the business model concept to support the adoption ofproduct–service systems (PSS)

Ana Paula Bezerra Barquet ⁎, Maicon Gouvea de Oliveira 1, Carolina Román Amigo 1,Vitor Pinheiro Cunha 1, Henrique Rozenfeld 1

University of São Paulo, São Carlos School of Engineering, Production Engineering Department, Av. Trabalhador São Carlense, 400, CEP 13566-590, São Carlos, SP, Brazil

⁎ Corresponding author. Tel.: +55 16 3373 9433; faxE-mail addresses: anabarquet@gmail.com (A.P.B. Bar

(M.G. de Oliveira), carolamigo@gmail.com (C.R. Amigo)(V.P. Cunha), roz@sc.usp.br (H. Rozenfeld).

1 Tel.: +55 16 3373 9433; fax: +55 16 3373 9425.

0019-8501/$ – see front matter © 2013 Elsevier Inc. Allhttp://dx.doi.org/10.1016/j.indmarman.2013.05.003

a b s t r a c t

a r t i c l e i n f o

Article history:Received 28 January 2012Received in revised form 1 March 2013Accepted 23 April 2013Available online 24 May 2013

Keywords:Product–service systemBusiness modelMachine tool manufacturerCase study

Although the existing literature indicates that the business model concept can be useful to implementproduct–service systems (PSS), there is still a paucity of guidelines to assist companies in this respect. There-fore, this paper proposes a framework to support the adoption of PSS employing the business model concept.This framework was developed based on literature review and intends to guide the company on the analysisof their business context, on the choice of the appropriate type of PSS and on the definition of their PSS char-acteristics. A single case study was then performed to illustrate an application of the framework in a machinetool manufacturer and provide research insights. Overall, results indicate that the framework can providecompanies with a useful reference to PSS implementation, helping on the investigation of different PSS sce-narios as well as the main barriers and challenges to be overcome.

© 2013 Elsevier Inc. All rights reserved.

1. Introduction

A service oriented approach provides new ways of dealing withbusinesses, customers and with the value chain. As a result, thisapproach has received increasing attention frommanufacturing com-panies seeking opportunities for competitive advantage. Althoughcompanies constantly offer services to the market, they have only inrecent years seen the integration of products and services as a possi-bility for growth and competitiveness (Jacob & Ulaga, 2008).

Different research communities have studied the integration ofproduct and services, adopting different terms for the same subject.Among them, three are of particular importance: servitization(Vandermerwe & Rada, 1988), service-dominant logic (Vargo &Lusch, 2004) and product–service systems (PSS) (Goedkoop, vanHalen, te Riele, & Rommens, 1999). Despite the difference on terms,the central concept is the same: to shift the focus of traditional busi-nesses based on the design and sale of physical products to a newbusiness orientation that considers functionalities and benefits deliv-ered through products and services (Manzini & Vezzoli, 2003). Spe-cial attention is given to the interaction between customers andcompanies, contributing to an improved value proposition based onthe integration of resources, knowledge and skills (Kowalkowski,2010). This study uses the term PSS throughout this paper.

: +55 16 3373 9425.quet), maicongdo@gmail.com, vitorcunha4@gmail.com

rights reserved.

Manzini and Vezzoli (2003) and Tan (2010) suggested that theadoption of PSS provides insights about aspects considered relevantto businesses, such as: types of products, customer needs, productand service strategies, relationships with stakeholders and financialincome options. However, Tischner, Verkuijl, and Tukker (2002) stat-ed that there are questions without answer hindering companies intheir attempts to implement. For example: How can companies createand offer value to their customers? How can this value be producedand delivered? How can companies interact with customers and part-ners? These questions, which are related to business logic, representchallenges that companies face when adopting PSS.

In fact, one of the main challenges for companies wishing to adoptPSS is to identify the changes required in their businesses (Meier &Massberg, 2004). These changes derive from the differences betweenPSS and the traditional way of developing and selling products. Sincethe business is a central point in this issue, the business modelconcept seems appropriate to be employed. Business models are rep-resentations of companies' strategies, operations and relationshipsthat define their business logic. It can be considered a conceptualtool that helps companies to identify, understand, design, analyze,and change their business models (Osterwalder & Pigneur, 2010).

Tan (2010) states that the business model concept is useful to char-acterize PSS, since its implementation often requires the redefinition orcreation of new business models (Tischner et al., 2002). Tukker andTischner (2006) also believe that it is important to conceptualize PSSin terms of business models to facilitate its adoption. Because the suc-cess of a company depends on its operations, strategy and networks,the business model may be redesigned to support the PSS offer(Schuh, Schittny, & Gaus, 2009). Matthyssens and Vandenbempt

Table 1PSS advantages for customers and companies (Baines et al., 2007; Tan, 2010).

Customers Companies

More customized supply.New functionalities and combinationsof products and services to better suitcustomers' needs.Responsibility for monitoring and end-of-life transferred to the manufacturer.Higher total value delivered to thecustomer by increasing serviceelements.

New market opportunities andcompetitive advantages.Access to information about theproduct's performance during itsuse phase.Higher profit margins achieved byproviding services instead of products.Strengthening customer relationshipsincreases loyalty.

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(2010) brought up an important point by questioningwhy and how thetransition toward PSS affects companies and how they can deal with itin terms of their business models. Richter, Sadek, Steven, and Welp(2009) highlighted the need of investigations which combine the view-point of PSS and businessmodels, aiming to gain a better understandingof this context and to assist on PSS adoption.

Despite the importance of addressing the relationship betweenPSS and business models, the current paucity of information abouthow to use the business model concept to support the adoption ofPSS is challenging for companies and offers opportunities for investi-gation (Mont, 2004). What PSS contents should business models en-compass? Should companies adapt their business models to fit withPSS characteristics or should they create new business models? Theliterature appears to be unable to answer these questions.

This study proposes a framework based on a business model con-ceptual tool, named Canvas business model, which aims to analyzecompanies in terms of PSS requirements and to define actions to im-plement it. First, this study investigated the business model conceptand PSS characteristics in the literature. The findings underpinnedthe definition of the framework's parts, which includes business con-text, types of PSS and its characteristics. The resulting framework wasthen applied to guide the adoption of PSS in a machine tool manufac-turer, providing research insights and illustrating an attempt to intro-duce PSS using the business model concept.

The next section describes the research methodology. Following,this paper presents the literature review, the framework and thekey results of its application. At the end, the empirical and theoreticalcontributions of this study are announced.

2. Methodology

This research follows an inductive approach, looking at specificcases to underpin further development in the field of product–servicesystems. Due to this fact, literature review and case study wereemployed, which are exploratory methods (Karlsson, 2009). The lit-erature review shows the current state-of-the-art and leads to the de-velopment of a framework, which is then applied through a casestudy to complement theory and provide a reference for progress inthe adoption of PSS. Although the case study illustrates the use ofthe framework in a real context, it has a conceptual nature. Thus,based on MacInnis (2011), this study follows a conceptual goalwhich can be defined as “explicating” with a “delineating” character-istic. This classification is appropriate since this research proposes aframework that describes the main entity, i.e., the product–servicesystem, and can be used to guide its adoption.

The literature review and case study methods were used to setfour research stages: the identification of characteristics and typologyof PSS, the investigation of business model concepts, the developmentof the framework and the application of the framework by means of acase study.

The first two stages involved searches in academic journals andconferences. Case studies covering the description of the companies'businesses that have already implemented PSS were used to identifythe PSS characteristics. In addition, an investigation of PSS typologieswas conducted to show differences among PSS characteristics. At theend, an analysis of the business model literature clarified the topicand aided in the selection of a business model concept. Results ofthese two phases are presented in Section 3.

The third stage, development of the framework, started with theclassification of the PSS characteristics according to the businessmodel elements. Then, the business model concept and PSS types, de-fined in the first two stages, were used to establish the framework,which is presented in Section 4.

The last stage embraced the case study on amachine tool manufac-turer. The adoption of a single case study is considered appropriate incases of theoretical immaturity of the research topic, which fits into

the PSS research status. A benefit of a single case study is the possibil-ity of a deep investigation of a specific phenomenon (Dyer & Wilkins,1991). Guidelines proposed by Voss, Tsikriktsis, and Frohlich (2002)and Yin (2003) were employed to plan and execute the case study.They suggest three key activities for the execution of case studies: def-inition of a protocol for collecting data, data collection and data analy-sis. The protocol was built upon the framework and underpinned thedevelopment of a workshop attended by the company's board mem-bers. Data were collected during the workshop, through annotationsof research team and the use of sticky notes filled by the participantswith the most relevant facts. Then, the analysis focused on verifyingwhether the framework is capable of supporting the adoption of PSSthrough the application of the business model concept. It is importantto mention that the data collection and analysis involved the partici-pation of company's members and took into account their opinion. Re-sults of the case study are presented in Section 5.

3. Literature review

3.1. Product–service systems (PSS)

3.1.1. Background on PSSProduct–service systems comprise combinations of products and

services to fulfill customer needs (Goedkoop et al., 1999). Accordingto Vargo and Lusch (2004), PSS focuses on offering services and theproduct becomes simply the means to provide the offer. In otherwords, products are seen as distribution mechanisms for service sup-ply (Kowalkowski, 2010).

Exchange processes and relationships are central in PSS (Vargo &Lusch, 2004). The locus of value creation shifts from the PSS providerto the process of co-creation among different players (Jacob & Ulaga,2008). Thus, the competitive advantage emerges through theco-creation and co-production of activities among PSS providers, cus-tomers and value network partners (Grönroos, 2011; Lusch, Vargo, &O'Brien, 2007; Vargo & Lusch, 2004).

Since value is provided to customers through services rather thanproducts, the introduction of PSS requires changes in the way throughwhich the business is conducted. An example is the involvement ofthe PSS provider with processes related to the use of products. PSSproviders must support clients and ensure the usefulness of productsthroughout their lifecycle (Tan, 2010). Traditionally, customers pur-chase a product and become responsible for its performance, mainte-nance and disposal. In PSS, ownership of a product is not necessarilytransferred to the customer. For example, a manufacturer can remainresponsible for the product after its sale (Baines et al., 2007).

PSS brings benefits to both sides of the value chain — customersand companies (Baines et al., 2007; Tan, 2010), as indicated inTable 1, which describes advantages of each side.

Furthermore, PSS is considered a promising system towards a moresustainable society (UNEP, 2008). In fact, PSS supports a new mindset,with companies abandoning the transformation of resources to gener-ate revenue and focusing on providing value and social quality to theircustomers (Sousa et al., 2010). An example of an environmental benefit

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of PSS is related to the change of product ownership. Since themanufac-turer retains the ownership, it is responsible for the product during itsentire lifecycle, taking it back at its end of life to reuse, remanufactureor execute an appropriate disposal.

3.1.2. Types of PSSTukker (2004) presents the most widely accepted classification of

PSS, which is used extensively in the literature (Manzini & Vezzoli,2003; Tukker & Tischner, 2006). This classification proposes threetypes of PSS: product-oriented services (POS), use-oriented services(UOS), and result-oriented services (ROS), as illustrated in Fig. 1.These types diverge mainly in terms of the relationship between theprovider and customer and revenue model.

The aforementioned types are described below:

• Product-oriented services (POS): traditional product sales, wherebycustomer assumes ownership of the product while the PSS provideroffers and charges for associated services. The after-sales servicewhich aims to ensure product functionality and durability (mainte-nance, repair, reuse, recycling, training and consulting) is an exam-ple of this type of PSS. In this case, the introduction of PSS canreduce the costs of using a product.

• Use-oriented services (UOS): the product is owned by itsmanufactur-er, which sells product use or functions by leasing, sharing or renting.In this case, PSS can maximize product usage by extending the prod-uct lifecycle and reuse of materials. The PSS provider will prefer to de-velop products using long-life materials and offer services to keep itsproducts in good working condition for as long as possible, since itowns them and bears the costs of their maintenance.

• Result-oriented services (ROS): a manufacturer sells a result or com-petence rather than products. In this case, companies offer a mix ofservices and, when the result is delivered through a product, thePSS provider maintains its ownership while the customer pays onlyfor the results. Manufacturers of printers that charge according tothe number of printed sheets while maintaining ownership of theirprinters are an example of this type of PSS.

3.2. Business models

According to Shafer, Smith, and Linder (2005), a business model isa tool that serves to represent the company's underlying core logicand to communicate strategic choices. Elbers (2010) declare that itdescribes how a company creates, delivers and captures value basedon its strategic choices. The main contribution of a business modelstems from the fact that it enables the creation of practices thathelp companies to capture, understand, design, analyze and changetheir business logic (Osterwalder & Pigneur, 2010).

A business model decreases business logic complexity by provid-ing a vision of how a company can derive value from its resourcesand implement its strategy. Therefore, it creates a holistic view of abusiness and clarifies important points to an organization. According

Fig. 1. Classification of PSS proposed by Tukker (2004).

to Osterwalder, Pigneur, and Tucci (2005), a business model is a con-ceptual tool composed of objects, characteristics and their relation-ships, which provides a simplified description and representation ofa company's business logic.

Several studies have suggested elements that should compose busi-nessmodels. Aziz, Fitzsimmons, andDouglas (2008) examined businessmodels and foundmore than fifty-four different elements. According tothem, these elements include the following: value network, target mar-ket, value proposition, company's competences, cost elements, strategy,processes and activities, revenue and price considerations, competitors,customer relationships, andmany others. The variety of businessmodelelements shows that different structures can be used to create businessmodels. Thismay be confusingwhen establishing characteristics relatedto each element and, thus,may hinder the definition of a complete busi-ness model.

Business model concepts presented by Chesbrough (2006) andOsterwalder and Pigneur (2010) are the most relevant to this study,since they define and describe the elements that comprise businessmodels, which support the analysis of company's requirements toimplement PSS. In addition, these two works are established and ac-cepted by practitioners and theorists.

An analysis of proposals from Chesbrough (2006) and Osterwalderand Pigneur (2010) reveals that they are substantially similar. Themost of their elements are the same, such as cost structure and valueproposition. Some of their elements have different names, but withthe same meaning, e.g., market segment and customer segment. Themain difference remains in the fact that Chesbrough (2006) includesthe competitive strategy as an element of business models, whileOsterwalder and Pigneur (2010) do not include elements related tostrategy, since they claim that strategy and business model are differ-ent entities, albeit related.

This study follows the business model concept of Osterwalder andPigneur (2010), named Canvas Business Model, as reference for ana-lyzing business models. The authors of this research agree withOsterwalder and Pigneur (2010) that strategy needs to be distin-guished from business models. Strategy is a driver for the creationof business models because it guides companies in the definition oftheir business model. Therefore, a company's strategy may be formu-lated before its business model is created.

Canvas Business Model was developed through an extensiveinvestigation of business models and represents the consensus ofa large group of experts from academy and industry. Moreover, adetailed process to use Canvas Model was proposed to support thedevelopment and management of business models. Finally, there isempirical evidence that supports the performance of this model. Ithas been applied successfully by many organizations, such as IBMand Ericsson (Osterwalder & Pigneur, 2010).

Nine elements constitute Canvas Business Model, which aredepicted in Fig. 2: value proposition, customer segments, distributionchannels, customer relationship, revenue streams, key resources, keyactivities, key partners and cost structure. These elements aredescribed below.

• Customer segments: groups of people or organizations a companyaims to reach and serve.

• Value propositions: products and services that create value for aspecific customer segment.

• Distribution channels: company's interface with its customers.• Customer relationships: types of relationships a company estab-lishes and maintains with specific customer segments.

• Revenue streams: revenue a company generates from each customersegment.

• Key resources: assets required to offer and deliver the aforemen-tioned elements.

• Key activities: activities involved in offering and delivering the afore-mentioned elements.

Fig. 2. Elements of Canvas Business Model (Osterwalder & Pigneur, 2010).

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• Key partners: network of suppliers and partners that support thebusiness model execution.

• Cost structure: costs incurred when operating a business model.

4. Framework to support the adoption of PSS

Goedkoop et al. (1999) considered several business aspects whenthey defined PSS a system of products, services, infrastructure and net-work that continually strives to be competitive in satisfying customerneeds and may result in lower environmental impacts. Among the fea-tures proposed for adoption of PSS, Baines et al. (2007) and Goedkoopet al. (1999) included the following aspects:

• Shift of mindset from a product-based to a system-based approach.• Create direct customer relations to intensify contact or to increaseits frequency.

• Greater involvement between customers and companies.• Case-by-case design, production and delivery.• Greater company involvement and responsibility throughout productlifecycle.

• Greater involvement of stakeholders.

This study developed a framework to support companies interestedin adopting the PSS, which considers the aspects cited above, amongothers described in the literature review. The framework comprisesthree parts, as described in Fig. 3: the business context, the types ofPSS and the PSS characteristics.

Fig. 3. The three parts of the framework pr

Thefirst part – the business context – involves an analysis of the cur-rent business model in terms of PSS requirements, verifying the poten-tial restrictions, which can be internal and external to the organization.There are two alternatives, either adapt the current business model orcreate a new one. The second part – the types of PSS – identifies thelink between the business context and the PSS characteristics. It definesthemain goals of the business model and allows for the selection of themost appropriate PSS characteristics. The third and last part – the PSScharacteristics – embraces, for example, the definition of the customerrelationships and partners that are required to develop and deliverthe product–service offer. It is a description of the characteristics thatshould be incorporated by the new or adapted business model inorder to create a specific type of PSS.

The next sections outline the first and third parts of the frame-work: the business context and the PSS characteristics. The secondpart, the types of PSS, was described in Section 3.1.2, within the liter-ature review.

4.1. The business context

Before choosing the type of PSS and defining the PSS characteristicsto be considered, company needs to understand its business situationand forecast how it should work after the implementation of PSS.

According to Tan (2010), PSS should be adapted to the currentbusiness, since the performance of the product–service offer can becompared to the existing product offer, enabling the analysis of

oposed to support the adoption of PSS.

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potential barriers and benefits. Furthermore, in this regard, the adop-tion occurs incrementally, reducing the impact and risks involved inthe business change process. However, there are also examples ofcompanies that prefer to create additional business to implementPSS, rather than shifting the existing business to a new mindset(Mont, 2004). The latter approach is comparable to spin-offs used toallow for the development of radical innovations (Christensen,1997). Therefore, considering the two aforementioned approaches,the company needs to decide whether to adapt its current businessmodel or create a new one.

4.2. The PSS characteristics

This section presents characteristics to be considered in a businessmodel when implementing PSS. These characteristics are sortedaccording to the elements of the Canvas Model. It should be notedthat although the elements of Canvas Model are interrelated, theyare described separately to facilitate their understanding and the de-scription of the PSS characteristics.

• Value propositions: relates to the value provided by the integration ofproducts and services. Examples of value are as follows: lower re-sponsibility for product lifecycle; functional guarantee (Isaksson,Larsson, & Rönnbäck, 2009); and reduced cost ofmanufacturing oper-ations when the client is another company, since the PSS providermay be responsible for services such as maintenance and repair(Alonso-Rasgado, Thompson, & Elfström, 2004). Customization canalso be a value proposition, since PSS enables the combination ofproduct and service elements (Tukker & Tischner, 2006). These per-spectives of value indicate the shift from traditional products to PSS,which does not have embedded value, but creates it by enhancingthe customers' satisfaction (Tan, 2010). Stakeholders notice different-ly the value, depending of their roles, responsibilities and product ex-perience. For example, the perception of a product value changeswhen it is sold or leased, as does the trade-off between incurredcosts and liabilities for the customer (Fishbein, Mcgarry, & Dillon,2000). A particular perspective is the value of the relationship withcustomers during the role lifecycle of products (Tan, 2010; Wise &Baumgartner, 1999). Finally, value has also a subjective dimension,for example, trust, commitment and attraction (Grönroos, 2011).

• Customer segments: indicates the presence of different target groupswith distinct ideas about product ownership (Tukker & Tischner,2006), caused by cultural and regional differences and sets of con-sumer habits, behavior and values (Manzini & Vezzoli, 2003). A com-mon option to define the customer base is to consider different typesof user behavior, since PSS involves changes in ownership, responsi-bility, availability and cost (Matzen, 2009).

• Distribution channels: sales and retail areas should promote the PSSoffer, making it more attractive than a product-based option(Tukker & Tischner, 2006). The adoption of PSS often requires train-ing of the retail and sales staff, as well as other changes (Mont,2004). Another important aspect is to “sell the idea” through market-ing campaigns (Tukker & Tischner, 2006) that highlights the advan-tages of PSS (Mont, 2004).

• Customer relationships: involves the creation of added value and itsdelivery through direct relations and intensified contacts with cus-tomers (Mont, 2004). This enables the development of long-term re-lationships, instead of short-term and transaction-based relationshipstypical of the traditional “product sale” context (Mont, 2004;Williams, 2006). The “relational” path can be achieved by buildingcloser relationships with customers through increased operationallinks, information exchange, legal ties and the establishment of coop-erative rules (Matthyssens & Vandenbempt, 2010).

• Revenue streams: PSS can bring opportunities for augmenting com-panies' revenue through the enlargement of functions offered by thePSS provider (Mont & Mont, 2000). Instead of one-off payments,

companies can structure their sales to customers in different ways(Tan, 2010). The long-term nature of the relationship between a PSSprovider and its clients implies that companies must create new rev-enue models based on performance-based pricing (Matthyssens &Vandenbempt, 2010). However, in a network, i.e., when more thanone company is involved, revenue distributionmust bewell managedto avoid misunderstandings (Mont, 2002). Payment may be based onthe availability of the product and/or service, on how often the prod-uct and/or service is used, on the end result of the use of products and/or services, or even on collateral for other valuable entities (Tan &Mcaloone, 2006). Therefore, new earnings options based on the inte-gration of products and service can be created (Grönroos, 2011).

• Key resources: PSS providers must make considerable investments inhuman assets (Tan & Mcaloone, 2006). New competencies to dealwith customers must be developed, people trained and sometimesadditional personnel recruited (Cook, Bhamra, & Lemon, 2006;Mont, 2004). A fundamental shift is also required in the organization-al culture and market engagement, which necessitates time and re-sources (Cook et al., 2006; Tan & Mcaloone, 2006). In addition, anefficient infrastructure is required for the cooperation between cus-tomers and suppliers (Meier & Massberg, 2004).

• Key activities: PSS providers must focus on the key activities of theircustomers, rather than concentrating efforts on activities related tophysical products. With PSS, a dependency is created betweencompany's (providing) operations and customer's (receiving) activi-ties. Even when the product delivers a core function, essential activ-ities are performed before, during and after the product's usagephase (Cook et al., 2006; Tan &Mcaloone, 2006). In fact, the most im-portant activities take place during the usage phase, when PSS pro-viders can monitor the product performance through sensortechnologies and also. In this sense, they can identify when mainte-nance should be done, supplying preventive maintenance to clients(Schuh et al., 2009). Additionally, the integration of operations andactivities must be managed carefully, both tactically and strategically,since business processes require a new orientation to support PSS(Meier & Massberg, 2004). An example of this is the decision aboutwhether or not to integrate the new product development to the ser-vice development process (Isaksson et al., 2009). Further examples ofactivities and processes that PSS providers should address are: ordertaking, deliveries, installing, maintenance, invoicing, complaints han-dling and service recovery. Correspondingly, order making, storage,installing, using, maintaining, paying and cost control, and resolvingproblems are examples of customer's activities to be incorporatedby the PSS provider (Grönroos, 2011).

• Key partners: the proposition of value through products and servicesembraces a complex network of suppliers and competencies. (Tan,2010). The establishment of a PSS network requires the identificationof actors and of the core competencies they can provide (Mont,2002). Furthermore, when designing partnerships, it is important tospecify each partner's value throughout the product lifecycle(Sakao, Sandström, & Matzen, 2009). In this sense, the scope of therelationship between the manufacturer and the PSS network affectsthe PSS lifecycle and customer's activities (Mont, 2004; Tan, 2010).

• Cost structure: cost structure management and price definition arechallenges to the success of PSS (Sundin et al., 2009). The new logicof value creation requires new value-based pricing models, which in-clude products and their associated services (Grönroos, 2011). Finan-cial and accounting practices need adaptations, since the time scale offinancial flows changes considerably from an almost immediate re-turn of capital to an extended usage period (Mont, 2004). Thismeans that the PSS provider must have the financial resources or re-ceive support from its financing partners to bridge this period (Mont,2002). In other words, when function is sold rather than ownershipcost structures should be arranged to support a new demand ofcash-flow. In PSS, the payback period of the value delivered is oftenlonger than the payback period of physical product sales.

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Fig. 4 summarizes the PSS characteristics related to the elementsof Canvas Business Model.

The framework proposes the selection of the PSS characteristicsafter the definition of the business context and the type of PSS. There-fore, the PSS characteristics presented in this section are generic,which permits their allocation and adaptation according to the re-quirements of each company. To demonstrate this, the frameworkwas applied through a case study in a machine tool manufacturer.Apart from describing the use of the framework, the case study sup-plements the information gathered in the literature review, whichcan be considered in progress, due to current status of PSS theory.

5. Case study of a machine tool manufacturer

This section summarizes the execution of the case study and re-sults gathered through the application of the three parts of the frame-work. The framework was applied by means of two 6-h workshopsattended by representatives of the company's sales, planning,engineering, and production departments. The company in questionis a Brazilian machine tool manufacturer located in the state of SãoPaulo. More than 2500 of its machines operate in Brazilian and LatinAmerican factories. Its core business is the design and manufactureof pressure forming machines and machines to produce plastic bags.

Several reasons have led this company to seek new business optionssuch as the product–service system. In the machine tool market, com-panies are striving to improve machine performance, provide bettermaintenance and reduce the consumption of tangible resources (Zhu,Jiang, Huang, & Qu, 2011). A particular fact thatmotivated this companyto investigate PSS is its adoption by a relevant competitor, located in theUnited States, which designs, manufactures and sells machines withadditional services, such as: monitoring, training and preventive main-tenance. The competitor has also long term relationships with its cus-tomers and it has increased its market-share.

In a firstmoment, a presentationwasmade to the company describ-ing the objectives of the study, explaining the main PSS concepts and

Fig. 4. The PSS characteristics organized accordin

listing the advantages for clients and companies. The presentation in-cluded a description of successful cases of PSS implementation bymanufacturing companies.

Although the company's representatives know how a PSS works,particularly because its main competitor already adopted it, they wereunfamiliar with the terms “service-dominant logic” and “product–service system.” Next sections present the application of the threeparts of the framework.

5.1. Part 1 — business context

In this stage, information was garnered about the general charac-teristics of the current business of the company. Some authors believethat companies wishing to implement a PSS approach must first ana-lyze their current business models (Kuo, Ma, Huang, Hu, & Huang,2010; Matzen, 2009; Sakao et al., 2009). For this purpose, a brain-storming session was held with the company's main representatives.The company of this case study has been in the B2B machine toolmarket for over 48 years, manufacturing machines for transformingplastics.

The company's main business unit manufactures thermoformingmachines. The current business model for the thermoforming busi-ness is based on the sale of machines and the supply of maintenanceand technical assistance services. However, these services account foronly 5% of the company's revenue. The company's representativesstated that the services provided cover only its operational costs.They consider that the only advantage in providing technical assis-tance is to ensure customer loyalty, but the company does not cur-rently exploit and prioritize services as a competitive factor.

As for the destination of the machines at their end of life, the com-pany stated that it is currently not responsible for their disposal.However, the recent approval of a law on solid waste disposal hasraised increasing concern about product end of life. In addition, thegrowing concerns of the company's clients about the environmentalimpacts of products have led the company to rethink its products'

g to the elements of Canvas Business Model.

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end of life disposal. In this sense, a few attempts have been made torecondition machines, but the time and resources spent in doing sohave proved to be more costly than manufacturing new machines.Nevertheless, the company sometimes purchases used machinesfrom clients and resells them at considerably lower prices. In somecases, the client himself reconditions his machines, aiming to extendtheir service life.

5.2. Part 2 — PSS type according to business context

Focusing specifically on the current business of thermoformingmachines, alternatives were then analyzed for the implementationof different types of PSS. Three alternatives were considered for thecurrent business for a specific customer segment. The fourth alterna-tive considered a new business development, which may pose fewercultural barriers and allow for more disruptive improvements. Thefour alternatives are described below.

Alternative 1: product-oriented PSS for an existing businessAiming to apply the product-oriented PSS to the business ofthermoforming machines, the initial idea was to integrate the ser-vice element to the product. As mentioned earlier, the companyalready provides a few services, which facilitates the adoption ofthe product–service system since the company already has someexpertise in supplying services. At the same time, the supply ofservices is also seen as a good opportunity to increase the valueit delivers to clients. To implement this alternative, the companywould have to make changes in three elements of the businessmodel: key resources, key activities and customer relationships.In terms of key resources, it was found that the company does notyet consider services a value-added differentiator. This constitutesan internal cultural barrier that can be difficult to cope with.Therefore, if the company decides to change the way it proposesvalue, some of the opportunities it will make use of are: to in-crease its revenue by supplying services, to monitor the product'sperformance during its use phase, to increase the value deliveredto and perceived by the client, and to effectively use the client'sfeedback about the product.New resources and activities would be required, e.g., the structur-ing of a new service development process and the decision to inte-grate it to the product development process, as well as employeetraining to improve the company's current services and to providenew ones.Furthermore, the supply of these services would generate new re-lationships with customers, mainly in the phase when the productis in use. This would require rethinking how the company dealswith its customers in this phase.Alternative 2: use-oriented PSS for an existing businessWhen questioned about the application of use-oriented PSS in thethermoforming business, several important questions arose. The in-vestigation of this alternative revealed that the company in questionwill have to make changes in all the elements of its business modelexcept the Customer Segment, which is already established for thecurrent business. Therefore, the changes would encompass the ele-ments: distribution channels, key resources, value propositions,cost structure, revenue streams, customer relationships, key activi-ties, and key partners.With regard to the element distribution channel, leasing could becomplex for the company, particularly due to cultural resistance.An example cited was the sales area, which would find it difficultto adapt to this new form of relating to the customer. Therefore,resources would have to be spent on training of the sales staff tooffer PSS to the customer.In fact, the company had already analyzed the alternative of leas-ing, and had decided not to adopt this alternative because severalquestions concerning the development of leasing could not be

answered. In addition, leasing its machines instead of sellingthem would increase the company's costs since it would requirehigh initial capital investments, which the company cannot afford.With respect to the value proposed to the customer, the companywas not convinced that leasing would give him higher revenuesthan simply purchasing the product. This is mostly due to the easyfinancing of machines that companies operating in the Brazilianmarket can obtain from the Brazilian Development Bank (BNDES)through the Finame program. With such financing, customers canpay back their loans in up to 10 years and own their machines out-right when the loan is paid off. This incentive for purchasing newmachines makes it difficult to implement a use-oriented PSS.In addition, the company considers that the supply of “guaranteed”services associated with its products throughout their lifecycle, bymeans of a periodic fee instead of payments for services rendered,could encourage the client to adopt a careless attitude about theuse and conservation of the product, which would translate intohigher costs and more resources spent on repair and maintenanceservices by the manufacturer.The question of revenue also gave rise to many doubts in the com-pany, e.g., how much time would be required to amortize the ini-tial investment, since the client would no longer pay for theacquisition of the machine but would, instead, make periodic pay-ments for his right to use it. In addition, this option could not beconsidered competitive when compared to the type of financingthat BNDES Finame offers. When the client acquires a machineusing this financing, he also makes periodic payments for theright to use it, but the difference lies in the fact that he owns themachine outright after paying off his loan, which is not the caseof PSS.The company also had several questions about tax payments,which is an extremely important point to consider in the adoptionof a use-oriented PSS. What are the existing taxes for companiesthat lease but do not sell machines? If the company had many as-sets used as services, what level of taxation would it be facing?Another relevant factor is that the company enjoys a close rela-tionship with most of its clients. However, this relationship ischaracterized by informality. Also, business agreements are signeddirectly with the client's top management. This makes it difficultto formalize the customer relationship through contracts, whichare essential for the proper operation of a PSS.Hence, the company would have to rethink the services it currentlyoffers and to think about proposing new services, when consideringthe alternative of implementing a use-oriented PSS. Therefore, newactivities and resources would have to be established to ensurethe proper supply of these services, as mentioned in Alternative1 — product-oriented PSS for an existing business.Alternative 3: result-oriented PSS for an existing businessSome points involved in Alternative 2, i.e., adoption of a use-oriented PSS, also apply to the third alternative. An examinationof this alternative indicated that the company of this case studywould have to make similar changes in elements described inthe second alternative: key resources, value proposition, coststructure, revenue model, customer relationships, key activitiesand key partners.The company also believes that it would face internal resistance tothe change to a PSS, especially in the sales area, as mentioned ear-lier. In both cases, the PSS provider would continue to own themachine. Therefore, the easy financing of machines, the doubtsconcerning the time to amortize the initial investment and howto obtain revenue also apply to this third alternative, as well asthe changes required in customer relationships and new activities,resources and partnerships to develop and supply servicesdescribed in the second alternative.An issue specific to result-oriented PSS that was brought up andhas been broached in many studies about PSS is how to define

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the price of this type of supply, given the difficulty of pricing ser-vices. The company has doubts about how to price units of plasticsbags, which would be the result provided to the customer.Alternative 4: use-oriented PSS for a new businessThe new business involves the development of a new type of ma-chine that produces aluminum packaging. The company alreadyhas a specific market to supply it, which comprises small and/ornew companies, but it does not have the technology required. Asa result, an alternative would be importing from a low-cost suppli-er, such as a Chinese one, aiming to lease under the company'squality seal and warranty.For both customers and the manufacturer, the use-oriented PSS isa more advantageous alternative in this case than product orresult-oriented alternatives. Since these are imported machines,financing though BNDES Finame is not available. Therefore, forthe customer, this alternative offers value mainly in terms of thelower initial investment and the lower operational costs, sincethe PSS provider takes responsibility for maintenance and techni-cal support. For the company, the result-oriented PSS is a morerisky choice than the use-oriented one due to cultural issues andpricing difficulties.The main barrier of this alternative is the high initial investmentby the manufacturer to purchase machines and train staff. Howev-er, the creation of a new business unit implies fewer cultural bar-riers on the part of employees. The customer relationship wouldalso involve fewer cultural barriers, since new customers wouldprobably not find formal contracts a problem, unlike alternative2. Thus, the main challenge in this alternative remains in key re-sources and cost structure elements of the business model.After examining the current business context, it was suggestedthat one of the following types of PSS be adopted: POS(Product-Oriented Services), which was characterized in alterna-tive 1, UOS (Use-Oriented Services) in alternative 2, and ROS(Result-Oriented Services) in alternative 3. Alternative 4 is a newbusiness model according to the UOS type of PSS.After describing the four alternatives, they were analyzed to iden-tify the most attractive one for implementation. This analysis,performed jointly with the company, considered the number andcomplexity of barriers to each alternative and the number of busi-ness elements that requires changes. Fig. 5 summarizes the bar-riers described for each PSS alternative. The barriers are relatedto the elements of the Canvas business model and the elementsthat pose barriers in each alternative are highlighted in gray.Alternative 1 presents barriers in the elements key activities, keyresources and customer relationships. Alternatives 2 and 3 presentbarriers in almost every element of the business model exceptcustomer segments, since the customer to be reached is alreadydefined. Alternative 4 presents barriers in key resources and coststructure elements.As can be seen in Fig. 5 and also from the description of the alter-natives, Alternatives 2 and 3 involve more barriers than Alterna-tive 1, which in turn presents more barriers than Alternative 4.Themain difference between Alternatives 1 and 4 is the type of ac-tion involved to adopt PSS. In Alternative 1, the change concernsthe organizational culture towards the value of services, which isknown as hard to be addressed, and the redefinition of a businessthat is currently profitable, which tends to be a barrier to change.Several authors have already argued that one of the major barriersfaced by companies wishing to adopt PSS is the change in culturefrom product to service orientation (Goedkoop et al., 1999;Manzini & Vezzoli, 2003; Martinez, Bastl, Kingston, & Evans,2010; Tan, 2010). Mont (2004) argues that this change requiresnumerous resources and comes up against psychological barriersin companies. On the other hand, alternative 4 requires major in-vestments and depends on the company's current situation andpotential revenue.

Since Alternative 4 faces fewer cultural barriers than Alternative 1,and given that the company can afford the necessary resources toimplement it, this was the alternative chosen. Therefore, after de-ciding about the business context and PSS type, the next stage be-gins, representing the last phase of the framework— the definitionof PSS characteristics for each element of the business model.

5.3. Part 3 — PSS characteristics

The discussion with company's board members focused on de-scribing the business model to fit Alternative 4 and on clarifying thePSS characteristics that each element of the business model shouldpossess. This discussion resulted in the model illustrated in Fig. 6.PSS characteristics proposed for each element of the business modelis described below, completing the application of the framework.

• Customer segments: the company seeks to reach small companiesor companies that are entering the market, which do not haveenough capital to purchase new machines and will find it difficultto make heavy investments.

• Value proposition: the PSS options offered by the company could becustomized according to each client's needs, considering, for in-stance, the frequency with which the machine is used and the pack-age of services that clients want to acquire. A training course on theuse of the machine could be offered to the client, who would benefitfrom its improved performance and operation. The value providedto the client could be increased by integrating products and servicesto meet the customer needs, thus increasing the quality added tothe offer. The company can also offer a lower initial investment op-tion for the customer segment, considering the fact that the clientwould not purchase the machine but would pay for its use, whichspreads these costs over the time the machine is used. Also, as thePSS provider is responsible for the machine during its entirelifecycle, the client's expenses with maintenance and technical as-sistance services are reduced.

• Customer relationships: the company aims to establish long-termrelationships through formal agreements, seeking close relation-ships with its clients and helping the proposed values to beachieved, such as alternatives for the co-development of solutions.In this case, the PSS provider could support the development of so-lutions at the client's facilities. The greater proximity between thePSS provider and the client increases their contact and communica-tion, making it easier for the PSS provider to participate in theclient's processes.

• Distribution channels: it was decided that a customer servicetrained to assist this new client segment would be developed, aswell as a new sales channel qualified to demonstrate to clients thebenefits of the PSS offer. In addition, the company intends to useits website as a tool for constant communication with the client.

• Revenue streams: revenue would be generated through the month-ly payment of a fixed rate, which would cover both the product andservices that would be made available throughout the machine'slifecycle.

• Key resources: the key resources considered by the company in thisnew offer are mostly human and financial resources. The formershould involve qualified staff to service the machines during theiruse and to provide technical, mechanical, electrical and electronicservices. In addition, training for sales staff should be considered,as well as the definition of staff and of people directly responsiblefor managing contracts. The financial resources involve the invest-ment required to acquire this new offer, i.e., the resources requiredto purchase the machines from China and create the website.

• Key activities: small and new clients entering the market are rarelyaware of how a PSS works. Given that the company aims to establishclose relationships and develop co-solutions with clients, it wouldbe interesting for it to help clients develop a business model that

Fig. 5. Alternatives of the PSS business model investigated.

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enables them to have a PSS as their supplier, which would be themanufacturer of this case study. The company should consider theuse of specific software programs to monitor the machine duringits use phase, providemaintenancewhen necessary, monitor its per-formance, and be aware of its end of life. Also, the increase in thenumber of partners needed for the development of a PSS offer dem-onstrates the importance of managing this network. Risks andprofits will have to be shared with partners on a contract basis.The fact that the company aims to forge closer relationships withits clients requires a differentiated management of the activitiesconductedwith these clients. New forms of communicationwith cli-ents will be required on a regular basis. Suitable performance indica-tors should be created tomeasure the results of this new offer. Theseindicators must be able to measure gains and even losses based onfinancial issues. In this case, the form of payment must be consid-ered. Client satisfaction with the product will also have to be mea-sured, mainly while the services are rendered during its use. Theclient–PSS provider relationship should also be a measure of clientsatisfaction.

• Key partners: One OF the most relevant elements for PSS-orientedbusiness is the partnerships required to develop and deliver theoffer. Upon examining the values and clients it considers, the ma-chine tool manufacturer identified several partnerships it wouldhave to enter into in order to deliver the offer. The company intendsto develop a new business unit or company, which will be respon-sible for the PSS of the new machines. Because the machines willnot be manufactured by the company under study, a partnershipshould be established with a Chinese supplier to acquire new ma-chines. Since the machines will be owned by the company of thiscase study, a transportation company will be hired to deliver themachines to the clients' facilities and remove them for servicingand eventually for disposal. Due to the new types of agreementssigned with partners and clients, it will be necessary to have a lawoffice in charge of contract management. It will be also necessaryto create architecture for product monitoring: aspects of both hard-ware and software must be considered. As hardware, the machinesand their accessories must be prepared to generate machining capa-bilities to enable the execution of the software.

Fig. 6. Business model for the machine tool manufacturer including PSS characteristics.

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• Cost structure: some of the costs involved in this PSS differ from theusual ones pertaining to product sales. The increased number ofpartners means that profits will be shared with them. Moreover,unlike the sale of a product, the entire revenue will not be realizedat the moment the machine is delivered to the client. This meansthe company will have to make a substantial initial investment.And, since the company retains ownership of the machines, it willhave to bear the costs involved in the use phase of the PSS (mainte-nance services, upgrades, replacement parts and shipping of same)and their end of life and/or disposal costs (reverse logistics, end oflife alternatives).

5.4. Insights from the framework application

The application of the framework occurred in the presence of thecompany's board members, who helped with the selection of PSScharacteristics required in the new business model. At the end ofthe workshop, they agreed on the feasibility of implementing suchmodel on the near future. This fact confirms the potential of theframework to guide the company in the analysis of its current busi-ness and in the definition of actions to adopt PSS. Additionally, theframework supported:

• The understanding of the current business model and the investiga-tion of how this model could work in different PSS scenarios

• The identification of barriers related to the different PSS scenarios• The creation of a new business model aligned to the company'sstrategy and to the PSS requirements

• The investigation of PSS types by understanding their differencesand characteristics, enabling the proposal of scenarios accordingto PSS types

• The definition of PSS characteristics for the selected type of PSS(alternative 4)

• The generation of new ideas and opportunities as a result of theknowledge acquired during the workshop

Next section highlights the challenges noticed in this studyregarding the implementation of PSS.

5.5. Challenges to implement PSS

Some challenges to implement PSS came to light during the casestudy. Unlike the barriers identified in each of the PSS alternativesduring case study execution, these challenges seem to pertain notonly to the company under study but also to its environment andmarket demand. They are grouped and presented in the followingtypes: machine leasing, financial aspects and internal resistance.

The readily available financing of machinery in Brazil is an impor-tant point to consider. The government, through BNDES (national de-velopment bank), has lowered the interest rate for the acquisition ofmachine tools produced in Brazil, granting a payback period of10 years to pay loans. Due to this incentive, companies prefer to pur-chase newmachines than purchasing maintenance services or leasingmachines. As a result, the implementation of PSS has been hamperedin Brazilian companies.

The financial aspects also raise many doubts, e.g., how long wouldit take to amortize the initial investment, since customers would nolonger purchase the machine, but would make periodic paymentsfor the right to use it. Another question that was brought up andhas been already mentioned in many studies about PSS is price defi-nition, given the difficulty of pricing services.

The company of the case study had several questions about taxa-tion, which is an important point for companies that sell only prod-ucts and wish to adopt PSS. In Brazil, there are specific taxes forproducts and services, but the legislation is not clear about how totax product–service systems. The company struggled to identify thetaxes it would have to pay and to determine whether the new busi-ness would fit as a product seller or a service provider.

Finally, there was internal resistance to implement PSS in thecompany studied, because its employees are unaware of the potentialvalue of services and they would therefore lose opportunities related

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to PSS. These kinds of opportunities include increasing its revenue bysupplying services, monitoring product performance during the usagephase, increasing the value delivered to and perceived by the client,and making effective use of information provided by clients aboutthe product. The company also pointed out concerns regarding thedefinition of a new service development process and the training ofemployees for new services or improvement of the existing ones.These concerns were drivers that motivated the company to imple-ment PSS through the creation of a new business unit, reducing therisks and impact on the performance of the current business.

6. Final considerations

From the academic standpoint, this study investigates the adop-tion of PSS through a perspective based on the business model con-cept. This perspective differs of current studies, which have focusedon the PSS characteristics related to product design or on specific el-ements of business, e.g., customer relationships, cost managementand partnerships.

From the empirical point of view, the first contribution that can bedelineated is the identification and classification of the PSS character-istics according to a business model structure. This result enablescompanies to better compare their business models to the character-istics expected when adopting PSS. Moreover, an overview of the PSScharacteristics supports companies to discover opportunities for theircurrent business models or to new ones. An understanding of PSScharacteristics can therefore help companies in the selection of thecharacteristics that best fit into their business context or that canlead to new business opportunities (Tan, 2010). The second contribu-tion is the creation of the framework to support companies that wantto implement PSS. It gives to companies a starting point to deal withPSS. The third contribution is the case of the machine tool manufac-turer, which illustrated the use of the proposed framework to identifyopportunities for the adoption of PSS. During the application of theframework, which embraces an analysis of the requirements to im-plement different types of PSS, several barriers were identified. Thedescription of such barriers can help companies to mitigate futurerisks and adopt PSS successfully. In addition, examples of challengesthat can affect PSS are revealed, such as machine leasing, financial as-pects and internal resistance. The analysis of these challenges can bedeployed into actions capable of stimulating the PSS implementation.

By deciding to adapt or to create a new business model to fit withthe PSS requirements, companies should check constantly whetherand how this decision can impact on their business or corporate strat-egy. Since the implementation of PSS can lead to changes of elementslinked to ongoing businesses, managers should keep in mind the im-portance of reviewing strategic constraints and redefining the typesand characteristics of PSS to overcome potential issues. Therefore,even if the framework implementation occurs without issues, a feed-back loop to the framework first part may be required to analyzewhether the first decision of adapting or creating a new businessmodel continues valid.

The major limitation of this research relies on a single applicationof the framework. More studies have to be performed to increase itscredibility and the validity of its results. It is also important to empha-size the aim of this application is to give an example of how theframework can support companies interested in adopting PSS. Thecase was not designed to assess it, which should be part of the futureactions planned for this research.

This study recommends for further research the analysis of the en-vironment in which PSS wants to be introduced, in particular thelegal, technological and economic aspects. In fact, the alignmentwith external factors is primordial to the effective design and imple-mentation of PSS.

The next steps of this research embrace the proposition of an ap-plication process for the framework and the identification of linkages

between the PSS characteristics and the types of PSS. In addition,cases that present the implementation of the framework could beperformed to assess its results in a more concrete manner.

Acknowledgments

The authors would like to thank the anonymous reviewers and thespecial issue editors for their constructive comments and useful sug-gestions. This research was financially supported by CNPq (NationalCounsel of Technological and Scientific Development).

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Ana Paula Bezerra Barquet PhD candidate at the Production Engineering Departmentof University of São Paulo. Master degree in Industrial Engineering at the FederalUniversity of Santa Catarina. Her research interests include: product–service systems,product and service development process, remanufacturing.

Maicon Gouvea de Oliveira Professor of technology and innovation management at theInstitute of Science and Technology, Federal University of Alfenas, MG, Brazil. He is co-author of the first Brazilian book about roadmapping and he has published several papersin conferences and journals, such as Technological Forecasting and Social Change, Interna-tional Journal of Technology Intelligence and Planning and Product: Management andDevelopment. His research interests include: front-end of innovation, product–servicesystems, roadmapping, decision-making and portfolio management.

Carolina Román Amigo M.Sc. student at the Production Engineering Department ofUniversity of São Paulo. Experienced in product development as a professional designer.She specializes in product and services development process. Her current research in-terests include modeling and visualizing process models, emphasizing the user interac-tion perspective.

Vitor Pinheiro Cunha Advisory Manager at Ernst & Young, where he leads complexprojects of transformation and value chain management in companies of several seg-ments. He has a Master's degree in Industrial Engineering from the Engineering Schoolof São Carlos and has researched and published articles in journals and conferences onthe following topics: innovation management, front-end of innovation, new productdevelopment, product lifecycle management, technology roadmapping, product idea-tion and portfolio management.

Henrique Rozenfeld Full professor at the Production Engineering Department of Uni-versity of São Paulo since 1982. Coordinates national and cooperate research projectswith European institutions on product life cycle management, process modeling, inno-vation management, sustainable product development and product–service systems.Has more than 300 published papers in national and international journals, such asJournal of Cleaner Production, Technological Forecasting & Social Change and Com-puters in Industry. Authored more than 25 book chapters, and is the main author ofthe book Product Development Management: A Reference for Process Improvement.