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Don't buy it - hire it: the real green consumer

Ewan Kingston

30th March, 2010

It's an unfashionable idea, but would a return to hiring products and services rather than buying them help us reduce our ecological footprint and turn businesses green?

Picture a world where products are manufactured to be extremely durable, upgradable and reliable. When finally obsolete, all of a product's parts would be carefully conserved, and not 'downcycled', but remanufactured to make exactly the same product.

In such a 'closed-loop' world, customers would get the use of high-quality everyday items, and the energy demand of industry (currently one third of the world's total), would be slashed - primary resources would no longer be extracted and processed on anything like the scale the are today.

It's a nice idea, but with massive interests in the status quo and resistance to government regulations, how can we get there?  Many green business leaders believe the path to a closed-loop technological world makes perfect business sense. The interesting thing is, the path they believe will get us there involves what has become a rather unfashionable idea – hiring things.

Buying a service

The sale-of-service (sometimes called product-of-service) approach is the revolutionary green idea that instead of buying products, we should, for many durable goods at least, only buy or lease the service for which we use the product. In that case, the physical stuff will always remain the property of the company that produced it. Vehicles, buildings, carpets, even a window manufacturer can instead of selling windows sell what Michael Braungart, one of the fathers of the product-of-service approach, calls '25 years of looking-through-insurance'.

The benefits to customers are many: they won't be left with the liability and increasing cost of disposing of a possibly toxic item at the end of its life. Product-of-service items will also tend to be more reliable and upgradable, as the manufacturer's business model will give them an incentive to extend rather than shorten the lives of physical products. In addition of course, sale of service will often hold one of the benefits of the traditional lease – the opportunity to cancel the service after a certain term. 

Saving resources

Manufacturers also benefit from retaining ownership of their valuable materials. Braungart points to materials that are rapidly becoming scarce, such as the metal, indium. If products containing such precious materials are sold in the conventional way, he points out, manufacturers are effectively throwing away expensive resources that they could retain under a sale-of-service arrangement. Another advantage is the stable, predictable income stream that would result from a leasing arrangement - music to the ears of businesspeople who have endured the financial rollercoaster of the last 18 months.

Finally there's a marketing benefit to those who adopt the product-of-service approach. Steven Bolton, Senior Consultant at McDonogh Braungart Design Chemistry puts it this way:
'If you are recycling a material then you as a manufacturer or a company are connecting with the customer to get that material back after use... that customer contact allows you the opportunity to show yourself in a positive light and is even a chance to sell to the customer again.'

You might think sale-of-service is already with us. We rent big ticket items - houses, some white goods and, increasingly, cars. But at a closer look, this is not the kind of business model that will change our manufacturing practice, as the leasing is fitted into to the usual system of ever-increasing consumption. As Paul Hawken, Amory and Hunter Lovins wrote in Natural Capitalism: 'a traditional capital lease of equipment [is] often based on the hope of 'churning' - re-leasing new and improved equipment once the first term expires'.

Existing models

Sale-of-service is only green if it can transform the design of the product in question. A perfect incentive for a car manufacturer to create a truly energy efficient car is if the cost of running it is to be included on a per mile basis in the lease they offer. A great incentive for a construction company to create a truly durable building is if it was to be leased by them directly, not from a landlord who has purchased it.
 
So we are a long way from the revolutionary approach our economic visionaries talk of. But the closer you look, the more examples of genuine sale-of-service you can find. GE Aviation is said to only lease, not sell, its aircraft engines. Dow Chemicals even leases solvents through its subsidiary, Safechem. And the practice has become almost standard in the photocopying industry – machines are often leased to businesses on a per-copy basis by the manufacturing companies. It's a true sale-of-service model: Xerox can re-use 80 per cent of the equipment it provides to businesses, and says the one million tonnes worth of product it have reclaimed has saved them $2 billion.

There are also 'effective leases' – construction technology firm Caterpillar, for example, reclaims its materials from customers at a rate of 94 per cent, and uses them in their own 'Reman' (remanufacturing) programme. Shaw and Interface both offer free collection of their carpet products at the end of their lives. Interface even pays a small premium on the return of some materials, depending on the current price of raw materials. Given that disposal costs continue to rise (landfill tax will continue to rise by £8 per tonne per year in the UK until at least 2014), the effect is that customers are effectively penalised if they don't return the goods to the manufacturer at the end of the service life.  

Need for cash

These are exceptions though, rather than rules - plain old products are still the order of the day. Buy 'em, use 'em, throw em out. Which begs the questions, if sale-of-service makes sense why don't we see more of it?

One of the biggest barriers to a manufacturer adopting the sale-of-service model is financial. Sale-of-service has great long-term potential to be profitable, but it does require a large and expensive up-front capital investment by the manufacturer, as there is a long lag before the cost of producing an item is repaid by the customer's regular payments.

Hugo Spowers is the CEO of Riversimple, a company developing an ultra-efficient hydrogen car, or rather, 'personal transport service', as the car itself won't be sold. Gaining sufficient working capital has been one of the challenges for Riversimple: 'The numbers really stack up – it's a much more profitable model than selling a car. But the problem is it's a new technology, it's a new business model and it's a new company,' he says.

Spowers believes it's only a matter of time before financial institutions cotton-on to sale-of-service models like Riversimple's. 'Once you've proven the model and the technology, debt will be much easier to acquire and much cheaper,' he says.

The financing problem would also be eased if the companies supplying parts to a manufacturer also operated on a sale of-service-model. Thus making a hydrogen car would involve initiating the lease of a hydrogen cell, electrical system and other parts of the car, rather than a large capital outlay.

Turning business on its head

A paradigm shift is also needed from the marketing side of companies. Steven Bolton says: 'Companies are used to selling a product and getting rid of it, in a way. The [current] connection with the customer is just "you bought our product, great, I hope you come back again". Product-of-service is a positive approach, not just "less bad". It's a real switch in people's minds.'

A switch is needed in the minds of business customers as well as manufacturers. Large companies often operate under the premise that purchasing is always preferable to leasing (as an example Spowers cites the IBM management manual). Their reasoning is that as a huge company, their cost of borrowing, or 'cost of capital', is lower than the service provider's. Thus paying someone else to bear their higher capital brunt of leasing out a product over a long period makes no sense. 

'What that completely ignores,' says Spowers, 'is that if we were going to sell a car we would sell a completely different car.' The durable, low-maintenance, energy efficient model that the company is offering only makes economic sense to the client and the manufacturer under a sale-of-service arrangement, with the manufacturer fuelling the car at a fixed rate per mile.
 
The numbers do seem to stack up. The ballpark figure of £200 per month that Riversimple may charge might seem a lot, but when you realise you would be getting a fully serviced, cutting edge hydrogen vehicle (perhaps even including insurance), it seems much more reasonable.

Changing our psychology

So are there other, irrational reasons for the slow-take up of sale of service models? Psychologist Tim Kasser sees our sense of identity as a big one: 'The psychological barrier [to the service-product approach] I think, boils down to the problem of ownership... people derive their identity in part from their possessions, and to rent rather than own could interfere with that sense of identity.'
 
But Kasser is quick to point out that our identities are not set in stone: 'There might be a type of identity that could be developed in renting rather than owning - I am free of the burden of possessions, I am living more ecologically-consciously.'

Michael Braungart goes further. 'At one point, we started to making owning stuff into a religion. All our products which we use on a day-to-day basis are actually services. Whether its a washing machine, a car or a TV, we don't "consume" this stuff, we really only use it'.

Like Bolton and Spowers, he talks of a paradigm shift, this time on a personal level. 'As soon as you understand that you cannot take anything with you when you die, you begin to see these things differently.'

A new way of thinking

Mysticism aside, is there also a systemic barrier to the adoption of sale of service models? Tim Kasser: 'Right now, the goal of the culture is to encourage a psychological mindset focused on ownership of private property, because that has important economic ramifications. Shifting that cultural dynamic towards rental rather than ownership will not be easy, but there are lots of people writing about moving away from the fetishism of economic growth.'

Other theorists like Braungart and Spowers talk less about avoiding growth fetishism, but much more about self-regulating systems that don't 'draw down' on 'natural capital'.

It may be hard to imagine exactly how we will transform our current high-throughput society to a closed-loop model, but product-of-service must be a key concept. One thing is  clear - what such the ideal system doesn't look like - 'I no longer believe we can have a sustainable industrial society based on sale of product,' says Spower. Long live the true service economy!

Ewan Kingston is a freelance journalist

Useful links
Riversimple
Tim Kasser
Cradle to Cradle – Rethinking the way we make things
'Muda, Service and Flow', chapter 7 of Natural Capitalism by Paul Hawken, Amory and Hunter Lovins

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