MePSS Webtool - Tool (Level 4)

Worksheet W10 - Property Rights Analysis
Table of Contents
1. Objective
2. Putting into Practice
3. Implementation
4. Software, templates and other support
5. Call on Resources
6. Literature, examples and background information

Objective Table of Contents

The purpose of this tool is to assess in an early stage if a PSS solution provides increased efficiency for stakeholders

Putting into Practice Table of Contents

2.1 When and why should this tool be used?

This tool should be applied during the “Strategic analysis” or “PSS Idea Development” phase.

2.2 Who should use this tool?

This tool can be used by the PSS Champion during a brainstorming session or as homework.

Implementation Table of Contents

3.1 How should this tool be used?

The introduction of a PSS often shifts the property rights of users and producers. These shifts can have important impacts on the overall efficiency of the system. The following five questions can be used to evaluate potential changes, and find opportunities for efficiency improvements that may occur when a PSS is introduced.

The procedure is really a screening procedure that does not very exact results, but helps to understand some important consequences associated with a shift to PSS systems

Study the following questions, and check how the PSS you have in mind will indeed increase efficiency. The idea does not have to be very concrete or well described. The tool can be used in the very early stages of analysis.

1 - How does the right to retain profits / the obligation to cover losses change when a PSS is introduced?

Traditionally all rights concerning profit retention are transferred to the client at the point of sale. The basic idea of product service systems is to generate profit not only at the point of sale, but also over the whole life cycle. This can for example be reached through eco-leasing or eco-rental arrangements. Here the provider does not sell his material product but only leases or rents it to the user. By encouraging him to increase rather than decrease the lifetime of products, such a strategy helps overcome efficiency losses through opportunistic behaviour on the side of the product provider, such as a strategy of obsolescence. The longer the product lives, the higher the benefits will be. On the level of investment goods, the same result can be reached through facility management services that offer the whole management of a product or facility. For example the management of a building or its heating can be sourced out to third parties that can more efficiently offer this service. The following four types of property rights are variations on this first fundamental property right. Each of them has an impact in one way or another on the ability to generate or retain profit.

2 - How does the right / obligation to maintain and operate a product change when a PSS is introduced?

Traditionally, if a company sells a product this implies that both the right to change a product and the obligation to maintain it are transferred to the clients. However, for the reasons discussed above the client might not be suited well to operate and maintain a product efficiently, particularly if the operational efficiency is partly impacted through design decisions by the producer. By retaining the right / obligation to maintain and operate a product the producer can be motivated to help increase efficiency either through improved design or by helping clients via training and maintenance services. Firms can also offer clients protection against the risks underlying the usage of a material product. Often the risk aversion of clients creates considerable inefficiencies. Rather than running the risk to be out of a car in a crucial moment, people will refrain from giving up their own vehicle. Farmers tend to use much more pesticide than would be economical simply to avoid the loss of income in the rare event of a pest occurrence. By relocating this risk, one cannot only increase the environmental efficiency but may also increase profitability. For example, a car sharing company may offer taxi services or access to rental cars in the rare occasion that no car-sharing vehicle is available. Pesticide producers may offer 'crop insurance' along with the product thus offering to reimburse the few farmers that actually lose their crop.

3 - How does the right / obligation to dispose of a product change when a PSS is introduced?

What is true for the right / obligation to operate a product can also be applied to its disposal. Traditionally the cost of disposal is borne by the client. However, this implies also that he can reap all benefits from material recovery. In practice, this means that producers have no incentive to design easy to recycle products. Those that do, on the other hand, usually do not benefit from a positive residual value as clients will rather sell the spend product for a profit to other recycling outfits. By relocating this right / obligation to the producer one can generate incentives for efficient design as well as making sure that valuable materials find their way back to the producer for remanufacturing and recycling. Such take-back services have another advantage: They bind the client closer to the provider, and may help with follow-up sales by bringing client and provider together at point of disposal.

4 - How does the right to exclude others change when a PSS is introduced?

A major property right lies in the possibility to exclude others from the usage of a product. If companies offer a service instead of selling a product, they retain this right and may accordingly offer sharing facilities. In these cases, different clients may use the same product thus reducing idle time. A second possibility lies in a product pool service. A pool contains a number of different product variations (e.g. from city car to limousine in the case of a car pool). Thus, clients can chose the product that best reflects their current needs.

5 - How does the right to use a product change when a PSS is introduced?

Finally, the right to use a product is traditionally assigned at the point of sale and is often associated with a considerable amount of fixed cost. The owner of a car, for example, loses part of the value of a car due to age even if the vehicle sits in the parking lot all day. The same is true for ownership taxes. By offering a service, the right to use a product is dissociated from its ownership. Thus, from the viewpoint of the user, formerly fixed cost can become variable. This has important consequences for decision-making as the user can chose between different options based on the true cost of a single usage. Thus, the comparison between public transport and individual transport by car may come to a different conclusion than it does in the case of car ownership where fixed costs are disregarded.

3.2 Result

The result of this tool is an inventory of potential benefits of introducing the PSS system you have in mind. It may also help to shift and prioritise different ideas.

3.3 Input needed/ data required/ data acquisition process

A number of (vaguely defined) PSS ideas.

Software, templates and other support Table of Contents

4.1 Software

This tool does not require any software.

4.2 Templates and other support

KEY RIGHT OR OBLIGATION Efficiency improvement when you change to the PSS model Importance
1 - How does the right to retain profits / the obligation to cover losses change when a PSS is introduced?
2 - How does the right / obligation to maintain and operate a product change when a PSS is introduced?
3 - How does the right / obligation to dispose of a product change when a PSS is introduced ?
4 - How does the right to exclude others change when a PSS is introduced ?
5 - How does the right to use a product change when a PSS is introduced

Call on Resources Table of Contents

5.1 Personnel and time needed

This tool requires a minimum of 2 hours of brainstorming and some homework to complete the table with more detailed information.

Literature, examples and background information Table of Contents

6.1 Methodological References

Assessing Property Rights, Rebound Effects and Macro Economic Impacts of Product-Service Systems (Vers 2004.2), Kai Hockerts et al (INSEAD).