The value of use phase KPIs for your Product-as-a-Service journey

Circular business models can make companies more resilient, profitable, competitive and innovative. But with these benefits also come more responsibilities, especially in the use and disposal phases of the product lifecycle. In this article, we’re going to explore the importance of monitoring sustainability performance during the use phase of the Product-as-a-Service (PaaS) business model. In particular, we’re going to investigate how companies collect data and assess Key Performance Indicators (KPIs) to inform their sustainability strategy.  

This article is informed by research findings of a Master thesis written by Matilda Samuelsson in Spring 2023 in cooperation between NewCore and KTH Royal Institute of Technology in Stockholm; the thesis is yet to be published in the university’s database.

Why should we focus on the use phase? 

Phases of a product lifecycle in a Product-as-a-Service model

During the use phase of a product lifecycle, the largest value gets created. However, it is also the stage with the biggest insecurities and the largest risks of creating an unintended negative impact. This is due to the unpredictability of consumer behavior: consumers might use the product differently than you expected them to or lead to an increased environmental impact elsewhere. As a result, the PaaS might not be as sustainable a solution as you had originally planned. In academia, this is known as the rebound effect (which we will come back to later). 

Companies need to be prepared for these potential negative effects, be able to spot them, and act on them as soon as they appear. The role of the company in the PaaS business model becomes more complex and your business is more dependent on consumers than it used to be in traditional linear models. This is why you need to be more proactive, flexible and strategic about your operations. One way of doing so is creating feedback loops, which would allow you to safeguard the use phase of the PaaS by having a robust performance monitoring system. This system typically consists of a set of well-chosen indicators (KPIs). These become particularly crucial if you are making any public claims related to the sustainability and environmental impacts of your product. Without an informed assessment, your company might contribute to greenwashing practices, potentially leading to fines and penalties under the upcoming EU legislation.  

How do companies monitor and assess the use phase of their PaaS systems? 

The Master thesis results found that companies have various motivations and experiences with PaaS, collecting different data bolstering their sustainability strategies. Let’s look at some real-life examples from three different manufacturers working with PaaS solutions.  

One of the companies surveyed provided compressed air as-a-Service to their customers. They discovered that a PaaS solution for their air compressors is more profitable than a linear business model and particularly suitable for circularity. When it comes to KPIs connected to assessing sustainability performance, the company proactively monitored over 200 variables related to the energy efficiency of its product.  

Another manufacturer experimented with a PaaS B2B project in a pilot stage, in which they provided electrical appliances as-a-service, in addition to a rental service for their vacuums and air purifiers. Both PaaS solutions were aimed at extending the products’ lifecycles. Previously collected data revealed that 70% of the manufacturer’s products were disposed of prematurely. The company also aimed to improve the products’ carbon footprint, which was also used as one of the KPIs helping them decide whether they should repair the product or not. Finally, the company also collected data on how well the products are being reused, repaired and remanufactured.  

Our last example is a car manufacturer offering a car service on demand. Their original objective for the PaaS model was to meet the customers’ demands and widen the customer base. Among the key KPIs was the replacement rate, calculated each year, to measure how many privately owned cars the service has replaced. They also collected data on maintenance, product performance, customer usage patterns, and customer satisfaction. More importantly, the manufacturer also proactively aimed to measure the negative side effects of the rebound effect in a survey of customer behavior and used AI to predict future behavioral patterns to improve resource and energy use. It was easier for the manufacturer to obtain these quantities of data as they already had their cars connected and the customers interacted with the products via an app. This case demonstrates that digital technologies play a key role in effective data collection during the use phase.  

Issues with current use phase KPIs: huge room for improvement 

As you can see, the data collection approaches were diverse among the studied group of manufacturers. Overall, KPIs were monitored mainly to facilitate proactive maintenance of the product as well as to improve energy and resource use. The KPIs used by the companies are a consequence of two factors:  

1) If the products were connected (therefore it was easy to collect the right data), and 

2) what the motivations were for adopting the PaaS model in the first place. Was the PaaS used as a new revenue stream without considering sustainability impacts, or was the purpose to improve the carbon footprint of the products? 

The logical next step in the assessment process would be to connect the collected data to environmental impacts and for instance calculate a potential decrease in the environmental burden, such as air pollution.  

However, this is an area in which companies are likely to struggle. In practice, many companies do not use efficient or suitable sets of KPIs. Often, there are no targets correlated to desired sustainability goals meaning there were no smart objectives to monitor in the first place. Often the KPIs lacked any form of a structured assessment, with metrics being evaluated randomly and not on a weekly or monthly basis. As a result, the studied companies missed out on the opportunity to create the necessary feedback loop. Without a structured assessment and iterative feedback, you cannot draw any reliable conclusions about your products’ sustainability impacts. Otherwise, your company risks going in the wrong direction, and implementing unsustainable solutions, which are – as mentioned earlier – connected to huge legal and reputational repercussions.  

Our recommendations 

We need to become better at monitoring the use phase of product lifecycles to be able to safeguard sustainable development and bridge the gap between ambitions and real outcomes. To do so, we need to adopt a data-driven approach, in which we use data as a guiding compass helping us achieve better PaaS outcomes with smaller environmental impacts. We also need to adopt a systems perspective so that we do not overlook any areas of the PaaS system. Naturally, we tend to focus on monitoring areas which are connected to economic or strategic drivers – but that’s not enough. Finally, we need to realize that having a structured assessment in place, with well-defined KPIs, is essential due to the complexity levels of the PaaS model.  

If you want to discuss with us how to design your Product-as-a-Service business model to make sure it is sustainable and tailored to your needs, feel free to get in touch.