The research aims to check whether “everything as a service” will live up to the great hopes placed in it

It’s no secret that the composition of the U.S. economy is changing. As manufacturing continues to shrink, the balance is slowly tipping even more toward goods and services. In line with this broader trend, many companies are moving toward newer business models that give customers options other than outright ownership of a product, such as pay-per-use (Uber, etc.) or subscriptions (Spotify, Netflix, etc.). Researchers have dubbed this phenomenon “servitization.”

Ioannis Bellos, assistant professor of information systems and operations management (OM) and director of the MBA program in the Donald G. Costello College of Business at George Mason University, and Hang Ren, assistant professor of OM at Costello, have published research examining how servitization can fully realize its enormous potential.

For example, a recently revised book chapter (co-authored by Mark Ferguson of the University of South Carolina) in the second edition of Sustainable Supply Chains revisits the lofty expectations surrounding servitization. Many believed that moving from products to services would automatically increase the “triple net gain,” delivering large net gains for profits, people, and the planet.

The expectation was that servicing would encourage more sustainable consumption because the price was tied to use rather than a one-time sale. In turn, longer, less involved customer relationships would raise the bar for customer service for companies. In addition, companies could recover and reuse equipment provided to consumers as part of the service, which could further increase profits while reducing emissions.

But the real record of service is more mixed. Bellos and Ren’s chapter covers Xerox, Rolls-Royce and others that successfully transitioned from all-product to all-service or to hybrid business models. But there were also notable failures. Zipcar and other car-sharing companies, for example, enjoyed long-term success, but similar ventures by leading automakers BMW, General Motors and Ford quickly collapsed.

A 2017 paper on environmental sustainability by Bellos and Vishal Agrawal of Georgetown University pointed out that asset-sharing models (such as car sharing and other similar business models) do not always reduce carbon footprints.

In fact, they can be net negative for the planet. This is because the emissions-reduction effects of bundling (i.e. multiple customers sharing the same resource, in this case a rental car) are outweighed by the increased use resulting from more affordable access to assets that typically require a large upfront cost. The researchers found that product-service hybrids were better for the planet than selling services alone, in cases such as car sharing with strong bundling and most emissions coming from product use rather than production.

Even in these circumstances, however, there may be a (temporary) sustainability benefit to servitization when it helps consumers become familiar with more environmentally friendly product options. For example, car sharing is a low-risk way for people to try out electric vehicles (EVs) they are considering buying. And this can have a multiplier effect through customer word of mouth.

A 2023 working paper by Ren, Tingliang Huang of the University of Tennessee and Georgia Perakis of MIT said this type of “social learning” could play an important role in the widespread adoption of electric vehicles and even influence the success of government subsidy programs.

“Incorporating social learning has the potential to benefit society,” Ren says.

From a “profit” and “people” perspective, successful servitization often depends on a company’s ability to adopt a very different mindset. “If you think about services, the customer goes through a series of steps. It’s more like a relationship,” Bellos says. “You’re going to be measured on a lot of different dimensions, as opposed to being more transactional. It’s a broad scope with more opportunities for failure.”

A chapter in the book suggests that design thinking—a set of techniques that designers use to solve customer problems—can help companies redefine the customer journey. A 2020 article in Management Sciencewritten by Bellos and Stylianos Kavadias of the University of Cambridge, takes a closer look at how this should look.

The article recommends deconstructing the customer journey into a series of steps and evaluating each step for its functional and experiential value. In other words, service designers should focus on the intangible aspects of each touchpoint, in addition to whether it fulfills its practical purpose.

However, it’s also crucial to look at the customer journey holistically. What happens at one stage can impact the functional and experiential value further along the journey. Therefore, issues that arise at one stage are best addressed at an adjacent stage—for example, improving the check-in process at a healthcare clinic can reduce the time patients spend in the waiting room.

Bellos and Ren’s book chapter suggests that culture may be a major obstacle to successful servitization. They cite Ford and Toyota as positive examples, which now define themselves as “mobility companies” rather than just carmakers.

“Manufacturers need to recognize that they are in the solutions business and act on that awareness,” Bellos and Ren write.