Operational Leasing Of Consumer Durables

Can we apply the same operational changes to other kinds of commercial activities? In principle, there is no reason at all why not. Let us take an example from a completely different realm of economic goods: consumer durables.

Supplying computer hardware—as usually envisaged—relies on a chain of economic transactions relating to material goods, each step of which provides the profit basis for suppliers. Manufacturers supply computers to wholesalers who supply them (usually) to retailers who supply them to individual consumers. Each step of the chain relies on the profit available from a steady (and increasing) throughput of material hardware. But customers do not particularly want or need an increasing flow of computers. Rather they are concerned with acquiring certain services which computers provide. Recognising this need, some companies have made preliminary attempts to restructure their operations. For example, the development of a 'portable operating system' for one of their client companies by Siemens-Albis follows these ideas.12 The technical innovation around which this development was based was a decoupling of the software and hardware components of computing systems. The commercial innovation was to introduce producer responsibility for the hardware components throughout the product life.

The idea of this kind of restructuring then revolves around the idea that computer hardware is leased rather than sold to users. Rather than buying computers, customers buy computing services from their suppliers. And these services include maintenance arrangements, upgrade facilities, and supplier responsibility to take back the computer at the end of its service life.

This may seem like a minor modification to the existing system. But it has potentially far-reaching implications.13 First of all, when material goods are only leased by the final user, responsibility for them resides with the producer or supplier. This has profound environmental implications. In the existing system, there is no incentive on the producer to design his products for minimal material throughput. On the contrary, there is an incentive to minimise the life of products, so as to prevent the market from saturating, and this will tend to increase the overall material throughput. Under the new arrangements, however, maintenance, upgrade, reconditioning, reuse, and the recycling or disposal of material components would all remain the duty of the supplier. This would transform the incentive towards early obsolescence into an incentive for product durability, material efficiency and environmental responsibility.

The same philosophy is applicable to a number of other durable consumer goods. The long-term, flexible leasing arrangements for longlife photocopiers—first commercialised by Agfa-Gevaert—provides another example of this kind of innovation.14 The rental of television sets (and now computers) by the British company Radio Rentals is a further example.

Another consumer durable which has some kind of track record in the sale of services is the automobile. One strategy, for instance, reconceives car producers as service agents who 'make their money not primarily by making and selling new cars, but by selling spares, repair and aftercare to keep their own products on the road for a long time'.15 In fact, this strategy is not so far from a reality in some places. In Sweden, for example, the useful life of cars has been extended considerably in recent years and vehicle life expectancy is now in the region of seventeen years.

This extension of product life has been supported by strong marketing of second-hand cars, including high-profile display areas and—in the case of Volvo—used car brochures.

At the same time, this particular example illustrates that the strategy of operational leasing needs to be developed with some care. One of the problems is that product life extension—inappropriately conceived—can stand in the way of technological upgrading, which might in turn lead to environmental improvement. Technological developments in the automotive industry, for example, have placed an increasing emphasis on improved fuel efficiency. This leads to lower fuel consumption on the road, and reduced environmental burdens as a result.

The future of the automotive industry certainly holds further significant changes in design specification and material requirements. Ultra-efficient cars, based on the same light but extremely durable carbon-based polymers from which racing cars are already made, may soon replace existing designs. But the introduction of these newer and more efficient vehicles may be slowed considerably by strategies to prolong the life of existing models. These considerations highlight the importance of designing products capable of future upgrading to improve performance.

But a more worrying problem presents itself when we take a wider perspective on the provision of transportation services. It was apparent from the discussion at the end of Chapter 4 that the provision of services is not the same thing as the provision of material goods. The services themselves are not measured in terms of tonnage of material throughput. And the conception of the service itself is complicated by a variety of different factors. In the final chapter of the book I shall relate this difficulty to the intricate question of satisfying human needs. But the following section highlights some at least of the complexity involved in reconceiving consumer services.

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