by Paul Sheeran*
With Earth Day coming up on Thursday (22 April), and President Biden poised to host a Leaders’ Climate Summit on the same day, I lean towards optimism.
The flag has been planted. In her 2020 State of the Union speech, European Commission President Ursula Von der Leyen proposed an increase in the EU’s 2030 emissions reduction target from 40% to 55%. It is a target that is necessary if the EU is to meet its Paris Agreement commitments and its goal of reducing EU carbon emissions to net zero by 2050.
Moving towards a more circular economy in which economic growth is decoupled from intensive resource use and waste generation will, according to the European Commission’s Circular Economy Action Plan, make a marked contribution towards achieving climate neutrality by 2050.
Across industry there is an opportunity to make a profound change to how products are designed, manufactured, supplied and consumed. And the “product-as-a-service” business model must be our end goal.
As-a-service as it’s understood
As-a-service not only makes our economy more circular by breaking established patterns of mismatched supply and demand; it also has the potential to generate significant growth opportunities for any industry, and industry as a whole.
It is a radical departure from a commoditized business model whereby companies sell a product and consider their job done. Instead, the producer retains ownership of – and responsibility for – the product throughout its entire life cycle. The customer has full use of the product for as long as is needed, paying only for outcomes, instead of for the product itself or its upkeep.
The producer, in turn, is responsible for building a quality product that lasts, and is energy and material efficient. It is also their role to take the product back and prepare it (or its components) for reuse.
As-a-service is an iteration of the Cradle to Cradle design concept developed at the end of the 20th century by Professor Michael Braungart, a German chemist and reputed environmental thinker, and by William McDonough, an American architect and champion of sustainability.
I had the pleasure of hearing William McDonough speak during HPE’s global customer event in 2018. He stressed that cradle to cradle - a globally recognized measure of safer, more sustainable products made for the circular economy - means that companies go beyond being “less bad” by reducing their environmental impact and thus strive towards being a positive force.
Such efforts include optimizing products during the design and manufacturing process with a view to making them material resources for their next service life as new products. All very inspiring.
Cradle to cradle shapes HPE’s view of the future. In a major transformation of our business model, we have committed to making our entire portfolio available as a service by 2022. We see as-a-service as a way to build a more lasting engagement with our customers, to maintain this relationship throughout our stewardship of the product they are using, and to advance sustainability in IT significantly.
For the IT-related world, there are three main sustainable outcomes:
1. The elimination of overprovisioning; a common practice in which companies “overbuy” IT
In the average data center, 25% of computer resources are not doing useful work and the remaining resources are operating at a small fraction of their capacity. This means higher costs and unnecessary consumption of power, space, and cooling.
2. Organisations freed from being chained to their IT kit for the whole of its lifecycle
IT equipment can be rapidly upgraded to the latest, more energy-efficient technologies. Inefficiencies of ageing equipment means that 65% of the power used by IT in data centers is used to process just 7% of the work.
3. Taking back IT assets at the end of their use
HPE Financial Services has invested in major advances to extend the life of retired IT equipment and reuse and re-manufacture components for a second life. Not only do organizations earn back the residual value of their assets (close to $1.6 billion was infused back into our customer budgets over the last five years), but refurbishment services like HPE Asset Upcycling – which take IT assets of any brand – also reduce carbon emissions and keep e-waste out of landfills.
To give an idea of the scale, in 2020 we processed more than 3.1 million units of technology – 1.7 million datacenter gear such as servers, storage and network assets, and 1.4 million workplace assets such as notebook, laptops, tablets and printers.
Close to 90% of this equipment is remarketed and returned to active use; the rest is responsibly recycled. Since 2018, we have also been providing customers with their own Circular Economy report, detailing environmental impact savings such as energy saved, CO2 avoided, and waste kept from landfills through recycling.
It is motivating for our teams to partner with customers – from large corporations to small and medium businesses – to help them accelerate their digital transformation with innovative and sustainable IT management strategies.
A global trend
The seeds of as-a-service are being planted across different sectors. Philips sells “light as a service” to customers. The company cites figures of up to 80% savings in energy consumption.
Kaeser Kompressoren sells compressed air as a service. Desso, a global supplier of carpets for commercial use, designs carpets according to the cradle to cradle principle meaning that the company can lease its carpet tiles – taking care of the installation, maintenance, return and recycling.
It’s important not to underestimate the paradigm shift that moving to as-a-service entails for a company, ideally as part of a broader business and digital transformation strategy that embeds sustainability as addressed in the Forum guide for enterprises: Bridging the Digital and Sustainability Goals.
For example, it requires a transformation of the design and development process. The design of products and choice of their components must make them more durable and suitable for repairing, reconditioning, and – ultimately – recycling.
A manufacturer of washing machines ran a project to provide high-quality washing machines as a service for people who would struggle to afford the full purchase cost. This entailed a significant re-design of their models, but a third-party study showed the potential pay-off: customers would save around a third per wash cycle and the manufacturer would earn around a third more.
Over a 20-year period, replacing the purchase of five low-quality machines with one as-a-service high-quality machine would save almost 180 kg of steel and more than 2.5 tonnes of carbon emissions.
Intricacies of an as-a-service setup
Companies must have gold-standard systems for taking back products and preparing them for their next life. HPE’s capabilities did not happen overnight – with HPE Financial Services we have been developing our refurbishing business for the past 20 years.
We continuously invest in talent to take in any technology, from the data center to the workspace, and even 3D printing and High-Performance Compute assets. Today we own and operate the largest IT manufacturer refurbishing centers in the world, taking in assets from over 50 countries.
Even more complex is the changing of revenue streams from traditional sales revenue to recurring revenue, which reduces short-term revenues and increases long-term one. This, in turn, impacts sales, partner incentives and motivation, financial reporting and investor relations.
It’s no small challenge to bring salespeople, commercial partners, analysts and investors on board with this shift in mindset. But we must address these challenges and do so with a sense of urgency.
Of course, companies cannot go it alone. The conversion of industry to as-a-service can needs to be accelerated with the right government policies. Policies destined to drive industry to achieve climate goals should, whenever relevant, favour a switch to service-based and consumption-based models. And so, one can only hope that the EC’s ambition, as stated in its Circular Economy Action Plan, to “incentivise product as a service” will result in meaningful and concrete progress.
According to the Circularity Gap Report 2021, the global economy was only 8.6% “circular” in 2020, disappointingly down from 9.1% two years previous. Launched in Davos, the report explores causes of GHG emissions and how circular economy strategies can contribute to achieving the goals of the Paris Agreement.
To achieve a more circular economy and reach the climate objectives set by governments and civil society, we must identify opportunities: sustainability can drive business outcomes and vice versa. And value can be created with less material use. For this, as-a-service business models are a major way forward.
It’s time for serious change.
*Managing Director, Worldwide Channel and SMB, HPE Financial Services
**first published in: www.weforum.org