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New Bottom Line Volume 3.11 – The End of Ownership? Leasing, Licensing and Environmental Quality

June 12, 1994

The shift from industrial economy to service economy is a familiar story in the US. Even for companies that continue to manufacture product — and they will remain with us, since manufacturing will not entirely disappear, nor entirely move offshore — the key to success lies not only in product quality, price competitiveness and the like; it often depends on the value added of sales, delivery and customer service systems. So even manufacturing companies are learning to think of themselves as service companies.

But while companies will continue to produce products, they may no longer be in the business of selling products. There are signs of a budding shift from ownership value to use value, from an economy built around selling and owning products and benefits, to renting, leasing or licensing them. This shift may offer another example where improved environmental quality goes hand-in-hand with business advantage.

There are many reasons people buy products. But fundamentally we — both companies and consumers — buy things not for ownership itself, rather for the benefit or utility the product provides. Yet most of the time we don’t use most of the things we own. So why not just pay for what we use?

Equipment leasing is a familiar feature of business, and is becoming more common in personal marketplace choices. Hotels and car rentals provide the most familiar examples, and most easily accepted since we use them when we’re away from the bed and the car that we own. We understand the good sense of renting a luggage cart at the airport, rather than bringing our own.

Why then do we feel the need to own our own cars, when most of them spend most of the time parked, and doing nothing? The trend to auto leasing suggests that perhaps we don’t. And a number of innovative experiments suggest that the trend to “temporary ownership” may go alot farther.

The Witkar electric car “utility” suggested that we may “need” even less car than we get with leasing. Witkar served downtown Amsterdam in the 1970s with a clever system that enabled subscribers to conveniently rent cars by the minute–picking them up and returning them to strategically located automated stations — much like luggage cart racks at airports. The multiple benefits: the subscriber paid for only the amount of transporation he or she needs (and pays nothing for parking), the company got high effective use from its vehicles, and the downtown area benefited from reduced congestion and pollution.

Chiat/Day, the advertising agency, has reconfigured its offices to shift from “proprietary” personal workspaces to “hotelling” — meeting the shifting demand of a mobile workforce for workspaces, conference rooms etc by assigning those resources on a short-term basis — by the day, week, month or project — and thus reducing the inefficiency of costly but idle resources.

Client/server computing, and the phenomenal growth of the global Internet, suggest that we can access at least some computing power when we need it, without necessarily having to “own” it in a box that we own on a desk that we own.

The extension of this concept into the world of manufacturing — and its ecological significance — is suggested by Germany’s take back laws, and the cradle-to-cradle responsibility of the “intelligent product system.” As manufacturers become increasingly responsible for reclaiming, and then recycling or remanufacturing, their products, a transaction that may still be called a sale in fact becomes more like leasing or licensing, since at the end of the useful life of your television, personal computer, refrigerator, or automobile it would go back to the manufacturer — who hopes that you will then lease their latest model.

How can a company develop a leadership advantage in a lease-and-take-back world? Produce products that are durable, and thus maintain a high residual value at end of lease, so they can can be leased at more competitive rates. Design products for disassembly, modular upgradability, and recyclability to reduce end of lease reprocessing costs, and to enable return to market more quickly and economically. Develop multiple product tiers so reclaimed products can move downmarket, within your country or internationally. And cultivate satisfied customers — they’ll be more likely to “re-up” at end of lease.

Do we lose something personal if we don’t own our stuff? Maybe (though so often these days we “own” it in partnership with a finance company). On the other hard, do we really need such utter redundancy of unused stuff, instantly available for maximum unimpeded load at any time? If not, there’s a marketplace advantage ahead for the companies that can figure out how to ensure that we can get just what we want, just when we need it, for only as long as we need it. And there’s an environmental advantage in that for all of us.

The American dream used to include a chicken in every pot. A chicken in every pot? Sure, but not all the time. Only when it’s time for dinner.

(c) 1994 Gil Friend. All rights reserved.

New Bottom Line is published periodically by Natural Logic, offering decision support software and strategic consulting that help companies and communities prosper by embedding the laws of nature at the heart of enterprise.

Gil Friend, systems ecologist and business strategist, is President and CEO of Natural Logic, Inc.

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