Servitization for the Environment? The Impact of Data-Centric Product-Service Models

ABSTRACT Recent developments in data-centric technologies (e.g., big data, Internet of Things, cloud computing) have given rise to the data-centric models, such as servitization. Servitization here refers to firms selling a product as a service instead of selling product ownership, which has been viewed as a green business model that can benefit the environment. Despite the potential environmental superiority of servitization, previous studies and empirical observations have shown that the servitization model may generate lower profits than the conventional product sales model, which poses challenges for firms to choose their business models. However, the existing literature has not considered the role of data-centric technologies that are increasingly embedded in the servitization model, in which firms can co-create value with consumers by leveraging product usage data to improve service offerings. In this study, we build an analytical model to scrutinize the economic and environmental performance of the data-centric servitization model compared to the product model. We find that the data-centric servitization model is more profitable than the product model only when a firm’s service improvement capability is relatively high. Unfortunately, a high service improvement capability may exacerbate the negative environmental impact, resulting in the servitization model being less environmentally friendly than the product model. We discuss the circumstances under which using the servitization model can yield win-win outcomes in terms of profitability and environmental impact. The findings can help managers and policymakers reconcile the tension between firm profitability and environmental damage and make judicious decisions on business model choices and the application of emerging data-centric technologies.