Magnus Karlberg
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More knowledge is needed on performance-based business models

Published: 3 October 2016

On the 7th of September Magnus Karlberg visited Exploration Forum 2016 in Eskilstuna to talk about sustainability by function rather than products. But there is still a lack of knowledge before the market is ready.

Do you dare to offer performance instead of products? The question is directed mainly towards the companies who are able to influence the way we do business in the future.

– Products and services are still sold through traditional business models where the focus is on maximizing profit on sales and the aftermarket. When the focus is shifting from hardware to performance many companies ask if there are better ways to do business in the future, says Magnus Karlberg, head of Faste Laboratory at Luleå University of Technology.

Sustainable growth as the driving force

The background to the growing trend is all about sustainable growth. Demand for products and services will be higher as the middle class becomes larger and the population increases. The insight that the environment must remain at a good quality means that those who want to continue doing business need to think differently.

- Sustainable growth is about how we with limited resources can satisfy human needs and improve the welfare of an increasing population without degrading the environment, says Magnus Karlberg.

He describes a trend where companies are increasingly asking for the availability of a function rather than ownership and responsibility of the product itself. Owning the hardware provides little or no value for the customer. When the responsibility stays with the supplier it creates incentives to develop products that are sustainable.

– Functional Products is a type of performance-based innovation concept, a solution where the supplier undertakes to provide one or more functions in accordance with an agreed performance and cost, says Magnus Karlberg.

The market is not yet ready

Company representatives from Volvo CE's various organizational levels and academics participated in the presentation from Faste Laboratory on Exploration Forum. According to Magnus Karlberg there is a need for further research on how sales of functional products can be organized to be profitable for both companies and customers. The questions are about how agreements with retailers should be designed, how the costs should be estimated and the way in which data about the products should be collected.

– The market is not very mature, although some companies are. There is still not enough knowledge of the concept, both in terms of benefits, but also what is required to realize this, he concludes.

Magnus Karlberg

Karlberg, Magnus - Professor

Organisation: Machine Design, Product and Production Development, Department of Engineering Sciences and Mathematics
Phone: +46 (0)920 492418
Room: E218g - Luleå»

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