Customers at the heart of sustainable business model transition, says HP
EXCLUSIVE: Hewlett-Packard's (HP) push towards a circular economy and servitisation-based business model has seen the relationship between the IT company and its customers evolve from one based purely on transactions to a point where customer demand is now helping to advance closed-loop initiatives.
That is according to HP’s director of global sustainability operations Kirstie McIntyre, who told edie that the introduction of closed-loop ‘products as a service’ has created “loyal customers” that are now forming a central role in the value chain of products.
“We are investing heavily in products as a service across all of our ranges,” McIntyre said at HP’s circular economy summit in London. “We want happy customers, because happy customers are loyal customers. Getting a new customer is an expensive thing to do, keeping one is a much better option – you get to create a relationship with those people.
“Very few companies would refuse to serve a customer because their thinking is outdated, but I do see a shift within HP, that is very clear, to look at how we generate our revenue. We predict that more of our revenue will be generated from contractual work rather than transactional work.”
HP has been one of the main benefactors and drivers of servitisation, considered by some to be the ‘posterchild’ of the circular economy. In the printing industry, the service-based approach has seen several companies move away from simply selling printers to charging customers for copies.
HP has expanded on this contractual arrangement for those who do own printers. The company’s Instant Ink service autonomously arranges ink cartridge deliveries for consumers using Wi-Fi enabled printers that send alerts when ink cartridges are low on ink. A return envelope is added to send back empty, second-hand cartridges from consumers to be recycled. Through the Internet of Things (IoT), HP can interact with the printers and order the correct cartridge without having to involve the customer. This is part of a targeted approach from HP to ensure that customers and partners come with them on the circular economy journey.
Research has suggested that it can cost between four and 10 times more to acquire new customers than it would do keep existing ones. But, with management consulting firm Bain & Company recently reporting that 60-80% of customers who feel satisfied with a business won’t necessarily go back for further transactions, HP is keen to put customers front and centre of its business model to ensure they are not lost.
McIntyre acknowledged that a lot of the desire for business model change within HP is “driven by customer requirements”. Customers now want more ink in each cartridge, and shorter waiting and transportation times. And among the ever-growing environmentally-aware customer base, there is an increasing interest in what happens to the products once they have been used.
“To create loyal, happy customers, you need to give them value,” McIntyre said. “Whether this is through a cartridge or a PC as a service, it drives everything else and it’s up to us to make it as attractive as possible. Our customers and other companies push us hard, which is great. It’s important to be challenged.”
After “scaling rapidly” over the past three years, McIntyre believes HP’s service-based model answers to those customers, as highlighted through the HP Planet Partners print cartridge return and recycling programme. In 2016, HP manufactured more than 3.4 billion ink and toner cartridges using more than 88,900 tonnes of recycled material. This included 3.7 billion plastic bottles. In total, more than 80% of HP ink cartridges contain 45-70% recycled content and all toner cartridges contain at least 10% recycled content.
The HP Planet Partners scheme also provides some wider packaging benefits: with customers less likely to actively shop for cartridges, HP has been able to cut back on external packaging. Due to the small-sized nature of cartridges, packaging had to be big to deter shoplifters and create enough space to list all the necessary customer information.
The Ellen MacArthur Foundation has valued the circular economy at €1.8trn within the EU alone, and governments are attempting to capture some of these returns through new frameworks such as the EU’s Circular Economy Package. But, while legislation will help some businesses make the circular economy transition, McIntyre believes that “true innovators” must stay ahead of regulation to deliver a commercial environment that works for them.
“I’m happy that regulation is coming because it means we’ll move ourselves on further again,” McIntyre said. “I’d say that product design and business solution are areas where regulation should never be involved; that’s for us to work out with our customers and our market.
“I think legislation has a specific role – it’s there to cut off the tail and stop bad practices and to encourage everyone to move themselves up the scale. If you want to be a true innovator, you have to stay ahead of the regulation – it’s the common denominator.”
HP’s efforts to “stay ahead” of the political and competitive backdrop has seen the company introduce a number of ambitious sustainability initiatives. As well as becoming a member of Ellen MacArthur’s Circular Economy 100 project to accelerate the transition to a circular economy, the company has joined the RE100 scheme through a commitment to source 100% renewable energy, and has also made a bold zero-deforestation pledge for 2020.
McIntyre noted that these initiatives are changing HP’s approach to sourcing materials, which is in turn transforming the way that HP’s procurement department works with its suppliers. For example, procurement commodity buyers usually want a fixed price over a long contract to create price stability for products, but recycled materials can be volatile in price and turning to ‘sustainably-sourced’ materials can add an extra dimension to the contracts, McIntyre said.
HP’s use of its own products to create recycled content gives the firm greater control over quality and price. But McIntyre admitted that the circular economy is yet to be fully engrained across all departments. “Procurement is one of the big challenges that I’m looking at,” she said. “They are incentivised in a very particular type of way and it works quite contrary. Procurement is a challenge, they’re not challenging people, but in big companies they are normally set up in a different way.
“We’re nowhere near finished. This is truly the beginning of our journey and there’s no way we can do this on our own. We need that demand pull from our customers, we need our suppliers and partners to work with us, our retail and commercial channel partners to understand what we’re trying to achieve and how to come with us on it.”
Fortunately, HP’s success with the Instant Ink service has created the business case to resonate with the procurement department. And the fact that Instant Ink cartridges have double the return rate of other products suggests that the firm’s business model transition is already bearing fruit.