Profitability of Industrial Product Service Systems (IPS²) – Estimating Price Floor and Price Ceiling of Innovative Problem Solutions

Companies from industrialised nations are faced with the threat of competition from low-cost countries. Wesuggest Industrial Product Service Systems (IPS²) as a possible answer. But as the development andproduction can be quite expensive for the supplier, the question arises how the net benefits of an IPS² forthe supplier can be determined to ensure that the IPS² is profitable. We establish a framework for thecalculation of both the supplier’s revenues and costs of an IPS². Requirements induced by possiblesubsequent changes of the IPS² are emphasized. We propose a combination of the Net Present ValueApproach and the Real Options Approach as a means of determining the quantified revenues and acombination of Direct Costing, Time-Driven Activity-Based Costing and the Real Options Approach for thecalculation of the costs of an IPS² for a supplier over its life cycle.