Increasingly firms develop technology-based sharing approaches where users rent, lease and share products, instead of purchasing them. Particularly, the product service system (PSS) concept has recently caught attention by scholars from different disciplines, although surprisingly little from the innovation research community. The writings from our colleagues however lead us to suspect that PSS developing firms might pursue an innovation behavior that is much more in line with recent societal demands for reducing environmental externalities. Recent examples show that adopting the PSS approach could be a way even for profit-driven firms towards a more sustainable economy, actually without too much governmental intervention.
However, to our knowledge this argument has yet been hardly discussed in detail. Drawing on concepts from the innovation management literature as well as from environmental management research, we contribute a model that explains why the PSS approach can shift firm innovation behavior towards generating fewer environmental externalities. This model links firm innovation behavior to three antecedents, including two product related characteristics (ownership, product purpose) and the specifics of the PSS related profit function. We argue that these antecedents differ whether firms develop products or PSSs. In the latter case the antecedent specifications impact firms’ R&D objectives in a way that creates incentives to follow innovation trajectories that lead to a reduction of environmental externalities (i.e., eco-innovation behavior).