Challenging the orthodoxy of value co-creation theory: A contingent view of co-production in design-intensive business services

European Management Journal (2012) 30, 499– 509

journal homepage: www.elsevier.com/locate/emj

Challenging the orthodoxy of value co-creation theory: A contingent view of co-production in design-intensive business services Mark Lehrer a b c

a,*

, Andrea Ordanini b, Robert DeFillippi a, Marcela Miozzo

c

Sawyer Business School, Suffolk University, 8 Ashburton Place, Boston, MA 02108-2770, USA Marketing Department, Bocconi University, Via Rontgen, 1, 20136 Milano, Italy Manchester Business School, University of Manchester, Booth Street West, Manchester M15 6PB, UK

KEYWORDS Co-production; Value co-creation; Knowledge-intensive business services; Creativity; Design

Summary This interview-based study of three design-oriented KIBS firms proposes a Ushaped project-stage model of co-production intensity in firms offering knowledge-intensive business services (KIBS) requiring a high level of creativity. During the central stage of project execution the creative KIBS firms typically know what needs to be accomplished but do not know what specific path should be pursued to accomplish the task. An intense phase of idea generation and narrowing down of possibilities generally follows the signing of the contract. Interviewees at design-oriented KIBS firms seldom mentioned the client as playing a significant role during the creative phase of the project. The study suggests that, under certain circumstances, both KIBS providers and clients might desire to regulate the level of co-production, and that at certain project stages a reduced level might actually improve the quality of the final output. Other contingencies are also developed. ª 2012 Elsevier Ltd. All rights reserved.

Introduction: Value co-creation and co-production Value co-creation can be considered both an old and a new emerging paradigm that focuses on how firms engage their customers in the joint design of new products, services, and innovation. On the one hand, value co-creation is arguably a normative repackaging of the older idea of co-production in services (den Hertog, 2000; Bettencourt, Ostrom, Brown, & Roundtree, 2002), which in turn builds on the decades-old empirical insight into the inseparability * Corresponding author. Tel.: +1 (617) 573 8338. E-mail address: [email protected] (M. Lehrer).

of production and consumption in service industries (Bowen, 1986; Lovelock, 1988); the buying of business services, in particular, results in a process (not the instant purchase of a merchandise) involving knowledge transfer and flows, which inherently requires interaction and reciprocal learning (Gadrey & Gallouj, 1998; den Hertog, 2000). On the other hand, however, new IT technologies have given a renewed impetus to producer–customer interaction, with even individual consumers now being able and invited to participate in the design of new services (Fu ¨ller, 2010; Baron & Warnaby, 2011; Tanev et al., 2011; Witell, Kristensson, Gustafsson, & Lo ¨fgren, 2011). Both trends are now often cast in terms of the ‘‘servicedominant logic’’ (Vargo & Lusch, 2004; Vargo, Maglio, &

0263-2373/$ - see front matter ª 2012 Elsevier Ltd. All rights reserved. http://dx.doi.org/10.1016/j.emj.2012.07.006

500 Archpru Akaka, 2008), according to which ‘‘value is always co-created, jointly and reciprocally, in interactions among providers and beneficiaries through the integration of resources and application of competences’’ (Vargo et al., 2008: 146, our italics). In a methodical literature review on the topic of value co-creation, Tanev et al. (2011: 152) found ‘‘a positive relationship between the innovation perception metric and particular co-creation components with an explanatory power between 43% and 49%.’’ In other words, the role of customers in creating value in services has advanced to an orthodoxy, accompanied by a proliferation of articles on how companies can improve their service offerings and/or level of innovation by involving customers in their productive processes (Mo ¨ller, Rajala, & Westerlund, 2008; Cassiman, Di Guardo, & Valentini, 2009; Fredberg, 2009; Ramaswamy, 2009; Ramaswamy & Gouillart, 2010). The research we have conducted on knowledge-intensive business services (KIBS) leads us to attach certain contingencies to this trend. We do this by asking the following question: When might service providers desire to limit the extent of interaction with customers, that is, when might client involvement have potentially adverse effects on the ability to develop optimal or innovative solutions? Hypothesizing that certain types of design-intensive service activities might actually lend themselves less straightforwardly to value co-creation than many other types of services, we conducted extensive interviews at three large (multiunit) KIBS firms whose activities involved a significant design component.

Research background: Design-intensive business services A priori, one would expect business services (i.e., services offered by firms for the benefits of other firms) to lend themselves to close client involvement. In the realm of business services, co-production is usually deemed vital because service provision requires the sharing of business resources and not only time, attention, and personal ability as in the case of consumer services (Larsen, 2000; Gallouj & Savona, 2009). Knowledge-intensive business services encompass a particular service category founded upon technical knowledge and/or professional knowledge applied to solve a strategic task of the client, e.g., R&D services, marketing, strategic consultancy, and information technology (Miozzo & Grimshaw, 2006; Gallouj & Savona, 2009). Whereas terms like co-production and value co-creation underline the collaboration between service firms and clients in the delivery of service solutions and the development of new ones, the present research disclosed the contingent need or wish for separation between service firms and clients at certain stages in the provision of knowledge-intensive business services. The notion that more creative types of services might be conducive to greater autonomy of the KIBS provider and to limited actual interaction with clients is consistent with much of what is known about creativity. Creative individuals are idiosyncratic, particularly in their high level of intrinsic motivation (Amabile, 1998). Amabile (1996) underlines the need of intrinsically motivated individuals for autonomy. Recognizing the need of creative units and people, success-

M. Lehrer et al. ful media magnates regularly grant their divisions a high level of small group autonomy (Ku ¨ng, 2008). Newspapers likewise give their online news sites substantial autonomy to be innovative and commercially successful as opposed to keeping print and online operations together (Gilbert, 2001; Boczkowski, 2005). One potential liability of co-production involves incompatible types of motivation: the more intrinsically motivated creative people of KIBS firms may not mesh well with the more extrinsically motivated employees of client firms. Beyond just the nature of creative work generally, the specific challenges of design tasks are apt to enhance the need for the autonomy of designers from customers. Verganti (2008) contrasts incremental ‘‘user-centered’’ innovation, which does not question existing product meanings but rather further reinforces them, with ‘‘design-driven innovation,’’ which bases radical design breakthroughs on broader investigation of evolution in culture, society and technologies. This broader perspective enables the embodiment of new ‘‘product meanings’’ in radically new designs that transcend anything that users would themselves be able to articulate (Beverland & Farrelly, 2007; Verganti, 2008). Yet even when radicalism in design innovation is not a necessity, design-oriented firms are challenged to reconcile the creative culture of designers with the analytical orientation of managers (Blaszczyk, 2000; Michlewski, 2008). The determination that ‘‘the relationship between design and marketing is an uneasy one’’ (Beverland, 2005: 193) underlines subcultural differences within firms, especially designintensive ones, that belie any unitary understanding of what it would mean to create value for, or with, customers. Whereas marketers listen to customers in methodical ways, designers habitually eschew the rational models of corporate management as overly linear, embracing instead an outlook predicated on openendedness and discontinuity, even to an ‘‘a-scientific’’ extent (Michlewski, 2008: 386). These differences in cognitive orientation are fairly inherent in the skill set of design individuals. Design perfection is an overriding value for many designers, fundamentally at odds with the output performance orientation of other functions (Heskett, 2002; Beverland, 2005). Nonetheless, even for creative KIBS firms, the need to cultivate autonomy from customers is hardly a foregone conclusion. Another important variable explaining high creativity is cognitive diversity in the project team. A risk of KIBS firm autonomy on projects is insufficient diversity in outlook and knowledge to produce novel ideas. An obvious advantage of co-production is precisely that it enhances such diversity by bringing together individuals of different business backgrounds and differing cognitive orientations (Bassett-Jones, 2005). A priori, then, the impact of service provider–client interaction vs. autonomy in creative KIBS service delivery is uncertain and merits investigation. In this paper, we assess the issue by investigating variation within individual projects as well as across projects of comparatively large design-oriented KIBS providers. We performed an interview-based study of three such KIBS firms (averaging 200 employees each) with multiple business units. All three had evolved to overlap significantly in the areas of marketing design, brand management, and marketing strategy but all three retained certain design specialties

Challenging the orthodoxy of value co-creation theory: A contingent view of co-production reflecting their diverse company origins in, respectively, industrial design, advertising, and design of displays in cultural institutions. Hence their respective pseudonyms in this paper: Industrial Origins, Advertising Origins, and Cultural Origins. From specialists in a particular design area (industrial design, visual marketing materials, and visual displays, respectively) all three firms had evolved to become, in their aspirations, generalist partners for corporations in the area of marketing strategy and brand management. However, long-term partnerships of this kind remained the exception and most of the creative work performed by these three firms was on a project-by-project basis. The following sections explain the methodology, findings, and discussion of the interviews conducted at these three design-intensive KIBS firms. To anticipate our findings, the interviews led to the following conclusions: (a) Where creative business services are involved, the level of co-production varies significantly across project stages following a U-shaped pattern, with co-production high in the early and late stages of projects (based on information exchange) and low during the intermediate stage of projects (based on creative development); (b) this U-shaped pattern is itself further contingent upon several factors relating to both the features of the client (competences and motivation) and characteristics of the underlying task involved (complexity, interdependence and clarity). (c) different kinds of business services entail different optimal levels of co-production to begin with. While in IT services the level of co-production often is and needs to be quite high, this is less apt to be the case in areas like design-related services.

Methodology Co-production is a fundamental phenomenon of service activities and has been defined as ‘‘the degree to which the client is involved in producing and delivering the service’’ (Dabholkar, 1990: 484). The involvement of clients in providing a service is considered especially useful for co-development, that is, the development of innovative new services (Neale & Corkindale, 1998; Spohrer & Maglio, 2008). A distinctive characteristic of services is their process nature (Lovelock, 1988; Gronroos, 2000). Unlike physical goods, services are dynamic, unfolding over a period of time through a sequence or constellation of events and steps. Accordingly, while manufacturing settings may offer a choice regarding co-production, it is not possible to avoid some degree of co-production when services are performed directly for a client (Bowen, 1986; Lengnick-Hall, 1996; Auh, Bell, McLeod, & Shih, 2007). Of course, clients vary in their ability and willingness to participate in co-production. To control for such variations, we restricted our sample to consultancies whose clients specifically come to them for a creative solution the client can use. A priori, these cases would represent a likely scenario for willing and active co-production.

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Prior research on IT firms formed the background of the present study. This research had shown that IT service firms and their client firms often work, for all intents and purposes, as a single organizational unit for months or even years. Co-production in IT services involves the KIBS supplier and client being organizationally intertwined to a very significant extent, especially through the transfer of staff and assets from the client to the KIBS supplier. The primary objective of such arrangements, governed by very extensive contracts, is to reduce costs and increase efficiency (Miozzo & Grimshaw, 2005, 2010). Co-production in the IT branch of KIBS, while requiring engineering acumen and occasional technical cleverness, does not aim to be creative. The prior study of IT firms therefore enters into the research design and the interpretation of findings. Commercial design-intensive consulting firms were selected as a contrasting KIBS context to that of IT service firms. Such firms were expected to differ from IT service suppliers in the nature of contracting, task execution, and co-production. It was also anticipated that the nature of co-production would vary by KIBS activity even within the realm of commercial design. Such ‘‘design’’ activities as new product design, media and website design, and commercial displays are obviously heterogeneous. Reflecting their idiosyncratic origins and specialties, the three selected KIBS firms formed a certain continuum between a technical orientation at one end and a marketing orientation at the other. Industrial Origins had a continuing specialty in industrial design (technical orientation), Advertising Origins in the design visuals for advertisement (marketing orientation), and the third firm, Cultural Origins, in commercial display with increasing emphasis on digital technologies (technical–marketing orientation). To reiterate, however, evolution and growth had resulted in a certain convergence of the three KIBS firms, as all three aspired to build a business as generalist marketing and brand management partners for corporations. To incorporate an even finer degree of contextual variation into the study, we restricted the study to large KIBS firms (at least 100 employees) with multiple units, each specializing in different sub-areas of design, marketing and/or brand strategy. In all three firms, these units were not completely separate organizational divisions as in large multidivisional corporations. The units shared (human) resources regularly and cooperated on projects for clients. At the same time, each of the units could acquire clients autonomously, maintained a unique mix of skills, and often engaged in unit-specific kinds of contracts and relationships with clients that differed from those of other units in the firm. There were three such units at Industrial Origins, three such units at Advertising Origins, and five such units at Cultural Origins. A list of the different units, with names altered for anonymity while still communicating an idea of the design-related activities involved, is provided in Table 1. The data collection phase centered on interviews with the heads of the different units listed in Table 1. In each of these companies, additional managers at the corporate staff level were interviewed as well, albeit the number and the company positions of these additional managers were usually determined by the recommendations of our primary contacts and were not constant among the three

502 Table 1

M. Lehrer et al. Description and different business units in the interviewed firms.

Firm & number of employees (approx.)

Basic description and type of design expertise

Business units (descriptive pseudonyms)

Industrial Origins (200)

Industrial design firm that expanded into service design, strategic design consulting and brand marketing Advertising agency with visual design specialty that expanded into strategy/marketing consulting and media design Originally a specialist in visual displays for museums that expanded into displays for corporate road-shows, marketing consulting and digital media design

Strategic design Product design Brand design

Advertising Origins (100)

Cultural Origins (300)

Table 2

Overview of Interviews.

Firm

Corporate staff executives

Unit heads (+accompanying staffers)

Industrial Origins Advertising Origins Cultural Origins

4 3 1

3 4 4 (+1)

firms. Table 2 summarizes the total number of interviews conducted.

Interview method Semi-structured interviews with firm managers lasted approximately two hours, with 1–2 members of the research team present at each. Interviews were taped, subsequently transcribed for analysis, and shared with other members of the research team in both full and excerpted form. Semi-structured interviews were organized around three sets of questions, each devoted to a specific issue area. The three basic areas covered in interviews were: (1) Organization of the firm; (2) the process of knowledge co-production with clients; and (3) the strategic development of knowledge and competences by the KIBS firm. The Appendix reproduces the extensive protocol used for the interviews. Questions about co-production with clients were asked in a casual manner, embedded in a longer conversation with interviewees about how their firmÕs internal processes and interaction with customers worked.

Content analysis For each firm, excerpted interview statements were compiled into different topic categories by the researchers who conducted the interviews. Such categories began with the three main topics of the interview protocol. With respect to the second topic (on co-production), a specific step of analysis was to compile a list of what interviewees actually understood the term ‘‘value co-production with cli-

Strategy Creative solutions Media planning Marketing strategy Retail and leisure Sports and entertainment Digital media Investor reports and events

ents’’ to mean and to gauge which company processes best corresponded to the concept of value co-production with clients. This resulted in the construction of a table of ‘‘IntervieweesÕ Explicit or Implicit Understandings of CoProduction.’’ This table was then arranged so that statements were clustered together on the basis of the different basic meanings attributed to the term by interviewees. However, this table was only one element among many in considering the role of value co-production in the firms; it was deemed vital to examine the firmsÕ working processes as a whole, and not only discrete answers to interview prompts, in assessing the issue. The interview transcripts, the categorized interview excerpts, and the standardized cases were shared among the team. Sharing sessions consisted of face-to-face meetings, conference calls, emails, and interpretative documents such as PowerPoint plots sent as attachments. Sharing sessions continued to the point that a consensual view of the role of value co-production in the firms was achieved. The impression- and interpretationsharing period lasted over three months between the date of the last conducted interviews and the attainment of a consensus concerning the studyÕs basic findings.

Main results: Project phase and the U-shaped co-production curve The concept of producing value with clients, even when interviewees were prompted in a casual way to do so by interviewers, did not resonate in any clear consistent way. Indeed, on several occasions (as reported below), interviewees essentially denied the relevance of the concept. To the extent the topic applied to the firms, content analysis revealed five essential meanings of differing frequencies. These are summarized in Table 3. Given the fact that the meaning and role of co-production did not emerge in any clear way from explicit questions about the topic, however, more insight was derived from descriptions of the KIBS firmsÕ work processes and of the role of interaction with their clients in these processes. In other words, the intervieweesÕ description of how they contracted for and completed design-oriented projects emerged as a more authoritative

Challenging the orthodoxy of value co-creation theory: A contingent view of co-production Table 3 IntervieweesÕ explicit or implicit understandings of co-production. Meaning

Frequency

Changing the clientÕs business Heightened interaction with client during initial period of immersion or final period of implementation Participation of client in project execution (mainly the case on retainer contracts) Critical questioning of client requirements Ensuring contribution of client resources (sharing of cost burden)

Occasional Common (mainly implicit)

Occasional

Very common (explicit) Occasional

source of information about co-production than answers to specific questions about the topic. More broadly, the interviews disclosed that the degree of co-production intensity varied considerably across different projects, clients, and project phases described in the interviews. Some sources of variation were mentioned explicitly by interviewees, including the nature of the task to be performed and the kind of contracting arrangement involved. Other sources of variation could be more or less directly inferred from the interview data. These include the capabilities of the client, interdependence among the tasks involved, the nature of the clientÕs relationship with the creative KIBS firm (e.g., new vs. ongoing), and the phase of the project. Given the fairly high number of factors affecting the extent of co-production, discussion of the research results will be broken into two parts. In this section we report on the influence of the project phase as the most significant result. The interview data related to project phase are significant in disclosing that co-production with clients is, at certain stages of project execution, deemed to be an insignificant or unwanted attribute of the KIBS firmÕs service activity. In the following section we report on other, less surprising factors affecting the degree of co-production intensity. The central finding arising from the interview data can be summarized as a U-shaped pattern of KIBS firm-client coproduction intensity over a projectÕs life span. The interviews suggest that a high level of co-production is beneficial

Extent of coproduction Critical questioning of initial client requirements

Client engagement with testing solutions

HIGH Isolation required to develop creative content. LOW

Project definition

Generation of the creative solution

Application of the solution

Stage of project

Figure 1 Extent of KIBS and client co-production along key stages of the project.

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both during the initial phases of services delivery and the final stages of the project. Nevertheless, this is not necessarily the case during the intermediate stage of project delivery, during which KIBS firms and sometimes even the clients themselves tend to prefer a degree of separation from clients (Figure 1). Interviewees at all three KIBS firms noted the importance of co-production during the initial phase of the service project. Heightened interaction allows the definition of the project. The following quotes are representative: There is a period of immersion. Trying to extrapolate from the initial information you have been given and get from the multitude of different conversations actually what the essence is. And that can take a number of forms. It can either be a written statement or often, what is best, is a verbal/written piece and a visual piece (Unit Head, Cultural Origins). During this initial period, heightened interaction is accompanied, invariably, by a critical questioning of the initial client requirements. This active questioning leads, in many cases, to the definition and formulation of a project substantially different from the one first proposed by the client: So [the clients] frequently propose a media for delivering a message thatÕs not appropriate. And theyÕll ask us to deliver a film. And weÕll say, ‘‘Well, actually given your client base and what you are trying to achieve, it would be much better if you did a website’’ (Corporate Staff Executive, Cultural Origins). A similar argument was made by a senior manager at Industrial Origins: Two scenarios are easy. The first is when the client knows what he wants, the second is when client shows up and has to be guided. The third one is tricky: the client says he needs one thing, but then you realize he needs something else; this is quite common because people are not allowed to say, ‘‘I donÕt know what to do’’ (Unit Head, Industrial Origins) Indeed, the design-oriented firmsÕ managers prided themselves on their ability not only to fulfil client requirements, but, more importantly, to analyze the business and organizational background against which such requirements were being expressed. The managers at the three KIBS firms argued that an initial dialogue on the business context was fundamental to reach a project definition: So now we are asking clients, ‘‘So now, right, why do you want to do this. What are the business requirements for you as a business?’’ And that helps inform the brief, and helps inform the framework of the response that we put together (Unit Head, Cultural Origins). In the same vein, a senior corporate executive at Industrial Origins stated: We do not go immediately to solving the problem. We instead are much more interested in peeling the onion and asking what the clients could find very off-putting questions and simplistic in nature, seemingly obvious questions. But there is a process and rationale for asking these questions (Corporate Staff Executive, Industrial Origins). This dialogue leads to a redefinition of the project: The most important thing is to listen carefully to what the client is saying, and not jump at the first tactical opportunity to do some design consulting. Instead of developing x, weÕll say, ‘‘now why should we develop x?’’ So we try to re-craft the assignment. Sometimes clients know exactly what they need and they are absolutely right about what they need, and weÕre happy with this, but it is only true half the time. (Corporate Staff

504 Executive, Industrial Origins). A similar argument is made by Advertising Origins managers: The problem is that the client rarely understands the language of communication. The client is not used to thinking in rhetoric terms, like we communicators do. We give customers what they have asked for (a creative communication act), not what they expect: what such an act should be like (Unit Head, Advertising Origins). Thus, the initial stage generally involves a high level of co-production not only to define the project, but, more broadly, to define the project against the background of the clientÕs business requirements. After the initial phase of KIBS projects, however, the intensity of co-production with clients evidently sank to a significantly lower level. To a certain extent, this was built into the very routines of the creative KIBS firms. The interviewed firms, upon signing a contract, usually enter a brainstorming phase of a somewhat unstructured nature, called ‘‘chemistry meetings’’ at Cultural Origins, for example. At this stage the KIBS firms typically know what needs to be accomplished but do not know what specific path should be pursued to accomplish the task. An intense phase of idea generation and narrowing down of possibilities generally follows the signing of the contract. Interviewees seldom mentioned the client as playing a significant role during the creative phase of the project. The following response to an explicit query about co-production summarizes the issues: We are pretty good about not feeling constrained or contaminated by ideas provided by our client. We ask the client to tell us everything they know about the technology, product, the customers, etc. The more we know the better. There are messy ambiguous parts of the process and we have to assess the clientÕs readiness to work within the messy brainstorming practices (Division Head, Industrial Origins). Some interviewees actually characterized interaction with the client as a risk or threat to their ability to arrive at a creative solution in the middle stage of projects. The senior managers at Advertising Origins explained that during the generation of the creative solution, the KIBS provider requires some degree of isolation: The relationship with the client is more similar to a set of check points where we sometimes collect information and sometimes share possible solutions. If you come back to your client too soon, you can burn an idea with potential only because you did not prepare it adequately and the client did not understand it clearly. The creative content should be contextualized before going back to the client and interacting (Corporate Staff Executive, Advertising Origins). Similarly, at Cultural Origins, there was evidence that at the middle of the project, in the most creative stage, clients were asked to Ôstand backÕ: During the whole process, the client contact was very hands on—Ôtoo involvedÕ since it had to be told Ôto stand back from the jobÕ during the editing stage (Unit Head, Cultural Origins). High client participation at this stage reportedly bears the risk of pushing the design process in an unfavorable direction simply because the customer makes unwarranted assumptions. The following excerpt is illustrative: Sometimes, a very participative client bears the risk of pushing the entire service towards a wrong direction simply because the client starts from false assumptions about its real

M. Lehrer et al. positioning, its strengths or weaknesses (Unit Head, Advertising Origins). Similarly, managers are sometimes skeptical about the capabilities and the willingness of the clients to participate in more creative and innovative tasks: The client always appreciates proposals and being involved in discussing proposals. Generally she/he does not like to participate actively: her/his point is ‘‘I paid you for this, you have competences that I do not have’’ (Corporate Staff Executive, Advertising Origins). Quotations of this kind should serve as a warning to those who might be tempted to believe that the more interaction with clients, the better. Indeed, a common theme at this stage is that clients needed to be kept at armsÕ length because they would otherwise tamper with good solutions. Sometimes this would be in order to satisfy their own stakeholders: Quite often clients have their own clients: stakeholders within the project. So we may only deal with person x as our client, they have persons a, b, c, d, e, f, who all want their piece of the pie on final delivery. So they will try and satisfy all those people on final delivery. . .Great, we have got this platform, letÕs put some stuff on it. When in fact itÕs quality not quantity in the message (Corporate Staff Executive, Cultural Origins). In other words, a disadvantage of excessive co-production is that it may increase the cost or dilute the quality of the final output: We always say to our clients that we want to work with them. . . obviously, they need to understand that when we budget the project, thatÕs the scope of it and if anything changes it costs them more (Unit Head, Cultural Origins). In general, interviewees believed that much of the value added by a creative KIBS firm comes precisely from having a unique perspective of the problem that departs systematically from the clientÕs own view: For once you have been in an industry for 20 years, you can become blind to things. Our outside perspective, not knowing what the client knows, is what gives us our expertise, it is complementary (Unit Head, Industrial Origins). An interviewee at the Advertising Origins offered a similar perspective: The client sometimes participates in a brainstorming meeting, but a major involvement may bear the risk of confusion and misunderstanding because the client will try to add as many issues as possible in the campaign, leveraging on the several issues it feels important about its firm or product. This is exactly the opposite of what is necessary for a powerful communication, because any single campaign needs one message only. What statements like these imply is that, at certain junctures of the project, creative KIBS firms consider it unwise to cloud the KIBS firmÕs special problem-solving focus by incorporating too much input from the client once the basic problem has been clarified. However, during the final phase of the problem, when the solution has to be implemented in the client business, the level of co-production does increase. To conclude a project, deepened interaction with the client is deemed essential: The last 15% [of the process] involves getting adopted and embraced by the [clientÕs] manufacturing side to make certain it fits their assembly and inspection. We then transition from being a doer to a reviewer in these later stages of transition to production (Unit Head, Industrial Origins). A high level of interaction with clients at the end of the project was considered positive even if it leads to radically

Challenging the orthodoxy of value co-creation theory: A contingent view of co-production reframing the service: We can develop an unorthodox communication on the basis of client input, and create an advertising campaign using—letÕs say—comics. However, when we present the project, if the client firmly decides it is better to use real people as testimonials, well, we will have to discuss their suggestion and often change our original content. And we believe it is correct because it is the client who ultimately sees and judges the fit: it is their business, not ours (Corporate Staff Executive, Advertising Origins). This is all the more necessary since creative KIBS firms tend to see their work more as a support for the clientÕs business instead of a complete solution to be delivered: We are not BPO [Business Process Outsourcing] players. We need the client interaction because we see only a part of the marketing process, and it is the communication that should be aligned with the marketing strategy, and not the other way round (Unit Head, Advertising Origins). In this light, it seems such KIBS firms prefer a greater level of client interaction in the final stage of the project in order to limit their exposure to unforeseen negative consequences.

Further results and contingency relationships The findings so far reveal the level of co-production to be patterned across the different phases of a project, with higher separation between the service provider and its client (i.e., low co-production) during the intermediate phase involving the most creative tasks, and higher co-production during the initial and final phases involving interface activities such as information gathering and the implementation of a new service solution. The analysis suggests that co-production follows a curvilinear (U-shaped) pattern across project stages, instead of (for example) a linear one. However, the U-shaped curve does not apply to all KIBS (knowledge intensive business service) firms, especially those in which no particularly creative phase of activity is needed to provide the service solution. For example, such phased separation is not characteristic of co-production in the work of large IT service companies. In IT service contracts, where personnel of the IT service firm and of the client firm may work together as a single organizational unit, creative brainstorming phases are not a fundamental part of the routine. Such contracts essentially amount to IT outsourcing for cost reduction and greater efficiency (Miozzo & Grimshaw, 2005, 2006). Co-production in the IT branch of KIBS generally does not aspire to creativity or innovation, although modernization of IT tools may be an important issue and IT outsourcing often leads to wider transformation in the clientsÕ production technologies. Relying extensively on staff transfer as a means to acquire client-specific knowledge, KIBS work in IT services requires less modulation in the level of co-production across project phases. Even among projects discussed in our interviews, it was clear that when less creative tasks are involved, deep brainstorming by the KIBS firms is not so necessary and the U-shaped curve holds to a lesser extent, i.e., ‘‘is flatter.’’ At Cultural Origins, the example of road-shows was cited: The road-show is the least creative, least imaginative (I need to be careful here) product of Cultural Origins

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(Division Head, Cultural Origins). It was clear that the Investor Reports and Events unit had intense contact with the clients but their work was based on simple knowledge exchange (rather than co-development) and it was of limited duration, such as during financial roadshows (e.g., to privatize previously public utilities): You can look at the website at the 450 roadshows we have done over the last 20 years. . . the client list is phenomenal. . .itÕs short notice, high pressure, intense, 2–3 weeks on the road. . . All the banks are involved. . .it tends to be in and out again, into the next one (Unit Head, Cultural Origins). In such a case, the U-shaped curve is apt to be rather flat. In contrast, when KIBS firms face a truly creative challenge, the result is an irreducibly chaotic period in which the KIBS firm comprehends the problem to be solved but is not in possession of the solution. The search for this solution is a messy process from which the client firm is best shielded and excluded. The following interview excerpt summarizes the issues perfectly: In your notes you proposed that we think about things in the abstract and then sell and execute. That is not how we work. That is why the proposal has to be clear about the goal and money, but contains nothing about how we will do it. We have to figure out how to do it. That is our value added. If we could tell them how to do it, the client could do it themselves. Sometimes techniques succeed and we tell everyone about it, sometimes they fail and that is OK (Division Head, Industrial Origins). As this quotation suggests, the depth of the U-curve depends on the extent to which the method for arriving at a design solution is unarticulated and perhaps even impossible to articulate. Whereas staff in IT service firms follow welldefined corporate-wide processes for articulating customer requirements and tailoring the needed IT solutions (Miozzo & Grimshaw, 2010), design-oriented firms reported reliance on more unstructured processes. The level of co-production is subject to other mediating contingencies as well. One of the main contingent factors is client capabilities and motivation, which affected significantly the level of client interaction. As argued by a Cultural Origins manager: So [for some clients] it is right that we bring them into this room and we have workshops where we create stuff together. It is much more collaborative. Whereas we have other clients . . .[which] would much rather be shown something. So we try to work in the most appropriate creative way with our clients (Unit Head, Cultural Origins). This was echoed by a senior manager of Advertising Origins: Clients are heterogeneous. Many of them see the advertising agency essentially as a creative boutique, picking up creative and uncommon ideas. Others aim to become more attuned to customers thanks to our services. Others simply see our role as that of a media center. The main problem is to understand what the client wants because it often does not know exactly what it wants or it is not willing to say what it really wants (Unit Head, Advertising Origins). A further contingent factor affecting client interaction was found to lie in the nature of the contracting relationship, that is, in whether or not work was conducted on a regular ongoing basis for long-term clients (and often remunerated by retaining fees). When KIBS firms perform

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M. Lehrer et al. Overview of contingencies suggested in study.

Contingencies mitigating for a flatter U-curve of co-production with clients

Contingencies mitigating for a deeper U-curve of co-production with clients

Low level of task creativity required ClientÕs problem easily articulated High level of client capabilities Retainer contract High level of task interdependence

High level of task creativity required ClientÕs problem difficult to articulate Low level of client capabilities One-off contract Low level of task interdependence

ongoing work rather than discrete projects for clients, the U-shaped curve does not apply to nearly the same extent. In the case of Cultural Origins, the preferred mode of operation is strategic partnerships with a few large vital clients. These arrangements involve monthly retainer fees as a ‘‘preferred design and technical partner.’’ In the context of these relationships, there are constant meetings to develop new projects. There may be several overlapping projects going on at one time with and across different units. As mentioned, the other two creative KIBS firms were likewise seeking more retainer relationships. By the same token, the overall level of co-production rises when project tasks involve a high level of interdependence with other tasks involving the client. In such cases, KIBS work invites increasing coordination between the service provider and client while also paving the way for the development of novel projects: The program would last for 3 years. It would include things like design of the actual exhibition, the build on it, all the digital elements, the film animations. . .the interactive installations. . .and it also outlined a budget for all the individual projects. . .over the next 3 years...we have regular meetings. . .And throughout we are always trying to look for ways of suggesting ways of making their communications better. . . Over the last years we have gathered that information in our heads and we have regular meetings when we sit down and think about what we could propose (Production Manager, Cultural Origins). In sum, standard prescriptions recommending high levels of co-production appear most to hold when interdependent tasks are involved. Cultural Origins further cited the example of a project with a client firm that was aggressively launching a series of new acquisitions and new products, demanding deep and sustained co-production between supplier and client: The relationship with [this client] is intimate. . .the project . . .was part of a huge, ambitious growth of the company. We were given a very, very clear instruction to work and report intimately with the board on . . .the project and starting to bring all these brands to get a stronger idea. (Unit Head, Cultural Origins). In such cases involving sustained co-production, the difference between a creative designintensive KIBS firm and a KIBS firm specializing in IT services is no longer so radical. Cultural Origins was, in some ways, aiming to become part of the marketing department of client firms the way many IT service firms essentially become part of their clientsÕ IT department for an extended period of time. Table 4 summarizes the contingencies discussed in this paper: It goes without saying that the contingency relationships outlined in Table 4 are to be construed as propositions requiring further testing.

Discussion The findings revealed a contrast between empirical and normative conceptions of value co-creation and co-production. Empirically, it is simply a long-established fact that the inseparability of production and consumption characterizes the activity of many business service firms, facilitating coproduction and value co-creation as a matter of course (Johne & Storey, 1998; Gallouj, 2002; Lovelock & Wirtz, 2010). Such inseparability is to be distinguished from outright advocacy of value co-creation as a technique for attaining higher levels of innovation and performance (Prahalad & Ramaswamy, 2000; Spohrer & Maglio, 2008: 243), epitomized in articles like ‘‘Leading the transformation to co-creation of value’’ (Ramaswamy, 2009) and ‘‘Building the co-creative enterprise’’ (Ramaswamy & Gouillart, 2010). In contrast to normative views, our investigation endeavored to asses the actual perceived benefits of achieving high levels of co-production and client collaboration (Auh et al., 2007; Baron & Warnaby, 2011; Witell et al., 2011). Whereas Vargo, Maglio, and Archpru Akaka (2008) articulate the unconditional premise of service-dominant logic that ‘‘the customer is always a co-creator of value’’ (our italics), the present research is suggestive of situations and conditions under which greater autonomy of KIBS service providers might be more suitable. In our more contingent view, value co-creation constitutes an option rather than an imperative for service providers. This is a vital point in the management of creative KIBS firms. The traditional organization of many design-intensive consultancies (e.g., advertising agencies) is predicated on a separation of the creative employees and the employees in contact with the client (account managers). Such separation would most likely be viewed as flawed organizational structure according to the service-dominant logic and other normative frameworks of value co-creation advocating tight involvement of clients in the development of service solutions. However, our interview data suggested that value is not always created through interactions among service providers and clients. One very practical and simple implication of our research is that creative KIBS firms should not be automatically led by current trends to abolish traditional boundaries between creative and customer-facing employees. This said, even in the creative KIBS firms under study one could discern a certain longer-term trend towards business development based on retainer contracts as opposed to project contracts. This is somewhat ironic because retainer-based work is likely to call for a higher-level of value co-creation and co-production than project-based activity and it may entail less creative types of work. Of the three

Challenging the orthodoxy of value co-creation theory: A contingent view of co-production design-oriented firms, Cultural Origins has evolved furthest in the direction of marketing outsourcing, that is, is becoming a virtual part of the client firmsÕ organization. Yet efforts along these lines were evident in all three firms. One hypothesis for further research is that as creative KIBS firms become large, their larger size tempts them to try to attract more retainer-based work involving, as correlate traits, a steadier and higher level of co-production as well as, ultimately, less project-based creativity. Speculatively, one might apply the distinction made by Lewis Mumford between art and technics. Mumford (1952) differentiates arts and technics according to the amount of creativity and freedom involved. Art allows space for choice and initiative, relies on the use of subjective and symbolic elements, and uses a minimum of concrete material to express a maximum of meaning. Technics, in contrast, represent the craft of using technology in ways that are comparatively impersonal and objective in character. Technics involve mechanical values, precision, input-output analysis, and use of machinery. One possible conjecture, then, is that KIBS services rooted in technics are likely and well-advised to engage in value co-creation more systematically than KIBS services rooted comparatively more in the arts. When KIBS services are rooted in the arts, more selective recourse to value co-creation is called for.

Limitations and conclusion The contribution of any analysis should be seen in the light of its limitations. First, the paper is based on qualitative inquiry and thus generalization is somewhat hazardous. Further research should investigate and test both the U-shaped curve related to co-production and the role of contingent factors affecting the shape of such a curve. Second, our study focuses on a specific subset of KIBS, consisting of relatively creative firms. While this represents a nice contrast with prior KIBS literature, future research should include multiple types of KIBS firms (e.g., technological and professional). In spite of these limitations, we believe our research offers three main contributions. First, we extend the service literature to contingent analysis of co-production phenomena at the micro-level (project level) of analysis. Our findings help to explain why service firms vary their co-production decisions across and within single projects, according to a combination of project stage requirements, client features, and task characteristics. Second, we put the concept of ‘‘value co-creation with customers’’ into the larger context of different kinds of business service offerings. We show why, under certain circumstances, certain types of KIBS providers and their clients might desire to regulate the level of co-production, and that a reduced level might actually improve the quality of the final output. Third, our analysis provides some managerial insights on how to set up proper interaction and co-production activities with clients in order to improve value creation processes within creative areas of the KIBS domain. Our analysis reveals co-production to be an important strategic option, yet subject to several contingency factors: setting

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the right level of co-production according to the client and the project context can be considered a distinguishing skill for KIBS providers.

Appendix A. Interview protocol A.1. Organization of the firm A.1.1. Organizational structure and key job roles – Organization chart showing main divisions, business units, etc, highlighting horizontal (functional) links and vertical (hierarchical) links. – Explore how this organizational structure is operationalized from the perspective of a project with a client firm. In particular, which division/unit takes responsibility for drawing up and negotiating the contract, who assigns managers to projects, where are project managers located, who manages the finances, who puts the team together and coordinates the tasks of different specialists, who monitors performance? – How does the firm coordinate activities across internal departments? What are the main challenges facing coordination?

A.1.2. Resourcing the project team – Describe the mix of skills and experience among senior project managers and senior technical/creative employees. Reflect on actual composition of skills versus ideal mix. Which knowledge areas are ÔgenericÕ and which are considered specialties (hard-to-imitate) of the firm? – When a project team is put together, what categories of expertise are typically drawn upon? Information on types of skills/experience related to new hires (e.g., graduates or poached from competitor firms, client firms), redeployment of incumbent staff from other projects/business divisions, or use of freelancers.

A.2. The process of value co-production with clients (a) Walk us through the phases of a typical client engagement! What are the various phases of a project from initial contact to project completion? What is the nature of the relationship with the client at each phase? What is the nature of the bidding process–at what stage and how do you arrive at a price? What form does the contract take in your particular division? (b) Project or contract selection: Which projects create new knowledge and which contribute only to bottom line? Who in your division/firm is involved in project selection and drafting of contacts? (c) Client relationship: Do you have special routines for interfacing with clients? How often do you meet/communicate? How is the relationship managed? What does the term ‘‘co-production with clients’’ mean to you?

508 (d) Beyond just problem solving, do you and your clients learn new skills from each other? To what extent do you learn new techniques from the client as opposed to clients learning them from you? (e) How do you track progress on projects and the efficiency of your business processes overall? To what extent do you standardize these across the different projects/assignments? (f) Organizing the client interface – How important is it to have some expertise/knowledge in the clientÕs business processes? – Describe any joint working groups that involve client and KIBS firm managers/employees. How often do they meet (conference call/email), how many people are involved, etc – Are there employees who are 100% devoted to dealing with the client firm?

A.3. The strategic development of knowledge and competences (a) If I refer to your firmÕs ‘‘strategy’’, what does the term encompass in your company? Who participates in and manages the firmÕs strategy? (b) Do you have a chief knowledge officer (CKO) or something akin to that? What does he/she and his/ her group do? (c) What kind of Ôinformation infrastructureÕ does your firm rely on? How is information ÔstoredÕ and made available in the firm? Which of the following are important and why: • Individual expertise and talent (are there processes for managing staff performance of staff and identifying talent?). • Firm-level methodologies or Ôtool kitsÕ. • IT–based information and knowledge-sharing systems. • Project management techniques and support systems. • Research initiatives and publications. • Internal development projects. • Investment in courses, training and participation at conferences of employees. (d) Overall, how does the firm retain and reutilize knowledge from past projects? At what levels does knowledge accumulate and what tools are used to manage this process? Are there just minor or truly major economies that result from repeating the same type of task? (e) Do you have any systematic (or unsystematic) ways of developing new service products and new internal processes? Do you give employees a fixed chunk of time for creative thinking and innovation? Are there special departments for this? If an employee or group comes up with a new idea, how do they ÔsellÕ the idea internally? How difficult is the internal selling process? Is it rewarded systematically? How?

M. Lehrer et al.

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MARK LEHRER has been an Associate Professor of Strategy and International Business at Suffolk University in Boston since 2006. After obtaining his PhD at INSEAD in Fontainebleau, France, he worked for two years at the Social Science Center Berlin (WZB) in 1997–98 and then took a position at the University of Rhode Island in 1999. He was later a guest professor in 2005–6 in Vienna at the Wirtschaftsuniversita ¨t Wien. He has published about 40 articles and book chapters, including in Research Policy, Journal of World Business, Organization Studies, California Management Review, and Industrial and Corporate Change.

ANDREA ORDANINI is Full Professor of Marketing at Bocconi University in Milan, Italy. He has published numerous articles in the areas of service marketing, service innovation, new product development, and new methods of quantitative analysis, including in Long Range Planning and California Management Review. In 2003 and again in 2006 he was a visiting professor at the University of California at Irvine. He serves as a deputy director of the Center for Research in Marketing and Services at Bocconi.

ROBERT DEFILLIPPI is Full Professor at the Sawyer Business School, Suffolk University in Boston. He has published a wide variety of articles and books in the areas of innovation management, knowledge management, and project-based organization. He is co-director of the Center for Innovation and Change Leadership as well as department chair of Strategy and International Business at Suffolk. Previously he has held visiting scholar positions at the Imperial College of London, Case Business School (London), the University of Brighton (Center for Research in Innovation Management), and the Politechnico di Milano.

MARCELA MIOZZO is Professor of Economics and Management of Innovation at the Manchester Business School at the University of Manchester. With expertise in comparative analysis of the relationship between business organization and innovation at the national and sectoral level, she has carried out a number of research projects for European and international agencies. She has published several books on innovation and many journal articles on the organization of service firms, on the outsourcing and internationalization of services and innovation, and on economic development and innovation in Latin America.