Service purchasing and value creation: Towards systemic purchases

Int. J. Production Economics 147 (2014) 53–61

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Int. J. Production Economics journal homepage: www.elsevier.com/locate/ijpe

Service purchasing and value creation: Towards systemic purchases b ¨ Jukka Hallikas a,n, Mika Immonen b, Mikko Pynnonen , Karri Mikkonen a a b

Lappeenranta University of Technology, School of Business, P.O. Box 20, FI-53851 Lappeenranta, Finland Lappeenranta University of Technology, Faculty of Technology Management, P.O. Box 20, FI-53851 Lappeenranta, Finland

a r t i c l e i n f o

abstract

Article history: Received 30 November 2011 Accepted 9 October 2012 Available online 22 October 2012

The aim of this paper is to clarify the problematic issues of the procurement of service bundles and their value potential for business customers. Creating customer value is an essential aspect of service provision given the need to find new strategic options with value potential in supply chains and networks. In the paper we review the results of a recent survey on value creation in service bundles. We address two research questions concerning the characteristics of value creation in service purchasing, and the correlation between procurement strategies and the creation of value for customers. In order to find answers we carried out a survey among customers of the case company. From the responses we identified various customer segments. In order to explore the buying behavior of the different customer groups we conducted analyses of statistical variance between the clusters. According to the results, there was significant variation in almost all the selected variables. In the following we focus on the study design and the results, and discuss the findings. & 2012 Elsevier B.V. All rights reserved.

Keywords: Service purchasing Customer value Service integration

1. Introduction Services and products nowadays are becoming increasingly intertwined and the competition increasingly global, and thus delivering customer value is not as simple as it used to be. The common denominator here is that delivering value through products and services tends to involve more attributes than first meet the eye. This emerging complexity in production reflects the systemic nature of customer value, and there is as yet no empirical research on its influence on procurement policies in firms. The basic premise is that the value delivered to the customer is dependent on more than one attribute, and possibly on more than one firm. In other words, companies operating in the world of systemic value creation find it hard to succeed on the basis of traditional management theories and methods (Lusch et al., 2010; ¨ Pynnonen et al., 2011). The aim of this paper is to clarify the problematic issues involved in the procurement of integrated services and in assessing the value potential of these bundles. We explore empirical evidence supporting fundamental claims regarding customer value in the service business. First, value arises from the system rather than individual elements of the offering. Second, customers employ multiple parallel strategies in their service purchasing.

n

Corresponding author. E-mail addresses: jukka.hallikas@lut.fi (J. Hallikas), ¨ mika.immonen@lut.fi (M. Immonen), mikko.pynnonen@lut.fi (M. Pynnonen), [email protected] (K. Mikkonen). 0925-5273/$ - see front matter & 2012 Elsevier B.V. All rights reserved. http://dx.doi.org/10.1016/j.ijpe.2012.10.005

Third, the perceived value of the service is dependent on the choice of purchasing strategy, and thus correlates with the depth of co-operation between the customer and the service provider. In short, we review the results of the recent survey, addressing the issues of value creation in service bundles. The research questions we address are: ‘‘What characterizes value creation in service purchasing?’’ and ‘‘How do procurement strategies correlate with the creation of value for customers?’’ The research explores manifestations of value in infrastructure networks in telecom and energy distribution, in which the outsourcing of network building and maintenance has been gaining ground since the early 2000s. The research set-up enables us to demonstrate that some value-creating mechanisms in service provision are not directly linked to operative resources, but are rather embedded in interconnected networks of activities. We adopted a two-stage research design. First we conducted a case study in order to map and analyze the service offering and functions of an industrial service firm. The second stage comprised a customer survey exploring value creation from the purchasing perspective in buyer–supplier cooperation. The general survey instrument included measures for background information (e.g., respondent profile, relationship structure), a systemic purchasing orientation (the willingness to integrate purchasing activities), and information sharing and collaboration with customers. The paper is structured as follows. In Section 2 we describe how systemic value influences the management of infrastructure services. We then review the literature on service management

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and service purchasing (Sections 3 and 4). In the fifth section we describe the methods we used in the study and introduce the case firm, and report the results in Section 6. The findings are discussed in Section 7, and Section 8 concludes the paper.

2. Infrastructure services A provider of infrastructure services needs to master both cost efficiency and service quality in order to outperform its rivals (Fließ and Kleinaltenkamp, 2004; Parasuraman et al., 1988). Developing a service concept – including network planning, construction, and maintenance – is a plausible alternative for delivering value to customers in these markets. The need for adopting a concept approach amongst operators of telecom and energy networks arises from the fact that infrastructure-related quality requirements significantly increase the importance of effectively managing the interdependence among service activities in the future. However, systemic thinking with regard to network-related activities is not yet an established routine among network operators. Therefore, providers of infrastructure services would have potential value to operators if there were a credible system for managing the construction and maintenance of infrastructure networks as a whole. The following two issues must be taken into account in developing such a service concept: (1) the definition and content of each individual operation included should be considered from a customer-requirement perspective, which also incorporates assessment of the interdependence among the activities; (2) analysis of the systemic features of the offering should enhance understanding of the value-creation mechanisms in network-related operations, and highlight potentially distinctive preferences among the customer segments. This paper bridges the gap between the theory of systemic value creation and its application in service management. In practice, many faults and fault-management failures in infrastructure service companies are attributed to lacking or false information among actors in value networks, and more specifically among employees in different firms and the different systems in use (Mikkonen, 2011; Lancastre and Lages, 2006). The customer– supplier relationship is deeper in this kind of service provision (Davies et al., 2007), and the contractual relationship is closer to partnership than service purchasing (Caldwell et al., 2009; Morgan and Hunt, 1994).

3. Conceptual background 3.1. Service research and service-dominant logic The debate on the role of services has been lively amongst scholars and practitioners in the last decade. Manufacturingcentered ideology is facing challenges in the form of business models driven by the requirements of B-to-B customers for more complex product–service systems. Some scholars even claim that the shift toward a service orientation has led the change from a goods-dominant logic to the new service-dominant paradigm (Jacob and Ulaga, 2008). Service-dominant (SD) logic offers an alternative approach to evaluating a firm’s strategic positioning, encouraging management to consider its operations from a network-oriented perspective that would facilitate the exploration of new value-creation mechanisms in an industrial context. This paper contributes to the recent research in clarifying the concept of services, outlining the fundamentals of service management, and justifying the systemic approach to service provision.

In an industrial context, a service is a process of doing something for another party in collaboration by integrating internal and external capabilities in order to co-create value (Vargo and Lusch, 2008; Ulaga and Chacour, 2001). The process varies depending on the situation and the customer’s problem: it could be (1) specialized or hierarchical, (2) parallel or series, and (3) the diagnosis of the problem may be bottom-up or top-down (Buzacott, 2000). Thus, competing through services is much more than including value-adding features in products. In this sense the competition is in the customer’s willingness to pay for the integrative capabilities of the firm (Lusch et al., 2007). S–D logic is based on the following rules (Vargo et al., 2008): i. Service is a fundamental basis of exchange. ii. Products are distribution mechanisms for service provision. iii. Value is delivered through co-creation between the firm, the customer and various networks. iv. Intangible capabilities, skills and knowledge are the primary source of competitive advantage. S–D logic inevitably creates links between operations management and network analysis on the business-model level. Services represent the unified business model of a network in which several actors produce value for the customer and each other within an architecture that is defined in accordance with product, service, and information streams between actors (Normann and Ramı´rez, 1993). Thus, service-driven business models advocate the merging of activities that could be carried out by external actors. This network orientation, however, has implications concerning the control of the service provision if numerous distinct operations and partners are connected to the model and there are no responsible actors. According to S–D logic, some prime service integrators must be included in the provision networks in order to create a functioning system. These prime integrators should be capable of defining attractive customer offerings, and have an awareness of the role of each partner in value creation. The literature suggests that such integrators should avoid high rates of investment in manufacturing processes in order to retain responsiveness, and should have direct links to the market place and customers (Lusch et al., 2007). 3.2. Finding a concept for services There are various definitions of the service concept. In general it is assumed to comprise interaction between customer and supplier, and the exchange of intangible value elements in particular (Norman, 2002; Vargo and Lusch, 2008), and functions as the foundation upon which the components of the servicedelivery system are built (Goldstein et al., 2002). It also demonstrates how customers are integrated into the process of delivering service value, offering ex-ante and providing ex-post feedback on gains. Indeed, the integration and bundling of the service function is one of the central themes in the literature on systemic value creation and service purchasing. It has been pointed out that current theory and understanding are inadequate, despite the number of established services and the development of new ones (Menor and Roth, 2007). Furthermore, the literature on service integration and the systemic development of the service concept is limited, relating mainly to how the different parts of the system deliver value to the customer when they are integrated, and thereby create a systemic customer experience. Managers have tended to consider the bundling of services a negative issue in the belief that it destroys the transparency of the offering and its costs. This is the case in the normal situation in which the supplier bundles the services in order to increase sales.

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These bundling strategies include offering a discount to give the impression that it is cheaper to buy the bundle than to buy the services separately, which is convenient for buyers needing all the services but not for those needing just one. Systemic value offerings are also integrated bundles, but the idea is that the integration of the different services actually provides customers with extra value. Examples of such services include easier user interfaces that operate several services, more convenient service processes with seamless transfer between phases, and platforms that combine different services. The difference here is that these offerings can save money. 3.3. Service systems The fundamental idea behind systemic purchasing is that managing complex product-service bundles requires specific capabilities in terms of combining activities from wide supply networks. Prime contractor organizations are responsible for the overall system design and the integration of product and service components, which are transformed by a variety of external suppliers into a functioning system (Davies et al., 2007). The system itself comprises two main function categories: (1) the service infrastructure and (2) customer-service operations (Fließ and Kleinaltenkamp, 2004). The infrastructure enables the service provider to manage the operations and deliver the required outcomes. The service process and the supporting and processing resources constitute the service-business model, which integrates external resources into a complete offering. Processing and supporting resources derive from the firm’s internal resources and its external value network (i.e. suppliers) (Fließ and Kleinaltenkamp, 2004). During service operations the customer’s contribution relates to information, rights and physical objects. The service offering comprises three major functional categories: (i) services supporting the supplier product, (ii) services supporting the customer’s action, and (iii) services supporting the actions of the customer network (Cova & Salle, 2008). The first category represents traditional service activities with value-adding features, aimed at improving the functioning of products or giving access to information sources. The second category includes activities aimed at resolving issues related to the customer’s operations and the achievement of set goals. Such services include delivery, installation, maintenance, and re-development, which improve customer routines and support continuous quality development, for instance. The third category consists of services that increase customer awareness of supply networks and support the selection of the partners that best suit the customer’s needs, in interaction with the service provider. A value network generates economic value through complex dynamic exchange among firms that are connected to each other through the functions of service provision (Allee, 2000). Interdependence among functions takes several forms: the functions may be sequentially interconnected (stages of production), pooled (utilize common resources), or reciprocally interconnected in which case two functions have to be harmonized in terms of output or co-ordination level (Dubois et al., 2004). The model facilitates the division into peripheral activities and hubs according to the number and quality of interactions with surrounding functions. Peripheral activities are weakly connected to the surrounding networks, whereas hubs connect multiple network entities, creating control points in the supply networks (Merminod et al., 2007). The functions can also be assigned to specialization clusters according to the exhibited technological resources or capabilities (Roseira et al., 2010). Both these clustering methods provide tools with which to anticipate a supplier relationship when organizational boundaries are determined. The quality and amount of interaction in an activity indicate the potential of

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coordination in an externalized function with regard to generating value for the customer. The resource and capability clusters reveal the organization’s core competences.

4. Strategies for systemic purchasing Organizations in many industries have traditionally outsourced their non-core activities to their suppliers in order to strengthen their strategic focus, thus capturing the required capabilities, increasing cost efficiency, and leveraging economies of scale and scope (Quelin and Duhamel, 2003; Axelsson and Wynstra, 2002). Over 80% of the firm’s cost structure could be connected to the purchasing of goods and services (Van Weele and van der Vossen, 1998), which gives purchasing and supplymanagement activities a significant role in both cost-based and differentiation-based purchasing strategies (Cousins, 2005). Costbased strategies are related to value creation through the cutting down of the total costs associated with the product offering, whereas differentiation is related to the increasing of customer value through purchasing and supply management. New requirements related to purchasing and the coordination of whole supply networks emerged when the role of purchasing changed from clerical duties towards value creation and value-chain coordination (Norman, 2002). The role of services is significant in industrial supplier– customer relationships and purchasing management (Axelsson and Wynstra, 2002). The aim in service purchasing is to attain value from outsourced services and integrated offerings. In fact, service purchases are considered even more important than the purchase of goods on account of their better profit-increasing potential (Fearon and Bales, 1995). Service sourcing, according to Nordin (2008), is based on three general strategies: (1) highvolume and standard services should be outsourced to transactional supplier relationships; (2) contracting and ordering as well as business-critical and unstandardized services should be handled internally or via partnership-type relationships with suppliers, and (3) areas with a high speed of change should not be completely outsourced. It is clear from the above that the purchasing of services delivers value to the firm in multiple ways. As with the supply of goods, the value delivery in the service supply chain is based on the correspondence of customer demand with the functions of the chain. The pricing of complex service solutions cannot be based on fixed monetary exchange value, but must reflect the long-term value-in-use that is delivered on multiple levels of interaction (Caldwell et al., 2009; Nordin and Kowalkowski, 2010). Because business relationships involving systemic products tend to be long term, suppliers must be ready to modify their offering and type of relationship in accordance with changes in customer ¨ requirements (Helander and Moller, 2007; Ivens, 2005). The special characteristic in the service supply chain is the emphasis on the delivery of user value. The demand derives from customer experiences. This knowledge of customer preferences facilitates the orchestration of the supply-chain resource base according to the best value fit for the customer (Lusch, 2011). A major line of enquiry within the service concept concerns how customer needs are fulfilled through experience and valuation (Goldstein et al., 2002). The value outcome for the customer has to conform to customer requirements and the value-providing service concept (Anderson and Narus, 1990). Difficulties in measuring customer value tend to arise due to the existence of nonfunctional value components. Customer perceptions of such a value are difficult to address before the realization of the service delivery, the value of which is strongly related to the problemsolving process in which the customer is engaged (Ulwick and

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Bettencourt, 2008). The capabilities needed in the service production are thereby dependent on the set and functional features of the service concept. For example, the more complex interaction between customer and supplier when the customer is a coproducer of the service is likely to increase the importance of co-creation types of relationship capabilities. By definition, service purchasing requires intense interaction between customer and supplier. The general assumption is that the more value that is created and delivered in a relationship, the more close it has to be. This stresses the need to link together two resources that really matter: relationships and knowledge (Norman, 2002). A few studies outline the integration benefits of the solution. In general, integration can be defined as the process of bringing together potentially diverse products and services in ways that create value (Epp and Price, 2011). Further, integrated combinations, which include products and services, add value by providing unique benefits for each customer (Brady et al., 2005). These value-adding activities may be connected to customization benefits, the deployment process, integration benefits, and lifecycle cost advantages (Worm et al., 2009). In the context of purchasing and supply management, the implication is that purchased products and services work smoothly together and bring value to the customer.

5. Research method 5.1. Research procedure The research process followed in this study comprised two main phases, the case study and the empirical research. Our aim in the first phase was to find a general service offering for an infrastructure in order to identify value-creative services, which we later analyzed by statistical means. We then conducted the empirical research in two parts. First, we segmented the sample based on the firm’s intention to integrate services into the bundles. The mapped service elements were valued according to their integration potential to the customer, through which the customer profiles were identified. The TwoStep clustering tool was used in forming the integration-based segments. We then investigated service value by means of a survey instrument incorporating service valuation and statements in related categories, and compared the statistical differences between the cluster groups. IMB SPSS software was used for the statistical analyses.

5.2. Developing the survey scales We used various measures for indicating the structure of value creation in customer–supplier relationships. Our analysis focuses on the construction of the sum variables for customer-value perception, collaboration between supplier and customer, systemic purchasing orientation, and provider information sharing. The SERVQUAL instrument, which includes measures for Reliability, Responsiveness, Assurance, and Empathy, was used to measure customer-value perception (Parasuraman et al., 1985, 1988). We chose the SERVQUAL instrument because it is commonly used to measure customer-perceived service value (Ulaga and Chacour, 2001; Yee et al., 2010; Calabrese, 2012). The variables for collaboration were taken from the existing literature, the main components being relationship commitment, trust and loyalty (Morgan and Hunt, 1994). We also wanted to measure systemic purchasing orientation in order to evaluate the systemic purchasing strategies of the firms. This measure reflects more service-dominant buying behavior when the purchased system comprises both goods and services. In general, integration could be defined as the process of bringing together potentially diverse products and services in ways that create value (Epp and Price, 2011). Applied to purchasing and supply management, it means that services and products can be purchased from one supplier, and system suppliers are preferred (Davies et al., 2007). The integration benefits of purchased services have been recognized (Nordin and Kowalkowski, 2010), and purchasing decisions are based on life-cycle or total-cost thinking rather than purchase price alone (Caldwell et al., 2009). It is also be important for suppliers to develop service integration ¨ in the supply chain (Helander and Moller, 2007; Ivens, 2005). Provider information sharing on the value-network level is considered an important aspect of customer-supplier relationships (Lancastre and Lages, 2006). Communication can be defined as the formal or informal sharing of meaningful and timely information between firms (Anderson and Narus, 1990). One essential feature is the availability and consistency of the shared information in the interests of speed and convenience at the general-solution level (Mikkonen, 2011). These measures and indicators are described in detail in Table 3. 5.3. Case description The service offering was mapped in workshops with the group of experts. Specialists from the provider of the infrastructure service determined the service attributes and evaluated the service offering. Table 1 lists the service elements and their functions.

Table 1 Service elements and their functions in the system. Service element

Function

Abbreviation

Definition examples

Planning

Helping in network development Network design Field planning Work planning Excavation work Connecting networks Quality inspection Preventive maintenance Spare-part management Fault-situation management Fault separation Fault locating (on-site) Fault repairing Automation Logistics Aligning processes with the customer Reporting

P1 P2 B1 B2 B3 B4 B5 M1 M2 M3 M4 M5 M6 S1 S2 S3 S4

Network-present-state studies, planning and developing networks Implementation plan for network-development strategies Planning network routing and resolving land-usage issues Planning the network structures and the execution of the construction Digging trenches and burying cables, Installing fibers, wires and pipelines Scheduling start-up with the network operator and other customers, connecting cables Inspecting the operability of the network and removing possible problems/faults Monitoring the network condition and introducing measures to ensure its functioning Ensuring the supply of spare parts for standby situations Receiving alerts, Locating the site, Forming repair plans, Arranging fault separation Arranging back-up connections and on-line reserve power Locating faults on site by visual means or with special equipment Bringing out damaged network parts, repairing indicated faults at the site Creating interfaces between customer databases and the service provider’s systems Managing stock and ordering supplies as a complete service Defining interactions between customer and service provider Services for sharing documents and reports between customer and service provider

Building

Maintenance

Supporting services

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The analysis of the offering includes the recognition of tasks and features related to the existing service concept. These attributes define the features of the offerings that are expected to resolve particular issues raised by customers and thus to provide value. The developed offering includes four main sections representing different service concepts within the whole: (i) planning, (ii) building, (iii) maintenance, and (iv) process improvement and support. These sections are described in more detail below. i. Planning includes two levels: network strategy and network design. Strategic planning focuses on investment and is expected to react to signals from outside the industry, whereas network design is about finding technically and economically optimal network configurations in specific areas. The design of infrastructure networks is a cost-benefit analysis aimed at minimizing the cost of investments, operations, maintenance, and interruptions while making sure that technical and safety requirements are met. We refer to these service functions as P1 and P2 for further analysis. ii. Building includes a group of activities related to the construction of new electricity and telecom lines and sites, or the renewal of existing networks. The activities of the section include project management and implementation. A key success factor is the efficient management of the fieldwork, the technicians, and the material flows. We refer to these service functions as B1, B2, B3, B4, and B5 for further analysis. iii. Maintenance includes service operations that support the noninterrupted operation of infrastructure networks. The purpose is to safeguard the operating condition of the network and minimize fault-repair costs. Nonetheless, investing in preventive maintenance has a positive impact on the quality and economic efficiency of networks because it helps to reduce interruption and fault-repair costs. We refer to these service functions as M1, M2, M3, M4, M5, and M6 for further analysis. iv. Process improvement and supportive services focus on performance improvement in the other three sections, and on providing a channel for feedback and customer contributions to service provision. The operations in this category enhance material and data flows between the service providers and the customer. Indeed, the increasing integration of processes produces more profound customer relationships. We refer to these service functions as S1, S2, S3, and S4 for further analysis. We included these service attributes in the survey in order to evaluate their importance for the customer, measured on a sevenpoint Likert scale (1–7). 5.4. Sample As our target group we selected customers of the infrastructure service provider whose purchases related mainly to the IT network and the energy infrastructure. The survey took the form of a web-based questionnaire, and the link was sent to the customers via the CRM system of the infrastructure service provider. Two weeks after the original posting we sent a reminder to the same respondent list. Non-response bias was assessed on a number of variables (e.g. firm size, share of total purchases) by comparing early and late respondents, following the suggestions of Armstrong and Overton (1977). As there were no significant differences between the respondents and non-respondents, it could be concluded that the data was not biased. The original data from customers of the case company consisted of 144 valid responses, which were analyzed. The response rate was over 18%, which can be considered a very good sample.

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Given the rather large sample size, we were able to use various statistical methods of data analysis. We classified the respondents as knowledge workers, managers or specialists. Even though our data consist of ordinal variables, we treated them as continuous, which is common practice when there are many categories (here, seven-point Likert scale; 1–7).

6. Results 6.1. Cluster analysis Generally, models of customer segmentation group customers with similar buying behavior together, and usually include different variables that describe the customers and the groups. In this study we used measures assessing the integration value of the service attributes. We formed the segments via two step cluster analysis, an exploratory tool designed to reveal natural groupings (or clusters) within a dataset that would not otherwise be apparent. Table 2 gives the results of the analysis. The analysis revealed three different segments among the customers of the provider of infrastructure services:

 Segment 1: ‘‘Integrate the work but not the planning’’.  Segment 2: ‘‘We buy everything separately’’.  Segment 3: ‘‘We want everything integrated’’. Segment 1 sees purchasing and maintenance services as an integrated concept; Segment 2 prefers to maintain an arm’slength relationship with suppliers and to procure all services separately; Segment 3 emphasizes integration, which tends to increase the responsibility of the service provider for the purchased activities. The categorical variables described none of these segments unambiguously, which indicates the need to understand the strategic or operational mindset of the customer. We expect the supplier’s contribution to the value delivered to the end-user and the customer’s risk-management approaches to determine the segments the customer represents.

Table 2 Service elements and their integration value perceived by the buyer segments.

Planning P1 P2 Building B1 B2 B3 B4 B5 Maintenance M1 M2 M3 M4 M5 M6 Supporting services S1 S2 S3 S4

1 ‘‘Integrate work’’ 2 ‘‘Separate (47.9%) purchases’’ (11.5%) Mean Mean

3 ‘‘Integrate all’’ (40.6%) Mean

3.41 3.78

3.27 3.45

4.85 5.72

4.57 4.89 5.00 4.98 6.04

3.55 3.73 3.64 4.09 3.64

6.33 6.18 6.05 6.23 6.64

5.22 5.11 5.83 5.76 5.98 6.24

3.27 3.36 3.36 3.27 3.18 2.91

6.13 5.85 6.26 6.28 6.38 6.59

3.76 5.22 4.33 5.93

3.00 3.82 3.82 3.55

5.28 5.59 5.85 6.28

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6.2. Testing the dependence between purchasing orientation and perceived value We tested the reliability of these measures by means of Cronbach’s Alpha, which reveals the extent to which the items in a group or category measure the same phenomena. For example, for the items within the systemic purchasing orientation measure the Alpha was 0.711: in normal conditions an Alpha value of over 0.7 can be regarded as good. As shown in Table 3, therefore, all the measures achieved acceptable Alpha scores. Correlation analysis reveals the statistical relationship between two variables. Table 4 shows these bivariate correlations, which are

relatively high: almost all reach a statistical significance level of po0.01. The highest correlations are between the SERVQUAL elements: a level of 0.737 between reliability and responsiveness, for example. In general, a level of over 0.5 between two variables is significant. The significance levels (0.01 or 0.05) show the statistical tests of correlation between variables (the probability that this finding holds true). We used several statistical methods in order to analyze how the measures differed between the segments (Table 5). The analysis revealed no statistical differences in terms of background variables, thereby indicating positive correlation between the value of the service activities and the importance of their being

Table 3 Measures and indicators. Measures and indicators Systemic purchasing orientation We appreciate that the whole service package can be purchased from one supplier Our aim is at purchasing whole service systems rather than separate service elements We put a lot of effort into ensuring that purchased services are integrated so that they work smoothly together We concentrate on life-cycle costs instead of purchasing price when evaluating alternative service suppliers It is important for the service supplier to continuously adapt its operations in order to improve the service integration Collaboration The service offering is continuously developed based on our changing needs The service offering is continuously developed in collaboration with our personnel We co-operate extensively with the supplier with respect to service design We co-operate extensively with the supplier with respect to the design of the service process We co-operate extensively with the supplier with respect to forecasting and production planning We co-operate extensively with the supplier with respect to quality practices Reliability When the supplier promises to do something by a certain time it keeps its promise The supplier shows a genuine interest in solving my problems The supplier gives appropriate service provision the first time of asking The supplier delivers its services when it promises to do so The supplier’s customer documents are always accurate Responsiveness The supplier tells us exactly when its services will be delivered The supplier’s employees give prompt service The supplier’s employees are always willing to help customers The supplier’s employees are never too busy to respond to customer requests without delay Assurance You can trust the supplier’s employees The supplier’s employees give me confidence in my transactions with the supplier The supplier’s employees are always polite to me The supplier has enough knowledge to help us to do our jobs well Empathy The supplier gives me individual attention The supplier’s employees know what my needs are The supplier has my best interests at heart The supplier’s operating hours are convenient for me The supplier’s employees give me personal attention Information sharing The provider gives information on the web The provider gives updated information about its performance Information is on-line (simultaneously with performance) The information is tailored to my needs The information matches with information from other sources

Mean

SD

5.91 5.60 6.37 5.30 5.88

1.064 1.193 .755 1.298 .838

5.58 5.17 4.56 4.54 4.21 4.53

1.068 1.347 1.380 1.418 1.546 1.460

4.98 5.05 4.80 4.89 4.64

1.246 1.193 1.313 1.385 1.251

4.68 5.14 5.37 4.69

1.346 1.261 1.225 1.267

5.49 5.12 5.83 5.51

1.267 1.342 1.241 1.186

4.89 5.20 4.32 5.39 4.75

1.159 1.105 1.302 1.071 1.285

5.27 5.33 5.42 5.50 5.52

1.313 1.220 1.138 1.238 1.01

Alpha .711

898

.897

.856

.898

.862

.749

Table 4 Correlation coefficients.

Reliability Responsiveness Assurance Empathy Systemic Collaboration Information sharing a b

Reliability

Responsiveness

Assurance

Empathy

Systemic purchasing

Collaboration

Information sharing

1 .735a .775a .637a .308a .341a .089

1 .771a .652a .260a .231a .133

1 .723a .402a .306a .170b

1 .365a .407a .181b

1 .380a .341a

1 .086

1

Correlation is significant at the 0.01 level. Correlation is significant at the 0.05 level.

J. Hallikas et al. / Int. J. Production Economics 147 (2014) 53–61

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Table 5 Differences between customer segments (mean values and statistical tests). Mean values

Method

Segment 1 ‘‘integrate work’’

Segment 2 ‘‘separate purchases’’

Segment 3 ‘‘integrate all’’

F-value

Post hoca

Systemic purchasing

ANOVA

5.74

5.58

6.16

0.005c b

1–3 2–3 1–3 2–3 1–2 2–3 – 2–3 1–2 2–3

Collaboration Information sharing Reliability

ANOVA Kruskal–Wallis Kruskal–Wallis

4.59 5.45 5.03

4.54 4.76 4.21

5.18 5.70 5.22

0.045 0.010c 0.011b

Responsiveness Assurance Empathy

Kruskal–Wallis Kruskal–Wallis Kruskal–Wallis

5.09 5.62 4.93

4.68 4.89 4.27

5.30 5.97 5.37

0.094 0.002c 0.001c

a b c

Statistically differentiated segments. Significant at the 0.05 level. Significant at the 0.01 level.

integrated. Thus, we argue that the segments also represent different views on the value of the case company’s offering, which we summarize as follows:

 Expectations regarding the performance of maintenance services are moderate on the operational level in Segment 1.

 Value expectations regarding all services are low in Segment 2, 

or customers’ value-dependency risks are higher than the gained benefits. Value expectations regarding the strategic partnership are high in Segment 3.

We subjected the indicators to ANOVA or Kruskall–Wallis tests, depending on the normality of the variable. These tests compare any differences between the mean values of the segments. A statistically significant result indicates a difference between some of the segments. The test statistic (F-value in ANOVA and Chi-square in Kruskall–Wallis) illustrates the confidence level with regard to the existence of a difference between the mean values. According to the results, all except one of the tested variables differed statistically significantly (p o.05 or.01) among the customer segments: Segment 3 differed statistically significantly from Segments 1 and 2 in the case of systemic purchasing orientation, and from Segment 1 in the case of collaboration; Segment 2 differed statistically significantly from Segments 1 and 3 in the case of reliability and empathy. Furthermore, we found statistically significant differences between Segments 2 and 3 with regard to information sharing and assurance. The difference in systemic purchasing between an ‘‘integrate all’’ strategy and separate purchasing combined with work integration may be attributable to a higher awareness among some firms of the service-provision processes in the field. Current regulatory developments in infrastructure services are tending to put pressure on network operators to develop their networkrelated processes (i.e. planning, construction and maintenance). In practice, business development in this context has three main objectives: (1) to improve processes, (2) to develop new activities/ services, and (3) to focus on the core business. We assume that buyers of integrated service solutions have adopted co-operative strategies in order to resolve previous issues. The ‘‘integrate all’’ strategy aims at decreasing the number of procured objects and optimizing the supply base, thereby creating opportunities for service providers to improve processes. There are at least two positive consequences. First, the network operators are able to focus business development on asset management, and second, regardless of the potential risks related to incomplete contracts

for bundled services, seamless processes should yield benefits for the customer. The statistical difference in observed collaboration between complete (‘‘integrate all’’) and moderate (‘‘integrate work’’) integration strategies reveals the key features of competitive service provision. The mean values of the integration benefits of each service element indicate that the most remarkable differences between segments lie in planning and support services. We therefore conclude that transferring the responsibility for process development to the supplier and providing front-end support to the customer differentiate the service provider from the service integrator. In the case of infrastructure services, integrators would presumably include planning activities in their offering, and adapt their service-management processes to the unique networks and network-management systems of the customer. System-level integration, however, carries twofold implications for business relationships: the service provider must be willing to make customer-specific adaptations, and there is high mutual dependence between the parties. Information sharing and assurance are the measures that most clearly differentiate the ‘‘separate purchases strategy’’ (Segment 2) and the ‘‘integrate all strategy’’ (Segment 3). Regardless of the lack of statistical significance, we found similar differences between moderate integration and separate purchasing in the mean values of the measures. We assume that the following context-specific reasons are most likely to explain the differences. First, information sharing has no particular value-creation potential in a purchasing strategy in which the customer orders specific service activities based on a detailed specification of the delivered object. This concerns construction activities in infrastructure services in particular, which can be delivered in separate parts based on the turnkey approach. Second, the value potential to the customer of information sharing regarding maintenance activities increases in relation to the level of integration of the purchased services. Control over the maintenance process and transparency are the key explanatory factors. Third, integrated service offerings have to be described appropriately in order to ensure comparability between suppliers and to enhance transparency in the transactions. The allocation of responsibility for the service process significantly affects the requisite communication between the parties. The ‘‘separate purchases’’ strategy does not require extensive communication regarding purchased objects because the customer maintains responsibility for the process, whereas the opposite is the case as far as the other strategies are concerned. Fourth, information sharing and responsiveness as quality factors assume even more importance in the ‘‘integrate all’’ segment because the purchasing policy fosters relationships in which intangible services have a significant role: it involves the purchasing of integrated network-related operations from planning to continuous

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maintenance, which requires transparent documentation and communication routines on the operative level. In the context of our study, assurance measures the capability of a supplier to generate trust in business relationships, which occurs during the ex-ante and ex-post phases of the service operations. We found that as long as the purchased services are temporary and technically specific, Assurance does not play a significant role in purchasing behavior. The evidence lies in the statistical differences between the ‘‘integrate work’’ and ‘‘separate purchases’’ segments. In the former maintenance services are purchased as an integrated offering committing the parties to ongoing agreements that cannot be completely technically specified. Actors that keep the main responsibility for process management in-house and purchase their service activities to meet specific needs and purposes do not have to meet similar requirements.

7. Discussion The identified segments represent the two main strategic options for network operators in running their business: overall responsibility for all operations or focusing on the management of network assets. Customers in the ‘‘Separate purchases’’ segment maintain responsibility for overall developments in their own organizations, whereas those in the ‘‘Integrate work’’ and ‘‘Integrate all’’ segments probably pay more attention to core competences. Thus, the operational strategies in the first segment fit in the typical management of local monopolies that include network operators. A competence focus in procurement strategies indicates a willingness to modernize the business strategies of network operators, a need that emerges due to the regulatory actions of national authorities or because of the increasing private funding of infrastructure development in European societies. The distinctive feature in the procurement strategies of the ‘‘Integrate work’’ and ‘‘Integrate all’’ segments is the depth of collaboration. The network operators in the latter shift the network-planning, building, and maintenance activities to the service provider, thereby becoming committed to long-term strategic partnerships because inherent in the operational model is the mutual transfer of information and operational capabilities. The procurement model, in which the planning functions are retained, gives the network operator strategic independence. In these cases, the service providers’ role is mainly to focus on the development of human resource management and effective maintenance processes. The selected procurement strategies of network operators also reflect the expected gains from the procurement function. We found that value expectation is highest in the ‘‘Integrate all’’ segment, which focuses on strategic partnership. With regard to the performance of maintenance services value expectation is moderate at the operational level in the ‘‘Integrate work’’ segment, mostly because the purchasing concerns functions that only have the potential to provide operational advantages. The ‘‘Separate purchases’’ segment manifests the lowest level of expected value provided by the suppliers, probably because dependency risks are valued more highly than gained benefits. What is notable in the results is that the lowest level of customer satisfaction is manifested in the ‘‘Separate purchases’’ segment. This may be indicative of difficulties in gaining benefits through costcutting strategies. The selected procurement strategy in this segment is to outsource supporting activities to a fragmented market base and leave the responsibility for managing the service offering to a local monopoly. The lower mean value of the expected time-saving potential of services in the ‘‘Separate purchases’’ segment, however, indicates some underestimation of the transaction cost of decentralized purchasing. Thus, we conclude that effective control of a

complex service offering via an arms–length relationship is difficult given the non-operative value elements that are embedded in the service-provision system.

8. Conclusions We conclude that collaboration in purchasing processes, moving the overall process, and offering development responsibility to the service provider are the key features of integrated purchasing (Vargo and Lusch, 2008). Second, the responsiveness of the service provider seems to be a common quality expectation (Lusch et al., 2007) that is a feature of all purchasing strategies. In practice, the service provider must be capable of processing service requests appropriately and delivering promptly. Similar to responsiveness, trust between the customer and the service provider was not a significant factor as long as the purchased services were temporary and technically specific. Indeed, overall customer satisfaction, which can be observed from the analyses of the means of all the service-quality attributes, is significantly lower in the case of separate purchases than in the other segments. This finding is interesting as such because it suggests that, in some cases, integrated or bundled services yield more value for the customer than separately purchased services (Epp and Price, 2011). The main managerial implication of this study is that the overall value potential of the offering should be considered in purchasing decisions. If the purchased offerings are systemic by nature and well integrated, it can save time and money even though the initial cost is higher. This result was clear when customers strongly pointed out that a service solution has to work seamlessly. The overall value of the systemic offering may be more than the sum of its parts. This may be more easily understood from the perspective of user-experience design. Only if the real usage of the service process is thoroughly understood in terms of multiple daily-usage transition phases between the separate products and services in a solution, can these phases be made consistent. This way it is easier for the user to switch between processes than if each process has a separate usage procedure (e.g., logic, passwords, visual appearance or reporting structure). Process information on the value-network level seemed to play an important role in the context of this study. In other words, the role of information could be related to the customer’s actual achievement of work-related goals. In practice, the level of lacking or false information among employees of different firms and in the different systems used in those firms must be gradually brought down to zero. Genuinely systemic offerings should be seen as investments in longer-term relationship development, as they tend to pursue a deeper customer orientation related to systemic thinking. The creation of a systemic purchasing strategy thus requires a change towards more holistic management, and the building of new capabilities related to creating systemic customer value on the level of the individual, the firm and the value network. This also requires enhanced trust between suppliers and buyers, which is related to a positive customer attitude toward deeper integration. The study has some limitations that should be addressed. First, it does not explicitly identify the demographics of the segments, which limits the applicability of the results. Second, it does not explain the causal relations between the items. Third, it is limited in scope: in order to generalize the findings it would have required the inclusion of other industries and more firms. Further research on the subject of integrated service purchasing could shed more light on the main reasons for the differences among the customer segments.

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