Procedia - Social and Behavioral Sciences 175 ( 2015 ) 439 – 446

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1877-0428 © 2015 The Authors. Published by Elsevier Ltd. This is an open access article under the CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/).Peer-review under responsibility of I-DAS- Institute for the Dissemination of Arts and Science.doi: 10.1016/j.sbspro.2015.01.1221

International Conference on Strategic Innovative Marketing, IC-SIM 2014, September 1-4, 2014, Madrid, Spain

Business Transformation Through Service Science: The Road Ahead

George Bithasa,*, Konstadinos Kutsikosa, Damianos P. Sakasb, Nikolaos Konstantopoulosa

aBusiness School, University of the Aegean, Michalio Hall, Michalon Road, Chios, GR-82100, Greece bDepartment of Informatics and Telecommunications, University of Peloponnese, Tripoli, Greece

Abstract

Globalization, technological change, economic crisis and an increasing demand for specialization have led to new economic activities, new business models and new value propositions. As enterprises try to react to these challenges, they realize that they need to transform through collaboration with other enterprises in business networks, in order to: a) develop new value propositions, b) reduce operating costs, and c) engage in value innovation activities. In order to enable this transformation, we propose a Service Science approach to assist enterprises in developing collaborative value propositions. Our two research objectives are: a) the design of a service system framework, b) the implementation of related tools for helping enterprises to engage in collaborative activities, while controlling transformation activities. Our framework is based on resource management and takes into account resource type (operant, operand), resource state (basic, composite, interconnected) and the constraints imposed by resource owners, in order to help firms co-create value propositions. Our framework can thus help enterprises appreciate what it means to take part in a business network (what resources they have to manage and how, what an enterprise can offer in a business network). Then we connect our framework to the well-known E3-value ontology to test our framework’s effectiveness and to have a graphical representation of value flows scenarios generated by our framework. © 2015 The Authors. Published by Elsevier Ltd. Peer-review under responsibility of I-DAS- Institute for the Dissemination of Arts and Science.

Keywords : service science; business transformation; value-in-use; service systems; value propositions

* Corresponding author. Tel.: +30-22710-35148; fax: +30-22710-35099.

E-mail address: g.bithas@ba.aegean.gr

© 2015 The Authors. Published by Elsevier Ltd. This is an open access article under the CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/).Peer-review under responsibility of I-DAS- Institute for the Dissemination of Arts and Science.

440 George Bithas et al. / Procedia - Social and Behavioral Sciences 175 ( 2015 ) 439 – 446

1. Introduction

The rise of globe-spanning, service-based business models has transformed the way the world works. This transformation has been enabled by new information and communications technologies, specialization of businesses, global regulations, and increased use of external services by entities at multiple scales (Wirtz & Ehret, 2012). Over the last two hundred years, and accelerating in recent decades, we have witnessed a rise and fall in resources allocated and interactions dedicated to local production of goods, with more reliance on increasingly complex interactions with others (Bell, 1973; Clark, 1940/1957; Fuchs, 1968; Levitt, 1976; Pine & Gilmore, 1999). Today’s enterprises can transform through their participation in business networks, in order to: a) develop new value propositions; b) reduce operating costs; c) engage in value innovation to satisfy more demanding customers; d) participate in alliances that can help them become more sustainable.

Service Science is a fairly young discipline that combines organizational and human understanding with business and technological understanding, to explain service systems, including how they interact and evolve to co-create value. Our goal is to apply a scientific approach to advance design and innovation in service systems for achieving business transformation. (Maglio & Spohrer, 2013) believe that service science can offer insights into effective value-proposition design, thus accelerating business model innovation through systematic exploration of the space of value propositions. Understanding service phenomena and associated risks and rewards of different types of systems and networks, as well as their modes of interaction, is becoming increasingly critical. The need to understand-manage and design-imagine better service systems and networks is thus a necessity (Spohrer & Maglio, 2009).

In this article, we present a new view on value proposition design as a business transformation tool, in the context of complex service systems. Our research is based on a framework which accounts for an enterprise’s resources and the access rights of these resources, in order to generate alternative value propositions. By combining our work with the E3-value ontology, we can further create a platform that will act as an organizational simulation, providing a graphical representation of value propositions choices.

We believe that our approach can give a great impetus to enterprises that want to thrive in today’s highly competitive and complex business environment. Enterprises can understand what it means to take part in a business network (what resources they have to manage and how, what role this enterprise can play and what it can offer in this network), thus achieving sustainability and business continuity.

2. Literature Review

2.1. Business Transformation

According to (Rouse, 2005, 2006; Rouse & Baba, 2006), business transformation is driven by value deficiencies that require significantly redesigned and/or new work processes. Specifically, enterprise transformation is driven by perceived value deficiencies relative to needs and/or expectations due to: experienced or expected downside losses of value; experienced or expected failures to meet projected or promised upside gains of value; desires to achieve new levels of value. In all these cases, there are often beliefs that change will enable remediation of such value deficiencies.

Transformation has proven to be a vital strategic element in business strategy. It does not involve merely fine tuning a few areas but requires radical changes in critical business factors. As reinvention of the entire business philosophy is the central idea, profound consideration is given to reinvention that will lead organizations to succeed and not die away due to stagnation.

Based on (Rouse, 2005), research in enterprise transformation is progressing along six key areas: a) Transformation Methods & Tools, b) Emerging Enterprise Technologies, c) Organizational Simulation, d) Investment Valuation e) Organizational Culture & Change, f) Best Practices Research. Our research focuses on the combination of Transformation Methods & Tools, and Organizational Simulation, in order to give enterprises a platform for selecting and evaluating options for their transformation.

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2.2. Toward Sustainability and Business Transformation

A key concern for business transformation activities is how to control risks and ensure the firm’s sustainability, post-transformation. In the past decade, the concept of Enterprise Interoperability has received considerable attention in the research community (Chen et al., 2008; Charalabidis et al., 2010). As enterprises cannot survive and prosper solely through their own individual efforts, success depends on the activities and performance of others with whom they do business, and hence on the nature and quality of the direct and indirect relations. In this context, Enterprise Interoperability is defined as the capability of an organization to interact and exchange information and other resources, both internally and with external partners, in order to achieve a certain business goal (Li et al., 2008). Sustainable interoperability aims at accommodating disturbances in a network of organizations, without compromising the overall network interoperability state (Agostinho et al., 2011; Goncalves et al., 2012; Kutsikos & Mentzas, 2012; Sakas & Kutsikos, 2014).

Sustainable Interoperability Framework (see Fig. 1.) is an approach for helping business networks to achieve sustainability. This framework provides a set of methods in order to explain urgent behaviors in complex systems, capable to adapt autonomously to changes.

Fig. 1. Sustainable Interoperability Framework

Another form of business cooperation that has attracted attention recently is virtual enterprises. A virtual enterprise is a coalition of business entities, selected from a larger community of available business entities that collaborate on a joint project. The collaboration is often ad hoc, for a specific outcome only, after which the virtual enterprise may dismantle. The members of a virtual enterprise often possess complementary skills and technologies whose combination is deemed necessary (D’Atri & Motro, 2007).

In this approach, a client is an entity outside the virtual enterprise, which approaches the virtual enterprise to acquire a product or a service. This means that a virtual enterprise does not co-create value with a customer. The co-creation of value among customer and provider is very important for high-level service design.

Our approach is based on Service Science, which is the study of service systems and value co-creation. In the realm of Service Science, service is the application of competences (knowledge and skills) by one entity for the benefit of another (Vargo & Lusch, 2004, 2006). The value that is generated may fall in one of two categories. The

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first is good-dominant (G-D) logic, which is based on the value-in-exchange meaning of value, created by the firm and distributed in the market, usually through exchange of goods and money. The alternative view, service-dominant (S-D) logic, is tied to the value-in-use meaning of value (Vargo & Lusch, 2008a). In S-D logic, the roles of producers and consumers are not distinct, meaning that value is always co-created, in interactions among providers and beneficiaries through the integration of resources and application of competences (Vargo et al., 2008).

From the S-D logic viewpoint, value is not created until the recipient of a service offering has actually integrated the newly acquired resources with its own, for a positive, beneficial outcome. In other words, the recipient service system’s overall circumstances must somehow improve, implying that service value has been co-created. To that extent, each service system engages in three main activities that make up a service interaction: a) proposing a value co-creation interaction to another service system, b) agreeing to a proposal, and c) realizing the proposal (Maglio et al., 2009).

2.3. Measuring Value in Business Transformation

In the connected business environments described above, where value is generated through co-creation activities, a key challenge is how to describe value flows and define value distribution among collaborating entities.

E3-value (Gordijn, 2002; Gordijn et al., 2009) is an ontology, which can depict value flows and describe business networks that exchange value objects. E3-value has two main characteristics. First, it is a methodology that recognizes the importance of economic value. Consequently, E3-value analyses the creation, exchange and consumption of economically valuable objects in a business network. Second, E3-value is founded on principles of multi-viewpoint requirements engineering and semi-formal conceptual modeling. An E3-value model represents a business network that creates, distributes and consumes value objects (Gordijn &Akkermans, 2003).

3. Research Approach

Our effort seeks to answer a key research question in Service Science, posed by (Maglio & Spohrer, 2013): “How can firms leverage an understanding of value co-creation and value-proposition design to configure service systems effectively?”

Based on that, the first research objective is to design a service system framework for managing collaborations in a business ecosystem. The development of such a framework, based on the foundational concepts of (Maglio et al., 2009) (i.e. resources, access rights, value propositions), would present an original and much needed scientific contribution to the field of Service Science. The second research objective entails the implementation of tools based on our framework, which will help firms engage in collaborative activities while controlling the potential transformation activities needed along the way. Indeed, the development of a modeling approach for service systems is a much-desired scientific contribution to Service Science and SSMED (Ostrom et al., 2010; Maglio et al., 2006; IfM & IBM, 2008; Spohrer & Giuiusa, 2012; Tan et al., 2012).

4. A Theoretical Framework for Value Propositions

Our research is based on the Service Science premise that firms are collections of resources that interact by granting access rights to one another's resources, forming service systems (Spohrer & Maglio, 2010b; Spohrer et al., 2007).

Our initial focus is on the design of a service framework for helping a firm decide: a) on different options for collaboration with other firms; b) on potential transformation activities that it may need to undertake, for each option. A decision based on this framework is a value proposition that a firm offers to other entities in a business network.

The above can be depicted as a service classification spider, based on managing resources and comprised of three axes (see fig. 2): Resources Type, Resources Usage, and Resources State.

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Fig. 2. Our service classification spider

Resources Type: a) Operant resources. Based on (Hunt, 2004), they are typically: human (the skills and knowledge of individual employees), organizational (controls, routines, cultures, competences), informational (knowledge about market segments, competitors, and technology), and relational (relationships with competitors, suppliers, and customers. b) Operand resources. They are typically natural resources (raw resources).

Resources Usage Constraints: a) Full Ownership. It refers to release of full ownership of a resource and of all residual rights. b) Right to Use/Benefit. It allows renting out the usage of a resource ‘as is’ and obtain benefit from its usage. c) Right to Use/Benefit with Change. It assigns the right to rent the usage and the constrained modification of a resource and obtain benefit from these rights. A modification may be any change that can be made to the resource, which can change the outcome of the integration of this resource.

Resources State: a) Basic Resources. They refer to the primitive building blocks required from a service provider in order to offer a single service offering to its value network. b) Composite Resources. They refer to the combination of two or more distinct, basic resources, with low levels of interactivity. c) Interconnected Resources. They refer to the combination of two or more distinct, basic resources that significantly interact and may depend on each other.

The combinations of the values of the three axes correspond to value co-creation profiles. These profiles are Value Propositions, which can give options to enterprises for engaging in collaborative activities, and are shown in Table 1:

Table 1. Our 18 Value Co-Creation Profiles

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5. Α Practical Example

Our second research objective is to implement tools for enabling the practical application of our framework (Sakas et al, 2014). By connecting it to the E3-Value ontology, we can develop a simulation tool to test our framework and graphically depict value flows, while extending the E3-Value ontology itself.

Figure 3 depicts a business network, where resources are exchanged among collaborating entities. It is about an Information Technologies (IT) outsourcing firm that wants to develop a new iPad-based car dashboard for Rolls Royce. The firm needs to acquire external resources, integrate them with its own, and offer Rolls Royce an attractive value proposition. For example, it needs to acquire and integrate resources (human, technical, etc.) that are well-versed in iOS software and apps, as well as in mobile internet services.

Fig. 3. E3-Value model

We model the IT outsourcing firm’s ecosystem using the E3-value ontology. The ecosystem is comprised of nine actors. An actor is depicted by a rectangle and is an economically independent entity, i.e. an entity that can be profitable after a reasonable period of time. The IT outsourcing firm, Rolls Royce, IBM and the customer rectangles are examples of actors in this case.

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A resource has economic value for at least one of the actors involved in a business network. For example, the IT outsourcing firm decides to collaborate with the actor ‘IOS programmers’, and pays them a fee in return for iOS car apps. The thin dashed line between two actors represents the rights that the receiving actor acquires with the resource, whereas the thick dashed line represents the resource itself. Blue thick lines represent the exchange of operand resources, like “Mobile Internet service with remote assistance”, whereas red thick lines represent the exchange of operant resources like “specialized knowhow”. Within an actor, value activities take place, graphically presented by a rounded box. Actors perform value activities in order to increase their economic value. In our example, the IT outsourcing firm performs three value activities: iOS tablet for car development, research and development, and communication assignations. The rounded, dashed boxes represent the internal resources of an actor, which it integrates with the acquired resources inside the green value activities. When integration is finalized, an actor offers its value propositions to other actors. For example, the IT outsourcing firm gives its value proposition to Rolls Royce. Rolls Royce then decides to accept it (tablet suitable for dashboard and mobile internet service with remote assistant). Finally, the red circles inside the value activities represent the start of a resources path until its final integration. The red cycle with a black cycle represent a resource’s final integration. This path is called dependency path in E3-value and is represented by a dashed line inside the value activities. Inside the green value activities there are AND forks, which combine one or more paths to one. In our model, this indicates a value activity that needs more than one resource to integrate, in order to create its value proposition. All actors’ choices are made based on our framework’s combinations of resource types, state and usage constraints (SVCP profiles). Our framework can thus provide to an enterprise guidance for selecting among alternative SVCP profiles, in order to establish reciprocal relationships. For example, the IT outsourcing firm acquires the resource “Mobile internet with remote assistant” with SVCP 15, which means that it has rights only to use. It acquires this resource with SVCP 15 because it needs an operand, interconnected resource with “right to use” usage constraints. In the case of the acquired resource “IOS iPad Mini with iWork”, the firm decides to acquire it with SVCP 12, because it needs an operant, interconnected resource with “full ownership” usage constraints, as it wants to integrate it with its own and other acquired resources.

6. Benefits and Further Research

Our research is based on Service Science, which is the study of service systems and value co-creation. As a first step towards realizing this potential, we presented a framework that offers: a) the creation of new ways of developing value propositions; b) new approaches to collaborating in a dynamic networked environment in order to address new requirements; c) usage constraints guidance; c) sustainability and business continuity, which are particularly difficult for many enterprises in today’s uncertain business environment. Two further directions for research have been identified. First, we are currently working on defining SVCP attributes, for fully defining the SVCP profiles and establishing a system of decision making parameters. Second, we need to test our framework in action. To do so, we need to identify and work with actual business partners who will provide sample services as a testbed for our framework. Implementing new software systems or applications in organizations can be a difficult task; nonetheless, efforts are worthwhile (Stalidis and Karapistolis, 2014; Greve, 2014; Schmidt and Baumgarth, 2014). Finally, our current work is focused on extending the E3-Value ontology, in order to get away from the strict representation of Value-in-Exchange and make it capable to present Value-in-Use. One change is in the dependency path. In E3-Value ontology, the dependency path starts with a consumer need and traces the value objects that are exchanged, in order to satisfy a consumer need. In our platform, the dependency path represents the resources’ path until its final integration and this modification results in significant challenges that we are currently addressing.

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