customer perception article

8/12/2019 customer perception article

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Developing the value perception of thebusiness customer through service modularity

Emmi Rahikka, Pauliina Ulkuniemi and Saara PekkarinenOulu Business School, University of Oulu, Oulu, Finland

AbstractPurpose The present challenge for many service rms is to develop an offering that is exible and open for tailoring and at the same time achieefciency through standardizing processes. Modularity has been suggested as being one tool for achieving this. The goal of the present study is toout how services provided in modular form (here referred to as service modularity) can exert an inuence on the value perception of the customer iprofessional services eld.Design/methodology/approach Empirical part consists of a case study of a large provider of professional services involving constructengineering, procurement and project management service. Data were gathered by semi structured theme interviews of representatives of the cacompany and representatives of two of its customers.Findings The modular processes had an inuence on the customers expectations that are related to the experienced quality of the service, ahence they create value for the customer. In addition to the service outcome, the modular processes enhanced the customers trust in the servproviders employees and their skills in co-operating in a suitable way during the service process. The organizational modularity eased the customtasks of managing the project implementation.Originality/value The present study contributes the knowledge related to modularity in business services by incorporating the knowledge from theoretical discussion on customer perceived value.

Keywords Service modularity, Customers value perception, Professional services, Engineering services, Business-to-business marketing,Services marketing

Paper type Research paper

An executive summary for managers and executivereaders can be found at the end of this article.

1. Introduction

Delivering superior value to customers is the foundation of service provision in todays highly competitive and dynamicmarkets. The challenge facing many service rms is todevelop an offering that is both exible and capable of beingtailored to t the specic requirements of customers(Edvardsson et al. , 2007) and at the same time achieve toefciency through standardising processes. This is also theobjective of service modularity (Pekkarinen and Ulkuniemi,2008) an attempt to develop services by combining theexibility of tailoring and the efcient production methods of standardising. However, the service providers internalefciency cannot be effectively managed without recognisingits dependency on customer-perceived value (Anderson andNarus, 1995; Gronroos and Ojasalo, 2000). Consequently, an

important challenge to service providers is to understand howcustomers evaluate service and how the different elements of value contribute to their perception of value in the delivery of services (Ulaga, 2003; Ulaga and Eggert, 2006). This is,

however, challenging especially in those service sectorswhere the customer-base and the customers needs are veryheterogeneous, such as in professional business services,where the services have to be tailored to each customersindividual needs.

Professional services focus on problem solving by means of offering advice, shaped by expertise, to the customer (Rothand Menor, 2003). Furthermore, long-term relationshipsbetween a professional service rm and its customers requireefcient internal knowledge transfer (Natti and Ojasalo,2008) and depend on the management of the relationshipsbefore, during and after the project (Filiatrault and Lapierre,1997). Therefore, to survive, it is essential for the serviceproviders that they carefully focus on understanding theircustomers perspective when developing their services.

Value creation in business relationships has attractedconsiderable attention in marketing literature over the lastdecade (Eggert et al. , 2006; Flint et al. , 2002). Morespecically, the notion of value as multifaceted and including

both monetary and non-monetary elements has been widelydiscussed (Ravald and Gronroos, 1996; Eggert and Ulaga,2002; Ulaga, 2003; Komulainen et al. , 2008).

Anderson and Narus (1995) claimed that all managers inbusiness-to-business markets are eager to nd ways to gainmarket share from competitors or to improve means of entryinto new markets. This leads them to explore ways tocustomise offer ings, one such way being through

The current issue and full text archive of this journal is available atwww.emeraldinsight.com/0885-8624.htm

Journal of Business & Industrial Marketing26/5 (2011) 357367q Emerald Group Publishing Limited [ISSN 0885-8624][DOI 10.1108/08858621111144415]

Financial support from the National Technology Agency of Finland isgratefully acknowledged. The authors also wish to thank the reviewers fortheir constructive and helpful comments.

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modularisation. However, while we know something of thoseservices with potential for modularity, little is known aboutthe possible inuence that modularisation has on the waycustomers perceive value in such services today. The goal of the present study is to nd out, how services provided inmodular form (here referred to as service modularity) canexert an inuence on the value perception of the customer in

the professional services eld.This study utilises a qualitative research approach and

abductive reasoning. The research phenomenon isapproached through a case study. The case rm in thepresent study is a large provider of professional services, andelements of those processes, involving construction,engineering, procurement and project management. Thecompany was selected for this research as both its way of operating and its services can be interpreted as beingmodular. Representatives from the case company and fromtwo of its customers were interviewed.

In the following paragraphs, we will rst discuss the mainaspects of service modularity. The discussion encapsulatescurrent research in the area as well as more traditional

research in relation to modularity in physical products, inproduct development, production and operation managementliterature. Then we turn to the theoretical discussion oncustomer-perceived value in the marketing literature andsuggest a tentative framework for studying how servicemodularity can inuence a customers perception of value.The framework will be further developed by the empiricalstudy and the paper concludes with a discussion on the waysthat service modularity is connected to the customers valueperception.

2. Modularity in business servicesWithin the social sciences discipline, modularity theory(Simon, 1962; Langlois, 2002) can be applied to explain theevolution of products, organisational design and knowledgemanagement but also emerging patterns and dynamics of coordination and division of labour between rms. In productmanufacturing, modularity enables faster development of newproducts employing modular components with standardisedinterfaces; but in services, modularity will simplify design anddevelopment processes and offers the potential for a greaterdivision of labour across rms (Sanchez and Mahoney, 1996;Campagnolo and Camuffo, 2010). To overcome the lack of research on modularity in service marketing and management(Campagnolo and Camuffo, 2010) we look to the literatureon engineering and production management to contribute tothe discussion. To conceptualise service modularity, we willapply the three elements of service modularity suggested inthe previous literature, including product, process andorganisational modularity (e.g. Pekkarinen and Ulkuniemi,2008).

A service module is a group of elements that are highlyinter-dependent, but only marginally dependent on thecharacteristics of other modules (Baldwin and Clark, 2002)Anderson and Narus (1995) describe types of business servicemodules supplementary to the core product of the customer.These service modules can be exible, helping buyers toreduce the costs of services they add to their core productsand to provide greater value to customers. A service modulecan also be added to a standard package to meet the needs

of the average customer in each segment, so enablingcustomisation.

Firms designing and implementing exible, efcientmodular business services need to know the value perceivedby the customer. For those rms seeking businessopportunities, modularisation will enable the creation of new transaction opportunities at the boundaries of the service

modules. On the other hand, rms making their tasksmodular for reasons other than the pursuit of new businessoptions, face new competition at the boundaries of the newmodules that could be challenging for those rms whose tasksare characterised by being labour and knowledge-intensive(Baldwin, 2007). In our study, a service module is dened asthe smallest service unit that can be offered to a customer initself or as a part of a service offering creating the valueperceived by the customer.

A modular process is composed of one or several modules(tasks) that are designed independently but still function as anintegrated whole to perform the intended function that thecustomer requires. The whole service process may then alsobe split among business units or outsourced to other suppliers

(Sako, 2006). In their research on telecommunicationservices, Hyotylainen and Moller (2007) found thatmodularity exists on a functional level; that is, services canbe split into functions that need to be performed to produce aservice that can subsequently be utilised to produce manydifferent services. Modularisation of service processes andsystems will require the reorganization of value creationactivities and resources if all the inter-dependencies of theprocesses are not adequately addressed and coordinated. It isimportant for knowledge-based businesses to provide high-quality services and demonstrate their responsiveness to thecustomers requirements and expectations (Gomes andDahab, 2010). In this study we dene the process moduleas the indivisible service process step that is essential to makea service module or offering available to the customer.

There are two existing approaches to organisationalmodularity evident in the literature. One researches therelationship between product architectures and how toorganise the product development unit (Sanchez andMahoney, 1996; Brusoni and Prencipe, 2001, Langlois,2002; Hoetker, 2006) and the other researches the concept of modularity as applied to the organisational forms of theproduction systems of rms (Baldwin and Clark, 2002;Baldwin, 2007). The latter track of research is more appositeto our study. In operation and management literature a viewthat product modularity affects the boundaries of the rmdominates, and that factors besides technology also affect thatrelationship between product modularity and the changingrm boundaries (Campagnolo and Camuffo, 2010).

With standardised component interfaces, modular productarchitecture provides embedded coordination that greatlyreduces the need for managerial coordination of developmentprocesses (Sanchez and Mahoney, 1996). But modularity inservice design (service modularity) also affects thedevelopment of the organisational structure. A rmorganising its production process will choose the supplierbest able to produce each module (Hoetker, 2006), therefore,moving out from a tightly integrated hierarchy is one aspectof organisational modularity (Schilling and Steensma, 2001).Modular products lead to more recongurable organisationsbeing a part of the common denition of a modular

Developing the value perception of the business customer

Emmi Rahikka, Pauliina Ulkuniemi and Saara Pekkarinen

Journal of Business & Industrial Marketing

Volume 26 Number 5 2011 357367

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organisation (Hoetker, 2006). Schilling and Steensma (2001)described modularity as a situation where a tightly integratedhierarchy is replaced by loosely-coupled organisationalnetworks that allow organisational components to be exiblyrecombined into a variety of congurations. In this study wedene organisational modularity according to a knowledge-based view of the organisational forms as being loosely

coupled (teams, units, rms, networks) that throughcoordination create value that is perceived by the customer.For instance, in the eld of engineering services, a modular,loosely coupled organisation allows exible allocation of thecompanys personnel and capabilities and/or for resources tobe outsourced from other actors in a network.

According to Pekkarinen and Ulkuniemi (2008) the benetof platform thinking is that customisation becomes easier andmore cost-effective when some of the modules already exist.Also, the delivery of the service becomes more protable asservice modules can be shared, such as when the same vehicleis used to deliver pipes and to deliver steel piles. Additionally,while modules are bundles of different service elements andprocesses, modularity can reduce complexity making themanagement of a service system easier. Finally, developingthe service is facilitated, because each module can beimproved separately from the other modules.

3. Service modularity and customer valueperceptionIn order to nd out how modularity of service can inuencethe customer value perception, we draw together thoughtsfrom the existing research on service modularity andcus tomer-perceived va lue. For thi s purpose , weconceptualise service modularity as including three elements:1 service modules;2 modularity in processes; and3 modular ity in the organisat ion (Pekkarinen and

Ulkuniemi, 2008).

We use these three elements to capture the different ways inwhich modularity can inuence the customer valueperception.

Value creation in business relationships has gained a lot of attention in the marketing literature in the last decade, and of course the notion of value has been described in the literature(e.g. Eggert et al. , 2006; Flint et al. , 2002). Typically, mostdenitions focus on the economic and various non-monetaryoutcomes of the exchange and the process surrounding it.Furthermore, the bulk of the literature conceptualisescustomer-perceived value as the subjective perception of the

trade-off between sacrices and benets related to theexchange and relative to the competition (Flint et al. 2002,Ulaga, 2003; Komulainen et al. , 2008). The non-monetaryaspects of value have received particular attention in studiesaiming to classify these different value aspects (e.g. Ravaldand Gronroos, 1996; Eggert and Ulaga, 2002; Fiol et al. ,2011). Benets might include product quality, delivery,personal interaction and service support (Ulaga, 2003). Thesacrices include both monetary aspects such as the pricepaid and also non-monetary aspects or those that are difcultto measure in monetary terms, such as time and risks (Ravaldand Gronroos, 1996).

Currently services marketing research emphasises thatservice exchange is strongly characterised by the fact thatboth parties to the relationship are not only active but alsoparticipate in producing the actual outcome and the valueincorporated into it (Edvardsson et al. , 2005). Servicemodularity can increase the visibility of services and thusassist customers, especially in the service buying process. Thevalue in service co-creation represents the value that thecustomer can perceive in participating in the production of the service. Customers roles in co-production of value can bedescribed as examples of collaborative behaviour thatcontribute to the success of the solution, goal achievementand uency of the relationship. (Bettencourt et al. , 2002).

In professional services, value is intertwined with both theservice process and the outcome of the service, sounderstanding the customer-perceived value is a complextask. Lapierre (1997) conceptualised the two levels of value asthe value in exchange and value in use. Value in exchangerefers to the professional services practices employed tosupport organisational customers during the service process.

Thus, the value in service process means the uency of theinteractions between the parties during service delivery.According to Lapierre (1997), value criteria found at thevalue exchange level include technical and functional quality,relational variables and image. Value in use refers to serviceoutcomes that the organizational customer perceives in termsof nancial, social, operational and strategic aspects(Lapierre, 1997).

Furthermore, the customer can evaluate the possibility of achieving their goals based on how the service provider hasperformed relating to the previously mentioned valueelements. Here, the relevant possibilities to be evaluatedinclude those of the investment projects success, the network

benets or the reference value of the service provider. Closelyrelated is the set of capabilities useful in terms of presentcooperation and potential future cooperation the supplierbrings to the relationship; such capabilities have been shownto be an essential element of value perceived by the customer(Moller and Torronen, 2003). Thus, by value in the variety of the service offering we refer to the scope of the offering andthe extent of the service that the service provider is able toperform on behalf of the customer.

Finally, the overall value perception of a customer can onlybe fully understood if the nancial and non-monetary costsand sacrices relating to interacting with the service providerand buying the service are also taken into account. Thecustomers overall value perception is formed as a result of thecomparison of overall value and overall costs.

To explore the possible inuence of service modularity oncustomer-perceived value, we propose the model illustrated inFigure 1. The models shows the potential inuence of theservice modularity elements, i.e. the modular offering,modularity in processes and modularity in the organisationon the identied value elements, including both benets andsacrices. In terms of the empirical study, our intention is toopen up possible inuences by describing how the modularityelements inuence or facilitate the customers valueperception according to the different value elements.





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4. MethodologySince the literature on service modularity is scarce andbecause modularity in services is seen to exist only in certainservice production systems, a qualitative single case studymethod is preferred in this research (Bonoma, 1985).Moreover, for the same reasons, abductive reasoning isapplied, meaning that in the research process we havecombined both theoretical knowledge and empiricalunderstanding.

The case selection criteria included, rstly, the nature of theservices that had to correspond to our understanding of modular services. The services offered should consist of clearmodules, meaning that they should consist of service elementsand processes that separately offered would not create valuebut combined could be offered as one entity that is, aservice module. Secondly, the services selected should beproduced with a production system including processmodularity and modularity in the organisation.

The case company, referred to as Engin, offers professionalengineering and construction management services tomanufacturing companies. Engin is a multinational grouporganisation with net sales of e 700m and over 7,000employees. Engin operates mostly on a project basis as theassignments are related to capital investment projects. Enginessentially offers all the technical design and projectmanagement services that are needed to build (or rebuild) aproduction plant or ofce facilities, for instance. The data wascollected through ve face-to-face semi-structured interviewsof the case company representatives and four representativesof two customer rms.

The interview sessions lasted between an hour and 90minutes and were recorded and transcribed. The transcribedinterviews were analysed with QSR N-Vivo 8 software, whichenables the electrical processing of written data. With the helpof the software the material was coded according to the

elements of modularity and value identied in the theoreticalframework. After the coding, the analysis focused on ndingconnections between the elements of modularity and value. Inaddition to the interviews, the case companys customermagazine and websites were used as empirical material tosupport the interpretations made from the interview data.The case company representatives were invited to commenton the interpretations made before their nal incorporationinto the study to improve the validity of the interpretationsmade. The reliability of the present study was fosteredthrough carefully describing and documenting the researchprocess; interviews were transcribed and careful were notestaken in the workshops and other meetings to support the aimof improving reliability.

5. Analysis of Engins service modularityA service module is the smallest service unit that can beoffered to a customer in itself or as a part of a greater serviceoffering. Under this denition, the service modules in the casecompany clearly represent different engineering areas: HPAC(heating, plumbing, air conditioning), electricity, automation,plumbing, process, plant and structure engineering, etc.These became evident both in the case company and thecustomer interviews. Additionally, different projectmanagement, quality measurement and consulting servicesrelating to the aforementioned engineering areas occur as

Figure 1 Service modularitys possible inuence on the customers perception of value





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individual service modules. The extent and size of themodules can vary in relation to the customers needs.

Modular processes are the indivisible service process stepsthat have to be performed in order to produce a servicemodule. At Engin, standardised processes are clearly evidentin their standardised ways of working and documenting theprogress of projects, which are based on the best practice

accumulated over the years in the organisation. With itsmodular processes, Engin can ensure the quality of engineering designs and improve the compatibility andexibility of different service modules. The company utilisesmodular processes not only in individual projects but alsobetween its business lines.

Modularity in the organisation is dened according to theidea of loose-coupling and means, for instance, exibleallocation of company personnel or buying personnel leasingservices. At Engin, the modularity in the organisationbecomes apparent in the organisation structure and theirlarge network of service sub-suppliers. The company has onlyfour main ofces worldwide but hundreds of smaller ofces in47 countries. It seems the customers feel that small ofces

make the organisation more approachable than if its face weresolely the regional corporate headquarters and thosecustomers also appreciate Engins experience of the localconditions, exemplied by things like the language skills andknowledge of local climates found in the smaller ofces.

6. Analysis of the customers value perception of the value elementsBelow we will discuss the customers value perception andhow the aforementioned aspects of service modularityinuence them.

6.1 Service outcomeIn this research, service outcome can be seen to include thequality of the engineering blueprints and other documentsused as a starting point for the actual construction work. Itseems that the customers evaluate the service quality based onhow well the project has progressed against the budget andschedule, and how many improvement changes have occurredduring the implementation phase. When evaluating thequality of a service, the customer relies to a considerabledegree on the service providers estimation of the projectsprogress, but an added safeguard is the use of industry-specic measures that represent the parameters for permittedimprovement work during the project.

A certain amount of modication is allowed because nobody is perfect.There is some percentage number . . . which indicates how much extra workcan occur related to the xed price so that we can say that the quality hasbeen good (Customer).

Customers are very demanding when it comes to the price orthe schedule of the project, but at the same time they requireexcellent quality from the engineering blueprints. While thecustomers used the budget and schedule as primaryevaluation objects, it seems that things like the ergonomicand usability factors had a strong inuence on theirsatisfaction in the long run. Listening to the customerssuggestions for improvement and actioning them seemed tobe highly appreciated. However, these issues had only a smallpart to play in the customers primary evaluation process.Therefore, it can be said that the customers could benet

from using other evaluation criteria than just budgeting andscheduling. In addition, based on the interviews a need fornew and alternative quality evaluation measures can bedetected.

6.2 Possible ways to achieve goalsWhen trying to achieve a partner relationship with the

customer, the most difcult step for a service provider is to getthe rst assignment. After that, the service provider cangradually build trust with the customer and the customer ismore likely to stay with a service provider that they havebecome familiar with. In addition, based on the customerinterviews, it seems that alongside the success of previousventures, the personal connections established betweenindividual employees determine the t rust and therelationship on the company level as well. It is important tothe customers that Engin can establish its ability to cooperatewith its customers, especially on an on-site building project.Therefore, it can be said that Engin has to t into the focalnets of its customers in order to achieve a strong relationshipwith them.

They need to have cooperative skills so that they can be in touch with ourclients and our suppliers in France (Customer).

. . . these plants in Finland are all on-site facilities that are beside thecustomers facilities and the customer is simply dependent on it (Customer).

Customers reported that there might be some benets inactively maintaining the relationship in between investmentprojects. For example, it was mentioned that an ongoingconnection with Engin can bring information aboutforthcoming projects that could provide businessopportunities. Customers also mentioned that it isimportant that they can trust the service provider in theearliest phases of the project, for example when the customeris applying for resources for the potential project. Customersused the trust as a criterion on which to choose the serviceproviders who they would ask to tender.

. . . we ask for budget costs and unofcially request for their resources. Its avery intense moment when we dont speak much because we dont knowwhat the competitors are doing. They could use the same sub-suppliers(Customer).

6.3 Value in the service processThe value in the service process is here understood as the easeand convenience of the everyday collaboration between thecustomer and the service provider. In the empirical materialthis issue arose as one of the most important factors that thecustomer representatives appreciated when they wereevaluating and choosing the service providers. They found

that the ease of collaboration enhances the possibility of success in the project. This issue was found to be moreimportant when there were several service providers workingon the project at the same time. In addition, Engins staff sawthat their services being of the professional type elevated theimportance of personal relationships, more than wouldhappen with regular services.

. . . there are professionals from different areas which makes it very importantthat they can telephone each other and take care of things instead of meetingand writing memos on everything (Customer).

The customers used the personal relationships as a guaranteeof the project progressing smoothly. Working with a new





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service provider always involved re-establishing standards towhich they will operate and managing the project on a dailybasis. The issue of exibility was another that emerged fromthe interviews. To the customers, exibility was demonstratedby the ability of the service provider to rapidly adapt tochanging situations during the project, and also to work indifferent environments and with different parties. Examples

cited included the service provider having to adapt tochanging communications needs; a problem arising oftenleads to the customer requiring more frequent reporting, orthe reverse might be the case. In contrast, Engin saw exibilityissues as relating mostly to the service offering or theirorganisation. However, Engin staff also realised that theability to adapt was an aptitude appreciated by theircustomers.

Its case by case. If the issues are clear then we dont communicate verymuch but if there are problems well be in contact quite regularly(Customer).

This ability to adapt is one central issue. The customer experience (of us is)that we are adaptable (Ofce manager).

6.4 Value in offering varietyBecause modularity of services enables broadening theservices scope and providing more solutions this researchassumes that exibility in the service offering can create valuefor the customers. At Engin this variety in the service offeringis clearly utilised as a competitive tool with which thecompany differentiates itself from other service providers inthe market. In addition, Engin views procuring more servicesfrom one central service provider as a strategy that can reducethe customers coordination burden and bring monetarybenets.

Nevertheless, Engin deals with customers accustomed toseeking competitive tendering for all individual servicemodules, and as a result Engins customers are accustomed

to managing a group of service providers during a project.This probably explains why, while the customers were awareof the problems related to a project organisation involvingmany actors, they did not nd it particularly advantageous toobtain all services from one service supplier. Further thecustomers saw that using only a few service providers couldlead to distorted power relationships and they tried to avoiddependency on one service provider. When dealing with aconventional project, the customers tended to rate therelationship specic factors (e.g. switching costs) as moreimportant than the possible benets from centralising theservices to one service provider. In contrast, Enginscustomers with experience of larger or more complexprojects were aware that centralising services could reduce

the risks related to project management and communicationbetween the actors.. . . it is a good thing to have as big a company as possible. Especially in thosevery large production plants that we build we would want to haveeverything from the same place. It enables the ow of information and manyother things like in procurement and . . . if were doing the plumbing and theautomation . . . those are so essentially connected that well have awfulproblems if they arent [sourced] from the same place (Customer).

In a sense, customers with less experience trusted Enginsprofessionalism enough to outsource the project managementto them, but only if they were working with some specicemployees of Engin. Moreover, they mentioned thatcentralising the services to one place has its benets, but at

the same time they were ready to continue administrating agroup of service providers as they had done previously. Thecustomers found the invisibility of the services a problematicissue and they tried to control the uncertain factors by stayingwith familiar service providers, making them reluctant to tryothers. Therefore, the invisible nature of Engins extendedservice offering emphasised the value-creator role of its

employees but could also make new customers less willing tobuy those services.

6.5 Value in service co-creationIn this research, value co-creation refers to the tasks that thecustomer wants to perform in order to ensure the servicessuccessful delivery and intra-organisational implementation.Among the customer representatives interviewed thereseemed to be a coherent vision that the rst task was todetermine the limiting conditions and contents for theservices that they were outsourcing. Usually the limitingconditions are money, time, the production volume andquality of the products.

The customer has to be able to give the basic data. Thats the rst thing and

based on that data the engineer begins to design (Customer).

Often the customer needs to make extensive preparationsbefore it has determined the nal basic data. Sometimes thisincludes selling and negotiation processes with theircustomers who have raised the need for the investmentproject. In the customers internal preparations one essentialtask is to customise their products and the new productionfacilities to meet their customers wishes. After that they canbegin the planning and implementation processes with Enginwho, in turn, will customize their services. Therefore, it isevident that the service is co-created between Engin, thecustomer and their customers at least indirectly.

The tailoring is based on our customers wishes. They tell us somerequirement and we tailor our standard plant for that. And that causes

certain tailoring to our partners and sub-suppliers (Customer).

Moreover, the customers participation is crucial throughoutthe planning and implementation phases where theinformation initially provided in outline gets more specic.However, the more changes appear during the project, themore the customer has to be involved in solving them,especially if the services are distributed to many serviceproviders. In such situations, the customer seemed highlyappreciative of the service providers ability to solve theproblems independently or in cooperation with otherproviders, but in any case without involving the customertoo much.

But if their part stays in budget and we have a little work then it has gonewell. But if we have to be there all the time and take care of things then itsnot our benet anymore (Customer).

6.6 Monetary costs and sacricesThe customers monetary costs mostly relate to the servicecontract that was signed after the competitive tenderingprocess. However, the price of the contract proved to be verydependent on the complexity of the project, the workers levelof expertise on the issue and the risks related to the liabilitiesof each actor in the project organisation. The customersinterviewed tended to insist on an all-inclusive price instead of a exible price based on actual worked hours.





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. . . we evaluate the all-inclusive price because its very important for us toknow. We dont want situations where they put it on a tab and work there aslong as they like (Customer).

Therefore, the service contracts contents and their denitionarise as a focal factor that determines the price of the service.Firstly, the price of the services depends on the estimate of thehours of work that will be spent on the project. However, thehourly rate is dependent on the workers salary levels whichreect their experience and qualications and that is oftendetermined by collective bargaining conducted by a nationaltrade union. Secondly, the estimated work hours depend onthe projects complexity and extent, which also inuences therisk margins built into the price. Thirdly, in addition to theprojects complexity the risk margin is inuenced by theextent of each actors responsibility in the project. Thus,dening the content of each actors services becomes essentialbecause everything that is excluded (e.g. additional costs forxing a mistake or compensating for an accident) in thecontract has to be charged as extra costs.

. . . if we put hard penalty clauses in the contracts the prices will go up as well.We make quite simple agreements and we [bank on] the prices staying

reasonable and we bear the risks (Customer).

6.7 Non-monetary costs and sacricesThe customers non-monetary costs related mostly to thecooperation between them and the others in the projectorganisation. For example, if some actor in the project couldnot full their obligations or decided to change the initialplan, the customer had to see extra effort on their behalf.Therefore, it can be said that the greatest non-monetarysacrice of the customer is bearing the risks related to thedeliverers of the project.

However, the customers emphasised the importance of assigning at least one of their employees wholly to projectmanagement tasks and saw that as the only way they couldsuccessfully coordinate resources. That meant that there wasin a sense an unclear line of when the customer perceived thatthey had to sacrice too much or just enough time on theprojects coordination. Naturally, the customers time wasalso valuable and they mentioned that in any case they have toconsider whether it pays off to actively get involved in allactions or to outsource them to the service providers instead.

It requires that we have competent people who work completely in theproject, they are set temporarily to do only that task so that they willunderstand what we are building and are capable of making contracts. Wemust know the deal . . . the buyer has to know what they are buying(Customer).

7. Summary of the empirical analysisIn the following section, we will discuss the three aspects of service modularity namely the service modules, modularprocesses and modularity in the organisation and how thesewere seen to inuence customers value perceptions.

Firstly, the service modules that could be discerned in thecase companys service offering were observed by thecustomers in the same manner as regular services. Based onthe empirical research, the service modules appeared to existin the service providers internal operations. The modulesbecome apparent to the customers in the exible variety of service offerings, even if the services are not called or sold as

modules but as regular services. Furthermore, the denitionof the service content (i.e. the structure of the modules)basically inuenced everything else that would happen in theproject. Therefore, the service modules were the basis for allquality evaluation, at least indirectly.

Secondly, it seems that the modular processes adopted byEngin had the most apparent inuence on the customers

perception of Engin and its services. The customers foundthat the stabilised processes could guarantee a certain servicequality level. However, in their opinion the processstandardisation related mostly to the trustworthiness of Engin, because Engins long experience and best practiceknowledge was in one sense condensed into the processes.Moreover, the customers did not mention any constraints thatwould have been caused by Engins processes, which indicatesthat in their perception, the standardised processes were nottoo rigid.

Furthermore, the modular processes also related to thecustomers trust in Engins employees. It seems that theexperienced customer representatives could evaluate Engin asa whole based on Engins image and they found it quite easy

to overcome problems caused by getting familiar with Enginsemployees. On the other hand, those customer representativeswith less experience did not particularly appreciate the valueof Engins image in the market and emphasised the role of individual employees in the success of the projects. Therefore,we can conclude that the modular processes had an effect onhow the customer evaluated Engins organisation, but that thecustomer specic factors also exerted some inuence.

Thirdly, the way in which modularity in the organisationoccurs at Engin was seen as a competitive advantage by thecustomers. The customers appreciated Engins local presenceand local competence. They also appreciated Enginsknowledge and professionalism in managing the sub-suppl ie rs (who were respons ib le in p ract ice fo rimplementing the project). Owing to the organisationalmodularity, Engin could save the customer time and effortin managing the whole service provider group, andconsequently the organisational modularity had an effect onthe customers role in the service production. Thus,modularity in the service providers organisation enables areduction in the customers project implementation tasks andin the service production.

The customers needs and internal resources were,however, also factors that strongly affected the customersrole. Basically the customers duties depended on thecustomers own decisions on the extent of projects and theoperating conditions they prescribed for the service providers.Furthermore, the interviews revealed that one duty thatcannot be outsourced is the determination of therequirements and objectives of the project, and that in itself can be quite an onerous task.

Figure 2 illustrates the empirical ndings and drawstogether the answer to the main research question. Thisgure shows the connections between the three aspects of modularity and the customers value perceptions elements.

Interestingly, our case study indicates that the three aspectsof modularity have no direct inuence on the customersopportunities to achieve their strategic goals. Instead, itappeared that the service providers efforts in building therelationship in the long-term created trust between theparties. Also, although the costs and sacrices of the customer





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occurred mostly as a result of procurement of resources or aspersonnel costs, in the end those costs related mostly to thedenition of the service content and thus it is evident that theservice modules, which impact the latter stages of the process,have only an indirect inuence on them.

8. ConclusionsBased on the research, we can argue that modularity in theoffering, the processes or in the organisation had an inuenceon the customers value perception in several ways. Firstly, thecustomer can evaluate the service providers ability to assist inachieving their goals based on a long-term relationship, onewhere the customer can become convinced of the serviceproviders skills and values through many individualassignments. Thus, the results are in line with Woodruffs(1997) value hierarchy model in the sense that over the yearscustomers learn certain ways of implementing a project andthe service provider must prove that they can operateaccording to those practices (i.e. creating attribute andconsequence based satisfaction). On the other hand, therelationship inuences the customers willingness to try otherservice providers. Therefore, it can be said that in that casethe customer perceived value in the relationship itself.

However, the value ascribed to the relationship isinuenced by the value perceived in the services outcome aswell. Modular processes reduce the customers evaluationtasks relating to the service outcome, so the customer canbetter evaluate the quality and accuracy of cost estimations,blueprints and the like before the actual implementation. Inaddition to the service outcome, the modular processesenhanced the customers trust in the service providersemployees and their ability to cooperate in a suitable wayduring the service process. This can be related to Lapierres(1997) value exchange attributes. Lapierre (1997) found that

the customer perceives value in the responsiveness andcredibility of the service provider, and in the servicecharacteristics that represent a partnership between theactors, which in a sense relates to the customers trust inthe service provider.

In this research, we also found that the modularity withinthe organisation eased the customers burden of managing theproject implementation. Therefore, it can be said that thecustomer perceived value in the fact that they were better ableto concentrate on the most important tasks and rely on theservice provider to handle secondary tasks. We discovered thatmodularity in services can increase the customers willingnessto outsource or buy more services from the chosen serviceprovider, and by creating service modules, a service providercan impart exibility into the service offering. Therefore thisresearch indicates that with the right mix of professionalservices, the service p rovider may benet fromstandardisation without losing the ability to customiseservices to appeal to the customer.

Finally, we found that dening a service module isproblematic. In contrast to products, a service modulescontents can be altered in the process of customisation. Also,all processes involved in the service delivery are related to theservice modules denition, so if the content of the modulechanges, so the processes need to change. This also applies tothe costs of the service that the customer incurs. Thedenition of the module has an indirect (rather than direct)inuence on the costs and sacrices of the customer. If unexpected changes to the service module are required, theparties will discuss who takes responsibility. However, in thisresearch we did not explore how efcient the modular systemwas in the case company, and thus we cannot report if it wascost effective. On the basis of our study, the servicemodularity concept is more of a tool for developing servicesinternally in a service company, that is, a method of improving

Figure 2 Service modularitys connections to the value criteria





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managers thinking as they try to improve efciency inproviding their service production.

With respect to managerial implications, while servicemodularity was not observed by the customers in anydivergent way, the results of this research show that the threeaspects of service modularity have an underlying connectionwith the elements of the customers value perception.

Therefore, by adopting the modular approach as a servicedevelopment method, a rm can address some specic valuecreation issues that they have found to be problematic in theiroperations. Nevertheless, based on the empirical analysis, itseems that making the service offering modular might bedifcult, especially in the area of individual professionalservices, where buying decisions are often made based onpersonal relationships between individuals instead of afterobjectively considering all alternatives. Further, our studyindicates that the modularisation of services can be moreeffective with new customers, or customers who are not veryknowledgeable about the services concerned.

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modularising complex products, Technovation , Vol. 26,pp. 1201-9.

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About the authorsEmmi Rahikka worked as a Researcher on the ModSeCresearch project at Oulu Business School, University of Oulu,Finland from 2008 to 2010.

Pauliina Ulkuniemi is a Professor of Marketing at theUniversity of Oulu, Finland, from where she also received herPhD in 2003. Her publications and research interests lie inthe value creation in business relationships in differentindustry contexts, especially in business services and inproject business. She has published, for example, Journal of Purchasing and Supply Management , International Journal of Logistics Management , International Journal of Service Industry Management and Industrial Marketing Management . PauliinaUlkuniemi is the corresponding author and can be contacted

at: [email protected] Pekkarinen is Associate Professor at the OuluBusiness School, University of Oulu, Finland, from whereshe also received her PhD in 2005 in Economics. Herresearch interests lie in the areas of transport economics,logistics, and recently, also in B2B services marketing andoperations management. She was Project Leader of theinternational project How modularity enables thedevelopment of new innovative business services? between2008 and 2010 and has published in international journals inthe areas of logistics, purchasing and supply, and servicesoperation management.

Executive summary and implications formanagers and executivesThis summary has been provided to allow managers and executivesa rapid appreciation of the content of the article. Those with a particular interest in the topic covered may then read the article intoto to take advantage of the more comprehensive description of the

research undertaken and its results to get the full benet of thematerial present.

The efciencies and resulting cost-effectiveness of providing astandardised service, weighed against customers valueperception of a more exible option tailored to their needs,is always a difcult balancing act for a service rm. Taking theposition You either get the standardised offering or pay forthe customised is no longer acceptable to customers whohave alternative suppliers to turn to in highly competitive anddynamic markets.

To survive, it is essential for service providers to focuscarefully on understanding their customers perspective whendeveloping services. Long-term relationships between a

professional service rm and its customers need efcientinternal knowledge transfer and depend on the managementof the relationship before, during and after the project. B2Bmanagers eager to enter new markets or take a share of acompetitors business might explore ways to customise theirofferings through modularisation.

In product manufacturing, modularity enables fasterdevelopment of new products employing modularcomponents with standardised interfaces, but in services,modularity will simplify design and development processesand offers the potential for a greater division of labour acrossrms.

In Developing the value perception of the businesscustomer through service modularity, Emmi Rahikka et al.use a case study of a large provider of professional servicesinvolving construction, engineering, procurement and projectmanagement services to nd out how services provided inmodular form can exert an inuence on the customers valueperception. They discovered that modularity can increase thecustomers willingness to outsource or buy more services fromthe chosen provider and, by creating service modules, aservice provider can impart exibility into the offering. Withthe right mix of professional services, the service provider maybenet from standardisation without losing the ability tocustomise services to appeal to the customer.

By adopting the modular approach as a servicedevelopment method, a rm can address some specic valuecreation issues that they have found to be problematic in theiroperations. Nevertheless, based on the empirical analysis, itseems that making the service offering modular might bedifcult, especially in the area of individual professionalservices, where buying decisions are often made based onpersonal relationships between individuals instead of afterobjectively considering all alternatives. Furthermore, thestudy indicates that the modularisation of services can bemore effective with new customers, or customers who are notvery knowledgeable about the services concerned.

Modularity in the offering, the processes or in theorganisation had an inuence on the customers valueperception in several ways. Firstly, the customer canevaluate the service providers ability to assist in achieving





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their goals based on a long-term relationship, one where thecustomer can become convinced of the service providersskills and values through many individual assignments. Thisconclusion is in line with the notion that, over the years,customers learn certain ways of implementing a project andthe service provider must prove that they can operateaccording to those practices (i.e. creating attribute and

consequence based satisfaction). On the other hand, therelationship inuences the customers willingness to try otherservice providers. Therefore, it can be said that the customerperceived value in the relationship itself.

The value ascribed to the relationship is inuenced by thevalue perceived in the services outcome as well. Modularprocesses reduce the customers evaluation tasks relating to theservice outcome, so the customer can better evaluate thequality and accuracy of cost estimations, blueprints and the likebefore the actual implementation. In addition to the serviceoutcome, the modular processes enhanced the customers trustin the service providers employees and their ability tocooperate in a suitable way during the service process.

Modularity within the organisation eased the customers

burden of managing the project implementation. In other

words the customer perceived value in the fact that they werebetter able to concentrate on the most important tasks andrely on the service provider to handle secondary tasks.

Dening a service module is problematic. In contrast toproducts, a service modules contents can be altered in theprocess of customisation. Also, all processes involved in theservice delivery are related to the service modules denition,so if the content of the module changes, so the processes needto change. This also applies to the costs of the service that thecustomer incurs. The denition of the module has an indirectinuence on the costs and sacrices of the customer. If unexpected changes to the service module are required, theparties will discuss who takes responsibility. On the basis of this study a service modularity concept is more of a tool fordeveloping services internally in a service company, that is, amethod of improving managers thinking as they try toimprove efciency in providing their service production.

(A pre cis of the article Developing the value perception of thebusiness customer through service modularity. Supplied by

Marketing Consultants for Emerald.)





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