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Engineering for Value Co-Creation

Jorge L. C. Sanz National University of Singapore Antonia Albani University of St. Gallen Eng Chew University of Technology, Sydney Erik Proper Public Research Centre - Tudor Jose Tribolet Technical University of Lisbon Stephan Aier University of St. Gallen Robert Winter University of St. Gallen Miguel Mira da Silva Instituto Superior Tecnico - Lisbon Joao Pombinho Instituto Superior Tecnico - Lisbon

IEEE CBI - Geneva, 2014

Agenda

Value Co-creation and cross-domain CBI work J. Sanz - 3 mins

Examples / Case Studies A. Albani - 5 mins

E. Chew - 3 mins

J. Sanz - 3 mins

Engineering for Value Co-Creation:

ValCoLa Framework: E. Proper - 5 mins

VCC Challenges: E. Chew - 5 mins

VCC & Customer Journeys: J. Sanz - 2 min

What are the Key Research Questions Audience-centric led by:

J. Tribolet - 10 mins

Why Engineering for Value Co-creation ?

• Our Enterprise Engineering / Process Engineering theories have focused largely on

“transactions”

Captures well some of the traditional economy and related enterprise business models

i.e., the market is made by enterprises and customers / clients participate in exchange points

• Interactions and co-creation between costumers and enterprises (+ their own ecosystems)

are a huge part of the individual-centered and everyone-to-everyone economy

Many service enterprises in different industries earn their revenues in this manner. New forms of

services / products emerging follow these principles

• Different schools of thoughts in value co-creation with different goals:

Reducing costs by transferring them to the client (in return potentially reduced prices)

Increased Loyalty (attitudinal and / or behavioral)

Customization opportunity to fit the ‘individual-centered economy’

“The more co-participation the better” school (so-called service dominant logic in marketing)

• Value in co-creation, co-production (and in all other “co-x”) is strongly subjective and

contextual and have been advanced mostly in the Service Science community

“Engineering for …” becomes a very challenging and important socio-technical imperative

• Multidisciplinary research in Business Informatics, cutting across different domains in CBI:

Enterprise Engineering, Service Innovation, Business Process Engineering

Situation: Due to the deregulation and new

technologies that enable innovative services in

the electricity industry, the service aspects are

becoming increasingly important in the next

years.

With service co-design energy experts and

customers together identify and design new and

innovative services for customers in the electricity

industry

The value of co-design for the

customers lies in the services

that better fulfill the needs of the

customers in the emerging role

as prosumer,

and for the energy provider lies

in the higher demand for such

services and a better usage of

the network infrastructure Towards an Innovative Service Development Process in the Electricity Industry

Yannic Domigall, Antonia Albani, Robert Winter

Case Study: Value co-creation in the energy sector (1/3)

Situation: Not only energy providers, but also energy consumers produce

electricity and supply it to the grid

Co-production and co-supply: Electricity can therefore be provided to

customers by means of co-production and co-supply, where both energy

providers and customers e.g., with photovoltaic panels produce and supply

electricity


The value of co-production and

co-supply for customers and

energy providers lies in the

integration of renewable energies

into the grid

Situation: Since renewable sources will significantly contribute to the

electricity supply in the future, good mid- and long-term storage solutions

need to enable a decupling of the production and consumption of electricity

Co-consumption and co-storage:

In order to stabilize the grid by reducing peaks and in order to effectively use all the

produced electricity without any loss, the customers as well as the electricity

providers need to consume or store excess energy

Customers can e.g., store excess energy in batteries, and producers can e.g., use

pump hydro storage or power-to-gas technology to transform/store electricity


The value of co-consumption for both

customers and energy providers lies

in the efficient integration of

renewable energy and a stable grid

IT Supplier Service System

Entity

Network Supplier /

Partner Service System Entity

Customer Service System

Entity (value co-

creation with SP via service encounters)

OSS/BSS support systems

Network capabilities

Service Provider (SP) Service System Entity

OSS = Operation support system BSS = Business support system

FulfilmentAssurance

Billing

In-service usage

IT infrastructure resources

Network infrastructure resources

Telecom service offering – service encounters

Case Study: Telecom Industry Value Co-creation

7

Case Study: Knowledge Intensive Services (1/2)

High-contact services, such as financial, marketing, legal, and medical

services are defined by a high degree of coupling (i.e., continuous,

immediate impact of contact), interdependence (i.e., service quality is

contingent on inputs from each party), and information richness (i.e., the

value of information passed between parties)

The impact of service provider–client interaction vs. autonomy in creative

KIBS service delivery is uncertain and merits investigation

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

Mark Lehrer, Andrea Ordanini, Robert DeFillippi, Marcela Miozzo

Case Study: Knowledge Intensive Services (2/2)



• The degree of co-production intensity varied considerably across different projects, clients,

and project phases described in the interviews. Some sources of variation were mentioned

explicitly

Capabilities of the client, interdependence among the tasks involved, nature of the client’s relationship with the

creative KIBS firm, the kind of contracting arrangement involved and the phase of the project

• Client always appreciates proposals and being involved in discussing them. Generally she/he

does not like to participate actively: ‘‘I paid you for this, you have competences that I do not

have’

Co-Creation in Knowledge Intensive Services Preliminary Conclusions



• Value co-creation is arguably a normative repackaging of the older idea of co-production in

services (den Hertog, 2000; Bettencourt, Ostrom, Brown, & Roundtree, 2002), which in turn

builds on the decades-old empirical insight into the inseparability of production and

consumption in service industries (Bowen, 1986; Lovelock, 1988); the buying of business

services, in particular, results in a process (not the instant purchase of a merchandise)

involving knowledge transfer and flows, which inherently requires interaction and reciprocal

learning (Gadrey & Gallouj, 1998; den Hertog, 2000)

• In IT services the level of co-production often is and needs to be quite high, this is less apt to

be the case in areas like design-related services IT service firms and their client firms often work, for all intents and purposes, as a single

organizational unit for months or even years. Co-production in IT services involves the KIBS

supplier and client being organizationally intertwined to a very significant extent, especially through

the transfer of staff and assets from the client to the KIBS supplier. The primary objective of such

arrangements, governed by very extensive contracts, is to reduce costs and increase efficiency

• Much of the value added by a creative KIBS firm comes precisely from having a unique

perspective of the problem that departs systematically from the client’s own view A disadvantage of excessive co-production is that it may increase the cost or dilute the quality of

the final output

Should serve as a warning to those who might be tempted to believe that the more

interaction with clients, the better

Research Discussion: ValCoLa perspective (1/2)

Consider: Key value creation process in an organization

Needs “control” from a (value) management perspective

Control:

Policies, enablement, deviations, interventions

Work in progress from Public Research Centre Tudor and University of St. Gallen

G-D Logic

PAIS

?

Research Discussion: ValCoLa perspective (2/2)

Consider: Key value creation process in an organization

Needs “control” from a (value) management perspective

Control:

Policies, enablement, deviations, interventions

Work in progress from Public Research Centre Tudor and University of St. Gallen

S-D Logic

Challenge: Dynamics!

VAIS

Source : Firm Target :

Customer Supplier

ecosystem

Customer ecosystem

colla

bo

rati

on

Business Ecosystem design Service innovation design

Business Model innovation design

Value innovation design

Enterprise engineering

Business process engineering

Enterprise architecture IS design – affordance

BP design

Service design

Org routine design

Org capability / structure design

Engineering for Value Co-creation: Challenges

Orchestration Integration

13

The Architecture of Customer Journeys (ongoing work)

What is the Outcome the Customer needs ? What do we want the Customer to feel, think and say about WF ? How much did the Journey cost ? What benefits do we expect to ripe from the Customer Experience ?

What's the outcome the customer needs/customer agent expects from these stages ?

How easy is for the customer to achieve the intermediate outcomes that make each stage necessary ?

What is the customer's mindset as they enter this stage ? (desires, concerns and hopes) What are the top 3 things that would make it easier to achieve a better outcome? What are the 3 worst things that could happen ? What supportive technologies are needed to enable the Customer Team Agents in each of the touch-points ?

What is the expectation of the customer at this initial stage ? Who initiated the journey ? How does is it relate to other journeys with the same customer ? How shall we measure the success of the journey ?

Business indicators to evaluate the entire journey Indicators that help ‘see around the corners’ and provide visibility to leaders Key responsible Customer Leader for the end-to-end customer journey Key Customer Teams across the organization that participate in the interactions

What are the key research questions ?

Back Up Charts

Transaction, Interaction and Co-Creation Economy

Co-Creation Experiences: The Next Practice In Value Creation

C. K. Prahalad And Venkat Ramaswamy - 2004

• Co-creation puts the spotlight squarely

on consumer-company interaction as

the locus of value creation

• Because there can be multiple points

of interaction anywhere in the system

(including the traditional point of

exchange), this framework implies that

all the points of consumer-company

interaction are critical for creating

value

• Transactions have governed the

traditional definition of markets

• Interactions with customers beyond

transaction points began to receive a

lot of attention from companies

Value Co-creation Examples

Co-Creation Experiences: The Next Practice In Value Creation

C. K. Prahalad And Venkat Ramaswamy

Value Creation

• Source and targets of value creation: The source is the focal firm (actor)

and the targets include the firm’s customers and associated collaborating

firms (actors) in the networked ecosystem

• Two types of value are fundamental: use-value (e.g. the specific quality of a

product / service as perceived or experienced by the target customer upon

using the product / service) and exchange value (e.g. the amount paid by

the user for the use value of product / service)

Value-in-use, as the name suggests is a functional outcome, a goal purpose or objective

that is served directly through product consumption

• Value is highly experiential as manifests itself in its use in a given context

(moment) and relative as the use-value must be greater than the exchange

value (Lepak et al, 2007) An extensive review of the literature shows the concept of value has its roots in many

disciplines including psychology, social psychology, economics, management and

marketing. Also confirms how many of the concepts overlap to some degree with a blurring

of distinc- tions across different forms of value.

Value creation is subjective: “value (like love ) is in the eyes of the beholder”

Co-creation or Co-production ?

Customer Integration and Value Creation: Paradigmatic Traps and Perspectives - Journal of Service Research

Stephen L. Vargo

“We, at least partially, corrected the oversight in Vargo and Lusch (2006) by changing co-

production to co-creation of value. We later (Lusch and Vargo 2006b, p. 284) reserved the term

co-production for participation in the development of the core offering itself, something pretty

close to Moeller’s “customer integration,” whereas co-creation of value was intended to capture

the collaborative nature of value creation”

Co-production versus co-creation: A process based continuum in the hotel service context

Prakash Chathotha, Levent Altinayb, Robert James Harringtonc, Fevzi Okumusd, Eric S.W. Chane,∗

• Co-production means that the customer participates in creating the core offering itself

through shared inventiveness and co-design, but co-creation is closely tied to usage,

consumption, value-in-use (i.e., value that occurs at the time of use, consumption, or

experience), and the premise that value can be determined only by the customer

• Co-creation goes beyond the customisation of products and services to meet customer

needs: “The difference between ‘co- creation’ and ‘customisation’ lies in the degree of

involvement of the customer; in general terms, the customer plays a less active role in

customisation than in co-creation” (Kristensson et al., 2008, p. 475)

• Co-production is firm-centric, whereas co-creation is customer- and experience-centric.

In co-production, the service process is mainly triggered by a company’s own set of

resources and competencies. However, in co-creation, companies no longer portray

their customers as mere purchasers of products, but as partners in creating

personalised experiences that add value and pleasure to their daily lives

Co-production and Co-creation

Why do value co-creation / co-production matter

?

Co-Production and customer loyalty in financial services

Seigyoung Auh, Simon J. Bell, Collin S. Mc.Leod, Eric Shih

Involving the customer in co-creation / co-production may lower costs for organizations, and to the

extent that customers participate in the production of the goods, the consumer can expect a

reduction in price

Co-production enables the firm to customize its offerings to customers’ needs. Even in low- and

moderate-involvement services, customers may find co-production attractive because they enjoy

increased perceived control over the service delivery process (Bateson 1985) and additional

opportunities to make choices, which offers them higher levels of customization

According to the notions of social exchange (Blau 1964), the degree to which clients perceive their treatment

as fair influences the extent to which they reciprocate with cooperative behaviors. Blau, P. (1964). Exchange

and Power in Social Life, New York: Wiley.

Attitudinal loyalty refers to a measure of clients’ intentions to stay with and level of commitment to

the organization, whereas behavioral loyalty, in the financial services context, is an objective

measure of the amount of brokerage the client paid to the firm in the year following the

administration of the questionnaire

Co-production relates positively to attitudinal loyalty

Co-production relates positively to behavioral loyalty

Engineering for Value Co-creation

• The shift from a goods-dominant logic to a service-dominant logic also

entails the need to rethink what the key processes are that need to be

managed from a (value) perspective

• Engineering for value co-creation must be addressed in the context of a

socio-technical system (or ecosystem due to the network of actors involved

in customer value co-creation by the modern enterprises – e.g. Zara or

Amazon) with strong human factors design consideration

• Customer participation in the end-to-end lifecycle of new service / product

development from ideation (ideas for solving customer problem or job to be

done) through to development (customer in prototyping solution) to launch

(beta testing by customer)

Each stage has a different value measure even though the same value co-creation principle

applies (integration of customer competences with the firm’s competences to co-create

value of mutual benefits)

We argue that for both a service provider, and a service user, it is important

to understand, design, and (also) control the co-creation process, as this is

where value is created

Value co-creation is only one in four for the value-

process and other stakeholders matter beyond clients

Diagnosing Customer Value: Integrating the Value Process and Relationship Marketing

Adrian Payne and Sue Holt

Cranfield School of Management, Cranfield,

Customer value and

shareholder value

A range of shareholder

value-measurement

approaches

Among these

approaches are SVA

(shareholder value),

EVATM (economic value

added) and VBM (value

based management)

It is possible for some

organizations to deliver

high customer value with

poor shareholder value

and reciprocally

Are existing EE approaches enough / adequate ?

Using Enterprise Ontology for Improving the National Health System Demonstrated in the case of a Pharmacy and an Emergency Department

David Dias, Carlos Mendes and Miguel Mira da Silva

Ex.: Does DEMO transaction pattern

capture value co-creation and value

co-production (role-players’ behavior

and their actual interactions) ?

Ex.: Does Work System Theory represent

role-players’ behavior and their actual

interactions for value co-creation or co-

production scenarios ?

Value Co-creation Principles

• Value = utilitarian (behaviour) + hedonic (cognitive & emotive) experiential, contextual, temporal

Unit of analysis • Source (focal firm – value capture); Target (customer – value creation);

value creation locus shifts from firm (RBV) to customer (S-DL) • Individual, firm, industry (ecosystem) and national levels • Use value (customer co-created) >> exchange value (firm revenue =

customer payment) • Co-creation process = alignment and integration of firm’s and customer’s

knowledge, skills, competencies and technologies ; • VCC engineering = socio-eco-technical design = a multi-disciplinary

endeavour • Requisite capabilities (engineering requirements) for sustainable value co-

creation = absorptive, collaborative (orchestration) and adaptive capabilities continuous org. learning (firm & customer)

• Collaboration process: propose, accept, co-create value

26 VCC engineerng [email protected]

Value Co-creation as resource integration

Journal of Service Research -Customer Integration and Value Creation: Paradigmatic Traps and Perspectives

Stephen L. Vargo

Co-creating brands: Diagnosing and designing the relationship experience

Adrian Payne , Kaj Storbacka , Pennie Frow , Simon Knox

Co-creation in Branding

Customer Value Production and Competences

Role of competences in creating customer value: A value-creation logic approach

Kristian Möller

Value Life-cycle: comprehensive to manage

Diagnosing Customer Value: Integrating the Value Process and Relationship Marketing

Adrian Payne and Sue Holt

Cranfield School of Management, Cranfield,

value in marketing has mainly focused on transaction or exchange and has not sufficiently taken account of value creation and

delivery through ongoing relationships that extend beyond individual transactions.

‘The core concept of marketing is the transaction. A transaction is the exchange of values between two parties. The things-of-

value need not be limited to goods, services, and money; they include other resources such as time, energy, and feelings.’ (Kotler,

1972)

Consumer values and consumer value. the term ‘value’ refers to a preferential judgment whilst ‘values’ is used to refer to the

criteria by which such judgments are made.

Value attaches to an experience and pertains not to the acquisition of an object (any good, service, person, place, thing, event or

idea) but rather to the consumption of its services (i.e. its use or appreciation)

The linkage between consumer values as a set of deeply-held beliefs and the value that customers obtain from a consumption

event or an event from a business relationship with a company is that their experience of the consumption event may be

conditioned by the set of values that the consumer has.

this stream of value research is that it focuses on individual customers rather than the organization and it does not take into

account the business-to-business context.

The augmented product concept.

The value chain.

This stream of literature commences with a somewhat mechanistic and process-oriented approach to value, especially when

compared with some of the more psychologically-based approaches such as those discussed earlier (e.g. Holbrook,1994).

The customer’s value to the firm. This stream of research differs from other aspects of customer value in that it concerns the value

of the customer to the firm, i.e. it is an output of, rather than an input to, value creation. As such, it focuses not on the creation of

value for the customer but on the value outcome that can be derived from providing and delivering superior customer value. A

key concept that forms part of this perspective is that of customer lifetime value (CLV).

Different customer segments have different value: ‘not all customers are created equal’ and some segments will be profit- able,

some will break even and some will be unprofitable. Increasing customer retention does not always increase profitability. Under-

standing the CLV profitability.


Mark Lehrer a,*, Andrea Ordanini b, Robert DeFillippi a, Marcela Miozzo

• During the final phase of the problem, when the solution has to be

implemented in the client business, the level of co-production does increase.

• The traditional organization of many design-intensive consultancies (e.g.,

advertising agencies) is predicated on a separation of the creative employees

and the employees in contact with the client (account managers). Such

separation would most likely be viewed as flawed organizational structure

according to the service-dominant logic and other normative frameworks of

value co-creation advocating tight involvement of clients in the development

of service solutions.

• One possible conjecture, then, is that KIBS services rooted in technics are

likely and well-advised to engage in value co-creation more systematically

than KIBS services rooted comparatively more in the arts. When KIBS

services are rooted in the arts, more selective recourse to value co-creation is

called for.

Case Study: Knowledge Intensive Services

Co-production or Co-creation ?

Co-production versus co-creation: A process based continuum in the hotel service context

Prakash Chathotha, Levent Altinayb, Robert James Harringtonc, Fevzi Okumusd, Eric S.W. Chane,∗

FON: Case Study in Crowdsourcing Co-Creation

Website: https://corp.fon.com/en

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