Sara Berglund
Olivia Nilsson
Integrated Solutions and the
Needed Capabilities: A Supplier
and Customer Perspective
A Case Study of a Public-Private Business Relationship within the Defence and Security Sector
Industrial Management
Degree Project
30hp
Term: Spring 2020
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Acknowledgment
The master thesis has been written by two authors within Industrial Engineering and Management at Karlstad University. The work has been divided equally between the authors and has meant close cooperation and team effort. All included parts have been revised by both authors and they have equally contributed to every part of the study. The authors would like to thank their supervisor Sebastian Dehling at Karlstad University for providing guidelines and constructive criticism throughout the entire research. Moreover, they would like to express gratitude to Saab Dynamics for providing the opportunity to conduct the research at their company and thanks to the employees for supporting the progress of the thesis. A special thanks to Urban Bruzén and Thomas Karlsson who have been the supervisors at Saab Dynamics and constantly provided invaluable support for the research.
Furthermore, the authors would like to direct appreciations and big thanks to the customer who enthusiastically participated in the research and all the interviewees who shared their knowledge and contributed to the success of the thesis.
Sincerely,
Olivia Nilsson & Sara Berglund Karlstad University
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Abstract
The manufacturing industry has experienced a change in the business environment during the last decade and has started to explore the possibilities of integrating products and services into new bundled offerings. A great deal has been published about this new phenomenon and it is often referred to as integrated solutions. When implementing an integrated solution it requires changes in the organizational structure, resulting in a need to develop further capabilities. Capabilities are explained as complex bundles of skills and accumulated knowledge possessed by organizations that enables them to coordinate their activities and make use of their assets. Previous literature has focused on the capabilities needed for suppliers that develop integrated solutions, leaving uncertainties regarding the needed capabilities for the customer. This research intends to investigate the capabilities needed from both the supplier’s and customer’s perspective and how they affect the development of integrated solutions. To investigate this, a thorough literature review was conducted to create a foundation of knowledge regarding the research area and resulted in a theoretical framework. The research follows a qualitative case study approach where empirical data was collected primarily through interviews but also by analyzing documents that resulted in needed capabilities for both actors. Furthermore, economic models were developed to provide a holistic view of the integrated solution and enable comparison with the current trading situation. The research resulted in five dimensions including capabilities needed for the supplier and four dimensions including capabilities needed for the customer when developing the integrated solution. The dimensions are: Control capability, Economic capability, Organizational capability, Production capability, and Relational capability. In this specific case study, the production capability dimension was considered unique for the supplier and did not iterate from the perspective of the customer. Apart from this, the dimensions were considered important for both actors. The findings indicate that the capabilities possessed by both the supplier and the customer affect the integrated solution and that it is important to investigate the needed capabilities form the perspective of both actors before developing the integrated solution. However, there were differences since some capabilities were required by only one actor and some were considered more or less essential depending on the actor. Furthermore, the findings imply that the uniqueness of the business relationship and the industry may affect the needed capabilities.
Keywords
Integrated solutions; Capabilities; Defence and Security sector; Public-private business relationship; Supplier and Customer perspective
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Sammanfattning
Under det senaste årtiondet har det skett en förändring i tillverkningsindustrin då flera företag har börjat undersöka möjligheterna att integrera produkter och tjänster till kombinerade erbjudanden. Denna förändring har förekommit frekvent i litteraturen och benämns ofta som integrerade lösningar. När man implementerar en integrerad lösning krävs förändringar i den organisatoriska strukturen vilket har resulterat i ett behov av att utveckla ytterligare förmågor. Förmågor definieras som komplexa kombinationer av kompetenser och den kunskap som finns hos organisationen som möjliggör att kunna koordinera sina möjligheter och utnyttja sina tillgångar optimalt. Tidigare litteratur har fokuserat på de förmågor som leverantörer behöver för att utveckla integrerade lösningar vilket skapar en osäkerhet gällande de förmågor som krävs av kunden. Studien avser att undersöka de förmågor som krävs både ur ett leverantörs- och kundperspektiv när man utvecklar integrerade lösningar. En noggrann litteraturundersökning gjordes för att skapa en grund av kunskap gällande forskningsområdet och resulterade i ett teoretiskt ramverk. En kvalitativ fallstudie utfördes där empirisk data samlades in genom huvudsakligen intervjuer men också genom att analysera dokument. Således resulterade fallstudien i de förmågor som krävdes av båda aktörerna för att utveckla den integrerade lösningen. För att skapa en helhetssyn över den integrerade lösningen utvecklades en ekonomisk modell vilket möjliggjorde för en jämförelse av den nuvarande handelssituationen. Undersökningen resulterade i fem dimensioner innehållande förmågor för leverantören respektive fyra dimensioner innehållande förmågor för kunden vid utveckling av den integrerade lösningen. Följande dimensioner identifierades: kontrollförmåga, ekonomisk förmåga, organisatorisk förmåga, produktionsförmåga och relationsförmåga. I denna specifika fallstudie ansågs produktionsförmågorna endast beröra leverantören och därav itererade dem inte ur ett kundperspektiv. Utöver denna förmåga ansågs alla dimensioner viktiga för båda aktörerna. Resultatet indikerar att det är viktigt att undersöka vilka förmågor som behövs både för leverantören och kunden vid utvecklingen av en integrerad lösning. Trots att många av de förmågor som identifierades i studien ansågs viktiga för båda aktörerna fanns det olikheter då vissa förmågor endast behövdes för en av aktörerna och vissa ansågs mer eller mindre viktiga beroende på aktör. Resultatet indikerar även att den unika affärsrelationen och den specifika industrin kan ha en påverkan på vilka förmågor som anses viktiga för aktörerna.
Nyckelord
Integrerade lösningar; Förmågor; Försvars- och säkerhetssektorn; Offentlig-privat samverkan, Leverantörs- och kundperspektiv
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Table of Contents
1. Introduction ... 9
1.1. Problem definition ... 10
1.2. Purpose and aim ... 11
1.3. Research question ... 12
2. Theoretical framework ... 13
2.1. Integrated solutions ... 13
2.2. Challenges of moving towards integrated solutions ... 16
2.3. Capabilities ... 17
2.3.1. Capabilities in Marketing & Innovation literature when providing integrated solutions ... 19 3. Method ... 22 3.1. Research design ... 22 3.2. Empirical context ... 23 3.3. Data collection... 24 3.3.1. Interviews ... 24 3.3.2. Document analysis ... 27 3.4. Data analysis ... 28 3.4.1. Interviews ... 28 3.4.2. Document analysis ... 29 3.5. Ethical Considerations... 31 3.6. Trustworthiness ... 31 4. Findings... 33 4.1. Interview data ... 33
4.1.1. Control capability dimension ... 34
4.1.2. Economic capability dimension ... 36
4.1.3. Organizational capability dimension ... 38
4.1.4. Production capability dimension... 42
4.1.5. Relational capability dimension ... 44
4.2. Calculations of case example ... 46
5. Discussion ... 49
5.1. The empirical findings in relation to the theoretical aspects ... 49
5.1.1. Capabilities ... 49
5.1.2. Capabilities and how they affect the integrated solution ... 52
5.2. Cost perspective ... 55
5.3. A sustainability perspective on the integrated solution ... 56
7 6.1. Limitations and Further Research ... 59 7. References ... 60 Appendix I - Interview guide A ... I Appendix II – Interview guide B ... III Appendix III – Overview of the results from the interviews ... V
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Table of Figures
Figure 1: Conceptual model of the theoretical framework and explanation of the research
gap. ... 18
Figure 2: Conceptual model of the research process showing the timeline and the iterative process between data collection and analysis. ... 23
Figure 3: Conceptual model of Gioia method... 29
Figure 4: Pie chart over the sales price and the including variables. ... 46
Figure 5: Financial structure over the current trading situation where orders are placed every fourth year. ... 47
Figure 6: Quantity over time stored at the customer showing quantity when receiving an order and consumption rate of products. ... 47
Figure 7: Financial structure over the integrated solution including the annual cost for security of supply and purchase of orders... 48
Figure 8: Quantity over time stored at the customer after the implementation of the integrated solution showing quantity when receiving an order and consumption rate of products. ... 48
Table of Tables
Table 1: A summarize of the capabilities from the literature review. ... 21Table 2: List of non-directive interviews. ... 25
Table 3: List of semi-structured interviews. ... 26
Table 4: Lists of variables used in the calculations. ... 30
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1. Introduction
This chapter introduces the reader to the underlying problems which have laid the ground for the thesis by explaining the background, the concept of integrated solutions, and the research gaps. Following, the aim and research question generated from the research gaps are presented.
During the last decade, the manufacturing industry has experienced a change in its business environment. A growing number of organizations are starting to explore the opportunities of integrating products and services into new bundled offerings. By making a transition from manufacturer to a provider of expanded offerings, organizations gain competitive advantage and new business opportunities develop (Oliva & Kallenberg 2003; Penttinen & Palmer 2007). Scholars have referred to these bundled offerings of services and products as integrated solutions (e.g. Galbraith 2002a; Oliva & Kallenberg 2003), this will be the term used when labeling bundled offerings in the research.
Vandermerwe and Rada (1988) were the first to address this new bundled phenomenon in the late 1980s and they started to refer to it as servitization. Later, there has been a wide range of research streams within the literature of combined service and product offerings which has been separated and divided by scholars. Raddats et al. (2019) made a thematic review in this research area on articles written between 2005 and 2017, where several major research streams were identified. One of the streams was Marketing & Innovation and this research will focus on integrated solutions mainly in this stream. The addition of services to core product offerings to create additional customer value has not been labeled with a fixed term (Evanschitzky et al. 2011). The existing terms vary depending on the literature stream, the scope of offering, the type of industries studied, or the type of elements integrated (Storbacka 2011). However, the predominant view is that a bundled offering focuses on meeting the customer’s business needs by a customized and integrated combination of goods and services. This, regardless of the literature stream studied (Tuli et al. 2007). Integrated solutions challenge the traditional business models and provide organizations with specific characteristics that have become a permanent source of competitive advantages (Windahl & Lakemond 2006). Hence, integrated solutions reduce the need for only competing on the basis of costs (Oliva & Kallenberg 2003), and due to the advantageous characteristics of services it provides organizations with a continuous revenue stream (Davies et al. 2006). Wise and Baumgartner (1999, pp. 138) defined integrated solutions as “a business model that combines products and services into a seamless offering that addresses a pressing customer need”. Succeeding with an integrated solution business requires a firm-wide initiative. Some of the leading
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companies of the world have embraced this transition to selling integrated solutions and Royce’s ”Power by the Hour” concept is a well-recognized example. Rolls-Royce plc started to provide airlines with solutions where they sell the jet engines along with the services to maintain, repair, and upgrade them over the years (Davies et al. 2006).
1.1. Problem definition
Previous literature has tended to focus on the positive outcomes when offering integrated solutions (Nordin et al. 2011). However, MacDonald et al. (2016) argue that shifting toward integrated solutions is far from a guaranteed route to improved performance, emphasizing that manufacturers have struggled to make a successful transition. Raddats et al. (2019) discuss this type of complexity when developing and delivering integrated solutions compared to manufacturing products. The strategic redirection from a product focus to a solution focus canbe beneficial because it creates significant business opportunities for manufacturers. However, in accordance with MacDonald et al. (2016), Raddats et al. (2019) argue that suppliers and customers expose themselves to greater risk-taking when moving towards integrated solutions. Moreover, it can also pose new risks for the supplier that were previously assumed by the customers and vice versa (Nordin et al. 2011). Despite this, there is a lack of studies regarding the risks that might occur for both suppliers and customers when making a transition towards integrated solutions. Furthermore, few scholars distinctly address the origin of the challenges and risks when developing and implementing an integrated solution business model (Baines et al. 2009).
Moving toward the provision of integrated solutions requires organizational changes for manufacturers (Wise & Baumgartner 1999). When repositioning themselves in the value chain, they encounter challenges in terms of development and configuration of capabilities (Storbacka 2011). Ceci and Prencipe (2008) highlight the required transformation of an organization’s core capabilities and the need of evolving new capabilities when developing integrated solutions. They emphasize that there is a lack of literature suggesting which capabilities are necessary for providers of integrated solutions in different markets and how they should configure them (Ceci & Prencipe 2008). Baines et al. (2009) argue that a lack of proper capabilities and undeveloped current capabilities may be an origin to risks, potentially leading to an unsuccessful transformation. Proper capabilities are individual and can vary depending on the type of integrated solutions provided as well as the market the organization is working in (Huikkola & Kohtamäki 2017). In conjunction with the changes needed for manufacturers when developing integrated solutions, customers receiving integrated solutions also face challenges when the business relationship transforms (Raddats et al.
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2019). The customer perspective of capabilities when moving towards integrated solutions has not been studied properly in previous literature. Studies previously investigating the development of new capabilities when moving towards integrated solutions have mainly focused on developing capabilities from the suppliers’ perspective and how they differ in various markets (Raddats et al. 2019). However, there is a lack of research regarding capabilities needed for both actors, the provider of integrated solutions as well as the customer receiving the offer. Argued by MacDonald et al. (2016), a transformation toward an integrated solution business relationship is built on the cooperation between several actors, and only capably if the change can be handled by all actors.
Within the Marketing & Innovation stream, capabilities are discussed in the key theme resources and capabilities (Raddats et al. 2019). This research investigates the capabilities needed for a supplier and its customer when moving towards integrated solutions. A case study has been conducted of a public-private business relationship within the defence and security sector investigating the possibilities of developing an integrated solution. The manufacturing company has been in discussion with their customer regarding an extended offering to one of the company’s core products. Considering the presented gaps in the literature, the research has evolved around integrated solutions and capabilities needed from the perspective of the supplier and customer. Interviews were held with both the case company and its customer to gather useful data. Capabilities specific for this context have been identified but the majority of the findings are presented in a way that provides some scope to generalize across industries with specific emphasis on complex engineering solutions. Furthermore, an economic model for the integrated solution was developed based on data from case company internal documents.
1.2. Purpose and aim
The research aims to contribute to a greater understanding of how capabilities affect the development of integrated solutions by conducting a qualitative study of a public-private business relationship where the actors work within the defence and security sector. The research will address the identified gaps and target both supplier’s and customer’s perspective of an integrated solution and the needed capabilities. Lastly, an economic model of the integrated solution will be developed to give useful information and present the new offer in a holistic view.
12 1.3. Research question
The identified gaps in theory together with the purpose and aim of the study resulted in the following research question intended to be answered.
RQ: How do the capabilities possessed by suppliers and customers affect the development of integrated
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2. Theoretical framework
The theoretical framework covers the principles of integrated solutions focusing on Marketing & Innovation literature. The framework provides a fundamental explanation of how an organization can benefit from an integrated solution but also the challenges actors face when making this transition. Furthermore, a profound analysis of the current capability literature within the stream was conducted and summarized in this chapter.
2.1. Integrated solutions
The shift towards the trend of specialization, knowledge intensiveness, and highly complex products in many industries has influenced the customers to seek manufacturers that can provide more comprehensive offerings or solutions (Davies 2004; Möller 2006). Consequently, suppliers have been encouraged to move towards the development and provision of combining products and services to meet the customer’s specific needs (Ceci & Prencipe 2008). By combining different components into a bundled offer, the total system creates more value than what the individual component would have been able to create alone (Brady et al. 2005; Davies et al. 2007; Evanschitsky et al. 2011; Nordin & Kowalkowski 2010; Tuli et al. 2007). This merge is referred to as integrated solutions and can be traced back to the 1980s (Vandermerwe & Rada 1988; Brady et al. 2005).
Raddats et al. (2019) made a thematic review of different research streams in the literature of integrated solutions and four different streams were identified: General
Management, Marketing & Innovation, Operations & Service Management. The aim was to,
within these streams, identify key themes: Service offerings, Strategy and structure, Motivations
& performance, Resources & capabilities, and Service development, sales & delivery. This research
will focus on integrated solutions and mainly within the stream of Marketing & Innovation.
Scholars in literature streams listed above define integrated solutions in a variety of ways. Moreover, scholars in the stream of Marketing & Innovation have not agreed on a fixed definition of the term (Storbacka 2011). Integrated solutions are defined by Evanschitzky et al. (2011, pp. 657) as “individualized offers for complex customer problems that are interactively designed and whose components offer an integrative added value by combining products and/or services so that the value is more than the sum of the components”. Penttinen and Palmer (2007) describe the move towards integrated solutions as a strategic repositioning that manufacturers can do to gain a competitive advantage on the market. Wise and Baumgartner (1999, pp. 138) defined integrated solutions as “a business model that combines products and services into a seamless offering that addresses a pressing customer need”. After exploring the various
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definitions of integrated solutions in Marketing & Innovation literature, this research will focus on the definition of integrated solutions as a business model representing the
longitudinal relational processes where the integrated solution provider merge unique combinations of goods, services, and knowledge to be able to solve strategically important customer problems.
In Marketing & Innovation literature, scholars are often focusing on different topics of integrated solutions that have divided the research area into two main streams (Ceci & Masini 2011). The first identified stream of literature has focused on exploring the factors that drive a company to develop and move towards offering integrated solutions (e.g. Hax & Wilde 1999; Wise & Baumgartner 1999; Oliva & Kallenberg 2003). In the second stream identified, the focus has been on analyzing the changes that need to be implemented when the organization should adopt a new integrated solution business model (Nambisan 2001; Galbraith 2002b; Sandberg & Werr 2003; Windahl et al. 2004). In the first literature stream, scholars have suggested that the primary emergence of integrated solutions is due to the occurring changes and demands in the external environment. An increased customer sophistication, as well as the emergence of low-cost players, have reduced the traditional sales channels profit in some industries. Thus, to stay competitive, the trend of offering some additional value to core products and by so providing integrated solutions have occurred (Ceci & Masini 2011). Moreover, Oliva and Kallenberg (2003) have conducted a study where three primary reasons that drive the trend towards integrated solutions were identified. Firstly, it is driven by an economic rationale due to the longer life cycles and the guarantee with higher revenues for bundle products and service than stand-alone products. Secondly, marketing drivers are a motivation for an integrated solution because they can be used to satisfy the increasing demand for services. Thirdly, when moving towards integrated solutions the company gains competitive benefits. This is because they are unique and difficult to replicate and therefore, more opportunities to achieve and defend a competitive advantage emerge with offering integrated solutions (Oliva & Kallenberg 2003). Scholars in the second literature stream have focused on the inter-organizational changes necessary for adapting to a new integrated solutions business model. The focus is on the transition from competing with products as a base to service-based offerings along with the organizational characteristics needed for a provider of integrated solutions. Scholars argue that organizational and strategic changes need to be done when providing integrated solutions as a product-oriented company. Providers of integrated solutions must restructure their organizations around the customers and their following needs (Galbraith 2002b; Davies et al. 2006). When offering integrated solutions, the primary focus is to cater to the customers’ problems and needs rather than just selling a product (Wise & Baumgartner 1999). Thus, Wise and Baumgartner
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(1999) argue that a new set of customer needs will arise in this development and must be identified, considered, and addressed by the company.
As previously discussed, the definition of integrated solutions is described in different ways. Furthermore, offering integrated solutions also means different things depending on the actor who is considered. From the lens of the company, offering integrated solutions means solving the problems and being responsive to the customers’ needs. From the customer’s lens, buying integrated solutions means focusing on their core business by outsourcing some activity (Wise & Baumgartner 1999). Davies et al. (2006) mean that the customer is not just paying for an integrated solution, they are buying the guarantee of trouble-free operations. Consequently, the customers have started to centralize their purchases and seek suppliers that offer extensive solutions (Davies 2004; Möller 2006; Stremersch et al. 2001). Hence, scholars argue that the offerings of integrated solutions are assumed to provide greater potential value for both actors (e.g., Brady et al. 2005; Davies et al. 2007; Evanschitzky et al. 2011; Nordin & Kowalkowski 2010; Tuli et al. 2007). On account of the many benefits that come with integrated solutions, Davies et al. (2006) argue that each potential provider must offer a broader range of discrete and bundle offerings than before. Regardless of whether the company comes from manufacturing or service roots, their markets will change, and they need to transform with it. The companies will enter new markets, widen their trademark, and re-position themselves as providers of integrated solutions (Davies 2004; Hobday et al. 2005; Davies et al. 2006).
Integrated solutions can also differ sharply among companies, both in the degree of the architectural and managerial complexity as well as the product-service complementarity level. Davies (2004) discusses the characteristics of integrated solutions as the simplest case of a product with few non-integrated service components or the most complex fully integrated end-to-end solution. When integrated solutions are structured in a complex way, they become more than just a simple bundle of products and services (Davies 2004). Windahl (2007) means that integrated solutions then include innovations of products that create opportunities for increased process control and optimization of the customer offering. Furthermore, integrated solutions include business innovation which in turn changes the business models and customer approach. Regardless of the complexity and characteristics, the primary focus is on solving the customers’ problems when offering integrated solutions (Windahl 2007). MacDonald et al. (2016) postulate that suppliers do not deliver integrated solutions, they rather co-create them with the customers. Therefore, the value creation is not proposed alone by the supplier but is designed unitedly by the supplier and customer (Storbacka 2011). Moreover, the transition toward integrated solutions and co-creation between the actors can improve the relationship between the supplier and customer as well as customer’s trust to the
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supplier (MacDonald et al. 2016). This leads to a more stable, interactive, and long-term connection between the actors which is an advantage to both (Neto et al. 2015). However, since integrated solutions are interpreted differently depending on the actor's role, they also perceive value differently. Value perception is individual, and as a supplier it can be hard to grasp the specific needs of a customer. Consequently, it becomes difficult to quantify the value of integrated solutions and therefore it requires the development of a commercial framework based on trust and co-operation (Brady et al. 2005). As the suppliers face the challenge of understanding the customers’ value perception, the customers also struggle to know what value they require (MacDonald et al. 2016). From the supplier perspective when offering integrated solutions, value is referred to as the potential of improving profitability and competitiveness (Matthyssens & Vandenbempt 2008; Nordin & Kowalkowski 2010; Skarp & Gadde 2008). The integrated solution is customized to the bundle of specific customer needs and therefore they become much more unique (Wise & Baumgartner 1999). This is an advantage compared to only selling products since it is possible to create more value for the customer, and thus the provider of integrated solutions gains competitive advantages (Oliva & Kallenberg 2003). Looking from the customer’s perspective of integrated solutions, value is created through the integration of resources into seamless offerings (Brady et al. 2005; Brax & Jonsson 2009).
2.2. Challenges of moving towards integrated solutions
In the two identified research streams within Marketing & Innovation, scholars have widely argued about the various drivers to implement integrated solutions. However, scholars also emphasize that shifting towards integrated solutions is not a guaranteed route to improved performance (e.g., Oliva & Kallenberg 2003; Neely 2008; MacDonald et al. 2016). According to Davies et al. (2006) companies must reconstruct their organizations around their customers’ current and future needs to achieve success in the business of integrated solutions. The organizations must evolve around the specific problem of the customer and be able to provide customized offerings of bundled products and services (Tuli et al. 2007).
In Marketing & Innovation literature, the potential risks manufacturers face when moving into providing integrated solutions are often divided into three different categories: operational, strategic, and financial (Neto et al. 2015). Operational risk refers to a supplier’s ability to deliver. As a new provider of an integrated solution, the organization is risking having a reduced ability to produce and provide the products and services due to operational limitations (Simons 1999). Strategic risk encompasses threats that may affect the company's performance and value creation negatively, a problem could be the implementation of a new business strategy. Integrated solutions
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are associated with less strategic risks, but risks tend to increase with the complexity of the offer (Nordin et al. 2011). Any risk that has a direct effect on the company’s account is being classed as financial risks which may be, for example, the costs arising with service offerings (Fang et al. 2008). Nordin et al. (2011) argue that if companies offer a large variety of solutions it entails large operational and financial risks. As mentioned, offering integrated solutions poses new risks for the manufacturers and their customers. Furthermore, the providers of integrated solutions also shoulder risks that were previously assumed by the customers, and vice versa (Nordin et al. 2011).
Moreover, when developing integrated solutions, providers also face other types of challenges (Oliva & Kallenberg 2003). One challenge when offering integrated solutions is the modifications of the suppliers’ organizational structure required to reposition themselves in the value chain (Galbraith 2002b; Wise & Baumgartner 1999). This challenge leads to a need of developing new capabilities, metrics, and incentives when the emphasis shifts to a more long-term relationship and the offering characteristics have transformed (Oliva & Kallenberg 2003; Windahl & Lakemond 2006). In accordance, Storbacka (2011) emphasizes that the organizations’ existing capabilities must be reconfigured, or new capabilities and management practices need to be developed. Consequently, many aspects of the business model need to change simultaneously (Storbacka et al. 2013). Scholars have stressed that a successful migration to integrated solutions is depending on the capabilities and that the appropriate ones are developed by the organization (Wise & Baumgartner 1999; Galbraith 2002b). When manufacturers transform into providers of integrated solutions, it can be particularly challenging because of the influence of path dependency. Path dependency refers to organizations’ past decisions, structures, strategies, and cultures that will affect future actions (Neto et al. 2015). The manufacturer can be trapped by its previous history which may hinder the organization’s capability to add, sell, and deliver integrated solutions (Huikkola & Kohtamäki 2017; Birkinshaw & Gibson 2004).
2.3. Capabilities
Capabilities and integrated solutions have been widely studied separately throughout literature in various streams. Unique and difficult-to-replicate well-made capabilities are always necessary for manufacturers seeking competitive advantages (Teece 2007). However, manufacturers that move towards providing integrated solutions and customers receiving them, will have to develop further capabilities to enable a successful business relationship.
The uniqueness of this research is to investigate capabilities necessary not only for the supplier but also from the perspective of the customer when moving towards an integrated solution. There is a lack of research regarding this subject and what
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capabilities that are necessary for both suppliers and customers when developing an integrated solution (Ceci & Prencipe 2008). The market studied for this specific case is considered more regulated than others where integrated solutions and capabilities previously have been studied. This will provide a stricter set of rules leading to potentially revealing capabilities that could have been missed out on other markets. Figure 1 presents the research gap in correlation to previous research and different streams in literature. Integrated solutions and capabilities have been studied both separately and together for instance in the Marketing & Innovation stream identified by Raddats et al. (2019) as resources and capabilities. Furthermore, the customer’s and supplier’s perspectives give the research depth and provides knowledge of previously stated research gaps.
Figure 1: Conceptual model of the theoretical framework and explanation of the research gap.
Capabilities literature
Integrated solutions literature
Marketing & Innovation
Resources and capabilities
Needed capabilities when providing integrated solutions
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2.3.1.Capabilities in Marketing & Innovation literature when providing integrated solutions
To establish a theoretical framework for the research, previous studies of capabilities when providing integrated solutions have been investigated. The following theory only refers to capabilities from the supplier’s perspective.
A response to the number of changes in the external environment for manufacturers has been the need for integrated solutions as a business model. As mentioned, integrated solutions represent a business model that combines products and services into bundled offerings that address the needs of different customers. To embrace this new business model, the set of existing capabilities possessed by the supplier needs to change and new ones may have to evolve (Ceci & Prencipe, 2008). The alterations around the capabilities are necessary for the supplier’s possibilities to meet the needs of their customers. When organizations make this transition, it is of utmost importance that they have a clear perception of their current abilities and what new capabilities they need to develop to succeed (Davies, et al., 2006). Day (1994, pp. 38) defines capabilities as “complex bundles of skills and accumulated knowledge, exercised through organizational processes that enable firms to coordinate activities and make use of their assets”, which will also be the definition in this research.
Scholars in Marketing & Innovation literature have combined different sets of capabilities crucial for suppliers moving towards offering integrated solutions. Many of these studies investigate only some particular capability blocks due to the wide range of companies operating in different markets and the uniqueness of each company (Huikkola & Kohtamäki, 2017). However, some capabilities emerge frequently regardless of the markets studied and in this research, some of these general capabilities identified by scholars will be considered and the description of these follows.
Davies et al. (2006) identify several key capabilities necessary for a movement towards offering integrated solutions. Firstly, systems integration is argued as the core capability required to specify, design, and integrate the physical components of an integrated solution. As a provider of integrated solutions, the organization must have the necessary capabilities to offer this whole system and ensure value to the customer. Furthermore, Davies et al. (2006) describe operational services as offers including intangible services such as maintenance and upgrades. A provider of integrated solutions has a comprehensive understanding of its customers’ needs and the characteristics of the offer. Consequently, it is favorable that they also have the capability to handle maintenance. Operational services include all services that might be necessary during the lifetime of the integrated solution. By learning from operational services, information can be used to improve designs of new integrated solutions and detect weaknesses in the current. Moreover, Davies et al. (2006) argue that providers
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of integrated solutions typically offer advice to improve the customers’ operations or business processes. These capabilities of business consultancy are developed by companies creating joint ventures with professionals within adequate areas, for example professional service companies. The result from the research conducted by Davies et al. (2006) aligns with the previous research by Brady et al. (2005) where similar capabilities were identified. Brady et al. (2005) titled another set of capabilities as financing capabilities which indicated the supplier’s ability to help customers purchase high-cost products and manage an installed base of capital assets.
Ceci and Prencipe (2008) have investigated the way capabilities are configured in different organizations and postulate this as the mix of capabilities directly configured by suppliers. They investigated the IT sector and identified a set of capabilities necessary to develop integrated solutions, where some are highlighted as essential. In accordance with Davies et al. (2006), they identify system integration capabilities as the most important. Furthermore, consulting capabilities and operational capabilities are identified which also are highlighted by both Davies et al. (2006) and Brady et al. (2005). In addition, Ceci and Prencipe (2008) highlight production capabilities as a distinctive source of competitive advantage in the research.
Kohtamäki et al. (2013b) emphasize the importance of network capabilities when developing integrated solutions. Network capabilities are developed to improved value creation by enabling the use of strategic resources (Kohtamäki et al., 2013a; Theoharakis et al., 2009). Kohtamäki et al. (2013b) based the definition of network capabilities on the research by Walter et al. (2006, pp. 541) who defined the construction of network capabilities as “a firm’s ability to develop and utilize inter-organizational relationships”.
When developing and delivering integrated solutions, Kreye et al. (2015) accentuate the vitality to build up relational capabilities with other actors such as partnering organizations, customers, and also with individuals from these. Kreye et al. (2015) investigate the complexity when offering bundled services and products and emphasize the need for contractual and relational capabilities in such developments. Contractual capabilities refer to an organization’s ability to handle contracts through writing, negotiate, monitor, and enforce them. By managing contractual capabilities, a supplier can protect their organization and ensure the implementation of contractual agreements. Beyond contractual capabilities, organizations develop relational capabilities to close gaps or incompleteness of the contracts. Relational capabilities refer to an organization’s ability to handle inter-organizational relationships and to gain benefits from it. Relational capabilities can be derived from the exchange process were value evolves and the base consists of trust and commitment (Kreye, et al., 2015).
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These capabilities listed above will work as a base for the division of the capabilities necessary when developing the case-specific integrated solution in this research. Capabilities emerging from the research will be divided into different blocks similar to the capabilities listed in Table 1. Furthermore, if the research will lead to the identification of capabilities not described in the theoretical framework, new will be developed to fit the specific context.
Table 1: A summarize of the capabilities from the literature review.
Scholars Capabilities
Davies et al. (2006)
System integration capabilities Operational service capabilities Business consulting capabilities Financing capabilities
Brady et al. (2005)
Financing capabilities Consulting capabilities Operational capabilities
Ceci and Prencipe (2008)
System integration capabilities Consulting capabilities
Operational capabilities Production capabilities
Kohtamäki et al. (2013b) Network capabilities
Krey et al. (2015)
Relational capabilities Contractual capabilities
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3. Method
This chapter intends to clarify and explain the method used in the study to address the defined research questions. This involves an explanation and justification of the chosen research design as well as the method of collecting and analyzing the empirical data. Furthermore, the context of the research, the trustworthiness, and the ethical aspects will be discussed.
3.1. Research design
When conducting the research, an abductive approach with systematic combining was used and the case study followed an exploratory orientation through qualitative methods. The qualitative approach was used to understand underlying patterns of the research field and since the research was targeting questions such as “why” and “how” the method was favorable (Gray 2017). The research followed an abductive approach where theory and data were collected through an iterative process. Meaning, when new information from the data collection was discovered, it was used to supplement the theory (Dubois & Gadde 2002). This research process was used since the aim was to create an understanding and to gain knowledge continually as the study proceeded. Knowledge was gathered through a literature review that built the theoretical framework and was developed as interviews were providing new insights to the research area. The systematic combining approach was used since it generates a process where several parts of the research evolve simultaneously. Consequently, for a case study where new theory is to be developed, it is beneficial to use the approach of systematic combining and iteratively induce new knowledge (Dubois & Gadde 2002). The research process is illustrated in Figure 2.
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Re
search
D
esign
TimelineFin
din
gs
Figure 2: Conceptual model of the research process showing the timeline and the iterative process between data collection and analysis.
A thorough literature review was made as an initiation of the case study process. The purpose of the literature review was to get an understanding of the existing research and create a foundation of knowledge regarding the research area. In conjunction with the broad literature review, relevant research streams and key themes were identified and chosen as the foundation for the theoretical framework. Consequently, the literature review was used as a lens to interpret the collected data. Karlstad’s University library was mainly used for gathering data. The data collection was conducted mainly through keywords searched for in referencing and citing databases such as Scopus and Google Scholar. The literature identified and used in the theoretical framework was mainly found from the search engines ScienceDirect and Sage Journals.
3.2. Empirical context
The case study was conducted at Saab Dynamics, a private Swedish company working within the defence and security sector. The organization is working worldwide and includes multiple sites and customers in several countries. For the specific case study, the focus has been on domestic relations and offerings to the public sector. The company’s products are characterized by highly complex engineering solutions and the product in focus for the specific case, are developed with modularisation possibilities. The product is well established on the market and because of the high versatility and adjustment possibilities, it can fulfill the needs of many customers. The case company has made efforts to make a special solution for the public sector customer in Sweden where the offer has been focused on a guaranteed availability and by so the security of supply. So far, there has been no agreement regarding this integrated solution because
Interviews
Unobtrusive measures
Theory
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of the prerequisites for the actors involved and a lack of knowledge regarding the outcome. However, the customer has expressed a desire to continue studying the integrated solution and what capabilities necessary for them to facilitate and prepare for a transformed business relationship. The company’s willingness to develop and investigate how integrated solutions could be applicable in their organization and the capabilities needed for such development was the motivation to why they were chosen for the research. Furthermore, the defence and security sector is a strictly regulated market with guidelines and statutory regulations. This uniqueness of the market was considered to potentially generate capabilities that would be overlooked in other investigations within other markets. Hence, these factors resulted in a case study conducted together with Saab Dynamics and their customer.
3.3. Data collection
The collected data, for the main part of the thesis, was primarily gathered through interviews and supported by analysis of documents. Interviews were used to understand the existing business model, the actors’ organizations, and the collaboration between them. Consequently, the interviews resulted in the identification of capabilities and potential risks that the actors must be aware of in the absence of capabilities. Document analysis was mainly used to gather data to work as a basis for the calculations but also as a control of the data collected through the interviews.
3.3.1.Interviews
The empirical data was collected by combining non-directive interviews and semi-structured interviews. The two types of interviews constitute the case study’s most important source (Yin 2014). According to Gray (2017), interviews are a suitable research technique when the research objectives are exploratory. It is also preferable to understand different participants’ perspectives regarding the research area (Bryman & Bell 2015).
Non-directive interviews
The non-directive interviews were conducted to explore the area that the study was going to address and to get more understanding of the case company and its customer. The main purpose of the non-directive interviews was to enable the interviewees to mediate their perception of the research subject without letting their answers get affected by the researchers’ bias (Bryman & Bell 2015; Gray 2017). Eight non-directive interviews were conducted with persons who worked in different areas within the two organizations to get an understanding of the respondents’ knowledge of the subject and to discover unpredictable topics within the research area, see Table 2.
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Table 2: List of non-directive interviews.
Interview Date Source of data Working
Area
Length of interview [h:min]
1 7/2-20 Case company Product
development
01:00
2 10/2-20 Case company Customer
Support Manager
00:30
3 12/2-20 Customer User 00:45
4 12/2-20 Customer User 00:30
5 19/2-20 Case company Business
development
01:00
6 19/2-20 Customer User 00:20
7 27/2-20 Case company Head of
Product Sales
01:20
8 9/3-20 Case company Market and
sales
00:45
Total 05:10
Semi-structure interviews
Semi-structured interviews were conducted to make it possible to find unpredictable data (Bryman & Bell 2015). This interview approach was chosen to get in-depth answers to the specific questions and to enable the interviewees to answer freely on the open-ended questions. According to Bryman and Bell (2015), semi-structured interviews give more profound knowledge of a specific area instead of broad knowledge. This interview approach is also preferable due to its flexibility and adaption to the questions, which also makes it suitable for the exploratory objectives of this research (Bryman & Bell 2015). Gray (2017) argues that the characteristics of semi-structured interviews enable the researcher to guide the interview in the desired direction, but they are not as controlled by the researcher.
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10 semi-structured interviews were held with representatives from the case company as well as representatives from the company’s customer, see Table 3. The key participants were chosen due to their working areas and knowledge about the research subject so that they could contribute with relevant information (Hancock & Algozzine 2006). According to Bryman and Bell (2015) interviewing people with different expertise and working areas provides a holistic view of the research.
Table 3: List of semi-structured interviews. Interview Date Source of
data
Working Area Interview length [h:min:s] Transcribed pages Transcription word count 1 16/3-20 Case Design authority 00:35:18 5 3 035 2 17/3-20 Case Manager Systems Engineering 00:47:15 11 7 323 3 20/3-20 Case Head of Product Sales 01:20:43 14 10 050 4 25/4-20
Case Market and sales 00:46:54 8 5 765 5 26/3-20 Case Technical support engineer 00:56:58 9 6 143 6 30/3-20 Customer Project Manager 01:11:48 11 8 266 7 31/3-20
Customer Strategic buyer 00:44:49 8 5 150
8 2/4-20 Customer Strategic buyer 00:49:41 9 5 856
9 3/4-20 Case Business development 00:52:52 9 6 038 10 16/4-20 Customer User 00:29:27 4 2 329 Total 08:58:75 88 59 955
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Before the semi-structured interviews were conducted, two interview guides were made containing questions that were suitable due to the interviewees’ knowledge and in which organization they were working (Bryman & Bell 2015), see Appendix I and II. The interview guides included open-ended questions with follow-up questions to get exhaustive answers. The questions were based on the research aim and questions and the theory of the subject (Gray 2017). However, since semi-structured interviews enable flexibility and adaption of questions, supplementary questions could be asked to get a clearer understanding of the answer or to get new insights about the subject (Bryman & Bell 2015). Therefore, the interview guides were not strictly followed.
A test-interview was performed to ensure that the questions in the interview guide were understandable and that no important question was missing (Bryman & Bell 2015). To prepare the interviewees for the interview, they got information about the purpose of the research and the interview. The interviews lasted approximately between 30-80 minutes and all the respondents were interviewed individually. This, to receive more information and prevent the person's answers to be affected by others (Bryman & Bell 2015; Gray 2017). Both researchers participated during the interviews, where one played a more active role leading the interview, while the other researcher was more passive only observing and taking notes. According to Bechhofer et al. (1984), it is beneficial to have more interviewers due to that one could focus on the questions and one could observe and take notes. The notes gathered during the interviews were used as a tool for helping the interviewer to remember asking interesting supplementary questions that addressed non-anticipated areas. The notes would also act as a support when interpreting the interviews (Gray 2017). The interviews were sound recorded to ease the work for the researchers when analyzing the respondent’s answers and to reduce the risk of misinterpretation (Hancock & Algozzine 2006). Thereafter, the interviews were transcribed, and a summary of the interview was sent to the respondent for approval (Gray 2017). The interviews were held in Swedish and later translated into English by the researchers. In addition, supplementary questions were asked to specific interviewees and experts in the research area.
3.3.2. Document analysis
Different kinds of documents were used as unobtrusive measures. Business- and organizational documents were analyzed to obtain different cost factors used in the development of the economic models. Organizational documents include a large amount of data through a wide range of sources that for instance can include corporate annual reports or financial documents (Gray 2017).
The documents used in this study were classified as case company internal documents and provided useful information about the current sales structure and factors needed
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for developing the integrated solution and its economic model. Consequently, the illustrated economic model provided a better understanding and concretized the integrated solution in comparison to the current trading agreement. Documents were also analyzed to lend support to understand the context of the interviews and control the authenticity of the answers.
3.4. Data analysis
To ensure the rigidity of the qualitative research, the data was analyzed thoroughly following the Gioia method. This method is a systematic approach to new concept development designed to bring qualitative rigor to the research. The methodology was used to analyze the data collected through the interviews and to identify emerging concepts, themes, and dimensions (Gioia et al. 2013).
The data collected from unobtrusive measures were used to clarify the case example of the integrated solution. Evaluations were done through a financial model and a model showing quantity over time where the calculations were performed using Microsoft Excel. The analysis includes e.g. sales price, total cost, and quantity.
3.4.1. Interviews
As insurance and to ease the analysis for the researchers, the interviews were recorded which made it possible to thoroughly gather an understanding of the case. When recording the material, the researchers were able to transcribe the interviews verbatim to minimize the risk of missing out on important information. The transcribed material did not include reactions from the participants like pauses, intensity, and tones. However, the recorded material was available during the entire analyzing process which made it possible for the researcher to listen again, if necessary, to get a better understanding of the answers.
The recorded data from the interviews resulted in 88 pages of transcribed material. Following the Gioia method, see Figure 3, the interviews were singly analyzed iteratively by both researchers to identify informant terms and themes. The informant terms identified as codes were separated into different categories labeled as 1st order concepts
which later were structured into 2nd order themes by seeking similarities and
differences. Finally, the emerging themes were analyzed to make it possible to develop the themes even further into aggregate dimensions (Gioia et al. 2013). A total number of 213 codes, 20 1st order concepts, 9 2nd order themes, and 5 aggregate dimensions
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1st Order
Concepts 2
nd Order
Themes Aggregate Dimension
E mpiri ca lly c ollec te d d at a
Figure 3: Conceptual model of Gioia method.
3.4.2.Document analysis
Calculations and economic models were included to provide an understanding of how the new integrated solution could be developed and performed. Calculations were mainly based on the documents analyzed and complemented with useful information gained through the interviews. Today’s sales price was roughly calculated and together with prognoses, an understanding of the current trading situation was provided. To clarify the current situation, two models were developed. The first model represents the financial structure and displays the total cost of an order. The second model represents the needed and stored quantity for the customer based on prognoses and previous orders. The variables used in the calculations are presented in Table 4. The sales price was calculated using equation (1) where the included total cost for the product was calculated using equation (2).
When displaying the economic models of the integrated solution, the same calculations were used with assumptions to build similar models. The financial model for the integrated solution was calculated using equation (3).
o 1 o 2 o 3 o o 1 o 2 o 3 o 1 o 2 o 3 o 1 o 2 o 3 Theme 3 Theme 4 Theme 1 Theme 2 Aggregate Dimension 1 Aggregate Dimension 2 Aggregate Dimension 3
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Table 4: Lists of variables used in the calculations.
Variable Description Unit
(x) Product x [Pcs]
SP (x) Sales price [SEK/pcs]
Ctot (x) Total cost [SEK/pcs]
GM (x) Gross margin [SEK/pcs]
Cmaterial (x) Total material cost [SEK/pcs]
Cproduction (x) Total production cost [SEK/pcs]
Ctool (x) Total tool cost [SEK/pcs]
LAT Quality test [SEK]
Cintegrated solution Total purchase cost of the
integrated solution
[SEK]
Cannual Cost of guaranteed
availability
[SEK]
Cpurchase Purchase cost [SEK]
𝑆𝑃 (𝑥) = 𝐶𝑡𝑜𝑡(𝑥) + 𝐺𝑀(𝑥) (1)
𝐶𝑡𝑜𝑡(𝑥) = 𝐶𝑚𝑎𝑡𝑒𝑟𝑖𝑎𝑙(𝑥) + 𝐶𝑃𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑜𝑛(𝑥) + 𝐶𝑡𝑜𝑜𝑙(𝑥) + 𝐿𝐴𝑇
(2)
𝐶𝐼𝑛𝑡𝑒𝑔𝑟𝑎𝑡𝑒𝑑 𝑠𝑜𝑙𝑢𝑡𝑖𝑜𝑛 = 𝐶𝑎𝑛𝑛𝑢𝑎𝑙 + 𝐶𝑝𝑢𝑟𝑐ℎ𝑎𝑠𝑒 (3)
Description of the case-specific integrated solution
The integrated solution is based on the demand of a secured supply, combining the current sales model with a new structure. The implementation of the integrated solution changes the pricing and cost aspects as well as the time-period between orders and delivery. The total cost of the integrated solution seen in equation (3) includes an annual cost representing the cost for security of supply and a purchase cost when ordering products.
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To improve the delivery time the case company will start producing to stock, enabling them to have products ready when the customer places an order. The high consumption rate of the products makes the integrated solution feasible. The integrated solution will primarily focus on a domestic public customer, but stored products can also be shipped to other customers if possible. Advantages with the integrated solution are that products stored will be replaced which minimizes the risk of obsolescence. In conjunction with the constant development of the products, newer versions could also reach the market faster.
3.5. Ethical Considerations
The research has been permeated with an ethical perspective to secure the integrity and well-being of the participants. Bryman and Bell (2015) promote the importance of having an ethical approach to respect the participants’ privacy. To secure an ethical research environment, Bryman and Bell (2015) describe four principles that need to be taken into consideration: harm to participants, lack of informed consent, invasion of privacy, and whether deception is involved. In this research, actions were taken to respect these ethical considerations. During the initial contact, the participants were notified about the research area and purpose of the study. Following, the participants received information on how the data would be collected, analyzed, stored, and handled to make sure that they had all information necessary before consenting to their participation in the research. Each interviewee was voluntarily participating in the research and at the beginning of the interview, they were asked about their feelings about having the conversation recorded. Thorough information was given about how the recorded material would be handled, ensurance of the participants’ anonymity and their right to refuse to answer a question or stop the interview at any time. To ensure the anonymity of participants they were referred to using an alias and the recorded material could only be accessed by the researchers. This to ensure that GDPR was followed. Before publishing the report, the participants received a summary of the interview where they could confirm that the information was correct. Additionally, a final copy of the research was sent to the participant.
3.6. Trustworthiness
The trustworthiness of the research was assessed by evaluating four criteria presented by Lincoln and Guba (1985). These are credibility, transferability, dependability, confirmability.The credibility was improved through different modes of triangulation:
data triangulation, multiple triangulation, and investigator triangulation.
Data triangulation was used since data of the same phenomenon were collected over a time period. Different types of data collection methods combined with a theoretical
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aspect were used to contribute to the findings and conclusion, which improved the credibility of the thesis (Lincoln & Guba 1985). The data were singly transcribed and coded by two researchers using investigator triangulation to improve the credibility of the research. By so, the analysis is more likely to not be affected by the researchers’ bias, and thus it becomes more reliable. In addition, the credibility of the thesis was improved by member-checking, where a summary of the interview was sent to the interviewees to make sure that their statements were interpreted correctly (Lincoln & Guba 1985).
A thorough description was made of how the study would be conducted to enable the result to be transferable to other contexts. Lincoln and Guba (1985, pp. 316) mean that it is the researcher’s “responsibility to provide the database that makes transferability judgement possible on the part of potential appliers”. When describing the research in detail, including context and assumptions that were central, the researcher can enhance transferability. Thus, enable the possibilities for the person who wishes to transfer the result.
Dependability is an important aspect of trustworthiness because it establishes the consistency and repeatability of the research. Therefore, this research used external researchers to conduct an inquiry audit to strengthen dependability (Lincoln & Guba 1985). The data collection and analysis processes were then examined through researchers outside of the thesis. Consequently, the risks of bias are reduced and the certainty that the findings are supported by the data collection has increased.
Lastly, the confirmability was strengthened through an audit trail. Lincoln and Guba (1985) describe that confirmability is connected to the level of confidence of the findings, that they are shaped by the participants rather than shaped by the researcher’s bias. The processes of data collection, data analysis, and the interpretation of data were therefore detailed by the researchers to ensure neutrality.
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4. Findings
The findings emerging from the collected data gathered through the interviews and document analysis are presented in this chapter. The chapter is divided into two parts, one presenting the findings to the research questions and the other presenting the economic models of the integrated solution.
4.1. Interview data
The data analysis of the semi-structured interviews resulted in five capability blocks of dimensions: control capability, economic capability, organizational capability, production capability, and relational capability. The emerged dimensions were of importance to understand the needed capabilities when moving towards the integrated solution from the supplier and customer perspective. The dimensions are presented in Table 5 together with accompanying themes and which actor it was iterated for. The result of the interview analysis is presented in Appendix III which includes the concepts and some examples of associated codes, the themes, and the dimensions. The following sub-chapters are dedicated to presenting the emerged dimensions including the appurtenant data supported by interview citations. The dimensions are presented in alphabetic order.
Four of the dimensions that iterated were the same for both actors except for some differences in the included capabilities and these were: control capability dimension, economic capability dimension, organizational capability dimension, and relational capability dimension. Additionally, a production capability dimension iterated for the supplier since they in this specific case are the actor handling the production.
Table 5: Overview of dimension and themes.
Dimension Perspective Theme
Control capability Supplier and customer Regulation capabilities Contractual capabilities Security capabilities Economic capability Supplier and customer Financial capabilities Organizational capability Supplier and customer Integration capabilities
Strategic capabilities Production capability Supplier Planning capabilities
Relational capability Supplier and customer Inter-organizational relations capabilities In-house relations capabilities
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4.1.1.Control capability dimension
Control was considered a prominent dimension as it was treated across the data. This dimension is mentioned as important to keep in mind by the interviewees because of the industry in which the case is conducted. Control was iterated from the themes: contractual capabilities, regulation capabilities, and security capabilities. These themes characterize both the supplier’s and customer’s organizations and are important factors that need to be considered.
Regulations capabilities
The actions of the organizations are affected by different regulations. In the case-specific sector, there are certain laws and restrictions the actors must adapt to. One of these regulations affects the trading because of restricted boundaries regarding who the case company can sell their products to. The supplier does not have the full authority to decide who they can sell to and consequently, all potential customers cannot receive the products. Moreover, the trading regulations can change depending on the situations abroad and from the supplier’s perspective, this affects the customer base and thereby their financial aspects. Consequently, the interviewees claim that this primarily affects the supplier who needs to have the capability to adjust to these laws and regulations. The dependency of regulations is consistently mentioned as a risk factor and needs to be considered. However, the integrated solution is designed to secure domestic supply, and thereby neither the supplier nor the customer will end up in a situation where the actors are not allowed to trade. The domestic relationship will also be beneficial due to the possibility to direct the procurement and thus, shorten the negotiating process. Although the integrated solution is designed for domestic supply, it is also depending on whether the supplier has a broad customer base, which they currently have.
“The law or directives on how to procure will be determined by EU, whether to direct or what kind of competition or procurement you are allowed to do. […] Now when we trade with Saab it is a direct procurement, and it is a very big difference if you must go out in a competition situation. With the direct procurement it will be easier, less paperwork because of our relations with Saab.”- Interviewee 7
In conjunction with the risk factor mentioned earlier, the supplier’s inability to directly affect and control laws can be a critical factor potentially affecting the outcome of the integrated solution. Currently, the supplier has great trading opportunities and can adjust to the existing regulations without affecting its broad customer base. This indicates that it might not evolve into a bigger problem when moving towards integrated solutions. However, the dependency of these laws and regulations will remain unanswered in this research.
