Value co-creation: Enablers and risks during value proposition development
A case study in the IT industry
Eric Danielsson Alexander Stenman
Industrial and Management Engineering, master's level 2021
Luleå University of Technology
Department of Social Sciences, Technology and Arts
ACKNOWLEDGEMENT
This report presents the master’s thesis written by Eric Danielsson and Alexander Stenman as the final part of our master’s degree in Industrial Engineering and Management with specialization in Innovation and Strategic Business Development at Luleå University of Technology. The master’s thesis has been conducted in the spring of 2021 in association with a service provider in Sweden.
The year 2021 is evidently no ordinary year considering the ongoing COVID-19 pandemic situation. Therefore, we would like to express our gratitude towards everyone who has contributed with valuable insights and support during the course of our study. Firstly, we would like to express a special thanks to Mats Westerberg, our supervisor at the university, for your invaluable guidance and advice. Your commitment, knowledge, and expertise enabled us to perform at our very best. Secondly, we would like to express our greatest gratitude to our supervisors at the case company, Stefan Fasth and Maria Ehrin, for all the guidance and support along the road, and for believing in us from day one. We are forever grateful for the opportunity to write our master’s thesis at the company. Finally, we would like to show appreciation to our wonderful colleagues, both students at Luleå University of Technology and employees at the case company, who have given their valuable input and insight into our project during interviews and seminars.
A special thank you also goes to family and friends who have supported us during our academic years.
Stockholm, June 2021
Alexander Stenman Eric Danielsson
ABSTRACT
Purpose – The purpose of this study is to advance the understanding of what enablers and risks become evident in value co-creation and how they affect value proposition development. To fulfill this research purpose, the following research questions were derived: RQ1: What are the enablers that become evident during value co-creation in an IT context?, RQ2a: What are the risks that become evident during value co-creation in an IT context?, and RQ2b: How can IT service providers mitigate these risks during value proposition development?
Method – The study is an exploratory inductive single case study of a specific business environment that revolves around related services in the IT industry. In total, six organizations and one expert, all of whom have knowledge of the situation of inquiry, participated in the study. The data collection was conducted in three different waves of semi-structured interviews.
In total, 27 interviews were held, and results were derived using a combination of the Gioia analysis and thematic analysis.
Findings – The result of this study is a framework illustrating the enablers, risks, and mitigating actions in value co-creation during value proposition development. The most critical antecedent enablers are transparency, goal congruence, and customer involvement. The most prominent risks are organizational transformation, measuring instruments, and juridical. The most important actions are change management and continuous evaluation.
Theoretical and practical implications – The study contributes with insights into the scarce literature on value co-creation and digital servitization by empirically clarifying the key aspects that orchestrate the value co-creation process. Our framework assists practitioners to better evaluate if they have the abilities required to conduct specific value co-creation activities.
Limitations and future research – The study is limited by a single case study of a specific business environment by adopting a B2B perspective. Hence, future studies are recommended to extend and validate our findings in other industrial settings.
Keywords: Value co-creation; Servitization; Collaborative value processes; Digitalization
TABLE OF CONTENT
1. INTRODUCTION ... 1
2. THEORETICAL BACKGROUND ... 5
2.1 SERVITIZATION OF THE IT INDUSTRY ... 5
2.1.1 Enablers for value co-creation ... 7
2.1.2Challenges during value co-creation ... 8
2.2 CONCEPTS AND CHARACTERISTICS OF ‘VALUE’ IN VALUE PROPOSITIONS ... 9
2.2.1Value creation ... 9
2.2.2 Value-in-use and value-in-exchange ... 10
2.2.3 Value co-creation ... 10
2.3LINKING RISKS TO VALUE CO-CREATION ... 12
2.3.1 Operational risks ... 13
2.3.2 Strategic risks ... 13
2.3.3 Financial risks ... 14
2.4 CONNECTION BETWEEN OUR THEORETICAL FOUNDATION AND EMPIRICAL STUDY ... 14
3. METHOD ... 16
3.1 RESEARCH APPROACH AND STRATEGY ... 16
3.1.1Case selection ... 17
3.2 DATA COLLECTION ... 18
3.2.1 Interviews ... 19
3.2.2 Documented material ... 21
3.3DATA ANALYSIS ... 21
3.3.1 Step 1: Familiarize with data ... 22
3.3.2 Step 2: Generate initial codes ... 22
3.3.3 Step 3: Search for categories and themes ... 22
3.3.4 Step 4: Establish thematic map ... 23
3.4QUALITY IMPROVEMENT MEASURES ... 23
4. ANALYSIS AND FINDINGS ... 25
4.1 ANTECEDENT FACTORS ENABLING VALUE CO-CREATION ... 25
4.1.1Activities of value co-creation ... 25
4.1.2 Relationship management ... 29
4.2 EVIDENT RISKS DURING VALUE CO-CREATION AND HOW THESE CAN BE MITIGATED ... 31
4.2.1 Resistance to change ... 31
4.2.2 Resources and capabilities... 35
4.2.3 Value management ... 37
4.2.4 Relationship management ... 39
4.3A FRAMEWORK ENABLING THE TRANSITION TOWARDS VALUE CO-CREATION ... 40
5. DISCUSSION AND CONCLUSION ... 42
5.1 ADVANCING THE UNDERSTANDING OF ENABLERS AND RISKS DURING VALUE CO-CREATION... 42
5.2 USEFUL INSIGHTS FOR VALUE CO-CREATION PRACTITIONERS ... 43
5.3 LIMITATIONS AND FUTURE RESEARCH ... 43
REFERENCES ... 45 APPENDICES ... I APPENDIXI ... I APPENDIXII ... II APPENDIXIII ... VII APPENDIXIV ... X APPENDIXV ... XI
1. INTRODUCTION
The proliferation of digital technologies, innovation, and advanced services has increasingly enabled disruptive changes in the way firms are packaging product and service offerings, and with that, the very nature of their business models (Sjödin et al., 2020; Porter & Heppelmann, 2014). Moreover, products and services have become increasingly embedded in digital technologies (Bharadwaj et al., 2013), more frequently phrased as digital servitization in existing literature (Kohtamäki et al., 2019). Digital servitization entails a company’s transformational shift from a product-centric to a service-centric business model and logic (Kowalkowski et al., 2017).
Combining these logics alongside the prevailing era of digitalization has brought transformative change across a diverse set of industries, consecutively reshaping value creation and capturing opportunities for firms (Porter & Heppelmann, 2014; Li et al., 2019). However, not only opportunities emerge as a result of this transition. One difficulty lies in the nature of digitalization, originally constituting the decoupling of information from smart devices and technologies that can reshape the structure of service activities (Sklyar et al., 2019). The servitizational restructure could be described as the interaction between smart solutions and integrated software systems provided by partners or customers, thus blurring the lines of which role they enact in the service ecosystem. Therefore, this market shift implies a need for cross- functional collaboration outside the firm’s boundaries as the decoupling of information ultimately leads to internal knowledge dispersal (Kohtamäki et al., 2019). Hence, for companies envisioning to cope with the changing market dynamic while remaining competitive, they must seek new means of capitalizing on value co-creation to exploit new value proposition and business model opportunities through collaboration (Bhatti et al., 2020), which poses an interesting avenue that needs further investigation (Deimler & Kachaner, n.d.,; Liu & Zhao, 2020).
Prior research emphasizes the critical role that value propositions enact in the complex paradigm of co-creating value between stakeholders, where researchers agree that it serves as an intermediary value alignment mechanism among actors in the business environment (Vargo &
Lusch, 2004; Vargo & Lusch, 2008; Frow & Payne, 2011). Following this logic, we adopt the definition of value co-creation provided by Grönroos (2011) as “collaborative activities by parties jointly involved in direct interactions that aim to contribute to value for one or both parties” (p.
290), where parties are referred to as partners or customers in a B2B context. When developing value propositions, initially coined by Kambil et al. (1996), a commonly used approach is the concept of ‘value mapping’. This entails identifying a value frontier, referred to as the firm’s
positioning and its competitors through a trade-off between cost and performance variables.
Hence, the value map constitutes strategies on how a firm can consolidate and deliver value to its customers, emphasizing the key benefits genuinely valued by customers (Andersson et al., 2006). We contend that this resembles the concept of perceived customer value, defined by Ulaga and Chacour (2001) as “the consumer’s overall assessment of the utility of a product based on a perception of what is received and what is given” (p.528). As this study seeks to investigate enablers and risks in value co-creation in a specific business environment including customers, we equate ‘value’ as the customer’s perceived value.
In parallel with the essentiality of value propositions, the notion of value co-creation has become increasingly central for companies to acknowledge in their business model transformation efforts (Woerner & Wixom, 2015), where the business model describes the underlying processes constituting the value proposition (Teece, 2010; Chesbrough, 2010). One reason for this paradigm shift is the increasing demand for complex and integrated solutions that call for cross- boundary integration and coordination of capabilities, knowledge, and resources (Vargo &
Lusch, 2015). Moreover, it has created a need for incumbent firms to transform their business models in becoming more flexible, thereby providing integrated bundles of products and services (Arora et al., 2018). However, it also poses a significant opportunity for companies to leverage the possibilities of exchanging information with a plethora of partners and customers outside the firm’s boundaries to co-create value during value proposition development (Porter &
Heppelmann, 2014; Zott et al., 2011).
Despite the consolidation of multiple opportunities for companies to utilize digital servitization and value co-creation, there are still many uncertainties of how service providers should overcome the challenges and risks presented by academicians and practitioners alike (Sjödin et al., 2020; Kohtamäki et al., 2019). One such barrier is that co-creative innovation does not emerge in internal R&D efforts but instead at the centricity of customer engagement, where the value is realized through collaborative activities (Grönroos, 2011). However, a significant portion of B2B firms does not possess the required capabilities and resources to effectively perform co- creative innovation (Kohtamäki & Rajala, 2016). Thus, the implication leads to difficulties in creating tangible customer value parallel to the risk of failing to achieve a financial return on investment, ultimately presenting a key challenge for firms across industries (Sjödin et al., 2019).
Despite various attempts from several scholars in acknowledging these risks and challenges, research falls short in explicating the conceptualization of these initiatives as underlying
mechanisms to complement firms’ existing business models and value co-creation initiatives (Bhatti et al., 2020; Zott et al., 2011). A shortcoming this study aims to address.
As the Information Technology (IT) industry has experienced increased levels of servitization, innovation, and rapid growth over the last decades, questions arise of what enablers and risks allow actors to capitalize on value co-creation successfully. This becomes evident as IT offerings are becoming increasingly undifferentiated, price-sensitive, and have low switching costs (Bronkhorst et al., 2019). Moreover, the number of actors offering similar IT products has grown significantly (Reimann et al., 2010), which could be described as the trend of commoditization in the IT industry. This presents a paradigm where IT providers struggle to create value propositions that are sufficiently differentiated to attract new customers while simultaneously having a competitive price point. Hence, without a significant enabler to innovate and identify new co-creating value practices through collaboration, firms are exposed to the risk of disappearing in evolving markets and become replaced by another more suitable actor (Christensen & Raynor, 2013). Arguably, we expect that lack of differentiation is critical to remain competitive and that including customers during value-creation processes is required to perform value co-creation effectively.
The existing literature regarding risks linked to value co-creation has primarily focused on aspects outside the value proposition domain (Vargo & Lusch, 2008), where a majority of scholars have discussed the effects of misalignment in goals between the customer and provider (Grubic &
Jennions, 2018), and absent customer-centric innovation strategies (Martínez et al., 2010). Most studies on value co-creation and co-created value propositions provide insights independently of one another and thus not from a coherent perspective (Vargo & Lusch, 2008; Grönroos, 2011;
Svensson & Grönroos, 2008). However, few scholars have investigated the risks of value propositions emanating from value co-creation (Benedettini et al., 2015). Despite increasing enthusiasm among academicians and practitioners alike, the attempts in assimilating these risks have merely been limited to the manufacturing and healthcare sectors exhaustively (Baines et al., 2017; Sjödin et al., 2020; Schiavone et al., 2020; Sinkovics et al., 2020). This implies a need to investigate how providers and their respective customers in the IT industry can systematically generate value by engaging in fruitful collaborations through co-creative innovation while mitigating associated risks throughout the value proposition development.
In response to these significant shortcomings, this study aims to enrich the literature of facilitating enablers and what associated risks emerge during value co-creation initiatives from an IT perspective, which is arguably needed (Benedettini et al., 2015). By providing novel insights in
these underexplored areas, we hope to assist practitioners of value co-creation in the IT industry with an extended understanding of the enablers and risks when engaging in value co-creation to avoid fruitless collaborations due to knowledge scarcity. To address the practical challenges and close the academic research gap, the purpose of this study is to advance the understanding of what enablers and risks become evident in value co-creation and how they affect value proposition development. To specifically fulfill this purpose, the following research questions have been derived:
RQ1: What are the enablers that become evident during value co-creation in an IT context?
RQ2a: What are the risks that become evident during value co-creation in an IT context?
RQ2b: How can IT service providers mitigate these risks during value proposition development?
2. THEORETICAL BACKGROUND
The following chapter provides a theoretical foundation for our empirical research, and as illustrated in Figure 1, divided among three constituting sections: 1) clarification of concepts and key aspects, 2) literature review on value concepts and risks in value co-creation, and 3) connection between the theoretical foundation and the research questions.
2.1 Servitization of the IT industry
The concept of servitization has historically been a heavily discussed topic in numerous scholars and is defined as “the strategic innovation of an organization’s capabilities and processes to shift from selling products to selling an integrated product-service offering that delivers value-in-use”
(Baines et al., 2007, p.150). In recent years, the concept has elevated in attention due to the opportunities emerging from the prevailing era of digitalization and the Internet of Things (IoT), which has disrupted the digital business landscape entirely (Baines et al., 2017; Sjödin et al., 2020).
Figure 1: Overview of the theoretical background
However, as a result of digital transformation, the common implication for IT firms is that they all face critical obstacles during the adaptation phase of this transformation (Li et al., 2019). For instance, scholars are attributing these challenges to several factors, where the emphasis lies on having the ability to adapt to new technologies, services, and products, coping with uncertain surroundings, changing market needs, access to needed resources, and the lack of legitimacy (Xu et al., 2018). With this in consideration, it becomes apparent that knowledge management and agile leadership play a significant role in a firm’s innovation process as the constituting innovation strategy ultimately determines the survival of an IT firm (Bronkhorst et al., 2019). Hence, managers must embrace this transition by staying up to date with the latest technological advancements while nurturing internal knowledge and capabilities to fully facilitate digital transformation (Sokol & Bilova, 2021).
Furthermore, it is evident that many possibilities emerge for IT service providers in this transformational servitization wave. Although prior scholars have focused on carrying discussions of enablers and benefits in the context of product-service systems (PSS) and not from a value co-creation lens (Parida et al., 2014), we argue that these two concepts have many similarities due to their core nature and underlying definitions. For instance, Ray and Cheruvu (2009) identify the main enablers to conduct value co-creation competitively as 1) revenue generation opportunity, 2) technology development, 3) environmental sustainability, 4) global competition, and 5) customer affordability. Moreover, Oliva and Kallenberg (2003) present three arguments as to why the product-service offerings should be incorporated among firms to cope with the changing market dynamic: 1) economic argument, 2) customer argument, and 3) competitive argument. Firstly, services enable more stable sources of revenue streams with higher margins.
Secondly, customers are changing their purchasing behavior by demanding more complex and flexible services to enable customization. Lastly, the competitive argument entails difficulty in imitating services due to less visibility and increased labor dependence.
When a company is servitizing its business, a significant emphasis is placed on customer solutions, which could generally be considered a hybrid value proposition due to customers’ involvement during the development process of value-creation (Lovelock & Gummesson, 2004; Vargo &
Lusch, 2004). By exploring the literature streams in this domain, the discussion lies heavily on selling processes, establishing customer relationship management, and engaging in value co- creation activities with customers (Grönroos and Helle, 2010; Tuli et al., 2007). In contrast, the industrial side of existing literature includes value propositions associated with services related to after-sales, operational strategies, organizational change, and supply chain management
(Benedettini et al., 2015; Martínez et al., 2010). Baines et al. (2017) argue that these service transitions have proven benefits, enabling the provider to reach increased revenue and profits, increased flexibility in meeting customer needs, facilitated product innovation, increased customer loyalty, and expanded entry barriers.
Despite the numerous advantages with increased servitization levels presented above, many challenges and barriers need to be overcome. The implementation of advanced services and integrated product-services offerings require significant up-front investments to establish capacity and the acquisition of new technologies and capabilities (Martínez et al., 2010). Hence, it could be argued that implementation strategies in the context of value co-creation are not profitable from a short-term perspective. Mont (2002) and Veit et al. (2014) state that uncertainties related to cash flow and capturing the generated value with these strategies are two critical barriers to efficiently conducting value co-creation. This knowledge stresses the importance of collaboration among actors, i.e., enabling value co-creation, finding answers on how to: 1) acquire the right set of capabilities and technologies, and 2) identifying suitable revenue models that are profitable and feasible in the long run.
2.1.1 Enablers for value co-creation
The commonalities between the researchers’ findings converge to value co-creation activities being a central aspect when connecting the customer’s operations closer to the provider’s. From prior studies, it is commonly understood that value co-creation emanates through interaction between actors in the business ecosystem, where value is mutually exchanged or realized (Vargo
& Lusch, 2008; Vargo & Lusch, 2016). This calls for an increased interest in value creation processes and mechanisms across company borders (Kohtamäki & Partanen, 2016), where internal and external maturity, transparency, and collaboration are considered the three most crucial enablers to facilitate successful co-creation (Polova & Thomas, 2020).
In addition to the previously discussed enablers, we add to the discussions by Kohtamäki and Rajala (2016) and Aarikka-Stenroos and Jaakola (2012) who presents conceptual practices for value co-creation by analyzing and consolidating their findings into a figure that illustrates the enablers, activities, and enactment of roles in value co-creation, see Figure 2. Accordingly, we argue that the identified activities and enablers bridge the gap in resources and can be seen as facilitators for value co-creation processes.
2.1.2 Challenges during value co-creation
According to Baines et al. (2017), the challenges of value co-creation and collaborative servitization efforts have initially been identified, but solutions to address these are yet to be fully explored. Zhang and Banerji (2017) add clarity to this paradigm by consolidating and explicating the challenges into five categories: 1) organizational structure, 2) business model, 3) developmental process, 4) customer management, and 5) risk management. The challenges associated with the organizational structure are described by the company’s cultural climate and the shift in mindset when moving from selling products or services to adopt a customer-centric approach instead. Following this, key barriers revolve around internal and external communication, service expertise, and inter-departmental collaboration (Alghisi & Saccini, 2015). The business model-related challenges are mainly characterized as transformational, requiring a switch to an integrated service model and strategy, where the underlying dynamics of the value proposition change from unidirectional to co-creation (Barquet et al., 2013). From the development process perspective, challenges occur throughout the integrated service development process, including conveying an intangible idea to a tangible deliverable. Whereas tools, methods, and technical capabilities are required to employ such a process successfully, customer engagement is considered the main barrier to overcome (Nudurupati et al., 2016;
Baines et al., 2007). Lastly, customer management challenges are arguably a crucial element to consider throughout the transition due to the customer-centric nature of the servitized business model. First, matching customer needs is a critical challenge when selling a new concept due to discrepancies in the customer’s perceived value. Second, the difficulty of determining who owns what part of the value creation process (Johnstone et al., 2009). Third, long-term relationship
Figure 2: Enablers and activities depending on the actors’ enacting role during value co-creation
building, as the customer engagement process is not merely limited to selling (Barnett et al., 2013). Fourth, regarding co-creation, where information sharing to a certain degree is required, it could entail harmful effects given that confidential information is leaked (Nudurupati et al., 2016). Lastly, regarding the concept of risk management, challenges converge into the risk domain as unmanaged risks arguably entail difficulties for firms. Accordingly, we distinguish risks into two domains in this study: 1) evident risks, referring to prominent risks before entering value co-creation initiatives, and 2) prospective risks, referring to challenges that are not managed.
2.2 Concepts and characteristics of ‘value’ in value propositions
This section reviews the literature on the concept of value from a B2B perspective, including its various characteristics and constitutions in value propositions. More specifically, it focuses on three nuances of value dimensions from a service-dominant logic perspective, namely: 1) value creation, closely related to the activities enhancing the total value generated from the service (Amit & Zott, 2012); 2) value-in-use and value-in-exchange, closely linked to the point in time at which resources are used and exchanged (Svensson & Grönroos, 2008), and 3) value co- creation, referring to the collaborative activities by a plethora of partners directly involved in interactions aiming to achieve mutually beneficial value (Grönroos, 2011). The concepts and characteristics of each dimension are further explained respectively in the following sections.
2.2.1 Value creation
The coined term ‘value’ has commonly been regarded as an elusive concept (Grönroos, 2011).
Starting with Zeithaml (1988) and further followed by Woodruff and Gardial (1996), the concept has been generally described as evaluating benefits against sacrifices or costs. However, scholars have gradually shifted the view of the value concept towards a pecuniary perspective, where value is instead treated as the “monetary gains created mutually and reciprocally by business partners” (Grönroos & Helle, 2010), n.p.). This is further described by Anderson et al. (2006) as
“the worth in monetary terms of the technical, economic, service, and social benefits a customer receives in exchange for the price it pays for a market offering” (p.24). In this view, value creation can be derived as the process through which another business or the final customer becomes better off in some regard after the transaction (Grönroos, 2008). Following this value creation logic, where value flows interchangeably through the exchange of knowledge between multiple actors, imposes a challenge for firms having to face the increased need for integrated and complex solutions from users and customers (Woerner & Wixom, 2015). This has forced
firms to seek new value creation methods by integrating and coordinating knowledge, resources, and capabilities across firm-level boundaries to satisfy the newly emerging customer and user needs (Vargo & Lusch, 2016).
2.2.2 Value-in-use and value-in-exchange
In the existing value and service-dominant logic literature, research has primarily focused on two perspectives of value creation, namely: 1) the point in time at which resources are used, and 2) the point in time at which these are exchanged. These co-existing perspectives have originally been coined as value-in-use and value-in-exchange (Eggert et al., 2018; Grönroos, 2011). Value- in-use is defined as “an outcome (e.g., a new product or service) of a process that consumes resources (e.g., human resources)” (Chesbrough et al., 2018, p.932). In contrast, value-in- exchange is regarded as “the process of exchanging resources between actors to address their needs” (Svensson & Grönroos, 2008, n.p.). These definitions provide some helpful insights in guiding our study. First, the value-in-use and value-in-exchange perspectives have clear distinctions. In order to capture the potential value of these resources, customers must be able to seize the required capabilities to make use of the resources, or else the value-in-use will be insignificant (Svensson & Grönroos, 2008). Conversely, since the value for users can merely be observed after service consumption, value-in-exchange becomes evidently less essential to consider for suppliers; if they cannot make use of the given good or service, their perceived value-in-exchange will be non-existent. Second, the definition implies that value-in-exchange acts as a function of value-in-use. Hence, the former merely exists if the latter can be created (Ravald, 2001), which calls for both suppliers and customers enacting a facilitating role in delivering a value foundation to value creation (Svensson & Grönroos, 2008). For example, consider a customer purchasing a cell phone, where value-in-use is realized by the customer through product consumption i.e., the availability of applications, text messages, and phone calls.
In contrast, value-in-exchange is created through the monetary exchange between the retailer and customer. In response to the previous discussion, we will predominantly focus on the activities endorsing value-in-use as these enable the core elements of the value proposition provided by the supplier and thus can be studied from an external perspective.
2.2.3 Value co-creation
The perspective on value co-creation has gradually expanded in scholars due to the rising recognition of customers increasingly partaking in the value creation process as they actively cooperate with their providers to jointly create value (Eggert et al., 2018). Following this logic,
Grönroos (2011) defines value co-creation as “the collaborative activities by parties jointly involved in direct interactions that aim to contribute to value for one or both parties” (n.p).
According to Vargo et al. (2008), the general perception of this ambiguous paradigm is that a firm is in charge of the value creation process where the customer or user is invited to join it as a co-creator. In this view, firms acting as service providers are seen as co-creators of value together with their customers. However, an essential requirement of value co-creation is that direct interactions must occur between the firm and the customer (Grönroos, 2011). Thus, in the absence of these interactions, the co-creation of value cannot take place.
Despite the general discussion in prior literature state that firms are the ones creating value whereas the customers are allowed to engage in the suppliers’ value creation processes (Svensson
& Grönroos, 2008), value merely emerges in the customer’s sphere as a part of their value- generating process and everyday practices (Grönroos, 2000). This insight provides clarity in guiding our study. If customers are allowed to enter as co-creators of the provider’s value proposition development and the value being considered as value-in-use, whereas the value-in- exchange is strictly dependent on the materialization of value-in-use, customers are arguably the value creators (Svensson & Grönroos, 2008; Vargo & Lusch, 2008). In their studies, the authors propose and describe the respective roles enacted by providers and customers in value creation and co-creation respectively, see Table 1.
Table 1: Roles enacted by provider and customer in value creation and co-creation processes. Reproduced from Svensson & Grönroos (2008) and Vargo & Lusch (2008)
Accordingly, this raises the question of the provider’s role in the value-creating process, where we consider them to enact a value facilitating role in the value-creation process as they provide customers with sufficient resources for their value-generating activities. Figure 3 below presents a visual overview of the interrelationships of different value perspectives, which helps provide insights into their respective roles in the value proposition.
2.3 Linking risks to value co-creation
The transition towards a business model facilitated by value co-creation entails increased risk, where the management of responsibility shifts as actors’ roles in the business ecosystem change when customer relational engagement becomes the main focal point instead of unidirectional transactions. In these contexts, value co-creation culminates as the provider shares or assumes risk responsibilities from the customer (Benedettini et al., 2015; Reim et al., 2016). Generally, risks could be categorized across three domains: 1) operational, 2) strategic, and 3) financial (Neely, 2008; Benettini et al., 2015; Harland et al., 2003) and is originally defined as “[...] the probability of loss and the significance of that loss to the organization or individual” (Mitchell, 1995, p.115). However, Reim et al. (2016) acknowledge that the transition toward servitization and value co-creation exposes companies to new risks from a higher level from a PSS perspective, which are yet to be fully understood. Accordingly, because increased risk levels implicitly
Figure 3: Interrelationship of different value perspectives in value propositions following a service-dominant logic
underpin value co-creation, we argue that risk management activities are needed to mitigate the related risk.
2.3.1 Operational risks
Operational risks related to firms’ product-service offerings continue to be a central concern for IT providers due to increased customer interactions over time (Reim et al., 2015). Richter et al.
(2010) divide operational risk, generally referred to as the results from the consequences of a breakdown in a core operating, manufacturing, or processing capability (Harland et al., 2003), into three segments: 1) technical risk (e.g., breakdowns, malfunctions, and product failure), 2) behavioral risk (e.g. opportunistic behavior), and 3) delivery competence risk (e.g., capability and capacity insufficiency to fulfill the offer). While these risks only serve as somewhat of an indicator in this study, it provides significant perspectives of operational risks which could further include IT infrastructural challenges, operational problems caused by scarcity in human resources, and lack of top management support (CAS, 2003). So far, most scholars merely provide a conceptual discussion regarding the integration of risk management in value co- creation activities to prevent such risks from occurring (Nordin et al., 2011; Ulaga & Reinartz, 2011).
In response to this previous shortcoming, Reim et al. (2016) build upon the nascent risk management stage at a more precise level (e.g., Dorfman, 1998; Rejda, 2005). This poses an interesting avenue to investigate for firms aiming to incorporate PSS operations and value co- creation in their existing businesses. In their study, the authors suggest four types of risk activities that are crucial to consider when responding to risk management: 1) risk avoidance, 2) risk reduction, 3) risk-sharing or risk transfer, and 4) risk retention. Risk avoidance refers to the firm’s ability not to assume the responsibility of the product or service to further evade the possibility that the risk or loss can occur. Risk reduction refers to the activities reducing the severity or frequency of loss (Dorfman, 1998). Risk-sharing or risk transfer entails the process of sharing the risk with customers or transferring it to insurance companies. Finally, risk retention encompasses the situation where the buyer pays an upfront premium in exchange for the provider bearing all or certain risks to some extent (Reim et al., 2016).
2.3.2 Strategic risks
The second risk type, strategic risk, is less discussed in topic-related studies but refers to “threats that have the potential to affect the implementation of a business strategy” (Nordin et al., 2011, p.394). Despite the scattered literature related to strategic risks in value co-creation activities
specifically, we argue that these risks can be equated into the context of value co-creation as it underpins the elements of a firm’s value proposition and thereby business strategy (Andersson et al., 2006). Originating from Simons (1999), strategic risks can be divided into: 1) competitive risk, referring to a firm’s inability to differentiate its products and services from competitors, and 2) reputation risk, referring to the value of a business being undermined due to loss of confidence.
As firms are transitioning towards inter-organizational collaborations outside the firms’
boundaries to achieve sustained competitive advantage, trust becomes an apparent factor to consider at top management. Although trust is central in risk management strategies, it is inevitably the risk of betrayal that constitutes the main element of this complex paradigm, which can be assuaged with legal regulations and sanctions (Harland et al., 2003). Ritchie et al. (2000) argue that digital and advanced services developments entail increased risk exposure for those managing the supply chain due to new actors entering the market with disruptive technologies, products, and services, thereby enacting potential competitors.
2.3.3 Financial risks
The third risk domain, categorized as financial risk, refers to risk directly impacting a company’s net cash flow, where the financial dimension consists of problems concerning price, credit, inflation, liquidity, and potential losses (Cabedo & Tirado, 2004). Although prior studies provide a comprehensive view of various financial risk classifications, research is scattered to determine the underlying properties that constitute financial risks (Harland et al., 2003). As the nature of provider-customer relations in the IT industry is heavily characterized by contractual agreements (Bhatti et al., 2020; ICAEW, 1997), we argue that credit risk (e.g., the possibility that payment obligations are not fulfilled) and legal risk (e.g., a firm’s inability to meet contract conditions) (Cabedo & Tirado, 2004) are hygiene factors in VCC contexts. Hence, this study will empirically investigate these unveiled risk domains alongside the classification of risks outlined above.
2.4 Connection between our theoretical foundation and empirical study
With the theoretical background enacting as a foundation for this study, we have established a bridge between the questions this study will explore and our empirical investigation. Firstly, after a rigorous review and synthesis of the present literature, we have reached a theoretically derived conclusion on how this study will view the relationship between the activities and roles by the provider and customer in value co-creation processes and its constituting elements (e.g. value creation, value-in-use, and value-in-exchange). We are informed that the enablers, risks, and challenges of value co-creation collaborations are associated with several factors (e.g.,
organizational structure, customer management, information sharing, internal and external communication, and risk management). Secondly, while there is a clear distinction between risks and challenges from the theoretical plane, we argue that these are closely linked, where risks could be regarded as unmanaged challenges. Thirdly, prior literature has merely discussed enablers for value co-creation at a conceptual level, where the risks emerging from value co- creation during value proposition development are particularly scarce (Benedettini et al., 2015).
Moreover, there is limited insight into how to mitigate these risks, where existing literature has focused on mitigating risk responses related to PSS (Reim et al., 2016), and have yet to adopt a value co-creation perspective. Thus, we intend to fill this gap by investigating facilitating enablers and emerging risks during value co-creation, and how these can be mitigated with specific actions. In Figure 4, we illustrate the interrelation between these aspects that we will build upon in the inductive analysis.
Figure 4: Overview of key aspects in value co-creation
3. METHOD
This chapter outlines the conducted methods in order to answer the stated research questions and fulfill the study’s overarching purpose. More specifically, it includes the selected research approach and case study alongside a description of how data was collected and analyzed. Lastly, the measures used to improve the quality of this study are presented.
3.1 Research approach and strategy
Given the scarce prior knowledge and research around enablers and risks associated with value co-creation activities in the IT industry, this study adopted an inductive exploratory approach (Saunders et al., 2016). This approach allowed us to progressively increase our understanding of the research area while continuously reviewing the study’s scope and purpose. The utilization of initial exploratory interviews provided a direction for the theoretical background, which provided clarity in determining the research direction and relevant areas for further exploration.
Also, an inductive exploratory research methodology was suitable given that it allowed us to acquire deeper insights within a research area that is relatively unexplored i.e., enablers and risks in value co-creation activities in an IT context (Saunders et al., 2016).
The study adopts a qualitative research approach as it allows for the researcher to obtain a deeper understanding and conduct analysis from the study participants’ perspective (Hennink et al., 2020). In qualitative studies like ours, inductive and exploratory approaches are central as it leads to flexibility and openness in changing the stated research questions, the design of the interview questions, and the structure of the theoretical background (David & Sutton, 2011). Hence, the present study combines prior research and empirical observations, allowing us to move iteratively between the theoretical and empirical perspectives.
To fulfill the purpose of our study, our study employed a single case study of a specific business environment in the IT industry (Saunders et al., 2016). By adopting a single case study, it enabled us to gain a comprehensive understanding of the current business environment by comparing actors’ different affiliations with the case company, their involvement in value co-creation processes, and their perceived value of these offerings. Figure 5 presents a visual illustration of our research process.
3.1.1 Case selection
The single case study has been conducted at the Swedish branch of a technology company operating in the IT sector in the Nordic and Baltic regions alongside their collaborative customers. The company, further referred to as Alpha, was established in 1968 and is currently the leading IT infrastructure provider and offers related services such as system integration and consultancy services related to their product portfolio. Today, over 50 years after its founding, the company has grown organically by expanding its operations through over 70 acquisitions, enabling them to possess an unraveled position in the market with a unique range of products and local market presence. In 2019, the company generated total revenue of 15,9 billion SEK and reported an operating income of 541 million SEK. In response to these events, there are two reasons why this specific company was well-suited to explore the research questions. First, despite the company is experiencing considerable growth, its profit margins are relatively low, posing a need for further investigation. Second, the company has seen a need to convert innovative ideas in-house by seeking new ways of transforming these effectively into profitable business models through co-creation activities alongside partners and customers. The included organizations in the study are represented in Table 2.
Table 2: Included organizations in the study Figure 5: Research process
3.2 Data Collection
Throughout the course of this study, a variety of methods have been used to collect data in order to obtain a comprehensive understanding of the situation. Interviews and documented material have all contributed to fulfilling the study’s purpose. Interviews with employees at Alpha and from external sources e.g., customers represented the primary source of data as we wanted to acquire information from people experiencing the situation of inquiry (Gioia et al., 2013).
Moreover, documented material provided by Alpha complemented the data collection. The interviews were conducted in three waves spanning over five months, each with explicit purposes: 1) exploratory, 2) in-depth, and 3) validatory. Additionally, informal meetings with supervisors at Alpha proceeded continuously during the study. Considering the ongoing COVID-19 pandemic situation, all of the interviews were conducted digitally via video link and were recorded to enable convenient and accurate transcribing and to mitigate the potential loss of data. Both of us were present through all interviews, where one person took notes and the other led the interview. Throughout all interviews, this process was repeated, where we continuously shifted the responsibility of taking notes, leading the interview, and asking follow- up questions that arose. In total, 27 interviews with 19 unique respondents were conducted ranging from 20 to 61 minutes, see Table 3 for an overview of the respondents.
3.2.1 Interviews
Wave 1 - Exploratory interviews
The first phase of exploratory interviews intended to increase the overall understanding of the current situation while setting a research direction for the study. The interviews were conducted through open-ended questions to enable discussion between the interviewee and the interviewer (see Appendix I). This allowed us to obtain deeper insights into the perceived challenges the company was facing from their perspective. In this phase, respondents were selected on: 1) recommendations by supervisors at Alpha based on the respondent’s knowledge and experience, and 2) snowball sampling. In total, six exploratory interviews were conducted with respondents across several business units at company Alpha, each occupying different expertise areas. This enabled us to create a holistic view of Alpha’s most urging challenges related to the situation of
Table 3: Overview of the interview respondents
interest. All of the interviews were recorded with approval from the respondents, and notes were taken meanwhile.
Wave 2 - Semi-structured interviews
In the second phase of the data collection, we interviewed two diverse groups of respondents;
customers affiliated with Alpha, and employees at Alpha. In this phase, the interviews followed a semi-structured approach to seek in-depth answers to the formulated research questions and thus contribute to fulfilling the research purpose. The interview questions were predetermined with some customization depending on the respondent’s area of expertise and if it was an internal respondent (see Appendix II), or an external respondent e.g., customer (see Appendix III). Some questions were directly connected to the theoretical background, whereas others were based on the findings from the initial exploratory interviews. Moreover, the interview guide was adapted accordingly as the research progressed and new insights emerged from previous interviews. The semi-structured format was suitable given that it enabled us to ask follow-up questions to reach depth in specific answers while preventing valuable information from being lost (Saunders et al., 2016). All respondents were either selected based on recommendations from the first wave of interviews or on their experience of previous value co-creation projects. More specifically, external respondents were selected based on discussions between supervisors and corresponding Key Account Managers at Alpha. A total of 17 semi-structured interviews were held, 12 of them with internal respondents at Alpha, and five with external customers.
Wave 3 - Confirmation interviews
The third phase of interviews had the purpose of validating and consolidating the empirical findings, thereby filling potential information gaps from previous interviews while clarifying and confirming any unresolved questions or statements (Leech & Onwuegbuzie, 2008). During this phase, respondents were chosen with respect to their knowledge of the research subject and value co-creation in general. In total, four confirmative interviews were conducted, and notes were taken meanwhile. To ensure that exhaustive conclusions could be drawn and that the information gap would be filled, the results and final framework were discussed with an experienced researcher within the field.
3.2.2 Documented material
Documented materials such as reports, information sheets, and internal presentations complemented the interviews with general information regarding the studied business environment, including the actors involved and their respective roles in value creation processes.
These were briefly analyzed and interpreted to obtain a non-biased view of the content although detailed descriptions about them emerged from certain wave two interviews. The majority of the documented material was distributed by the respondents, while in some cases the material was found on the organizations’ website. In total, four documents were reviewed.
3.3 Data Analysis
To establish a formal structure to organize data (Bradley et al., 2007), suitable for a qualitative and an inductive exploratory research approach, we relied on a combination between the Gioia Methodology (Gioia et al., 2013) and thematic analysis (Braun & Clarke, 2006) to guide the data analysis and ensure qualitative rigor. This methodology is suitable as it allows for flexibility when analyzing explorative data (Gioia et al., 2013), which was suitable given that the study aimed to develop existing theory in a relatively unexplored research area by iterating between the empirical data and present literature on enablers and risks in value co-creation activities.
Following this purpose, the Gioia Methodology’s approach was applied, enabling the possibility to generate initial codes, sub-themes, and themes without considering existing theories (Gioia et al., 2013). Hence, the hybrid approach allowed us to develop rather than generate theory. See Figure 6 below for a visual representation of the coding process.
When conducting our analysis, the second and third steps were conducted iteratively to ensure that no significant subtleties were neglected. Likewise, the analysis and results were mainly based on the data collected from the semi-structured interviews in wave two, whereas the first and third waves of interviews provided guidance and affirmed the findings. The documented material and insights from wave one primarily served as a complementary function to the interviews.
Figure 6: Coding process
3.3.1 Step 1: Familiarize with data
In the first step, after all data had been collected (referred to as Step 0 in the figure above), including the transcripts from the interviews, we began the analysis by immersing ourselves with the entire data set to get familiar with the content and to create a holistic overview. The transcripts were thoroughly read independently and repeatedly by both researchers to ensure that the researchers were well acquainted with the material and had a clear comprehension of its substance. After the initial reading, as Braun and Clarke (2006) suggest, the analysis continued with open coding through individual notetaking by highlighting statements related to each RQ, enacting as ideas for codes, themes, and potential findings (see Appendix IV). Notes were later compared and discussed to establish a mutual understanding of the collected data and its content.
This step resulted in 339 quotes categorized as 235 codes.
3.3.2 Step 2: Generate initial codes
In the second step, data related to our purpose and research questions were further analyzed, and codes, similar to Corley and Gioia’s (2004) 1st-order concepts, were generated that appeared interesting given the study’s purpose. Data were analyzed separately concerning each respondent type (e.g., external and internal) to capture and highlight the differences between the actors in the business environment. Moreover, we coded the data in relation to our RQs, meaning that data related to RQ1 was disaggregated and coded separately from data related to RQ2. Codes were labeled to reflect either enablers (RQ1), or risks and specific actions to mitigate these (RQ2). For instance, two codes concerning RQ1 were ‘knowledge sharing’ and ‘incremental steps’ while two for RQ2 were ‘credibility’ and ‘vertical integration’. Thus, the purpose of this step was to cluster relevant data fragments in relation to each RQ independently to screen out irrelevant data while simultaneously making it more accessible for further analysis. See Appendix V for an overview of how we structured our analysis.
3.3.3 Step 3: Search for categories and themes
Once all data had been coded and reviewed, the third step was to analyze the similarities and differences amongst the codes to establish overarching themes and corresponding categories that shared similar features. In cases where a specific code did not correspond to any category, these were clustered separately, which either formed the basis of a new category, or was discarded given that it did not contribute to fulfilling the study’s overall purpose. To this background, this resembles Gioia et al. (2013)’s 2nd-order themes, and as the authors propose, the themes were evaluated depending on their ability to explain the phenomenon of interest and how they could
fulfill the purpose of the study. Codes and categories related to RQ1 were labeled as enablers (E). Likewise, the same approach was applied for codes and categories concerning RQ2, i.e., labeled as a risk (R) or a mitigating action (A). This generated a total of 35 initial categories (e.g., collaboration characteristics, pilot testing, maturity, and vision alignment) where seven initial themes were developed: Activities of value co-creation, Relationship management, Resistance to change, Value management, Business model, Resources and capabilities, and Market dynamics.
3.3.4 Step 4: Establish thematic map
The fourth and final step entailed consolidating themes, categories, and codes into the final version of the thematic map. Themes, categories, and corresponding codes were all evaluated individually at first and then in relation to each other (Braun & Clarke, 2006). When new categories emerged, the initial themes were improved. For instance, the themes ‘Business model’
and ‘Market dynamics’ were merged into the themes ‘Value management’ and ‘Relationship management’. Similar categories were also merged, some split into more specific ones to illustrate the content more precisely, where others were entirely removed. This resulted in a total of 22 categories (e.g., transparency, organizational transformation, external monitoring, replicability, and subsidization). To ensure that constituent themes and categories reflected the entire data set and to mitigate potential outliers from the empirical observations, themes and categories were mutually exclusive and collectively exhaustive (MECE). This processual approach was continuously iterated by referring back to the dataset to identify potential clarifications and changes of codes, themes, or categories when needed. The third wave of interviews and verified and confirmed preliminary ideas, resulting in minor adjustments in codes and themes in the final thematic map.
3.4 Quality Improvement Measures
To ensure the trustworthiness of a qualitative research study, Lincoln and Guba (1985) suggest four quality improvement criteria through which validity and reliability can be evaluated accordingly: credibility, transferability, confirmability, and dependability. To achieve credibility, referred to as the accuracy of the findings (Murphy et al., 2017), we aimed to minimize the risk of influencing the material with biases. Springing from this, we collected data emanating from different perspectives by interviewing respondents from different companies with different roles, e.g., business developers, top-level managers, and sales representatives, to ensure we covered perspectives across multiple business functions. Also, as suggested by Lincoln and Guba (1985),
we used triangulation when analyzing the data from the interviews, i.e., verifying respondents’
viewpoints against each other alongside the insights gained from workshops and documented material. Lastly, to decrease the risk of misunderstandings, all interviews were conducted in the native language of the respondent.
Transferability constitutes to what extent the findings can be transferred to similar contexts and situations (Shenton, 2004). However, as the study’s nature originates from a single case study research approach, the transferability is considered to be limited outside this domain (Murphy et al., 2017). Despite this shortcoming, we have tried to establish this criterion according to the following: 1) having our study reviewed by three students and one supervisor at four separate seminars, and 2) providing a consolidated description of the studied context, allowing researchers and managers to evaluate if the results can be applied to other contexts based on their judgment and experience.
To reach confirmability, i.e., to which extent which objectivity has been preserved throughout the research when drawing conclusions based on the collected data (Shenton, 2004), multiple data sources with different characteristics have been used when identifying specific quotes, either verifying or contradicting the enablers and risks until final conclusions were drawn. To this background, we analyzed the findings using a structured thematic approach, where the coding of the data was based on the respondents’ answers rather than our own preconceptions.
Finally, to establish dependability, i.e., to ensure that the work process could be repeated with a similar outcome (Shenton, 2004), we provided high transparency when describing the systematic work process and thorough documentation of the data collection and analysis. Furthermore, the researchers have emphasized the significance of revealing observer and participant error bias throughout the interviews (Saunders et al., 2016). To mitigate the influence and effects of the researchers bias, close discussions with supervisors at Alpha and classmates have been conducted.
