Moving from B2X to B2X2Y Value Propositions in Service System Networks

SAN JOSÉ STATE UNIVERSITY (SJSU) & KARLSRUHE INSTITUTE OF TECHNOLOGY (KIT) & IBM

www.sjsu.edu www.kit.edu www.ibm.com

Moving from B2X to B2X2Y Value Propositions in Service System Networks

Stephen K. Kwan, Peter Hottum, and Cheryl A. Kieliszewski1st International Conference on Human Side of Service Engineering, HSSE 2012San Francisco, 24 July, 2012

San José State UniversityKarlsruhe Institute of Technology

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Agenda

Introduction

Value Propositions in Service System Networks

Model for Value Propositions based on B2X2Y scenarios

Outlook: Concept of loss-less derivations of Value Propositions

Further Research and Limitations

Moving from B2X to B2X2Y Value Propositions in Service System Networks7/24/2012

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ServiceExperience

ServiceProvider

Customer

Source: Kwan & Min (2008): An Evolutionary Framework of Service Systems.

Several Service Systems with their entities spanning a Service System Network

ServiceSystem

B ServiceSystem

C

ServiceSystem

D

ServiceSystem

E

ServiceSystem

F

service interactions

Service System A

7/24/2012 Moving from B2X to B2X2Y Value Propositions in Service System Networks

“Service System Worldview”


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ServiceExperience

ServiceProvider

Customer

Community

Partners

Service System

Value ValueValue

In Service Systems Value is co-created through Value Propositions

Traditional B2B and B2C Value Propositions for service offerings are premised on the service provider convincing the business or consumer customers that they will receive superior value at certain cost in a competitive environment

Business environments become more global and complex, so that Service Providers often have to construct a Network of Partners and/or Contractors to fulfill the service obligations as promised by their Value Propositions

Customers in turn share service value with their Community through their own social Value Propositions

Representation is an extract from: Kwan & Min (2008): An Evolutionary Framework of Service Systems.



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An Example from an Industrial Scale Service Provider


Source: Anand, K. et al. (2012) “Value Driven Approach for Services Design”.

250,000 Employees delivering services

Deliversservice

Partner (P)

Contract

offers accepts

Customer(C)

Provider(B)

VP SLAValue

Proposition

ServiceLevel

Agreement


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A provider should look beyond his customers in service constellations

Looking more closely on four scenarios: Outsourcing Channel Partners Outcome-based Contracting Extending Customer Value


Customer’s Value System

Provider’s Value System

His Customer’s Value System

★★ ★ ★

★ ★★★

Customer

Provider

Customer’s Customer

Opportunities for Value Co-Creation


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The variety of Value Propositions is diverse

Sta

keh

old

ers

Service Provider

Society

Community

Employees

Stockholders

Partners

Customers

Value Dimensions

Maslow’sHierarchyOf Needs

HedonicSpiritualCulturalCorporal

EmotionalIntellectualFamilial….

A point in this 3-D space is a potential Value Proposition e.g. Service

Provider / Society / Environmental

Intrinsic

Social

Societal

Political

Functional

Environm

ental

Econom

ic


Ser

vice

Pro

vide

r

Soc

iety

C

omm

unity

Em

ploy

ees

Sto

ckho

lder

s

P

artn

ers

C

usto

mer

s

Stakeholders


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Our approach is based on a formalized model of Value Propositions

A customer looking for service may be confronted with many Value Propositions (VP’s).

Each VP is made up of a vector of attributes offered by a Service Provider (SP):

VPj = [SE,B,C,P,Q,Sc,R,M]j

where,

j J competition and/or substitute product/service

SEj Service Experience offered by SPj which is made up of a set of obserable or evidential Service Components: SEj = {Sij, i=0,…,n}each SEj can be partitioned into one or more Service episodes:

SEj Sejk,k = 0,…,K

where each Servce episode could be transformed by SPj and/or his service network partners.

Source: Kwan & Müller-Gorchs (2011). Constructing Effective Value Propositions for Stakeholders in Service System Networks.



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Each Value Proposition is based on a set of these attributes


Service Experience

Benefits

Costs

Probabilityof Success

Quality

Schema for DataExchange

StakeholderRoles

PerformanceMetrics

** Expected **

VPj = [SE,B,C,P,Q,Sc,R,M]j

will do

will do for

+$

will not do


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Business Model – Outsourcing

The success of such service system networks depends on the alignment of Value Propositions

They have to deliver the service obligations to the customers as promised If the linkages among provider, customer and partners are broken, the

customers will likely be dissatisfied with the level and quality of service


[ SE ] [ B ] [ C ] [ P ][ S0 … SN ] ∑

𝑖=0

𝑁

𝑓 (𝑆𝑖)

[ Q ] [ Sc ] [ R ][ M ]VP

cService Experience

is composed of a set of Service Components

for the customer

that are deliveredover time as a seriesof Service Episodes [ Se0 … SeK ]

from the partner/subcontractorOften is the Low cost provider

= SLA?

?

1

VPp


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scenario: banking - outsourcing service call center

Partner / Outsourcer provides service to the customer of the bank based on contract with the bank.

Value Proposition: “I will do this for your customers….” or the bank issues an RFP of the form: “Do this for my customers…”

Often there is a disconnect with the bank’s customers due to misalignment of value propositions and/or loss of linkage.


Customer(C)

Provider (B)

1

Customer(C)

Provider(B)

Partner (P)

Customer(C)

Provider(B)

Partner (P)

equals to

VPc

service

VPp


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scenario: CISCO - selling through channel partners

CISCO sells its products and services through channel partners*. “Sell this to my customers…” Often the channel partners add value to the products and services they resell (VAR).

Problems arise when channel partners are not enthusiastic in selling certain services to the customers because they do not benefit directly from them.

There is a misalignment of value propositions.


Customer(C)

Provider (B)

Customer(C)

Provider(B)

Partner (P)

Customer(C)

Provider(B)

Partner (P)

equals to

service

VPc

VPp

* except direct sales to large customers

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scenario: Outcome-Based Contracting

This is based on the business model that you get paid based on how much you improve the outcome of your customer.

The outcome is usually some KPI of your customer (some dimension of his value system). This could well be what the customer needs to improve his performance to serve his own customer better.

Examples Rolls Royce’s model of

“Power by the Hour” UPS handles logistics and sales

for customers John Deere coordinates the

harvesting for customers


Customer(C)

Provider(B)

Customer’s Customers

(C)service

3


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scenario: Apple – extending value beyond your customers

Apple sells products that empower the customers to connect and share value with their friends and community.


Customer(C)

Provider(B)

Customer’s Community

(C)

equals to

Customer(C)

Provider(B)

Customer’s Customers

(C)service

4

Pictures are taken from 23th WWDC (Worldwide Developers Conference) in June 2012 in San Francisco


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The Value Proposition Patterns considered can be represented as…


★★ ★

★

★ ★★★X

B

Y

Scenario Value Proposition Common representation

Outsourcing P 2 B 2 C

B 2 X 2 YChannel Partners B 2 P 2 C

Outcome-based Contracting B 2 C 2 C

Extending Customer Value B 2 C 2 C


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Outlook: Derivations of Value Propositions (1)

An enterprise can be viewed as a hierarchy of Value Propositions presented to its stakeholders. Each Value Proposition at a lower (more micro) level should be derived from one at a higher (more macro) level – without loss of essential information – and vice versa.

For example: The syllabus of a course could be viewed as a Value Proposition to a student from this hierarchy:


University

College

Department

Major

Concentration

Course


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Outlook: Derivations of Value Propositions (2)

The subcontract for third/fourth… party service provider should be derived from the original Value Proposition (then SLA) without loss of essential information.

Furthermore the experience of the customer is cumulative and the sum of experience (quality, completeness, etc.) from all the service episodes.


*from Dan Pritchett

Example*


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Further Research and Limitations

Further Research

Within Service System Networks even more trilateral constellations between providers, partners and customers will come into existence, so the perspective of B2X2Y will help capture the complexity more extensively

More real world scenarios should be examined to demonstrate their applicability.

Develop the concept of “loss-less” derivation using the VP model.

Limitations

Examples only taken from United States and Germany

Need more examples to validate



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References

Anand, K., Lokku, D.S., Zope, N. R. (2012) “Value Driven Approach for Services Design”. Presented at ISSS 2012, July 15th-20th, San José, USA.

Kwan, S. K. & Min, J. H. (2008) An Evolutionary Framework of Service Systems. Presented at the International Conference on Service Science, Beijing, China, April 17 th -18th .

Kwan, S. K., Muller-Gorchs, M. (2011). Constructing Effective Value Propositions for Stakeholders in Service System Networks. Proceedings of SIGSVC Workshop. Sprouts: Working Papers on Information Systems, 11(160). http://sprouts.aisnet.org/11-160

Kwan, S. K. & Yuan, S. T. (2011) Customer-Driven Value Co-Creation in Service Networks, in Demirkan, H., Spohrer, J. C. and Krishna, V. ed., The Science of Service Systems, volume in Service Science: Research and Innovation (SSRI) in the Service Economy series, Springer.

Acknowledgement

This study was supported by the Karlsruhe House of Young Scientists (KHYS).



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Contact

Stephen K. Kwan, Ph.D.

SJSU – Service Science, Management Information Systems

San José, California, USA

[email protected]

Peter Hottum

KIT - Karlsruhe Service Research Institute (KSRI)

Karlsruhe, Germany

[email protected]

Cheryl A. Kieliszewski, Ph.D.

IBM Almaden Research Center

San José, California, USA

[email protected]


Moving from B2X to B2X2Y Value Propositions in Service System Networks

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