International Journal of Physical Distribution & Logistics ManagementService provision for co-creation of value: Insights from exchange- and productioneconomy perspectivesTrond Hammervoll

Article information:To cite this document:Trond Hammervoll , (2014),"Service provision for co-creation of value", International Journal of PhysicalDistribution & Logistics Management, Vol. 44 Iss 1/2 pp. 155 - 168Permanent link to this document:http://dx.doi.org/10.1108/IJPDLM-02-2013-0024

Downloaded on: 28 October 2014, At: 00:37 (PT)References: this document contains references to 73 other documents.To copy this document: permissions@emeraldinsight.comThe fulltext of this document has been downloaded 233 times since 2014*

Users who downloaded this article also downloaded:Dr Robert F Lusch, Dr Stephen L Vargo, Dr Ron Fisher, Steffen Maas, Stefan Herb, Evi Hartmann,(2014),"Supply chain services from a service-dominant perspective: a content analysis", InternationalJournal of Physical Distribution & Logistics Management, Vol. 44 Iss 1/2 pp. 58-79 http://dx.doi.org/10.1108/IJPDLM-11-2012-0332Dr Robert F Lusch, Dr Stephen L Vargo, Dr Ron Fisher, Mehmet Chakkol, Mark Johnson, JawwadRaja, Anna Raffoni, (2014),"From goods to solutions: how does the content of an offering affect networkconfiguration?", International Journal of Physical Distribution & Logistics Management, Vol. 44 Iss 1/2pp. 132-154 http://dx.doi.org/10.1108/IJPDLM-03-2013-0064Dr Robert F Lusch, Dr Stephen L Vargo, Dr Ron Fisher, Chun Hsien Liu, Ming-Chao Chen, Yi-HsienTu, Chu-Ching Wang, (2014),"Constructing a sustainable service business model: An S-D logic-basedintegrated product service system (IPSS)", International Journal of Physical Distribution & LogisticsManagement, Vol. 44 Iss 1/2 pp. 80-97 http://dx.doi.org/10.1108/IJPDLM-02-2013-0039

Access to this document was granted through an Emerald subscription provided by 203744 []

For AuthorsIf you would like to write for this, or any other Emerald publication, then please use our Emerald forAuthors service information about how to choose which publication to write for and submission guidelinesare available for all. Please visit www.emeraldinsight.com/authors for more information.

About Emerald www.emeraldinsight.comEmerald is a global publisher linking research and practice to the benefit of society. The companymanages a portfolio of more than 290 journals and over 2,350 books and book series volumes, as well asproviding an extensive range of online products and additional customer resources and services.

Dow

nloa

ded

by U

nive

rsity

of

Okl

ahom

a A

t 00:

37 2

8 O

ctob

er 2

014

(PT

)

Emerald is both COUNTER 4 and TRANSFER compliant. The organization is a partner of the Committeeon Publication Ethics (COPE) and also works with Portico and the LOCKSS initiative for digital archivepreservation.

*Related content and download information correct at time of download.

Dow

nloa

ded

by U

nive

rsity

of

Okl

ahom

a A

t 00:

37 2

8 O

ctob

er 2

014

(PT

)

Service provision for co-creationof value

Insights from exchange- and productioneconomy perspectives

Trond HammervollDepartment of Business Administration and Social Sciences,

Harstad University College, Harstad, Norway

Abstract

Purpose – The purpose of this paper is to consider inter-organisational issues in supply chainrelationships (SCRs) with a view to advancing research on co-creation of value in the service dominantlogic (SDL) field.

Design/methodology/approach – The study presents a conceptual analysis of current ideas onpurchasing and SCRs with special emphasis on inter-organisational collaboration as viewed fromexchange- and production economy perspectives. Important types of service buyers and sellersprovide in order to co-create value in SCRs are explored.

Findings – Both exchange- and production economy perspectives offer useful insights for the studyof co-creation of value in SCRs. The exchange economy perspective recognises service provision interms of information sharing, adaptation and commitment, while the production economy perspectiverecognises service provision in terms of production proficiency, craftsmanship and entrepreneurship.

Research limitations/implications – SDL researchers should recognise the relevance of bothexchange- and production economy perspectives in further study of co-creation of value in SCRs.Future research should consider how specific types of service provision are affected by operantresources as well as other important SDL concepts, such as trust, buyer involvement and relationalorientation.

Originality/value – This paper considers specific types of service provision in SCRs for the purposeof co-creation of value.

Keywords Entrepreneurship, Service dominant logic, Buyer seller relationship, Craftsmanship,Inter-organisational relationships, Production proficiency

Paper type Conceptual paper

1. IntroductionThis paper considers inter-organisational issues in supply chain relationships (SCRs)with a view to advance research on co-creation of value in the service dominant logic(SDL) field. Following Vargo and Lusch (2004a), instead of “marketing to” buyers andother partners, organisations should “market with” them, and value creation should betreated as emerging from an interactive process between a buyer and seller (Chen andWatanable, 2007; Tokman and Beitelspacher, 2011).

The process by which buyers and sellers co-create value has received considerableresearch attention, especially on aspects such as SCR duration, joint action,

The current issue and full text archive of this journal is available at

www.emeraldinsight.com/0960-0035.htm

A previous draft has benefitted from valuable comments from Sven Haugland, Per Heum,Torger Reve. The anonymous reviewers have provided many suggestions for improving thefinal manuscript – thank you!

International Journal of PhysicalDistribution & Logistics Management

Vol. 44 No. 1/2, 2014pp. 155-168

q Emerald Group Publishing Limited0960-0035

DOI 10.1108/IJPDLM-02-2013-0024

Service provisionfor co-creation

of value

155

Dow

nloa

ded

by U

nive

rsity

of

Okl

ahom

a A

t 00:

37 2

8 O

ctob

er 2

014

(PT

)

and marketing planning and execution ( Joskow, 1987; Heide and John, 1990;Noordewier et al., 1990; Powers and Reagan, 2007). A key tenet of SDL is that increasedbuyer involvement in the production process is associated with more relationalorientation and more value creation (Lusch and Vargo, 2006). Such involvement occursvia participation in the production process, co-innovation or customisation (Vargo andLusch, 2004a). Buyer involvement in itself can increase satisfaction (Jaworski andKohli, 2006), increase relational and long-term orientation (Fournier and Mick, 1999)and ultimately become a source of competitive advantage (Jaworski and Kohli, 2006;Hammervoll, 2009, 2012). This knowledge on how SCR duration, joint action,marketing, and buyer involvement are related to co-creation of value does not,however, say much about which specific actions buyers (or suppliers) undertake tocontribute to such value creation.

In SDL-language, this means that we lack knowledge on service provision in SCRs.Service provision is the process of using one’s operant resources for the benefit of thepartner organisation (Vargo and Lusch, 2004b). Operant resources are skills andknowledge (Lusch et al., 2007). Hence, in an attempt to advance research on co-creationof value in SCRs, the goal of this study is to explore important types of service buyersand sellers provide in order to co-create value in SCRs.

According to the classical model of effective purchasing (Westing et al., 1969), thebuyer pits suppliers against one another, price is the sole cost item considered, and as aconsequence, suppliers are held at arm’s length so that they can be replaced easily. Theadvantages of using several suppliers are better price-level control and increasedsupply security (Puto et al., 1985). Buyers strive to minimise all cost components(including price, freight, insurance, etc.) in order to achieve efficiency in purchasing(Schiele et al., 2011).

More recently, there has been a shift from competitive to collaborative purchasingstrategies (Dyer and Hatch, 2006). Advocates of collaborative purchasing practise arguethat long-term cooperation between buyers and sellers in terms of supplier involvementand supplier development (Svahn and Westerlund, 2009), produces more benefits for theexchange partners than are available from the traditional competition-basedarrangements (Heide and John, 1990). This shift in focus means that there is a need toconsider buyers’ and seller’s contribution to co-creation of value, i.e. the services theyprovide in the SCR (Vargo and Lusch, 2008).

Hitherto, the drivers of co-creation of value have only been addressed at an abstractlevel (Oliver, 1990), and in practise, purchasing has mostly been concerned with costreduction, which is “one of the most critical mistakes a company can make”, accordingto David Simchi-Levi (Hopkins, 2010, p. 9). Costs are incurred externally or associatedwith handling a supplier (contracts, negotiations, invoice, handling, etc.). Despite a fewinitiatives (Gadde et al., 2010; Carr and Pearson, 1999; Steinle and Schiele, 2008;Wouters et al., 2005), service provision for pursuing opportunities (except for costreduction), have not been identified. Hence, it remains to be established which servicethat needs to be encouraged in SCRs for the purpose of increasing co-creation of value.

This paper attempts to fill some of this knowledge gap. This is relevant from atheoretical point of view as it extends SDL research on SCRs, and, from a practicalpoint of view, as it informs managers on how to actually promote co-creation of valuewith supply-chain partners, beyond general notions of, for example, buyerinvolvement.

IJPDLM44,1/2

156

Dow

nloa

ded

by U

nive

rsity

of

Okl

ahom

a A

t 00:

37 2

8 O

ctob

er 2

014

(PT

)

The rest of the paper is organised as follows. First, exchange- and productioneconomy perspectives are explained. Next, service provision from the perspective of anexchange economy and a production economy perspective is explored, as summarisedin Table I. Finally, future research directions are presented, taking into account theinsights offered in this paper.

2. Exchange and production economy perspectivesSDL scholars criticise the traditional view of the primacy of goods (operand resources),arguing that relationships, service and operant resources deserve more focus (Vargo andLusch, 2004a). Operant resources are the skills and knowledge required for providingservice (Lusch et al., 2007). Co-creation of value is commonly understood either in terms ofthe value created by the object of exchange (services and/or goods) or as the value createdin the process of exchange (Lindgreen and Wynstra, 2005), from the buyer’s point of view.From an inter-organisational viewpoint, the seller’s motivations and concerns also needto be considered. Hence, taking an inter-organisational perspective, co-creation of valuemust be considered for the exchange process from the seller’s, as well as the buyer’s, pointof view. In order to spell out important service exchange partners provide in co-creationof value, two different views on inter-organisational relationships – exchange- andproduction economy perspectives (Brousseau, 1993) – are used in this paper.

The exchange economy perspective views SCRs as the means for achievingtransactions that alters one allocation of resources into another allocation (that isdesired) (Coase, 1937; Commons, 1934; Williamson, 1985). In a world with no transactioncosts, the market mechanism would be best suited to coordinate all transactions betweenfirms, but whenever the market fails, SCRs are a more cost-effective alternative(Williamson, 1985). Studies of co-creation of value from the exchange economyperspective draw upon the transaction cost theory and the principal-agent theory(Arrow, 1985; Bergen et al., 1992; Heide and John, 1990; Klein et al., 1978; Noordewier et al.,1990; Rubin, 1990; Williamson, 1985).

While the exchange economy perspective assumes a fixed object of exchange, theproduction economy perspective is concerned with influencing the characteristics of theobject of exchange. Changes made to the object of exchange typically affect prospectiveprofits. Thus, the production economy perspective has been developed in response tocalls from purchasing theorists for focusing more on revenues in SCR (Gadde et al., 2010).

Exchange economy Production economy

Operant resourcesKnowledge Skills

1. Partner characteristics 1. Production management2. Market demand 2. Quality management

3. Innovation managementSkills

Identify and motivate exchange partner serviceprovision

Service provision1. Information sharing 1. Production proficiency2. Adaptation 2. Craftsmanship3. Commitment 3. Entrepreneurship

Table I.Key operant resources

and service provision inexchange- and production

economy perspectives

Service provisionfor co-creation

of value

157

Dow

nloa

ded

by U

nive

rsity

of

Okl

ahom

a A

t 00:

37 2

8 O

ctob

er 2

014

(PT

)

It refers to the view that exchange partners in a SCR co-create value by developingcompetencies (Brousseau, 1993). Co-creation of value is hence understood in terms of thevalue created in the process of exchange (Lindgreen and Wynstra, 2005), and a SCR isseen as a means for developing transactional content adopting a “resource based view”(Barney, 1991), as do Azadegan (2011) and Mesquita et al. (2008). An importantdifference between the production economy and exchange economy perspectives is thatin the latter competencies are not just assumed to exist – they need to be developed, andthe challenge lies in making use of knowledge resources held by partners. Moreover, theproduction economy perspective assumes that organisational boundaries areinterpenetrated in the pursuit of co-creation of value (Zajac and Olsen, 1993). Keyconstructs addressed in the production economy perspective include inter-firmknowledge-sharing routines among buyers and sellers (Dyer and Singh, 1998), andquality assistance and productivity assistance (Dyer and Hatch, 2006). However,the production economy perspective has only modestly impacted research on SCRs,despite the efforts of Brousseau (1993) and Zajac and Olsen (1993). Students ofcollaborative SCRs, such as for example Dyer and Singh (1998), therefore appears tobelong in the exchange economy perspective, although they address productioneconomy issues.

3. Service provision in an exchange economy perspectiveAccording to Williamson (1985, p. 1), “a transaction occurs when a good or service istransferred across a technologically separable interface. One stage of activityterminates and another begins”. The co-creation of value in SCRs under the exchangeeconomy perspective refers to successful completion of transactions between the buyerand the seller.

Important service in an exchange economy perspective is efforts consisting ofavoiding or preventing the different obstacles that might prevent such desiredtransactions from occurring. The principal-agent theory and transaction cost theoryconsider the following obstacles: hidden information, hidden action, adaptation, andtransaction-specific investments (Arrow, 1985; Bergen et al., 1992; Heide and John,1990; Klein et al., 1978; Noordewier et al., 1990; Rubin, 1990; Williamson, 1985). Thisliterature considers integration and authority, e.g. by means of behaviour-basedcontracts, as governance solutions for successful co-creation of value (Williamson,1985; Bergen et al., 1992).

3.1 Avoiding hidden informationThe principal-agent theory considers two collaborative challenges in SCRs (Arrow, 1985;Bergen et al., 1992). The first challenge, avoiding hidden information, refers to a situationwith asymmetric information among firms. In other words, one firm has information thatis not available to the other firms. For example, firms do not fully know potentialsupply-chain partners, or buyers do not know the quality of a product as well as the sellerdoes (Akerlof, 1970). The fundamental problem associated with hidden information islost opportunities for co-creation of value – useful SCRs may not be formed, and desiredtransactions may not be carried out because there is a lack of information.

The principal service that can solve the hidden information problem is informationsharing. Information sharing is the “formal and informal sharing of meaningful andtimely information between firms” (Anderson and Narus, 1990, p. 44). Prior to

IJPDLM44,1/2

158

Dow

nloa

ded

by U

nive

rsity

of

Okl

ahom

a A

t 00:

37 2

8 O

ctob

er 2

014

(PT

)

engaging in co-creation of value, information enables buyers and seller to learn aboutthe other party and its plans, and consider the possibilities for adapting their internalprocesses (Aulakh et al., 1996; Lorenzoni and Lipparini, 1999; Marchington andVincent, 2004). In other words, information sharing enhances the chances for selectingappropriate partners and transactions.

3.2 Preventing hidden actionThe second problem considered in the principal-agent theory is hidden action (moralhazard). While preventing hidden information is a problem that occurs prior toengaging in the co-creation of value in SCRs, the hidden action problem occurs duringthe co-creation process (Bergen et al., 1992). Hidden action refers to a situation where afirm’s actions are not visible to another party, and it arises because a certain amount oftime separates:

. the agreement to contribute; and

. the actual contributions to value creation (Commons, 1934).

The fundamental problem associated with hidden action is lost opportunities forco-creation of value – desired transactions may not be carried out – as promises madeare intentionally broken.

Principal-agent theory does not consider how service provision relates to operantresources. However, in line with Ghosh and John (1999) who suggest that some firmshave developed the skill to identify and motivate “right efforts” from exchange partners,service can be seen as compliance with promises made (since fulfilling obligations is notobvious, and it entails using one’s resources for the benefit of another entity).

3.3 Ensuring adaptationThe transaction cost theory also considers two problems: the adaptation problem andthe safeguarding problem. When actors are limitedly rational, and the future isuncertain, or complexity is high, partners in the co-creation of value have to cope withthe adaptation problem (Noordewier et al., 1990). The basic problem is to achieveadaptive, sequential decision making in order to economise on bounded rationality sothat adjustments can be made as events unfold (Williamson, 1985; Rubin, 1990).The fundamental problem associated with adaptation is lost opportunities forco-creation of value – desired transactions may not be carried out as actors are notcapable of making the right decisions because they lack information or plans forcoping with changing circumstances.

Information sharing is found to be a major determinant of co-creation of value inSCRs, in part because it helps countering the adaptation problem (Powers and Reagan,2007). Information helps to better cope with changes in external market conditions(Aulakh et al., 1996; Lorenzoni and Lipparini, 1999; Marchington and Vincent, 2004). Inother words, operant resources (knowledge and skills to motivate exchange partnerparticipation) promote service provision in terms of information sharing and adaptingto changed circumstances.

3.4 Encouraging transaction-specific investmentsThe traditional focus of transaction cost theory has been that the existence oftransaction-specific investments points to the possibility that one party may benefit

Service provisionfor co-creation

of value

159

Dow

nloa

ded

by U

nive

rsity

of

Okl

ahom

a A

t 00:

37 2

8 O

ctob

er 2

014

(PT

)

from the fact that the other party is “locked in” when contract terms are to berenegotiated (Williamson, 1985). Transaction-specific investments are assets with ahigh degree of specificity – that is, they have less value outside of the SCR (Williamson,1985). This threat of opportunistic expropriation by the other party poses a safeguardingproblem (Klein et al., 1978; Heide and John, 1990). The fundamental problem associatedwith safeguarding is lost opportunities for co-creation of value-desired transactions maynot be carried out as firms hesitate to undertake transaction-specific investmentsidiosyncratic to a SCR.

For the study of co-creation of value, focus has shifted to how to motivate exchangepartners to undertake transaction-specific investments, because such investmentsincrease the potential for co-creating value (Ghosh and John, 1999). Such investmentsentail commitment (and vulnerability) to a SCR, and knowledge and skills to motivateexchange partner undertake transaction-specific investments is hence an operantresource, while the commitment itself can be seen as service provision (Ghosh and John,1999). There are two dimensions of such commitment: affective and calculative (Fullerton,2005; Gilliland and Bello, 2002). Affective commitment includes shared values, trust,benevolence and relationalism, and exists when one party identifies with and is attachedto the relational partner. Affective commitment is associated with the willingness to trustthat partners contribute the way they are supposed to. Calculative commitment involvesaccepting switching costs, sacrifice, lack of choice and dependence, and is considered tobe a more rational, economic-based dependence on product benefits, or pledges in terms ofspecific actions binding a channel member to a relationship (Ghosh and John, 1999).

4. Service provision in a production economy perspectiveUnder the exchange economy perspective, the important service provided in a SCRrelates to different obstacles that might prevent desired transactions from occurring.Transactional content is not questioned – it is threatened as fixed, but what about firms’motivations for conducting innovation and product development (Zajac and Olsen,1993)? When the object of exchange is changed, profits and the revenue side of businessare affected. Keeping pace with technological developments presents a huge challengefor many firms, in some cases updating is the responsibility of other firms, such ascomponent suppliers (Gadde et al., 2010; Lindgreen and Wynstra, 2005; Lusch et al.,2010; Vargo and Lusch, 2004a, b, 2008). In order to explore service provision related tochanging the object of exchange, the exchange economy perspective is not appropriate,but the production economy perspective offers useful insights.

The production economy perspective considers a firm as a bundle of resources(factors of production) that enable effective and efficient production. Such resourcescan be financial, physical, legal, human, organisational, informational and relational,and are defined to include “all assets, capabilities, organisational processes, firmattributes, information, knowledge, etc. controlled by the firm” (Barney, 1991, p. 101).

Consequently, a SCR encompasses such resources from the buyer and seller’sorganisations and act as a social entity (Van de Ven, 1976; Lusch et al., 2010). As anexample, Gadde et al. (2010) illustrate how the passenger-car division at Saab considersits suppliers to be an integral part of the Saab production system. Similarly, Williamsand Smith (1990) describe how product design, product development, design of qualitycontrol and delivery systems and long-term planning are integrated acrossfirm-boundaries.

IJPDLM44,1/2

160

Dow

nloa

ded

by U

nive

rsity

of

Okl

ahom

a A

t 00:

37 2

8 O

ctob

er 2

014

(PT

)

A SCR’s skills and knowledge (operant resources) are the fundamental source of itscompetitive advantage (Lusch et al., 2010). Competitive advantage is generally relatedto knowledge and skills that assures lower costs, better quality or innovative offerings(Porter, 1980; Miles and Snow, 1978). Although these three ways to competitiveadvantage are interrelated, they are treated separately in the following. Types ofservice provision that enhance cost, quality or innovation advantages, and the operantresources required for providing such services are explored.

4.1 Production proficiency – reducing production costs through learning by doingThe productivity of resources is improved by using them on a routine basis asexperience facilitates better usage (Nelson and Winter, 1982). Similarly, a repeatedproduction process cycle can be improved because it offers the potential for learningfrom experience or “learning by doing” (Yelle, 1979). Learning by doing suggests thatrepetition of the production process enables a firm to lower its production costs. Inorder to achieve this, the firm must be willing to learn and both willing and capable ofimplementing what has been learned. Buyer firms show an interest in suppliers’“learning by doing” in the interest of reducing costs (Monczka et al., 2009). Assistancein terms of subsidies and engineering support also helps suppliers in this process(Hatch and Mowery, 1998; Dyer and Hatch, 2006). An important element in modernpurchasing is an anticipated reduction in costs over time as the supplier learns (Hatchand Mowery, 1998). A related problem is that the supplier’s efforts cannot be observed(Bernstein and Kok, 2009). This is an example of the hidden action problem, discussedunder the exchange economy perspective on SCRs.

In sum, a supplier can provide service in terms of learning by doing. Such servicehas the potential to reduce production costs, and hence increase both supplier andbuyer profitability.

4.2 Craftsmanship – improved product or service qualityQuality can be understood in many different ways. According to Reeves and Bednar(1994), quality definitions incorporate four dimensions – value, excellence,conformance to specifications, and meeting and/or exceeding buyer requirements.SCRs are seen as to be formed to co-create quality advantages related to product,production process and operating system (Hahn et al., 1990). A firm aims to achievequality conformance by delivering error-free products and services, assuring a regimewhere ideas on how to improve product attributes are welcomed and implemented, andthe firm has the required know-how for improving product attributes.

If design or material specifications are inadequate, although a SCR can contribute toimproving product quality, success cannot be guaranteed. For the SCR to benefit fromboth firms’ competencies, experimentation and search for improved product attributesmust be allowed. When machine capability is inadequate or workmanship is poor,a SCR can contribute to quality enhancement by improving key performance metricssuch as cycle time and delivery dependability, reducing process variance (Flynn et al.,1995), reducing set-up time, responding faster to market demands (Flynn and Flynn,2005), and improved synchronisation (Sila et al., 2006).

An unreliable quality assurance program can be improved through collaborationwith a buyer or seller. ASCR can be used to implement a new operating system, forexample by cooperating with a more competent firm. Motorola developed

Service provisionfor co-creation

of value

161

Dow

nloa

ded

by U

nive

rsity

of

Okl

ahom

a A

t 00:

37 2

8 O

ctob

er 2

014

(PT

)

a supplier-development programme to increase the expertise of all its suppliers bytransferring their own knowledge to the suppliers (Cayer, 1988). During the 1980s,Motorola gained popularity as a promoter of quality, which is certainly attributable totheir recognition that their suppliers have serious impact on the quality of their products.

In sum, a firm can provide service in terms of craftsmanship. Such service has thepotential to improve product or service attributes, and hence increase both supplier andbuyer profitability.

4.3 Entrepreneurship – exploring new market opportunitiesEntrepreneurship is a process that occurs within organisations and reflects anorganisation’s willingness to encourage creativity and flexibility, and to support risk(Burgelman, 1983). A SCR integrates the technology of the buyer firm with that of thesupplier and is a point of departure for innovations (Gadde et al., 2010; Lusch et al.,2010). Entrepreneurship in SCRs entails processing information about market needs aswell as development of new ideas and their subsequent translation into new products.This corresponds to what Vargo and Lusch (2004a) referred to as co-innovation.Supplier involvement is sometimes mandatory for successful new productdevelopment (Handfield et al., 1999; Johnsen, 2009; Song et al., 2011; Hahn et al.,1990; Hoegl and Wagner, 2005), and firms have increasingly begun to rely on suppliers(Gadde et al., 2010).

Such efforts to promote entrepreneurship are not necessarily accompanied with hugeinvestments of time or resources. For example, a buyer can use the principle of minimalspecifications and ask suppliers to provide an appropriate solution. Alternatively,suppliers may perceive a buyer firm as a stimulating partner who permits them todevelop their own field of competence, despite their “absurd” (but visionary)requirements.

In sum, a firm can provide service in terms of entrepreneurship. Such service has thepotential to inventing new marketable products, and hence increase both supplier andbuyer profitability.

5. ConclusionVargo and Lusch (2004a) argue that marketing should shift from “market to” to“market with” buyers and other partners. They call for the development of a new fieldof research that focuses more on aspects of co-creation and less on the goodsexchanged and distributed in the supply chains. In response to this call, this paper hasexplored service provision aimed at co-creation of value building on insights from thepurchasing literature and two different perspectives on inter-organisationalrelationships. In all, six types of service provision are suggested. First, the exchangeeconomy perspective explains information sharing, adaptation and commitment areimportant for co-creation of value. Second, the production economy perspectiveexplains how service provision can improve the object of exchange, by means ofproduction proficiency, craftsmanship, and entrepreneurship.

SDL researchers commonly adopted a production economy perspective onco-creation of value focusing, for example, how buyers’ competencies contribute tothe co-creation of value in interactive processes with sellers (Vargo and Lusch, 2004a,b, 2008; Chen and Watanable, 2007; Tokman and Beitelspacher, 2011). A key tenet isthat increased buyer involvement in the production process is associated with more

IJPDLM44,1/2

162

Dow

nloa

ded

by U

nive

rsity

of

Okl

ahom

a A

t 00:

37 2

8 O

ctob

er 2

014

(PT

)

relational orientation and more value creation (Lusch and Vargo, 2006). As has beenshown in this paper, the SDL-focus has been narrow as only buyer, but not supplier,involvement has been investigated. Accordingly, service provision taking productioneconomy lenses has been ignored.

6. Further research opportunitiesIn many cases buyers depend on supplier service provision in terms of accomplishingproduction proficiency, craftsmanship and entrepreneurship in order to remaincompetitive. On the basis of the insights gained in this paper, future research in theSDL-tradition can approach the study of co-creation of value taking a wider approach.Linking the SDL perspective more firmly to the production economy perspective is oneway of advancing further conceptual and empirical work. The three types of serviceprovision – production proficiency, craftsmanship and entrepreneurship – meritattention in future SDL research as they operationalize Vargo and Lusch (2004a) andLusch and Vargo’s (2006) ideas on participation in the production process. Inparticular, the suggested types of service provision taking production economy lenseswill direct research attention to the role of suppliers in co-creation of value. At afundamental level, distinguishing between different types of service provisionrepresents an opportunity for SDL researchers to undertake empirical investigationsbecause these types can be modelled as variables in research models, and will generateempirical studies.

Another interesting research opportunity is exploring how established concepts,such as trust, joint action, relational orientation and reputation are related to differenttypes of service provision and operant resources. The relationship between operantresources and quality in SCRs has attracted scarce research attention, but oneexception is Fynes and Voss (2002) who study the relationship between qualitypractises and quality performance in buyer-seller relationships. There is room forfurther research that consider how various operant resources, including quality skills,affect service provision, and not least, co-creation of value in SCRs. In this paper, it isassumed that competitive advantage is generally related to knowledge and skills thatassures lower costs, better quality or innovative offerings. Further research couldexplore other operant resources, and the associated service, needed for successfulco-creation of value. In addition, SDL-concepts such as co-innovation need to beoperationalised and studied in relation to specific types of service provision in SCRs.

The important services in inter-organisational collaboration from a productioneconomy perspective are fundamentally different from those under the exchangeeconomy perspective. Authors adopting the production economy perspective have notconsidered exchange economy issues (Dyer and Hatch, 2006; Prahalad and Hamel,1990; Nelson and Winter, 1982), so SDL researcher could consider exploring both theexchange- and production economy perspectives in studies of co-creation of value, asthis will cover a broader range of service provision in SCRs. Such study should includethe exploration of the interplay between different operant resources (using bothexchange- and production economy lenses). The same applies to the service provided.For example, building on previous works such as Mudambi and Helper (1998) or Yi et al.(2009), it would be interesting to investigate under what conditions supply-chainpartners fail to provide service (e.g. exchange information or commit), but still provideservice in other domains, such as craftsmanship.

Service provisionfor co-creation

of value

163

Dow

nloa

ded

by U

nive

rsity

of

Okl

ahom

a A

t 00:

37 2

8 O

ctob

er 2

014

(PT

)

7. Implications for practiseThe different types of service provision identified in this paper are useful to managersfor their assessment of their SCRs. First, the six suggested types of service provisioncan be used as a check-list, and support managers use it in their decisions as to whichSCRs to invest in, maintain or divest. If the SCR is viewed through the exchangeeconomy lens, collaboration consists of exchanging information, adapting andcommitting to the exchange partner. From a production economy perspective, thecollaborative challenges are fundamentally different: learning by doing in production(production proficiency), craftsmanship and entrepreneurship.

It is noteworthy that the purchasing literature is dominated by theories that considerSCRs from an exchange economy perspective, thus limiting supply chain managers’awareness of production economy issues. For example, suppliers often represent acritical resource that needs to be carefully selected, monitored and rewarded, based ontheir distinct capabilities. Taking a conscious approach, managers should askthemselves what kind of service provision they seek from their partners, and actaccordingly.

References

Akerlof, G.A. (1970), “The market for lemons: qualitative uncertainty and the marketmechanism”, Quarterly Journal of Economics, Vol. 84 No. 3, pp. 386-409.

Anderson, J.C. and Narus, J.A. (1990), “A model of the distributor’s firm and manufacturer firm’sworking partnership”, Journal of Marketing, Vol. 54, pp. 42-58.

Arrow, K.J. (1985), “The economics of agency”, in Pratt, J. and Zeckhauser, R. (Eds), Principalsand Agents: The Structure of Business, Harvard Business School Press, Boston, MA,pp. 37-51.

Aulakh, P.S., Kotabe, M. and Sahay, A. (1996), “Trust and performance in cross-bordermarketing partnerships: a behavioral approach”, Journal of International Business Studies,Vol. 27 No. 5, pp. 1005-1032.

Azadegan, A. (2011), “Benefiting from supplier operational innovativeness: the influence ofsupplier evaluations and absorptive capacity”, Journal of Supply Chain Management,Vol. 47 No. 2, pp. 49-64.

Barney, J.B. (1991), “Firm resources and sustained competitive advantage”, Journal ofManagement, Vol. 17, pp. 99-120.

Bergen, M., Dutta, S. and Walker, O.C. Jr (1992), “Agency relationships in marketing: a review ofthe implications and applications of agency and related theories”, Journal of Marketing,Vol. 56 No. 3, pp. 1-24.

Bernstein, F. and Kok, A.G. (2009), “Dynamic cost reduction through process improvement inassembly networks”, Management Science, Vol. 55 No. 4, pp. 552-567.

Brousseau, E. (1993), “Les theories des contrats: une revue”, Revue Economique Politique, Vol. 103No. 1, pp. 1-82.

Burgelman, R.A. (1983), “Corporate entrepreneurship and strategic management: insights from aprocess study”, Management Science, December, pp. 1349-1364.

Carr, A.S. and Pearson, J.N. (1999), “Strategically managed buyer-supplier relationships andperformance outcomes”, Journal of Operations Management, Vol. 17 No. 5, pp. 497-519.

Cayer, S. (1988), “World class suppliers don’t grow on trees”, Purchasing, Vol. 25, August,pp. 45-49.

IJPDLM44,1/2

164

Dow

nloa

ded

by U

nive

rsity

of

Okl

ahom

a A

t 00:

37 2

8 O

ctob

er 2

014

(PT

)

Chen, C. and Watanable, C. (2007), “Competitiveness through co-evolution between innovationand institutional systems – new dimensions of competitiveness in a service-orientedeconomy”, Journal of Services Research, Vol. 7 No. 2, pp. 27-55.

Coase, R.H. (1937), “The nature of the firm”, Economica, Vol. 4, pp. 386-405.

Commons, J.R. (1934), Institutional Economics, University of Wisconsin Press, Madison, WI.

Dyer, J.H. and Hatch, N.W. (2006), “Relation-specific capabilities and barriers to knowledgetransfers: creating advantage through network relationships”, Strategic ManagementJournal, Vol. 27, pp. 701-719.

Dyer, J.H. and Singh, H. (1998), “The relational view: cooperative strategy and sources ofinterorganizational competitive advantage”, Academy of Management Review, Vol. 23No. 4, pp. 660-679.

Flynn, B.B. and Flynn, E.J. (2005), “Synergies between supply chain management and qualitymanagement: emerging implications”, International Journal of Production Research, Vol. 43No. 16, pp. 3421-3436.

Flynn, B.B., Schroeder, R.G. and Sakakibara, S. (1995), “The impact of quality managementpractices on performance and competitive advantage”, Decision Sciences, Vol. 26 No. 5,pp. 659-692.

Fournier, S. and Mick, D.G. (1999), “Rediscovering satisfaction”, Journal of Marketing, Vol. 63No. 4, pp. 5-23.

Fullerton, G. (2005), “How commitment both enables and undermines marketing relationships”,European Journal of Marketing, Vol. 39 Nos 11/12, pp. 1372-1388.

Fynes, B. and Voss, C. (2002), “The moderating effect of buyer-supplier relationships on qualitypractices and performance”, International Journal of Operations & ProductionManagement, Vol. 22 No. 6, pp. 589-613.

Gadde, L.-E., Hakansson, H. and Persson, G. (2010), Supply Network Strategies, 2nd ed., Wiley,Chichester.

Ghosh, M. and John, G. (1999), “Governance value analysis and marketing strategy”, Journal ofMarketing, Vol. 63, pp. 131-145.

Gilliland, D. and Bello, D. (2002), “The two sides to attitudinal commitment: the effect ofcalculative and loyalty commitment on enforcement mechanisms in distributionchannels”, Journal of the Academy of Marketing Science, Vol. 30 No. 1, pp. 24-43.

Hahn, C.K., Watts, C.A. and Kim, K.Y. (1990), “The supplier development program: a conceptualmodel”, Journal of Purchasing and Materials Management, Vol. 26 No. 1, pp. 2-26.

Hammervoll, T. (2009), “Value-creation logic in supply chain relationships”, Journal ofBusiness-to-Business Marketing, Vol. 16 No. 3, pp. 220-241.

Hammervoll, T. (2012), “Managing interaction for learning and value creation in exchangerelationships”, Journal of Business Research, Vol. 65 No. 2, pp. 128-136.

Handfield, R.B., Ragatz, G.L., Petersen, K.J. and Monczka, R.M. (1999), “Involving suppliers innew product development”, California Management Review, Vol. 42 No. 1, pp. 59-82.

Hatch, N. and Mowery, D. (1998), “Process innovation and learning by doing in semiconductormanufacturing”, Management Science, Vol. 44 No. 11, pp. 1461-1477.

Heide, J.B. and John, G. (1990), “Alliances in industrial purchasing: the determinants of jointaction in buyer-supplier relationships”, Journal of Marketing Research, February, pp. 24-36.

Hoegl, M. and Wagner, S.M. (2005), “Buyer-supplier collaboration in product developmentprojects”, Journal of Management, Vol. 31 No. 4, pp. 530-548.

Service provisionfor co-creation

of value

165

Dow

nloa

ded

by U

nive

rsity

of

Okl

ahom

a A

t 00:

37 2

8 O

ctob

er 2

014

(PT

)

Hopkins, M.S. (2010), “Your next supply chain: interview with David Simchi-Levi andCharles H. Fine”, MIT Sloan Management Review, Vol. 51 No. 2, pp. 17-24.

Jaworski, B. and Kohli, A.K. (2006), “Co-creating the voice of the customer”, in Lusch, R.F. andVargo, S.L. (Eds), The Service Dominant Logic of Marketing, M.E. Sharpe, Armonk, NY,pp. 109-117.

Johnsen, T.E. (2009), “Supplier involvement in new product development and innovation: takingstock and looking to the future”, Journal of Purchasing & Supply Management, Vol. 15No. 3, pp. 187-197.

Joskow, P.J. (1987), “Contractual duration and relationship-specific investments: empiricalevidence from coal markets”, American Economic Review, Vol. 77, pp. 168-185.

Klein, B., Crawford, R.A. and Alchian, A. (1978), “Vertical integration, appropriable rents, and thecompetitive contracting process”, Journal of Law & Economics, Vol. 21, pp. 297-326.

Lindgreen, A. and Wynstra, F. (2005), “Value in business markets: what do we know? Where arewe going?”, Industrial Marketing Management, Vol. 34 No. 7, pp. 732-748.

Lorenzoni, G. and Lipparini, A. (1999), “The leveraging of inter-firm relationships as a distinctiveorganisational capability: a longitudinal study”, Strategic Management Journal, Vol. 20,pp. 317-318.

Lusch, R.F. and Vargo, S.L. (2006), “Service dominant logic as a foundation for a general theory”,in Lusch, R.F. and Vargo, S.L. (Eds), The Service Dominant Logic of Marketing, M.E.Sharpe, Armonk, NY, pp. 406-420.

Lusch, R.F., Vargo, S.L. and O’Brien, M. (2007), “Competing through service: insights fromservice-dominant logic”, Journal of Retailing, Vol. 83 No. 1, pp. 5-18.

Lusch, R.F., Vargo, S.L. and Tanniru, M. (2010), “Service, value networks and learning”, Academyof Marketing Science, Vol. 38, pp. 19-31.

Marchington, M. and Vincent, S. (2004), “Analysing the influence of institutional, organizationaland interpersonal forces in shaping inter-organizational relations”, Journal ofManagement Studies, Vol. 41 No. 6, pp. 1029-1056.

Mesquita, L.F., Anand, J. and Brush, T.H. (2008), “Comparing the resource-based and relationalviews: knowledge transfer and spillover in vertical alliances”, Strategic ManagementJournal, Vol. 29 No. 9, pp. 913-941.

Miles, R.E. and Snow, C.C. (1978), Organizational Strategy, Structure, and Process, McGraw-Hill,New York, NY.

Monczka, R.M., Trent, R. and Handfield, R.B. (2009), Purchasing and Supply Chain Management,South-Western Cengage Learning, Mason, OH.

Mudambi, R. and Helper, S. (1998), “The ‘close but adversial’ model of supplier relations in the USauto industry”, Strategic Management Journal, Vol. 19 No. 8, pp. 775-792.

Nelson, R.R. and Winter, S.G. (1982), An Evolutionary Theory of Economic Change, HarvardUniversity Press, Cambridge, MA.

Noordewier, T.G., John, G. and Nevin, J.R. (1990), “Performance outcomes of purchasingarrangements in industrial buyer-vendor relationships”, Journal of Marketing, Vol. 54No. 4, pp. 80-93.

Oliver, C. (1990), “Determinants of interorganizational relationships: integration and futuredirections”, Academy of Management Review, Vol. 15 No. 2, pp. 241-265.

Porter, M. (1980), Competitive Strategy, The Free Press, New York, NY.

Powers, T.L. and Reagan, W.R. (2007), “Factors influencing successful buyer-sellerrelationships”, Journal of Business Research, Vol. 60 No. 12, pp. 1234-1242.

IJPDLM44,1/2

166

Dow

nloa

ded

by U

nive

rsity

of

Okl

ahom

a A

t 00:

37 2

8 O

ctob

er 2

014

(PT

)

Prahalad, C.K. and Hamel, G. (1990), “The core competence of the corporation”, Harvard BusinessReview, Vol. 68 No. 3, pp. 79-91.

Puto, C., Patton, W. and King, R. (1985), “Risk handling strategies in industrial vendor selectiondecisions”, Journal of Marketing, Vol. 49 No. 1, pp. 89-98.

Reeves, C.A. and Bednar, D.A. (1994), “Defining quality: alternatives and implications”, Academyof Management Review, Vol. 19 No. 3, pp. 419-445.

Rubin, P. (1990), Managing Business Transactions: Controlling the Cost of Coordinating,Communicating, and Decision Making, The Free Press, New York, NY.

Schiele, H., Horn, P. and Vos, B. (2011), “Estimating cost-saving potential from internationalsourcing and other sourcing levers”, International Journal of Physical Distribution& Logistics Management, Vol. 41 No. 3, pp. 315-336.

Sila, I., Ebrahimpour, M. and Birkholz, C. (2006), “Quality in supply chains: an empiricalanalysis”, Supply Chain Management: An International Journal, Vol. 11 No. 6, pp. 491-502.

Song, L.Z., Song, M. and Di Benedetto, C.A. (2011), “Resources, supplier investment, productlaunch advantages, and first product performance”, Journal of Operations Management,Vol. 29 Nos 1/2, pp. 86-104.

Steinle, C. and Schiele, H. (2008), “Limits to global sourcing? Strategicconsequences of dependency on international suppliers: cluster theory, resource-basedview and case studies”, Journal of Purchasing & Supply Management, Vol. 14 No. 1,pp. 3-14.

Svahn, S. and Westerlund, M. (2009), “Purchasing strategies in supply relationships”, Journal ofBusiness & Industrial Marketing, Vol. 24 Nos 3/4, pp. 173-181.

Tokman, M. and Beitelspacher, L.S. (2011), “Supply chain networks and service-dominant logic:suggestions for future research”, International Journal of Physical Distribution & LogisticsManagement, Vol. 41 No. 7, pp. 717-726.

Van de Ven, A.H. (1976), “On the nature, formation and maintenance of relations amongorganizations”, Academy of Management Review, Vol. 1, pp. 24-36.

Vargo, S.L. and Lusch, R.F. (2004a), “Evolving to a new dominant logic for marketing”, Journal ofMarketing, Vol. 68 No. 1, pp. 1-17.

Vargo, S.L. and Lusch, R.F. (2004b), “The four services marketing myths: remnants froma manufacturing model”, Journal of Service Research, May, pp. 324-355.

Vargo, S.L. and Lusch, R.F. (2008), “Service-dominant logic: continuing the evolution”, Journal ofthe Academy of Marketing Science, Vol. 36 No. 1, pp. 1-10.

Westing, J., Fine, I. and Zenz, G. (1969), Purchasing Management, Materials in Motion, Wiley,New York, NY.

Williams, A.J. and Smith, W.C. (1990), “Involving purchasing in product development”, IndustrialMarketing Management, Vol. 19, pp. 315-319.

Williamson, O.E. (1985), The Economic Institutions of Capitalism: Firms, Markets, RelationalContracting, The Free Press, New York, NY.

Wouters, M., Anderson, J.C. and Wynstra, F. (2005), “The adoption of total cost of ownership forsourcing decisions – a structural equation analysis”, Accounting, Organizations andSociety, Vol. 30 No. 2, pp. 167-191.

Yelle, L.E. (1979), “The learning curve: historical review and comprehensive survey”, DecisionSciences, Vol. 10, pp. 302-328.

Service provisionfor co-creation

of value

167

Dow

nloa

ded

by U

nive

rsity

of

Okl

ahom

a A

t 00:

37 2

8 O

ctob

er 2

014

(PT

)

Yi, L., Yadong, L. and Ting, L. (2009), “Governing buyer-supplier relationships throughtransactional and relational mechanisms: evidence from China”, Journal of OperationsManagement, Vol. 27 No. 4, pp. 294-309.

Zajac, E.J. and Olsen, C.P. (1993), “From transaction cost to transaction value analysis:implications for the study of interorganizational strategies”, Journal of ManagementStudies, Vol. 30 No. 1, pp. 131-145.

About the authorTrond Hammervoll (PhD) is a Professor of supply chain management. His main research interestis value creation in supply chain relationships. His work has been published in journals such asthe European Journal of Marketing, Journal of Business-to-Business Marketing, InternationalJournal of Logistics: Research and Applications, European Business Review, International Journalof Logistics Management, and Journal of Business Research. Trond Hammervoll can be contactedat: trond.hammervoll@hih.no

IJPDLM44,1/2

168

To purchase reprints of this article please e-mail: reprints@emeraldinsight.comOr visit our web site for further details: www.emeraldinsight.com/reprints

Dow

nloa

ded

by U

nive

rsity

of

Okl

ahom

a A

t 00:

37 2

8 O

ctob

er 2

014

(PT

)