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Value Configuration of Customer Problem Solving Anders Peder Hansen, Department of Entrepreneurship and Relationship Management, University of Southern Denmark, Phone: +45 65501357, Email:
[email protected] Anita Friis Sommer, Center for Logistics, Aalborg University Phone: +45 9940 3016, Email:
[email protected]
Abstract: This paper focuses on how companies on business-to-business markets, characterized by complex customer problems, organize and manage the interaction process as part of the management of customer requests for new products. More specifically it is investigated how the intra-organizational activities part of the problem solving process is configured, when taking the customer supplier interaction into consideration. The research takes an inter-and intra-organizational perspective by focusing on the dyad between a buyer and supplier. A single case study is applied in order to investigate the relationship between customer problems of high complexity and the organization of activities in the buyer-supplier interaction process. Building on value configuration theory and theory of problem complexity this research contributes to widen our understanding of how marketing and problem solving processes are organized, when customer supplier interaction concerns complex problem solving.
Keywords: Value configuration, value chain, value shop, value creating logic, problem solving, complexity, interaction.
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Introduction Business-to-business markets are often subject to customization or development of individual customer solutions. Marketing in this context is about solving customer problems, as customers are not interested in products or services themselves but rather how suppliers provide solutions to their problems (Ford et al. 2006). By changing the customer from an existing to a more desirable stage customer value is created. Value creation has traditionally been viewed as a linear chain of value adding activities (Hughes et al. 1998; Porter 1985). However, research suggests that the value chain logic is insufficient to explain value creation in companies in service industries, where solving customer problems or mediation between actors is the business purpose (Huemer 2006; Stabell and Fjeldstad 1998). Stabell and Fjeldstads (1998) value configuration theory suggest that alternative value creating logics with different activity flows and interdependencies exists for companies in these kind of industries. A defining characteristic of problem solving is that it often involves cyclic activity flows and coordination of multiple disciplines in the process (Stabell and Fjeldstad 1998). The criticism of linear value models is supported by product development research arguing that linear process models are insufficient for intra-organizational problem solving, which requires several iterations taking on a cyclic activity flow (Koen et al. 2002; Sandmeier 2008). Problem solving in marketing can also be distinguished by what (Rittel 1972) referred to as tame and wicked problems. Wicked or complex problems cannot be solved by linear and rational planning models, yet most research within marketing address them as if they were tame (Freytag and Philipsen 2010). This also supports that organization of complex problem solving activities is not necessarily coordinated according to the linear chain logic of activities. Furthermore, marketing processes including customer problem solving are not necessarily restricted to one organizational function. Instead they can be seen as a set of cross-functional activities, which must be integrated in processes not usually considered part of marketing, such as product
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development and supply chain management (Harris and Ogbonna 2003; Möller and Rajala 1999; Srivastava et al. 1999). The more recent demand chain management concept also suggests that companies distinguish between demand and supply processes, where demand processes are those happening at the customer and market interface typically related to marketing (Jüttner et al. 2007; Rainbird 2004). Yet, little attention has been devoted to intra- and inter-organizational marketing processes concerned with solving customer problems. It has so far not been investigated how companies in business-to-business markets manage customer problem solving, and how the intraand inter-organizational activity flow is structured. Therefore, the aim of this study is to investigate the intra- and inter-organizational activities of problem solving processes through the concepts of value configuration and problem complexity. In the theoretical section the concepts of customer problem complexity, value configuration and interdependencies are elaborated in order to provide a frame of reference for investigating customer interaction and the organization of intra- and inter-organizational activities constituting customer problem solving. In the empirical section a case study of a manufacturing company handling customer-initiated product development is presented and analyzed in relation to the theoretical frame of reference. Finally, the discussion section reflects on the findings and discusses theoretical as well as managerial implications of the study.
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Theoretical framework In this section, customer problem solving, customer problem complexity in business-to-business marketing is introduced followed by a presentation of the concept of value configuration and its’ relation to customer problem solving and problem complexity. The idea of marketing as customer problem solving Problem solving can be understood as a central purpose in business-to-business marketing, as the starting point for the customers purchase is its problem (Ford et al. 2006). The idea of problem solving can be seen in wide area of business contexts including high tech product development (Lindgreen et al. 2009), solution selling (Nordin and Kowalkowski 2010), and knowledge intensive businesses (Aarikka-Stenroos and Jaakkola 2012). The organization of marketing activities, and thereby problem solving, can generally be distinguished by a functional and an activity based perspective (Pardo and Ivens 2008). Research supporting the activity based perspective view marketing as a set of organizationally dispersed activities rather than embedded in one organizational function (Harris and Ogbonna 2003; Möller and Rajala 1999). Diller and Ivens (2006) claim that marketing should be process oriented, where a process is a certain ordering of activities transforming an input into a pre-defined output. By defining processes companies attempt to manage marketing activities in an efficient and effective way. Marketing processes include processes such as price adaptations, customer quotations, and product development resembling varying degrees of cross-functional dispersion (Diller and Ivens 2006; Srivastava et al. 1999). Furthermore, a functional orientation in companies may inhibit both efficiency and effectiveness of marketing processes, as functional structures especially in large organizations is not well suited to deal with the complexity of coordinating internal activities with the needs of the customer (Diller and Ivens 2006; Hammer and Champy 1993).
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In this light problem solving can be understood as the processes that takes place in the interaction between customer and supplier, as well as processes taking place inside organizations as part of the customer-supplier interaction (Ford et al. 2006; Håkansson et al. 1979). From an organizational perspective this can be traced back to the distinction between organizations as open or closed systems (Thompson 1967). Closed systems view organizations as independent of their environment, which allows for using rational planning models and maximizing of efficiency. An open-systems perspective assumes that the organization either contains more variables than it can comprehend at one time, or that some of these are not under the full control of the organization. This uncertainty leads to perceiving the organization as a problem-solving phenomenon. In this paper it is suggested that organizations should be viewed as open systems, and for the same reason inter- and intraorganizational problem solving processes should not be seen in separation, as the starting point of solving the problem, is the customer-supplier interaction. However, customer problems vary in complexity implying different possibilities of planning how to solve them. Customer Problem Complexity Customer problems can generally be distinguished by tame and wicked problems (Rittel 1972). Tame problems are those that can be “…exhaustively formulated so that it can be written down on a piece of paper which can be handed to a knowledgeable man who will eventually solve the problem without needing any additional information” (Rittel 1972), p. 392). This builds on a linear sequence of steps for attacking and planning a problem solving process. On the contrary wicked problems have no definitive formulation and hold no exhaustive list of operations for solving the problem, as the solution process depends on how the problem is understood. Rittel claims that most real world problems are wicked, yet most research on problem solving behavior is about tame problems. The type of customer problems encountered when solutions are customized or developed for individual customers can be argued to constitute complex problems that by nature are more wicked than tame.
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These problems may involve unknown technology or ambiguous solution parameters, and therefore the suppliers’ problem solving ability is especially important (Bocconcelli and Tunisini 2010; Ford et al. 2006). This ability is closely linked to the intra- and inter-organizational problem solving processes, which also resembles the open- vs. closed system dilemma (Thompson 1967). In this line of thought it can be questioned whether complex problems inhibits the supplier to act rationally and follow a linear order of activities. This is similar to the idea behind Stabell and Fjeldstads (1998) value configuration theory, in which they challenge the widely accepted concept of a value chain. Value Configuration and Complex Problem Solving Stabell and Fjeldstads (1998) value configuration theory explain company level competitive advantage by suggesting the value chain, value shop, and value network as alternative logics of value creation. According to (Stabell and Fjeldstad 1998) the predominant value chain logic does not serve well to explain value creation in knowledge intensive companies or in companies connecting clients with each other. For the purpose of this paper only the value chain and shop logics are of interest. The value chain logic rests on Porters (1985) value chain model and builds on a long-linked technology, where input in terms of raw materials are transformed into products and shipped to customers (Stabell and Fjeldstad 1998; Thompson 1967). The value shop logic builds on an intensive technology, where activities and resources are mobilized on a more ad hoc basis in order to solve unique client problems. This kind of value creating logic is better modeled by the primary activity categories of problem-finding and acquisition, problem-solving, choice, execution, and control and evaluation. The activities follow a cyclical and spiraling process, where the end of one cycle may initiate a new problem-solving cycle. The uniqueness of customer problems means that the type of customer problem determines which resources and activities are mobilized to solve it. More complex problems may require several activity cycles and iterations between activities in, and
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it is more difficult to predefine a fixed order of activities than in the value chain model. The value shop is based on service industries, but Stabell and Fjeldstad (1998) argue that industrial productand process development can also be modeled by the shop logic. These types of processes are usually depicted as support activities in a value chain configuration. However, when products are customized or product development is driven by the specific customer, these kind of activities play a more central role then is acknowledge by the value chain logic .Therefore, the value creating logic in this kind of company may best be modeled by a combination of the value configurations, which is also suggested by (Stabell and Fjeldstad 1998) as well as other research using value configuration theory (Huemer 2006). Interdependency and coordination The value chain and shop logics can also be distinguished by the type of interdependencies between primary activities and the responding coordination mechanism (Thompson 1967). Pooled interdependency is when two or more activities share the same resource. In this case coordination is achieved through standardization allowing for similarity in activities and resource requirements. Sequential interdependency is when activities follow a certain order, where one activity requires the input of the previous activity as illustrated by a standardized production flow. Coordination is done by planning and integration of activities in line with what (Rittel 1972) refers to as rational planning models. Reciprocal interdependency is when the output of one activity is the input of others making them mutually dependent, and here coordination is done by mutual adjustment (Stabell and Fjeldstad 1998; Thompson 1967). This type of interdependency, and especially the coordination of it, is expected to be important for a company’s problem solving ability. The value chain logic mainly emphasizes sequential interdependencies, and coordination in this context has mainly been focused on maximizing efficiency (Håkansson and Persson 2004). When value creation is concerned with problem solving both sequential and reciprocal interdependencies
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between activities is present, and the focus is on effectiveness rather than efficiency (Stabell and Fjeldstad 1998). Therefore coordination is both a matter of planning and mutual adjustment (Thompson 1967). As more types of interdependencies are present within the problem solving process, different types of coordination are also required. Multidisciplinary problem solving processes A defining characteristic of the value shop and problem solving activities is that they often rely on multiple disciplines (Stabell and Fjeldstad 1998). Also the distinction between primary and support activities is not as clear as the value chain logic suggests, since activities related to purchasing, marketing and product development can all be part of the problem solving process. In a value shop logic marketing is highly connected to problem finding and acquisition, as defining the customer problem is also part of acquiring the customer, and demand cannot easily be pre-defined prior to the actual customer-supplier interaction. In a traditional value chain logic marketing is more related to an organizational function, which in itself stimulates demand and defines customer requirements. Hence, what appear to be sequentially linked activities carried out by specific functions actually require input from several competence areas located in distinct functions. The reciprocal interdependencies between activities found in the value shop logic and their cyclical and spiraling nature makes it difficult to assign problem solving activities to single functional silos, as may be the case in value chains. Therefore the role marketing can be understood differently in the two logics. The value shop logic, however, supports the idea that marketing can be seen as problem solving comprising a set of cross-functionally dispersed activities, which can be organized in crossfunctional marketing processes (Diller and Ivens 2006; Srivastava et al. 1999). In the next section, the method of the research study is presented followed by findings and analysis, and finally a discussion including recommendations for further research.
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Method Since the purpose is to gain rich descriptions of the specific phenomenon embedded in a wider context, the case study method is found most suitable (Yin 1994). Furthermore, the case study method allows for data triangulation enhancing the ability to understand the research phenomenon. A single case study with embedded units is chosen. The unit of analysis is the flow of activities in the problem solving process including the organizational structure in which the process is embedded. The case sample consists of dyadic studies between four customers and one supplier. The supplier is a global industrial production company with more than 30.000 employees worldwide. The business unit, which is investigated in this case study, produces high-quality industrial controls and sensors to manufacturing customers. The selected customer cases include two medium-sized and two large industrial manufacturers with a long history of collaboration with the supplier. The customers have all recently requested for solving of a specific problem from the supplier. All four requests include improving or developing a new product solution. The problem solving process is named the request management process. The organizational functions involved in the process were identified through a preliminary study with the process improvement manager at the supplier company. The pre-study identified a crossfunctional problem solving process cutting across the operations department, including the functional units of technical service, engineering, production, and the sales department. Subsequently, employees from all participating functions in the process were interviewed, including two cross-functional group interviews. The customer cases included interviews with the primary contact person responsible for the supplier relationship. The customer cases were selected by the sales department manager. An overview of the data collection is presented in Table 1. .
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Table 1 Overview of conducted interviews in each internal function and at the customer. Functions / Interviews
Operations and process Manager
Engineering
Technical Service
Sales
Customer
Number of interviews (1 hour)
2
2
4
4
4
Participants in group interviews (2 X 2 hours)
2
2
2
All interviews are based on semi-structured interview guides covering the content of the value configuration model (Stabell and Fjeldstad 1998) and detailed descriptions of the problem solving process. Interviews were recorded and notes were made during the interview. Afterwards, recordings and notes were compared and summaries were made of each interview. The interview results are triangulated with unobtrusive data from the company, including power points, e-mailthreads, and internal documents with information about the problem solving process. The described data-collection procedure and the use of data triangulation increases validity of the study (Yin 1994). Finally, the data analysis was presented and discussed with managers from the supplier also serving to improve validity. Results and Analysis In this section, the results of the case study are presented followed by an analysis including identification of the value configuration and the relation to problem complexity. Activity Flow In the Customer Problem Solving Process According to internal company documents, the problem solving process is organized as a formal stage-gate model. The model includes four distinct stages: enquiry, evaluation, design including test and production setup, and pre-production and final test. The model is depicted in figure 1.
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Figure 1 Formal stage-gate model of the request process The formal model is linear and does not include the customer at any point between the enquiry phase and the final launch of the product. In practice however the process model does not match the actual activity flow. The interview study shows that the activity flow moves back and forth between stages as the process progresses, while customers are not only involved during the enquiry stage, but are active participants throughout the process. Employees state that when the process model is followed in practice, it often results in solutions that the customer does not accept. Therefore, the model is only partially applied in practice and mainly used in documentation of the process status. The employees perceive the organizational setup to be silo-based, and argue that the structure inhibits the process, and the communication flow in the problem solving process is restricted by the organizational structure. Communication from the customer must travel through sales, technical service, engineering and the production function and back again to the customer through all functions. The communication flow is determined by process ownership. Sales is responsible for customer communication, which is why only sales may contact the customer, technical service is responsible for contact to sales and financial evaluation, engineering is responsible for development of the technical solution, while production is responsible for quality testing and pre-production. Since the customer is involved throughout the process, the activity flow travels back and forth in the organizational structure several times during the problem solving process. The timeline of the process and need for interaction with other departments varies with the complexity of the customer problem according to the interviewees. Complex problems with a high degree of complexity on for instance new technology or innovation require a long process of technological development and testing both at the supplier- and the customer site in order to find a
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solution that will be accepted by the customer. Simple problems, like changing the color of an item, can most often easily be accepted and set into production following a linear value chain, while complex problems requires several iterations. Four Cases Of The Problem Solving Process The value configuration of the process has been identified by comparing statements from customer and supplier developing an overview of all interactions during the four processes. Three of the problem solving processes were identified to be cyclic in nature, moving back and forth between internal and external stakeholders in the organizational structure. The fourth was linear in nature, but only because the process was terminated at an early stage by the customer. The time span of the processes ranged from 6 months to 1½ year from the first request until a final purchase. In two of the cases the process ended with a new product enrolled in the product portfolio purchased by each of the two customers. The other two requests were terminated by the customers during the process, since an acceptable solution could not be offered. The results are depicted in Table 2. Table 2 Results of dyadic case studies of the request management process Customer request nr. 1
Problem
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New technology in customer product incorporated in supplier product Develop competitor product to include in portfolio at a lower price Need to decrease assembly costs by modular solution
3
4
Need to decrease assembly costs by modular solution
Activity structure Cyclic, iterative
Time span
Outcome
1½ year
Cyclic, iterative
1 year
Cyclic, iterative
6 months
Contract on new strategic product Contract on new strategic product Terminated by customer
Linear
Three weeks
Terminated by customer
Problem Complexity And Value Configuration The types of customer problems identified through the research study cannot be described through a product specification document like the supplier’s formal stage-gate model implies. Instead there is
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a large solution space, where the buyer and supplier jointly search for an optimal solution for the benefit of both organizations. The customer problems vary in complexity from simple problems of changing color on an item to complex problems requiring new technology and/or innovation of existing solutions. Besides cutting across the buyer-supplier dyad, the problem solving process involves several departments inside the supplier organization. These departments are functional silos isolated from each other with independent competence areas and strategies. As mentioned earlier the process is restricted by the organizational network structure in the way that interaction can only be conducted directly between two consecutive organizational entities. For instance the technical service department cannot contact the customer directly, but must go through the sales department, and engineering cannot contact sales directly but must go through technical service and so on. In this way the interaction process flows back and forth through the fixed organizational network structure as depicted in Figure 2. Figure 2 Request management process
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Based on the analysis, it is found that the process is better modeled by a cyclic activity structure resembled by the value shop and the activities concerned with problem-finding and acquisition, problem-solving, choice, execution, and control and evaluation (Stabell and Fjeldstad 1998). The cyclic activity structure identified in the case study is created by the organizational setup with the number of stakeholders included in the cycle determining the size of the cycle. Furthermore, the results indicate that more complex problems result in larger and often several cycles before a final accept from the customer is reached. The value shop logic is illustrated by the type of interdependencies that are identified between activities in the problem solving process and the functions performing these. First of all, sequential interdependencies are found between activities in the illustrated process, which initially must be carried out in a certain order determined by the formal stage-gate model. This sequence of activities, however, does not necessarily give a satisfying result for the supplier and the customer. Not only does the activity flow turn into cycles, but iterations between activities within each cycle result in reciprocal interdependencies, exemplified by the interdependency between consideration of possible solutions and quality testing of these, which is carried out by two consecutive departments. Furthermore, the overall customer-supplier interaction builds on reciprocal interdependence, as the customers’ request may lead the supplier to request the customer for additional information or alter its request if it is to be accommodated. However, this may also be dependent on information from other departments that are not in direct contact with the customer. Value Configuration And Problem Complexity This research study supports the proposed cyclic nature of a value shop configuration, when a customer problem is to be resolved. However, the study furthermore indicates that the cyclic nature is a variable dependent on the complexity of the problem. Increasing complexity related to the problem requires more cycles of the sequence of problem solving activities as well as interactions
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between customer and supplier to reach an acceptable solution. This furthermore necessitates iterations between internal activities and between customer and supplier leading to reciprocal interdependencies. Simpler customer requests can be accepted and carried out immediately resulting in a more linear activity flow reflected by the value chain logic. This may well be explained by a conventional stage-gate model. In such situations it would add unnecessary costs to the process to include iterations. As the problem complexity increases so does the need to involve more internal stakeholders and possibly sub-suppliers, as well as the requirement for ongoing interaction between customer and supplier. The results show that in situations where a linear value configuration is maintained for complex problems, the customer is most often proposed a solution they cannot accept. Hence, keeping a linear value configuration for complex problems has a risk of resulting in a wrong solution not leading to a purchase or in less profitable development processes, since the importance of reciprocal interdependencies between activities and the corresponding coordination mechanisms are neglected. The identified relation between problem complexity and value configuration is illustrated by the matrix in Figure 3.
Figure 3 2x2 matrix for problem solving configuration
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As illustrated, the ideal situation for both buyer and supplier is to match the value configuration and problem complexity to avoid unnecessary costs or the risk of developing a wrong solution that does not match customer needs.
Discussion and Concluding Remarks In this section theoretical and managerial implications are discussed including directions for further research. Through the study, it was found that value configuration takes on a cyclic flow across the inter- and intra-organizational structure. This finding is supported by von Hippel (1994), where an iterative activity flow has been identified in inter-organizational problem solving processes, and Stabell & Fjeldstad (1998) proposing a cyclic flow for intra-organizational customer problem solving processes (Stabell and Fjeldstad 1998; Von Hippel 1994). This study indicates that problem solving processes cuts across both intra and inter-organizational boundaries and that both customer and the functional units are involved in several activities throughout the process. It can therefore be argued that it is relevant to look at problem solving processes not only in the context of the network or the internal organization, but across all interacting organizational entities, especially when the process includes companies with a functional structure. A relation between value configuration and the complexity of problems has been identified in the study. The presented 2x2 matrix highlights the proposed relation found through analysis of the case study data; however the relation needs to be tested in a larger sample. The findings show that not one value structure model is applicable to handle problem solving processes, since problem complexity will vary from problem to problem. When handling simple problems, linear models like the stage-gate model are applicable, while complex problems have a cyclic flow where no existing models apply. The study indicates that employees struggle to fit problem solving processes into linear models prescribed by company management, which is supported by Rittel (1972) arguing that
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most real world problems are approached as tame problems, which can be handled by rational planning models. This situation not only reduces benefits of applying a formal model but can even affect the process outcome negatively. A solution might not be to implement yet another process model as proposed in product development literature (Koen et al. 2002), since problem solving processes are complex interaction processes. Rather, a solution can be to develop a process management framework to support process managers in decision-making based on internal and external interaction throughout the process. This requires a paradigm change viewing problem solving processes as dynamic, iterative interaction processes, rather than linear stage-based workflows. Hence, this study calls for further research on process management frameworks that can handle problem solving processes with varying problem complexity and needs for coordinating activity interdependencies. This paper has contrasted the value chain and value shop logics indicating that the dominant value chain logic as well as a monadic marketing approach is inadequate to model the actual process of customer problem solving characterizing the customer approach in a B2B context. The case-study mainly interprets the value shop logic, and therefore a future study should focus more on the interaction between the value chain and shop logics, which would also serve to enlighten theory on the existence and interaction between demand and supply chains and whether they can actually be distinguished (Rainbird 2004). The value chain is still relevant especially to explain how more standardized production companies or part of a company or supply network create value (Huemer 2006); however this must be supplemented with alternative logics in order to develop more realistic theory on how companies organize value creating activities. Rational planning should be the ideal, however neglecting that some processes cannot be organized as linear processes may lead to inappropriate management systems and overall poor management.
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Finally, the case illustrates an example of a process that is organized for efficiency but does not provide the sufficient organizational structure to effectively manage the problem complexity. Thus more research is needed on how coordination mechanisms are linked to the value creating processes characterized by a value shop logic and how companies can balance effectiveness at the customer interface, while pursuing efficiency in inter- and intra-organizational problem solving.
Conclusion This research study has investigated value configuration in complex buying situations and how customer problem complexity influence the activities in the problem solving process. The results indicate that even though the supplier seeks to manage the problem solving process as a monadic linear stage-gate process, the process is in reality a complex dyadic interaction process involving several internal and external stakeholders. The process cuts across organizations with functional silo structures, which restrains the process developing a cyclic value configuration. It was found, that the degree of iterations in the cyclic configuration was related positively to the complexity of the customer problem. A 2x2 matrix of this relation has been developed to illustrate an identified positive relation between problem complexity and value configuration of problem solving processes.
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