SERVICE SCIENCE Developing a Modular Service ...

SERVICE SCIENCE

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Vol. 6, No. 4, December 2014, pp. 251–273 ISSN 2164-3962 (print) ISSN 2164-3970 (online)

http://dx.doi.org/10.1287/serv.2014.0082 © 2014 INFORMS

Developing a Modular Service Architecture for E-store Supply Chains: The Small- and Medium-Sized Enterprise Perspective Anu Bask, Hilkka Merisalo-Rantanen Department of Information and Service Economy, Aalto University School of Business, 00076 Aalto, Finland {[email protected], [email protected]}

Tuure Tuunanen Department of Computer Science and Information Systems, University of Jyväskylä, 40014 Jyväskylä, Finland, [email protected]

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ervitization and productization lead to offerings and solutions that combine tangible products, standardized base services, and customized services. These tailored service offerings or solutions call for new modular service architectures and service process design approaches to complement traditional service and product design methods. In this paper we suggest a modular service architecture framework to develop tailored service solutions. We use the framework as a lens to analyze three Finnish small- and medium-sized enterprises in the retail industry offering an e-store to their customers. We identify and define the order-delivery process of the case e-stores’ supply chain; the modularity and modularization principles of the order-delivery process; and constructs such as service process modularization, modular reuse, and modular variation as well as their interrelationships. For practitioners, we provide a real-life example of how modular service design can be adopted when developing new and modified service encounter processes in the context of the less studied, small e-stores’ order-delivery process. Keywords: e-store; small- and medium-sized enterprise; supply chain; order-delivery process; modular service architecture; service process design; modularization; variation; reuse History: Received May 17, 2013; Received in final revised form September 2, 2014; Accepted September 21, 2014 by Paul Maglio.

1.

Introduction

In the highly competitive markets of the new service economy, any organization’s supply chain (SC) structures, business processes, practices, and operations must continuously meet the needs of the marketplace. According to Chesbrough and Spohrer (2006), services often are the key drivers of growth and profitability. Thus, it is no surprise that organizations are increasingly developing service offerings and service SCs that combine services with tangible products (see, e.g., Baines et al. 2007). The term “servitization” was first introduced by Vandermerwe and Rada (1988) and defined as creating and delivering value in use by adding services to products. Productization, in turn, is defined as “the evolution of the services component to include a product or a new service component marketed as a product” (Baines et al. 2007, p. 4). Baines et al. (2009) suggest that the process of servitization helps maintain revenue streams and improve profitability. According to Alter (2011), servitizing and productizing are strategy directions that can be applied along multiple dimensions. The forms of servitization and productization vary in the product–service continuum (Oliva and Kallenberg 2003) from physical products with added-on services to services with added-on physical products. Often the level of servitizing and productizing is somewhere in between these two ends, providing tailored solutions to specific customers, often together with other vendors (Baines et al. 2009). A combination of tangible products and service activities that delivers value in use for customers is called a product-service system (Baines et al. 2007). Service modularity has been seen as a key concept for developing service orientation in a company (Böhmann et al. 2003, Voss and Hsuan 2009, Bask et al. 2011, Dörbecker and Böhmann 2013). Hence, services in integrated solutions should be designed as modular units and developed by mixing and matching these units to provide different combinations to meet specific customer and market needs (Baines et al. 2009, Voss and Hsuan 2009, Bask et al. 2011, Tuunanen and Cassab 2011). A modular service offering of an organization thus consists of standardized base services, customized services, and their combinations. Service process modularity allows reuse of process steps that can be combined in service implementation, which in turn allows flexibility and customization (Bask et al. 2010). Commonly mentioned benefits of modularization include more product variety, improved flexibility, simplification of complex systems, enhanced quality, and cost savings (van Liere et al. 2004, Jose and Tollenaere 2005). Thus, the application of modularity has been acknowledged as potentially beneficial 251

Bask, Merisalo-Rantanen, and Tuunanen: A Modular Service Architecture for E-store Supply Chains


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Service Science 6(4), pp. 251–273, © 2014 INFORMS

in the service context (Voss and Hsuan 2009, Bask et al. 2010, Tuunanen and Cassab 2011, Dörbecker and Böhmann 2013). Furthermore, Tuunanen and Cassab (2011) argue that service process modularization enables the firm to generate a market impact efficiently through service extensions characterized by reuse and variation of existing service processes. However, servitization with customer centricity, service centricity, and cocreation poses challenges not only to service design but also to organizational strategy and organizational transformation (Baines et al. 2009) in the context of SCs’ organizational structures (outsourcing/insourcing) and processes. Zolnowski and Böhmann (2011) argue that the challenge is to provide excellent service experience to customers on the front end and simultaneously deliver the service efficiently on the back end. Therefore, tailored service offerings or solutions call for new modular service architectures and service process design approaches to complement traditional service and product design methods. In addition, new empirical studies are required in the field of service modularity (Voss and Hsuan 2009, Dörbecker and Böhmann 2013). We address these gaps in this interpretive case study in the context of e-stores’ order-delivery process. The main research question is how modular service architecture can assist in the service process design. Our objective is to increase understanding in applying modular service architecture (i.e., modularization, modular reuse, and modular variation) when designing and developing tailored service solutions. Thus, we suggest the modular service architecture (ModSA) framework to analyze these solutions. We use the framework as a lens to analyze three small- and medium-sized Finnish e-stores selling physical products firsthand through e-stores to consumers. We identify and define the order-delivery process of the case e-stores’ SC; the modularity and modularization principles of the order-delivery process; and constructs such as service process modularization, modular reuse, and modular variation, as well as the interrelationships between the modules. We scrutinize the modularization of both the front-end customer service subprocess and the back-end delivery production subprocess of e-stores’ order-delivery process. Our study contributes to the service architecture and service modularization literature, two subfields in service science, as well as the literature on SCs, by providing a ModSA framework that can be used to develop and analyze modular services and SCs. The empirical analysis of the modular service architecture of small and medium-sized e-stores’ order-delivery process enhances knowledge of designing and developing modular service offerings or solutions. For practitioners, we provide a real-life example of adopting modular service design when developing new and modified service encounter processes in the context of small and medium-sized e-stores’ order-delivery process. The rest of the paper is organized as follows. First, the relevant literature on modular service architecture, service modularization, and supply chain management is reviewed. Second, the research methodology is delineated. Then the resulting ModSA framework and the case descriptions are presented. Finally, the findings are discussed, and conclusions are drawn.

2.

Literature Review

Here, the key constructs are defined and the relevant literature on modular service architecture and service modularization as well as supply chain management is briefly reviewed. Based on the literature review, we develop a ModSA framework that we apply as a lens in the case analyses. 2.1. Modular Service Architecture and Service Modularization The most important construct of this study is service. Service-oriented research has been conducted in various fields of research, such as marketing, operations management, supply chain management, and information systems science (Ostrom et al. 2010, Patrício et al. 2011). Numerous definitions of service are presented in various fields of research, including marketing and information systems science. Perhaps the most used definition is by Vargo and Lusch (2004), who define services as “the application of specialized competences (knowledge and skills) through deeds, processes, and performances for the benefit of another entity or the entity itself” (p. 2). They note that tangible products can serve as appliances for service provision—distribution mechanisms for services or the provision of satisfaction for higher-order needs rather than ends in themselves. Thus, service can be embedded in products that are a means to exchange services (servitization). Alter (2010) questions this distinction among products, services, and service-economy thinking. He suggests viewing services as systems and defines services as “acts performed for someone else, including providing resources that someone else will use” (p. 201). Thus, “every purposeful action performed for the benefit of someone else is a service independent of whether the result is customized, intangible, or consumed as produced (characteristics often associated with services)” (p. 201). We adopt this definition because it is wide enough to embody automated services in addition to more traditional services.




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Modularity research has a long tradition in product, manufacturing, and organizational contexts, but modularity of services is a fast-emerging research area (Bask et al. 2010, Dörbecker and Böhmann 2013). Various disciplines such as services, marketing, management, operations management, information technology, and engineering have contributed to the modular service design discussion (Tuunanen et al. 2012). Thus, modularity could help design services that better match with customer expectations and provide increased efficiency and performance for the firm. Modularity can provide benefits to service design in various ways. It can make complexity manageable (Baldwin and Clark 2000), help deal with uncertainty, improve service quality, and provide cost efficiency. According to Voss and Hsuan (2009), in service design, it is extremely important to understand the nature of the service architecture and the related modularity. They define service architecture as “the way that the functionalities of the service system are decomposed into individual functional elements to provide the overall services delivered by the system. At each level of decomposition the architecture can be either integral or modular” (p. 546). Thus, service architecture can be seen as an integration framework for combining modules (Böhmann et al. 2003, Tuunanen et al. 2012). Böhmann et al. (2003) continue that modular service architecture enables the customization of a service offering and sharing of service modules between different service offerings. Voss and Hsuan (2009) suggest two alternatives for service customization: combinational customization, where a unique service is provided by combining a set of service modules (service processes and products), and menu-driven customization, where services can be selected from a set of existing service modules. Mixing and matching service modules helps meet specific customer and market requirements (Baines et al. 2009, Bask et al. 2011, Tuunanen and Cassab 2011). The identification of service modules (decomposition) in a service system provides a basis for effective composition of customer-specific configurations. Therefore, a systematic presentation of service modules is required to understand the full potential of service modularity (Böttcher and Klingner 2011). Service process modularization is a service innovation strategy used to enhance the organization’s portfolio of offerings. Tuunanen and Cassab (2011) define service process modularization as “the systematic combination of service encounter processes known to both the customer and the firm that generates new, customizable service packages of increased utility to the customer” (p. 342). The base process is the service to be extended or modified. A module (component) performs a certain operation or function and has a standardized interface for integration. In modular reuse (Baldwin and Clark 2000), the modules that make up a service or product are reused as is, with no or minor revisions in the design of another service or a product in a different context (Rothenberger 2003). By reusing service process modules, organizations can reduce the costs and timing of new offerings (Ettlie and Kubarek 2008). In modular variation, a major revision is made to the module (component) in a service or product before it can be used in a different context. An extended base process, also called a combined service process, is built by adding on new service extensions by applying modular reuse or modular variation (Tuunanen and Cassab 2011). In service design, modularity can be adopted at different levels: the full, high-level process level and its integration in other high-level processes or at a subprocess level and its building blocks (modules and options or components). Management of interfaces (see, e.g., Baldwin and Clark 2000, Böhmann et al. 2003, Hyötyläinen and Möller 2007, Voss and Hsuan 2009, de Blok et al. 2014) is an important issue today in the supply chain management (SCM) literature (Lambert et al. 1998, Lambert and Cooper 2000, Bask and Juga 2001, RosettaNet 2013, Supply Chain Council 2010), arising from the discussion on service modularity. The role of an interface is to connect service modules (Tuunanen et al. 2012). Well-defined and standardized technical interfaces describe and enable the connectivity of service components in the modular service offering and service production. Especially in the e-store context, standardized interfaces are a key prerequisite of effective mixing and matching or orchestrating the related services that often are provided by external partners. From the customers’ perspective, a customer or user interface should offer options for tailoring, customizing, or personalizing the service and for using alternative service channels. The customer can select some of these options; other options may be available only for the service provider. As a result of modular service design, the development of new services and the variation of the existing services are quicker and more agile, require fewer resources, and yield more standardized and higher-quality service processes. From the customers’ perspective, service modularity as such should be invisible. The degree of customer involvement and the customer’s role in the service process depends on the process (Wemmerlöv 1990). According to Tuunanen and Cassab (2011), further research on the adoption of modular service process design in modular service encounters is needed. In addition, it is essential to understand the actual modular architecture of service processes and customer service encounters.



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2.2. Supply Chain Management According to Stavrulaki and Davis (2014), “The strategic management of service supply chains is largely undeveloped despite recent emphasis on service supply chain management as the next frontier of competitive advantage” (p. 34). It is argued that building a Web-based e-store environment is not a difficult task; managing the whole business model, including the SC, is much more challenging (van Hoek 2001). Thus, in the e-commerce context, the critical success factor is effective and efficient SCM (Cho et al. 2008). SCM should have a customer focus, and each part of the SC should have the same mission to satisfy the final customer and to maximize the added value of the overall SC (Lambert et al. 1998, McAdam and McCormack 2001, Christopher and Holweg 2011, Lado et al. 2011). Therefore, SC designs should be linked to the corporate strategy and the needs of the customers (Towill and Christopher 2002, Stavrulaki and Davis 2014)—in the e-store context, organizations (business-to-business) or consumers (business-to-consumer). E-marketplaces also allow for business transactions between consumers (consumer-to-consumer). In this paper, we adopt the comprehensive SCM definition by Lambert et al. (1998, p. 1): “Supply chain management is the integration of key business processes from end user through original suppliers that provides products, services, and information that add value for customers and other stakeholders.” There are a number of models, frameworks, and standards for analyzing, structuring, and managing SCs. For the product-based e-store context, the most relevant ones are the general SCM framework by Lambert et al. (1998) and Lambert and Cooper (2000) and two more-detailed process models: the Supply Chain Operations Reference (SCOR® ) model established by the Supply Chain Council (2010) and the standards for the global SC supplied by RosettaNet (2013). Lambert et al. (1998) and Lambert and Cooper (2000) suggest a SCM framework to analyze and manage SCs. The three elements of the framework are as follows: (1) SC network structure, (2) SC business processes, and (3) SC management components. In the SC network structure, the members occupy either primary or supporting roles in the SC (Lambert et al. 1998). The primary members are “all those autonomous companies or strategic business units who actually perform operational and/or managerial activities in the business processes designed to produce a specific output for a particular customer or market” (Lambert et al. 1998, p. 5), and the supportive members are “companies that simply provide resources, knowledge, utilities, or assets for the primary members of the supply chain” (Lambert et al. 1998, p. 5). Business processes become SC business processes when they are linked across intra- and interfirm boundaries. Cooper et al. (1997) and Lambert and Cooper (2000) suggest eight key processes that could be linked across the SC: customer relationship management, customer service management, demand management, order fulfillment, manufacturing flow management, procurement, product development and commercialization, and returns. Finally, SC management components focus on how much integration and management should be adopted in each process link, or the feasible level of integration needed (from high to low) (Lambert et al. 1998, Lambert and Cooper 2000). They suggest nine management components that can be divided into two groups: the physical and technical group and the managerial and behavioral group. The SCM framework by Lambert et al. (1998) and Lambert and Cooper (2000) can be applied in the e-stores’ order fulfillment process to identify and describe the SC network structure, key SC processes, and key management components. First, the order fulfillment process aims to provide the best match with demand, thereby developing a seamless process among the suppliers, the focal firm, and the customers. Second, it provides timely and accurate delivery to customers (Lambert and Cooper 2000). Both are crucial to a firm’s success. The SCOR model (Supply Chain Council 2010) provides tools to analyze the performance of the SC and related operations both within and between other organizations and to improve the SC. It focuses on the order fulfillment process from suppliers’ suppliers to customers’ customers and “links performance metrics, processes, best practices, and people into a unified structure” (Supply Chain Council 2010, p. 2). The SCOR metrics reference defines the attributes to be measured as well as the metrics for their measurement at multiple hierarchical levels. In the SCOR process reference, the SCOR performance metric “Perfect Order Fulfillment” addresses the SCOR processes of planning, sourcing, manufacturing, delivery, and return. The SCOR practice reference contains best practices for SCM, software solutions, and definitions for configuring SCOR processes. Finally, the SCOR people or skills reference delineates the SC skills necessary for high-performance SCs. The SCOR model, especially the perfect order fulfillment performance metric of the SCOR process reference, provides guidance on the components of the order fulfillment process for the development of our ModSA framework. RosettaNet (2013) standards for the global SC, especially the standards for partner interface processes (PIPs), are extremely relevant in the e-store context. They focus on trading complex information in global SCs and aim to align the business processes of the SC partners. RosettaNet PIPs help define business processes between trading partners and enable their automation. RosettaNet defines PIPs as follows: “Each PIP defines how two specific processes, running in two different partners’ organizations, will be standardized and interfaced across the entire


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supply chain. PIP includes all business logic, message flow, and message contents to enable alignment of the two processes” (RosettaNet 2013, p. 3). The scopes of SC processes for which PIPs will be designed “is divided into several clusters, segments, or groups of core business processes and within each segment are individual PIPs” (RosettaNet 2013, p. 3). The clusters and segments serve as a mechanism to group all SC processes into a manageable framework. From the e-stores’ perspective, two clusters and their segments are above the others. The Order Management cluster defines the PIPs for the customer-facing order-delivery processes on the front end. The Inventory Management cluster and segments, in turn, define the interfaces enabling the automation of the order-delivery related processes on the back end. When partners implement PIPs, “they should select from all segments the subset of PIPs required to address specific business interface scenarios” (RosettaNet 2013, p. 3). RosettaNet PIPs define technical interfaces such as interchangeable messages and documents, enabling the automation of the information flow in the global SC. In this research, we focus on the service process level of the modular service architecture in the context of the e-stores’ order-delivery process design. Hence, we do not explore the technical-level architecture, i.e., the automation of the related information flows, the technical interfaces of the information systems, or the information transferred through these systems. The technical-level architecture is a broad topic and, as such, is worthy of discussion in another research paper. In summary, all these SCM models or frameworks focus on high-level SC networks, on SC processes that go beyond the focal firm, and on the management of SC networks and processes. Lower-level elements (subprocesses, modules, and options) are also defined in the models, and there is some variety between them. Yet more-detailed and easy-to-understand tools and processes are needed for service design and service process development. Bask et al. (2012) maintain that e-stores are looking for more cost-efficient ways to provide flexibility to the customers. One possibility might be to offer a feasible set of modular service packages.

3.

Modular Service Architecture Framework

Based on the literature review on service architecture, service modularization, and SCM, we developed a ModSA framework (see Figure 1) as a lens to analyze e-stores’ order-delivery process. In our ModSA framework shown in Figure 1, we decompose modular service architecture into two levels: managerial and operational. The managerial-level decisions provide the guidelines for the service design,

Figure 1. ModSA Framework

E-stores’ modular service architecture

Supply chain network structure

Managerial level

Supply chain management components

Outsourcing principles

Sales principles

ICT principles

Modularization principles

Business functions Support functions

Sales channels Types of products sold Sales types

Information system Information management

Base processes Reuse processes Variation processes

Order-delivery process: Key modules Operational level Ordering module

Payment module

Delivery module

Return module

Submodules Options

Submodules Options

Submodules Options

Submodules Options

Information flow


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Figure 2. ModSA Framework—Decomposing the Operational Level of E-stores’ Order-Delivery Process

E-stores’modular service architecture: Operational level order-delivery process Legend: Line = Orderdelivery Dash = Return

Options -Base -Reuse -Variation

Delivery module

Return module



Payment return

Back-end delivery production subprocess

LSP return

Inventory availability/ shipping Inventory management and handling submodule

EnDcustomer

Payment module

Customer return

Ordering module

Endcustomer


Front-end customer service subprocess

Delivery to customer submodule

Warehouse management submodule

Picking and sorting submodule

Packing and ticketing submodule

Pickup from warehouse submodule

Physical transfer submodule

End delivery to cutomer submodule

Base option Reuse options Variation options






Information flow

development, and integration of the operational-level business processes (see Figure 2). Some operational-level processes are visible to the customers, whereas others are internal to the firm providing the service. Next, we discuss the managerial and operational levels of our ModSA framework in more detail. 3.1.

Managerial-Level Service Architecture

At the managerial level, we apply the SC network structure and SC management components from the SCM framework by Lambert et al. (1998) and Lambert and Cooper (2000). These components describe the context in which e-stores introduce service modularity and the guidelines for their business processes. The principles of outsourcing, sales, information and communication technologies (ICT), and modularization guide the design, development, and integration of the process modules and options at the operational level. Next, we briefly discuss these principles with regard to our case context—e-stores’ order-delivery process. Maltz et al. (2005) propose that order management and skills in logistics are essential for selling profitably on the Internet. In fact, running an e-store becomes a partner business as firms increasingly concentrate on their core competencies and outsource their business and support functions and operations. Network structure focuses on the need for e-stores to cooperate with reliable SC partners (see, e.g., Tarn et al. 2003). Therefore, modules in the e-stores’ order-delivery process such as payment, warehouse management, delivery, and return as well as ICT services may be provided in cooperation with service providers specialized in those functions. For instance, logistics service providers (LSPs) support alternative SC strategies and provide value-added services for logistics operations. The selection of LSPs or carriers should be a strategic choice (Esper et al. 2003) that depends on the firm’s customer service strategy. According to Esper et al. (2003), e-stores using LSPs with higher levels of positive consumer awareness can contribute to consumers’ willingness to buy and their overall satisfaction with the online buying experience. A growing number of customers expect on-time, reliable, and cost-effective logistics processes (Persson and Virum 2001, Cho 2005). Meeting a delivery time promise is an essential quality factor, and from the customer’s viewpoint, it is even more important than quick delivery (see




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Cooper et al. 1997, Lambert et al. 1998, Maltz et al. 2005). Similarly, firms specialized in payment operations or warehouse management provide, among others, a wide variety of payment options or more efficient delivery and return processes. Thus, an e-store needs to decide its outsourcing principles. The selected service providers become strategic partners and primary SC network members (Lambert et al. 1998) of the e-store. Naturally, the level of outsourcing varies between e-stores, process modules, and their lowest-level options. The SC management components at the managerial level of the ModSA framework (see Figure 1) entail sales, ICT, and modularization principles to design an e-store’s order-delivery process. Sales principles include decisions on sales channels, types of products sold, and sales types. A multitude of sales channels needs to be taken to account in the SC design to be able to offer attractive and easy-to-use buying and ordering options for all target customers. The e-store may be the sole sales channel or a multichannel, click-and-mortar solution with an e-store, and one or more retail stores may be adopted (see studies on multichannels by Reynolds 2002, Lee and Huddleston 2006, McGoldrick and Collins 2007, Rao et al. 2009). In an e-store, a wide variety of ordering options in both traditional channels (e.g., phones) and electronic channels (e.g., Internet-based ordering options such as the e-store’s Web page; e.g., Sousa and Voss 2006) must be considered, and all kinds of devices (PCs, tablets, smartphones) need to be supported to reach and serve all kinds of customers. The types of products sold (make-to-stock, assemble-to-order, make-to-order, digital products, or a combination of these) also affect the modular service architecture structure in terms of the supplier, LSP, and payment service provider network as well as process designs, as different products require different capabilities in orchestrating the whole SC. Sales types vary from selling only products available in the inventory to allowing customers to order products not yet available in the inventory, or a combination of such options. Sales types have implications for the product offerings, payment services, customer service, inventory management, ICT capabilities, and delivery management. For example, decisions on whether partial and backorder deliveries are offered or whether credit or invoice payments are offered must be made. At the core of an e-store’s ICT principles are information systems (IS) and information management, which should provide the continuous and smooth information flow necessary for operating an integrated SC (Lambert and Cooper 2000). The modularization principles decompose the orderdelivery process into subprocesses and modules, each of which can be further divided down to the lowest-level options or components that can be defined as base, reuse, or variation options (Tuunanen and Cassab 2011). The operational level of the e-stores’ order-delivery process with its subprocesses is depicted in Figure 2 and discussed next. 3.2. Operational-Level Service Architecture SC business processes from the SCM framework by Lambert et al. (1998) and Lambert and Cooper (2000) as well as standards and models by the Supply Chain Council (2010) are applied to define the operational-level order-delivery process as well as its subprocesses, modules, and options, as shown in Figure 2. Based on the managerial-level decisions on outsourcing, sales, ICT, and process modularization principles (see Figure 1 for the ModSA framework), the resulting service architecture and operational processes at the lowest level provide more or fewer alternatives (options) for the customers and the service provider. A service process is the highest operational level and comprises lower-level subprocesses and modules. The number of modular levels varies in different processes. The lowest level consists of components, which de Blok et al. (2014) define in the service context as the “smallest parts that a service can be meaningfully divided into. These are the sub-systems that together built up the modular service” (p. 176). These components are usually called options in the service process context and components in the context of physical products. In the e-store context, the term “option” is also commonly used to describe the customer’s alternatives to conduct an action (a submodule) or to choose how to conduct the action in case. In addition to processes and modules, information systems can also be components in a service process. In this paper, the terms “process,” “module,” and “option” (“component”) are used in the discussion of the ModSA framework and the case descriptions to portray the modularity of the operational-level business process—in this case, the e-stores’ order-delivery process and the supporting information systems at different levels. The operational-level SC business process (the e-stores’ order-delivery process) is decomposed into two levels: the front-end customer service subprocess and the back-end delivery production subprocess. The front-end and back-end subprocesses are decomposed into modules and options at different levels. After having identified the lowest-level options, one of them—usually the most common or the simplest process—is defined as the base option (BP) and the others as reuse (R) or variation (V) options. The R option does not require a new way to work from the e-store or the customer, whereas the V option requires new or modified actions from the e-store and/or the customers compared with the BP option (see Tuunanen and Cassab 2011, who use the term “process” instead of “option”). Modularization of the processes is the prerequisite for reuse and variation.



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The front-end customer service subprocess of the order-delivery process is first decomposed into four key modules—ordering, payment, delivery, and return—and then further into lower-level options within each module. The ordering module offers different ordering options for customers (e.g., e-store, phone, email, physical store), and the payment module provides options for payment (e.g., e-bank, debit card or credit card payments, invoicing, bank transfers, partial payments, collect or cash on delivery (COD)). The delivery module is part of both the front-end customer service subprocess and the back-end delivery production subprocess internal to the firm. On the front end, the customer can choose options regarding the end delivery to the customer—the delivery scheduling and the delivery destination. Other delivery options relate to the back-end delivery production subprocess and are internal to the firm (not visible to the customer). The back-end delivery production subprocess in e-stores is different from that in traditional brick-and-mortar stores (Burt and Sparks 2003). It consists of inventory management and handling as well as the delivery to customer submodules. The inventory management and handling submodule provides alternatives for the firm to organize its warehouse management as well as for the picking, sorting, packing, and ticketing of deliveries. The delivery to customer submodule in the delivery production subprocess, in turn, addresses the pickup from the warehouse, the physical transfer of the products sold from the warehouse to an LSP’s distribution center, and the physical end-delivery to the customer. The return module’s front-end options provide alternatives for the customers for returning a product. The product to be returned and the originally selected ordering, payment, and end-delivery options limit the return options available to the customer. E-stores also need to set up a back-end reverse delivery production subprocess for the physical return of the originally delivered products. The return delivery subprocess flow is delineated by a dashed line in Figure 2. All in all, an efficient order fulfillment process requires the integration of customer service requirements and the firms’ products, delivery production, distribution, and return strategies. Next, we present our research methodology and then apply our ModSA framework to analyze the order-delivery processes for the case study e-stores.

4.

Research Methodology

In this interpretive case study, the main research question is how modular service architecture can assist in the service process design. Our objective is to increase understanding of applying modular service architecture, i.e., modularization, modular reuse, and modular variation, when designing and developing tailored service solutions. These solutions or offerings call for new modular service architectures and service process design approaches to complement traditional service and product design methods. We use the suggested ModSA framework as a lens to analyze three small- and medium-sized Finnish e-stores. We scrutinize the managerial and operational aspects of the order-delivery process of the e-stores’ SC. We explore the modularization of both the front-end customer service process (ordering, payment, delivery, and return) and the back-end delivery production process (internal inventory management and handling, delivery to customer) of the e-stores’ order-delivery process. Hence, the customer value and experience of modularized services are examined from the e-store’s viewpoint. We take a service approach—mixing and matching various processes to create a variety of service offerings (Baines et al. 2009, Voss and Hsuan 2009, Bask et al. 2011, Tuunanen and Cassab 2011). We have adopted an interpretive stance to research. Interpretive research is regarded as a feasible way to produce deep insights into a phenomenon by attempting to understand it through the meanings that the participants assign to it (Orlikowski and Baroudi 1991, Klein and Myers 1999). Interpretive research methods aim at understanding the context of the phenomenon under study, understanding the interaction process between it and the context, and deriving constructs and generating knowledge from the field (Orlikowski and Baroudi 1991, Walsham 1993). Hence, both researchers and study subjects have their own subjective, time- and contextdependent interpretations of the phenomenon (Klein and Myers 1999). We believe that adopting an interpretive approach is appropriate because the focus of this study is not to identify dependent and independent variables but rather to make meaning out of the data that unfolds from the analysis process and to explore relationships as they emerge (Orlikowski and Baroudi 1991). In this way, we can gain a better understanding of the idiosyncratic meanings of service encounter processes and modularized services in the context of SCs of e-stores selling physical products. We report our data collection process following the principles of interpretive case studies set out by Walsham (1995, 2006): (1) reporting details of the selected research sites, (2) the reasons these sites were chosen, (3) the number of people interviewed, (4) the interviewees’ hierarchical or professional positions, (5) secondary sources of data, (6) the data-gathering period, (7) how field interviews and other data were recorded, (8) the description of the analysis process, and finally, (9) how the iterative process between field data and theory took place and evolved over time.


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Klein and Myers (2001) regard in-depth case studies as one form of interpretive field study. We have selected the e-store context because it presents services typically developed by integrating rather simple and standardized processes. This is in line with Reinartz and Ulaga (2008), who suggest that profitable servitization starts with identifying simple services and standardizing them. Hence, we have conducted an interpretive case study of three e-commerce firms operating in Finland selling physical products firsthand through e-stores to consumers. According to the European Union (EU) definitions of small- and medium-sized firms based on both the number of personnel and turnover, one of the case firms can be classified as microsized and the other two as small. However, there is a significant difference between these two small firms, and in the rather small Finnish market, the bigger firm is regarded as a medium-sized enterprise. We have chosen this size of e-store because it enables us to collect enough comprehensive and detailed data for the complex issue of service modularity and the related service architecture. These companies also operate in a less dynamic context than large e-stores. In addition, small- and medium-sized e-stores are less studied, which also increases the contribution of this research. The three case firms were selected with a convenience sampling approach (Voss et al. 2002). A major Finnish logistics operator working closely with leading Finnish e-stores assisted us in preselecting the case firms. The preselected case firms were considered to represent typical Finnish small- and medium-sized e-stores. We finalized the short list of case firms. These three firms were willing to provide research access to explore their order-delivery processes. The data were gathered by interviewing the chief executive officers (CEOs) of the three case firms. The primary data collection method was semistructured interviews. We have followed the guidelines for qualitative interview by Myers and Newman (2007) while planning the themes and questions to guide the interview and also when conducting the interviews. The interview themes were based on an initial review of the literature on service architecture, service modularity, and SCM, as well as on background interviews with one logistics service provider. At least two researchers at a time were present in the interviews. Additional information was gathered from secondary sources, such as the websites of the case firms and their partners. All interviews were conducted in summer 2012 and transcribed, totaling 41 pages of text. The interviewees reviewed for accuracy the interview transcriptions as well as the summaries made. In the data analysis, we apply our ModSA framework (see Figures 1 and 2). The researchers regularly discussed the analysis results, and the analysis was continued, complemented, or corrected when necessary. Below, we present the three e-stores and their order-delivery processes.

5.

Case Descriptions

In the case descriptions, we apply the ModSA framework shown in Figures 1 and 2 to analyze the case e-stores’ order-delivery process and summarize case by case the processes, subprocesses, modules, and options found at different operational levels as well as their classification by process type into base, reuse, and variation options (see the case-by-case summaries in the appendix). The information systems and information flows related to the e-stores’ order-delivery process are not the focus of this paper, yet we briefly discuss them in the case descriptions because they are the backbone of e-business. The background information on the case e-stores is summarized in Table 1. 5.1.

Case A

The e-store in Case A was founded in October 2009, and its facilities are located in Helsinki. The turnover in 2011 was about 100,000 euros. The number of personnel is approximately five, complemented with additional personnel during peak seasons and campaigns. E-store and enterprise resource planning (ERP) systems (product data management, order management, inventory management, accounting, etc.) are self-developed, self-made, and self-operated.

Table 1. Characteristics Founded Turnover (2011) Size Personnel (2011)

Background Information of the Case E-stores Case A

Case B

Case C

2009 EUR 100,000 Micro 5

2004 EUR 2.2 million Small 12

2003 EUR 6.5 million Medium 64



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The e-store sells miniatures and models such as cars, trucks, airplanes, trains, and houses as well as related materials and accessories available only at the e-store. There are approximately 7,500 products available at the e-store, of which fewer than 2,000 are stored at the warehouse. Altogether, 30,000 products are available via the foreign wholesaler network. An average purchase is 60 euros, but the variance is high, from 20 to thousands of euros. The firm serves Finnish customers only because international delivery costs are too high compared with the average purchase. The e-store’s customers are mainly miniature hobbyists, but organizations and educational institutions also order miniatures for marketing and teaching purposes. For Case A, front-end customer service subprocess orders can be made through the e-store (most used), by phone, or by email. All orders are entered into the e-store system and handled similarly, be it business-toconsumer (B2C) or business-to-business (B2B) sales. When entering the order, the customer sees the real-time inventory situation of the desired product, together with the estimated delivery time (from weeks to unknown). Regarding the sales principles, the orders are delivered when the order is paid and all products are available, but the customer may also ask for a partial or backorder delivery. A wide variety of payment options is offered to customers in Case A. The most popular option is e-bank payment via the leading payment service provider. Credit payments from many credit card firms can also be chosen. Invoice, partial payment, and clearing account service options are provided by the leading payment service provider. Bank transfers and COD can be used as well. All payment options except COD are free for the customers at the e-store, but the partner offering invoicing and partial payment charges the customer directly. The back-end delivery production subprocess (i.e., warehousing, picking, sorting, packing, and ticketing of package labels and parcel cards) is handled by the firm’s personnel. An invoice is printed and used for picking, and at the end of the process, it is attached to the parcel. (A cover letter with a discount voucher good toward a future purchase has recently been attached to the parcel as well to increase sales.) No estimated time of delivery is given to customers because it can vary from one to two days if the products are in the warehouse to four to five days or even an entire month, depending on the location from which the product will be ordered by the e-store. An ideal order-delivery process seldom occurs. The e-store’s personnel transport outbound parcels to the nearest LSP’s office or parcel automat (the back-end subprocess module delivery to customer). The number of shipments is not big enough to create a cost-effective collection contract with an LSP. However, the e-store has contracts for the physical transfer and the end delivery of the parcels to the customer with two leading LSPs, and it prioritizes the LSPs as well as their delivery options based on various criteria. At the moment, all delivery and pickup options of only one LSP can be chosen at the e-store. The same LSP also delivers in Finland all shipments from the foreign wholesalers. The default delivery option is a standard parcel to the office nearest the recipient’s address. Alternatively, home delivery can be chosen—either standard letter delivery or transportation to the recipient’s address. B2B customers may also negotiate, case by case, the use of the other LSP’s delivery services, especially when the delivery is big or difficult to handle and it is necessary to have it transported to the customer’s premises. The customer’s delivery costs depend on the total value of the order. There is one lower delivery price for smaller orders (in euros) and a higher price for bigger orders, and delivery is free for orders over a certain total value. Home deliveries have three different prices depending on the order’s total value. The customer may return a parcel for free to any of the LSP’s pickup points, regardless of the original delivery channel or pickup point, except parcel automats, because they are not an option for deliveries. Alternatively, the LSP returns the parcel if it is not picked up on time. The number of returns is very low—less than 1% of all deliveries. The e-store manages all customer interactions as long as the parcel is waiting for the customer to pick it up. The customer interaction during the order-delivery process is automated and is based on email and modifiable templates. The email system is integrated into the ERP system. Hence, it is easy to switch from an email to the respective order and from an order to the related emails. First, the firm receives a message stating “Order submitted.” As a reply, the customer gets an “Order received” message and an order confirmation with information on the customer, order, delivery status, and payment. Second, an “In progress” notification is sent. Interim notifications may also be sent when necessary, e.g., when the delivery will be delayed because of the wholesaler’s long delivery time or the unavailability of the ordered product. Registered customers can follow online the handling status of their orders at the e-store (received, in progress, and delivered), but changes to the order can be made by phone or email only as long as the order is in progress. Finally, after the delivery from the e-store, a “Delivered” message with the LSP’s tracking code and a link to the delivery in the LSP’s tracking system is sent to the customer to further follow the parcel status. Only when the parcel is waiting to be picked up does the recipient get a message, a printed notification to the delivery address, from the LSP provider.




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5.2. Case B The e-store in Case B was founded in 2004, and its facilities are located in southwestern Finland. The firm’s turnover in 2011 was 2.2 million euros, and the number of personnel is approximately 12. E-store and ERP systems (product data management, order management, inventory management, accounting, etc.) are self-designed, self-made, and self-operated. The firm sells a variety of products related to well-being available only at the e-store. The most important product groups are organic food products, natural cosmetics, food supplements, weight control products, and ecologically friendly detergents. There are approximately 4,000 products available at the e-store. The average purchase is 60 euros, but the variance is high. The firm serves customers mainly in Finland but also has customers in other EU countries (0.5%–1% of sales). The number of customers is 130,000, of which 95% are B2C customers. In Case B, in the ordering module of the front-end customer service subprocess, a wide variety of options is available to customers. Most orders come through the e-store, but phone and email are also used frequently, and orders can be made via Skype or chat as well. The personnel register the order information into the e-store system if it is not used as the ordering channel. The order-handling process is similar for both B2C and B2B orders. In the payment module, customers can also choose between nearly all payment options available in Finland: e-bank payment from all banks operating in Finland, credit card payment via many credit firms, invoice via two service providers, bank transfer, and COD upon agreement. E-bank payment (bank and credit) is the dominant payment option (50%), followed by an invoice (35%), which is the most popular payment method for phone orders. The customers can also opt for an account via the invoicing service providers to collect all their purchases from different e-stores into one monthly invoice and then pay it in installments. All payment options except COD and one of the invoice options are free for the customers at the e-store. The partners offering invoicing and partial payment options charge the customer directly for these services. The e-store’s entire order-delivery process is automated. The system shows all orders, both those that can be delivered immediately and others that must wait for some products that are not available in the inventory. These orders are delivered only when the last product has arrived. The back-end delivery production subprocess (i.e., warehousing, picking, sorting picked products by orders if many orders are picked simultaneously, packing of the products, and ticketing of package labels and parcel cards) is done at the e-store’s own warehouse by its own personnel in teams. Usually one person does the picking and another packing, simultaneously checking that the shipping is as ordered. The size of a team is two to six people, depending on the season and campaigns. Orders are picked with the help of mobile bar code (portable data assistant) scanners based on the order and product location information in the system. When the order is ready and packed, the parcel ticket is printed for the customer-selected delivery option. If an order is received before noon, it is shipped on the same day. The standard delivery time promise is one to three days. All outbound shipments are picked up for delivery and transported to the delivery centers (the back-end subprocess module delivery to customer). One LSP picks up its own shipments, and the other LSP picks up its own and the third LSP’s shipments, which is exceptional cooperation among LSPs in Finland (in this region only). In Case B, there are two value-added options related to the back-end delivery production process for the customers to choose. First, the customer can select express delivery for an extra fee. In this case, the order is prioritized in the handling queue at the warehouse, but the actual LSP delivery follows the standard process. Second, the customer can choose green delivery to opt for recycling of used boxes and packing materials. Nearly 70% of all customers choose this option. According to the CEO, it is the only e-store in Finland offering the green option to customers, although it is a common practice to reuse boxes and other packing materials. The e-store offers the choice between all delivery and pickup options of the three leading LSPs operating in Finland—again, a very comprehensive offering for the customers. The delivery options at the e-store are the same for both consumers and organizations. Home delivery is also offered to consumers and large deliveries for business customers such as full pallets can be delivered directly to their premises either from the e-store or straight from the supplier on agreement. Small parcels can be delivered by letter mail as well. Pickup from a parcel automat can be chosen if the receiver’s mobile phone number is available. Parcel automats have been a very welcome addition to the delivery options because most parcels are rather small and, thus, appropriate for automat delivery. Parcel automats offer a new and easy-to-reach pickup option for customers. All standard delivery options in Finland have one standard price, with another standard price for home deliveries and deliveries abroad. A letter is a bit cheaper. Thus, the popularity of the delivery options is influenced by campaigns and by which LSP is the first on the options list. The share of the main LSP partner is 55%, and the other two are 25% and 20%, respectively. The main partner mostly operates international deliveries as well.



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The return process is very easy and flexible as well. A parcel can be returned via all three LSPs. The customer may use the same pickup point from which the parcel was originally picked up or any other pickup points of the same or the two other available LSPs. A parcel automat can be used for return only if the parcel was originally delivered to an automat. Parcel return is free of charge in Finland. From abroad, a parcel can be returned via the local post, also free of charge. The return of a shipment delivered to the home is handled by and the return transportation costs are invoiced from the customer on a case-by-case basis. During the order-delivery process, the customer receives at least three messages, in text message and email formats, depending on the contact information available. The first message is the order confirmation. The second one informs the customer that the order is packed and waiting for the delivery, and it also includes the tracking code for following the delivery’s transportation. The customer receives the third message from either the e-store or an LSP after the package is ready to be picked up from the chosen pickup point. In exceptional cases, such as when an order is waiting for a product, the customer receives additional messages at least once a week. 5.3. Case C The e-store in Case C is a firm that started in 2003 as an e-store only. Today it includes a physical retail store on the same premises with a warehouse in Helsinki. The turnover in 2011 was about 6.5 million euros, and the average sales in the retail store come to 11,000–12,000 euros per day. The number of personnel is 64. The firm sells and leases new, as-good-as-new, and used army and army-style products such as clothes, shoes, and tools. The firm holds a near-monopoly position in Finland and is the largest firm in Europe in its field. The same assortment of approximately 7,000 products is available both at the e-store and at the physical retail store. Half of the products come from one global wholesaler in a monopoly-type position. The majority of the firm’s customers are involved in hobbies such as hunting, fishing, hiking, and army-related games. The firm also has organizational (B2B) customers, such as advertising agencies, film producers, theaters, and occupational groups including guards and taxi drivers. The firm wants to provide an ideal order-delivery process to every customer and has streamlined its own processes and information systems to support this goal. Everything—including warehousing, product descriptions, and advertising—is made by the firm’s own personnel. Since 2009, the e-store, cashier (in the retail store), and ERP systems (product data management, order management, inventory management, accounting, etc.) have been based on fully integrated packaged software from one vendor only. The interfaces and the system structure are tailored to the firm’s needs and processes based on the employees’ needs and ideas. In the front-end customer service subprocess, the three ordering channel options are e-store (most used), email, and phone, in addition to visiting the retail store. A visit to the e-store often gives customers an impulse to go to the physical retail store as well. All orders are entered into the e-store system and handled similarly, whether B2C or B2B. The customer sees the real-time warehouse balance of the desired product at the e-store, and only products available in the inventory can be bought. Hence, partial or backorder deliveries are not offered or needed. Exceptions can be made, however, especially with organizations that understand complicated SCs better than consumers. An order will be delivered only when it is paid, unless delivered by COD. In the payment module, the e-store offers a wide variety of payment options to customers. The most popular payment option is an e-bank payment (debit or credit) via the leading payment service provider. Credit payments from many credit card firms can also be chosen. Payment by invoice and a clearing account will probably be provided via the leading service provider in due course. Unlike many other e-stores, the case firm will not offer part payment to its customers. It is better to make more sales instead of providing customers loans with an enormous interest rate. Bank transfer and CODs can also be used for payment. All payment options except COD are free for customers. All in all, the payment solutions available in the market are regarded as too complicated, especially the mobile paying. A single, easy, and relatively inexpensive way to pay is needed. The back-end delivery production subprocess includes warehousing, picking, sorting, packing, and ticketing submodules and is handled by two teams. Bar codes or product labels are rarely attached to the incoming products, which causes much handwork and requires expertise in shelving and in describing the product in the product catalogue and in the retail store. One team is responsible for incoming shipments and managing the warehouse. The first delivery team, consisting of newer employees, handles standard orders that make up the majority of deliveries. The second delivery team of employees with more experience handles orders and deliveries requiring special attention and knowledge, such as oddly shaped or big parcels and parcel automat deliveries. A picked order is entered into the system by reading the bar code on the picking list. The person who picks the products also prepacks the shipment, and another person checks and finishes it. The firm promises to handle an order in one to three days. No promise on the delivery time is given because it depends only on the LSP. The firm wants to keep its promises for high customer and employee satisfaction.




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The e-store has contracts with two leading Finnish LSPs on collecting and transporting parcels (the back-end subprocess module delivery to customer). LSPs are invited to bid on domestic deliveries once a year. The firm prioritizes LSPs as well as their delivery options based on various criteria. All shipments to the firm from abroad are delivered in Finland by one LSP. Both LSPs collect their own parcel trolleys from the firm’s premises. Customers can choose to pick up a standard parcel from the retail store for free or from pickup points of the two LSPs or the other LSP’s parcel automats at the same fixed price. The e-store system allows the customer to select only among the delivery options appropriate for the products ordered. The firm also sells gun-like toys and big or oddly shaped products. The prioritized LSP transports everything fluently and safely, thus offering better service than the other LSP. It also provides home delivery, necessary for big products such as tents, at a reasonable price. This LSP does not, however, offer international transportation, which is handled by an international LSP and in small part by the other domestic LSP. The first delivery option on the list is the most popular customer choice. LSPs have occasional pricing campaigns that significantly affect customer choices. Price and delivery time are the two main selection criteria of customers. For customer returns, an electronic form and instructions are available at the e-store. The customer may return a parcel for free to any pickup point from either LPS, regardless of the original delivery channel or pickup point, with the exception that a parcel automat can be used for return only if the parcel was originally delivered to an automat. Alternatively, a return can be made in the retail store. The LSP returns the parcel if it is not picked up on time. The number of returns has been rising because of the broader customer base buying clothes, and returns now account for about 10% of all deliveries. Of the LSP returns, the share of standard parcels is about 5%, whereas the share of automat parcels is only 0.5%. Customers must pay the delivery costs of home delivery and international returns. The e-store manages all customer interactions as long as the parcel is ready to be picked up by the customer. The customer interaction during the order-delivery process is automated, based on email and SMS. First, the customer gets an email message stating “Order received,” which contains the order confirmation with order details and instructions for making changes. The second message sent by email and/or SMS is “Order delivered,” with a link to the delivery in the LSP’s tracking system. Only when the parcel is waiting to be picked up does the recipient get an SMS message from the LSP or, if the mobile phone number is missing, a printed notification to the delivery address. The firm does not contact customers without an imperative reason because doing so usually implies something negative, thus making both the customer and the employee dissatisfied. Instead, the product descriptions are extremely informative and carefully written, and detailed real-time information and instructions are available at the e-store, where information on exceptions is also provided.

6.

Case Findings and Their Implications

Next we discuss the case study findings using the ModSA framework depicted in Figures 1 and 2 as a lens. A detailed summary of all subprocesses, modules, and options (components) found in the case e-stores’ orderdelivery processes is available in Figure 3 (by subprocesses) and the appendix (by cases). 6.1. Managerial-Level Findings At the managerial level of the ModSA framework (see Figure 1), the SC network structure (outsourcing principles) and the SC management components (sales, ICT, and modularization principles) are defined. The network structure of the three case firms was very similar. Each of them heavily relied on partners in payment and logistics (delivery and return) modules but managed their internal delivery production subprocess themselves. Only the firm in Case C had partly outsourced its ICT services to an external software provider. The partnerships were strategic to the case firms, and thus, external partners were primary members in the e-stores’ SC network (Lambert et al. 1998). All case e-stores were highly dependent on their specialized partners in their order-delivery process. Partners of all case firms were mainly the same leading service providers in their specific field in Finland. Only the number of partners and services provided varied slightly among the case firms. Hence, gaining a distinct competitive advantage through partner choices for, among others, payments or logistics is not an easy task. The sales principles regarding the customer base and types of products sold were similar in our three cases. Ready-made (make-to-stock) products were sold mainly to consumers. All case firms also had business customers and were more or less actively trying to find new markets from B2B. In the ordering module of the front-end customer service subprocess, the options were the same for both B2C and B2B. The main differences between the case firms were found in the sales principles of sales channels and sales types. Case C, depicting the largest firm, had one retail store in addition to the e-store, thus having a hybrid or multichannel structure (click-andmortar) (in line with Reynolds 2002, Lee and Huddleston 2006, McGoldrick and Collins 2007, Rao et al. 2009).


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Figure 3. E-stores’ Order-Delivery Process: Operational-Level Subprocesses, Submodules, and Options

% STORESMODULARSERVICEARCHITECTURE/PERATIONAL LEVELORDER DELIVERYPROCESS

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The firm also had decided to sell only products available in the inventory and to show the real-time warehouse balance of the desired product at the e-store to the customers. This way, the firm wanted to keep its promise to gain high customer satisfaction. The goal of the firm in Case C was to streamline its order-delivery process and automate it as much as possible using efficient work practices and ICT solutions. As a result, partial or backorder deliveries were not offered to consumers and were offered to B2B customers only occasionally (on a case-by-case basis). The other two e-stores also sold products that were not immediately available, and in some cases, orders for these products were ultimately cancelled because of unavailability. Selling nonstocked products offered flexibility to the firms and reduced the need for warehouse facilities but, on the other hand, made the order-delivery process and its automation more complex. Differences in the ICT principles were found between the firm in Case C and the other two firms. The firm in Case C had invested in commercial ERP software that was somewhat tailored to its specific needs. The other two firms relied on in-house developed, custom-made ERP systems. Tailored information systems supported the firms’ tailored order-delivery processes perfectly. They also provided flexibility, as changes could be made quickly. On the other hand, specific skills were needed for the continuous development of information systems, and the firms became dependent on the key developers. The firm in Case C concentrated on streamlining and automatizing the order-delivery process as much as possible with the support of a flexible, packaged ERP solution instead of allocating its resources to information systems development. None of the case firms consciously decided on the modularization principles (subprocesses, modules, and options (BP, R, and V)) (Baldwin and Clark 2000, Ettlie and Kubarek 2008, Tuunanen and Cassab 2011) of their order-delivery processes. Instead, service process modularization is realized in the options provided for the customers to choose in the e-store. Thus, the front-end customer service is menu driven—a desired service is selected from a predefined set of service options within the service modules (Voss and Hsuan 2009). Modularization is a difficult construct to understand, whereas the concrete design and development of the actual service process from both the firm’s and the customer’s viewpoint at the operational level of the ModSA

Bask, Merisalo-Rantanen, and Tuunanen: A Modular Service Architecture for E-store Supply Chains Service Science 6(4), pp. 251–273, © 2014 INFORMS

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framework (see Figure 2) is easy to comprehend. The findings regarding the operational-level subprocesses of the e-stores’ order-delivery process are discussed next. 6.2. Operational-Level Findings In the detailed analysis of the e-stores’ operational-level order-delivery process (see Figure 2 for the operationallevel ModSA framework), we were able to identify the options in the ordering, payment, delivery, and return modules and to define for each option the process type (BP, R, and V options). The most common service option was usually defined as BP and the others as R or V based on the amount of new or modified actions required from the e-store and/or the customers compared with the BP option (Tuunanen and Cassab 2011). The process-type findings discussed next are summarized by subprocesses, modules, and options in Figure 3 and case by case in the appendix. The managerial-level principles of the ModSA framework as shown in Figure 1 were clearly reflected on the operational level of the order-delivery process design and in the division into lower-level subprocesses, modules, and options as shown in Figure 2. The modularization of the front-end customer service subprocess (ordering, payment, delivery, and return modules, as well as their submodules and options) and part of the backend delivery production subprocess (inventory management and handling, delivery to customer submodules and their submodules and options) of the e-stores’ order-delivery process are visible in the e-store as choice options for customers. For ordering, nine options were defined. Most options were regarded as V to the BP option— that is, customer-made e-store orders. There were major differences in the adoption of these options between the firms. The number of the lowest-level options found in the case e-stores’ back-end delivery production subprocesses varied from 3 (pickup from the warehouse) to 10 (end delivery to customer). In most functions, both process types R and V were found, whereas in other functions (e.g., ordering module), one process type was dominant. All case firms turned to partners regarding payment services to be able to offer a wide variety of payment options to their customers. Only a slight difference in the number of alternative payment options could be found between the case firms. There are a few big actors in the Finnish payment service market specializing in e-bank payments, credit card payments, invoicing, partial payments, and clearing account service. Invoicing partners also collect debts on behalf of the e-store. E-bank and credit card payments are usually free of charge for customers, although e-stores have to pay for them to the service providers. Invoicing, partial payment, and clearing account options are always invoiced from the customer by both the e-store and the service provider in case the customer uses the credit option. There was little difference in the back-end internal delivery production process. All case e-stores manage their warehouse operations themselves (using their personnel and facilities) although LSPs also offer warehouse capacity and inventory management services, among others. Innovative variations were found in Case B: express (instant) delivery from the e-store, in which an order is prioritized in picking and packing, and green packing, the e-store’s brand service for recycling boxes at the customer’s request. The other case firms might also provide instant delivery on request and recycled boxes, but only the firm in Case B provided these value-added services to their customers as options. All case firms relied on LSP partners regarding the physical delivery to the customer. Customer pickup from a parcel automat, parcel home delivery, value-added home delivery, the LSP’s express delivery, and business delivery options were classified as variations. In Finland, there are three large key logistics service providers in the parcel business. International LSPs typically specialize in international logistics services, courier services, and other special deliveries. The three LSPs had different backgrounds and slightly different offerings for e-stores, but from the end customer’s viewpoint, there does not seem to be any major difference between their parcel delivery service offerings. All three LSPs had a wide network of pickup points, including their own offices and agents or partners such as grocery stores and kiosks—some even have the same partners. In 2011, one LSP introduced a network of parcel automats, providing a quick and easily accessible option to pick up a parcel. At the time of the research, another LSP was testing parcel automats. All three LSPs also provided tracking services. The delivery time promises of the LSPs were the same: one to two days in southern and central Finland and three to four days in northern Finland. All three LSPs had price campaigns every now and then to increase their conspicuousness. Thus, for the customers, the delivery services provided and the service quality of the LSPs were in practice rather equal. Returns related to e-commerce in Finland are regulated by the Finnish Consumer Protection Act. At the time of the research, Finnish consumers were able to return a standard parcel without costs. In July 2014, a new consumer protection act came into effect. E-stores are now allowed to invoice the return costs also from consumers in Finland. However, no e-store has thus far started to charge for domestic returns, as it would



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probably result in reduced sales. The return processes of the three LSPs differed significantly. Some LSPs collected returned parcels in their logistics centers, whereas others transported returns parcel by parcel. Tracking services were not always available for returned parcels. This is a challenge for e-stores and problematic for customers because they do not get a new delivery or their money back before the receipt of the return at the e-store. Customer return to a parcel automat is only available if the parcel was originally delivered to an automat. Thus, this option was defined as V, and the other customer return options as R. LSP return, in which the customer has not picked up his parcel on time (usually 14 days, or 7 days in parcel automat deliveries) and the LSP sends it back, was also classified as R because the handling process at the e-store was the same as for customer returns. 6.3.

Discussion

The developed ModSA framework served well as a lens to analyze the modularity of e-stores’ order-delivery process. The case e-stores applied modular service architecture, and their order-delivery processes seemed to be modular at multiple levels. The order-delivery process was a combination of the front-end customer service subprocess, aiming at superior customer experience, and the back-end delivery production subprocess, where the focus was on the efficiency of internal order fulfillment and logistics activities and on gaining the best match with the front-end promises to customers. The front-end and back-end subprocesses were further decomposed into modules and options at different levels as long as the lowest-level options or alternatives for the customer to choose were identified. The number of options (the degree of modularity) varied between the case e-stores and the modules of their order-delivery process. Interestingly, the findings from our study provide a good example of a networked business environment, where many service process modules have been outsourced to external partners, such as logistics and payment service providers (see Lambert et al. 1998, Lambert and Cooper 2000, Tarn et al. 2003). This finding supports the trend in which channels are separated from each other and firms specialize in niche solutions for selling, ordering, payment, or physical distribution (Bask and Juga 2001) and return delivery. Ostrom et al. (2010) have also emphasized the importance of understanding the interorganizational nature of service networks and value chains. A major challenge, but also a key to success, is to select the best partners with the perfect combination of service offerings, enabling both internal efficiency and excellent customer experience. Stavrulaki and Davis (2014) highlight that, in the service context, the supplier selection is of key importance. In addition, in the networked business environment, the management of interfaces between the networked companies and the integrated service modules is essential. In the e-store context as well as within the SC, a competitive advantage can be attained by offering service modules with standardized interfaces that enable easy connectivity with other modules (Bask and Juga 2001). That a significant part of the e-stores’ order-delivery process is outsourced to and managed and even developed by third-party members of the service network also poses a major challenge to the service architecture and service design. It is evident that the external service network members actually design a substantial part of an e-store’s service architecture and provide capabilities that are extremely costly or impossible to develop within an e-store. This raises the questions of which service network members actually design the modules and submodules in the service architecture and how the outcomes are coordinated, integrated, and orchestrated to a specific business setting. The service design literature takes the traditional view of a single organization designing the service it offers. As a consequence, the contemporary service design methods such as multilevel service design (Patrício et al. 2011) do not really address the question of who designs the service architecture. Some, such as Patrício et al. (2011), do recognize the service network and value chain aspects in service design, but they do not address how this networked service design should be done or the roles of different parties of the service network in the service design activities. This relates back to the reviewed literature on SCM. The SCOR literature focuses on the performance metrics of SCs (see, e.g., Supply Chain Council 2010), whereas the RosettaNet literature (see, e.g., RosettaNet 2013) emphasizes the detailed processes, information flows, and interfaces. We see that both of these aspects are important when designing and managing a smooth service and a flexible service offering that is provisioned through a service network. Yet we argue that further research is needed to understand the roles of different participants of the service network in modular service design and the management of these service offerings to ensure both cost efficiency and consistent positive service experience for customers. Also, the question remains of how the firms orchestrate the application of different service modules within the complex service network. According to Tuunanen and Cassab (2011), service processes (modules, options) should be reused when the customer faces a relatively complex decision (task complexity is high) in the service process and modular




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variation should be adopted for service extensions when the customer faces a relatively easy decision (the task complexity of the service process is low). Increased variety makes a simple service process more interesting for the customer, whereas reusing service processes helps the customer concentrate on the difficult decisions instead of the process itself. In both cases, the likelihood of trial and the perceived value (utility) of the service process for the customer are expected to increase. Our findings indicate that the case e-stores are decreasing the complexity of their order-delivery process by offering a wide variety of familiar, well-known ordering, payment, delivery, and return options for the customers through the reuse of service modules. Interestingly, the e-stores provide only limited variety in their order-delivery processes (e.g., green packaging and instant delivery from the warehouse are available in Case B). The variation of the service process seems to take place only after the LSP has picked up the parcel, and it does not have much effect on the firms’ own service process over which they have direct control. Thus, only some or limited variation of the service process modules was observed in the case firms. On the other hand, the complexity of the case firms’ internal delivery production operations seems to increase because of the many third-party modules integrated in their service processes and information systems. In addition, new needs (e.g., mobility and new services for payment and logistics) emerge. It is challenging for the e-store to decide which provide added value to customers and can be integrated cost effectively into the e-store’s processes and information systems. Hence, although the front-end and back-end subprocesses of the orderdelivery process interact, at times they also contradict each other. The reason may be that it is more difficult for the case firms to link their end customers’ value expectations to their perceived service experience throughout the order-delivery process. Based on our findings, we see that the inherent complexities in the design and management of modular service architecture limit the reuse and variation of service modules. On the other hand, the firms seem to limit the service options offered to their customers, such as green packaging, but then again, LSPs do offer variation in delivering the parcel to the customer. This is clearly a consequence of the case firms having limited control of the service process. Instead, they need to work with the service network available to them. Similarly, the case firms seem to face challenges in choosing the service modules for their service offering. Clearly, a win-win situation would be a service offering that would decrease both the customer’s task complexity and the firm’s operational complexity. This situation can only be achieved through a fully integrated, smooth, and flexible information technology (IT) solution that supports the service processes of both LSPs and e-stores and would also be affordable for small- and medium-sized enterprises. An LSP offering such IT solutions would likely be able to gain a competitive advantage, at least in the Finnish e-commerce market. The ideal solution would also require the LSPs to support e-stores in implementing the service process variations easily and affordably in their service processes and information systems. This is in line with Maltz et al. (2005), who argue that order management and logistics skills are essential for selling profitably on the Internet. This, however, would require firms to work together within the given service network and orchestrate both the service design and the service management activities. To summarize, there is a call not only for streamlined information systems but also for streamlined service processes for both the e-store’s personnel and the customers. Furthermore, a high level of seamless and automated integration between the e-store system and the ERP systems of the different external service providers is a necessity. Up-to-date and consistent information must be increased in all information systems, as well as seamless integration and reliability of the related service processes and service providers (e.g., partners, suppliers, wholesalers), both internally and externally throughout the service process network (Tax et al. 2013). This, in turn, highlights the importance of both the service design and the management of modular service architecture in a way that supports the different parties of the service network.

7.

Conclusions

In this paper, we have reported an interpretive case study of three Finnish small- and medium-sized e-stores. We explored how modular service architecture can assist in the service process design. Our objective was to increase understanding on applying a modular service architecture (i.e., modularization, modular reuse, and modular variation) when designing and developing tailored service solutions. 7.1.

Contributions

Our research has several major outcomes. First, we developed a modular service architecture framework (shown in Figures 1 and 2) for designing, developing, and analyzing tailored SC solutions. The developed ModSA



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framework contributes to the service architecture and service modularization literature, two subfields in service science, as well as the literature on e-stores’ SCs, by providing a tool for designing, developing, and analyzing modular SCs. Second, we have used the ModSA framework as a lens when analyzing the order-delivery processes of three small- and medium-sized Finnish e-stores selling physical products firsthand through e-stores to consumers. Our analysis was conducted in the e-store context, but we believe that the ModSA framework is applicable to other contexts as well. Third, we have identified and defined the order-delivery process of the case e-stores’ SC; the modularity and modularization principles of the order delivery process; and constructs such as service process modularization, modular reuse, and modular variation and their relations. The empirical analysis of the modular service architecture of small- and medium-sized e-stores’ order-delivery process adds to the knowledge of designing and developing modular service offerings or solutions. We have also provided a real-life example of adopting modular service architecture in the less studied context of small- and medium-sized e-stores’ order-delivery process. Firms are able to use our ModSA framework for analyzing and developing their modular service offerings in a systematic way. Furthermore, this study is likely the first to apply the service process modularization theory by Tuunanen and Cassab (2011) in a real-life industry setting from the perspective of the service producers. The context of this research included three small- and medium-sized Finnish e-stores and their order-delivery processes, consisting of the front-end customer service subprocess and delivery production subprocess on the back-end. Our findings show that the case firms do apply service process modularization in all subprocesses of their order-delivery process. From the customer’s viewpoint, more reuse and less variation of service process modules is applied, whereas from the e-store’s viewpoint, many of these extensions are seen as variations requiring integration both at the process level and at the information systems level. Hence, the customer’s service process experience and the firm’s service delivery process sometimes contradict each other. 7.2. Future Research Our findings led to interesting future research topics. First, we call for studies of who designs the service architecture, the roles of different parties of the service network in the service design activities, and how networked service design should be done. Second, if the customer’s expectations for the service process experience and the firm’s delivery production expectations do not match, it could be highly useful to explore whether the service process modularization theory (Tuunanen and Cassab 2011) could be applied at the service design level and whether it would enable better service to the customers and better integration between the views of the customers and the firms taking part in the service network. Our ModSA framework can provide a foundation for such a work and help firms to design and manage modular service architectures that provide service network-based offerings. Third, we see the need for further studying the reasons behind the relatively scarce utilization of service process variation to find the potential to increase customer utility by variation and to realize the untapped possibilities of variation to provide competitive advantage to firms. A more extensive case study with a larger number of e-commerce firms should be carried out. A survey to gather information from e-commerce firms could also be conducted. Fourth, one future research avenue could be to study the proactive use of modular (granular) service add-ons based on the real-time information of service encounters (Glushko and Nomorosa 2013). This would likely be linked to the RosettaNet literature (e.g., RosettaNet 2013) and require a detailed investigation of information flows and interfaces between the information systems and parties that enable the service offering through a service network. Finally, we have examined customer value of and experience with modularized services from the e-stores’ viewpoint. Data on the customers’ view of e-stores’ modular service processes and the related service experiences should be gathered as well to complement the data covering the e-stores’ perspective gained though this research. By exploring and combining the perceptions of both e-stores and customers, we would be able to extend the current ModSA framework. Firms, in turn, would be able to develop even more efficient service designs, better match the degree of modularity with internal and external requirements, recognize the customer’s value in service use and the kind of service experience their customers desire, as well as identify the ways to design and manage modular service offerings provided through a service network. Acknowledgments The authors thank the editor-in-chief and the anonymous reviewers for their constructive and extremely helpful comments for developing the paper. The authors also are grateful to the Aalto University Service Factory and the Academy of Finland (postdoctoral researcher funding to A. Bask [Grant 139669] and H. Merisalo-Rantanen [Grant 259454]) for partly funding this study.


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Appendix Table A.1.

Summary of the E-stores’ Order-Delivery Process by Cases


Process/subprocess, module/submodule, options 1. Managerial level 1.1. Supply chain network structure 1.1.1. Outsourcing principles 1.1.1.1. Business functions outsourcing Some business (sub)processes outsourced to partners No outsourcing Fully outsourced business processes 1.1.1.2. Support functions outsourcing (e.g., facilities, ICT) Some support functions outsourced to partners No outsourcing Fully outsourced support functions 1.2. Supply chain management components 1.2.1. Sales principles 1.2.1.1. Sales channels E-channels Retail store (brick-and-mortar) 1.2.1.2. Types of products sold Make-to-stock (MTS) products Make-to-order products Assemble-to-order products Digital products 1.2.1.3. Sales types Selling principles Only products in the inventory sold (MTS products) Ordering products into the inventory after receiving customer order (delivery from e-store) (MTS products) Directly from the supplier to the customer (MTS products) Delivery principles Standard delivery (all products ordered delivered as a single delivery) Partial delivery Backorder delivery Delayed delivery (waiting for the last product to arrive) Payment principles Payment on order (e-bank debit/credit payment) Delayed payment (bank transfer, invoice, credit) Partial payment Payment on receipt (cash/COD) Own payment modules (gift voucher, discount voucher) 1.2.2. ICT principles 1.2.2.1. ICT development principles (e-store and ERP system) Self-developed ICT systems Off-the-self ICT systems (e.g., email) Tailored software package

Base/Reuse/ Variation

Case A

Case B

Case C

Base option Variation Variation

Yes No No

Yes No No

Yes No No

Base option Variation Variation

Yes No No

Yes No No

Yes No No

Base option Variation

Yes No

Yes No

Yes Yes

Base option Variation Variation Variation

Yes No No No

Yes No No No

Yes No No No

Base option Reuse

No Yes

No Yes

Yes No

Reuse

No

Yes

No

Base option

Yes

Yes

Yes

Reuse

Reuse

Yes (on request) Yes (on request) Yes

Yes (on request) Yes (on request) Yes

Yes (if no phone or email) Yes (max 1 week) No

Base option Variation Variation Variation Variation

Yes Yes Yes Yes No

Yes Yes Yes Yes Yes

Yes Yes No Yes No

Yes Yes No

Yes Yes No

No Yes Yes

Reuse

N/A Base option Variation Variation


270


Table A.1.


Case A

Case B

Case C


Yes No

Yes No

Yes No

Variation

No

No

No

N/A N/A

Yes Own

Yes Own

N/A

Own

Own

Yes Tailored SW package Tailored SW package

N/A N/A

N/A No

N/A No

N/A N/A N/A N/A

Yes Yes Own Own, LSPs’ systems

1.2.3. Modularization principles Modularity approach adopted in processes Modularity approach not adopted in processes


Yes No

Yes No

Yes No

2. Operational-level business process: E-stores’ orderdelivery process—Front-end customer service subprocess—Back-end delivery production subprocess 2.1. Ordering module E-store Phone Email Skype Chat MSN (Microsoft Network Services) Retail store E-store in a retail store (PCs for customers) Links to e-store in social media organized by e-store

Base option Variation Variation Variation Variation Variation Variation Reuse N/A

Yes Yes (charge) Yes No No No No No Yes

Yes Yes Yes Yes Yes Yes No No Yes

Yes Yes Yes No No No Yes (1) No Yes

Base option

Yes

Yes

Yes

Reuse

Yes

Yes

Yes

Variation

No

Yes

No

Variation Variation

Yes Yes

Yes Yes

No No

No No

Process/subprocess, module/submodule, options


(Continued)

1.2.2.2. ICT operation principles Self-operated ICT Outsourced ICT operation (application service provider, own software) Outsourced ICT operation (cloud, shared software) 1.2.2.3. Information systems and information management Internal systems Communication systems (email, Skype, chat, etc.) E-store system ERP system (sales, purchase, warehouse, financial management, reporting and analytics, etc.) Reporting and analytics systems Cashier system Partners’ systems Payment service providers’ payment systems LSP service providers’ systems —Ticketing systems —Delivery tracking systems

2.2. Payment module E-bank payment—debit and credit (banks, Suomen Verkkomaksut, etc.) E-credit payment (Luottokunta, MasterCard, Visa, American Express, PayPal, etc.) Everyday e-payment, invoicing, partial payment Invoice E-store’s own invoice Klarna invoice, partial payment, and debt collection Nordea Nettiluotto (invoicing, partial payment) Bank transfer—Payment before delivery Collect/COD (when picking up the parcel) Cash payment At a retail store When picking up from e-store’s pickup point

Variation Variation Variation Variation Variation

N/A Tailored SW package

Yes Yes Yes Yes LSPs’ systems LSPs’ systems LSPs’ systems LSPs’ systems

No Yes (no partial payment) No No No Yes Yes Yes Yes (extra cost) Yes (marginal) Yes Yes Yes


271


Table A.1.



Gift voucher (own) Discount from the next order 2.3. Delivery module 2.3.1. Inventory management and handling submodule 2.3.1.1. Warehouse management submodule E-store’s own warehouse facilities Outsourced warehouse—Facilities of an LSP Outsourced warehouse—Facilities of a supplier partner E-store’s own warehouse personnel Outsourced warehouse—Personnel of an LSP Outsourced warehouse—Personnel of a supplier partner 2.3.1.2. Picking and sorting submodule Picking manually by order with printed documents Picking manually many orders simultaneously with printed documents Sorting by order (if many orders picked simultaneously) Express delivery from e-store (order prioritized in picking and packing) Product bar codes in use Document bar codes in use 2.3.1.3. Packing and ticketing submodule Standard packing points Specialized packing points Packing—Standard package Green package (recycled box option in e-store) 2.3.2. Delivery to customer submodule 2.3.2.1. Pickup from warehouse submodule E-store’s own delivery to LSPs Each LSP picks up its own parcels One LSP picks up some other LSPs’ parcels 2.3.2.2. Physical transfer submodule (N/A) 2.3.2.3. End delivery to customer submodule Customer picks up from an LSP’s delivery point Itella (economy; post offices, agents) Matkahuolto (Lähellä: own pickup points, Lähikaupat) Schenker (Ärräpaketti: R-kioski) Customer picks up from a self-selected LSP and delivery point Customer picks up from a parcel automat (self-service) Itella (SmartPost) Matkahuolto (two being tested in 2012) Customer picks up from a retail store/a pickup point at the warehouse Letter (standard letter delivery) Parcel home delivery (recipient’s signature) Value-added home delivery (including, e.g., installation) Express parcel delivery (LSPs) Business delivery on agreement (special delivery of, e.g., pallets) International delivery to abroad Delivery options tied to products (limited options for customer)

(Continued) Base/Reuse/ Variation

Case A

Case B

Case C

Variation Variation

No Yes

Yes No

No No

Base option Reuse Reuse Base option Reuse Reuse

Yes No No Yes No No

Yes No No Yes No No

Yes No No Yes No No

Base option Reuse

Yes Yes

Yes Yes

Yes Yes

Reuse Reuse

Yes No

Yes Yes (extra cost)

Yes No

Reuse Reuse

Yes Yes

Yes Yes

No Yes

Base option Variation Base option Variation

Yes No Yes No

Yes No Yes Yes

Yes Yes Yes No

Base option Reuse Reuse

Yes No No

No Yes Yes

No Yes No

Base option Base option Base option

Yes Yes Yes, special

Yes Yes Yes

Yes Yes Yes

Base option Reuse

No No

Yes Yes

No Yes

Variation Variation Reuse

No No No

Yes No No

Yes No Yes (free)

Reuse Variation Variation Variation Variation

Yes Yes (lower cost) Yes Yes (extra cost) Yes (extra cost) No No No No No No Yes (special) Yes Yes Yes

Reuse

No

Reuse

No

Yes, EU (extra cost) No

Yes (extra cost) Yes


272



Table A.1.

(Continued)



Case A

Case B

Case C

2.4. Return module 2.4.1. Return of products Customer returns to where originally picked up Customer returns to another delivery point (same LSP) Customer returns to another delivery point (other LSPs) Customer returns to a parcel automat Customer returns to the retail store LSP returns (parcels not picked up)

Base option Reuse Reuse Variation Reuse Reuse

Yes Yes No No No Yes

Yes Yes Yes Yes No Yes

Yes Yes No Yes No (only placement) Yes

2.4.2. Return of payment Payment return to a customer’s bank account Product replacement Reduction from invoice or credit card Gift voucher Cash on delivery at a retail store

Base option Reuse Variation Variation Variation

Yes No No No No

Yes No Yes Yes No

Yes Yes No No No

Base option

Yes

Yes

Yes

Variation

Yes

Yes

Yes

Variation Variation

No Yes

No Yes

No Yes

2.4.3. Return production-delivery and reselling Delivery to the warehouse and resell as new in e-store/retail store Resell on discount in e-store/retail store/warehouse pickup point Resell in an outlet store The product is obsolete and is written off (spoilage)

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