Service value networks: Into practice - ResearchOnline@JCU

J Syst Sci Syst Eng (Dec 2007) 16(4): 414-423 DOI: 10.1007/s11518-007-5057-3

ISSN: 1004-3756 (Paper) 1861-9576 (Online) CN11-2983/N

SERVICE VALUE NETWORKS: INTO PRACTICE John HAMILTON Director of E-Business, James Cook University, Cairns, 4870, Australia John.Hamilton@jcu.edu.au ( )

Abstract Modeling a business to match its customer perceived (and customer desired) outcomes, remains an on-going task. This paper considers shows how a service value networks (SVNs) approach may be engaged to model, and deliver, understanding of the front-end business and its direct engagement with its immediate (or front-end) customers. These front-end customers may be either: (1) its off-line, in-store customers – engaging directly with the business sales staff (or representative), or (2) its on-line, virtual customers – engaging with the business via internet or remote access. In this situation, both the business, and the customer draw upon their respective viewpoints, and both sides influence the interaction. External to these business and customer influences are additional factors that capture the immediate and broader global effects – termed environmental effects. These three business-customer engagement areas of influence are captured by a SVN SEM approach. Without a business-customer encounter of some kind the likelihood of a services business, and a prospecting customer, successfully engaging in an exchange process is reduced. This exchange may be a physical, and/or services exchange, and/or an information and/or ideas exchange. To the business, this encounter is, in effect, a trade, and as a result, the business targets acquiring an economic exchange that will ultimately deliver a net positive economic outcome. To the customer, external and internal information feeds, servicing, perceived value, and satisfaction, are key encounter drivers. SVNs offers a new way to understand the business-customer encounter, and to then utilize this acquired knowledge to either: (1) build a strategic management model, or (2) reengineer its business networks, and to then create a re-positioned, more customer-aligned business operation – one that is capable of delivering win – win, competitive business-customer solutions. Keywords: Service value networks, alignment, structural equation modeling

1. Introduction

suggested

and

theoretically

developed

by

of

Hamilton as a new customer engagement

customer engagement may be expanded into a

process – a more inclusive, complex, and total

new level of understanding. The approach

approach,

engages

relationship management (CRM) (Hamilton,

This

study

service

shows

value

the

progression

networks

(SVNs),

© Systems Engineering Society of China & Springer-Verlag 2007

than that

offered

by customer

HAMILTON

From the business side a number of business

2004, 2005, 2006, 2007). By adopting a SVNs approach, a service industry (or a substantial

sectors

service

elucidate

business-customer encounter. Thus measures

significant measures by which they may adjust

encompassing possible business sectors must be

their business model, and drive customer

captured. These sectors are termed ‘front-end

engagement to new levels.

business cells’, and the measures applicable to

industry

business),

may

This SVNs approach allows the service

could

contribute

to

the

each front-end business cell are termed its

industry (or business) to further leverage its

‘interactors’.

These

interactors

(observed

economies of scale – drawing on its combined:

variables) engage with the business back-end.

supply chain and logistics systems, its peripheral

The business back end is a combination of

and interlinked partners, its ad hoc channels, and

supply chains, value networks, and external

its

deliver

networks. These networks are matrixed, and

highly-specific, individual customer solutions

interlinked, via various intelligent artificial and

(each of which it has attempted to partially align

fuzzy logic sorting sieves systems (which are

to each respective customer’s, or customer

embedded in the information technology and

group’s needs) (Brown and Vashistha, 2002,

information systems (IT/IS)). They are capable

France, Da Rold et al., 2002, Chen and Paulraj,

of delivering an economically acceptable,

2004).

best-guess, reasoned, value-added, suitable,

intelligent

databases

to

The SVNs approach captures and engages

customer solution package. The

business-customer directional communications

SVN

SEM

approach

shows

this

channels. It draw on the business networks, and

front-end delivery system involves multiple

to deliver timely, reasoned, cost acceptable, and

customer interaction pathways, and that the

efficient solutions that the customer perceives to

business-customer

be of suitable value, and from which, the

conglomeration of pathways (not one pathway).

business derives successes and/or profitability

Each pathway contributes in a different way, and

(Sampson, 2000, Christensen and Anthony, 2004,

to a different degree, to the final customer

Chen and Paulraj, 2004, Hamilton, 2006).

outcome

To build a service industry SVN, a survey

and

encounter

to

the

acts

resultant

as

a

customer

perception satisfaction level.

approach is initially adopted (Hamilton, 2006.

A simple SVNs model for a senior executive

Data is then analysed – ultimately using a SVN

(or manager) may be a survey developed SVN

structural equation modeling (SEM) approach.

SEM dashboard, where one, or more business

This approach unlocks the business-customer

cell interactors attached to the business’s

interface as a complex array of interaction

front-end may be varied and its effects displayed.

channels, that in combination, match customer

For example, Figure 1 shows a typical set of

perceived servicing, value, and satisfaction level

service industry SVN SEM business, customer

requirements.

and environment cells and their interacting

The

interface

between

the

business and the customer is termed the

pathways.

Each

‘business-customer encounter’.

front-end

cells

JOURNAL OF SYSTEMS SCIENCE AND SYSTEMS ENGINEERING

of

the

eleven

(business,

displayed

customer

or

415

Service Value Networks: Into Practice

environmental consist of a series of observed

realigning

variables

components can deliver significant changes to

interactors,

that

in-turn

engage

associated back-end business components, that

multiple

strategic

positioning

customer perceptions. In the real world of business the SVN SEM

may be changed – like ‘Change #2’. When the measurable business component

approach may be used as a basis from which to

attached to the front-end business cell termed

build a SVNs business. Within this SVNs

POSITION (which contributes to the business’s

business solution, a near-real-time management

strategic positioning), and also linked to

modeling tool may also be incorporated. Hence

‘Change #2’, is varied, be it via a model, or

the manager may now model, and experiment

otherwise, it affects the business network

with, the real business data, and so can better

systems. The dotted lines shown in Figure 1

model to optimize the management desired

portray how these effects are also delivered

business solution set. This solution set may be

across: (1) the front-end business cell network;

overlaid into the SVNs intelligence systems as a

(2) the business-customer encounter, (3) via the

constraint, or factor to be included in each final

environmental systems, and (4) ultimately

outcomes solution. Such an approach makes it

through to the customer measures. The net

extremely difficult for a competing business to

customer effect for such a change is typically

copy or imitate the SVNs operating business, as

small. However, combinations of changes acting

the solution can be varied quickly, or it can even

together,

can

be set to change along with any customer

Similarly,

a

Change #2

redirection

Measured Component

effects. involving

FRONT-END BUSINESS CELLS

POSITION

perceptions drift. FR ON T-E ND CE CU LL ST OM S ER

major

significant

BU CU SINE EN STO SSCO M E UN R TE R

deliver

SATISFY

CUSVAL

TRACK INNOVATE WEB

SERVDEL

ECOSERV CUSSERV INFOVALS

EXTVALS

FRONT-END ENVIRONMENT CELLS

Figure 1 Typical front-end service value network

416


HAMILTON

back-end systems were engaged.

2. SVNs: Theory into Practice

External to the business-to-customer systems,

Services industries may use the approach

the

pharmacy

industry

comes

under

the

developed for the pharmacy industry in Australia,

influences of the environment. Environmental

to build their own industry specific SVN SEM

effects tend to reside on a number of levels –

model. For example a nationwide or state

macro or global effects, and micro or immediate

transport business network can deliver an

and business surrounding effects. Under this

appropriate model, as can a tertiary education

study, the macro environmental effects (typically:

sector study. This SVNs field of study

political,

progressed from theory to reality using the

environment and legal), were minimal as at the

pharmacy in Australia.

time of this study, the regional situation was

The pharmacy industry consisted of eight main business models. This situation was further

economic,

social,

technologies,

stable (OECD, 2006). Hence complications due to macro effects were negated. At

complexed by competitive differences, and

the

micro

or

store-specific

level

location effects. For example, in various

environmental effects existed, and these were

locations several business models may have

captured as INFOVALS (measures as INFOVAD)

been in direct competition customers, whilst in

– direct pharmacy related information obtained

other localities no direct competition may have

from

existed.

(measured as EXVAD) – external value adding

The

eight

pharmacy

business

model

external

sources;

and

EXTVALS

type data. These measures, are shown in Table 1

groupings also displayed varying degrees of

Although environmental effects affected both

networked back-end to front-end activities. For

business, and customers, this study showed only

example,

government prescription

minor influences occurred around the front-end

data-entry and recording systems linked directly

business-customer encounter, and particularly in

into the national database, whilst individual

the customer domain. One explanation for mini-

stores

all

had

displayed

degrees

of

local

and

nation-wide operational, human resources, and financial databases; pharmacy chain displayed varying degrees of supply chain, logistics and networking

approaches.

In

addition,

e-pharmacies operated across the spectrum with various website and mobile approaches. Across the industry, and its national database customer tracking/record-keeping systems, a SVN structure was found to apply. Variations to this overall structure also occurred, especially in some pharmacy chains, and e-pharmacies – where unique collaborative, highly networked


Table 1 Customer and environmental cells measurement interactors Customer / Environmental Cells and Interactors SAT Innovative outlet Exceeds expectations Staff advice Competitive Best service Customer recognition SVDEL Latest support Services provided Services quality Fast delivery Cost

INFOVAD Prescription records Health records Additional industry info issued Tax medical history EXVAD Internet value adds Information from externals External info advice Check info external CUSVAL New knowledge Enjoyable shop Innovative Good brand range

417


mal local environmental change was that offered

ess cells constituted the business side of the

by the OECD, where it reported Australia, and

business-customer encounter for this industry.

its business realm, as the second most stable

Each business cell (like POSITION), typically

economy in the world during 2005 and 2006.

captured its four to six key measured variables

Hence, EXVAD – the external environmental

as a net EFA derived latent variable (like POS).

cell interactor set, and INFOVAD – the

The six business cells with their latent variable

informing environmental cell interactor set,

shown in brackets were termed: POSITION

in-turn affected the customer perspectives, in the

(POS) – strategic and competitive positioning;

manner displayed in Figure 1.

TRACK (TRAK) – marketing and customer

The front-end customer perceived drivers of

tracking; INNOVATE (INNOVA3) – new and

the SVN SEM (with their net EFA derived latent

innovative

orientation

variable measure shown in brackets) were:

complex variable of 17 items); WEB (WEBUSE)

SERVDEL (SVDEL) – perceived customer

–

servicing

communication

and

(INNOVA3

was

a

web/IT/operational

features;

channels; ECOSERV (ECOSV) – economic and

CUSTVAL (CUSVAL) – perceived customer

financial imperatives); CUSTSERV (CUSSV) –

value; and SATISFY (SAT) – satisfaction

services and products offered to the customer to

generated in the customer outcomes achieved by

win their business.

and

desired

product

the engagement with the business. Each of these

Figure 1 typified the front-end of a SVNs

latent drivers constituted a complex variable of

service industry. To build such a model data was

measures (as shown in Table 1) that captured

first captured from the business, the broad

industry perceptions in a broad, yet detailed

customer base, and the environment. Seven

manner.

point Likert scales were utilized. In this type of

Six front-end business cells – capturing the

research large sample sizes should be employed

interactor items displayed in Table 2, are

as they greatly enhance the accuracy of SVN

portrayed in Figure 1. These six front-end busin-

SEM calculations (Byrne, 2001, Kline, 2005).

Table 2 Business cells measurement interactors Business Cells and Interactors POS Seek opportunities Expt new services Meet challenges Competitive response Risk takers TRAK Perceived transaction value Loyalty No info requests Customer satisfaction INNOVA3 Value adds Future values Current targeting

WEBUSE On-line e-shop Information contents sought Mine web info Fast delivery Cost ECOSV Buy growth Sales growth Earning growth Market growth CUSSV Meet wants Meet desires Meet requirements Meet needs

For example, considering an Australian transport industry carrying around 180,000 persons per day - a customer sample of 30,000 has been selected. Business surveying in this industry remains complex, and will not be discussed herein, but linkages between operational and executive levels have been drawn into the model’s workable structure. The transport industry business survey group was also positioned as a large data capture set of 1,500 business side cases. This SVNs transport industry is treated as per the pharmacy industry, and again unique business-customer encounter

418


HAMILTON

pathways are be elucidated. In conjunction with

environmental cells, and all interactions shown

this industry, sample findings may be reported at

were significant at 90% confidence. The

a later date.

front-end business cells also captured additional business-specific

3. Test Bed: The Pharmacy Industry

immediate

environmental

effects. A business-customer encounter area was exposed. This encounter showed only certain

The Australian pharmacy industry was surveyed in 2006, with over 200 business and

pathways

significantly

800 customer data sets engaged. The data was

perceptions, and only certain approaches could

collated; cleaned; checked for normality and

further drive customer perceived servicing,

range; grouped in cells; and exploratory factory

value and satisfaction. Thus, the sequence of

analysis latent variable grouped for each cell

variables (and their interaction pathways) from

(with reliability and validity measures checked).

independent, exogenous business cell variables,

Loadings and errors (from alpha’s, means, and

to the final customer cell dependant, endogenous

standard deviations) were then generated and

variables was regression portrayed. The business

checked for each cell latent variable. AMOS 6.0

cells also showed a networking effect with

and multiple regression modeling was used to

fourteen of the possible fifteen covariance

test for the cells relationships prior to SEM

pathways being significant. Potential path

modeling (Hair, Anderson et al., 1998, Cramer,

complications (none of which were significant)

2003). The SVNs multiple regression model

also

generated is depicted as Figure 2.

regression path linearity, the presence or absence

considered

at

this

affected

stage,

customer

included:

of bidirectional or reciprocal flows, or the

The SVN regression model showed six with

possible joint effect between two endogenous

immediate

variables (that covaried with each other). It must

front-end

business

cells

interacted

front-end

customer

cells

and

SAT 1

.15

e4

.71

.95

POS .48

.35 .32 .21

1.68

.39 .32

INNOVA3

.21

WEBUSE

1

.12 .93

.70 .31

CUSVAL

TRAK

.28

-.13

.29

e3

.39

1.88

.23

-.06 1.16

.43

1

.26

e5 .30

.34

.14

SVDEL

.18

ECOSV

.24

CUSSV INFOVAD 1 .35

e1

.55

EXVAD 1

.72

e2

Figure 2 SVNs multiple regression model (unstandardized estimates displayed)


419


The SVN SEM model, displayed in Figure 3,

be noted that this SVN regression modeling process still presents limitations. In particular (1)

with (1) business cell errors included; (2)

only multiple dependant, endogenous customer

external customer, and customer environmental

variables display errors (and these errors may

residual (model unexplained) errors included; (3)

add

model’s

covariance values below 0.7 (the one exception

interpretation); (2) each independent exogenous

on testing still displayed uniqueness); and (4) all

business cell variable is assumed to be a

paths significant at 90% confidence, showed

measure without error (which is unlikely); and

unstandardized pathways improvement values

(3)

independent

over the unstandardized regression model (as

exogenous business cell variables (those with

expected). In addition, this SVN SEM pharmacy

values of 0.7 or above) may hinder result

model yielded an excellent model with key

interpretation. This pharmacy SVN regression

‘goodness-of-fit measures’ being better than the

model displayed its excellent fit measures –

corresponding regression values: χ2/DF = 0.528,

χ2/DF = 0.762, p = 0.835, RMR = 0.045, GFI =

p = 0.987, RMR = 0.016, GFI = 0.974, AGFI =

0.962, AGFI = 0.924. However, to account for

0.947, again showing the stability and quality of

the above regression weaknesses, this pharmacy

this model. All additional SEM fit measures

SVN regression model was moved into a SEM

supported this excellent fit model (Hair,

model environment for more detailed and

Anderson et al., 1998, Byrne, 2001, Cramer,

accurate analysis (Hair, Anderson, et al., 1998,

2003, Kline, 2005, Cunningham, Holmes-Smith

Cunningham, Holmes-Smith et al., 2006).

et al., 2006).

potential

difficulties

multicolinearity

to

amongst

the

e1

POSITION .90

.46

e2

e11

CUSVAL

.90

.58

.36

TRAK

-.26

Res2

INNOVATE .74

-.35

.68

.49

.39

-.13

.40

e3

INNOVA3

SVDEL

e9

.47

.61

Res1

CUSTVAL

e10

.39

.94

SATISFY

.94

.91

TRACK

.58 -.34

SAT

POS

.81

WEB

SERVDEL

.87

-.39

.76

WEBUSE e8

-.48

ECOSERV .85

.31

Res3

.57 .27 INFOVALS

.76

EXTVALS

.95

ECOSV

INFOVAD

e7

e4

.94

Res4

EXVAD

Res5

e5

CUSTSERV .79

CUSSV e6

Figure 3 SVN SEM model (standardized estimates displayed)

420


HAMILTON

showed

The TRACK business cell also influenced the

construct reliability with all bar two squared

business cells INNOVATE, ECOSERV, and

multiple correlation constructs above 0.7, and all

CUSTSERV and these channels should also be

above 0.55. Hence, item reliability with its

further targeted for improvement. Thus, market

construct

covariance

orientated strategies for this services industry

correlations were below 0.7 and discriminant

should be a major focus – targeted at delivering

validity was acceptable, and all factor loadings

both a more competitive, and customer focused

were above 0.6, so convergent validity was

solution set. To deliver such a solution the

acceptable.

front-end business cell interactors may be

Validation

of

was

latent

constructs

acceptable.

All

The resultant full SVN SEM pharmacy model,

adjusted, the model re-run, and the relevant

with all pathways significant at the p < 0.05 level,

measures noted for improvement (or decline) in

was

(using

alignment. The best solution is thus iteratively

bootstrapping 1000 times at 90%), and standard

determined, and may then be implemented. In the

sample

future this approach may be computer modeled,

again

checked

for

invariance

reliability

calibration-validation

procedures and validity. The SVN SEM model

attached

to

real-time,

updating,

back-end

again passed all criteria (Byrne, 2001, Standage,

business networks and intelligent databases, and

Duda et al., 2005).

then used as a management assisting decision tool.

4. Discussion

Further, by incorporating extensive disruptive

This empirical pharmacy research indicated

SVNs retooling, a pharmacy industry SVNs

the existence of SVNs – particularly at the

competitive automatically repositioning option

industry-wide

its

may be deliverable. This option would operate in

customer connections level. The SVN multiple

near-real-time, and would automatically-adjust

regression

cell

databases with feeds from the business, the

significant

business-customer encounter, the customer and

pathways between the observed business and

the environment. Such a SVNs model (developed

dependant customer and customer environmental

via the SVN SEM approach), for the first time,

variables likely existed.

truly offers the potential for ‘customerization’ –

front-end

model

networking,

and

business,

displayed showed

and

business four

When moved into SEM analysis the same

where one business specifically targets each

pathways

individual customer in a unique customer

existed. The front-end business cell TRACK

oriented manner. Earlier business models like

showed a negative correlation with the external

supply chain management (SCM), demand chain

customer environmental feed cell EXTVALS, and

management (DCM), and customer relationship

showed no other direct customer influences.

management (CRM) have espoused to such a

Hence, as this pathway offered another channel

claim, and in specific instances have approached

of contribution to customer perception, a

this near-real-time solution. However, as the

realignment of the front-end business cell should

business-customer interface has previously not

be undertaken.

been fully understood, truly correct data capture

four

business-customer

encounter


421


cells.

across this divide has been an approximation, and the business and customer alignment differences

The non-direct pathway front-end business

have been adjusted in a lock-step manner. In

cells (or fields of engagement) interacting via

contrast,

their measurement interactors, still exhibited

SVNs

offer

a

broader

capture

mechanism- one capable of delivering specific

some

(but

indirect)

influence

‘customerized’ solutions and that can be set to

business-customer encounter.

across

the

This study remains an important piece of

recognise and move with changes or drifts in the

competitive business research. The SVN SEM

customer focus (Hamilton, 2005, 2007). Another area for further development in this

approach shows new competitive intelligence

study was business cell networking related to the

possibilities, which can then be built into fully

WEB business cell. A significant number of

operational SVN business models for services

customers utilized the communication sources

industries.

captured under the WEB business cell, yet the

The SVN SEM approach applies to many

pharmacists, and pharmacy senior managers, in

service sectors, like tourism, health, mass

general, did not see this business cell as one that

transport, and education. This approach is also

would significantly contribute to their store level

projected to apply beyond the services area.

business models. This area is a second significant

When used correctly, a SVNs approach offers

area exposed by the SVNs approach. This

greater alignment of the business to its specific

business cell is a customer desired source for

customer-base, and constituent individuals. In

information and up-skilling (regarding pharmacy

addition, unique customer specific value adds

related areas), and it is a business cell where this

may be incorporated to enhance customer

services industry should improve in order to more

commitment.

closely align itself with its customers.

References 5. Conclusions

[1] Brown, S. & Vashistha, A. (2002). Igniting the services value chain. Services Marketing,

This SVN SEM industry-wide approach highlighted

the

business-customer

complex exchange.

nature This

of

11 (1): 12-13

the

[2] Byrne,

SVNs

B.

(2001).

Structural

Equation

Modeling with AMOS. Lawrence Erlbaum

approach showed that not all business cell constructs (and their interactors) acted directly

Associates, Mahwah, NJ

across the business-customer encounter. The

[3] Chen, I. & Paulraj, A. (2004). Towards a

significant and direct pathways (connecting the

theory of supply chain management: The

front-end business to its customers) captured the

constructs and measurements. Journal of

fields of: innovation; communications (IT, IS,

Operations Management, 22(2): 119-150

mobile and web operations); services and/or

[4] Christensen, C. & Anthony, S. (2004).

products provided; and target marketing/sales

Cheaper, faster, easier: Disruption in the

approaches. These direct pathways also showed

service sector. Strategy and Innovation, 2 (1):

networked effects into other front-end business

56-65

422


HAMILTON

[5] Cramer, D. (2003). Advanced Quantitative Data Analysis. McGraw-Hill, New York, NY

Service

Industry

Management,

11

(2):

348-364

[6] Cunningham, E., Holmes-Smith, P. & Coote,

[16] Standage, M., Duda, J. & Ntoumanis, N.

L. (2006). Structural Equation Modeling:

(2005). A model of contextual motivation in

From the Fundamentals to Advanced Topics.

physical education: using constructs from

Streams Statsline, Melbourne

self-determination

and

achievement

goal

[7] France, N., Da Rold, C. & Young, A. (2002).

theories to predict physical activity intentions.

Services value chain reshapes IT services

Journal of Education Psychology, 95 (1):

industry.

97-110

Gartner

Group

Research,

AV-21-3090: 1-4 [8] Hair, J., Anderson, R., Tatham, R. & Black,

John Hamilton, PhD (Macquarie Graduate

W. (1998). Multivariate Data Analysis, With

School of Management, Macquarie University,

th

Readings (5 ed.). Prentice Hall, Englewood

Sydney, Australia) is the Director of E-Business

Cliffs

at James Cook University. His current prime

[9] Hamilton, J. (2004). Service value networks:

research interest areas are competitiveness,

Value, performance and strategy for the

innovation and the future. He has developed his

services industry. Journal of Systems Science

SVNs concepts into highly agile business

and Systems Engineering, 13 (4): 469-489

approaches – that are capable of near-real-time,


business-to-customer ‘customerized’ solutions,

A new approach to performance and the

whilst

delivery of services. The E-Business Review,

competitive advantage. John’s ongoing SVNs

5 (1): 66-71

research

[11] Hamilton, J. (2006). Business-customer

also

delivering

targets

enhanced

services

business

industries

(like:

education, health and transport), marketspaces,

alignment in the Australian pharmaceutical

and customerization.

industry. International Journal of E-Business,

John

4 (5): 401-420

management, consulting, and research experience,

Hamilton

has

extensive

business,


and remains a highly active researcher across

From theory to practice. The E-Business

both off-line and on-line environments. His

Review, 7 (1): 1-11

current

[13] OECD.

(2006).

Economic

survey

of

specialisations

QFD;

12: 1-154

positioning;

Structural

Equation

Modeling

(2

nd

ed.).

Guildford Press, New York, NY [15] Sampson, S. (2000). Customer-supplier

strategic

innovation; strategic web-based instruments;

Australia, 2006. OECD Economic Surveys, [14] Kline, R. (2005). Principles and Practices of

include:

business

competitiveness;

strategic

e-marketing;

strategic logistics;

service value networks; industry-wide future technologies and solutions; and the performance, value

and

alignment

of

customer-business

interfaces.

duality and bidirectional supply chains in service organizations. International Journal of


423