OPERATIONALIZATION OF
SERVICE DELIVERY
CAPABILITIES
CASE B2B SOFTWARE BUSINESS
Master’s Thesis
Jukka Uskonen
24 March 2016
Information and Service
Economy
Approved in the Department of Information and Service Economy
__ / __ / 20__ and awarded the grade
_______________________________________________________
Aalto University, P.O. BOX 11000, 00076 AALTO
www.aalto.fi
Abstract of master’s thesis
Author Jukka Uskonen
Title of thesis Operationalization of Service Delivery Capabilities – Case B2B Software Business
Degree Master of Science in Economics and Business Administration
Degree programme Information and Service Economy
Thesis advisor(s) Ari Vepsäläinen
Year of approval 2015
Number of pages 68
Abstract
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Keywords keyword, keyword, keyword
i
Language English
ACKNOWLEDGEMENTS
This section is optional and can be removed if not wanted.
ii
TABLE OF CONTENTS
Acknowledgements ........................................................................................................................ ii
1
2
3
4
INTRODUCTION ....................................................................................................................... 1
1.1
Background and motivation .................................................................................................... 1
1.2
Research objectives and questions ....................................................................................... 3
1.3
Scope of the study ........................................................................................................................ 4
1.4
Structure of the study ................................................................................................................ 4
LITERATURE REVIEW ........................................................................................................... 6
2.1
Strategic positioning matrices ................................................................................................ 6
2.2
Operationalization of positioning matrices .....................................................................16
2.3
Theoretical foundation of positioning matrices ............................................................18
2.4
Summary of the literature review ..................................... Error! Bookmark not defined.
RESEARCH METHODOLOGY .............................................................................................. 20
3.1
Research approach ...................................................................................................................20
3.2
Collection and analysis of data .............................................................................................22
3.3
Overview of the case company .............................................................................................23
EMPIRICAL FINDINGS .......................................................................................................... 24
4.1
4.1.1
Narrative of customer characteristics ........................................................................................ 24
4.1.2
Narrative of the offering characteristics.................................................................................... 29
4.1.3
Narrative of the delivery characteristics ................................................................................... 30
4.1.4
Service delivery characteristics .................................................................................................... 36
4.2
5
Service delivery environment of the case company .....................................................24
Operationalization of service delivery capabilities ......................................................37
4.2.1
Generic customer types based on readiness to develop ..................................................... 37
4.2.2
Generic solution types based on requirements and specification .................................. 40
4.2.3
Generic service delivery types ....................................................................................................... 42
4.2.4
Assessment of the operationalization ........................................................................................ 45
4.2.5
Validation of the operationalization............................................................................................ 48
DISCUSSION............................................................................................................................. 50
5.1
Synthesis .......................................................................................................................................50
5.2
Theoretical contribution ........................................................................................................51
5.3
Managerial implications .........................................................................................................51
5.4
Reliability and validity ............................................................................................................52
iii
5.5
Potential future research areas ...........................................................................................53
Appendix A: Appendix Title ....................................................................................................... 61
iv
LIST OF FIGURES
Figure 1. The outline of the thesis ............................................................................................. 4
Figure 2. Matching major stages of product and process life-cycle (Hayes and Wheelwright,
1979a) ................................................................................................................................ 7
Figure 3. The Service Process Matrix (Schmenner 1986) ......................................................... 8
Figure 4. Model of Service Processes (Silvestro et al., 1992) ................................................... 9
Figure 5. The service process / service package matrix (Kellogg & Nie, 1995) ..................... 11
Figure 6. A classification scheme for identifying different types of business models (Rajala &
Westerlund, 2007) ............................................................................................................ 15
Figure 7. The case-based reasoning cycle (adopted from Aamodt & Plaza, 1994) ................. 21
Figure 8. Overview of the service delivery phases .................................................................. 31
Figure 9. Generic types of customers ...................................................................................... 38
Figure 10. Generic types of solutions ...................................................................................... 41
Figure 11. Generic types of service deliveries ......................................................................... 42
Figure 12. Forces inherent in service delivery ......................................................................... 44
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LIST OF TABLES
Table 1: Key characteristics of supply chain tiers ................................................................... 25
Table 2: List of the key customer segments of the case company ........................................... 26
Table 3: Four generic product types from the supply chain management perspective (adopted
from Fisher, 1997) ........................................................................................................... 27
Table 4: Summary of some key characteristics describing the delivery environment ............ 36
Table 5: The service delivery dimensions, characteristcs, metrics and their value ranges ...... 46
vi
1 INTRODUCTION
The first chapter describes the background of the master’s thesis, provides its objectives and
presents relevant research questions to approach the research problem at hand. In the end, the
structure of the study is presented.
1.1 Background and motivation
Product centric start-up companies are often recommended to launch a so called minimum
viable product (e.g. Blank, 2013; Ries, 2009) on the markets at their early stage. The idea of
this approach of shortening the product introduction time is to ensure the offering is actually
developed according to real market requirements together with the customers. Therefore,
especially short-term offering, but also operations related decisions in younger companies are
often opportunistically affected by the most recent sales pipeline advancements - and naturally
so. Furthermore, in an entrepreneurial start-up environment where it is the results that matter,
the financial statement is often the adequate performance dashboard and other sources of data
are often simplistic (e.g. J. Hill & Scott, 2004). More detailed reporting and follow-up would
easily cause unnecessary overhead as every minute of this work is out of value adding
activities. In a smaller organization the required managerial insight can be formed and made
available on a need basis.
When a start-up business grows and matures, the question intuitively rises: should some
of the opportunistic behavior be abandoned and resources concentrated on core competitive
edge (e.g. Prahalad & Hamel, 1990) in chosen markets? In order to steer the company and
answer the question, more specific performance data would likely be needed. Increased
management accounting needs may also emerge, if alternative financing arrangements are
sought and there are more stakeholders interested in how the company is able to hit its growth
targets.
In the case company of this thesis, the so-called start-up chasm (Moore, 2002) has been
successfully crossed. The company has grown cash-flow based, and has established itself on
its key market segments in the Nordics. In addition to the Nordic capitals, the company has
sales and service delivery offices in the UK and in Germany. In addition, the strategic intent of
the case company is to further expand the sales and operations network with an accelerating
pace. The company provides supply chain planning, inventory optimization and replenishment
1
automation solutions for retailers, wholesalers and fast-moving consumer goods
manufacturers. The solutions are offered primarily in SaaS model (Software as a Service),
where the customer pays monthly fee for the use of the application, database and required
hardware that are hosted, maintained and updated by the case company.
The clientele of the case company operates on different tiers of supply chain and
represent different industry segments of consumer goods, ranging from food to fashion and
electronics to builder’s merchants. To match the specific needs of each segment, the case
company has productized its offering both commercially and technically to ease selling,
delivering and maintaining it in different verticals. Also the delivery process of implementing
the solutions at the customer has been formalized. The routine parts of delivery activities have
been standardized, and best practices and common pitfalls are regularly shared and reflected
within the organization. In addition, there are regular business planning and monitoring
practices in place. For instance projected cash flows from known SaaS fees are continuously
monitored. Resource requirements are planned in accordance with high level sales plan to
ensure enough capacity in advance. Hours spend on delivery work are tracked in order to assess
the pricing and profitability of typically fixed priced delivery projects, just to mention few
examples.
This internal development work has benefitted sales representatives, project managers
and service managers to carry out their daily work more efficiently. Yet, a holistic crossfunctional view on operations may not be that clear in practice. Currently, based on earlier adhoc observations and experiences, there are some hypothesis on the implications that for
instance customer qualities and offering constellations have on the delivery operations, and
vice versa. For instance, with the current modus operandi, the size of the business of a customer
company in a specific segment seem not to impact on the magnitude of delivery efforts required
to take a solution into use. Intuitively however, one could think that the scope and business
requirements of a smaller customer would be less demanding or at least more easily managed
than the needs of a bigger one. The way the delivery operations may be described to a potential
customer can vary depend on the product offered, but nevertheless the actual execution seem
to follow similar paths.
Instead of proving the hypothesis right or wrong, the case company would enhance its
sustainable growth already by revealing some of the underlying mechanisms: how to align the
targeted customer segments, offered solutions, and executed operations? The first step of this
task is to find relevant characteristics to illustrate these three dimensions, and then choose
2
suitable KPIs that can be used to measure the identified characteristics. Moreover, finding and
understanding the cause and effect relationships between customer, offering and operations
related themes and metrics is vital to embrace the problem. From market perspective one would
need to understand customer qualities and segmentation (e.g. Payne & Frow, 2005). From
offering point of view the discussion moves around productization - or merely servitization, as
service based strategies have been recently a popular management paradigm to strengthen
competitive position and profitability of companies (e.g. Spohrer & Maglio, 2008; Vargo &
Lusch, 2004) . And in terms of operations, the question seems to be about the optimal level of
flexibility versus standardization when fulfilling customer requirements (e.g. A. Hill & Hill,
2012). All these themes have been discussed separately, but also related to one another in the
academic literature in the past. Yet, their holistic adoption especially in software context is
lacking.
The case company will grow through geographical expansion to new markets both
organically and through possible partnerships or acquisitions that are regularly assessed. Due
to internationalization, both the business environment and organization of the case company
evolve constantly. Maintaining an entrepreneurial company spirit, avoiding unnecessary
hierarchies, and minimizing bureaucracy in the organization are considered valuable goals in
the midst of the change. Therefore, also the development of any managerial frameworks and
tools should be done obeying these principles. The dynamic and multi-faceted case
environment provides the intellectually motivating setting for the completion of the thesis
research.
1.2 Research objectives and questions
The key objective of the thesis is to construct a framework to analyze the dynamics of customer,
offering and operations capabilities i.e. the service delivery capabilities of the case
environment.
Therefore, the fundamental research problem of the thesis is:

How to operationalize the service delivery of a software company?
In order to approach the problem properly in the study, the following questions must be
addressed:
1. What service delivery capabilities there are i.e. how to characterize customer, offering
and operations capabilities?
3
2. What kind of dynamics between these capabilities exist?
3. What kind of indicators can be used to measure the identified capabilities?
To shed light on the research problem and questions in the first place, the study aims at
describing the development and testing of the operationalization in the case context:
identification of the most relevant service delivery capabilities, their dynamics and descriptive
metrics, and ultimately validation of the framework.
Furthermore, within the limitations of the case specificity, the academic aspiration of the
thesis is to complement the existing body of knowledge about service provisioning. From the
general interest point of you, the point of the study is to serve all software service professionals,
interested in understanding and developing their service delivery.
1.3 Scope of the study
The scope of this thesis is to operationalize the customer, offering and process capabilities in
B2B software business. The scope is limited to the delivery of the software solutions, and the
provision of the continuous services has been excluded from the research. The scope has been
limited to provide a focused research area and reflect the case company environment.
1.4 Structure of the study
Figure 1 depicts the outline of the thesis. The first chapter sets the scene for the research, by
introducing the research background, its motivation, and primary objectives. In addition, the
chapter provides the scope and structure of the thesis.
Figure 1. The outline of the thesis
4
The second chapter contains the literature review. It builds understanding of the research
problem from previous academic research and presents the relevant theoretical background and
context of the study. The relevant academic discourse is synthesized at the end of the chapter
to prepare the reader for the case section of the thesis.
The chosen research methodology is presented and elaborated in the third chapter. The
chapter presents also the case company setting and how the empirical data was gathered and
analysed.
The empirical part of the study, namely the case results, can be found in the fourth
chapter. The chapter reviews the findings of the interviews and introduces the framework
constructed based on them. Furthermore, the chapter describes the testing of the framework
using case company data.
The study ends with a concluding part, where the findings are synthesized. In addition to
the scientific and practical contribution of the study, its generalizability as well as
recommendations for potential next steps are discussed in the fifth chapter.
5
2
LITERATURE REVIEW
The literature review presents an overview on the academic discourse on service classification
frameworks and their evolution. The section also reveals how the developed constructs have
be operationalized and measured. In addition, the theoretical foundation of the research is
shortly presented at the end of the section.
2.1 Strategic positioning of services
One of the most well-known management classifications to describe the match between
production processes and market requirements in manufacturing context is the product-process
matrix introduced by Hayes and Wheelwright (1979a). Their work was stemming from the
notion that the manufacturing processes tend to evolve over time the same way and often at the
same time, as the product design develops during the product life-cycle. Indeed, the axis of the
product-process, or Hayes-Wheelwright, matrix (Figure 2), are labelled according to product
life cycle stages (horizontal dimension), and process life cycle stages (diagonal dimension).
The product related stages on the matrix range from low-volume and low-standard products
(one of a kind), to high-volume and high-standardization products (i.e. commodities).
Respectively, the four stages on the process dimension are jumbled flow (job shop),
disconnected line flow (batch), connected line flow (assembly line) and continuous flow.
The key contribution and suggestion of the Hayes-Wheelwright matrix is, that product
variety and production process should be matched, in order for manufacturing plants to achieve
the best operational performance. Instead of providing a strict core diagonal, the matrix allows
for companies to position their operations along the upper left hand and bottom right corner
based on what they consider to be their competitive emphasis. And, in addition to their
distinctive competence, Hayes and Wheelwright argue companies should consider the process
also from the organizational competence point of view, to arrange their operations effectively.
Hence, the Hayes-Wheelwright matrix, or product-process matrix, provides companies a
practical and normative tool to assess and choose their various manufacturing and marketing
options: mix of manufacturing facilities, manufacturing targets, factory and equipment
investment decisions, process modifications, product and market opportunities as well as
market entry strategies (Hayes & Wheelwright, 1979b).
6
Figure 2. Matching major stages of product and process life-cycle (Hayes and Wheelwright, 1979a)
Similarly as with the manufacturing environments, where a number of frameworks or
topologies to describe the nature of operations originally stemmed from, conceptual
illustrations to foster strategic thinking were needed and developed also within the service
domain. Despite the dominant position of Hayes and Wheelwright’s matrix (1979a; 1979b) in
manufacturing context, such a widely adopted classification has not emerged in services (e.g.
Collier & Meyer, 2000). However, there have several attempts to grasp the peculiarities of
service business into a strategic positioning matrix, due to the evident need for such a
classification.
One of the first classifications within the service context is the service process matrix
introduced by Schmenner (1986). It uses labour intensity and consumer interaction and service
customization as the key elements to describe characteristics of service business. Schmenner
defines labour intensity as the ratio between incurred labour costs and value of the plant and
equipment. In terms of the other measure, Schmenner uses the degree to which the customer
interacts with the service process and the degree to which the service process is customized.
Despite the concepts seem similar and often go hand in hand – both being either high or low –
Schmenner does argue them being ultimately distinct and provides examples on such services
where the degree of interaction and customisation differ from each other. Using the above
7
criterion in a simple low-high grid, Schmenner’s service process matrix contains four
quadrants, labelled more specifically as service factory, service shop, mass service and
professional service (Schmenner, 1986). The matrix and its key dimensions have been depicted
in Figure 3.
In addition to the categorisation of service processes, Schmenner elaborates the
managerial challenges associated to each of the illustrative services operations. Furthermore,
he argues existing services tend to move towards the diagonal and the top left-hand corner of
the matrix – similarly as Hayes and Wheelwright have demonstrated. This has been challenged
by later research (e.g. Tinnilä & Vepsäläinen, 1995). Nevertheless, the argued capability to
describe an optimal pathway for the services to follow (usually along the diagonal of the
matrix) and to show a direction of causation between the dimensions of the matrix is typical
for service matrices in contrast to other classifications (Collier & Meyer, 2000).
Figure 3. The Service Process Matrix (Schmenner 1986)
The revised matrix (Schmenner, 2004) and introduction of the theory of swift even flow
tries to tackle also this criticism and explain why some service companies have been more
productive than others. In the revised version, the degree of variation is used instead of
interaction and customization on the horizontal axis. The variation here refers to the service
8
provision, not the variety of the offering, as the produced outputs can differ although their
provision would not. Furthermore, Schmenner has replaced labor intensity with relative
throughput time on the y-axis of the revised matrix. This change aims at better reflecting how
quickly - in the spirit of swift even flow - the service encounter is completed in relation to
industry benchmark. These changes make the matrix examine productivity of the service
businesses instead of profitability: moving up to towards the service factory corner would
represent a move towards improved productivity Schmenner argues (2004). However, he also
points out that the operations can be profitable also in other positions of the matrix.
The work of Silvestro et al. (1992) had already encountered the aspect of productivity in
the service context. They proposed existence of three types of service processes: professional,
service shop and mass services and characterize each of these using degree of six dimensions
(namely people vs. equipment focus, contact time, level of customization, discretion, front end
vs. back office type of work, and product vs. process orientation). Furthermore, in their
conceptualization, the horizontal axis is labelled as the number of customers processed – hence
suggesting that the more customers there will be, the more suitable mass produced services
would be and vice versa. Figure 4 provides and overview of the model by Silvestro et al., and
the identified three types of services and their peculiarities.
Figure 4. Model of Service Processes (Silvestro et al., 1992)
The service process / service package (SP/SP) matrix introduced by Kellogg and Nie
(1995) was one of the first constructs to take into consideration the fact that service offering
9
consist of a combination of physical goods, facilities and implicit and explicit services.
Furthermore, the SP/SP matrix aimed at reflecting also the stronger relative importance of
customer presence in the service provision process over the level of sophistication of the
equipment used in traditional manufacturing processes.
Indeed, on the vertical axis of the matrix (Figure 5), Kellog and Nie have placed the
service process dimension that is categorized by three distinctive service processes according
to their level of customer influence. The first category “Service factory” refers to service
processes, where customer influence is relatively low and hence the service operation fairly
standardized and the customer mainly signals for the initiation of the process, as for instance
in fast food restaurants. The second category in the service process structure is service shop.
The name given for the category origins from the manufacturing job shops and illustrates the
idea that the service provision is typically grouped according to a function. The customer level
influence is higher in service job type of processes, but by no means unlimited. The expert
services instead refer to service processes, where the customer influence is high and the service
provider specifies the service package every time together with the customer - hence making
the standardisation of the services process challenging.
The horizontal dimension of the SP/SP matrix entails the service package. The key factor
shaping the four distinctive package groups is the level of customization, ranging from unique
packages (almost full customization) through selective and restricted packages (some or most
parts of the package customized, or options given to the customer respectively) to generic
packages where most of the package is standardized and the customer has practically no
opportunities for discretion.
10
Figure 5. The service process / service package matrix (Kellogg & Nie, 1995)
Having introduced the dimensions of the SP/SP matrix, the core of the framework lies
on the main diagonal where businesses can be positioned based on their service process and
package qualities: the consulting type of businesses with highly customized offering and
customer centric deliveries on the upper left hand corner, and package delivery firms with
limited customer options and routinized service provision on the bottom right hand side.
Furthermore, Kellogg and Nie (1995) present a set of propositions to derive prescriptive
strategic implications for companies in different part of the matrix. Following the strategy work
by Michael Porter (Porter, 1980), they suggest that companies positioned in the upper left-hand
corner of the matrix are likely to pursue a differentiation strategy, whereas companies
positioned in the right-hand corner strive mostly for cost differentiation. Kellogg and Nie
provide also a set of strategic competencies associated with each service package and process
respectively (Figure 5). The research on core competencies of a firm was made popular in early
1990’s by Prahalad and Hamel (1990) .
According to Tinnilä and Vepsäläinen (1995), when assessing and analysing the
repositioning strategies and related frameworks, one should pay attention to four distinct areas.
First, one should take into consideration whether the analysis focuses on the whole service
process or the internal operations of a service facility. Secondly, the question is, is the service
defined based on the need of the customer or the technical qualities of the service delivery
11
channel. Thirdly, one may ask, have the technological progress and its implications on services
and channels have been taken into account (i.e. the emergence of self-services). Lastly, Tinnilä
and Vepsäläinen are looking for normative theory behind the service processes in order to guide
the quest for the most efficient channels.
As the guiding principles in their service process analysis model, Tinnilä and
Vepsäläinen (1995) attempt to provide a systematic presentation of organizations and services
to allow comparisons of various service processes and solutions – also across industries.
Moreover, they develop suitable criterion of efficiency for matching services and their delivery
channels based on the trade-off between associated production and transaction costs. Hence,
they focus on the evaluation of the efficiency of matching the type of service with the type of
the available service channels (horizontal and vertical axis of the service process analysis
matrix, respectively) in order to reveal the best combinations for service companies (Tinnilä &
Vepsäläinen, 1995).
Tinnilä and Vepsäläinen define the type of services to refer manly to the output or
purpose of the service process as perceived by the customer. In their matrix, the categorisations
range from simple to more complex in four different categories from mass transactions to
standard contracts, customized delivery and contingent relationship. The type of the channel in
service process analysis context can be considered to describe the length of the channel and
hence key influencer of the costs of each service transaction. The four channel types in the
model are market network, service personnel, agent/alliance and internal hierarchy, where the
first ones refers to short channels with direct customer access to market resources and the last
one represents a channel where the service is procured internally within the organization
without any external service providers and therefore represents a long and expensive delivery
channel from the original service provider point of view.
On the diagonal of the matrix i.e. the optimal match between the service mix and the
channel, Tinnilä and Vepsäläinen identify four generic and distinctive service processes: fast
routine services, flexible integrated processes, focused processes and adaptive processes.
However, they do acknowledge several companies may operate also outside the diagonal, du
to e.g. regulation or monopolistic market share (Tinnilä & Vepsäläinen, 1995).
Collier and Mayer (1998) summarize that the early service position matrices try to
contain two concepts: customer and employee involvement and service system design. Their
ciriticism to erlier work of e.g. (Kellogg & Nie, 1995; Schmenner, 1986; Silvestro et al., 1992;
12
Tinnila, 1995) includes for instance the misalignment of axis to include both involvement and
system design ideas. In their own Service Positioning Matrix (SPM), they try to overcome this
conceptual dependence by introducing dimensions that they argue to be independent from each
other on the axis (Collier & Meyer, 1998). In their matrix, the horizontal axis is characterized
by the degree of customer discretion, freedom and decision making power in selecting their
service encounter activity sequence(s) and the degree of repeatability of the service encounter
activity sequences where the service encounters refer to the touch points between the buyer and
the seller in the service setting (e.g. Solomon, Surprenant, Czepiel, & Gutman, 1985). On the
vertical axis, the SPM assesses the number or unique pathways, (i.e. routes) the customers may
choose to take as they move through the service system during its delivery and the degree of
management’s control designed into the service delivery system, where the delivery system is
described to include the design of jobs, processes and facilities that complement each other,
the technology and service innovations used during the service delivery, customer and service
provider interaction and the environment where the system operates i.e. service scape (e.g.
Bitner, 1992).
Reducing or packaging the service offering does not necessarily mean reduced customer
satisfaction, though. On the contrary, clearer deliverables not only fulfil the customer need, but
the streamlined delivery can also improve the perceived customer satisfaction (Hyötyläinen &
Möller, 2007). According to Hyötyläinen and Möller (2007) the service packaging methods
typically include industrialization, tangibilization and blueprinting of the services. Out of these
industrialization aims at building modularity into service architecture, tangibilization refers to
creation of tangible documentation of the provided services and blueprinting concentrates on
business process engineering especially at the interface of involved organizations.
Modularity of services and service operations has been studied by e.g. Bask et al. (2011),
who present a framework to assess degrees of modularity and customization separately, and
argue that service models can comprise multiple combinations of modularity and
customization, when assessed from service offering, service production and service network
perspectives. Nonetheless, also their framework lacks the operationalisation that is argued to
be a challenging but promising area of research. In software context, the provision of most
strategic business applications and related services e.g. in the area of supply chain management
typically include a combination of packages (April, 2004) Bask et al. (2011) have analysed
modularity and customization also in service production process and the service production
network perspective.
13
Studying the software business models from the theoretical perspectives of transaction
cost economics and resource based view, Rajala and Westerlund (2007) have identified the
degree of involvement in customer relationships (i.e. customer proximity) and the level of
homogeneity of offerings (i.e. product uniformity) being characteristic for different software
business models. Moreover, their findings suggest resources to be one of the key differentiators
characterizing the companies’ business models, and especially the decisions about internally
or externally obtained capabilities. Utilizing these two dimensions, they identify four different
business models in software industry (Figure 6).
According to Rajala and Westerlund (2007), software tailoring refers to customer
specific solutions being produced in close cooperation with the client. Applied formats consist
of a modular offering and are typically provisioned through value-adding resellers. With
respect to resource provisioning, the offering is a middleware or platform, and customer
relationship is managed through an internal hierarchy. Standard offerings refers to
homogeneous core product or online service that is distributed over a wide network. The core
competence required in each of the different models ranges from ability to understand the
customer-specific needs, segment needs, technology needs and serve common benefits of
multiple customers – respectively. Despite the several distinct models they introduce, Rajala
and Westerlund point out, that companies may face several business models during the business
life-cycle and companies may execute even several models simultaneously (Rajala &
Westerlund, 2007).
14
Figure 6. A classification scheme for identifying different types of business models (Rajala & Westerlund,
2007)
Value co-creation in ICT context typically also calls in the participation of the relevant
stakeholders in the production process (Grönroos & Ravald, 2011). This interorganizational
aspect of the delivery process, however, naturally heavily influences the dynamics of the
delivery process – increasing the possible turbulence that the service provider would like to
control and mitigate in the first place. Findings of Lempinen and Rajala (2014) suggest, that
coordination of the entire service system and allowing encounter of actors early in the design
phase will enable smoother transition to the actual implementation. Yet, it is clear that the
uncertainty is present in the IT service environments and hence the delivery processes should
have the adequate capabilities to adapt.
The service positioning matrices have received criticism. One of the early critics against
the applicability of the product-process matrix of Hayes and Wheelwright in service context is
that the relationship between (product) volume and process is not that evident, as the service
process would not necessarily change as the volumes change (Silvestro et al., 1992). However,
as Collier and Meyer point out (1998) especially through the impact of modern technology to
service provision, the volumes actually may correlate with the process design. This notion is
easy to believe in the 2010’s, when the digitization has truly revolutionalized the service
channels.
15
2.2 Operationalization of positioning matrices
In general, there have been two kind of approaches in the quest for a thorough positioning
matrix in services. There are the previously described general conceptualisations of optimal
service positioning that have been operationalised and tested across multitude of service
industries, there are also number of academic articles that are focused on operational efficiency
of service provision. These studies have been mainly concentrating on a single service branch
such as banking (Tinnilä, 2013) or auctions (Boyer, Hallowell, & Roth, 2002). The positive
economic impact of alignment is intuitive to understand. The positive effects on the companies’
financial performance have also been proven scientifically in the supply chain management
domain (e.g. Wagner, Grosse-Ruyken, & Erhun, 2012).
The efficiency of manufacturing environments is commonly assessed through the
measure of productivity i.e. the ratio between inputs to a production process and the resulting
outputs. Productivity and its drivers have been also investigated in service contexts, taking also
the perceived service quality i.e. customer satisfaction into account (e.g. Calabrese, 2012;
Grönroos & Ojasalo, 2004). Calabrese (2012) identifies two major clusters of assets related to
service productivity and quality, namely human resources i.e. abilities, competencies and
motivations of both workforce and customers, and organizational resources i.e. the technical,
organizational and technological structures of a company. Furthermore, to overcome the
traditional trade-off between internal and external efficiencies i.e. the perceived quality in
services, he proposes to take into consideration also the motivational aspects when assessing
the productivity of services (Calabrese, 2012). All in all, as services by nature are highly labor
oriented, the labor productivity, i.e. the ration between the labor intensity and the consequent
output, is the most commonly used measure and other factors such as capital can be omitted
(e.g. Higón et al., 2010).
The link between service strategy and strategic positioning of companies, their service
business model and operational business processes have also been studied, and standardization,
service productization and modularisation have been identified useful means in developing
efficiency in service operations (A. H. Bask, Tinnilä, & Rajahonka, 2010).
Although there are some findings to support the consequent performance implications of
strategic alignment vs. non-alignment of services (e.g. Roth & Menor, 2003; Silvestro &
Silvestro, 2003), the lack of empirical evidence regarding the alignment of services has been
also recognized (Ponsignon, Smart, & Maull, 2011). However, also the work of Ponsignon,
16
Smart & Maull (2011) has shown how the level of customization is a primary influencer on the
design of the service delivery, and how low-contact service systems with standardized service
offering benefit more from making the deliveries efficient compared to low-contact but
customized service concepts.
The high degree of human interaction in services adds its complexity when assessing the
service environments – often the efficiency and perceived quality depends indeed highly on
the individual competencies and skills of the personnel involved in the delivery. As the service
delivery is always two-sided, meaning that also the customer organisation is involved the
creation of the service output, the mechanisms to control the delivery and develop it become
even more cumbersome.
In the search for the best universal service matrix, the developed matrices have been
evaluated and tested. For instance Collier and Mayer (2000) provide a concise statistical
analysis and comparison of three service matrices, namely the ones introduced by Silvestro et
al. (1992) and Kellog and Nie (1995), and their own work (Collier & Meyer, 2000). Moreover,
the comparison of Collier and Mayer (2000) is structured around five guidelines, or evaluation
criteria as they call them, of the matrices:
i)
Clearness of the definitions and indicators of the axis on the matrix,
ii)
conceptual independence of criteria on the on the axis,
iii)
clarity of direction of causation,
iv)
axis unidimensionality and
v)
correlation between the axes of the matrix.
The first three of the guidelines are assessed through qualitative measures, but the last
two they evaluate using statistical methods. In their conclusions, they address the need for
improving definition of service matrix axis criteria and the direction of causation, and
consequently developing empirical measures and frameworks for testing and comparing the
matrices (Collier & Meyer, 2000).
Mapping the structural properties of production process and product mix (Kemppainen,
2008)
Procurement strategies for Information Systems (Saarinen & Vepsäläinen, 1994)
17
2.3 Theoretical foundation of positioning matrices
Most of the strategic positioning matrices are theoretically grounded on Transaction Cost
Economics (TCE), first introduced by Commons and Coase already in 1930’s (Coase, 1937;
Commons, 1931) and further developed by Williamson (Williamson, 1985) who contributed
by operationalizing the concept in the first place. As the name implies, TCE focuses on the
economic transaction and the costs that incur when these exchanges take place in market or
hierarchical structures.
The theory suggests, that organizations strive for minimizing the total of production and
transaction costs, and hence optimizing their operations: “In mechanical systems we look for
frictions: do the gears mesh, are the parts lubricated, is there needless slippage or other loss
of energy? The economic counterpart of friction is transaction cost: for that subset of
transactions where it is important to elicit cooperation, do the parties to the exchange operate
harmoniously, or are there frequent misunderstandings and conflicts that lead to delays,
breakdowns, and other malfunctions? Transaction cost analysis entails an examination of the
comparative costs of planning, adapting, and monitoring task completion under alternative
governance structures.” (Williamson, 1985). The limitation of TCE, however, is its strict focus
on transactions in a buyer-seller relationship and inability to take into consideration the
capabilities of the different actors. This holds true especially in labor intensive service
businesses.
Resource-based view of the firm (RBV) is a theory framework that explains the
competitive advantage of firms through its resources (Barney, 1991; Penrose, 1959). Namely,
RBV considers organizations as bundles of resources and capabilities that companies may
acquire and possess, thus addressing the short-coming of the TCE. According to Mayers (1997)
resources can be tangible or intangible by nature and categorised to three categories: i) physical
capital resources used by the firm (e.g. Williamson, 1975) (e.g. physical technology, plants and
equipment, and access to raw materials), ii) human capital resources (e.g. Becker, 1964) (e.g.
training, experience, and relationships and insights of individual employees of the firm), and
iii) organizational capital resources (e.g. Tomer, 1987) (e.g. reporting, planning, controlling
and coordinating structures among groups both internal and external to the firm). The value of
the resources is determined in the market context of the company (e.g. Wernerfelt, 1984). The
positive impact of human capital on financial performance has been proved e.g. in professional
services by applying the resource-based view (Hitt, Biermant, Shimizu, & Kochhar, 2001).
18
With respect to traditional SWOT analysis (Strengths, Weaknesses, Opportunities and
Threats), the resource-based view is however fundamentally focused on internal analysis i.e.
internal strengths and weaknesses as the main sources of competitive advantage (Barney,
1991), whereas external analysis concentrates on opportunities and threats in external
landscape.
The RBV theory has been criticized to neglect how resources are developed, integrated
within the firm and released (e.g. Eisenhardt & Martin, 2000). The theory of Dynamic
Capabilities extends this limited view of RBV on resources, and rather concentrates on
capabilities of the company. Capabilities refer to the ability of the company to utilize resources
in pursuing for a desired end result – and furthermore the dynamic capabilities provide the
competitive foundation for a company to integrate, develop and reconfigure its capabilities in
a dynamic environment (Teece, Pisano, & Shuen, 1997). Examples of capabilities that may
provide competitive advantage include also service delivery (Day, 1994).
In addition to TCE, RBV and Dynamic Capabilities, Helkiö and Tenhiälä (2013) have
applied contingency theory (Perrow, 1967; Thompson, 1967) to overcome the lacking
empirical evidence for the performance implications of recommended product-process
combinations of the original product-process matrix of Hayes and Wheelwright (1979b).
Helkiö and Tenhiälä argue the original product and process dimensions to be too simplistic and
label the two axis as complexity of the production task and specificity of the production process,
respectively. In addition, they propose the contemporary model of Hayes and Wheelwright was
restricted by the technological limitations of its time and furthermore, that it fails to take into
consideration the dynamism of the task environments. Therefore, the additional, third,
contingency dimension Helkiö and Tenhiälä add to the product-process matrix is indeed called
dynamism, and defined as the rate of change in market requirements. The findings from their
survey research complements previous empirical tests of the Hayes and Wheelwright matrix,
and contributes to the contingency theoretical operations research body of knowledge. In their
suggestions for future research, Helkiö and Tenhiälä ponder if the service positioning matrices
would benefit from similar modifications as what they applied (2013).
Positioning services along the volume-variety diagonal – The contingencies of service design,
control and improvement (Silvestro, 1999)
19
3 RESEARCH METHODOLOGY
This chapter elaborates the chosen research methodology, describes the setting where the
empirical part of the study was conducted, and describes how the data collection and analysis
was carried out in the first place.
3.1 Research approach
This thesis follows an exploratory qualitative case study approach. In an exploratory research,
the phenomenon Qualitative research refers to the use of qualitative data i.e. interviews,
documents, or observations to reflect and increase understanding on social phenomena (Myers,
1997). Case study
Case study research is suitable when the research topic is either a broad one, it covers
contextual or complex multivariate conditions or it relies on multiple non-singular sources of
evidence (Yin, 2003). Such diverse topics include for instance business and organizational
themes, where the case study method has long been the most common one. Case studies can
be exploratory, descriptive or explanatory in nature. In this study, the purpose is mainly to
explore the research problem in a case context but also to shed light on the broader phenomenon
through case findings.
Within the case study of the thesis, case-based reasoning (e.g. McIvor & Humphreys,
2000; Aamodt & Plaza, 1994) is applied to test the constructs explored. Case-based reasoning
aims at solving problems by using past similar experiences and occurences i.e. cases as a source
for iterative solution seeking. Moreover, case-based reasoning can be applied to improve
existing solutions or explain failures. The process of case-based reasoning has been illustrated
inFigure 7.
20
Figure 7. The case-based reasoning cycle (adopted from Aamodt & Plaza, 1994)
First of all, similar cases are retrieved from the past. Secondly, those cases that are to be
used to solve the current problem are reused. Third, proposed solution is revised. And fourth,
the identified solution is retained as part of a new case. The approach has its limitations. The
main argument against it is the risk of deterministic outcomes: when relying on past
experiences one cannot be sure, whether the previously developed solutions have been
successful over time. Also, the number of cases can easily grow large, turning some of the
solutions redundant. Nevertheless, in a business case setting, it provides a powerful tool to test
constructs and draw findings in a concrete fashion. Especially in a complex multi-variate
context, such as the research problem of this thesis, case-based reasoning helps in discussion
and generalization of findings.
The likelihood of generating novel theory is considered as strength of theory building
from case studies (Eisenhardt, 1989) In addition, according to Eisenhardt, the resultant theory
is likely to be empirically valid and the emergent theory is likely to be testable with constructs
that can be readily measured. However, case specific theory often piles up on complex entities.
Good theory instead is recognized from a certain degree of scarcity. Nevertheless, sometimes
the researched subject or phenomenon is lacking previous studies, thorough perspectives or
empirical substance. According to Eisenhardt (1989), in such occasions, theory building from
21
case studies is appropriate since the theory building is not constructed on any previous literature
or empirical evidence.
The thesis aims at providing a novel approach and insight into a known problem area.
Furthermore, it aims at exploring practical ways how other service driven companies can
understand, conceptualize and eventually develop their operations. The aim of the study is not
to build new theory, but rather complement the existing body of knowledge.
3.2 Collection and analysis of data
The empirical data used in the thesis is qualitative by nature, and serves two purposes. First,
data was collected to understand the case company business environment and current ways of
working, and to construct the service delivery operationalization i.e. the framework. Second,
the developed operationalization was tested in the case context.
In the first step, the characteristics that describe the target markets, offering and
operations were identified in several discussions with the company management. Furthermore,
the discussions revealed how these characteristics can be measured. As the author of the thesis
works in the case company, also own experiences and observations were reflected in the
collection of the empirical evidence how the solutions are currently delivered to case
company’s customers. In addition to verbally collected data, existing documentation such as
process flow charts, product descriptions and sales materials were utilized.
When the framework had been developed, managers were asked to assess representative
and descriptive real-life customer deliveries against the framework dimensions. The
managerial estimates of the qualitative metrics were quantified, so that the data was applicable
for the framework and the case deliveries could be plotted on the framework. The end result of
the data collection was an excel table containing the case-based data for the validation of the
framework.
The empirical part of the research was conducted in an iterative fashion. The findings
were collected, synthesized, tested back with the key counterparts in the case organization, and
fine-tuned if required. The final stage of framework validation provided also the venue for the
actual analysis of the empirical findings. Using case-based reasoning, the framework was tested
against data from real-life service deliveries. The framework analysis contains observations
from the example cases and looks for generalizations to other customer engagements within
the case context. In addition, it assesses the applicability of the developed framework in the
22
first place. Furthermore, as a synthesis of the entire thesis, the research was assessed in terms
of it theoretical and managerial implications, as well as possible avenues for future research.
3.3 Overview of the case company
The case company is a Finnish software company providing in-house developed solutions for
supply chain planning, inventory management and order automation. The core customer base
of the case company consists of large and medium sized retailers, wholesalers and FMCG (fast
moving consumer goods) manufacturers. The company is headquartered in Helsinki and has
sales and service offices in Sweden (Stockholm), Norway (Oslo), Denmark (Copenhagen),
Germany (Wiesbaden) and the UK (London). The group turnover in 2014 was 8,1 MEUR and
the company employs over 140 professionals (September 2015).
The company has organized its operations so, that product development, product
management, and finance and administration functions are run fully centrally at the group
headquarters. The central marketing team coordinates group marketing activities, namely is
responsible for brand marketing and development of SEO (Search Engine Optimization). In
addition, some of the technical customer work and support is provided centrally. A centralized
presales team provides a backbone for data analyses during sales process, and is also
responsible for development and maintenance of demonstration environments.
The local subsidiaries are responsible for regional sales and marketing, and service
delivery to customers. The local marketing concentrates on lead generation and presence in the
most important fairs and other events. The sales representatives contact new prospective
customers, and nurture the leads during the sales process. Once a contract has been signed with
a customer, the local delivery team (project managers and supply chain consultants) are
responsible for implementing the solutions at the customer. The delivery team provides also
support services to the customers after the implementation has been completed. Traditionally,
the technical integration work related to implementations has been carried out centrally from
the headquarters, but also this expertise is gradually moving to region specific mode of
delivery. All in all, as the case company is aiming for further growth, rapid internationalization
and geographic spread of the teams set a challenge for efficient service delivery. The delivery
environment and its characteristics are elaborated in more detail in the empirical part of this
thesis.
23
4 EMPIRICAL FINDINGS
This chapter elaborates the empirical observations of the thesis. First, the characteristics and
mechanisms of target markets, offering and operations of the case company are described in
detail and summarized to readers. Second, a framework to operationalize the identified service
capabilities is constructed, and its use is explained. Last, the framework is populated and tested
with case-based sample data.
4.1 Service delivery environment of the case company
4.1.1 Narrative of customer characteristics
The customer base of the case company consists of retailers, wholesalers and manufacturers
operating in a variety of industries. The markets are reflected here starting from the supply
chain tier, presenting then customer verticals and further elaborating also the customer
stakeholder point of view. In the end, the target geographies are briefly described. Along the
illustration of the market characteristics, their implications to case company operations are also
revealed.
Each supply chain tier has its own challenges and needs for supply chain management.
Retailers sell small batch sizes to end customers i.e. consumers. Availability of goods is very
important in their business. Also, the number of SKUs (stock-keeping units) and store
combinations easily grow high in retail, proving the advantages of replenishment automation
evident. Wholesalers buy larger quantities and sell them further to their customers – namely
other businesses. In order to gain economies of scale in their purchasing, they try to ensure use
of economic order quantities and fulfillment of possible freight limits or other supplier driven
ordering rules. Yet, they also have to often deal with long lead times from their suppliers
compared to retailers, that in comparison can typically expect faster delivery cycles and lead
times from the upstream of their supply chain. Manufacturers serving FMCG industries need
to produce their end products to stock (MTS, make-to-stock). Demand planning is important
for them, as creation of flexibility in production is typically expensive and buffering with
excess stock ties also their resources and causes risk of obsolescence. Therefore, knowledge
on the coverage or assortment changes that their customer may execute can be vital information
and help them anticipate demand fluctuations in advance.
The bullwhip or Forrester effect (Forrester, 1961), i.e. the increasing oscillation of
demand towards the upstream of the supply chain, is a typical and well known challenge in
24
supply chain management. The phenomenon stems from uncertainty involved in demand
forecasting, and the consequent need of companies on all the tiers to hedge against the
inaccurate forecasts with safety stocks. Furthermore, the different business goals on different
tiers magnify the phenomenon, creating demand distortion towards the upstream. All efforts
enhancing planning cooperation across supply chain tiers can help companies to streamline the
flow of goods and mitigate Forrester effect. Instead of forecasting their own demand based on
actualized demand in the past, they could derive the simulated orders based on the forecasted
end demand to the downstream the supply chain tier. Especially, the companies operating in a
multi-echelon environment i.e. on multiple tiers have all the demand visibility needed for
demand integration. For instance, many retail chains own a central warehouses or distribution
centers – to serve also their other logistics needs. Indeed, in a supply chain it can be arbitrary
to try to distinct different tiers or at least categorize companies accordingly. To further illustrate
the ambiguity in characteristics of supply chain tiers, for instance wholesale businesses may
range from companies owning one single warehouse to chains of cash and carry stores, where
the business requirements are fairly similar to a retail environment. The challenge in such a
setting is, that the demand may contain individual high peaks from large business customers,
whereas the baseline consumption is rather low. The company must cope with the trade-off:
whether to suffer from high inventory carrying cost to please the business customers or
sacrifice the service level but free capital tied to current assets. In the end, it is not about the
categorization to retailers, wholesalers or manufacturers at the case company to find a package
solution that fit to each, but merely understanding the business environment and targets of each
of its prospects. A summary of the main characteristics of different supply chain tiers as well
as their key supply chain targets and characteristics are presented in Table 1.
Table 1: Key characteristics of supply chain tiers
Supply Chain Tier
Retail
Wholesale
Manufacturing
Short Description
Items are bought and
sold in small units to
end customers i.e.
consumers from stores
(or online)
Items are bought and
sold in larger units to
other businesses from
warehouses or
distributions centers
Key Target?
How to ensure
availability of the
goods (service
level) in the given
store space?
How to keep right
SKUs in the stock
the right time and
order them
efficiently?
Raw materials are
bought and end
products are then
produced and sold to
customers in different
distribution channels
How to balance
supply and
demand?
25
Characteristics
 Importance of store appearance
 Short lead times
 Vast number of SKUs and store combinations
 Short forecasting horizon (due to short lead
times and fast order cycle)
 Large number of SKUs
 Long lead times from suppliers
 Wide supplier base
 Importance of forecasting
 Often supplier rule (e.g. min delivery batches)
 Poor visibility downstream
 Long production and supply lead times
 Importance of customer specific forecasts
 Short term forecasting irrelevant
Omni-Channel
Combination of above
Combination of
above
 Consideration of production planning in
procurement
Several of above
In addition to the supply chain tier, the prospects of the case company do operate on different
market verticals that the case company is serving. A list of the core segments of the case
company is presented in Table 2.
Table 2: List of the key customer segments of the case company










Food
DIY & Builders’ Merchants
Consumer Electronics
Books
Home & Gardening
Fashion & Clothing
General Merchandise & Discounters
Department Stores
Service & Spare Parts
Other Specialty Retail
Again, the business needs for supply chain planning and optimization in each vertical is
different. Having right tools and reports to master spoilage is relevant only in those businesses
dealing with perishable goods. Algorithms for optimizing color and size variants of pre-ordered
packs is applicable in fashion and clothing only. However, instead of the vertical or business
area itself, the many of the supply chain management needs stem from the characteristics of
the end products and the nature of their demand and supply – and are common across the
verticals. For example, seasonality of the goods, the length of product life-cycles, and risk of
inventory obsolescence or spoilage are generic qualities common for a variety of items in
different industries. There are proven practices to cope with the supply chain challenges set by
these qualities. And from the solution point the case company’s platform is the same, but it is
the parametrization that needs to be adjusted for each environment: whether safety stocks are
defined in unit of measures or dynamically in days of supply, what is the minimum and
maximum thresholds to control optimized safety stocks, on which product aggregate level
weekly demand profiles are calculated, or what is the clock-speed of recalculating control
values - daily, weekly or more seldom?
The configuration and parametrization of the case company’s solution is the fundamental
feature that will ensure the solution does fit to the customer environment and meets the
customer specific business requirement. As an example, both customer electronics and books
26
have high seasonality and short life-cycles, yet the inventory carrying cost and risk of
obsolescence in home appliances is much higher. In his famous supply chain – product matrix,
Marshall Fisher (1997) argues that the supply chains of functional products should aim for
efficiency, whereas innovative products require responsiveness in their supply chain. By
functional goods he refers to bulk products having typically a predictable demand, low margins
and long-life-cycles. Innovative products in comparison he considers to be the ones that have
volatile demand, short life-cycles and higher profit margins. Obviously, there is a mismatch of
making supply of innovative goods too efficient or building responsiveness into the supply of
functional goods for nothing. Table 3 below summarizes key characteristics of four generic
product types from the supply chain management perspective. The qualities are common at all
prospects of the case company across different verticals.
Table 3: Four generic product types from the supply chain management perspective (adopted from Fisher, 1997)
Type of product
Target?
Fresh Product
How to minimize
spoilage but maintain
sufficient availability /
service level?
Demand
Stable
Inventory risk
Medium (risk of
spoilage)
Low
Varies
Food, flowers
Profit margin
Life-cycle
Example
Functional Product
How to optimize
best possible SCM
logic with low
amount of labor
employed?
Stable, seasonality
Low
Low
Long
Consumer goods
Innovative Product
How to maximize
sales in a short life
cycle and minimize
obsolete stock at
the same time?
Unpredictable,
seasonal
High (risk of
obsolescence)
High
Short
Electronics
Service Product
How to identify the
best possible stocked
assortment with low
labor employed
Intermittent
Medium (risk of
obsolescence)
Varies
Long
Spare parts
From the marketing and lead generation point of view, the case company needs to also
take into account to whom in the prospective company the solutions are offered and sold in the
first place. Typically, it is the supply chain or warehouse managers having an overall P&L
(Profit & Loss) responsibility on the planning and logistics that have the interest and incentive
to develop their supply chain. They have the ownership and authority to make decisions, and
typically are mostly interested in the business case of implementing the offered solution. The
higher up in the organization the solution is presented, the more the return on investment is
underlined.
For the more development-oriented and operational roles at the customer, it is the
solution functionalities and ease of use that counts. The users are targeted with sophisticated
features to automate operations that normally would normally take a major portion of their
daily time. Also, the flexibility to create own business rules to overcome exceptional situations
is also often highly valued by the hands-on users. Naturally also IT department of the prospect
27
firm is interested in how the solution will be integrated to existing IT systems and
infrastructure. From their perspective, it is mainly about the effort to implement and maintain
the data transfer, but also how to ensure the availability and responsiveness of the solution to
the business users. And in some cases it is not the supply chain or IT axis only, where the
commercial negotiations take place. When discussing campaign planning and execution or
assortment management related themes, the counterpart typically come from product
management or even commercial or marketing department. In addition, in case of demand
planning and sales and operations planning processes, also the sales personnel play a crucial
role and give input to the process.
The sales process and discussions at the prospect heavily depend on the current situation
at the prospect. If the prospect is interested in complementing or replacing an existing solution,
their requirements are typically more elaborate as they have gained experiences on what is
working and what is not. In addition, they likely have some of the key processes defined already
and capable organization available to support and run the process. The questions they may ask
are typically challenging and detailed, but on the other hand they respect and value
sophistication and strive for partnership in their suppliers. In case the customer is about to
develop non-existing processes, the role of organizational change management increases
during the initiative. The prospect needs to pay attention to not ensuring the technical feasibility
but also the organizational readiness to take into use new ways of working. In both cases the
prospect may decide to follow a structured RFP (Request for Proposal) process in their
commercial negotiation with the suppliers. The RFP typically brings structure and discipline
in terms of the time scale and discussion areas of the negotiations. Generally it is more common
that larger enterprises use external consultants to facilitate the RFP process, but also smaller
customer may have acquired an advisor to bring insight on which areas to concentrate on in
the vendor selection. However, an RFP process may also add some stiffness if formality
overruns the content discussion and elaboration of needs during the process.
The case company currently operates on major Northern European markets. The above
market segmentation applies to all geographies. Depending on the level of market penetration,
some segments might be in special focus. There are also regular campaigns, where certain
vertical has special emphasis and prospects are systematically approached with a series of sales
and marketing activities. In general though, it is the same offering that is actively promoted in
every market. Next, the offering is described in more detail.
28
4.1.2 Narrative of the offering characteristics
In order to understand the offering of the case company, the technical setup of the solution in
customer context is briefly described. The case company offers its applications as a bolt-on
solution on top of customer’s back-end solutions, e.g. ERP or point-of-sale (POS) system. The
solution provides functionalities that require input from the daily business and provides
calculations and optimizations that are returned back to customer’ back end systems. The input
data includes all inventory affecting transactions (i.e. sales, receipts, internal transfers,
adjustments etc.), balance information, any open sales or purchase orders, product and store
specific master data and additional master data such as campaign or assortment information.
The calculation outputs of the solution typically contain order proposals, forecasts or
optimized inventory parameters such as safety stocks or order quantities. The data transfer is
often implemented as an asynchronous batch file transfer using csv-files. However, also other
technologies have been applied, e.g. direct database queries or integrations over various
integration layers and web services. There are standard interfaces available for the most
common ERPs on the markets, however, typically all companies have also some custom data
tables and fields, which require customization in the case company’s integration adapters and
readers.
The heart of the solution is a proprietary database designed and optimized for supply
chain management data. The database has a columnar structure to support efficient data
compression and allowing computation of business metrics from raw data in-memory. In
addition, parallelization of resource intensive system runs further increases the speed of its use.
The users access the solution via web browser and its configurable user interface.
Architecturally, the typical and preferred setup at the case company is that the solution
is hosted by the case company on dedicated servers, and offered to the customer use against a
monthly fee (SaaS, software as a service). The infrastructure team of the case company ensures
each of the customer installations have enough CPUs and memory capacity available. In
addition to productive environments, each customer setup has a test environment where any
new configurations can be tested. Also depending on the customer’s wish also a back-up
servers are provided. The database and application installed on servers form the actual solution
platform. Both infrastructure and platform performance are monitored when offered to the
customer. The customer may choose from pre-defined packages what kind of hardware setup
and service level for application maintenance and monitoring they would like to have. The
29
service levels define the actual process and response times in potential failure situation both
with respect to infra and platform use. There are also on-premise installations implemented but
the hardware requirements and availability dedicated servers tend to add on complexity. On
the top, the coordination effort within typically wider group of stakeholders in an on-premise
constellation increases the operational risks of the solution environment.
As mentioned before, the monthly SaaS fee includes both the infrastructure, platform as
well as the license to the chosen part of the software i.e. application. Functionally, the case
company has productized the solutions to functional modules that encompass the relevant
features to support and automate customer’s processes. On a high level, the modules can be
grouped to specific use processes. For instance, in wholesale environment, the process areas
include Replenishment, Planning and forecasting, In-Season management and Promotion and
Event management. These process areas then include actual commercial solution modules. In
addition to business process related modules, there are couple of more technical options the
customer may also choose. These include for instance mobile application, real-time data
integration, calculation of reserve order proposals and access to business rule workbench to
create own control heuristics and rules.
Conventionally SaaS often refers to a delivery method, where a solution can be taken
into use quickly by subscription only. In a B2B setting of the case company and its business,
the implementation of the solution does require integration work though. The delivery of the
solution at the customer is described in the following section.
4.1.3 Narrative of the delivery characteristics
Next the key phases and milestones of a service delivery are described. The overview can also
be seen in Figure 8. For simplicity, the stages have been illustrated and elaborated in a linear
fashion. Each delivery contains the similar stages and the milestones between stages are
considered mandatory to move towards the actual use of the solution. Due to the platform
nature of the solution, the specification and technical configuration can be carried out in an
agile fashion, though. In practice this means, that as soon as the first data sets are fetched from
the customer back-end system, the user views and business rules and heuristics can be
configured on the user interface and shown to the customer. As this is often the only way to
make the specification and implementation visible to the customer, this is also the most
powerful way to validate the chosen design principles and their realization. Furthermore, it
allows for ensuring the customer is satisfied with the actual solution. In case something needs
30
to be fine-tuned, it will iteratively reconfigured. The delivery is typically sold with a fixed-fee,
so the incentive from the case company point of view is to complete the delivery phase rather
sooner than later. On the other hand, the customer benefits will realize only when the system
is taken into productive use, so the customer business owners are typically also willing to move
further with rapid incremental steps.
Communicating this agile “adjust as you go” approach has been turned out to be one of
the most difficult challenges that the case company is facing during the sales negotiations. Still
during the actual delivery, the customer organization may be suspicious towards the approach
and feel if something will not be accurately specified in the beginning, it is impossible to take
it into account in the later stages anymore. In this sense, the traditional enterprise software
implementation methods such as V-model or waterfall, and their fixed specification, build,
testing and validation phases, are deeply rooted in customer organizations. Although the
milestones of the case company do resemble the same logic, it is the daily ways of working
and attitude – the mini-iterations within each phase that make the difference. Next, these steps
starting from sales and ending in the continuous service delivery are elaborated in more detail.
Figure 8. Overview of the service delivery phases
The sales cycles of the provided solutions are typically long. The prospects typically
request for system demonstrations and business case calculations along with other meetings
and discussions where the requirements are elaborated. The buying process can take place in a
format of a structured RFP (Request for Proposal) process or in a spontaneous flow of
negotiations, depending on the customer background as described in the previous section. An
RFP process has a set of predefined steps to ultimately qualify the best solution, and it is often
targeted to multiple vendors simultaneously. The spontaneous negotiations contain similar
31
elements, but there the relationship with the prospect is often closer already in the beginning,
and the negotiations proceed often in a consultative atmosphere. The supply chain consultants
and project managers of the case company often participate in customer negotiations already
during the active sales phase. In solutions demonstrations they can showcase their domain and
solution expertise to the prospect. And with respect to business case calculations, they have a
chance to familiarize themselves with the customer data and business environment, and further
help sales representatives to formulate a compelling sales story.
For replenishment automation prospects, the business case calculations are also packaged
into a commercially productized analysis project that can be offered to the prospect. In short,
the content of such a project, is to conduct a set of interviews with the key stakeholders at the
prospect for finding out the current state and challenges in the prospect’s processes and related
organization, tool or data. In addition to the qualitative investigation, the prospect is asked to
provide a sample set of historical demand and inventory data. The oldest historical demand
data is uploaded to the solution, the solution is configured accordingly, and necessary
parameter optimizations and forecasting calculations are run – just as in an actual
implementation of the solution. The use of historical demand data enables the simulation of
how the goods would have been replenished with the solution, and how the inventory levels
would have behaved respectively. By comparing against the more recent actual realized
inventory levels, the improvement potential and areas are clearly identifiable.
When the sales case has been won, and the customer has decided to start the
implementation of the solution, there is an internal kick-off meeting between sales and delivery
organization at the case company. The point is to ensure all the relevant knowledge and
understanding about the customer and the contract is spread among the new team working on
the client. In addition to the internal knowledge transfer, a kick-off meeting is arranged at the
customer. The main point of the kick-off, is to gather together with the core team working on
the delivery. From the case company, the project manager and technical expert facilitate the
meeting and are accompanied by the account manager. From the customer side, the relevant
stakeholders include the responsible project manager and chosen core team representing both
users of the solution but also the technical experts. Moreover, the presence of the business
owners is mandatory in the meeting, to bring in the buy-in and authority to the meeting. The
organizational change management, i.e. ensuring the organization will work according to the
desired changes in organizations and business targets is generally left to the customer
organization. Typically, the management participants belong to the steering group of the
32
delivery, and will assess the progress regularly and at each milestone give their approval for
moving further. The main objective of the meeting is to review the delivery scope, objectives,
metrics, schedule and resourcing – and mutually agree on all of them so that the team can
commit on the guiding principles.
After the kick-off, the delivery will start in practice with a set of specification workshops.
In the business specification sessions, the core business processes of the customer are discussed
to identify the most critical customer requirements. The point is to cover the relevant
workflows, their actors and activities within the agreed scope. Master data management, and
especially the identification of active assortment, i.e. the customer products that are actively
managed with the solution at each time, is important in all solution deliveries.
The target of the business specification workshops is twofold: to draft the to-be processes
so that the solution can be configured to support it, and identify the data needs so that relevant
integrations can be built. The technical requirements are always discussed also as part of the
business specification, and therefore the participation of also IT people in these meetings is
highly recommended. Nevertheless, also a separate workshop purely for technical topics is
typically arranged. In this session, the parties agree on the used integration format and discuss
the data transfer process: architecture, timing, roles and responsibilities. In addition, the
outcome of the business workshops is reflected in the technical session, to ensure the relevant
data objects are covered in the integrations and interpreted the right way also from technical
perspective.
Although specification workshops are arranged at the beginning of the delivery, the
specification does not have to be completely fixed before the configuration starts. The solution
platform allows for fine-tuning the business processes also later in the delivery, once the data
is actually moving between the systems. Also extending data batches with additional data fields
can happen later. Nevertheless, the customer is often encouraged to extract more data for the
daily transfers than initially seems useful. Once the data is mapped to the database, it can be
harnessed for any business rule or reporting purposes. The steering group approves both the
detailed business and technical specifications and grants the implementation of the solution to
start as specified. In reality though, the system implementation has likely already started at that
point: the solution environment has been installed and necessary firewall settings have been
applied. Furthermore, also the data mapping between examples extracts and adapter layer of
the solution is in progress.
33
The technical implementation and configuration phase will realize and finish the work
started in the specifications. Most importantly, the agreed integrations are created, unit tested
and regular data transfers are initiated when the end-to-end integration tests are completed
successfully. The integrations are typically implemented using so called adapters that will
modify the customer input information into a format that standard readers can read in. Often,
the data transfer is built on asynchronous batch file transfer using csv-files. However, also other
technologies can be applied, e.g. direct data queries from customer databases or integrations
over web services. In addition to continuous data transfer, historical transactions are loaded to
the solution at this point. This is to allow for time-series based forecasting to start, and to
provide also historical benchmark figures (e.g. past inventory levels or value of spoilage) for
reporting and follow-up purposes. In addition to inbound interface, naturally also outbound
data transfer is implemented according to specification.
From the end use perspective, the solution is configured to support the daily activities.
Configurations refers to settings and parametrizations that steer solution runs i.e. optimizations
and heuristics. The latter ones are then created to manage individual items in each customer
location. A series of template runs and configurations are available, but the parameterization is
done based on discussions together with the customer. The solution runs can be scheduled to
happen automatically or they can be initiated manually. The runs include for instance forecast
model optimizations, safety stock optimizations, product life cycle optimizations, forecast
calculations and order proposal calculations. In addition to the automated runs, solution views
and exception alerts are activated to support the daily workflow at the customer. At the end of
the configuration phase, the solution is technically ready i.e. regular end-to-end data integration
is activated and solution runs take place according to the schedule. At the end of the phase, the
steering will approve the readiness to start user trainings and acceptance testing.
As the name implies, the final preparation phase concentrates on finalization of solution,
but most importantly the coming user organization to take the new solution-aided processes
into use. The super users will be trained to use the system, although they have been likely part
of the delivery from the first meetings. The end users are typically trained by the super users.
Parallel to the trainings, also the end-to-end process is validated and approved by the end users.
Possibly identified flaws will be corrected, and optimizations and other heuristics are finetuned respectively to provide best possible results.
In order to prepare to the go-live, the managers will finalize the roll-out plan. Typically
the solution is taken into use gradually, starting from a product hierarchically, geographically,
34
managerially or system functionally limited subsets of the full scope. On the technical side, the
fall back plans are reviewed in case of any malfunction in data transfer or system availability.
At this point, hand over will be done from the delivery team to the support at the case company,
to ensure all the automated monitoring practices and respective system alerts will be activated
for the production use. The steering group will grant the green light for go-live at the end of
the phase.
After go-live, the customer is provided support during the first weeks of the production
use. This entails helping the first line support i.e. the customer’s super users in answering any
user originated questions, but also modifying solution configurations based on the feedback.
As the go-live typically does not happen with the full business scope, the process performance
is carefully monitored to judge whether such a level of quality has been reached that the rollout can be continued. Technically, the productive data transfers are monitored and the system
performance is followed to ensure seamless operations also in the productive set-up. The length
and nature of the go-live depends on the customer contract. Some customers may want to start
with a specific pilot period, during which they can test and see the functioning solution in reallife and assess its true fit. If in a pilot setup, the customer is given an exit point, when they will
need to make a decision about the roll-out. When the early use support phase ends, the
responsibility of the customer environment is fully handed to the support organization and
respective service manager at the case company. This takes place in a formal meeting, where
both delivery, support, and service managers are present together with the account
management. After this point, the delivery consultants can take over the next customer
engagement.
The support stage i.e. continuous service phase refers to the post-delivery time in the
customer life-cycle. The technical support organization of the case company monitors the
customer environments and will be notified by automatic alerts triggers, if data transfer or
system calculations have not been completed within given thresholds, or the system is
unavailable. The business support is available for difficult use related questions that the
customer organization is not able to answer themselves. Typically such events are related to
exceptional business situations, where due to incomplete or wrongly managed master data or
other process violations cause deviations from the specified use process. The idea is that the
customer organization is fully capable of running their own daily business with the solution,
and the case company does not primarily offer super user services.
35
In addition to the support function of the case company, also service and business
manager roles are essential in the continuous phase. The former one is responsible for
practicalities related to the customer relationship e.g. communication of maintenance breaks or
version updates, mediating any problem solving related to daily operations, discussing any
development ideas in the solution use, and ensuring monthly invoicing and regular customer
meetings are held. The business manager is commercially responsible for the continuous
customer relationship and satisfaction. The business manager will assess and discuss internally
any add-selling or up-selling potential that service manager has identified. The service and
business manager meet the customer regularly in round table discussions, where the state and
quality of the relationship and potential future development topics are openly discussed.
The continuous support phase has been excluded from the scope of this thesis, but
understanding the full life-cycle is vital to be able to focus on delivery operations.
4.1.4 Service delivery characteristics
There are several characteristics describing the case environment elaborated in the narratives
of the previous section. Moreover, the characteristics can be measured using different metrics.
Table 4 contains a non-comprehensive summary of characters describing the delivery
environment, and how these can be measured.
Table 4: Overview of key characteristics describing the delivery environment
Dimension/Characteristic
Customer
Business size
Market
Maturity to develop
Business environment
Solution
Scope
Requirements
Delivery
Cost
Duration
Quality
Impact
Measures
Revenue, Number of locations, Number of SKUs,
Country, Segment, Niche
Organization, Processes, People, IT systems, Data, SCM knowledge
Volatility of business, Customer ownership structure, Strategic importance of the
customer
Functional modules, Infra setup, Users, Number of stakeholders, Number of
integrations
Commonality of implemented processes, Level of standard of interfaces, Clarity of
requirements, Thoroughness of the specification (in sales / during the delivery),
Involvement of product development, Usability of solution
Hours booked, Hardware costs
Time used
Targets met, Customer satisfaction, Reference value
How many people affected
Some of the characteristics are dependent variables, i.e. when measured against a chosen
metric, the obtained value of the metric depends on the value of another characteristic. On the
contrary, the characteristics that describe the environment, but are not affected by any other
characteristic are independent variables. The dependency of characteristics i.e. variables can
36
be tested statistically. However, in this thesis, statistical multi-variate testing has not been
carried out. Instead, a general labelling only has been completed, to signify whether identified
characteristics are customer, solution or delivery related. The characteristics chosen to be used
in the operationalization will be elaborated in the next sections. Remaining ones can be used
when mapping accounts and service deliveries on the framework in the later stages.
4.2 Operationalization of service delivery capabilities
The operationalization of the service delivery capabilities requires generalization of the
customer, solutions and operations characteristics discussed previously. Moreover, in order to
eventually map individual deliveries and customer accounts to a framework, the customer and
offering dimensions inherent in the service delivery must be conjointly presented in the
framework. Next, the creation and structure of the framework is presented.
4.2.1 Generic customer types based on readiness to develop
To characterize the customer dimension and its influence on the service delivery, two aspects
related to the maturity of the customer environment are underlined: the readiness of the key
users and readiness of the governance structures at the customer. Key user readiness refers to
the customer experts’ ability to take ownership of the daily use and development of the
delivered solution. This requires both understanding of the business and commercial targets of
the company, as well as knowledge and skills to operate and develop system level
functionalities, configurations and even the solution landscape to meet the business needs. Both
business and technical acumen of the key users can be measured as a qualitative estimate of
managers dealing with the respective customer environment. The governance in the thesis
context refers to organizational and IT structures of the company where the future users will
operate. The maturity of the workflows, roles, responsibilities, and supporting IT tools signals
the readiness of the organization to develop its operations further. Again, the delivery managers
can estimate qualitatively the organizational and IT maturity of the customer environment.
Based on the estimates of key user and governance readiness, the customer accounts of
the case company can be divided to three distinctive archetypes: novices, performers and finetuners. The assumed archetypes can be found on the diagonal of the framework, and the entire
construct is illustrated in Figure 9.
37
Figure 9. Generic types of customers
The companies with non-existing governance and inexperienced key users are called
novices. The working practices of novices are highly dependent on individuals, there are no
dedicated roles and responsibilities nor commonly agreed processes or working practices in
place. Furthermore, the IT tools supporting the daily work of novices are limited or nonexistent, and often operations are ran on ad hoc excel tools. From the system implementation
perspective, this kind of an environment is a green field. Inexperienced key users may lack
knowledge on the customer’s business, if they have for instance joined the customer
organization lately. On the other hand, extensive knowledge and years of experience in the
customer operations can also turn out to be counterproductive if the key users’ ability to think
out of the box and find solutions other than how tasks have always been carried out is weak.
In addition, novice key users do not possess any technical background, and their understanding
of e.g. basics of computational programming or conceptual thinking can be limited. This
hinders their ability for instance to create logical business rules and decision trees on the system
level, or to grasp data models from the database perspective, or grasp key supply chain
management concepts, e.g. material requirements planning (MRP), time-series forecasting or
safety-stock calculations. Naturally, unmotivated key users may appear to be and act like
novices, although they would possess knowledge and skills mentioned above.
Performers are companies that have some organizational governance in place to support
relevant supply chain management tasks. They do have nominated teams in the respective work
38
areas, and there are job roles that are primarily responsible for carrying out these activities.
There is a manager responsible for daily management and development of the supply chain
management operations. From the IT perspective, the performers are more advanced than
novices. They are used to carrying out their daily tasks mainly in an enterprise resource
planning software (ERP) or other enterprise software, and the company has a more versatile IT
landscape. The key users of a performer are familiar with the current business environment.
Often the performer key users have also experience from other employers, allowing them to
reflect how business requirements have been solved elsewhere before. The performer key users
are used to working with IT solutions. They have insight on the current tools: what can be
achieved with them, but also what bottlenecks and constraints there are on the system level. In
addition, performers are able to describe these possibilities and limitations in a conceptual
manner.
The third distinctive customer group is fine-tuners. From the governance point of view,
the fine-tuners have clearly defined and established processes in place to run supply chain
management operations. There are dedicated teams responsible for daily tasks, and the
managers’ work as process owners in respective areas. The teams’ operational targets are
derived from the company’s strategic goals, and moreover measured accordingly. Fine-tuners
do have also dedicated IT tools in use – often they have been early adopters and have already
a long history of using specific tools. From the solution implementation perspective, the
delivered solution often replaces an advanced solution. The reason to initiate the replacement
of the legacy SCM solution can be its performance restrictions, lack of specific functionalities
or inability of the previous solution to cover all business areas. The atmosphere of continuous
improvement is inherent at the fine-tuners. The key users in a fine-tuner context are innovators
that are constantly looking for ways to tune-up the processes on system level. Their
understanding of the business is on a high level. Instead of reactively responding to change
requests from the user organization, they are able to proactively form, realize and communicate
a process and system level development vision. Technically, the fine-tuners can grasp the most
advanced logical concepts in mathematics and software development, and utilize them in their
development work.
The two corners outside the diagonal provide assumed mismatches that are unfavorable
but also unsustainable. First, when the key user readiness is low but the governance in the
organization is strong, the inefficiency and high costs would incur due to idleness. In such
situations, the structures for successful performance are in place, but the capabilities of the key
39
users are not adequate to act accordingly. The setting can be compared to a asking a random
person driving a car on a street to race in formula one world championship team. Such a
situation may occur, if the employee turnover of the company is high, and key positions are
filled with incompetent or fresh professionals. The situation would likely correct itself naturally
after some time, if the key users are able to develop themselves and step up. However, the full
benefits of the governance cannot be realized in the meanwhile though, and in the worst case
the organizational readiness will deteriorate over time.
The second mismatch on the upper left-hand corner contains an element of high risk. In
case the key users are very competent and capable, but the governance structures of the
customer company are vague or non-existent, the key users will likely soon become frustrated.
The situation of high risk is unlikely in the first place, as the result of the employee
dissatisfaction often leads to decreased motivation, diminished team spirit and increased
number of resignations. Therefore the situation should not last for long, as the organization is
forced to renew with less experienced key users. On the other hand, if the competent key users
and the rest of the organization have the discipline to patiently develop the governance
structures, the company has the opportunity to take major development leaps fast.
4.2.2 Generic solution types based on requirements and specification
The generic characterization of the offering is stemming from the theory of transaction
economics, and extended in the case context of the thesis. Firstly, the offering in a specific
customer context can be illustrated based on the clarity and certainty of requirements. The
clarity and certainty of the requirements can range from clearly defined and certain
requirements, to unknown and changing needs for the solution. Secondly, the offering is
described against the specificity of the design and the complexity of the scope. The provided
solutions can be standard in the industry and simple in terms of its specification scope, or
include customer-specific design elements and cover a complex scope.
Again, the diagonal of the framework provides three common matches of the
requirements and specification, namely three distinctive types of solutions: stripped-down
package, configurable platform, and first-of-a-kind venture. The framework of the types of
solutions is presented in Figure 10.
40
Figure 10. Generic types of solutions
When the business requirements are clear and stable, and the specification is common
and limited in scope, the matching solution is a stripped-down package. If the requirements are
partly unknown and uncertain, and the design contains unfamiliar customer-specific elements
and a complex scope, then the nature of the delivery is more of an exploratory development
project – a first-of-a-kind venture. Between these two extremes on the diagonal, the solution
can be characterized as a configurable platform. Configurability of the platform allows for
adjusting to customer specificity and complexity and support also limited clarity and
uncertainty of requirements.
The two disequilibrium in the framework are rare in the service delivery context, but may
emerge. First, if the solution design is expected to be highly customer-specific and contain a
wide and versatile scope, it is questionable if the requirements are really clear and stabile for
all the parties involved in the service delivery. Instead, it should be pondered in the first place,
does it makes sense to try to achieve something unique that can be expensive to develop? To
avoid possibly costly over-specification, it may be advisable to rather reduce the specificity
and complexity of the solution towards more common and simple design – a solution that can
be provided as a stripped-down package.
41
Second of all, if the requirements are unknown or turbulent, there is a reason to doubt
can the design really be standard and its scope simple? In practice, highly turbulent
circumstances can emerge for instance due to a dynamic and constantly changing business
landscape. Alternatively, high employee turnover may result in inability to specify the solution.
In order to gain desired benefits in an unstable business environment, an implementation of a
venture-like solution is likely the more successful but consequently also the more expensive
option to strive for. On the other hand, taking any actions or simply waiting the operating
environment to stabilize would be highly recommendable – and favorable for a stripped-down
package approach.
4.2.3 Generic service delivery types
The formerly identified generic customer and solution types can now be converted to
dimensions of a third framework. This final construct is used to form suggested service delivery
approaches favorable in each customer and solution constellation. Again, these three generic
service delivery types are provided on the diagonal of the framework (Figure 11).
Figure 11. Generic types of service deliveries
The most prominent delivery method of a stripped-down package to novices is a dictated
activation. As the governance and individual capabilities of novices are still undeveloped, the
delivered solution should be standard and robust, and allow for the first development steps to
42
be taken quickly. So, instead of spending time on discussing the specification and having
several implementation iterations to find best-matching configurations, the approach should
rather be straight-forward activation of the key functionalities. Moreover, the novices often
expect to hear proven practices from other companies, and therefore would value firm
guidance, even dictation, from the vendor throughout the delivery.
To performers, the implementation of a configurable platform requires a consultative
approach. The performers do have capable individuals and mature enough governance
structures in place. Hence, they expect to hear additional insights on specific themes from their
vendor. From the interaction perspective, they are looking for opportunities for discussion and
iteration of possible alternatives to solve their current business challenges. The customer
specific needs of the performers can be configured on the solution platform and developed
together iteratively during the implementation.
When delivering to fine-tuner customers a first-of-a-kind venture, the approach needs to
be exploratory, and the sense of deep collaborative partnership is inherent in the delivery. In
this setup, both the customer and the vendor teams acknowledge they are working on
something unique, and that the desired results can be achieved only through tight cooperation
and mutual understanding on the delivery goals. Similarly, an exploratory collaboration
encourages for an open and equal atmosphere. The relationship builds on respecting expertise
on both sides, but opinions can also be challenged when needed, to find the best possible
solutions to any issues that may arise.
As in the previous matrices, also the conceptualization of the recommended service
delivery types contains two mismatches outside the diagonal of the matrix. First, it is possible,
that a first-of-a-kind solution is delivered to a customer that is categorized as a novice. In this
setup, the needs for the solution are custom specific, complex or even uncertain, but the
customer organization is not capable or unwilling to step up for the challenge. Moreover, their
approach might be to demand as much as possible from the external vendor - even more than
what they are sustainably capable to digest. This setup is unfavorable and unsustainable from
both the customer and supplier perspective. The vendor must invest heavily in training the
organization, and at the same time find ways to rationalize the specification and scope of the
solution to better match the customer maturity. The time and effort needed to coordinate this
transformation at the customer organization, or specifying the solution to match expectations,
will yield high costs.
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The left-hand upper corner of the matrix presents a high risk, namely, a delivery of a
packaged solution to a fine-tuner organization. Clearly, an established and skilled user
organization becomes frustrated, if the provided solution does not fulfill the advanced
requirements of the business. Inadequate offering will likely be found out already before the
implementation starts. Therefore, this imbalance typically is acknowledged and mitigated
already before the delivery starts. However, there can be e.g. process areas, where notably
limited solution functionality or inflexibility to match customer needs is discovered in the sales
phase agreed, and mutually agreed to be developed during the delivery. In this kind of situation,
the development of the solution is often taken also as a key success measure of the delivery.
Hence, the mismatch can lead not only to dissatisfaction, but termination of the delivery and
the entire contract. Therefore, the drive to invent and implement the solution is a key force
ensuring optimal match of customer maturity and nature of the solution. The forces related to
mismatches in the service delivery context are also graphically illustrated on the framework in
Figure 12.
Figure 12. Forces inherent in service delivery
The third force that is inherent in the solution context, is the evolution of the offering.
Namely, as new solution areas are discovered and developed as part of exploratory
collaboration, these will eventually become more standard part of the solution. On the
44
framework (Figure 12), this development of the solution is described by the dotted-line arrow
on the diagonal, pointing towards the lower left-hand corner.
Hence, one must take into consideration the time-dependency, when using the framework
and mapping for instance actual deliveries son it: deliveries of similar solutions to similar
customers may be positioned completely differently on the matrix, if there is a long time
between them and the offering has dramatically developed in the meanwhile.
4.2.4 Assessment of the operationalization
In order to map actual customer deliveries on the recently developed framework, the chosen
set of characteristics per each customer and solution dimension of the delivery are assessed.
The dimensions, characteristics and the metrics and value scales are summarized Table 5. The
table provides also a short description of the lower and higher end of the value scale, to help
managers give their estimate against each characteristic in a specific customer delivery.
The dimensions of customer and solution type of actual deliveries are estimated by
managers of the case company. With respect to the customer type, key user readiness is
assessed in terms of key user’s business knowledge and technical skills – both being estimated
on a Likert-scale from one to nine (low to high). Similarly, the governance readiness, namely
organizational and IT maturity, is evaluated with a range from one to nine (low to high).
Regarding the generic solution types, the clarity and certainty of requirements is
estimated on a scale from 1 to 9 either as clear and certain (1) or unclear and uncertain (0). The
solution’s level of standardization and complexity of the scope are also defined on a 9-level
continuum: the specification is either standard (1) or customer specific (9), and the scope can
vary from simple (1) to highly complex (9).
As each of the matrix dimensions contain two characteristics and thus be represented by
two managerial values, the average of these values will be used to map the actual delivery on
the final service delivery matrix.
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Table 5: The service delivery dimensions, characteristcs, metrics and their value ranges
Dimension/
Characteristic
Key user readiness
Key user’s
business
knowledge
Metric
Value
range
Description of the low end
value (1)
Description of the high end value
(9)
Manager’s
qualitative
estimate
1 to 9
(Low to
high)
Key user’s
technical skills
Manager’s
qualitative
estimate
1 to 9
(Low to
high)
 The key user is new in the
company or junior in his/her
role
 The key user does not know
or understand the strategic
goals of the company and
their implications to the SCM
 The key user is rather
reacting to development
requirements instead of
carefully assessing their
influence on the existing
solution or daily work and
even challenging some of
the requests
 The key user is unmotivated
or unwilling to drive change
or find ways to improve SCM
 The key user is not familiar
with basic SCM concepts and
does not have technical
background
 The key user is not able to
turn business requirements
into logical programmable
rules (pseudo programming)
 The key user is not able to
see the big picture behind
reported challenges i.e. to
make generalizations of the
faced problems, and provide
conceptual solutions
 The key user has limited
ability to take into
consideration the data
structures or hardware
related possibilities or
limitations
 The key user is unwilling to
develop his or her technical
skills
 The key user is a seasoned
professional having substantial
domain knowledge and insight
and a substantial history in the
organization
 The key user understands the
strategic business goals and
their implications to the SCM
development
 The key user has a
development vision and
attitude, and is actively looking
for ways to improve and
automate workflows
 The key user is keen on finding
ideas also from outside the
organization and developing
him or herself
 The key user is fluent with SCM
concepts and masters also the
most advanced mathematical
models
 The key user is capable of
conceptualizing even detailed
and complex business
requirements to logical
solution level calculation rules
and workflows
 The key user is able to
understand technical
opportunities and limitations
related to e.g. calculation
performance, data models or
hardware architecture
 The key user is motivated and
willing to developed his or her
technical skills further
Governance readiness
Organization
Manager’s
maturity
qualitative
estimate
1 to 9
(Low to
high)
 There are no process
structure in place in the SCM
area (no dedicated teams,
roles, responsibilities,
workflows, or targets) –
rather related work flows
are ad hoc by nature and
operations are dependent
on individuals.
 Operations are not regularly
measured or monitored just
on a high level
 The managers are not aware
what it takes in practice to
reach the goals, and has not
 Relevant SCM processes are
established, functioning and
documented
 Division of roles and
responsibilities is clear in the
organization
 There is enough resources
allocated to different roles and
activities and these are
proactively managed
 Operations are measured
against set targets
 The managers do realize what
it takes to take new solutions
46
IT maturity
Manager’s
qualitative
estimate
1 to 9
(Low to
high)






Clarity and certainty of solution requirements
Clarity of
Manager’s
1 to 9
requirements
qualitative
(Clear to
estimate
Unclear)
Certainty of
requirements
Manager’s
qualitative
estimate
1 to 9
(Certain
to
uncertain
)
Specificity and complexity of the solution
Level of solution
Manager’s
1 to 9
standardization
qualitative
(Standard
estimate
to
reserved enough resources
to take new solutions into
use
Work is carried out using ad
hoc IT tools, excels or even
manual notes.
The backbone enterprise
solution (e.g. ERP or POS) is
limited in terms of its SCM
functionality
There are no domain specific
advanced bolt-on systems in
use in any business areas
The IT infrastructure is
scattered or of low quality
and mostly based on
installations on-premise
IT organization is minimal or
outsourced and has limited
understanding of the
business they support
There are no common data
structures defined and
master data is of low quality
into use and have reserved
enough resources for it
 All major business processes
are tightly supported by
relevant IT applications
 In addition to core enterprise
solutions, there are dedicated
advanced solutions at use in
different business areas
 The customer is used to
integrating IT solutions
 The customer has experience
from cloud-based solutions
 The customer has a resourced
and skilled IT organization that
executes a chosen IT strategy
 The customer has skills to
manage multi-vendor
operations
 The customer acknowledges
the implications of master data
quality and proactively
develops data quality
 When starting the delivery,
the customer is well aware
of their SCM pain points and
has processed the
requirements to a detailed
level
 Before the start of the
delivery, the requirements
have been discussed and
elaborated several times
thoroughly during the sales
negotiations (e.g. RFP
process, demos, analysis
projects etc.)
 The customer’s business
environment is steady and
the daily operations are ran
in a calm and focused
manner
 The customer executes a
long-term strategy
 The customer organization is
stable, with well-planned onboarding and knowledge
transfer in case positions
change
 Key personnel are not
overwhelmed with daily
routines and development
tasks, but can focus on all
their duties
 When the delivery begins, the
customer does not have a clear
and detailed development
vision on their own - rather
high level ideas and goals but
limited understanding of how
to get there or what
prerequisites are needed
 The sales process has been fast
and relevant themes and
requirements have been
discussed on a high level
 The customer processes that
the solution is to support,
 High number of customer
specific needs uncommon to
47
 The customer’s business
environment is dynamic or the
daily operations are ran in a
hectic style (e.g. frequent
acquisitions, openings of new
markets, new owners, several
development initiatives
simultaneously)
 The strategic goals or focus
areas seem to alter frequently
 The customer’s organization is
turbulent creating a sense of
discontinuity and uncertainty
(high employee turnover or
frequent reorganizations)
 Key people have a high
workload and they are tied to
many simultaneous
development activities)
Customer
specific)
are fundamentally common
in the industry
 The delivered solution
contains readily standard
functionalities,
optimizations,
parametrizations, user views
and workflows to support
the processes and there
have been applied already
elsewhere in the past
 The integrations are built to
known enterprise solutions,
utilize standard interfaces
and contain only minimally
customer specific coding
 Deployment is done on a
standard SaaS infra setup
(i.e. as a full turn-key SaaS
delivery)




Complexity of
specification scope
Manager’s
qualitative
estimate
1 to 9
(Simple
to
Complex)
 The implemented functional
scope is limited and contains
only predefined modules –
and the modules are used
for their intended purpose
 From the data volume
perspective, the scope is
limited and small (number of
SKUs in the customer
business and SCM nodes)
 The solution is used for
purpose only, i.e. there is
only one business area /
limited number of users for
the solution (and these from
the customer organization
only - not any 3rd parties)




the industry are requested by
the customer
As a consequence, many of the
system calculations,
parameters or work flows do
not readily exist in the solution
nor have been implemented at
other customers, but must be
created from scratch
Resources from internal
product development are
needed to implement some of
the requirements
The solution is integrated to
customer-specific solutions,
interface is customer specific
(e.g. direct database
integration) and interfaces
contain customer-specific
adaptations
The solution is requested to
run on customer premises and
not preferred infrastructure
(e.g. virtualized Windows
servers)
The solution scope contains all
possible functional modules and even new functional areas
outside the primary solution
domain
Some of the functionalities
have been recently developed
or still work in progress
The data volumes are
substantial, performance
requirements high or
customer’s IT landscape set
sever constraints to
integrations
The customer organization
contains several stakeholder
units and there are tens of
even simultaneous users for
the solutions (also outside the
customer)
4.2.5 Validation of the operationalization
Case-based reasoning: Mapping of the managerial evaluation of the chosen 4 cases on the
framework (Figure).
Table: Managerial estimates of the cases (positioning on the matrix)
Case 1: Customer brief and short elaboration of the positioning
Case 2: Customer brief and short elaboration of the positioning
Case 3: Customer brief and short elaboration of the positioning
48
Case 4: Customer brief and short elaboration of the positioning
49
5 DISCUSSION
The following section provides the synthesis of the findings. In addition, the section concludes
both theoretical contribution as well as managerial implications of the thesis. The validity and
reliability of the thesis are also elaborated in this section. Finally, possible areas for future
research are presented to the reader.
5.1 Synthesis
The framework developed in this thesis is an operationalization of customer and offering
characteristics inherent in service deliveries of the case company. There are three identifiable
generic customer types present in the deliveries: novices, performers and fine-tuners. Each of
the customer types are on a different maturity stage with regards their organizational and key
user capabilities to take the delivered solution in to use. Similarly, there are three generic
solution types identified, namely, stripped-down package, configurable platform and first-ofa-kind venture. The clarity and certainty of requirements, as well as the customer specificity
and complexity of scope of each of these solution types range from low to high respectively.
Furthermore the framework provides a suggestion of recommended service delivery type
for each generic customer and solution combination. Depending on the state of the customer
and the qualities of the delivered solution, the matching service delivery types are categorized
as a dictated activation (of a stripped-down package at a novice), a consultative implementation
(of a configurable platform at a performer), and an exploratory collaboration (of a first-of-akind venture at a fine-tuner).
The validation of the constructed operationalization has been carried out using casedbased reasoning. Real-life solution deliveries of the case company are mapped on the
framework, and reflected against the dynamics of the construct – and vice versa. The
managerial estimates of the case deliveries prove that the operationalization does work in the
case context. Also, the case examples show how the recognized forces inherent in the service
delivery are also part of the framework. The high costs of coordination if delivering a first-ofa-kind venture to a novice, are stemming from the efforts of training the customer to the next
level of maturity and down-scaling the solution to a more proper match at the same time. The
risk of dissatisfied fine-tuners if not delivering a first-of-a-kind venture can be avoided only
when putting all the effort to inventing and delivering required solutions. When using the
framework, one must realize its time-dependency. Exploratory collaborations tend to discover
50
new solution areas that will eventually become part of the more standard offering. On the
framework, this development is illustrated as the arrow on the diagonal pointing towards the
origo. Therefore, due to the evolution of the solution, closely similar customer-solution
combinations that would be delivered at significantly different times, would likely be
positioned differently on the matrix.
5.2 Theoretical contribution
From the theoretical standpoint, the thesis extends the application of transaction cost theory,
providing an operationalisation of service deliveries in business-to-business software context.
It gives an overview of existing positioning matrices in manufacturing, service and software
domains, and complements the existing body of knowledge by presenting how service delivery
capabilities and their operationalisation has been constructed in the case context. Furthermore,
the thesis validates the framework and its applicability in the case context, using case-based
reasoning.
5.3 Managerial implications
The purpose of the thesis was to reveal and operationalize the dynamics of a service delivery
in SaaS business of the case company. The managerial interest was focused on understanding
the implications that the key factors inherent in service delivery context have on the service
delivery. Furthermore, the goal was to identify possibly altering requirements for the service
delivery depending on other circumstances. As a general target, the operationalization aimed
at providing a practical tool to facilitate discussion and decision making in the case company.
From the managerial point of view, the operationalization simplifies the discussion on
often dynamic and case-specific operating environment: it provides three generic delivery
types, where the identified generic customer types match the identified generic solution types
– and vice versa. These recommended delivery types are called dictated activation, consultative
implementation and exploratory collaboration. It can happen though, that the service delivery
seems to take place in a disequilibrium. Either a too simplistic solution is delivered to a
seasoned customer, or a less experienced and skilled customer is demanding highly advanced
solution. The former contains a high risk of dissatisfaction due to the mismatch of expectations
and delivery. The latter instead will lead to high costs due to increased coordination efforts
stemming from scoping and training aspects.
51
It is important for the managers to understand, what is required to avoid or move out
from the imbalanced situations. To turn a high costing delivery back to equilibrium requires
strong interpersonal skills. As much as the coordination is about driving transformation and
learning at the customer organisation, also solid solution understanding need to be present.
Especially, capabilities to sell and convince specification and scope decisions at the customer
are essential for the delivery consultants. Enhancing the change management soft skills need
to be acknowledged in a highly solution oriented engineering culture. On the other hand, the
high risk of delivering an underperforming solution to a demanding customer organization can
only be mitigated by harnessing the skilled and experienced resources that are able to design
and deliver the solution to the customer.
The benefits of the developed framework are twofold from the managerial perspective.
First, it enablers managers to reflect past solution deliveries and customer accounts, and assess
why their performance has turned out as it has been. In this study, several characteristics of
service deliveries were brought up, however extensive testing of variables and their
dependencies was excluded. Nevertheless, the framework provides a managerial tool to further
investigate delivery capabilities in the name of continuous development. For instance, mapping
service deliveries and labelling them based on e.g. profitability, strategic importance or other
factor would be interesting to see, if there seems to be a dependency between the variables.
Second, in addition to the rear view of the operations, the framework can be used as a
proactive tool during the sales phase. By identifying the state of customer and solution, it is
possible to plan a proper approach. Moreover, with the help of the construct and findings of
this thesis, managers can also ensure best fitting resources will be placed to the delivery.
Moreover, these findings should be taken into account when building the local delivery teams
in the countries and recruiting new employees to the company. Finally, the identification of the
best fit delivery types to different customer and solution setups will also provide additional
insight to the strategic discussion and decision making: what kind of segments the company
should target in the first place.
5.4 Reliability and validity
XXXXXXX
52
5.5 Potential future research areas
The thesis describes the development and initial validation of the framework in the case
context. From the general scientific interest point of view, the case setting could naturally be
extended to other software companies operating in a similar businesses. This would allow for
testing the generalizability of the developed model and suggested delivery methods – and thus
also mitigate doubts on the validity of the proposed constructs in this thesis. Furthermore, a
major decision about the creation of the framework was choosing the dimensions of the
operationalization to focus on customer and solution characteristics solely. As the outcome, the
framework suggests matching ways to deliver the solutions in the given setting. However, the
next interest of the academia as well as the practitioners is likely: how to ensure solutions are
delivered in the suggested manner? And furthermore, what are the internal capabilities required
and how do they affect to the provision of the solutions?
From the more practical standpoint, the thesis did introduce the management matrix and
tested it, but the actual use and applicability of it in real-life could provide one area for future
studies. As the managerial implications suggest, past solution deliveries could be mapped on
the matrix and assessed against other data characteristic for the accounts. Interesting findings
on cause and effects in software deliveries could be derived from e.g. multivariate analysis.
Another factor to consider, is to extend the analysis to cover the entire life-cycle of the customer
accounts: instead of concentrating only on the delivery, also the continuous services could be
taken into account. The dynamics in the continuous service are similar but still different
compared to initial delivery. The life-cycle of the customer account from the perspective of
total cost (or profit) of the ownership would certainly provide an interesting topic especially
for managers of the case company.
53
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APPENDIX A: APPENDIX TITLE
61