Creating value for the business service buyer through modularity

Transcription

1 Int. J. Services and Operations Management, Vol. 8, No. 2, Creating value for the business service buyer through modularity Pauliina Ulkuniemi* Faculty of Economics and Business Administration, Department of Marketing, University of Oulu, P.O. Box 4600, 90014, Finland Fax: Pauliina.Ulkuniemi@Oulu.fi *Corresponding author Saara Pekkarinen Faculty of Economics and Business Administration, Department of Management and Entrepreneurship, Logistics, University of Oulu, P.O. Box 4600, 90014, Finland Fax: Saara.Pekkarinen@oulu.fi Abstract: The present study explores how modularity makes services visible and how it enables the customers to participate in service co-creation. We review the literature on buying business services to determine the buying challenges and we define service modularity and especially concentrate on defining the attributes of a modular service offering. Theoretical framework describing the connections of the attributes and challenges in service buying is elaborated through a single case study of a modular service in a professional service firm. We argue that a modular service offering can help customers by increasing the visibility of the service offering. Keywords: modular service offering; buying business services; purchasing challenges; project business; design; coordination and construction management services; professional services; value creation; service modularity; service co-creation; service management; service operations. Reference to this paper should be made as follows: Ulkuniemi, P. and Pekkarinen, S. (2011) Creating value for the business service buyer through modularity, Int. J. Services and Operations Management, Vol. 8, No. 2, pp Biographical notes: Pauliina Ulkuniemi is an Assistant Professor of Marketing at the University of Oulu, Finland, where she also received her PhD in She has done research on software industry, focusing on different business logics and purchasing perspective to software component markets. Her current research interests lie in the value creation in business relationships in different industry contexts, especially in business services and project business. She has Copyright 2011 Inderscience Enterprises Ltd.

2 128 P. Ulkuniemi and S. Pekkarinen published, among others, in IEEE Software, Journal of Purchasing and Supply Management, International Journal of Technology Marketing, International Journal of Service Industry Management and Industrial Marketing Management. Saara Pekkarinen is a University Researcher at the University of Oulu, where she also received her PhD in 2005 in Economics. Her research interests and publications lie in the areas of transport economics, logistics, and recently, in the areas of service operations management and new service development in business markets. She is the Project Leader of the international project How modularity enables the development of new innovative business services. She has published, among others, in Journal of Purchasing and Supply Management, International Journal of Logistics Management and International Journal of Logistics Research and Applications. 1 Introduction The importance of business services in different industries has grown remarkably in recent years as companies are focusing on their core business and outsourcing other parts of their operations in order to exploit external resources of service providers. Therefore, the importance of industrial services is also growing in the business marketing discipline (Jacob and Ulaga, 2008). Service providers are facing demanding markets and are forced to put a lot of effort into developing their service offerings (Menor et al., 2002) and also into their own business processes. The key to finding a balance between customisation (Lampel and Mintzberg, 1996) and the complexity of many business services may be modularity, the idea adopted from the manufacturing of products (Duray et al., 2000). From the perspective of modularity, services are seen as packages or bundles of modular pieces that can be combined into various customised services. Modularity enables the service provider to replicate the services to different customers in different contexts. As the study by Pekkarinen and Ulkuniemi (2008) shows, a modular service platform including four modularity dimensions: service, process, organisational and customer interface can be used in business services to create more value. From the customers perspective, buying services has been argued to be a very demanding task (e.g., Van der Valk and Rozenmeijer, 2009). Challenges in buying business services have received research attention and have also been reported by many companies in practice. These challenges include, for example, identifying the content of the service, capacity and demand management, quality definition and assurance and pricing (Axelsson and Wynstra, 2002). All in all, buying business services is usually a complex process and the role of purchasing expertise in buying business services can often be rather limited. An interesting problem, therefore, is how service providers can make their service offerings more visible to the customers so that the customers are able to better evaluate the service before and after the actual service process agreement, and, also, to receive full advantage of the service they are buying. Modularity has been suggested as one answer to this problem. According to Spring and Araujo (2008), for example, modularity in designing offerings and processes will make services tradable and allow buyers to employ their part of the co-created value. Although this issue has been addressed in the modularity literature, the question of how modularity

3 Creating value for the business service buyer through modularity 129 actually influences the customer s perceived complexity in service buying has not been thoroughly examined. From the managerial perspective, it is extremely important to understand how service modularity is connected to the buyer-perceived value. In addition to making internal processes of service firms more effective, another underlying goal of service modularity is to support mass customisation. However, the customers perspective and experience have not yet been thoroughly explored. In this respect, the buying phase of the service exchange is as important as the actual service exchange and the interactions taking place after the buying decision (Van der Valk and Rozenmeijer, 2009). Therefore, research is needed on the potential connections between the modular service offering and the customers perception of the process of buying business services. Moreover, it is currently often emphasised that the service exchange is strongly characterised by the fact that both parties of the relationship are not only active but also participate in producing the actual outcome, the service (Edvardsson et al., 2005). Thus, in initiating customer relationships, companies need to understand how to manage co-creation of their offerings together with buyers (Edvardsson et al., 2008). Co-creation of value has recently gained increasing research attention, and the way service modularity can relate to this important aspect of service exchanges thus needs to be explored. The purpose of this study is to explore how the use of modularity in services makes services tradable. More specifically, we aim to find out, firstly, how modularity makes services visible and, secondly, how it enables the customers to participate in service co-creation. In order to accomplish this goal, we will first review the literature on buying business services in order to determine the actual challenges that buyers face. Secondly, we will define service modularity and especially concentrate on defining the attributes of a modular service offering. Finally, we will construct a framework describing the connections that the attributes of modular service offering has on the buyer-perceived challenges in service buying. The conceptual framework is further elaborated through an empirical single case study of a modular service production model in a certain professional service firm. 2 Challenges in buying business services The distinguishing features of services as objects of exchange, namely intangibility, inseparability, perishability and heterogeneity, have for long been acknowledged in the services literature, although, these features have lately also been heavily criticised. A service offering exchanged in the business market is often more or less a combination of both physical and abstract elements, and the knowledge intensity of the services may vary from complex consulting services to cleaning or catering (Fitzsimmons et al., 1998). According to the recently much cited service-dominant-logic perspective, it is the intangible resources, such as knowledge, competences and organisational processes, instead of goods or tangibles, which produce the customer value (e.g., Vargo and Lusch, 2007). Business services are also more often seen as objects of exchange, where the value is created for the customer through a relationship between the service provider and the customer involving interactive, processual and experimental aspects (Edvardsson et al., 2005). According to Van der Valk and Rozenmeijer (2009), difficulties that organisational buyers experience mostly relate to this kind of interactive nature of services.

4 130 P. Ulkuniemi and S. Pekkarinen On the basis of the specific features that can be associated with service exchanges, certain purchasing challenges in business services can be identified. Firstly, the specification of the service can be seen as one of the main challenges in any type of service exchange, and, especially, in the purchasing of business services (Smeltzer and Ogden, 2002). The service can be specified by defining the content of the service by focusing on input, throughput, output or outcome (Axelsson and Wynstra, 2002). Naturally, the way the service is defined in relation to these perspectives also has an impact on the responsibilities of the service providers, as well as the buyers. It is difficult for the buyer to evaluate in advance what the service will consist of, as it does not yet exist. For example, in case of professional services, it is often argued that the evaluation of the service is made on the basis of evaluating the expertise of the service provider s personnel, based on the references. Thus, an existing business relationship between the service provider and customer helps this evaluation, whereas, a lack of previous experiences about the service provider makes evaluation very complex for the customer. Intangibility of services results in problems in writing legal agreements for service exchanges (Åhlström and Nordin, 2006). In addition to specifying and evaluating the service offered by the service provider, the exact identification of one s own needs also seems to represent challenges for the buyers. In service contexts, the need is often based on a problem that the customer organisation has in its own business processes. Therefore, the services should offer a solution to these problems. According to Edvardsson et al. (2008), an essential aspect of relationship initiation in service-dominant settings is that the service provider possesses capability and interest to adapt and develop the contents and delivery conditions together with the customer. This indicates that the specification of the service is not only a starting point of the relationship but an outcome of a complex interaction process. In fact, as Van der Valk (2008) argues, being successful in buying services requires more than just specifying and contracting the desired service; the companies also need to focus on the way they interact with the service provider. Complexity in defining the needs may also be created by the need to satisfy a larger number of affected personnel through the service (Fitzsimmons et al., 1998). In practice, services are naturally closely connected to the actual persons that are involved in the service processes and, therefore, the role of personal relationships in buying business services is also essential (Lian and Laing, 2007). Thus, we identify specification of the service as the first challenge in buying. The challenges in buying business services also include the aspect of value co-production brought out in the services context (Edvardsson et al., 2005). Business services often include the effort of the customer; in other words, services are a result of co-production. This means that the value created by the service is a joint effort by the parties involved. In addition, the customer s activities in the services usually create costs, but without these costs the value of the service may be unattainable. Thus, in buying business services, challenges in the purchasing process also include the identification and completion of the customer s own effort in the service process. For example, the customer needs to carefully analyse its own needs and communicate them to the service provider, which might require a considerable amount of managerial effort (Hirvonen and Helander, 2001). Therefore, we identify evaluation of the co-creation efforts as the second challenge in buying business services.

5 Creating value for the business service buyer through modularity 131 The total costs of a business services purchase also represent major challenges for the buyers (Smeltzer and Ogden, 2002). The concept of a total cost of ownership can be used in making sense of all the relevant life-cycle costs of buying and using a certain product or service. In a business service context, the total cost of ownership approach has been argued to provide a useful tool to uncover the obvious, as well as hidden, costs of conducting business with different suppliers. It is important to accurately describe the physical and administrative processes in the pre-transaction, transaction and post-transaction phases in order to identify all the relevant costs generated by the purchase (Hurkens et al., 2006). Therefore, the third challenge in buying business service is defining the costs of the service. 3 Modularity in services Next, we examine the modular strategy that the service providers can apply in their production in order to help the customer to overcome the identified purchasing challenges. Specifically, we discuss how product/service and organisational modularity enable developing services, and explore how modular service offerings could be used to help customers in their challenges in buying business services. The modularity theory defines a module as a group of elements, e.g., tasks, which are highly interdependent on one another, but loosely dependent on other modules tasks (Baldwin and Clark, 1997; Sanchez and Mahoney, 1996; Schilling, 2000). Supplying modular products/services requires that the provider analyses what operations, i.e., functions, processes and tasks, really add value to the customer (Doran, 2005). For the provider, modularity provides one way to manage complexity by providing an opportunity to design and/or change the system at a module level (Brusoni et al., 2007). Modularisation is a method of organising complex products/services and processes efficiently and of managing knowledge structures. Therefore, it enables new processes and product strategies and helps to achieve a higher variety in products, lower costs and a shorter time-to-market, as well as real-time responsiveness to individual consumer needs (Sanchez and Mahoney, 1996). Coordination of independent process modules requires that processes can be easily and quickly connected to each other. This, in turn, requires that the specification of a service has to be done with the customer and according to the customer s needs. The processes also need to be coordinated without increasing total service costs (Hurkens et al., 2006). The service needs to be seamless, which means that the coordination between the elements within the service have to be designed and managed so that the interaction between modules and between the provider and the customer/buyer is smooth and the product/service appears to the customer as a whole, not as separate modules. Modularity can be used to objectify abstract elements in a service (Lindberg and Nordin, 2008), which means that services are co-created with buyers in the procurement process. Araujo and Spring (2006) see purchasing of services as a choice between two buying strategies, traditional vs. relational buying, with a varying degree of modularisation that makes services tradable and allow customers to employ their part of the co-created value.

6 132 P. Ulkuniemi and S. Pekkarinen One benefit of service modularity for buyers is a greater predictability of what they are buying from the providers and a better opportunity to compare alternative providers (Lindberg and Nordin, 2008). However, as Howard and Squire (2007) imply, modularity also creates a need for changes in the purchasing function of the buyer that needs to be adapted accordingly. Baldwin (2007) argues that although modularisation can reduce transaction costs, it is not costless. There are implicit costs of making the service offering more visible and tradable, i.e., costs of standardisation and coordination. The use of modularity also requires a thorough understanding of the functionalities of the product/service, of how they link to the designed modules and how the modules will interact (Brusoni et al., 2007). 4 Attributes of a modular service offering In order to find out how the use of modularity in services makes services tradable, we will next define the attributes of a modular service offering. On the basis of the existing literature on modularity, especially one on modular services, we identified three such attributes: 1 objectification (defining the characteristics of the service) 2 coordination and managing complexity (resources and responsibilities can be defined according to each module) 3 value co-creation (defining the customer-provider interface). 4.1 Objectification The service module is defined as a composition of one or several elements. These are the smallest units into which each service module can be decomposed/separated, while the service module is the smallest functional unit within a service offering (Pekkarinen and Ulkuniemi, 2008). According to Edvardsson (1997), it is essential to make the characteristics of a service as explicit as possible. Thus, modularity enables more explicit defining (objectifying) of the characteristics of a service. Modularity can be the key to finding a balance between customisation and the complexity of many business services. In modularity, services are seen as combinations of clearly defined service modules that are standardised to some extent (physical (products), abstract (services) and knowledge/skills elements) and that can be combined into various customised services. The ability to define, to describe the range of, and to objectify the characteristics of a service is needed in order to make the services tradable, i.e., make them the object of the exchange (Araujo and Spring, 2006), and, also, to make them more visible to both parties, especially to the buyer (Spring and Araujo, 2008). Modularisation combines the standard elements of a service into a service offering, which means that the service provider only has a few, clearly defined services and the service offering specifications are narrow and closely related to the added value to the customer.

7 Creating value for the business service buyer through modularity Coordination and managing complexity After defining the characteristics that the customer values in an offering, the resources and responsibilities (i.e., process modules of work tasks and information) that produce those values can be defined for each service module. Moreover, the service delivery process has to be systematic, with varying work tasks by employees and other cooperative parties involved based on competences. This improves quality, reduces the costs and increases productivity, and hence, helps the buyer and service provider to specify the service offering. The service firm can focus on the coordination of those parts of the offering that need to be customised and then price them accordingly, while the service provider can offer all the other parts of the offering as standard, universal modules, which eliminates value destroying variety (Anderson et al., 2006). 4.3 Value co-creation The methods of customer participation, i.e., through the recognition of customer needs or service co-creation, have not received much attention in the previous studies of modular product and service development (Meyer and DeTore, 2001). Customer closeness, i.e., the degree of contact intensity and understanding the individual needs of customers, affects the choice of modularity-based production of services and the degree of mass customisation (Tu et al., 2004). Pekkarinen and Ulkuniemi (2008), however, point out that the customer interface should always be integrated into the modular service offering. A formal contract defining the responsibilities of the provider and buyer helps to evaluate the service offering and gives a basis for pricing the service (Baldwin, 2007). For complex services, such as a new plant, the contract might include very detailed conditions, tasks with responsibilities that make the object of the service exchange tradable and more visible to the buyer. If the service provider can present the functions, processes and tasks in the agreement, including the required resources and capabilities, through a clearly defined structure of a modular service offering, the costs of the service can be identified and calculated. However, the methods of valuing the object of the purchase and paying for it also need to be determined for the pricing of the service (Baldwin, 2007). 4.4 Connections between attributes of modularity in services and customer-perceived buying challenges The framework presented in Figure 1 summarises how the attributes of modular service offerings are connected to the challenges of buying services. In this figure, we have illustrated the possible connections (O1 O3, C1 C3, and V1 V3) that the three attributes (Objectification, Coordination and Value co-creation) of a modular service offering have on the buyer-perceived challenges in business services. For making a service offering tradable, its elements, tangible and intangible elements, tasks etc., need to be specified so that both the service provider and the buyer understand and accept what is sold and bought. Modularisation helps in service specification, since it requires that the service provider clearly defines the objectified modules for each characteristic in the service offering. In designing of a modular service offering, the resources and responsibilities of all the tasks related to the design and implementation

8 134 P. Ulkuniemi and S. Pekkarinen of the service must also be defined with the customer in order to determine the coordination of resources within the service provider and the complexity of customer relationship management in offering customised services. The modular service offering includes systematically described modules and tasks with resources from both the provider and the customer. Figure 1 Modular service offering and the challenges of buying business services Hence, modularity enables the service provider to replicate, to some extent, the services to different customers in different contexts. This has a favourable impact on the identification of the costs, which lowers the total costs of the whole service offering. This is especially complex in professional and knowledge intensive services, where one essential task is to make sense of the costs for pricing the offering. 5 Empirical research method The purpose of the empirical part of our study is to further elaborate on the conceptual framework, especially the connections between the attributes of a modular service offering and buyer-perceived challenges in buying services. The topic of the research at hand was discovered within a larger research project which focuses on multiple aspects of modularity in the service sector. The methodology used follows an abductive research logic, where both theoretical propositions and empirical material are used as a source of knowledge. The research phenomenon, the connections between the attributes of modular service offering and the buyer-perceived challenges in buying business services, is complex and difficult to separate from its context. Therefore, we have chosen to use the qualitative approach, and the single case study method can be seen as a justifiable empirical strategy (Yin, 1989). Selecting the case was based on the companies that were involved in the larger research project. From the perspective of the present study, it was essential to discover, firstly, a business service provider company whose services were based on the idea of modularity and, secondly, customers who experienced a high level of uncertainty in

9 Creating value for the business service buyer through modularity 135 buying services. These selection criteria enabled us to have an empirical example that acceptably represented the research phenomenon. As the business service provider company, we selected a consultancy company who had recently put a lot of effort into developing its service operations towards a modular service platform, and who was especially interested in understanding better how the customer interface is influenced by the new service platform. The company reported that it was their understanding that their customers experienced the identified purchasing challenge on a high level. The challenges were due to, for example, the high financial investments that were involved in the projects where the service provider and the customers interacted. The case company is a part of a large provider of project management, design coordination and construction management services for industrial building. It operates in various customer industries and employs approximately 5000 people. We collected qualitative empirical in material in 2008 and 2009 from the case company through interviews and discussion meetings (see Table 1). The semi-structured interviews were recorded and transcribed. Personal notes were taken in the discussion meetings, and meeting minutes and memos were written afterwards. These documents and memos were then used in the analysis. In addition to the interviews and discussion meetings, different kinds of documents were also used as empirical data. These included the annual report, company brochures, internal magazines and product presentations. Table 1 Empirical material: interviews and discussion meetings Company s representatives Service provider Discussion meetings: Two managers Department manager and a manager Department manager CEO of the Development Project CEO of the Development Project Department manager and a District manager Department manager and a trainee Interviews: Quality manager Department manager District manager Office manager Vice president, project management Date and duration 25 February 2008; 1.5 h 10 March 2008; 1.5 h 18 March 2008; 1 h 18 March 2008; 1 h 27 March 2008; 1 h 28 March 2008; 1 h 11 June 2008; 2 h 21 January 2009; 1.5 h 23 February 2009; 2 h 5 February 2009; 1 h 13 February 2009; 1.5 h 27 February 2009; 1.5 h In the analysis process, we first aimed at gaining an understanding of the modularity in the services that the case company provided. Secondly, we went through the data to discover the way the modular service offering is connected to the customers experiences in relation to the identified purchasing challenges.

10 136 P. Ulkuniemi and S. Pekkarinen The case company had recently put a lot of effort into developing a Service Product Model (SPM, a fictitious name) which is a new way of portraying the services related to engineering, procurement, construction and commissioning of capital expenditure projects. The model can be seen as a form of a modular service offering because it divides the service into smaller independent parts; into functions, processes, tasks and deliverables. These parts are described in detail, and the software in question produces up to thousand different documents. In the following, we will examine the modular service product model of the case company through the identified attributes and the way the attributes relate to the customers challenges in buying business services. In the case analysis, we will indicate the specific connections by using the same markings as in Figure 1. 6 Modular service product model and challenges in buying business services 6.1 Definition of service modules In the case of the studied company, the SPM was used not only as the company s internal management tool but, first and foremost, as a way to identify and specify customer needs and the service as an object of exchange. In the planning and negotiation phase, the model enabled going through all the typical areas that are needed in capital investment projects and deciding the preliminary scope of the service. The model was used to make the service offering more visible to the customer, thus enabling the customer to better evaluate the service offer (identified as O1 in Figure 1). More specifically, the model provided an opportunity to define the range and scope of the service together with the customer. We have a long experience of taking care of projects but we have noticed how difficult it is to sell this kind of service concept to the customer so that both parties understand in a similar way what we are selling and what the customer is buying. [ ] In this SPM model, our idea was to develop a tool by which we can, together with the customer, in a very transparent way go through what the customer actually wants, what it wants us to do and what it wants to do by itself and what they perhaps already have. Vice President, Project Management Hence, the SPM, by enabling the definition of the functions of the service offerings, increased the visibility of the service offering to the customer and thus eased the buyer-perceived difficulties related to the specification of the object of exchange (O1). When defining the functions of the service with SPM, the customer also becomes more aware of the tasks and responsibilities that it needs to accomplish on its own in such a project (O2). This, in turn, enables the customer to define the total costs of the service (O3). On the other hand, too detailed description, although enabling a clearly defined service, can also result in difficulties in the relationships, e.g., in terms of increasing the work effort of the customer in service specification. 6.2 Definition of the resources and responsibilities An essential feature of the SPM was that it enabled a clear identification of resources and responsibilities even at the task level. Defining the workload and competence

11 Creating value for the business service buyer through modularity 137 level of experts was important, as it was otherwise difficult to specify the service in question. The model also helped all the parties involved in the project, the service provider, customer, partners, and sub-contractors, to achieve a common understanding of the project s scope and the expectations between the project parties (C1). The SPM enabled a clear definition of the responsibilities of the parties involved. This specified the extent to which the customer needed to participate in specifying and implementing the service (C2). When the responsibilities are defined, the communication and coordination of the project are also determined, as the following quotation illustrates: We define the task and its content, responsibilities of each key person and the limits of their decision-making. Clear reporting, by whom to whom. In fact, it is like a military organisation which we draw. Department manager On the basis of the empirical material, the SPM also helped the customer to define the costs involved (C3). From the service provider s perspective, one essential area related to the pricing was the division of responsibilities in the specific service project which, in turn, enabled the service provider to define and justify the asking price. The final price of the specified service offering was determined based on both the ownership and the value content of each function of the modular service offering. The SPM enabled clear and transparent definition of responsibilities and also helped the customer to see what the costs associated with the project consisted of. 6.3 Definition of the customer-supplier interface The case company had considerable expertise in project management practices, which it utilised in the development of the SPM. A clear definition of the project s lifespan, from planning to completion, thus formed the foundation of the customer-supplier interface in the case company. This included, for example, naming the project manager and project team, scheduling project meetings and determining the exchange of deliverables and other information. This helped the customer to specify the service as an object of exchange (V1). For example, in a typical project, the customer brought in its experience on the technological context of the service, e.g., on its own production processes, and the case company brought in its global and local experience in project management and engineering expertise. The model enabled a clear description of such cooperation. This exemplifies how the model facilitates the customer-perceived challenges in buying, which are related to service co-creation (V2). The case company was also organised in a way that enabled a clear customer interface in terms of the modular service offering. Being physically near to the customers was considered as essential in the kind of service business that the case company was involved in and, therefore, the case company had offices in over 45 countries. This strong local presence enabled that the interface with the customer was clear and based on defined personal contacts. In our way of doing, we try to go to personal level and we try to have the local worker there to be a kind of a multiply skilled person and someone who is ready to take the responsibility. Vice President, Project Management A clearly defined customer interface also enabled the customer to communicate with the service provider and give feedback. If the communication between the counterparts is fluent and transparent it has a favourable effect on the customer s ability to detect

12 138 P. Ulkuniemi and S. Pekkarinen the costs involved in the service (V3), and if problems and modification needs arise, the counterparts are able to react more quickly. 7 Conclusions This study has explored the way modular service offerings can help customers to overcome some of the challenges that are related to buying business services. The need to better understand the customer perspective in designing modular services has been pointed out in the earlier literature (e.g., Pekkarinen and Ulkuniemi, 2008) and in purchasing services (Lindberg and Nordin, 2008). By first identifying the buyer-perceived challenges in business services from the industrial purchasing literature, we have discussed in this study, through modularity literature, the possible ways that a modular service offering can be used in a service provider s marketing strategy. The study increases our knowledge on the customer interface within a modular service architecture in the context of a business service relationship. Based on our empirical study, we conclude that a modular service offering can help customers to overcome the challenges of buying business services. Modularity within service production can be used to increase the visibility of the service offering and to more meticulously define the content and scope of the service. This is in line with the suggestion of Axelsson and Wynstra (2002) on different approaches to specifying a service, according to which the specification of a service can be done by defining the content of the service by focusing on input, throughput, output or outcome. According to the present study, all these are relevant and applicable also in the modular service offering. Furthermore, as the specification of the service becomes easier, the evaluation of the service during the service buying process also becomes easier for the customer. Concerning Objectification, through modularising a service offering and production, the service provider can make the service tradable, justify the price, increase the visibility of the service offering and facilitate giving price tags even for smaller service modules. Moreover, this helps the customer to evaluate the costs related to the service offering. In addition, and more importantly, through a more visible and clearly defined service scope, the customer can more easily identify the other types of costs involved in the service. This is closely related to the Value co-creation aspect. Our results support the conclusion of Spring and Araujo (2008) that modularity is an aspect that needs to be taken into account when designing service offerings and processes. Our results also contribute to the discussion on how it is possible to design and define the customer s co-creation effect that allows the customers to employ their capabilities in value co-creation. We found evidence that modularisation of service offerings in complex business services truly helps to make a service into a tradable object of exchange, which means that it is easier to specify, evaluate and price the service (Araujo and Spring, 2006). These aspects are also important in purchasing, with an emphasis on understanding the buyer s role in Value co-creation and behaviour in relation to SD-logic (Lindberg and Nordin, 2008). With respect to Coordination, our study showed that as the tasks and processes included in, and related to, the service are made more defined and visible by applying a modular service, the role of the customer in the whole service process also becomes more visible. This helps the customer to take into account what is required from them during

13 Creating value for the business service buyer through modularity 139 the service, which increases awareness of other types of costs. However, as our study points out, this may bring forth new types of purchasing challenges related to buying modular services, for example. As our case indicates, a modular service offering helps a customer to manage a broad and complex service in its entirety. On the other hand, it can create fragmentation, and can appear as a rather exhaustive process to the customer. This, however, needs more research in the future. With respect to other future research avenues, it is essential to truly delve into the customer perspective and form an understanding of the customer s perception of the modular service. Thus, we see that the inclusion of a thorough analysis of the customer s perspective on modular services is needed in future research in this area. In addition, it is important to increase our knowledge of service modularity. In this study, we took the existence of modular services for granted and defined the case company s SPM as a modular service. However, it appears that also the whole concept of modularity in the services context requires more research attention, e.g., the new service development process. Another important future research area is to explore and empirically study the different types of modular service offerings and to examine the degree to which the service offering is useful in value creation. On the basis of the present study, perhaps the most critical thing in modularising services is to find out the best ways to employ customer co-creation efforts. In managing complexity and customisation through modularity, the important points in the life cycle of the service (project) are the ones where the customer is, or needs to be, involved in specifying the service offering. Modularisation of a service offering also has organisational impacts, e.g., how the service offering will be delivered to the customer by employees and other cooperative partners. To evaluate the present study, we use the criteria for trustworthiness developed by Lincoln and Cuba (1985). To increase the dependability of our study, we have carefully conducted our research in a logical way and our abductive analysis process is as traceable as possible. Transferability has been generated through explaining in detail the theoretical approaches we have used in our study. The presented results can be transferred to other contexts, where enough similar characteristics can be found. To enable transferability, we have also carefully described the empirical context of the study. With respect to ensuring the credibility, the present study employs our previous knowledge on applied theoretical streams, industrial purchasing and modularity in services. Moreover, we have collected the data so that they acceptably represent the research phenomena, the modular service offering and its connections to the buyer-perceived challenges. Finally, with respect to conformability, we have tried to show logical links between our arguments and data, for example, through quotations. Acknowledgements The financial support of the National Technology Agency of Finland is gratefully acknowledged. The authors wish to thank the organisations whose invaluable collaboration has made this study possible. The authors also wish to thank the anonymous reviewers for their constructive and helpful comments.

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