Value, variety and viability : new business models for co-creation in outcome-based contracts
Ng, Irene C. L. and Briscoe, Gerard (2012) Value, variety and viability : new business models for co-creation in outcome-based contracts. Working Paper. Coventry: Warwick Manufacturing Group. Service Systems Research Group Working Paper Series (Number 06/12).
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While manufacturing in the past century has been essential to wealth creation,
developed economies are gradually becoming service-oriented (Ramirez, 1999).
Research recommends that manufacturers should diversify into providing services to
remain viable, aiming to facilitate equipment use for customer outcomes rather than
just transferring the ownership of equipment ( Neely, 2008; Baines et al, 2007). This
means that the value proposition of the manufacturer changes from exchange value
obtained from equipment provision, to value-in-use, obtained from the outcomes of
equipment use. Outcome-based contracts such as Rolls-Royce’s “Power-by-thehour
®”, exemplifies such a change in value proposition, as the firm is paid not
according to its service activities such as material and repairs, but based on the
outcome of such activities in continual use situations i.e. the number of hours of
engine in the air. This change in business model requires firm-customer relationships
to be embedded in the processes and interactions of collaborative value-creating
activities, ie value co-creation. Therefore, cooperation between the firm and its
customer is a partnership that requires a “mutual and synergistic pooling of
resources and capabilities and a substantial degree of co-mingling between partners
in terms of people, systems, skills etc. in order to attain their objectives” (Madhok &
|Item Type:||Working or Discussion Paper (Working Paper)|
|Subjects:||H Social Sciences > HF Commerce|
|Divisions:||Faculty of Science > WMG (Formerly the Warwick Manufacturing Group)|
|Library of Congress Subject Headings (LCSH):||Manufacturing industries, Strategic planning, Customer services|
|Series Name:||Service Systems Research Group Working Paper Series|
|Publisher:||Warwick Manufacturing Group|
|Place of Publication:||Coventry|
|Status:||Not Peer Reviewed|
|Access rights to Published version:||Open Access|
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