Open Source business resource 3/2011 Co creation

Editorial Chris McPhee, Marko Seppä, and Stoyan Tanev The Future of Co-Creation Marko Seppä and Stoyan Tanev A Network-Centric Snapshot of Value Co- Creation in Finnish Innovation Financing Jukka Huhtamäki, Martha G. Russell, Kaisa Still, and Neil Rubens Using Value Co-Creation to Redefine Business Models Kati Järvi and Antti Pellinen Renewal Through Co-Creation in Business Networks Raimo Hyötyläinen, Katri Valkokari, and Petri Kalliokoski The Strategic Impact of Corporate Responsibility and Criminal Networks on Value Co-Creation Frederick Ahen and Peter Zettinig Quality-Based Co-Value in SaaS Business Relationships Xian Chen and Paul Sorenson Trusted to Lead: Trustworthiness and its Impact on Leadership Taina Savolainen and Sari Häkkinen Upcoming EventsMarch Contribute2011

March 2011 Editorial 3PUBLISHER Chris McPhee, Marko Seppä, and Stoyan Tanev introduce the issue and discuss the editorial theme of Co-Creation.The Open SourceBusiness Resource is a The Future of Co-Creation 6monthly publication of Marko Seppä and Stoyan Tanev summarize recent value co-creationthe Talent First Network. research and identify an emerging focus on business co-creation.Archives are available at:http://www.osbr.ca A Network-Centric Snapshot of Value Co-Creation in Finnish 13 Innovation FinancingEDITOR Jukka Huhtamäki, Martha G. Russell, Kaisa Still, and Neil Rubens use network analysis to examine linkages between organizations and the Chris McPhee emergence of cooperative activities in an innovation system. chris.mcphee@osbr.ca Using Value Co-Creation to Redefine Business Models 22ISSN Kati Järvi and Antti Pellinen examine evolving business models in mobile service production and provision with an emphasis on the 1913-6102 shift from one-sided to two-sided markets, including the emergence of application stores as intermediaries in service delivery.ADVISORY BOARD Renewal Through Co-Creation in Business Networks 29 Chris Aniszczyk Raimo Hyötyläinen, Katri Valkokari, and Petri Kalliokoski present four EclipseSource models of business renewal through co-creation within networks, Tony Bailetti distinguishing between the exploitation of present knowledge for Carleton University efficiency and the exploration of new knowledge for innovation. Leslie Hawthorn Oregon State University The Strategic Impact of Corporate Responsibility and Criminal 38 Chris Hobbs Networks on Value Co-Creation QNX Software Systems Frederick Ahen and Peter Zettinig argue that if networks are effective Rikki Kite mechanisms for criminal organizations to infiltrate into any value LinuxPro Magazine chain, then networks should also work for responsible businesses in Thomas Kunz their quests to counter this phenomenon of value destruction. Carleton University Steven Muegge Quality-Based Co-Value in SaaS Business Relationships 43 Carleton University Xian Chen and Paul Sorenson examine the effect of service quality on Michael Weiss business relationships between clients and SaaS service providers Carleton University and provide an approach and tool for evaluating SaaS applications. Trusted to Lead: Trustworthiness and its Impact on Leadership 52 © 2007 - 2011 Taina Savolainen and Sari Häkkinen present two case studies that Talent First Network illustrate the importance of trustworthiness as a leadership trait and managerial skill. Upcoming Events 57 Contribute 60 Open Source Business Resource http://www.osbr.ca

Editorial Chris McPhee, Marko Seppä, and Stoyan TanevFrom the Editor-in-Chief From the Guest EditorsThe editorial theme for this issue of the OSBR is The articles invited for publication in this spe-Co-Creation. I am pleased to welcome our Guest cial issue of the OSBR were originally presentedEditors: Marko Seppä from the University of last September at EBRF 2010 (http://ebrf.fi/Jyväskylä and Stoyan Tanev from the University 2010), in Nokia, Finland. EBRF – the research for-of Southern Denmark. um to understand business in the knowledge society – is the oldest international peer-reviewedWe encourage readers to share articles of in- business research conference organized annu-terest with their colleagues, and to provide their ally in Finland. The first EBRF conference was or-comments either online or directly to the au- ganized in Tampere, Finland in 2001. The grandthors. theme of the 10th anniversary EBRF conference was "Co-Creation as a Way Forward".The editorial theme for the upcoming April issueis Communications Enabled Applications. For For this issue of the OSBR, a preliminary subsetsubsequent issues, we welcome general submis- of EBRF articles were selected by a specificallysions on the topic of open source business or the designed committee of scholars that was askedgrowth of early-stage technology companies. to nominate EBRF articles fitting the topic of thePlease contact me if you are interested in sub- special issue and providing valuable insights tomitting an article (chris.mcphee@osbr.ca). both scholars and practitioners. We invited the authors to create specialized versions of the pa-Chris McPhee pers that were previously published in the EBRF 2010 Conference Proceedings by focusing on theEditor-in-Chief practical relevance of their research for an audience including not only scholars but also business and technology experts. After theChris McPhee is in the Technology Innovation submission of the OSBR versions, an additionalManagement program at Carleton University in peer review process was used to select seven art-Ottawa. Chris received his BScH and MSc degrees icles offering diverse perspectives on co-creation.in Biology from Queens University in Kingston,following which he worked in a variety of man- In the first article, we offer our view of the emer-agement, design, and content development roles ging research on value co-creation by focusingon science education software projects in Canada on three key topics including a general manage-and Scotland. ment perspective, new product development and innovation, and business (enterprise) co- creation. The article concludes with a discussion of the ongoing transformation of businesses, 3March 2011 Open Source Business Resource http://www.osbr.ca

Editorial Marko Seppä and Stoyan Tanevwhich is based on two major trends: i) customer enabling renewal according to the strategic tar-value is emerging from unique, personalized ex- gets of their firm.periences that force firms to focus on one con-sumer experience at a time, and ii) no firm is big Ahen and Zettinig study the strategic impact ofenough in scope and size to satisfy the experi- corporate responsibility on value co-creation inences of one consumer at a time, therefore, all pharmaceutical business networks. The paperfirms are focusing on acquiring resources from a adds the responsibility component to the defini-wide variety of other big and small firms. tion of value co-creation and builds a model of value-optimization through value co-protectionNext, Huhtamäki and colleagues apply the and ethical responsibility. Metaphorically chal-concept of value co-creation to understand a na- lenging criminal organizations and their effi-tional innovation ecosystem. The article ana- cient use of networks, the study argues thatlyzes linkages between organizations and their corporate responsibility can be used to achievehuman and financial resources to observe the high strategic impact on value co-creation inemergence of co-operative types of activities in business networks.Finland. This research provides early evidenceon how co-creation emerges through financial Chen and Sorenson integrate service quality andlinkages. The network-centric snapshot of value value co-creation in Software-as-a-Serviceco-creation highlights collaboration of venture (SaaS) business relationships between servicecapital and government agencies in Finnish in- providers and customers. The paper argues that,novation financing. in the SaaS delivery, it is necessary to pay more attention on the nature of service quality sharedJärvi and Pellinen find value co-creation as key by both service providers and customers. The re-to redefining a business model. The prevailing search derives from a survey demonstrating aenvironment forces firms to reinvent value to- strong correspondence between the service qual-gether, instead of just adding it. The imperative ity required or desired by a client and the busi-of co-creation is highlighted in the information ness relationship needed between SaaS clientsand communication technology sector, where and providers.the markets are transforming from “one-sided totwo-sided”. The article integrates the business Savolainen and Häkkinen examine trust inmodel concept with value co-creation in the con- leadership as an antecedent of co-creation intext of two-sided markets, with emphasis on mo- "multi-voiced" organizations. The paper focusesbile service production and provision models. on how leaders enable co-creative interactions: how leaders show trustworthiness by buildingHyötyläinen and colleagues present four mod- and sustaining or violating trust. The findings,els of business renewal within business net- based on two case studies on small industrialworks. The article distinguishes between the companies, suggest that competence (ability) isexploitation of present knowledge for efficiency a key factor in a leader’s trustworthiness. There-and the exploration of new knowledge for new fore, the value of developing leadership skills forbusiness development. They describe their re- showing trustworthiness cannot be overestim-cent research, which provides evidence from five ated in value co-creation.cases on how co-creation between participantsdiffers according to business focus and complex- Marko Seppä and Stoyan Tanevity of networks. Ideally, the approach will helpmanagers use co-creation in business networks, Guest Editors 4March 2011 Open Source Business Resource http://www.osbr.ca

Editorial Marko Seppä and Stoyan TanevMarko Seppä is a “serial co-creator”. In 1981, atage 16, he co-created an American football clubin Finland, and in 1991, he co-created a pioneer-ing VC firm focused on the emerging markets ofRussia and the Baltic countries. In 2001, he co-created an ambitious e-business research centrefor a pilot of the eEurope programme. He cur-rently serves the University of Jyväskylä as Profess-or of Growth Venture Creation and works toco-create a global faculty partnership for prob-lems worth solving. He is founding chair of Glob-al Venture Lab Finland, a university consortiumthat is developing a “distributed business co-cre-ation environment”. He is also a co-founder ofthe Global Venture Lab Network, which is co-ordinated at UC Berkeley.Stoyan Tanev is an Associate Professor in the De-partment of Technology and Innovation andmember of the Integrative Innovation Manage-ment (I2M) Research Unit at the University ofSouthern Denmark, Odense, Denmark. I2M is aresearch group operating across the faculties ofsocial sciences and engineering. Before joiningthe I2M unit at SDU in August 2009, Dr. Tanevwas a Faculty member in the Technology Innova-tion Management Program of the Department ofSystems and Computer Engineering at CarletonUniversity in Ottawa, Ontario, Canada. StoyanTanev has an MSc. and PhD. in Physics (1995,jointly by the University of Sofia, Bulgaria, andthe Pierre and Marie Curie University, Paris,France), an MEng. in Technology Management(2005, Carleton University, Canada), and an MA.(2009, University of Sherbrooke, Canada). Hismain research interests are in the fields of techno-logy innovation management and value co-cre-ation in technology-driven businesses. Dr. Tanevteaches technology innovation, technology mar-keting, and technology management courses inthe MSc. Engineering program “Product Develop-ment and Innovation” at the University of South-ern Denmark. 5March 2011 Open Source Business Resource http://www.osbr.ca

The Future of Co-Creation Marko Seppä and Stoyan Tanev "Go for it now. The future is promised to no one." Wayne Dyer The objective of this article is to provide a brief summary of the key directions in value co-creation research that have emerged in the last 10 years. It points to several emerging streams in value co-creation research including: i) general management perspective; ii) new product development and innovation; iii) virtual customer environments; iv) service science and service-dominant logic (SDL) of marketing; and v) international markets and entrepreneurship, with a focus on the general management and innovation perspectives. In addition, the article points to another emerging new direction focusing on business co-creation. The development of business co-creation frameworks integrating the participatory role of both universities and vibrantly emerging business ecosystems represents a valuable alternative to traditional technology transfer and business administration approaches.Introduction personalize the existing and shape new products and services. The ability of value co-creationValue co-creation has emerged as a business platforms to enable the personalization of newparadigm describing how customers and end products and services challenges the operationalusers could be involved as active participants in presuppositions of traditional marketing seg-the design and development of personalized mentation techniques by promoting a new ser-products, services, and experiences (Prahalad & vice-dominant logic (Vargo & Lusch, 2004;Ramaswamy, 2004; http://tinyurl.com/ http://tinyurl.com/4zt926w). The new dominant4fxnv5m). It is based on the design and develop- marketing logic enables firms to address broaderment of customer participation platforms, heterogeneous markets aiming at a better fitproviding firms with the technological and hu- between what a customer needs and what theman resources, tools, and mechanisms to bene- firm does and offers. It entails a new vision offit from the engagement experiences of the topology and the dynamics of the entireindividuals and communities as a new basis of value creation system including: i) a shift fromvalue creation. The active participation of cus- thinking about consumers to thinking about co-tomers and end users is enabled through mul- creators of value; ii) a shift from thinking abouttiple interaction channels, very often by means value chains to thinking about value networks;of specifically designed technological platforms iii) a shift from thinking about product value tothrough the Internet. Indeed, it is the advances thinking about network value; iv) a shift fromin information and communications technolo- thinking about simple co-operation or competi-gies that have enabled customers to be much tion to thinking about complex co-opetition;more active, knowledgeable, globally aware, and and v) a shift from thinking about individualwilling to use interactive virtual environments to firm strategy to thinking about strategy in rela- 6March 2011 Open Source Business Resource http://www.osbr.ca

The Future of Co-Creation Marko Seppä and Stoyan Tanevtion to the entire value ecosystem (Hearn & dimension of value co-creation platforms leadsPace, 2006; http://tinyurl.com/4u9ldxn). Such to a more dynamic type of economic mechan-vision promotes a new understanding of the cus- isms as the underlying driver of the innovationtomer centricity of the traditional value network processes. These mechanisms operate on theconcept, which is now considered dynamically basis of multiple transactions between custom-as a people-driven web of potential value config- ers, partners, and suppliers at multiple accessurations that could be actualized on the basis of points across the value network. They enablespecific customer demands (Prahalad & customers and end users to control the relation-Ramaswamy, 2004). ship between price and user experience (Pra- halad & Ramaswamy, 2004) by providing themThe adoption of value-creation practices leads with the opportunity to actualize (i.e., create)to the need for “changing the very nature of en- specific value-chain configurations that wouldgagement and relationship between the institu- fit their proper need, context, and preferences. Ittion of management and its employees, and is in this context that we could talk about cus-between them and co-creators of value – customer value co-creation. Although focusing ontomers, stakeholders, partners or other employ- the proactive role of the customer, such under-ees” (Ramaswamy, 2009; http://tinyurl.com/ standing is generically holistic in nature; it em-45spva). This ongoing change challenges the braces all the actors involved in themanagement of innovations by promoting a new value-creation process, providing an opportun-vision of the nature of innovation itself. The new ity for firms to broaden the boundaries of theirco-creative vision of innovation builds on two open innovation processes.key distinctive features. The first one is the trulyuser-driven aspect of the value co-creation activ- Key Directions in Value Co-Creation Researchities between firms and customers. In this sense,value co-creation platforms represent a natural A systematic search of existing research literat-extension of some of the key aspects of the user- ure presented by Thomsen, Tanev, and Pedrosadriven innovation paradigm (von Hippel, 2005; at the EBRF 2010 Conference, Nokia, Finlandhttp://tinyurl.com/57xp5x) by focusing on the (http://ebrf.fi/2010) identified several emergingdevelopment of participation platforms to, liter- streams in value co-creation research: i) generalally, multiply the effect of user-driven innova- management perspective; ii) new product devel-tion methods such as the design of innovation opment and innovation; iii) virtual customer en-toolkits and searching for lead users (von Hip- vironments; iv) service science andpel, 2005). Another distinctive feature is the fo- service-dominant logic (SDL) of marketing; andcus on the co-opetitive (from co-opetition) v) international markets and entrepreneurship.nature of the interactions between the different A detailed analysis of these research streams isstakeholders, including the customers and end out of the scope of this article, however the num-users, participating in the value co-creation pro- ber of publications per year shows a growingcess. Before competing and negotiating to cap- body of the literature on value co-creationture value, the different players in a value (Table 1). For the purpose of this article, we willco-creation network need to compete and nego- briefly discuss some of the key insights of thetiate in order to be able to participate and to con- first two research streams: “general manage-tribute value (Tanev et al., 2009; ment perspective” and “new product develop-http://tinyurl.com/4k9b9on). The co-opetitive ment and innovation”. 7March 2011 Open Source Business Resource http://www.osbr.ca

The Future of Co-Creation Marko Seppä and Stoyan TanevTable 1. Number of Publications Per Year ences. The initiation of dialogue during co-cre-Dealing with Aspects of the Value Co-Creation ation requires a forum with clear rules of engage-Paradigm ment leading to an orderly, productive interaction within emerging thematic communities. The focus on Access challenges the no- tions of openness and ownership. Providing customer access to resources, information, tools, assets, and processes at multiple points across the value network provides companies with innovative ideas about new products and services, new business opportunities, and new potential markets. As customers become co-creators of value, they become more vulnerable to Risk and demand more information about the potential risks associated with the design, manufacturing, delivery, and consumption of particular products and services. Proactive risk communication and management offers companies with new opportunities for competitive differentiation. Transparency builds trust between both institutions and individuals. It enables a creative dialogue in which trust emerges. When companies make vital business process information available to consumers, they hand over part of the control of the value creation pro-General Management Perspective cess. Empowering customers with such control becomes a key component of companies’ cus-The general management perspective provides tomer relationship management and differenti-several frameworks describing the principles, ation strategies.the organizational, management, and marketingaspects of value co-creation practices. From a In addition to the DART framework, Prahaladmanagerial perspective, the work of Prahalad and Ramaswamy (2004) identified four dimen-and colleagues (2004) is of particular interest be- sions of choice that could enable personalizedcause their research suggests a more holistic gen- co-creation experiences: i) co-creation acrosserative framework describing the fundamental multiple channels that enabling new co-creationbuilding blocks of value co-creation practices, in- horizons; ii) co-creation through multiple op-cluding Dialog, Access, Risk management, and tions where customers could go beyond the op-Transparency (thus, DART framework). The tions designed by a company in order to fit itsopen Dialog between the multiple actors within value chain in terms of profitability alone (en-the value network encourages knowledge shar- abling the possibility for customers to createing and mutual understanding. It provides an their own options opens the door for user-drivenopportunity for customers to interject their view innovation); iii) co-creation through multipleof value into the value creation process and transactions at multiple points of access acrosshelps companies understand the emotional, so- the value network enables customers and endcial, and cultural contexts of end-user experi- users to affect the way a product or service is de- 8March 2011 Open Source Business Resource http://www.osbr.ca

The Future of Co-Creation Marko Seppä and Stoyan Tanevsigned, to reject unnecessary features, to negoti- cesses, intellectual property, knowledge, and re-ate a particular price component, or decide to source flows used by firms to engage into a morebecome engaged in the value-creation process; proactive pursuit of new markets and innova-and iv) co-creation through the ability to influ- tions (Chesbrough, 2003).ence the relationship between price and experi-ence where customers could associate their The participatory platform nature of value co-specific choice with the type of experiences they creation practices enables a broader and moreare willing to pay for. While the literature within systematic positioning of customers and endthis stream provides multiple examples of firms users across the entire innovation lifecycle, lead-that have adopted co-creation principles and ing to a significant enhancement of the user-useful insights about the specific business and driven innovation potential. As a result, the de-marketing issues that need to be addressed, velopment of value co-creation platforms is in-there is relatively little research on the specific creasingly recognized as a promising innovationgroups of activities that should be undertaken in strategy associated with an ongoing change oforder to enable the value co-creation processes. the nature of innovation itself (Tanev et al.There is a need of more research studies that 2009). The co-creation paradigm positions thewould contribute to the development of value source of value within the co-creation experi-co-creation platform design rules, transition ence, which is actualized through the company-pathways, and maturity implementation models. customer interaction events. By co-creating with the network, the customer becomes an activeNew Product Development and Innovation stakeholder in defining both the interaction and the context of the event, including their specificThe new product development and innovation personal meaning. The personal nature of the in-research stream emerges by means of a termino- teractive experiences enables new dimensions oflogy that oscillates between the semantics of two value which are based on the quality and the per-other paradigms: user-driven innovation (von sonal relevance of the interaction events, as wellHippel, 2005) and open innovation (Ches- as on the opportunity for customers to co-createbrough, 2003; http://tinyurl.com/47uzztq). On their own unique end products, services, and ex-one hand, user-driven innovation distinguishes periences. These dimensions are critical for theitself by promoting a single, firm-driven, emergence of experience-innovation networksproduct-centric, non-transactional, and particip- putting the individual at the heart of co-creationatory approach to user involvement in the experience through the development, access,design of new products and services. However, and dynamic reconfiguration of appropriatelyits focus on innovation toolkits and innovation designed technological, business process, andcommunities brings it close to the value co-cre- human resource infrastructures. In this sense,ation paradigm with its focus on customer parti- the value co-creation paradigm represents a spe-cipation platforms, personalization of market cific, market-driven approach to the adoption ofoffers, multiple stakeholder interactions and ac- an open innovation business philosophy. Itcess to global resources, customer-driven busi- provides a dynamic understanding of firms’ in-ness models, and virtual customer experience novation boundaries, which opens the possibil-environments. On the other hand, the open-in- ity for a better competitive positioning through anovation paradigm promotes a more generic better articulation of their innovativeness. Exist-and broader vision of the innovation landscape. ing literature clearly emphasizes that customerIt articulates the key mechanisms for inbound participation in value co-creation activitiesand outbound business and innovation pro- should impact their innovation outcomes, such 9March 2011 Open Source Business Resource http://www.osbr.ca

The Future of Co-Creation Marko Seppä and Stoyan Tanevas innovation cost, time-to-market, new tion will focus on a brief summary of the philo-product/service quality, and development capa- sophy behind the GVL.city. It also points out that firms tend to measurethe performance of co-creation practices from The Global Venture Lab is a product of an Amer-an innovation perspective alone, neglecting the ican-Finnish-Indian co-creation initiative. Theremarkable side effects, such as brand percep- need for a global approach, community, andtion or customer-firm relationship quality, platform to educate those who can solve the Bigwhich may even exceed in value the actual in- Problems through entrepreneurship was jointlynovation performance. Online co-creation plat- addressed by three professors from three contin-forms, or virtual customer environments serving ents at a conference at the University of Califor-the purpose of co-innovating with external stake- nia at Berkeley, in December 2007. This initialholders, can be considered as massive interact- momentum was followed by additional kick-offive marketing campaigns due to the sheer meetings at the Indian Institute of Technology atnumber of contact points with potential custom- Kharagpur and at the University Alliance Fin-ers. In light of these additional benefits, collabor- land at University of Jyväskylä. The Global Ven-ative innovation with consumers, if properly ture Lab Network was formally launched inmanaged, may become a cost-efficient or even November 2009 at UC Berkeley as a communitycostless way of innovating. However, most of the of 26 members worldwide.existing studies are case-based and there is littlequantitative research focusing on the relation- GVL Finland, a consortium of seven Finnish uni-ship between the degree and the scope of firms’ versities, stands to enhance co-creation of enter-involvement in value co-creation activities and prise for problems worth solving by aiming at atheir innovation-related outcomes. This gap distributed, globally scalable, web-enabled, uni-could be explained by the emerging nature of versity-based production environment: athe value co-creation paradigm; however, its smartly co-owned factory in which faculty areemergence has gained enough momentum to “foremen” and students the “labour”. It is a fact-enable more systematic studies of the relation- ory where enterprise is raw material, entrepren-ship between co-creation and innovation. eurs are suppliers, and industry and investors subcontractors. In other words, GVL Finland en-A Business Co-Creation Perspective visions a new role for faculty and students in an emerging new domain of knowing which, as ofIt is important to point out another emerging re- November 2010, was coined as Art of Businesssearch direction focusing on business (or enter- Creation (see the University of Jyväskylä press re-prise) co-creation. The development of business lease dated 24 November 2010: http://tinyurlco-creation frameworks integrating the particip- .com/4kv52y5).atory role of universities (scholars) in vibrantlyemerging new business ecosystems represents a In all of the business administration disciplines,valuable addition to traditional technology trans- enterprises are investigated from the outside, viafer, entrepreneurship, and business administra- interviews, surveys, and statistical analyses. Intion approaches. This has not been articulated the Art of Business Creation approach enterpris-enough in research publications but it has being is investigated from within by participatingcome the subject of several action research pro- in the creation as part of the entrepreneurialjects at multiple locations across the world. Two team, for example, in the role of a knowledge in-representative examples are Lead to Win vestor (See Seppä 2006: http://ebrc.fi/kuvat/(http://leadtowin.ca) and the Global Venture eBRC_rr29.pdf).Lab initiative (GVL; http://gvl3.com). This sec- 10March 2011 Open Source Business Resource http://www.osbr.ca

The Future of Co-Creation Marko Seppä and Stoyan Tanev "Whereas the Science of Business Administra- Conclusiontion aims at generalisation and repeatability, theArt of Business Creation aims at the opposite: As final note on the future of the value co-cre-uniqueness. In the former one interviews champi- ation business and innovation paradigm weons to understand their actions, in the latter you could summarize a somewhat prophetic view ofparticipate in the creation, because you are a Prahalad and Krishnan (2008; http://tinyurlchampion yourself." .com/4vhnnyy). According to them, there is a Christian Aspegrén fundamental transformation of business under Serial entrepreneur and PhD candidate way, which is supported by two basic pillars: i) University of Jyväskylä value is based on unique, personalized experiences and firms have to focus on one consumerThe inspiration of the approach is the research experience at a time (N=1), even if they serve 100that produces new materials, devices and medi- million consumers; ii) no firm is big enough incines, even symphonies, and the fact that re- scope and size to satisfy the experiences of onesearch on enterprise has classically produced consumer at a time, therefore, all firms will focusless concrete outcomes. on acquiring resources from a wide variety of other big and small firms, i.e. the focus will be "If enterprise growth is wanted as a research on access to “R”esources on a “G”lobal scaleoutcome, there are no shortcuts. Swimming in- (R=G).structors should be able to swim, also in thissport, and the swimming schools be located by As Prahalad and Krishnan state:the water." “We believe that the traditional sources of com- Mikko Reinikainen petitive advantage, such as access to capital, phys- Partner of PwC in Finland ical location, and raw materials or technology, will become table stakes. These factors are dimin-Action learning and action research are at the ishing in their importance as sources of competit-heart of the Live Case approach. Faculty and stu- ive advantage. Access to these factors is becomingdents participate alongside entrepreneurs in the easier. As we move to an N=1 and R=G world ofgrowth resourcing action: real life, real time. value creation, we believe that competitive ad-Herein, the roles of entrepreneurs, investors, vantage will depend on a firm’s approach to busi-customers, faculty, and students are often rotat- ness processes that can seamlessly connecting and sometimes multiply integrated. PhD can- consumers and resources and manage simultan-didates willingly participate in delivering study eously the needs for efficiency and flexibility.”courses to multidisciplinary groups of masterslevel students whose work produces valuable re-search data for them. Needless to say, the idealPhD candidate is a co-founder of a Live Case tar-get enterprise.We underscore that there are only early observa-tions available from the GVL action. The valueand potential of the pilot ending at the end of2011 is under evaluation and will be reported inDecember at EBRF 2011 at Aalto University inHelsinki. 11March 2011 Open Source Business Resource http://www.osbr.ca

The Future of Co-Creation Marko Seppä and Stoyan TanevMarko Seppä is a “serial co-creator”. In 1981, atage 16, he co-created an American football clubin Finland, and in 1991, he co-created a pioneer-ing VC firm focused on the emerging markets ofRussia and the Baltic countries. In 2001, he co-created an ambitious e-business research centrefor a pilot of the eEurope programme. He cur-rently serves the University of Jyväskylä as Profess-or of Growth Venture Creation and works toco-create a global faculty partnership for prob-lems worth solving. He is founding chair of Glob-al Venture Lab Finland, a university consortiumthat is developing a “distributed business co-cre-ation environment”. He is also a co-founder ofthe Global Venture Lab Network, which is co-ordinated at UC Berkeley.Stoyan Tanev is an Associate Professor in the De-partment of Technology and Innovation andmember of the Integrative Innovation Manage-ment (I2M) Research Unit at the University ofSouthern Denmark, Odense, Denmark. I2M is aresearch group operating across the faculties ofsocial sciences and engineering. Before joiningthe I2M unit at SDU in August 2009, Dr. Tanevwas a Faculty member in the Technology Innova-tion Management Program of the Department ofSystems and Computer Engineering at CarletonUniversity in Ottawa, Ontario, Canada. StoyanTanev has an MSc. and PhD. in Physics (1995,jointly by the University of Sofia, Bulgaria, andthe Pierre and Marie Curie University, Paris,France), an MEng. in Technology Management(2005, Carleton University, Canada), and an MA.(2009, University of Sherbrooke, Canada). Hismain research interests are in the fields of techno-logy innovation management and value co-cre-ation in technology-driven businesses. Dr. Tanevteaches technology innovation, technology mar-keting, and technology management courses inthe MSc. Engineering program “Product Develop-ment and Innovation” at the University of South-ern Denmark. 12March 2011 Open Source Business Resource http://www.osbr.ca

A Network-Centric Snapshot of Value Co-Creation in Finnish Innovation Financing Jukka Huhtamäki, Martha G. Russell, Kaisa Still, and Neil Rubens "In co-creation, strategy formulation involves imagining a new value chain that benefits all players in the ecosystem." Venkat Ramaswamy and Francis Gouillart (2010) In this article, we apply the concept of value co-creation to the analysis of linkages between organizations and their human and financial resources to observe the emergence of cooperative activities in a specific innovation system. Through visual network analysis of a federated and socially constructed dataset of organizations and their related actors, we show how co-creation occurs through financial linkages. We use the ecosystem concept as a metaphoric reference to value co-creation with a network-centric mindset. Business financing linkages reveal convergence and co-creation in the innovation ecosystem, and network analysis is used to visualize the relationships between firms. Through the lens of relationship-based synergy, we provide a snapshot of innovation funding, which highlights the collaboration of venture capital and government agencies in co-creating the emerging Finnish innovation ecosystem.Introduction idea in open innovation is that, because valuable knowledge exists outside of an individual organ-The term co-creation was coined to explain ization, companies purposively co-create valueemerging relationships between customers and networks through vendor-supplier relationshipsthe companies though which they were jointly and collaborative service offerings that are spe-creating value. Recently, the frame of reference cific to market segments. Inter-firm relation-has been extended to an emerging business and ships created by the participation of executivesinnovation paradigm that leads to the need of and board members in two or more enterprises“changing the very nature of engagement and re- with related missions, markets, products, or so-lationship between the institution of manage- cial initiatives are additionally a potentiallyment and its employees, and between them and powerful force for value co-creation. In a similarco-creators of value - customers, stakeholders, way, enterprises receiving investment resourcespartners and other employees” (Ramaswamy, from the same financial source may share com-2009; http://tinyurl.com/47c9ook). plementary visions of the future, complementary benefits from new technologies, andStrategic value creation networks can be ob- synergistic market development. Business eco-served through network analysis of small, medi- systems are comprised of the aggregate of theseum, and large enterprises, and they are relationships among individuals and groups ofimportant examples of co-creation. A leading individuals in clusters of companies. The com- 13March 2011 Open Source Business Resource http://www.osbr.ca

Value Co-Creation in Finnish Innovation Financing Jukka Huhtamäki, Martha G. Russell, Kaisa Still, and Neil Rubenspetitive advantage of clusters accrues from the venture funding in the Finnish innovation eco-linkages and the synergy between activities system. A socially constructed dataset is used to(Porter, 2000; http://tinyurl.com/4csuj9u). study the nature of business co-creation through syndicated venture capital investments. WeCo-creation is an essential force in a dynamic in- show that the dataset can be explored to providenovation ecosystem because a continual realign- value to researchers as well as ecosystem facilit-ment of synergistic relationships of people, ators and other agents of change. The snapshotknowledge, and resources is required for growth of innovation funding in Finland is examined byof the system and responsiveness to changing in- means of network analysis to visualize inter-firmternal and external forces (Rubens, et al., 2011; relationships, following the ecosystem as meta-http://tinyurl.com/4rnup6h). On one hand, ven- phoric reference for value co-creation in a net-ture capital is the “independent, professionally work-centric mindset. The analysis concentratesmanaged, dedicated pools of capital that focus on investments of venture capital, which in Fin-on equity or equity-linked investments in land have been oriented to early equity-phaseprivately held, high growth companies” (Gom- financing of high-tech startups. A total, all-in-pers and Lerner, 2001; http://tinyurl.com/ clusive analysis of the Finnish system is outside4vd5r2z), has specific termination objectives of the scope of this article, but the visualizationthat drive investments. On the other hand, gov- snapshot of venture funding will serve as a start-ernment development agencies are often framed ing point to stimulate the development of in-around capacity building missions – building sights relevant to innovation experts, analysts,markets, standards, supply chains, and technical and decision makers within the context of theand managerial talent. The investment strategies Finnish innovation ecosystem.of development agencies vary in outcome object-ives, as well as in time frame and financial ob- Venture Funding for the Finnish Innovationjectives. For examples, differences in the Ecosystem“cultivation vs. harvesting” strategies evidencedby investments into and out of China have been The Finnish national innovation system hasdescribed (Rubens et al., 2011). been described as a network of various actors, with education, research, product development,Jungman and Seppä (2004; http://tinyurl.com/ and knowledge-intensive business and industry4cpwxm5) differentiate the role of angel in- at its core. Regarding the flows of investments in-vestors, incubators, advisors, and corporate in- to this system, it has been noted that “because ofvestments in bridging the gap between seed the importance of the public venture capit-funding of prospective companies and capital in- al/private equity organizations, the Finnish ven-fusion into investable companies. While all these ture capital system can be described as dual onetypes of financial resources may be available for in which some private venture capital fundsbusiness investment in a region, the role and have been initiated by public intervention”proportion may vary. Investors’ ultimate object- (Luukkonen, 2006; http://tinyurl.com/5v4tota).ive is for a new company to undergo the major li- Furthermore, special characteristics have beenquidity event that allows it to become listed on a noted: i) due to the small markets in Finland, thestock exchange. An ecosystem including both ex- growth expectations oftentimes have been lim-periential and financial resources is needed to ited, which has impacted non-Finnish investors’co-create successful journeys across the gap perceptions of the attractiveness of investmentfrom a prospective to a listable company. in Finnish companies; ii) these existing public investors many times have been passive; and iii)In this article, we use data-driven social network that there are very few corporate venture capital-visualization to present a network analysis of ists in Finland (Luukkonen, 2006). 14March 2011 Open Source Business Resource http://www.osbr.ca

Value Co-Creation in Finnish Innovation Financing Jukka Huhtamäki, Martha G. Russell, Kaisa Still, and Neil RubensIn this sample of 108 high-tech companies, 53 in- companies that have come of age – sold or is-vestments were announced from 28 institutional sued an initial public offering (IPO), amidstinvestors, made in 29 rounds between 2005 and many independent firms – and a few with inter-2010. An examination of the social networks and national connections. One actor dominates theother structures produced from this data is investment landscape.much like a walkabout in the Finnish innovationfunding ecosystem. Visual analysis shows the Figure 1 shows all 136 actors in our sample,patterning of connections between company act- which consisted of 108 technology-based com-ors as well as those of financial resources flowing panies with a home office in Finland and 28 in-to Finnish technology-based companies, imply- vestment organizations. Companies and theiring co-creation from innovation funding. For ex- funding organizations are interconnected withample, the walkabout reveals a landscape of four edges. The actors are colour-coded: companiesFigure 1. Network of Finnish Technology Companies and their Investment Organizations 15March 2011 Open Source Business Resource http://www.osbr.ca

Value Co-Creation in Finnish Innovation Financing Jukka Huhtamäki, Martha G. Russell, Kaisa Still, and Neil Rubensare gray, unless they were sold or have issued and Finnish Industry Investment invested inIPO, in which case they are red. Investors with Ipsat Therapies. This was the first investment intheir home office in Finland are blue; investors the sample and occurred in April 2005.whose whereabouts are international or un-known in the dataset are orange. The nodes are 5. Medisapiens received investment from VTTinflated according to their degree (i.e., the num- Ventures, Eqvitec Partners, Veraventure, andber of connections that they have to other Lifeline Ventures. This was the most recent in-nodes): the bigger the node, the more connec- vestment and occurred in June 2010.tions it has. 6. Most of the companies (75%) in this sampleAmong the notable relationships in the sample, are not receiving funding from an investment or-Figure 1 shows: ganization. Although some companies have investments from individuals, angel investors are1. Ipsat Therapies, Medisapiens, Iqua, and Silecs not included in this analysis.have the largest number of connections to in-vestors. In our sample, 56 of the companies and investment organizations (41%) are connected to one2. Finnish investment organizations represent or more actors. Figure 2 shows the betweennessroughly half of the investors for these Finnish centrality values for the 26 actors that have acompanies. value larger than zero. Betweenness centrality is one of the key metrics in social network analysis3. Conor Venture Partners, Veraventure, Eqvitec (http://wikipedia.org/wiki/Centrality#Between-Partners, Innovations Kapital, Midinvest Man- ness_centrality). It is based on counting theagement, and Nexit Ventures are linked to more number of times that a given node is included inthan one company by their investments. the shortest path between two nodes. Of the companies, Iqua has the largest betweenness4. Biofund Management, Sitra Ventures, Varma centrality value: 610. Of the investment organiza-Mutual Pension Insurance Company (Varma), tions, government-owned Finnish Industry In-Figure 2. Distribution of Betweenness Centrality 16March 2011 Open Source Business Resource http://www.osbr.ca

Value Co-Creation in Finnish Innovation Financing Jukka Huhtamäki, Martha G. Russell, Kaisa Still, and Neil Rubensvestment is connected to the largest number of programmatically. The locations of these in-companies, with a betweenness centrality value vestors were therefore classified as unknownof 1557. For the whole sample, including the act- and are shown in orange in Figure 3. These or-ors with no connections, betweenness centrality ganizations include, among others, Varma, Sitravalues of the lowest, low-medium, and upper Ventures, and VTT Ventures.)medium quartiles are zero, making the averagevalue 36. Figure 4 reveals funding paths or bursts for companies that have received two rounds of funding;The value distribution of betweenness centrality no companies in this dataset were reported toroughly follows a power law. Node degree value, have received a third-round investment. Second-the number of connections per actor, has a simil- round investors are shown on the outer circle ad-ar kind of distribution. This suggests that the net- jacent to the investors of the first round for thework is scale free – characterized by a very small same company. Finnish Industry Investment, fornumber of nodes that are highly connected and example, has been both a first-round investormany nodes with little connection (Barabási and and a second-round investor. When Sitra Ven-Bonabeau, 2003; http://tinyurl.com/4e3oxof). In tures and Varma are regarded as being Finnish,scale-free networks, growth patterns that show we can see that a small majority (57%) of fund-preferences for attaching to highly connected ing organizations participating in multiple fund-nodes are typical and generally lead to the devel- ing rounds are Finnish organizations.opment of hubs (i.e., nodes with an enormousnumber of links) in a rich-get-richer manner. DiscussionScale-free networks tend to be “robust againstaccidental failures but vulnerable to coordinated The approach for visual co-creation analysisattacks” (Barabási and Bonabeau, 2003). presented here is a synthesis of visual social network analysis and data-driven information visu-Through the companies they co-fund, relation- alization. Visualization and measurement areships between investment organizations are of claimed to be the two main factors enabling thestrategic interest for co-creation. Sunburst dia- explosive development of modern science. Visu-grams were applied to visualize patterns in the alization has been a key element of social net-Finnish innovation ecosystem. Figure 3 shows work analysis - and its precursor, sociometry - inthe co-investments of 22 investment organiza- supporting the exploration, presentation, andtions into 19 Finnish companies. Each investor analysis of the structure of communities. Thethat co-invested with another investor in this general objective of information visualization issample is shown in the inner circle. Their co-in- to amplify the cognition of a user through an ex-vestors are placed in the outer circle adjacent to pressive, often interactive view that gives insighteach investor, without specification of the time on a given phenomena represented by the data.of investment. In this design, each investor ap-pears as co-investor at least two times in the dia- Data-driven visual storytelling allows insights ongram. Investment organizations identified as the structure and dynamics of a network to beFinnish are shown in blue. The Finnish Industry shared with the help of visualizations.Investment co-invested with 15 other funding or- “[S]torytelling allows visualization to reveal in-ganizations; some co-investors were Finnish, formation as effectively and intuitively as if thewhile the location of others was not available in viewer were watching a movie” (Gershon &the data. (It should be noted that some of the in- Page, 2001; http://tinyurl.com/6k8nb3t). Hansvestors are known by the authors to be Finnish, Rosling gives particularly inspiring examples ofbut their Finnish locations were not identifiable such storytelling; his presentations are some- 17March 2011 Open Source Business Resource http://www.osbr.ca

Value Co-Creation in Finnish Innovation Financing Jukka Huhtamäki, Martha G. Russell, Kaisa Still, and Neil RubensFigure 3. Patterns of Co-Investing in Finnish Technology Companiestimes referred as “the best stats youve ever Finnish companies in the high-tech sector haveseen” (TED Talks, 2006; http://tinyurl.com/ not received funding from investment organiza-99rnmm) tions since 2005. For those Finnish companies that have received funding, 63% of have receivedThis study’s visual social network analysis re- either first or second-round funding fromvealed structural connections between Finnish Finnish Industry Investment. A handful of invest-technology-based companies and their investment organizations (some Finnish and somement organizations. A significant proportion of not) provide modest diversification to the 18March 2011 Open Source Business Resource http://www.osbr.ca

Value Co-Creation in Finnish Innovation Financing Jukka Huhtamäki, Martha G. Russell, Kaisa Still, and Neil RubensFigure 4. First and Second-Round Investment Paths in Finnish Technology CompaniesFinnish funding landscape, which shows a scale- highlight the flexibility of Finnish government in-free pattern. vestment organizations to co-create in both first- round and second-round funding. The co-cre-Further, this analysis has generated preliminary ation role of these organizations is visualizedinsights about the general patterns of co-creator through both concurrent and sequential cooper-networks supporting the Finnish innovation eco- ative investments. At the same time, the visualiz-system in the high-tech sector. The sunburst ations also reveal a dependency on Finnishvisualizations display funding pathways and Industry Investment and an opportunity to fur- 19March 2011 Open Source Business Resource http://www.osbr.ca

Value Co-Creation in Finnish Innovation Financing Jukka Huhtamäki, Martha G. Russell, Kaisa Still, and Neil Rubensther diversify institutional investments in of high value when the dynamics of innovationFinnish companies. ecosystems are studied for insights on trends, the roles of different actors, diffusion of informa-These initial patterns suggest avenues for future tion and innovations et cetera, but they insist onstudy. Investment relationships reflect an inten- the availability of rich data sources.tional alignment of business resources and goalsthat may be based on technologies, markets, or Conclusionglobalization strategies. A resource-based rela-tionship implies that the partners share object- Applying information visualization and visual so-ives, share risks, and share rewards as they cial network analysis has huge potential for re-co-create value through investments. In co-cre- vealing the social structures and networkation, both the risks and rewards are shared; dynamics within innovation ecosystems, fromhowever they may not be equal. The roles of first individual organizations to the whole world. Des-and second-round investors may be specialized pite recent rapid development of visual tools forwith respect to the amount of risk, the financial social network analysis, one major issue thatand temporal objectives for exit, and the value of hinders data-driven visual analysis of co-creatorthe network itself. Across public and private networks in innovation ecosystems is the lack ofFinnish organizations making investments in accessible, timely data about the global ecosys-technology-based companies with headquarters tem of high-tech companies. We anticipate de-in Finland, this study showed that Finnish In- velopment in this area in the near future withdustry Investment is unique in both leading and the advent of (open) linked data (seefollowing the investments made by other entit- http://linkeddata.org), which is currently en-ies. dorsed with respect to opening up public administration. The authors are contributing to thisThis study lacks two very important investment opportunity by creating a dataset representingplayers for a full view of the Finnish innovation high-tech companies and building up researchecosystem. Since firms were used as the unit of methods for this dataset.analysis, individuals serving as angel investorswere not included. In a subsequent study, we The scale-free patterning of the Finnish ventureseek to gain further insight on the business an- capital network is similar to the findings of Bar-gels’ vital role in seed financing for new techno- abási (2010; http://brsts.com) who claims thatlogy-based companies – an act of co-creation in such patterning can be found in nearly all kindsthis sense. An interesting, though difficult, task of human activities. Adding the temporal dimen-for future work is visualizing the role of incubat- sion to data enables the analysis of the evolutionors and business angels in closing the gap of the network. This opens up a new level of in-between venture and capital. sights into changes in the network that, at best, supports the formulation of future scenarios forFurther studies could include the utilization of agents of change in different innovation ecosys-temporal data, which often yields insights about tems. Two important opportunities for innova-the evolution of a network. Network visualization policy analysts concern identifyingtion tool-development initiatives such as Gource incentives to effectively encourage the reinvest-(http://code.google.com/p/gource/) and Gephi ment of exit resources and orchestrating mech-(http://gephi.org) are clear indicators of the in- anisms to strategically encourage globalterest that the open source community has in participation in a manner that provides a returntemporal network visualization. These tools are on investment back to its origin. 20March 2011 Open Source Business Resource http://www.osbr.ca

Value Co-Creation in Finnish Innovation Financing Jukka Huhtamäki, Martha G. Russell, Kaisa Still, and Neil RubensThis article is based on a paper presented in Kaisa Still studies innovation, technology trans-EBRF 2010: Co-Creation as a Way Forward. The fer, and the role of technology, with a focus on in-authors express their gratitude to the Venture formation and knowledge creation, sharing, andCapital Industry, Business Angels, and Know- management. Her studies focus on supportingledge Investors session chairs Prof. Markku collaboration and cooperation in organizationsMaula, Prof. Marko Seppä, and Dr. Jennifer Wal- as well as in community settings. Recent studiesske, as well as the other participants of EBRF include mobile, online and social networking2010 for their co-creation efforts contributing to communities, innovation ecosystems, and innov-the article. Camilla Yu provided valuable feed- ation indicators. Dr. Still has over 10 years ofback for revising the article. For additional ver- cross-sector business and academic experience insions of these visualizations, please refer to Finland, USA and China. She currently works forhttp://bit.ly/fininnofin. VTT Technical Research Centre of Finland and collaborates with Stanford’s Innovation Ecosys- tems Network.Jukka Huhtamäki (M.Sc, Hypermedia) is a re-searcher, a post-graduate student, and a teacher Dr. Neil Rubens is an Assistant Professor at theworking for the Hypermedia Laboratory (HLab) Knowledge Systems Laboratory, University ofat Tampere University of Technology. Jukka also Electro-Communications, Japan. He is the Direct-collaborates with the Innovation Ecosystems Net- or of Active Intelligence Research Group and is awork, lead by Martha G. Russell. His interests in- member of the Innovation Ecosystems Network atclude visual social media analytics, methods of Stanford University. He holds an M.Sc. degreestreamlining social network visualisation and in- from the University of Massachusetts and a Ph.D.formation visualisation, user and information degree from the Tokyo Institute of Technology -modeling and the development methods, and im- both in Computer Science. His research focusesplementation technologies of social, adaptive, on developing Active Intelligence systems, whichand distributed hypermedia. Currently, Jukka is are systems Artificial Intelligence systems that areworking to develop data-driven visual analysis self-adaptable utilizing unsupervised and semi-processes for insights on, for example, social me- supervised learning, and active communicationdia usage and innovation diffusion. and data acquisition. He collaborates with Stan- ford’s Innovation Ecosystems Network.Martha G. Russell is Senior Research Scholar atHuman Sciences Technology Advanced ResearchInstitute and Associate Director of Media X atStanford University, a membership-based, inter-disciplinary research catalyst focused on people,media, technology, and innovation. Dr. Russell’sbackground spans a range of business develop-ment, innovation, and technology-transfer initi-atives in information sciences, communications,and microelectronics at the University of Min-nesota, The University of Texas at Austin, andStanford University. She collaborates with Stan-ford’s Innovation Ecosystems Network and serveson the editorial boards of the Journal of Interact-ive Advertising, the Journal of Electronics, andTechnology Forecasting and Social Change. 21March 2011 Open Source Business Resource http://www.osbr.ca

Using Value Co-Creation to Redefine Business Models Kati Järvi and Antti Pellinen "No man is an island, entire of itself; every man is a piece of the continent, a part of the main." John Donne In the information and communication technology (ICT) sector, a revolution is underway in the delivery channel of mobile service (or application) production and provision, and application stores are building up a central position as intermediaries in service delivery. The market is transforming from being one-sided to being two-sided. Thus in this article, we focus on integrating the business model concept with value co-creation with respect to the emergence of two-sided markets and intermediaries. As the transformation from a one-sided to a two-sided market and the birth of intermediaries bring forth value co-creation possibilities, this article aims to find out how value can be co-created in different mobile service production and provision models.Introduction side, both of which represent cost and revenue. However, this duality of both sides representingVolatility in the competitive environment forces cost and revenue is often neglected. Even in thefirms to reinvent value instead of just adding it. presence of two-sided markets, the one side is of-In addition to reinvention, different economic ten treated as a source of profit while the otheractors have to work together in order to co-cre- side is treated as a loss or as financially neutral.ate value. With many innovations, value is co-created through intense collaboration and com- Business Models for Two-Sided Marketsplex business models. This is highlighted espe-cially in the ICT sector, where several other A typical two-sided market in the informationfactors also contribute to the urgent need for the era brings together two groups of users, namelybusiness model to become more comprehensive suppliers and customers. Examples of these two-in terms of value co-creation. sided markets include personal computer operating systems (which bring together softwareMost of the business model literature has fo- providers and users), web search services (whichcused on value creation towards the customer; bring together information providers andthis is one-sided market logic. In one-sided mar- seekers), video games (which bring togetherkets, the traditional value chain applies, as game developers and players), and online re-shown in Figure 1a. Value moves from left to cruitment sites (which bring together employersright, meaning that the left (upstream) repres- and job seekers). In the telecommunications in-ents cost, and the right (downstream) represents dustry, the proliferation of application stores hasrevenue. In the two-sided market, as shown in transformed a previously one-sided market intoFigure 1b, there are distinct participants on each a two-sided market. On one side of the market, 22March 2011 Open Source Business Resource http://www.osbr.ca

Using Value Co-Creation to Redefine Business Models Kati Järvi and Antti PellinenFigure 1. Value and Revenue Flow in One-sided and Two-sided Marketsthere are third-party application developers, new models combine the most suitable featureswho have previously lacked an attractive deliv- from traditional and new approaches so thatery channel to end-users, such as the Internet telecommunications operators can operate in ahas provided for software developers to reach more agile and co-operative manner.users. On the other side of the market, there aremobile phone users, especially smartphone Based on our empirical data, we have identifiedusers, who are hungry for value-adding services four different types of mobile service productionthat are easy-to-download, easy-to-use, and and provision models, which will be described ineven free-of-charge. As a two-sided market, ap- the next section. These models represent differ-plication stores give birth to a new delivery chan- ent types of delivery channel choices available tonel choice for application developers. application developers.Application stores act as intermediaries between Choice of Delivery Channelthe two sides of the market. They have becomethe hubs of the telecommunications industry In general, an application developer has threevalue chain and representing a delivery channel different delivery channel choices in their pur-revolution, particularly from the perspective of suit to provide a service (or application) to anapplication developers. Application stores also end user: the direct channel, the operator chan-generate the need to redefine the business mod- nel, and the application store channel. For theel with value co-creation. We argue that the tele- application developer, the sales and distributioncommunications industry, to which the Internet challenge is to reach an end-user audience thatworld has brought major technological changes is as broad as possible. For independent or smal-and revolutionary commercial changes, is adopt- ler developers, this challenge may be greater be-ing new models of providing the communica- cause of limited marketing resources; acquiringtion and related services or applications. These the attention of their target audiences often re- 23March 2011 Open Source Business Resource http://www.osbr.ca

Using Value Co-Creation to Redefine Business Models Kati Järvi and Antti Pellinenquires multiple resources beyond those required Figure 2 illustrates the four different types of mo-to develop the service or application. Similarly, bile service production and provision models.both consumer and business end users, have an They represent the different delivery channelinterest to gain information and offers from ser- choices available to applications developers, thevices and applications that potentially provide two-sided market phenomenon, and also value-utility, entertainment, or enhancements. End creation possibilities. Production is requiredusers cannot approach all relevant developers or with services and applications that have an on-even acquire knowledge of their products and of- line element, meaning they utilize server orferings. Furthermore, it requires significant tech- backend infrastructure. Similarly, we can in-nological knowledge to be able to distinguish the clude certain support and maintenance require-suitability of the service or application to the ments, even for standalone application. Inend user’s mobile terminal or access network. addition to production, provision includes pack-Direct distribution of services or applications aging or bundling, customer management,(i.e., the direct channel), is likely to lead a very billing, branding, marketing, sales, and custom-fragmented, expensive, and non-user-friendly er acquisition. Thus the delivery channel choiceenvironment due to the phenomenon called the also represents a business model choice andlong tail. leads to value co-creation possibilities.Figure 2. Models of Mobile Service Production and Provision 24March 2011 Open Source Business Resource http://www.osbr.ca

Using Value Co-Creation to Redefine Business Models Kati Järvi and Antti PellinenTraditional operator model: The Internet is plication stores. For example, Google’s Androidchanging the way services (or applications) are Market, Apple’s App Store, and Nokia’s Ovi Storebeing provided and used. In the telecommunica- provide applications for corresponding commu-tions sector, application developers have tradi- nication terminals, or mobile phones. Thesetionally chosen the telecom operator as their stores even provide applications that can bedelivery channel when reaching the consumers used for communication services – the tradition-and enterprise end-users. The applications al operator services. This is the application storeprovided are usually white labeled (branded un- model of providing services.der the operator’s brand name). The operatorshave traditionally managed – and created value Open operating systems in mobile devices havethrough – both the technology and service provi- enabled the development of native applicationssion. Traditional communication services, like on the particular environment. Mobile devicevoice and SMS, have been produced and manufacturers and providers of open operatingprovided by the operators, who have invested in systems have established market places, or ap-networks and service platforms, as well as oper- plication stores, to promote their environmentsated them for service production. The operators and advertise an increasing number of serviceshave, at the same time, acquired the customer, and applications based on their environments.managed the customer relationship, and billed Whereas the operator channel is limited to thethe customer, as well as packaged and marketed geographical area where the mobile operator isthe service. This is the traditional operator mod- operating, the application stores are practicallyel of providing services. limited to the certain mobile operating systems or devices from a certain manufacturers, thusThe traditional model of distributing services limited the target market. Generally, the applica-and applications to mobile devices is operator tion stores act only as the distribution andcentric, where the mobile operator provides the billing channels. Everything from developmentservices and application with their communica- and production to packaging and bundling aretion and access offerings. Where the basic tech- managed by the developer. Application storesnology may be provided by various sources, the form market places where the end users are ableoperators develop, operate, package, and bundle to find and purchase a great number of servicesthe services. They are also handling customer and applications, but the fulfilling is the respons-management, marketing communications, and ibility of the provider. Applications stores chargesales activities. The operator-centric model has developers for the distribution and billing, butbeen dominant in an environment where mobile most of the value creation is gathered by the de-devices are closed and no real external interfaces veloper.are opened for external service provision. Thevalue capture is clearly in the operator’s hands. Managed service model or brand co-operation model: Between the two extremes shown in Fig-Application store model: End users are becom- ure 2, there are a number of potential ways ofing familiar with the service-provision model combining these models. In some communica-from the Internet: services are being made tion services, operators outsource the techno-simple to download and easy to use, even free of logy and even creation of the service concepts tochange. During the past few years, there have smaller, more agile players that are even able toemerged an increasing number of terminal-de- produce the services in the Internet or thependent – and thus operator-independent – ap- “cloud.” This results in faster service-creation 25March 2011 Open Source Business Resource http://www.osbr.ca

Using Value Co-Creation to Redefine Business Models Kati Järvi and Antti Pellinentimes and more cost-efficient structures. Operat- Three types of value co-creation and related in-ors are able to brand the services and include terdependence between the supplier and cus-them in their product portfolio, increasing the tomer can be distinguished (Forsström, 2005;value brought to their customer. These are the http://tinyurl.com/675gb6h). The first type is se-managed service model and brand co-operation quential, which implies that one party givesmodel. something to the other, thus making the output of one’s activity the input of another. This typeOperators have many advantages in their mar- of value co-creation and interdependence rep-kets: they have an existing customer base, a resents the linear value chain, one-sided marketbrand, a billing mechanism, an established dis- logic, and in our study, the traditional operatortribution network, and, in many cases, a market- model.ing budget among the biggest in the marketarea. However, operators are limited to their The second type is pooled value co-creation andmarket area and a global or wide geographical interdependence, which refers to supplier andpresence requires co-operation with a number customer or any two or more collaborating orof operators. Furthermore, different operators coopetiting parties providing a joint pool of re-have different interfaces to which the developers sources from which they both draw. In ourhave to adapt. And in many cases, the operator study, this is the managed service model orchannel may not be the most cost efficient for brand co-operation model, where both applica-the developer. The operators know that they are tion developers and operators need and benefitthe most prominent distribution channel for from the resources of the other.their customer and often price their services cor-respondingly. The third type is reciprocal value co-creation and interdependence, where parties mutually ex-Value capture in the operator channel model var- change inputs and output and there is a need toies depending whether there is a contractor rela- learn from each other. This type of value co-cre-tionship or a revenue-sharing relationship, or ation involves the customer as a co-producer ofwhether the operator acts only as the billing value. Reciprocal value co-creation is presentmechanism. But in the cases where services are with our application store model.provided by the operator channels or with theoperator banding, the developer has fewer pos- Research Implicationssibilities to capture most of the value. The different models described in this articleImpact on Value Co-Creation highlight several noteworthy issues. First of all, the traditional operator model represents linearIn one-sided markets and in traditional value and transitive-value-creation logic, thus makingchains, value creation is sequential, with the the model and the application developer’s deliv-value moving from left to right. With the se- ery channel choice a manifestation of a one-quences from left to right, value is ‘added’. sided market, where value in the chain movesHowever, with technological advancements, from left to right and it is added in differentvalue is no longer created in a linear and transit- stages. Thus, with respect to this type of deliveryive process; value creation is becoming less se- channel, value co-creation possibilities are nar-quential, more synchronic, and more interactive. row due to the inherent characteristics of the delivery channel. 26March 2011 Open Source Business Resource http://www.osbr.ca

Using Value Co-Creation to Redefine Business Models Kati Järvi and Antti PellinenSecond, with the managed service model or target market’s brand awareness, and above all,brand co-operation model, value co-creation the developer’s strategy. Naturally one canpossibilities are relatively greater compared with choose multiple channels or accommodatethe traditional operator model. However, the channel decisions for the different target seg-value creation process in these models is still ments or markets. In this case, however, the de-more linear and transitive than synchronic and veloper has to maintain consistency betweeninteractive. Thus, in terms of the number of mar- channels in order to avoid conflicting businessket sides, the managed service model and brand models or pricing plans for individual end-cus-co-operation model are still seen as representa- tomer segments.tions of one-sided markets. Channels, operators, and application stores typ-Third, the application store model is a true oc- ically see application sales as a complementarycurrence of a two-sided market, where the ap- tool for enhancing the attractiveness of theirplication store acts as an intermediary. Whereas core product, such as a communication or ac-the long tail of mobile applications makes it diffi- cess service for mobile service operators, or ancult for application developers to bring their ap- end user device or platform for application storeplications to the awareness of a wide end-user operators. In this sense, application sales haveaudience, the application store model (or the been seen only as an individual tool for creating“open garden approach”) can enable and stimu- competitive advantages in marketing. However,late the emergence of mobile applications along in recent years, the financial importance of ap-the long tail in a positive way. As a central hub, plication sales has increased along with thethe application store offers visibility for applica- growth of the ecosystems and, subsequently, thetion developers. Since the application demand is number of applications and developers in thedistributed over an increasing number of applic- network.ations and the mobile application market ismore fragmented than earlier, there is more vari- Conclusionety both in supply and demand where nicheproducts can achieve high usage among the few This study illustrates that the inherent character-who adopt them. The increasing number of ap- istics of the delivery channel have implicationsplications and greater variety of supply and de- on the business model, both in terms of the de-mand accentuate the intermediary role of an livery channel choice from the perspective of theapplication store in order to generate positive application developer and in the function of thenetwork effects. With the application store mod- delivery channel from the perspective of the op-el, value creation is synchronic and interactive; erator or application store. These delivery chan-hereby value is co-created. nel characteristics, such as value co-creation possibilities whether operating in a one-sided orWhile no model studied here is preeminent com- two-sided market, have been discussed here inpared to the others, the developer has to make the context of mobile service or application pro-the choice between the channels and, as de- duction and provision but they also have relev-scribed in the study, the business model related ance in other settings.to it. This choice is based on the application, the 27March 2011 Open Source Business Resource http://www.osbr.ca

Using Value Co-Creation to Redefine Business Models Kati Järvi and Antti PellinenKati Järvi, MSc (Econ. & Bus. Adm), is a research-er and a PhD student at Lappeenranta Universityof Technology, Kouvola Unit. Her research in-terests include business models, value co-cre-ation, inter-firm collaboration, and innovationmanagement, especially in the context of two-sided markets, the ICT industry, and telecommu-nications. Her research has been published in in-ternational conferences and academic journals.Besides research, she teaches innovation manage-ment and strategy consulting at LappeenrantaUniversity of Technology and has worked as aconsultant in the field of ICT.Antti Pellinen, MSc (Eng.), MSc (Econ. & Bus.Adm.), is the founder and Managing Partner atTikura Ltd., a management consulting companyspecialising in business development, strategy,product development, and innovation. His re-search interests include business models, ecosys-tems, and innovation management. Mr. Pellinenhas a wide experience and understanding of thecommunication service industry from the busi-ness and service development points of view, aswell as the implications brought by IP technolo-gies and the Internet in the strategies, servicesand business models of the communication ser-vice industry. 28March 2011 Open Source Business Resource http://www.osbr.ca

Renewal Through Co-Creation in Business Networks Raimo Hyötyläinen, Katri Valkokari, and Petri Kalliokoski "Human beings, by change, renew, rejuvenate ourselves; otherwise we harden." Johann von Goethe This article presents four models of business renewal within networks based on a theoretical framework developed from earlier literature. According to the typical dimensions of business development, our framework distinguishes between the exploitation of present knowledge for efficiency and the exploration of new knowledge for new business development. Furthermore, the two network development and governance types (i.e., hub-spoke and multiplex) form the other dimension of the framework. The framework was empirically tested with five case companies and their business networks. The framework of network models may help managers to structure the business network and its renewal based on the strategic targets of a firm. Furthermore, the theoretical contribution of the paper deepens the understanding of how co-creation and interaction between the participants differ according to business focus and complexity of networks.Introduction within business networks. A central point in this study is the question of renewal within the busi-Today there is a wide spectrum of business net- ness networks. Here, renewal is understood as awork types, ranging from supply chain networks networks joint efforts to gain competitive ad-and strategic alliances to networked innovation. vantage through co-creation in a rapidly chan-As the dynamics of change are often seen as the ging environment. According to the businessdominant challenge to firms in todays eco- development needs of network actors, the focusnomy, research interest has recently focused on of co-creation can be on either efficiency or in-those business networks that enable flexibility or novation.agility, renewal, and even exploration of newbusiness opportunities. This practical challenge A Framework of Business Network Renewalof firms’ business development has been studiedseparately from several research perspectives. The theoretical framework of this article consistsOur intention is to bridge the gap between sever- of four network models (Figure 1), which areal perspectives, and study how in practice firms constructed in the light of earlier research. Theutilize the business networks within their stra- two basic models for network governance are ategic development work. hierarchical hub-spoke model and a multiplex model (Doz, 2001; http://tinyurl.com/4edy94n)The practical purpose of this study is to create and thereby similar models can be distinguishednew knowledge for managers and business de- in network development (Eccles, 1981;velopers about development and management http://tinyurl.com/48t2vz8). The network gov- 29March 2011 Open Source Business Resource http://www.osbr.ca

Renewal Through Co-Creation in Business Networks Raimo Hyötyläinen, Katri Valkokari, and Petri KalliokoskiFigure 1. A Framework for Renewal and Co-Creation Models in Business Networksernance structure influences the complexity of a Second, we consider those activities that deploynetwork and network members’ willingness and existing knowledge to efficiently create value –ability to participate in co-creation. In our frame- what March refers to as “exploitation”, andwork, we distinguish between two types of net- Spender calls “knowledge application.” Thiswork complexity: bilateral relationships of forms the other dimension of our theoreticalindependent actors and multilateral relation- framework.ships between interdependent actors. The hub-spoke model is founded on the activit-While our focus was on the business develop- ies of the core company (i.e., the hub firm). Thement of firms, we distinguished between the ex- major objective is to increase the efficiency ofploration of new knowledge and the exploitation the present operations of the core company.of new knowledge. First, we consider those activ- Typically, development responsibility belongsities that increase an organization’s innovative- only to the core company. The main point in theness and stock of knowledge – what March model is to use present resources of networks,(1991; http://tinyurl.com/4lf59dy) refers to as and therefore the model is labelled as an exploit-“exploration,” and Spender (1992; http://tinyurl ation dimension. The strategic network model is.com/6k4p5dr) calls “knowledge generation.” by its nature normally a multilateral network 30March 2011 Open Source Business Resource http://www.osbr.ca

Renewal Through Co-Creation in Business Networks Raimo Hyötyläinen, Katri Valkokari, and Petri Kalliokoskiwhere several firms co-operate with each other. al development procedure has been applied.The firms in the network can set common goals Each stage of the development process has beenand objectives for businesses to find new solu- assigned certain tasks, actors (i.e., an organiza-tions together. However, the main target is to ex- tion), and development results. Naturally, theploit strategic assets. The strategic alliance progress is not linear from one stage to the next.model is based on integrating different compet-ences. The aims are to explore new business op- The cases represent different models of renewalportunities and reach new markets and and co-creation in business networks, as sum-customer groups. By combining technological or marized in Table 1. In the sections that follow,other knowledge bases, it is possible to achieve the case descriptions are described in more de-new business opportunities. Some of the net- tail, including an examination of the different di-work partners may also be competitors, which mensions of co-creation based on themakes it difficult to discuss further measures theoretical framework.and agree on common targets. The open innova-tion model is source of intense discussion (Ches- Case A: Open Innovation Model of a Small ITbrough, 2003; http://tinyurl.com/5w5npgq). CompanyTypically, there are many parallel and looselycoupled networks, and only some network part- The software products of case company A areners join together and start new businesses de- partly focused on free/libre open source soft-velopment. ware (F/LOSS) and its employees are participating in certain open source communities. ITIn earlier literature, a distinction has been made consulting services to both industrial and publicbetween different types of co-creation within markets form more than half of its turnover. Thenetworks, and some authors (e.g., Brown & company has actual business partnerships withKeast, 2003: http://tinyurl.com/5ws26qy; Keast the core companies of F/LOSS communities.et al., 2007: http://tinyurl.com/6x2u5be) sum- These core companies offer commercialmarize these as: cooperative, coordinative, and products based on F/LOSS and the case com-collaborative, or as originally proposed by Ellis pany also utilizes these solutions. In order to ex-et al. (1991; http://tinyurl.com/6gf36mx), the plore new business opportunities, the CEO and3C’s: communication, coordination and cooper- owner of the company has also led the employ-ation. In both the cooperative and coordinative ees to participate in certain discussion forums.business networks, participants are independent From these connections and interaction with po-organizations that come together for a specific tential customers, the company has found op-purpose. In a collaborative network, the parti- portunities to offer its services to newcipants are interdependent and co-creation oc- customers, who have been looking for know-curs in several levels of network organizations. ledge related to the utilization of new IT tools. Al- though case company A operates continuouslyResearch Design and Case Studies in different open communities and social networks with multiplex relationships, its CEO has aWith this research, we aim to support the devel- clear vision about knowledge sharing and pro-opment of businesses and organizations by us- tection in business networks. For this reason,ing knowledge based on research data. We also the case company also has several models of co-aim to create new conceptual knowledge that creation within business networks, and they varycan be generalized. When solving business and from co-operation with larger companies to col-network problems with case companies, a cyclic- laboration in communities. 31March 2011 Open Source Business Resource http://www.osbr.ca

Renewal Through Co-Creation in Business Networks Raimo Hyötyläinen, Katri Valkokari, and Petri KalliokoskiTable 1. Case Summaries 32March 2011 Open Source Business Resource http://www.osbr.ca

Renewal Through Co-Creation in Business Networks Raimo Hyötyläinen, Katri Valkokari, and Petri KalliokoskiCase B: Strategic Network Model of a Technical perience in co-operation but they started the col-Trading Company laboration with a joint strategy process. Within this process, the companies co-created the jointThe major customer segments for Company B business concept and defined the roles, respons-are the metal industry and building industry. Its ibilities, and share of risks and benefits of theservices include machine deliveries, installation, collaboration. Still, the case company wanted toimplementation, training, maintenance, and re- ensure the commitment of partners and interde-placement part services. In case B, a new service pendence was strengthened with cross owner-concept was developed jointly in a network of in- ships between the case company and partners.terdependent companies, including its partner The co-creation was founded on bilateral part-offering material handling systems and custom- nerships between case company and partnersers in the metal industry customer segment. The and the case company’s strong governance andnew concept seeks improved exploitation of coordination of joint processes.present competences of network members. Theplan was for the case company to sell the total Case D: Strategic Alliance Model of Marketingsolution and manage the customer relationships Companiesin the chosen customer segment; the partnercompany would offer technical support and doc- Case D involves a group of six companies offer-umentation. Therefore, the network consists of ing marketing services in the areas of marketing,bilateral relationships and co-creation has char- advertising, business consultancy, printing, me-acteristics of both coordination and collabora- dia planning, and market research. The casetion. The co-creation of the new business companies are part of a larger group and theyconcept was based on complementary re- form a network with multiplex relationships,sources. The companies have each defined their both with each other and with other companies.roles, motives, and goals for co-creation to find Particularly large customers are common to themutually beneficial opportunities. group, although the companies also serve customers that are independent of the network. Ac-Case C: Strategic Alliance Model of a Subcon- cordingly, the group’s management plans totractor take the responsibility of the co-ordination work and offer the customer the entire service pack-Case C company is an SME offering industrial age. According to their view, their customersservices, metal products, and subcontracting to would benefit in many ways from this more co-global product companies in the technology in- ordinated way of selling marketing and advert-dustry. During the last ten years, its customers ising services. The business development focushave been outsourcing their production and the was on exploration of knowledge and compet-case company has taken larger responsibilities. ences at a network level. The group has alreadyIn order to cover an even broader range of cus- described the networked service concept ontomer needs and to offer life-cycle services, the some levels, including for example, commoncase company has built relationships with part- aims, processes, some tool,s and documentationners with complementary resources. The target procedures. Further development work and co-was exploitation of partners’ complementary re- creation between the group members will be un-sources and their integration with business solu- dertaken to develop a common understandingtions of the core company. The partner of the service concept of the network and a uni-companies are a small engineering company, an fied way of managing the network. Thus, be-electrical installation company, and a mainten- cause co-creation existed in several levels, it canance service company. The companies have ex- be described as collaborative. 33March 2011 Open Source Business Resource http://www.osbr.ca

Renewal Through Co-Creation in Business Networks Raimo Hyötyläinen, Katri Valkokari, and Petri KalliokoskiCase E: Hub-spoke Model of a Wood Product vice functions have developed a new kind of ser-Company vices for client and customers. They co-operate with new partners and develop new services to-Although the case E company has in recent years gether with their new partners. This activity hasmoved into services, wood products are still an increased the complexity of networks andessential component in its service business. The thereby led a shift in the relationships from bilat-company has four of their own assembly factor- eral to multilateral. The company is strategicallyies and some component factories. Many part as- moving in a new direction, however the produc-semblies and materials are acquired from tion side will still continue in exploitation modeoutside the company. Production has been in the future.trimmed to be as efficient as possible. Thus, pro-duction makes a great demand of the supply Empirical findingschain and its development. The network co-op-eration focused on exploitation. The manufac- As described above, the case companies simul-turing costs of products are only a small part of taneously have several network operations, butthe total price when products are sold to clients still they have been located on the framework ac-and customers. Besides, service functions deliv- cording to the main focus of business develop-er all products to all clients and customers. Ser- ment at the studied time (Figure 2).Figure 2: Case Companies Located on the Renewal and Co-Creation Framework 34March 2011 Open Source Business Resource http://www.osbr.ca

Renewal Through Co-Creation in Business Networks Raimo Hyötyläinen, Katri Valkokari, and Petri KalliokoskiFirst, cases C and E represented the hub-spoke After the recursive recycling of lessons learnedmodel, where the co-operation relationships from the literature, the theoretical frameworkwere typically bilateral and the focus was on and case findings, we were able to identify the fo-knowledge exploitation. In case C, the present cus of renewal and co-creation together withdevelopment needs related to the service busi- pros and cons of each network model. These as-ness have guided the network to knowledge ex- pects of co-creation within business networksploration. However, in Case E, the service are summarized in Table 2.business development has led its network to thedirection of the strategic network model. The importance of joint intents and shared un-Second, case B illustrates a more complex net- derstanding for collaboration become evident inwork where three companies have developed a all cases. Only one of the case companies wasnew service concept together. The service able to utilize more open models of innovation,concept was based on coordination and comple- and thereby its business model was mainlymentary resources of companies, and it did not based on services and consulting when sharingrequire intensive exploration of new knowledge. of its software solutions was not harming theThird, case D stands for the strategic alliance business goals. The others were utilizing co-cre-model with horizontal collaboration and know- ation networks for business renewal when theledge exploration between the companies, who competences of network actors were clearlybelong to same group. Because of this owner- complementary and interests of participantsship situation, the legal relationships and shar- were not conflicting. Still, too often their owning of risks and benefits between the companies competence base was described as too broadwere clear and the complexity of network was and the companies could benefit if they openedconstrained. Finally, case A portrays a more their innovation process.open innovation model where the case companyintentionally utilized parallel network models. ConclusionWithin this kind of innovation model, it is im-portant to have a clear vision about knowledge Typically, firms and their managers have moresharing and protection. experiences of certain business networks, and one important challenge is to understand thatNetwork renewal has emerged based on co-cre- different network situations require different ap-ation process (i.e., the interaction and relation- proaches. Hence, the characteristics of networkships of network companies). In the case members influence their willingness and abilitydescriptions, we distinguished the level of co- to take part in development work. The develop-creation as 3C’s (cooperative, coordinative, and ment of closed, vertical, and rather hierarchicalcollaborative) (Brown & Keast, 2003; Keast et al., hub-spoke networks can thereby quite easily be2007). The cases highlighted how exploration of foreseen and managed. In these networks the fo-new business opportunities led the network act- cus of renewal was on operative issues: effi-ors to more intensive, multiplex, and collaborat- ciency and productivity of network levelive relationships. Still, even in case D’s network, processes. Within strategic alliances and net-where case companies were part of a larger works, co-creation required more negotiationsgroup, the customers bring out how network between the network members and the ability tocompanies appeared to be targeting their own discuss future business opportunities. Still, quiteinterests before the network’s targets. often the strategic approach to business net- 35March 2011 Open Source Business Resource http://www.osbr.ca

Renewal Through Co-Creation in Business Networks Raimo Hyötyläinen, Katri Valkokari, and Petri KalliokoskiTable 2. Aspects of Co-Creation Within Four Network Modelsworks was missing and the firms did not distin- The empirical material about renewal in busi-guish the network models. ness networks was based on activity research in- to five case networks. Due to the multiple-caseThe practical implications of this article are con- approach and business networks being the mainnected to the strategic management of business unit of analysis, it was not possible to give deep-networks. The framework of network models er consideration to entrepreneurship and stra-may help managers to structure the business tegic management. Still, several case examplesnetwork based on the strategic targets of a firm. demonstrate that the role of managers and entre-The theoretical contribution of the paper deep- preneurs in network organizations is challen-ens the understanding of how co-creation and ging. Therefore, one important subject for futureinteraction between the participants differ ac- studies would be to research entrepreneurshipcording to business focus and complexity of net- and networks as strategic choices.works. 36March 2011 Open Source Business Resource http://www.osbr.ca

Renewal Through Co-Creation in Business Networks Raimo Hyötyläinen, Katri Valkokari, and Petri KalliokoskiDr. Raimo Hyötyläinen holds the position of Re-search Professor at VTT (Technical ResearchCentre of Finland) and his research theme isstrategy and foresight in the manufacturing in-dustry. He graduated in Industrial Managementfrom Helsinki University of Technology and holdsan M.Sc (Pol.Sc.) degree in sociology, economics,and economic and social history from HelsinkiUniversity. Raimo has researched hundreds ofmanufacturing companies since the beginning of1985, when he came to VTT.Dr. Katri Valkokari is a Senior Research Scientistand team manager at VTT (Technical ResearchCentre of Finland) in the Value Network Develop-ment research team. She has executed several de-velopment projects concerning strategic SMEbusiness networks. Katri recently completed herdoctoral thesis on business network development.She has published several international and na-tional articles in the research areas of strategicbusiness networks, collaboration, organizationalknowledge, and innovation management.Mr. Petri Kalliokoski, M.Sc. (Tech.), holds the pos-ition of Senior Vice President of Strategy and Busi-ness Development at VTT (Technical ResearchCentre of Finland). He is responsible for VTTsstrategy and business development activities andacts as a chairman of the strategic research steer-ing group on business and innovation manage-ment. Petri has worked as a project director andresearcher in several large international R&D pro-jects. In addition, he has carried out consultingassignments in the area of business strategies andorganizational development. His current researchinterests include innovation management, indus-trial services business development, and manage-ment of enterprise networks. He is also a boardmember in several companies. 37March 2011 Open Source Business Resource http://www.osbr.ca

The Strategic Impact of Corporate Responsibility and Criminal Networks on Value Co-Creation Frederick Ahen and Peter Zettinig “Meglio soli che male accompagnati.” (Better alone than in bad company.) An Italian proverb This article is motivated by the increasing concern about the ever-declining security of pharmaceutical products due to the abundance of counterfeit network actors. We argue that if networks are effective mechanisms for criminal organizations to infiltrate into any value chain, then networks should also work for responsible businesses in their quests to counter this phenomenon of value destruction, which is ultimately detrimental to the value co-creation process. Thus, this article demonstrates a nuanced understanding of the strategic impact of corporate responsibility of actors in networks on value co-creation. The current discourse on value co-creation in business networks is structured in such a way that it precludes its inherent corporate responsibility component even though they are not mutually exclusive. Moreover, research on value co-creation aimed at the proactive and responsible defence of a network substance via value co-protection has been mostly scant. We propose a model of value-optimization through value co-protection and ethical responsibility. This way of theorizing has several implications for both policy making and managerial decision making in the pharmaceutical industry and beyond.Introduction porary times. With the changing business landscape, firms are inextricably interlinked withAn age-old African proverb says, “If you want to various actors at every step of their functionsgo fast, go alone. If you want to go far, go togeth- and operations along the value chain, both ater with others.” This still rings true and explains home and across borders, for the co-creation ofwhy “no business is an island” as epitomized in value (Freeman & Velamuri, 2006: http://tinyurlHåkansson & Snehota’s (1989; http://tinyurl .com/4lmwqcf; Grönroos, 2008: http://tiny.com/4zf9brg) seminal work. This mode of going url.com/4u98ovq). Thus, business relationshipstogether (in mutual interest) with others to co- are indispensable; however, such relationshipscreate value is referred to as “networks” in busi- should be with the right actors (i.e., those withness parlance. Firms do not exist in isolation nor matching values and practices) in order to en-indeed are other business and social actors self- sure a productive process of value co-creation.sufficient without firms, at least not in contem- We strongly press this point because the pres- 38March 2011 Open Source Business Resource http://www.osbr.ca

Corporate Responsibility and Criminal Networks Frederick Ahen and Peter Zettinigence of sinister actors in a network leads to value mately being detrimental to the value co-cre-destruction and hence competitive disadvantage ation process. The value destruction in essencefor the other actors. creates competitive disadvantage for the af- fected actors. This has huge implications for theThe main premise of this article is that, far from performance of startups especially.being an afterthought, value co-creation doesnot only involve product and service develop- We argue that the construct of value co-creationment activities with other business actors and presents some form of social ambiguity whenconsumers but also their protection along the used in the classic sense without its ethical com-value chain, which comes about through corpor- ponent. Given the complexity of network organ-ate responsibility and specifically the ethical val- izations and managerial opportunism withinues of the actors. Analytically, it becomes too such relationships, we agree with Nielsen (2003;rigid and unconstructive to separate value co- http://tinyurl.com/4a4dc2n), who argues com-creation from corporate responsibility because pellingly that: “just as it is not possible to havevalue must be co-protected – first, to bring it in- an organizational form without an at least impli-to existence and second, to maintain such exist- cit ethical or normative foundation, it is also notence in the long term. Value protection is possible to actualize social ethics without an or-fundamental to value co-creation, which is ganizational form.” This ethical preference ismostly highly effective within a strategic scen- even more complex for business networks toario of ethically responsible socio-economic net- foster sustainable innovation and competitive-work substance, thus, actors, resources, and ness. This is to propose value co-protection asactivities (Håkansson & Snehota, 2006; an integral and strategic aspect of value co-cre-http://tinyurl.com/49hup5a). ation which can be applied in empirical studies whilst offering managerial guidelines and policyA relevant question is how do we explain the co- recommendations to policy makers. Now, we ar-creation of value among actors in science and in- gue that the key to long-term success is ethicalnovation contexts such as pharmaceutical firms? behaviour not only constrained by one firm butOur conceptual contribution is motivated by the as an aggregate of acceptable social actionsincreasing concern about the ever-declining se- among its network of actors. We propose a mod-curity of pharmaceutical products due to the el of value-optimization through value co-pro-abundance of counterfeit networks. We argue tection and ethical responsibility, as well as athat if networks are effective mechanisms for redefinition of value co-creation to comprehens-criminal organizations to infiltrate into any ively capture the responsibility component.value chain, then networks should also work forresponsible businesses in their quests to counter The notion of value destruction in networks canthis phenomenon of value destruction. The be exemplified in how, in the pharmaceutical in-value destruction in business networks comes dustry, business and non-business actors’ in-about mainly via: i) shirking and secret informa- terests and activities converge as inhibitors ortion leakage to infringe on intellectual property enablers of value co-creation. Irresponsibility onrights and ii) contamination of the value chain the part of one actor has a very high potential forwith adulterated goods and services that affect value destruction. The effect is even more dam-reputation, pilfer customers, lower profitability, aging in the case of incongruence in actorand send mixed messages to consumers about motives, resources, activities, and the affectedbrand identity and product quality, thereby ulti- actors’ inability to defend themselves against ir- 39March 2011 Open Source Business Resource http://www.osbr.ca

Corporate Responsibility and Criminal Networks Frederick Ahen and Peter Zettinigresponsible behavior by others. There is cer- http://tinyurl.com/6afqwpz) posits that “a net-tainly a strategic impact of corporate responsibil- work is an independent coalition of task andity in business networks on value co-creation. skilled economic actors operating without hier-We operationalize corporate responsibility as archical control but embedded in a dense con-the ethical (shared value systems), social (trust, nection, mutuality and reciprocity in a sharedbonds, and ties), and environmental defense value system that defines the ‘membership’and protection of each member and the eco- roles and responsibility.”nomic obligations of all strategic network actorsin the value co-creation process. Institutional The Strategic Impact of Networks on Valueand market dynamics make networks an inter- Co-Creationesting concept to study. That notwithstanding,global socio-economic, cultural, environmental, For Håkansson and Snehota (2006), “managingand technological changes have meant that sev- strategy thus means managing the processeral sophisticated criminal networks also per- whereby the pattern of activities to be per-vade economic activities by infiltrating into formed by an organization is conceived (that isglobal distribution and logistics value chains in strategy formulation) and then creating the con-ways that destroy value for all actors. Criminal ditions to ensure that these activities are carriednetworks refer to organized crime built on tight out” (i.e., strategy implementation). This processand often impermeable networks guided by an il- is continuous given the dynamic nature of thelegal, unethical, and irresponsible business mis- environment. On the strategic impact of net-sion (Gummesson, 1994; http://tinyurl.com/ works, Thorelli (1986; http://tinyurl.com/5stp8y4). 6395ep6) asserts that networks serve as alternatives to vertical integration and diversification asThe Concept of Business Networks well as a means to reaching new clients in different geographical areas.For Håkansson and Snehota (2006), the organiz-ational context can be viewed as a “social sym- The strategic impact here refers to the long-termbolic reality in which the firm chooses to exist, competitive disadvantage created by sinister act-and does so by framing it.” The framing of the ors. The analysis of networks must include non-context and a firm’s structural and social pro- business actors such as non-governmental or-cess with dynamic characteristics is the basis of ganizations (NGOs), institutions, governments,defining the firm’s identity. This comes about and the wider society, which stand to gain by pri-through learning and routines, as well as institu- oritizing ethics or operating with the lack thereoftionalization, that guide future behavior (Fletch- in a dynamic global economy. The significanceer, 2008; http://tinyurl.com/6c8otnu). Networks of the strategic impact is still dependent on theare web-like sets of relationships connected with core actors’ corporate responsibility commit-other sets of relationships (Håkansson & Sne- ment. The social capital in networks such ashota, 2006). They can be explained in terms of trust, bonds, and ties allow the prevention ofactors, activities, and resources. For Easton value destruction from within or outside the(1992; http://tinyurl.com/5sfzzpn), networks business network. This in turn encourages ethic-can be explained in terms the structure, posi- al behavior since the consumer’s ethical con-tions, and processes of relationships. A more cerns cannot be ignored in the co-creationcomplex definition by Achrol and Kotler (1999; process. 40March 2011 Open Source Business Resource http://www.osbr.ca

Corporate Responsibility and Criminal Networks Frederick Ahen and Peter ZettinigCo-Protection in the Actualization of Network are typically normative and regulatory in a phar-Actor Core Values maceutical network context, but they can exert great force on strategy implementation. ThisIf value is either destroyed or created in a net- means they are not necessarily economic actors,work relationship (Ritter & Gemünden, 2003; which contradicts the popular view that all act-http://tinyurl.com/4brbb8s), then the activities ors in a network have an economic motive. Theirof counterfeiters and several other external act- role as institutional structures is to safeguard re-ors may pose potential hindrance to the expec- sources (tangible and intangible) and intellectu-ted outcome of the co-creation process. This is al property, prevent supply chain risk inexemplified in how, in the pharmaceutical in- international markets and to co-create moredustry, the actors’ interests, roles, and activities value with and for the consumer. Mpedigreeconverge in value co-creation, but the value (http://mpedigree.net) for example is a techno-chain can also be destroyed by illegal profit-seek- logy-support actor that permits patients to call aing groups across the value chain. Actors include toll-free number to verify the authenticity ofspecialized pharmaceutical firms and contract pharmaceutical products after purchase. This isresearch organizations. Distributors include hos- strictly value co-protection input, but without itpitals, pharmacies, and other smaller outlets the value co-creation cannot be guaranteed forlinking consumers. Others are active pharma- consumers.ceutical ingredient suppliers, NGOs, venturecapitalists, etc. Resources are mainly scientific Conclusionexpertise, technology, and finance which con-verge at the activities of R&D, discovery, formula- Value co-creation is an activity-based dynamiction, and clinical trials on human subjects, as relationship whereby actors’ core values and re-well as tests on animals. Clinical trials are some- sponsibilities are embedded in creating and pro-times off-shored to contract research organiza- tecting or safeguarding the service or producttions in emerging economies where operations that is of worth to the consumer; the ultimateare cost-effective and regulatory demands are goal of such relationship-driven process is to sat-flexible. Nevertheless, institutions have the isfy the different mutual expectations of the act-power to obstruct clinical trial processes if they ors with the firm as the nucleus.do not meet the good clinical practice (GCP) andif trial subjects are not treated according the reg- The contribution of the present work lies in theulations. The interface of both business and non- re-orientation and re-conceptualization of valuebusiness actors may delay the authorization for co-creation in a network context for value co-commercialization by European Medicines protection via corporate responsibility. The es-Agency (EMA) or Food and Drug Administration tablishment and maintenance of a network rela-(FDA) in the United States, and competitors will tionship is a resource and hence a value in itself.enter the market first. This will eventually affect Moreover, value is created in terms of: i) eco-general performance of all the actors; the reverse nomic gains (incremental turnover; due to com-is also valid (Reich, 2000; http://tinyurl petitive advantage created by perceived value of.com/4uwaehp). offers) and ii) social capital (bonds, ties, trust, and commitment), which represents an “ethicalAll this has a positive and negative effect on the cheque” or core values for the future or long-co-creation of value, which helps to explain the term concerted efforts by actors to exploit oppor-importance of corporate responsibility on the tunities through innovation, learning, and valuepart of all the actors within a network context. protection. Most importantly, value consists ofThe roles of FDA, EMA, and NGOs, for example, the implicit ethical responsibility of actors to 41March 2011 Open Source Business Resource http://www.osbr.ca

Corporate Responsibility and Criminal Networks Frederick Ahen and Peter Zettinigcommit to making optimal value propositions to Frederick Ahen is a doctoral researcher at theconsumers in cooperation with strategic (core) Turku School of Economics, Turku, Finland. Henetwork-actors with the aim of meeting their holds a M.Sc. degree in International Businessneeds sustainably by protecting such value co- from the London South Bank University, London,creation processes. UK and a B.Sc. in Economics and International Business from the Università Politecnica delleValue co-creation without a network substance Marche Ancona, Italy. Frederick is interested infor value co-protection is tactically possible but advancing theoretical and empirical analysis in-strategically deficient; therefore, it will lower the to the following substantive domains: interna-networks’ ability to combat or decrease value de- tional strategies of MNCs in the science andstruction which is a constant internal and extern- innovation industries, especially pharmaceuticalal threat. Cooperation with committed network companies operating in developing economies,actors seems to be a plausible direction with pos- corporate responsibility, value co-creation, com-itive results and a matter of necessity for value parative institutional analysis, and criminal or-co-protection. Any deviation from that would be ganizational networks.pointless. Peter Zettinig received his PhD in InternationalNetworks achieve their aim when they are both Business from Turku School of Economics, 2003.proactive and reactive in the value co-creation Before joining Turku School of Economics as As-in aligning actor core values, value co-creation, sistant Professor in 2008, Peter held the positionand value co-protection activities with the pro- of Senior Lecturer at Victoria University of Wel-cess of providing consumer solutions with and lington, New Zealand. His research interests re-for the consumer. Value co-creation in networks late to international business strategy – amongis therefore not measurable in monetary terms others.only, but in socio-cultural, economic, institu-tional, reputational, and environmental terms.Most importantly, the future potential of all theabove requires value protection from any sinis-ter bunch or saboteurs who may hinder the ulti-mate desired value of network actors andconsumers. Value protection is hence depend-ent on prioritizing the selection of actors withmatching values, for it is better to be alone thanto be with sinister actors in a network. 42March 2011 Open Source Business Resource http://www.osbr.ca

Quality-Based Co-Value in SaaS Business Relationships Xian Chen and Paul Sorenson “Business is not just doing deals; business is having great products, doing great engineering, and providing tremendous service to customers. Finally, business is a cobweb of human relationships.” H. Ross Perot In the past decade, the focus of information technology (IT) development has been on service-oriented architecture (SOA), especially the new service delivery model, Software-as-a-Service (SaaS). Accordingly, interest in quality management in the planning and operation of SaaS systems has increased tremendously. In practice, it is necessary to take into greater account the nature of service quality shared by both service provider and customer in the SaaS delivery. This paper introduces a study on a theory that integrates the service quality and value co-creation (co-value) in the SaaS business relationships between service provider and customer. The theory is established, in part, based on the results of a survey of CIOs (Chief Information Officers) that shows a strong correspondence between the service quality required or desired by a client and the business relationship needed between SaaS clients and providers. We have used the theory as the foundation for an approach and tool for evaluating SaaS applications.Introduction needs and seek out co-value approaches in their business relationships with clients. This work re-This article examines the effect of service quality cognizes this direction by developing a theoryon business relationships between clients and that integrates service quality and value co-cre-SaaS service providers. To date, most of the fo- ation (co-value) in the SaaS business relation-cus from both business and research perspect- ships between service provider and customer.ives has concentrated on how the provider ofSaaS services can deliver services that meet their Quality Management in SaaS Businessadvertised service objectives and that are pre- Relationshipsdominantly performance-based. Most SaaS cus-tomers are relegated to a “take it or leave it” The notion of service quality considered in oursituation with respect to many important service research is derived from the following three per-quality factors such as usability, sustainability, spectives:or adaptability of a service offering. To be com-petitive in the future, SaaS vendors will need to 1. Conformance Quality: conformance to spe-be more flexible with clients’ service quality cifications 43March 2011 Open Source Business Resource http://www.osbr.ca

Quality-Based Co-Value in SaaS Business Relationships Xian Chen and Paul Sorenson2. Gap Quality: whether customer expectations lationships and illustrate its features using exist-are met or exceeded ing SaaS applications. The specification pre- scribes four service types based on the maturity3. Value Quality: the direct benefits (value) to levels of business relationships between servicethe customer provider and customer. These service types are summarized in Table 1, in which four serviceFrom the view of service providers, both Con- types are prescribed based on the maturity levelsformance Quality and Gap Quality measures are of business relationships between the servicemanaged as part of their business relationship provider and customer, which are called Ad-hoc,with customers. The focus on Conformance Defined, Managed, and Strategic.Quality aspects, typically expressed in the ser-vice level agreements (SLAs), is initially determ- We have a strong belief that quality measuresined in the provider organization, often play an increasing role in SaaS business relation-involving marketing, sales, and production ships. Based on this belief and towards a theoryunits. The Gap Quality concerns, commonly de- of SaaS business relationships, we establish thetermined by the provider using survey tools in- following conjecture:volving the customers, assist in determining thegap between what customers expect from a ser- • The primary service attribute of interest in anvice when compared to what the provider is de- Ad-hoc Service is functionality.livering. • The primary service attributes of interest in aFrom the view of service customers, Functional Defined Service are those measured by Confor-Needs and Value Quality are managed as part of mance Quality approaches.their business relationship with providers. TheFunctional Needs express the user requirements • The primary service attributes of interest in afor supporting their workplace activities in the Managed Service are those measured by Gapcustomer organization. The Value Quality meas- Quality approaches.ures, such as ROI and risk analysis, capture thevalue the customer organization places on de- • The primary service attributes of interest in aploying a service using a SaaS. Strategic Service are those measured by Value Quality approaches.Ideally, both the SaaS provider and customercontinue to seek ways of maintaining a “win- Survey Approach: Validating the Theory onwin” business relationship where new or added Service Attributesco-value is continually being created for a ser-vice offering. Therefore, a major factor affecting To assist in validating the conjecture of our the-the SaaS business relationship is a clear under- ory, we conducted a web-based, on-line surveystanding of the co-value present in the service of- involving primarily CIOs from twenty commer-ferings. cial, governmental and academic organizations in the local areas. This survey was intended toSpecification of Quality-Based SaaS Business capture the service customers general view onRelationships the twelve typical service attributes in the selection and monitoring of SaaS services. The surveyBy integrating a quality management approach results were analyzed and used to confirm or re-with co-value in SaaS business relationship, we fute our conjecture relating to SaaS business re-can produce a specification of SaaS business relationship. 44March 2011 Open Source Business Resource http://www.osbr.ca

Quality-Based Co-Value in SaaS Business Relationships Xian Chen and Paul SorensonTable 1. Four Service Types in SaaS Business RelationshipsIn July 2009, we sent an invitation letter by email In the Generic Survey, 19 questions were askedto the CIOs of 70 commercial, governmental, in the following six sections:and academic organizations from Edmontonand Calgary areas to ask for participation in the 1. Background information: questions aboutsurvey, and initially we received 30 positive re- the background of the customer organization,sponses. We then sent a second invitation letter such as size and nature of market focus, and re-to the 30 CIOs and directed them to a web-based spondent’s role in the organization.online survey. At the end of August 2009, we re-ceived answers from 20 CIOs, 10 of which were 2. Use of external IT services/SaaS services:willing to participate in a follow-up study should questions about the use of external IT services inwe wish to conduct one. To explore in greater de- the customer organization.tail some aspects of SaaS, we did a brief followup questionnaire study in September 2009 with 3. Service attributes: questions about the prior-these 10 CIOs. Seven of the 10 CIOs responded ity of certain service attributes considered by theand the result of this follow up study will be de- customer decision-maker (typically CIOs) whenscribed later in this section. planning the use of IT services/SaaS services in four service types. 45March 2011 Open Source Business Resource http://www.osbr.ca

Quality-Based Co-Value in SaaS Business Relationships Xian Chen and Paul Sorenson4. IT service governance: questions addressing priority of that service attribute in that servicethe issues of IT governance strategy used in the type higher than or equal to all the other threecustomer organization and how a SaaS evalu- service types. For example, if 18 out of 20ation model might support the organization’s IT respondents rank the priority of Security in thegovernance approach. Defined Service the highest over the four service types, the relative importance of Security in the5. Strategic planning of IT: questions about how Defined Service is equal to 90%. By comparingthe customer takes the external IT services and the relative importance, we avoid the differenceSaaS services into account in strategic planning. of rating standards between individual participants. The relative importance values calcu-6. Use of personal web-based services: ques- lated from the survey results are shown intions about the impact of personal web-based Table 2.services, such as eBay, Wikipedia, Google Maps,Facebook and Youtube, on IT-services planning The stair-like shaded areas in Table 2 stronglyin the customer organization. support our conjecture. When the business relationship intensifies from Ad-hoc to Strategic, theIn this article, we only focus on the first three service customer should use progressively moresections of the survey that are related to our ana- types of quality approaches to manage the ser-lysis on service attributes with respect to the vice quality. The only two outliers in the group-four service types, especially section 3 (service ing results are usability, which is typicallyattributes). We asked respondents to select the measured by a gap quality approach (surveys)best estimate of the priority of eight typical ser- on the customer experience, and cost, which isvice attributes for each of the four service types directly measured by a value quality approachdefined earlier. We used a 5 point scale for the (monetary value). From the comments from thepriority, where 5 stands for “high”, 3 stands for survey respondents, we conjecture that the reas-“medium,” and 1 stands for “low”. Therefore, if a on for the misplacement of usability may bepriority of 5 is selected, this indicates that the re- caused by the confusion with user capability of aspondent would rate this service attribute as system, which is considered as part of function-high when making decision about selecting a ality by our definition. Both outliers need to beSaaS system. To extend our study to other five further investigated in future, more extensive,service attributes related to the business plan- and more intensive studies.ning such as ROI and risk, we asked the parti-cipants of the follow-up study to select a priority With the two outliers adjusted, the service attrib-for five additional service attributes, using the ute groups are consistent with the types of qual-same scale system. ity measures:To categorize the service attributes, the most in- 1. Functionality is the basic operational attributetuitive way is to calculate and compare the mean required whenever a service is delivered success-values of the priority. However, analysis on the fully (i.e. Ad-hoc, Defined, Managed, and Stra-mean values may not reflect the relative priorit- tegic Service).ies of service attributes. Instead of using themean value for the analysis, we calculate the rel- 2. Conformance quality attributes (Security,ative importance for service attributes in the Availability, and Reliability) are measured byfour service types. The relative importance of a conformance quality approaches and typicallyservice attribute in a service type is defined as are required when a service is delivered as athe percentage of population that consider the Defined, Managed, and Strategic Service. 46March 2011 Open Source Business Resource http://www.osbr.ca

Quality-Based Co-Value in SaaS Business Relationships Xian Chen and Paul SorensonTable 2. Summary of Relative Importance in the Four Service Types3. Gap quality attributes (Usability, Efficiency, SaaS business relationships, we have developedSustainability, and Adaptability) are measured a SaaS evaluation model. The model is intendedby gap quality approaches and are typically re- to assist the service customer in selecting an ap-quired when a service is delivered as a Managed propriate SaaS system and provides the serviceand Strategic Service. Gap quality attributes take provider and customer with a guide to monitorinto account more perspective from service cus- the service operation. The decisions related totomers. both service selection and monitoring should be driven by the perceived co-value of the service4. Value quality attributes (Cost, ROI, Risk, Con- provider and customer in establishing their busi-tinuity, and CSI) are measured by value quality ness relationship. A two-cycle evolutionary ap-approaches and are typically required when a proach is adopted in building our model (seeservice is delivered as a Strategic Service. In this Figure 1).sense, the value quality attributes are the mostclosely aligned with the business strategic object- The inner cycle around the core theory lists theives of both the service customer and provider. steps in defining and refining the SaaS evaluation model. We first analyze the requirementsDefining and Using the SaaS Evaluation Model that the model should achieve from the perspectives of both the service customer and pro-Based on our initial theory for integrating service vider. We then design the model using the UMLquality and value co-creation (co-value) in the object-oriented design tool. The model is then 47March 2011 Open Source Business Resource http://www.osbr.ca

Quality-Based Co-Value in SaaS Business Relationships Xian Chen and Paul SorensonFigure 1: Evolutionary Cycles for the SaaS Evaluation Modelimplemented and used by developing an evalu- when we initially use the tool, there is no real ex-ation tool, which starts the evolution of the outer periential data. To assist in building the experi-cycle. ential data for the evaluation tool, an online survey was conducted to collect experientialThe outer cycle focuses on the evolution of the data in the particular SaaS service area - a SaaSevaluation tool, which can be used in various solution for email systems. This email surveySaaS service areas. Based on the evaluation mod- was focused on the adoption of a specific SaaSel, the tool is built and used in a particular ser- email service, such as those provided by Googlevice area. Mail and Microsoft Hotmail.As an example, we have used a prototype of the We undertook the email survey from June to Julytool by simulating how it can assist in selecting in 2009. The survey objectives were set as aca-SaaS in email services in the service-planning demic institutions all over the world that were re-phase. Three steps are followed in the service se- cognized as successful adopters by Google andlection procedure: Microsoft. The invitation procedure was similar to the generic survey conducted earlier. The key1. Build the experiential data. The experiential questions in the email survey asked the prioritydata are typically retrieved in service selection of service attributes considered in service selec-and updated in service monitoring. However, tion and the monitoring frequency in service op- 48March 2011 Open Source Business Resource http://www.osbr.ca

Quality-Based Co-Value in SaaS Business Relationships Xian Chen and Paul Sorensoneration. The results are used to build the experi- Availability, Reliability, Usability, Efficiency, Sus-ential data for producing the selection and mon- tainability, Adaptability, Cost, ROI (Return on In-itoring report. vestment), Risk, and Continuity.2. Take inputs for service selection in email ser- From the service provider’s perspective, the eval-vices. The service selection procedure takes in- uation tool needs to determine if the service of-puts from both the service customer on the ferings are consistent with the servicefunctional and non-functional requirements customer’s requirements collected in the previ-and the service provider by capturing the service ous step. In the email service area example,offering description and/or SLA templates from Google Apps for Education and Microsoftthe worldwide web. Live@edu are selected as the candidate service providers for the email system. Both applica-From the service customer’s perspective, the tions provide email services for educational insti-evaluation tool collects the requirements from tutions. The input from the service providerservice customers. In general, the following in- includes the service terms and the initial versionformation is taken as the input from the service of SLAs, which can be captured from the pro-customer: vider’s websites.• general business motivation and business ob- 3. Produce the service selection report. The se- jectives for the adoption of an email service lection report summarizes the information from as provided by the customer organization both the service customer and provider, finds the potential problems such as incompleteness• specific objectives to be achieved by adopting and inconsistencies with the views of other cus- an email service system (ranking of these spe- tomers in the service area, and recommends the cific objectives, if applicable) appropriate service candidates and service type in the business relationship between the service• the service type (Ad-hoc, Defined, Managed, or customer and provider. The selection report typ- Strategic) the customer believes is most appro- ically contains parts addressing the following priate for the service is then determined concerns:• estimate of the priority of the service attributes Introduction: the background section defines used in making the decision to adopt a SaaS key terms, such as the service types and service system attributes, introduced in the evaluation tool and outlines the report contents and major findings.• estimate of the monitoring frequency of service attributes when using the SaaS system Comparisons: the tool compares the service customer’s input to the historical results as derived• IT governance frameworks or strategies used from surveys of existing customers that use the when selecting and monitoring the SaaS provider’s service. In our example, the custom- system er’s input is compared with the experiential data collected from the email survey. In the comparis-To assist the decision maker in determining the ons, the tool detects potential issues the servicerequirements on service quality, we chose the customer may want to examine more closely,following twelve service attributes used for de- such as the priority of some attributes in custom-cision making of service selection and monitor- ers input deviates significantly from the surveying of service operation: Functionality, Security, results. 49March 2011 Open Source Business Resource http://www.osbr.ca

Quality-Based Co-Value in SaaS Business Relationships Xian Chen and Paul SorensonAnalysis and evaluation: The tool analyzes the in- der to determine the co-value for both the ser-puts from the service customer and the service vice customer and provider, a specification ofprovider, and points out inconsistencies and in- four service types (Ad-hoc, Defined, Managed,completeness for decision-making. According to and Strategic) was defined based on maturityour evaluation model, four groups of service at- levels of the business relationships in SaaS deliv-tributes can be directly related to the four ser- ery. This led to a conjecture that the intensifica-vice types: Functionality, Conformance quality tion of the service type can be managed by theattributes, Gap quality attributes, Value quality addition of quality measurement approaches. Aattributes. web-based survey was conducted with a selected group of CIOs from service customer organ-Recommendations: Based on the analysis, the izations to validate this conjecture. Four servicetool recommends the appropriate service type attribute groups identified in the survey resultsfor the business relationship that should be es- can be consistently aligned with the incrementaltablished in the service delivery. evolution of the four service types. The conjecture is used as a foundation for defining the SaaSThe update of the tool leads to the beginning of evaluation model that helps service customersnext cycle. The lessons learned in the develop- in selecting and monitoring SaaS systems in ser-ment of a specific tool are also used to improve vice planning and operation. Based on the mod-the model in the inner cycle. el, a SaaS evaluation tool is built and used for the assistance of the SaaS adoption in a particularThus far we have developed a prototype of a tool service area. In particular, a case study was runfor email SaaS services that might be used in aca- to assist the decision making of email service ad-demic institutions. The details of the design of option.the tool and the deployment of the prototypecan be found here: http://gradworks.umi.com/ The results of this research are important initialNR/62/NR62880.html. Based on this prototype, steps in building a better understanding of co-we have introduced some enhancements to the value in business relationships between the ser-evaluation model that incorporates the role of a vice customer and provider in SaaS delivery.broker. Based on these studies, the following research work can be pursued in future: i) extending theConclusion use of the tool to other scenarios; ii) further in- vestigations to assist in evolving the evaluationIn this paper, we discussed service quality man- model; and iii) more conceptual surveys used asagement and value co-creation (co-value) in a tool to validate and improve the model.building the SaaS business relationships. In or- 50March 2011 Open Source Business Resource http://www.osbr.ca

Quality-Based Co-Value in SaaS Business Relationships Xian Chen and Paul SorensonXian Chen received his Ph.D degree in Depart-ment of Computing Science, University of Al-berta, in 2010. He focuses his research interest onService-Oriented Architecture (SOA), Cloud Com-puting, Software-as-a-Service (SaaS), SoftwareProcess Management, etc. His Ph.D thesis posesthe problem of developing a service quality basedevaluation model in SaaS that incorporates busi-ness relationship between service provider andservice customer. The model can be used to assessservice quality and improve decision making re-lated to the adoption of SaaS systems.Paul Sorenson is Professor Emeritus of Comput-ing Science at the University of Alberta. He previ-ously held several academic positions at theUniversity of Saskatchewan (Professor & Head)and the University of Alberta (Professor, Chair ofComputing Science, Assoc. VP (Research) andVice-Provost (Information Technology)). Heteaches courses and has research interests in soft-ware engineering and the management and deliv-ery of software service systems. He co-authoredbooks in data structures and compiler design andhe co-founded two start-up companies: Avra Soft-ware Lab and Onware Systems. He is co-authoron more than one hundred journal and confer-ence papers and has served on the Boards of alarge number of research institutes and centres. 51March 2011 Open Source Business Resource http://www.osbr.ca

Trusted to Lead: Trustworthiness and its Impact on Leadership Taina Savolainen and Sari Häkkinen "Trust is the essence of leadership." Colin Powell This article discusses trust in leadership, a major issue in current business management. Paradoxically, in the environment of continuous change that character- izes many organizations today, trust is needed more but is enacted less. Trust forms a foundation for functioning relationships and co-operation. Trust is intangible – it is an intellectual asset, a skill, and an influencing power for leaders. Lead- ership by trust emphasizes trustful behaviour towards employees. In this article, we suggest that, in trust formation, it is trustworthiness in leader behaviour that matters. Showing trustworthiness by competence, integrity, benevolence, and credibility makes a difference in daily leadership work. The importance of trust in leadership has been widely recognized in the literature and business practice. This article focuses on how leaders enact on trust by showing trustworthiness to subordinates. The ways of building and sustaining trust and the effects of trustworthy and untrustworthy leader behaviour are examined. Two real life cases from industrial companies are presented and their implications are discussed. In conclusion, a leader’s competence (ability) is one of the key dimensions in showing trustworthiness. As to untrustworthy behaviour, it is worth noting that building and sustaining trust is reciprocal in nature. A practical implication for leaders is that the development of an awareness of trustworthiness and skills for demonstrating it should be a top priority in the current business environment, which demands strong interaction, cooperation, and communication abilities.Introduction ness is examined through leader behaviour and in the context of intra-organizational, inter-per-This article examines trust in leadership by look- sonal work relationships. The main question ising at trustful or distrustful leader behaviour to- how leaders show trustworthiness by buildingwards employees. The objective of the article is and sustaining or violating trust. The con-to increase leaders’ awareness and knowledge of sequences of trust and lack of trust for collabora-the importance building interpersonal trust tion activity, commitment, and mental workwithin work relationships, particularly between well-being are discussed.leader and follower. The article looks at trust in arelational context, which means that trust devel- There is no doubt that studying the topic of trustops and evolves in interactions and relationships is highly timely, relevant and meaningful. This isbetween organizational actors (Mayer et al., grounded in the recently increasing awareness1995; http://tinyurl.com/6y59dv3). Trustworthi- that existing bases for social co-operation, solid- 52March 2011 Open Source Business Resource http://www.osbr.ca

Trustworthiness and its Impact on Leadership Taina Savolainen and Sari Häkkinenarity, and consensus have been eroded and new knowledge-intensive society. Organizations fo-alternatives are needed. Because organizational cus on offering career opportunities for person-change is a frequent threat to trust, better under- nel and fulfill their motivational needs in orderstanding is needed of ways of enacting on trust to build commitment. An employee’s commit-in inter-personal work relationships within or- ment to their work and the organization is re-ganizations. However, the consequences of in- lated to mental well-being, and both affect thetra-organizational trust spread far beyond the success of the organization. Trust appears atorganizational boundaries. In trustful leader be- many levels, organizational or managerial, andhaviour, competence (ability) is seen one of the is manifested in the way, frequency, and qualitymain dimensions of trustworthiness, together of interaction between employees and managers.with three other factors: integrity, benevolence,and predictability. Distrust is associated with Trust is a basic element of functioning relation-negative expectations and a lack of confidence ships in organizations. Employees in organiza-in the other party. Distrust also involves the be- tions create trustworthiness by their dailylief that one party may not care about the other’s behaviour and actions. Feelings of insecurity ap-welfare and may act harmfully (Lewicki et.al, pearing in workplaces may be often a reason for2006: http://tinyurl.com/65lk2xe; Gillespie & Di- atmosphere- related problems such as teasing,etz, 2009; http://tinyurl.com/6c3or6m). Mutual conflicts, and disputes. All of them affect thetrust and perceptions of trust play a crucial role level of trust. Mental well-being is largely sus-in trustworthiness pertaining to cooperation and tained by emotional support such as appreci-interpersonal and inter-group relationships in ation, respect, openness, and feedback. Aorganizations (Ferring et. al., 2008; http://tinyurl commitment to the work and the organization is.com/4gf39z3). Personality is also a strong facet reflected in employees’ work motivation and sat-of trusting (Ben-Ner & Halldorsson, 2010; isfaction (i.e., work welfare).http://tinyurl.com/4saf95t). Employees that trust their leader work effect-Trust and Trustworthiness ively and have a high level of commitment. In addition, they share ideas and knowledge, tacitTrust influences organizational processes such knowledge in particular. Trust in the behaviouras communication, cooperation, and informa- of other people grows when cooperation is recip-tion sharing, and it affects productivity. Accord- rocated. Psychologically, trust declines most of-ingly, trust is one of the most frequently ten when positive expectations are disconfirmedexamined constructs in recent organizational lit- (Lewicki et al., 2006). Respect and appreciationerature. Following the well known definitions of stimulate the development of trust, while poorDeutsch and Rotter (1962 and 1967; http://tiny leadership underestimates employees’ personalurl.com/48vj7dz), trust comprises a person’s be- competences and this eventually results in de-liefs and expectations on how the trustee will be- clining work and company performance.have. Interpersonal trust is defined as theindividual’s or group’s expectation that the word Building trust is considered an essential activityor promise – verbal or written – of another indi- in managerial leadership. However, the task ofvidual or group can be relied upon. building and maintaining trust is complex. A leader’s traits, behaviour, leadership style, andHuman resources management has become skills all matter in building trust and creating anmore and more competence-oriented in the impression of trustworthiness. By implication, a 53March 2011 Open Source Business Resource http://www.osbr.ca

Trustworthiness and its Impact on Leadership Taina Savolainen and Sari Häkkinenleader’s mundane behaviour plays a key role; following analysis of the questionnaires; and iii)trust is built and maintained by a leader’s “daily a participant observation diary and notes writ-deeds.” ten and analyzed by the researcher during the process.In addition to leader behaviour, organizationalculture plays a key role in the development of Case Company Atrust and distrust in an organization. Culture islargely influenced by leaders’ actions. In the case Company A manufactures and sells valves andof a very authoritarian management style, for ex- pumps, and it operates worldwide. The com-ample, employees become socialized by the ac- pany’s headquarters are in Finland. At the timetions of their leaders and adopt the style. As the research was done, 43 people worked in themanagers act as role models to subordinates, company. Four of them were middle managersleaders who fail to behave in the expected ways and one was a general manager. Half of the em-earn disrespect and may block promotions in ployees worked in the manufacturing depart-management careers. This has consequences to ment and the rest were office workers inthe entire organization. Further, subcultures marketing, purchasing, sales, and financial ad-within organizations play a role in employee so- ministration. Some of the functions, such ascialization and commitment. Subculture may be cleaning and maintenance, were outsourced.even more strongly related to work commitment The company has sales representatives all overthan the overall organizational culture. the world.Two Cases of Leader Trust The leadership style in company A was fairly authentic and the organization structure was quiteIn this article, we present two cases of leader hierarchical. Middle managers had formal re-trust, which are based on an inductive, qualitat- sponsibility, but this was not actualized; the gen-ive empirical study made in two manufacturing eral manager made all the decisions. Also, thecompanies. Both companies are SMEs and are behaviour of the general manager was neitherwell recognized in their own business fields. predictable nor equal toward employees. Open dialogue between managers and subordinatesThe primary data were gathered from several act- did not occur. Fear and suspicion were prevalentors and sources: the leaders, employees, and hu- reactions to the general manager’s attitude.man resources manager. The data consist of Thus, co-operation and co-creation could notnarrative material, collected through informal, develop between employees and managementopen discussions (i.e., storytelling) with employ- in the organization.ees and the general manager. The themes of theinterviews focused on trust, leadership style, and Case Company Bleader behaviour. Company B is a vegetable supplier with custom-The secondary data is based on an empirical ers who are predominantly professionals in thestudy which formed the second author’s gradu- food industry (e.g., restaurants and cateringate thesis. Empirical material consists of three companies) in Finland. The company’s 25 staffdifferent kinds of data: i) 75 employee question- members include a general manager, a financialnaires; ii) open interview questions with the hu- manager, and a sales and marketing manager;man resources manager of the case company the rest of the employees work in production. 54March 2011 Open Source Business Resource http://www.osbr.ca

Trustworthiness and its Impact on Leadership Taina Savolainen and Sari HäkkinenThe leadership style in company B was demo- the leadership of company A lead to emergingcratic and participative. The atmosphere in the distrust in the organization. In the course oforganization encouraged open communication time, distrust permeated the organization andand debate. The company has a flat organiza- resulted in declining well-being and a low leveltional structure with flexible job descriptions; au- of commitment to the organization.thority, responsibilities, and liabilities are moredispersed and shared, which lead to a more di- An interesting finding in company A is that, des-verse division of daily work. Collaboration was pite the lack of trust, the employees were stillsuccessful between employees and managers confident with their own competencies andand it was found important. skills, but felt that the organization was not worthy of them. They still had faith in them-Key Findings from the Cases selves and trust in a future outside the organization. It is also somewhat contradictory thatIn these cases, it seemed that employee trust or people were highly confident with the continuitydistrust towards the organization and leader de- of work and felt physically well, despite evidentlyvelop as a result of appreciation or undervalu- low levels of mental well-being. Trustworthinessation of people by skilful or unskilful and untrustworthiness of general managers ismanagement, and authentic (democratic) or au- represented by the leadership style. In contrastthoritarian leadership styles. to company A, the leadership style in company B is very democratic and participative, thus stimu-In company B, as an indication of the trustful at- lating interactions and co-creation with employ-mosphere and a demonstration of trustworthi- ees. Internal communication is flowing andness, spontaneous sociality emerges between frequent; this is supported by the flat organiza-organization members (Fairholm & Fairholm, tional structure. The structure also enables open1999; http://tinyurl.com/63m5gmq). In com- communication and high morality in the treat-pany A, a distrustful atmosphere prevails, which ment co-workers.hinders communication and interaction. Poorleadership underestimates employee compet- Implications and Conclusionences. As a result, trust does not develop, anddisputes and conflicts occur. Eventually, such In the case studies presented here, the beha-situations show declines in employee and com- viours of the two leaders clearly demonstrate thepany performance. difference between trustworthy and untrustworthy leader behaviour and their consequencesLow leader trustworthiness in company A was to employees. In these cases, there are a few im-associated with the development of subcultures. portant lessons to be learned. Firstly, you can fa-Employees did not trust managers, particularly vourably influence the workplace atmosphere bythe top management (i.e., the owner-manager). showing trustworthiness through competence,This manager lacked business knowledge and integrity, benevolence, and predictability. Inknowledge of the industry, and did not possess case company B, a trustful climate prevails,the necessary leadership and management along with evidence of enthusiasm, high com-skills. As a result, leader behaviour by top man- mitment levels, effective communication, andagement was perceived as untrustworthy due to knowledge sharing. In contrast, case company Aincompetence in business and leading people. reveals a distrustful atmosphere, fear, low com-This was reflected in the leader’s actions, which mitment levels, and a lack of willingness to col-aroused suspicions and mistrust among employ- laborate and share knowledge. Secondly,ees. Incompetence and unethical behaviour by employees become socialized by a leader’s good 55March 2011 Open Source Business Resource http://www.osbr.ca

Trustworthiness and its Impact on Leadership Taina Savolainen and Sari Häkkinenor bad habits and the action style of their trust- Taina Savolainen is Professor of Managementworthy or untrustworthy leader. As culture devel- and Leadership in the Department of Business atops by unwritten, enacted daily manners strictly the University of Eastern Finland. Prof. Savolain-influenced by the leader, a lack of respect and en specializes in trust within organizations, lead-appreciation stimulates feeling of distrust ership, organizational change, and global(Fairholm & Fairholm, 1999). competitiveness management. Prior to taking up her academic appointments, Prof. SavolainenLeadership by trust matters in innovative and co- worked as a corporate advisor and deputy direct-creative work environments. The two cases or in the Ministry of Trade and Industry. She haspresented here imply that it is the small been extensively involved in management train-mundane deeds of the leader that matter for em- ing and consulting for both private and publicployees in forming opinions of trustworthiness. sector organizations, and has acted as Chief Ex-Leaders should increase their awareness and aminer of the Finnish Quality Award. She is alsoknowledge about building trust, and they should CEO of the family business, TQM Finland Ltd.develop behavioural skills for demonstratingtrustworthiness. Trustworthiness cannot be Sari Häkkinen is PhD. student of managementoveremphasized as a leadership trait and mana- and leadership at the University of Eastern Fin-gerial skill. It should be on the top-three list of land in the Department of Business. She receivedleader competences, along with the social skills her MSc. (Econ.) from Lappeenranta Universityof collaboration and communication. of Technology in the Department of Management and Organizations. Her current research focus is interpersonal trust and trustworthy behaviour between leaders and their subordinates, and how leadership styles affect trust building and violating trust. Sari Häkkinen has practical experience in the technology industry in the areas of human resources management and business development. 56March 2011 Open Source Business Resource http://www.osbr.ca

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Open Source business resource 3/2011 Co creation

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Open Source business resource 3/2011 Co creation — Document Transcript