Gaining insights into the measurement of value i

Post print version Saunila, M., Rantala, T., Ukko, J. & Pekkola, S. (2017). Gaining insights into the measurement of value in industrial service network. International Journal of Quality & Reliability Management, 34(4), 478-493. Publisher's version can be downloaded at https://doi.org/10.1108/IJQRM-03-2015-0046

Saunila, M., Rantala, T., Ukko, J. & Pekkola, S. (2017). Gaining insights into the measurement of value in industrial service network. International Journal of Quality & Reliability Management, 34(4), 478-493.

GAINING INSIGHTS INTO THE MEASUREMENT OF VALUE IN INDUSTRIAL SERVICE NETWORK

Structured Abstract Purpose – Nowadays, maintenance companies form networks, where multiple organizations and actors can deliver the customer value. Current literature does not take into account how the value created by the entire network can be measured. This paper aims to address this research gab by identifying how can the value created by the maintenance network as well as the participating individual organization be measured simultaneously. Design/methodology/approach - The research has been carried out using the qualitative research approach. The findings of the study are based on literature search as well as research processes carried out in two maintenance service networks. Findings - The study presents a framework and propositions on how to measure network value in maintenance services. According to the results, the network value can be measured from the following five perspectives 1) financial capital, i.e. savings or growth, 2) end customer capital such as the end customer satisfaction and recommending customers, 3) network capital, i.e. know-how development and learning, 4) sustainable capital such as business continuity, and environmental safety 5) relationship capital, such as reputation, and new contacts. Originality/value - Despite the increasing amount of literature on performance measurement in networks, theory is still lacking that reflects the complexity and dynamism when value is delivered to customers through maintenance networks. Significant novelty of the research is based on combining network, service and value perspectives in performance measurement. Keywords: Performance measurement; Value; Service; Network Publisher: Emerald Group Publishing Limited


1 Introduction Today, organizations form complex networks, where, by working together, the competitive advantage and value can be most effectively delivered to customers (c.f., Bititci et al., 2012). Companies operating in networks require information regarding the functionality and value of the network (Kaplan et al., 2010; Yin et al., 2011; Bititci et al., 2012; Franco-Santos et al., 2012; Ferreira et al., 2012). Traditionally, operations management literature has addressed the subject of value when considering manufacturers’ strategies for adding value to their customers (Lightfoot et al., 2013). When operating in networks, each organization’s role and value input has to be taken into account. For example, Ulaga and Chacour (2001) have investigated how value is created in networks and concluded that the value is created through relationships, not just delivering products and services. This requires a lot of shared information throughout the network. Lack of information in the network often cause unnecessary workloads and complicate managing the resources. Current literature suggests that these difficulties can be won by utilizing performance measurement systems. Comprehensive network level performance measurement systems can provide essential information to the entire network, manage the processes of the network and guide the network partners towards common goals (Kulmala and Lönnqvist, 2006; Kaplan et al. 2010; Bititci et al. 2012). Lack of network level performance measurement can lead to sub-optimization or, in worst case scenario, to weaken the performance of the entire network (Kulmala and Lönnqvist, 2006). An organization’s contribution is assessed by the network, and trust and relationships become important dimensions of performance measurement and evaluation (Bititci et al., 2012). However, there are lack of studies that investigate how performance measurement should be conducted to benefit the network (Kaplan et al., 2010; Yin et al., 2011; Bititci et al., 2012). Performance measurement is also important for managing the maintenance network because welldefined performance indicators can support identification of performance gaps between current and desired performance. Some approaches of measuring maintenance performance and value have been proposed. (Muchiri et al., 2011) Research into maintenance value has mainly focused on financial considerations, but intangible values can be as important as tangible values (Toossi et al., 2013). After all, when considering the value of services, it is not enough to measure the immediate output. The outcomes should also be considered (Baines and Lightfoot, 2014). The outcomes form the true value the customer receives from the service. Performance measures should be complemented by emotional measures, which reflect the network outcomes that create value for the customer (Baines and Lightfoot, 2014). When performance is created through networks, it disseminates in ways that reflect a level of complexity and dynamism that the current frameworks will not be able to handle (Bititci et al., 2012). The current studies also highlight the need to understand what value end customers derive


from services, as the value is perceived and determined by the customer on the basis of value-inuse, not by the producer (Vargo and Lusch, 2004; 2008). This is especially important to the maintenance operations, where multiple organizations and actors can deliver the service through networks. Current literature does not take into account how the value created by the entire network can be measured. Thus, this study aims to deal with this research gap by answering the following question: How can the value created by the maintenance network as well as the participating individual organization be measured simultaneously? The paper is organized as follows. Theoretical background of the research is presented by discussing how value is created in service networks. Also principles of performance measurement in maintenance networks are presented. Next, research methodology is presented. Finally, the results of the research are presented in terms of framework and propositions on how the value created by the maintenance network can be measured. 2 Theoretical background 2.1 Need for collaboration To survive in a competitive environment, companies have to collaborate with each other focusing on meeting customers’ needs more effectively and efficiently (Bititci et al., 2004). Bititci et al. (2004, p. 263) conclude that from a network point of view, collaborative enterprise or network could be define as “a distinct mode of organization in which participant organizations work together in equity, commitment and trust exchanging information, sharing activities and resources and complimenting and enhancing one another’s capacity for mutual benefit and a common purpose by sharing risks, responsibilities and rewards”. The association between service quality and communication has been revealed in previous studies (Ueno, 2008). The other motives for collaboration can be: organization needs external resources, competition is getting harder, launch time for new products must be decreased, flexibility of production increases and production runs shorten, customer participates in value creation, product lifecycle must be managed as a whole, and management control is needed outside the organization’s boundaries (Lehtinen and Ahola, 2010). Interactions and long-term relationships of the partners could lead to changes in firm behavior in order to better serve the customer (e.g. Madu, 2005; Mellat-Parast, 2015). It is presented that thinking has already moved from simple collaborative organizations involving few partners to complex networks of organizations, working together to create competitive advantage and value, i.e. value networks involving a combination of highly specialized large and small organizations collaborating around the world (e.g. Wenger and Snyder, 2000; Bititci et al., 2012). For example, Bititci et al. (2012) predict that these complex networks will create value for markets and customers at a rate and speed never seen before.


2.2 Value perspective in services network The basic nature of value can be discussed through two general meanings of value, “value-in-use” and “value-in-exchange”, reflecting different ways of thinking about value creation (Vargo et al., 2008). The traditional view of value creation is related to as goods-dominant logic, basing on the value-in-exchange where the value is created by organizations, usually through exchange of products and goods (e.g. Vargo and Lusch, 2004). In general, value-in-exchange can be regarded as a short-term trade-off between organizations sacrifices and benefits. According to goodsdominant logic, the value in maintenance business can be created for example when an equipment provider organization constructs an industrial pump out of metal, rubber and other raw material and sells it to the customer organization. The equipment provider organizations´ production process creates value for customer organization through the constructing and delivering the industrial pump. The alternative view of value creation, “value-in-use” is related to service-dominant logic where the roles of producers and customers are not distinct, meaning the value is co-created (Vargo and Lusch, 2008; Vargo et al., 2008). Service-dominant logic offers an alternative point of view to evaluating organizations strategic positioning to consider its operations from a network-oriented perspective that would facilitate the exploration of new value-creation mechanisms in an industrial context (Hallikas et al., 2014). In service-dominant logic, the equipment provider still uses its skills and resources to construct equipment out of raw materials. However, that equipment is only an input into a value creation process that occurs when a customer organization integrates it with its own processes and resources. It is only when the customer organization makes use of the constructed goods – in their own purposes – that it has value. In this case, customer organization and equipment provider co-create value: equipment provider applying their knowledge in the production of the good and customer applying their knowledge and skills in the use of it for example in the context of producing value for their own customers (see e.g. Vargo et al., 2008). The equipment provider and the customer organization (for example a power plant operator) can also co-create value by developing and maintaining processes together. Moving the locus of value creation from exchange to use, means transforming understanding of value from one based on units of organization output to one based on processes that integrate resources. Manufacturing-centered ideology is facing challenges in the form of business models driven by the requirements of B-to-B customers for more complex product-service systems (Hallikas et al., 2014). According to definitions of the service systems, it is assumed to comprise interactions between manufacturer, supplier and customer and the exchange of some intangible value inputs and functions (e.g. Goldstein at al., 2002). A service system, thus, can be seen as an


arrangement of resources (Including e.g. people, technology and information) connected to other systems by value propositions (e.g. Spohrer et al., 2007). The organizations roles in value creation in service systems, the proposition and provision of service, are intermediary to the value cocreation process. A service system’s function is to make use of its own resources and the resources of others to improve its circumstance and that of others (Vargo et al., 2008). While maintenance operations and services have been moving from business focused on goods and products to purposes associated with partnerships and service provision, the role of value creation and value networks have been emphasized (Lusch et al., 2010). A value network can be seen as formally or informally connected operators interacting together in order to co-produce services and co-create value by combining their resources and knowledge. A value network has structural integrity because each member organization has competences (used to offer and provide services to others), and information that can be shared through the network (Lusch et al., 2010). The value delivered through the service and value networks is usually formed by the needs of the customer organization or the final user of the services. In this process, the value of that service can be considered to consist of different value inputs (e.g. safety, flexibility, reliability and price), and the perceived total value for the customer and service provider can be considered as the sum and right combination of these value inputs (e.g. Ojanen et al. 2012; Ali-Marttila et al., 2013). In the maintenance based service networks the thinking of value creation process, however, should not focus only on the value outputs that individual network partners receives but also pay more attention to the value outcome created by the whole network. In this urge, performance measurement and management play a significant role. 2.3 Performance measurement and management in networks It is presented that if companies aim to create and sustain competitive advantage through networks, the structures of the network need to understood and managed, otherwise the objectives will not be achieved and the network will fail (Verdecho et al., 2009). Networks are usually traditionally organized and managed as single organizations, which is not an appropriate way in the network context (Kaplan et al., 2010). In order to develop and manage a successful business network, continuous performance measurement in a single network partner as well as the entire network is needed to organize the collaboration successfully (Niebecker et al., 2010; Yin et al., 2011; Pekkola, 2013; Pekkola et al., 2013). Performance measurement can be seen also as a tool that produces the necessary network-level information, promotes network management effectively, and enhances the success of collaborative processes, i.e., by decreasing organization-level sub-optimization (Verdecho et al., 2009; Bititci et al., 2012). Comprehensive network-level performance measurement systems can provide essential information to the entire network, manage the


processes of the network and guide the network partners towards common goals (Kulmala and Lönnqvist, 2006; Kaplan et al., 2010; Bititci et al., 2012). It is thus obvious that the network-level performance measurement system is needed, when organizations collaborate in networks. However, to understand how a performance measurement system in a network has developed and is used there is a need to capture its context, process and content (Cuthbertson and Piotrowicz, 2009). It is important to define, under what condition the measurement take place. Cuthbertson and Piotrowicz (2009) present a framework for the supply chain performance measurement system that can be also applicable for other types of networks. The framework incorporates elements such as: Context (under what conditions does the measurement take place?) – factors that impact network performance measurement were separated into two groups: (1) organizational context – inner-organizational factors; and (2) network context – factors specific for the network environment. Process (how is the performance measurement carried out?). This covered tools, methods and frameworks to measure network performance; the way that data are captured, presented and used; as well as the development of the measurement system. Content (what is measured?) – including measures, their levels, categories and dimensions. Parung and Bititci (2008) indicate that there are three kinds of measurements that may influence the success of networks and its measurement: (1) input to the collaboration, that is, the contribution of each participant, (2) the health of the collaboration and (3) the outcome of the collaboration. Measuring the input is a means of determining the resources that the participants contribute to the network, whereas measuring the health of a network is an effort to distinguish a healthy network from an unhealthy one by measuring the dimensions of commitment, coordination, trust, quality of communication and participation and the conflict resolution technique of joint problem solving (Parung and Bititci, 2006; 2008). Measuring the output is an attempt to determine the benefit accrued to the key stakeholders as a result of their participation in the collaborative network. According to Parung and Bititci (2006), the outcome of the organization is usually associated with its performance, and performance measurement is often linked to the efficiency and effectiveness of an organization to satisfy its customers (Neely, 1999). Effectiveness refers to the extent to which customer requirements are met, whereas efficiency is a measure of how economically the firm’s resources are utilized when providing a given level of customer satisfaction (Parung and Bititci, 2006). So far, the focus has been seen to be more on efficiency than on outcome (effectiveness). Furthermore, Parung and Bititci (2006; 2008) suggest numerous value generators (e.g. physical assets, human capital, organizational capital, relational capital) besides financial assets because


the extant literature (Kald and Nilsson, 2000; Leseure et al., 2001; Håkansson and Lind, 2004) and empirical evidence on network-level performance measurement seem to be limited to financial measures. Liyanage and Kumar (2003) present that in addition to economical values, the social values that rest on the degree of social equity displayed, and the environmental values that rest on the degree of environmental care displayed should also take into account in maintenance performance management. Also Hofmann and Locker (2009) highlight the non-financial valuedrivers as important elements beyond the financial value elements. So far, performance measurement research has not focused on managing value creation in service networks. 2.4 Lack of performance measurement of network value in maintenance services Based on prior literature, the existing models and framework concentrate on condition monitoring and measuring the performance of individual maintenance network members. Overall, there are various measures to monitor the different parts of maintenance process. The common used measures include for example equipment-related measures, maintenance task related measures, cost-related measures, impacts on customer satisfaction, learning and growth, HSE, and employee satisfaction (Parida and Chattopadhyay, 2007). These measure the inputs and outputs of individual oganizations of the maintenance network, not the value that the network provides to the end customer. In addition, research on maintenance value has concentrated on financial value (Toossi et al., 2013). The network provides also other types of value that the current models do not take account. The value provided by the network can be both financial (direct or indirect) and non-financial value (Liyanage and Kumar, 2003; Davis and Albright, 2004; Aarikka-Stenroos and Jaakkola, 2012). Intangible non-financial values can be as important as tangible values and there is need for understanding the intangible values which create the perception of benefit and/or sacrifice for the customer of the network (Toossi et al., 2013). Balanced performance measurement insist on complementing financial performance with a view on non-financial performance, identifying outcome measures and performance drivers, and building causal relationships (Liyanage and Kumar, 2003; Ukko et al., 2007; 2008). Thus, to deliver services organizations can adopt performance measures that reflect outcomes aligned to individual customers. These are then linked into measures of individual organizations, and complemented by a set of more emotional measures that demonstrate value to the customer. (Baines and Lightfoot, 2014) Measures are necessitated to reflect the outcomes required by the customer, because measures assist the work of aligning the operations of the network to meet the end customer expectations. Thus, it is essential to identify the value inputs shared by the network members. Value inputs, defined by the previous research of Ali-Marttila et al. (2013), were used as a reference when defining the value inputs of different


network partners. By measuring and managing these value inputs and their outcomes benefits both the entire network and the individual organizations. 3 Research approach The results of this study are based on a case study research. Because of the exploratory nature of the research, the case study was deemed appropriate in terms of the importance of the phenomenon in practice as well as the lack of existing theory. Thus, the principles of abductive reasoning were followed during the research. According to Kovács and Spens (2005), the abductive approach aims at theory development by focusing on understanding and interpreting a new phenomenon. Seven organizations operating in mining and energy industries are forming two networks that were used as cases. Both of the networks included companies of three different roles; maintenance customer company, maintenance service provider company and equipment provider company. Maintenance customer company is a factory in which production process the service is conducted. Maintenance service company conducts the maintenance work in the maintenance customer company. Equipment provider has delivered equipment to the production process of the maintenance customer. These networks were chosen as cases because they were interested in developing performance measures for monitoring the value created in the network. The pre-understanding of the different value inputs and their importance in each network partner roles were clarified together with the two networks. After that, similar research processes are used in both networks to ensure scientific transparency and repeatability. The research process included three main phases: defining the vision and goals of the network, defining the success factors of the network, and defining the measures of the network. The data included written assignments of the representatives of the participating companies as well as documented focus group meetings. The data was analysed in terms of content analysis. In order to validate the findings, case triangulation was used. First, the research process was carried out with the energy network, after which the results were validated in the mining network. The analyses are conducted at the network level as well as the individual organization level. In addition to case triangulation, researcher triangulation, theory triangulation, data triangulation were used to validate the findings. The research was conducted and data was analysed in cooperation of four researchers in terms of content analysis after which the common view was discussed. Also theory triangulation was adopted. With employing different theoretical frameworks, the goal was to be able to produce new understandings. Although the study belongs to performance measurement and management research stream, also maintenance and service operations management research was used to integrate existing theory with new contexts. Data triangulation was used by collecting more than one source of data. The data included written


assignments of the representatives of the participating companies as well as documented focus group meetings. The written assignments focused on the success factors of the network, and current measures and their weaknesses and strengths. The topics of the focus group meetings were selected based on written assignments and the analysis of previous meeting. Thus, the topics and issues were decided beforehand, but the discussions were informal and facilitated with supporting questions and comments of the researchers. Table 1. Data and phases of the research process Phase

Purpose

Data

Forming preunderstanding

To define value inputs of different network actors

Defining vision and goals

To define network vision and goals

Defining success factors

To clarify value inputs and define success factors of the network and its members To define measures of the network and its members

Documented pre-assignment Documented focus group meetings Observations of the focus group meeting Documented focus group meeting Documented assignments of the focus group participants Observations of the focus group meeting Documented pre-assignments Documented focus group meetings Observations of the focus group meeting

Defining measures

Documented focus group meeting Observations of the focus group meeting

Utilization in analysis and reporting Value inputs for different network partners

The role of network vision and goals

Measurement areas of network value

Measurement targets to the areas of network value

4 Findings and discussion The insights of the two research processes for the two networks were used to form a framework and propositions on how the value created by the maintenance network as well as the participating individual organization can be measured simultaneously. The framework is based on IPO-model of maintenance, but extending it to cover also outcomes, i.e. maintenance network value. The propositions form the basis of the framework and describe the mechanisms and principles on measurement of the value creation of the maintenance network. The first proposition is as follows: Proposition 1. Network vision provides the grounds for measuring the network value Network vision and networks partner’s roles and responsibilities provide ground for measurement. It is not worth to even start planning measurement, if the network does not have a common vision of what cooperation is aimed at. According to Niebecker et al. (2010), the different organizations in a service system typically define their individual strategies and goals for the cooperation first and then identify and consolidate common vision, strategies and goals with their partner. This


helps to prevent misunderstandings and ambiguity of shared project goals and common measures. Cuthbertson and Piotrowicz (2009) have concluded that to understand how a performance measurement system in a network has developed and is used there is a need to capture its context, process and content. One of the reasons for networking success from maintenance point of view is common goals. The basis of cooperation is a common benefit; the network cooperation should offer benefits for every network partner. This requires also defining the value that network produces. It should be clarified who is the leader of a network. The network leader has a lot of responsibility to get the network functioning well. Need to make sure that the network operates as a network, not as independent actors. This requires trust from the network partner. The network does not work without the mental change. It is important to distinguish the actual network cooperation from just a buyer-supplier relationship. Clear responsibilities are important for the functionality of the whole network. If the responsibilities are clarified only in the top level of the participating companies, the approaches are not realized in the operative level. Thus, the approaches should be clarified in all organizational levels and throughout the network. It should be clarified who is responsible for each task, because in this way it is easier for each network partner to show how the place is earned and to take care of their role in the network. Network vision and goals can assist monitoring both financial and non-financial accountabilities of the network partners. The second proposition is: Proposition 2. Network value is determined by value input provided by the network partners Proposition 2a Value input of customer consists of availability, asset management factors, and access to markets Proposition 2b Value input of both customer and service/equipment provider consists of development/R&D, price, contracts, safety at work, environmental safety, flexibility, reliability, orderliness, and relationship. Proposition 2c Value input of service/equipment provider consists of technical quality, operator knowledge; reputation, and total solutions. An industrial equipment provider, a maintenance service provider and the maintenance customer company can form a value-based service network. Different network partners have different roles that complement each other and all the roles bring value to the cooperation. In traditional way of thinking the value of the equipment provider can be considered through the delivery of the goods or processes and the better understanding of the needs of customer company. For the maintenance service provider the contract for the maintenance processes of the customer company can form the greatest value. The value of the maintenance customer company can be considered through the


more effective and secured processes in order to produce service to markets. In this process, the value of that service can be considered to consist of different value inputs (e.g. safety, flexibility, reliability and price), and the perceived total value for the customer and service provider can be considered as the sum and right combination of these value inputs (e.g. Ojanen et al. 2012; AliMarttila et al., 2013). These value inputs enables the results, i.e. service, and further network outcomes. This requires that the value inputs are complementary each other and linked to outcomes. The value input provided by each network partner can differ. Value input provided by the maintenance customer company consists of availability of the production process, taking care of the asset management factors and providing the other network partners access to markets. The definitions of these value inputs are as follows. Availability refers the customer company´s actions to look after the maintenance target in a way that its maintainability and repair is easy. Access to markets is provided by assisting that maintenance service cooperation enables contact with new customers and starting a new type of business. Asset management is taken care of the customer company by being responsible for the spare part storage and owns the fixed assets so that it does not tie the maintenance company´s resources and capital. Asset management should be in the right place. Consumption pieces can be owned by other network partners (equipment provider or maintenance service provider). Otherwise, the assets are likely to be in maintenance customer’s balance sheet. Although the customer company takes care of majority of the asses, they may require the partners to carry out a part. It is a collaborative process of joint problem solving to provide the service to the end customer (Aarikka-Stenroos and Jaakkola, 2012). Thus, there are also value inputs that both maintenance customer companies as well as service/equipment provider companies can be responsible of. These include common development, pricing of the service, contents of contracts, taking care of the safety at work, ensuring environmental safety, ensuring flexibility of actions, being reliable network partner, ensuring orderliness of cooperation, and taking care of rrelationships between the network partners. The value inputs can be defined as follows. Development refers to developing own research and development with the maintenance service partners so that the partners can provide information and knowledge related to the development activities. According to Aarikka-Stenroos and Jaakkola (2012) service providers can consider customer projects as a source of knowledge and market development. Pricing becomes value input when the price paid for the maintenance service corresponds with the received service and is negotiated in cooperation between the partners.


Contracts ensure value to be realized when the warranties and terms of payment are kept and executed as promised. In contracts the risks and responsibilities considering the maintenance services are shared between the network partners. Safety at work is the responsibility of all network partners. It is assured by performing the work according to safety policies. Environmental safety means that all network partners recognize the environmental safety hazards and do their best to ensure that the maintenance is performed according to environmental safety policies. Flexibility can be affected by the network partners by bending from their claims (e.g. delivery time) or by tailoring the service based on specific needs. An essential part of flexibility is physical speed of the service; partner needs to be present as soon as needed. Reliability come into cooperation that is executed on time and as promised and is based on confidentiality. Transparency of the processes are about to increase reliability between the network partners. The reliability is a subjective matter of opinion made by the partner. Orderliness requires that the resources and timetable of the maintenance service can be planned well in advance, and are developed in cooperation. Requirements for good relationship are that the maintenance service cooperation and information exchange works well considering the conditions of all partners. Significant benefits can be attained by good relationships between the networks partners because they can further long-term cooperation. Value inputs that the service and equipment provider companies can provide to the network are technical quality of the work, knowledge considering the equipment of maintenance work, reputation and taking care of the whole service by providing total solutions. Value inputs of service and equipment provider can be defined as follows. Technical quality refers to the fact that maintenance service conducted as expected and is sustained for the promised time. Knowledge is the application of expertise. It refers that the provider has the knowledge to solve upcoming problems and is professionally skilled and qualified. Reputation of the provider becomes value when the current reputation of the partner is good and the previous experiences with the partner have been positive. The partners decide reputation and create an image based on experience. The service or equipment provider cannot decide their reputation, but to create the conditions for their reputation. Value of total solutions is about covering comprehensively the whole maintenance services (from management to execution) and the whole life span of the item.


Value input of customer availability, asset management factors, and access to markets

Value input of customer and service/equipment provider common development, pricing, contracts, safety at work, environmental safety, flexibility, reliability, orderliness, and relationships

Value input of service/equipment provider technical quality, knowledge, reputation, total solutions

The third proposition is as follows: Proposition 3. Each organization of the network should have its own measures of the service process as well as output measures to reflect the fluency of its own activities. These measures of service process and outputs of individual organizations reflect the determinants of network value. Measuring these is a means of determining the resources that the participants contribute to the network (Parung and Bititci, 2006; 2008). These measures are well represented in maintenance networks. Majority of the maintenance measurement of individual organizations is used to monitor the quality of operations, and are cost and equipment based indicators. According to Muchiri et al. (2011) the cost and equipment performance indicators are instrumental in doing performance analysis of the maintenance function and identifying the performance gaps that would trigger management actions. This requires comparing the planned and actually realized actions. Measures provide thus a good basis of conducting a root cause analysis for establishing the reasons for performance gaps, which leads to learning and improvement of the maintenance function (Muchiri et al., 2011). For being useful in management, these measures should cover output-input -relationship, not just inputs. Measures should cover the individual teams from entity, because organization must be able to trace the link from bottom up. It helps clarifying what has to be done from the point of view of an individual network member that the chain from production to end customer can be secured. As these measures are traditionally hard measures, examples of softer subjective measurements are needed to develop. These measures of individual network partners can overlap somewhat. The maintenance customer’s and the service provider’s measures closer to each other than the equipment provider’s and the maintenance customer’s measures. These measures are also used for incentive agreements between the network partners. These measures also help network partners to assess whether it is appropriate to be in a network. Survival and growth of the business are important factors. New contacts attained through networks can result new sales and revenue, which are determinants of network value. Also the perception of whether the business has continuity is a benefit that is wanted from network cooperation. Learning


and development through new ideas and business opportunities, partners, and solutions are also tracked via organizational level measurements. Prior studies have shown essential benefits of measurement on performance in a situation where the performance measures have been launched through the different organizational levels in a single company (Ukko et al., 2007; 2008). Thus, by constructing measures in each level assists in managing the whole chain from individual organization to network level. The fourth proposition deals with network level measurement. Proposition 4. The network value measures should be common to the entire network. One of the most important things for networking success from maintenance point of view was clear measures for continuous monitoring and development. In addition to each network partner’s own measures of the service process as well as output measures to reflect the fluency of its own activities. The measurement becomes challenging when the interests of multiple actors must be taken into consideration. It is not common to measure the value created by the entire network. There is lack of appropriate network-level value and outcome measures. However, measures were seen crucial to monitoring the functionality of the network and keeping promises to the end customers. Researchers have widely acknowledged that in order to develop and manage a successful business network, in addition the performance of a single network partner, the entire network should be monitored to organize the collaboration successfully (e.g. Yin et al., 2011; Pekkola, 2013; Pekkola et al., 2013). Measurements should be well coordinated in order to attain the benefits of measurement. Comprehensive measurement requires that all measures are linked together and so that the causal linkages between firm-level measures and network level measures can be formed. The network value measures should be common to the entire network. This requires good relationships among the network partners as well as trust (Bititci et al., 2012) to reveal company data to other network partners. Network level measurement usually means that there are a lot of measures to be monitored. The problem is to get the entirety into control when there are a lot of things to follow. Thus it was seen important if the data is obtained automatically. There might be various systems managed by different parties, but if one common system is utilized, system synchronization and data transfer gets easier. Transparency of the action but also measurement is crucial for the functionality of the network. This furthers transparency when all network partners get information on why something is done. The fifth proposition is as follows:


Proposition 5. Five types of capital should be acknowledged when measuring network value of maintenance services Performance measurement literature widely stresses that balanced set of measures should be constructed to cover all important areas of business. This insists on complementing financial performance with a view on non-financial performance, identifying outcome measures and performance drivers, and building causal relationships. This way of thinking suits well for measuring value of the network. In network level performance measurement, measuring the state of a network is an effort to distinguish a well-functioning network from an inactive network. In this case measuring, for example, the dimensions of commitment, coordination, trust, quality of communication and participation and the conflict resolution technique of joint problem solving (Parung and Bititci, 2006; 2008) become important dimensions of measurement. In the context of this research, measurement dimensions reflect network value, i.e. the outcomes of value input provided of each network partner. When performance measurement is conducted in network level, the importance of intangible non-financial value created for the customer and its measures were highlighted in the research. Also previous research (e.g. Liyanage and Kumar, 2003; Hofmann and Locker, 2009) highlight the non-financial value as important factor beyond the financial value. Liyanage and Kumar (2003) present that in addition to financial values, the social values that rest on the degree of social equity displayed, and the environmental values that rest on the degree of environmental care displayed should also take into account in maintenance performance management. The following five value dimensions were defined as important for the measurement of the network value: financial, end customer, network, sustainability, and relationships. Four of the five dimensions were intangible, non-financial dimensions. As the majority of management constitutes the management of non-financial issues (Davis and Albright, 2004), the measurement should focus on to non-financial value as well. Table 2. Performance measurement of network value Dimension Financial capital

How do we look as a network in terms of financial performance?

End customer capital

How do the end customers see the network?

Network capital

What must we do to improve the operations of the network?

Sustainable capital

What must we do to improve the sustainability of the network?

Measures relate to Growth / profitability The competitiveness of the network Savings End customer satisfaction Reclamations Recommending customers Relationships with end customers Job satisfaction and well-being Know-how Renewal and learning Perseverance HSE (health, safety, environment) Business continuity


Relationship capital

How can we continue to improve and create new relationships?

New network partners Reputation Brand Contracts

Financial capital is usually accountable in monetary terms. If network functions well, it creates growth and profitability. Decreasing costs and savings can represent financial value of being in a network. The other capitals represent non-accountable values. These cannot be presented in monetary terms but possess value in terms of meeting end customer’s or network expectations, making sure of the sustainability of the network and attaining relationships outside the network. The final value for the end customer should in some way be able to assess. This represents the end customer capital. For example, customer satisfaction and reclamations are linked to all network partners that the whole process can be ensured. Network capital reflects how the operations of the network develop. The know-how of individual network partner can develop when operating in a network. Sustainable capital reflects the right issues to concentrate that sustainability is created. For example continuity of the cooperation can provide prerequisites for learning. Relationship capital reflects how the network looks outside. Measurement areas include, for example, reputation and brand, which require that the network partners are aware of the relationship potential of the network. Table 2 presents the dimensions of network value and examples of the areas that measures can relate to. 5 Conclusions This study increases understanding of the measurement of network value in maintenance networks. Because the global economy is more and more driven by networks of organizations, there is a need for theory and more in-depth understanding that elucidates how the actual value of these networks can be shown to the end customer and measured through the whole network. Despite the increasing amount of literature on performance measurement in networks, theory is still lacking that reflects the complexity and dynamism when value is delivered to customers through maintenance networks. In addition the value delivered to end customers, the theory on performance measurement asks for more awareness of the measurement of the individual organizations value generating operations as a part of maintenance networks and also the operations of the whole network. The study extends the literature on performance measurement of value from individual organizations to a network level. As a main contribution, the study presents a framework and propositions on how to measure network value in maintenance services. Compiled from the research process, the network value can be measured from the following five perspectives 1) financial capital, i.e. savings or growth, 2) end customer capital such as the end customer satisfaction and recommending customers, 3) network capital, i.e. know-how development and learning, 4) sustainable capital such as business continuity, and environmental safety 5)


relationship capital, such as reputation, and new contacts. Maintenance networks have not been studied much, because there are not so many cases that could have been used as “best practices”. This research contributes to practice by presenting a framework that can be used as a tool when designing measurement for monitoring maintenance networks. Although not providing concrete measures for maintenance network value, the framework can be used to assist defining the performance measurement system to maintenance network and to capture the value that is pursued by network cooperation. The framework is presented in Figure 1.

Figure 1. Framework for measuring network value in maintenance services

References Aarikka-Stenroos, L., and Jaakkola, E. (2012), “Value co-creation in knowledge intensive business services: A dyadic perspective on the joint problem solving process,” Industrial Marketing Management, Vol. 41 No. 1, pp. 15-26. Ali-Marttila, M., Tynninen, L., Marttonen, S. and Kärri, T. (2013), “Solving the Value Puzzle of the Customer and Service Provider in Industrial Maintenance Services”, Proceedings of the Maintenance Performance Measurement and Management Conference, September 2013, Lappeenranta. Baines, T. and Lightfoot, H.W. (2014), “Servitization of the manufacturing firm: Exploring the operations practices and technologies that deliver advanced services”, International Journal of Operations & Production Management, Vol. 34, No. 1, pp. 2-35


Bititci, U., Garengo, P., Dörfler, V. and Nudurupati, S. (2012), “Performance Measurement: Challenges for Tomorrow”, International Journal of Management Reviews, Vol. 14, No. 3, pp. 305-327. Bititci, U.S., Martinez, M., Albores, P. and Parung, J. (2004), “Creating and managing value in collaborative network”, International Journal of Physical Distribution & Logistics Management, Vol. 34, No. 3, pp. 251-268. Cuthbertson, R. and Piotrowicz, W. (2011), “Performance measurement systems in supply chains: A framework for contextual analysis”, Vol. 60, No. 6, pp. 583-602. Davis, S. and Albright, T. (2004), “An investigation of the effect of Balanced Scorecard implementation on financial performance”, Management Accounting Research, Vol. 15, Iss. 2, pp. 135-153. Ferreira, P.S., Shamsuzzoha, A.H.M., Toscano, C. and Cunha, P. (2012), “Framework for performance measurement and management in a collaborative business environment”, International Journal of Productivity and Performance Management, Vol. 61, No. 6, pp. 672690. Franco-Santos, M., Lucianetti, L. and Bourne, M. (2012), “Contemporary performance measurement systems: A review of their consequences and a framework for research”, Management Accounting Research, Vol. 23, No. 2, pp. 79-19. Goldstein, S.M., Johnson, R., Duffyc, J. and Raod, J. (2002), “The service concept: the missing link in service design research?”, Journal of Operations Management, Vol. 20, No. 2, pp. 121134. Hallikas, J., Immonen, M., Pynnönen, M. and Mikkonen, K. (2014), “Service purchasing and value creation: Towards systemic purchases”, International Journal of Production Economics, Vol. 147, pp. 53-61. Hofmann, E. and Locker, A. (2009), “Value-based performance measurement in supply chains: A case study from packaging industry”, Production Planning & Control, Vol. 20, No. 1, pp. 6881. Håkansson, H. and Lind, J. (2004), “Accounting and network coordination”, Accounting, Organizations and Society, Vol. 29, No. 1, pp. 51-72. Kald, M. and Nilsson, F. (2000), “Performance measurement at Nordic companies”, European Management Journal, Vol. 18, No. 1, pp. 113-127. Kaplan, R.S., Norton, D.P. and Rugelsjoen, B. (2010), “Managing alliances with the Balanced Scorecard”, Harvard Business Review, Vol. 88, No. 1, pp. 68-75. Kovács, G. and Spens, K. (2005), “Abductive reasoning in logistics research”, International Journal of Physical Distribution and Logistics Management, Vol. 35, No. 2, pp. 132-144. Kulmala, H.I. and Lönnqvist, A. (2006), “Performance measurement of networks: Towards a nonfinancial approach”, International Journal of Networking and Virtual Organisations, Vol. 3, No. 3, pp. 299-316.


Lehtinen, J. and Ahola, T. (2010), “Is performance measurement suitable for an extended enterprise?”, Journal of Operations & Production Management, Vol. 30, No. 2, pp. 181-204. Leseure, M., Shaw, N. and Chapman, G. (2001), “Performance measurement in organizational networks: An exploratory case study”, International Journal of Business Performance Management, Vol. 3, No. 1, pp. 30-46. Lightfoot, H., Baines, T. and Smart, P. (2013), “The servitization of manufacturing: A systematic literature review of interdependent trends”, International Journal of Operations & Production Management, Vol. 33, Nos. 11/12, pp. 1408-1434. Liyanage, J.P. and Kumar, U. (2003), “Towards a value-based view on operations and maintenance performance management”, Journal of Quality in Maintenance Engineering, Vol. 9, No. 4, pp. 333-350. Lusch, R.F., Vargo, S.L and Tanniru, M. (2010), “Service, value networks and learning”, Journal of the Academy of Marketing Science, Vol. 38, No. 1, pp. 19-31. Madu, C.N. (2005), “Strategic value of reliability and maintainability management”, International Journal of Quality & Reliability Management, Vol. 22, Iss. 3, pp. 317-328. Mellat-Parast, M. (2015), “An institutional theory of quality outcomes in strategic supply chain partnership”, International Journal of Quality & Reliability Management, Vol. 32, Iss. 4, pp. 346-360. Muchiri, P., Pintelon, L., Gelders, L. and Martin, H. (2011), “Development of maintenance function performance measurement framework and indicators”, International Journal of Production Economics, Vol. 131, No. 1, pp. 295-302. Neely, A. (1999), “The performance measurement revolution: Why, now and what next?”, International Journal of Operations & Production Management, Vol. 19, No. 2, pp. 205-228. Niebecker, K., Eager, D. and Moulton, B. (2010), “Collaborative and cross-company project management within the automotive industry using the Balanced Scorecard”, International Journal of Managing Projects in Business, Vol. 3, No. 2, pp. 328-337. Ojanen, V., Hatinen, L., Kärri, T, Kässi, T. and Tuominen, M. (2012), “Flexible investment planning and collaborative maintenance management” in: van der Lei, T., Herder, P. and Wijnia, Y. (Eds.). Asset Management: The State of Art in Europe from a Life Cycle Perspective, Dordrecht: Springer, pp. 65-77. Parida, A. and Chattopadhyay, G. (2007) “Development of a multi-criteria hierarchical framework for maintenance performance measurement (MPM)”, Journal of Quality in Maintenance Engineering, Vol. 13 No. 3, pp. 241-258. Parung. J. and Bititci, U.S. (2006), “A Conceptual metric for managing collaborative network”, Journal of Modelling in Management, Vol. 1, No. 2, pp. 116-136. Parung, J. and Bititci, U.S. (2008), “A metric for collaborative networks”, Business Process Management Journal, Vol. 14, No. 5, pp. 654-674.


Pawar, K.S., Beltagui, A. and Riedel, J.C.K.H. (2009), “The PSO triangle: designing product, service and organisation to create value”, International Journal of Operations & Production Management, Vol. 29, No. 5, pp. 468-493. Pekkola, S. (2013), Performance Measurement and Management in a Collaborative Network, Acta Universitatis Lappeenrantaensis 534, Dissertation, Lappeenranta University of Technology, Lappeenranta. Pekkola, S., Niemi, P. and Ukko, J. (2013), “Building understanding of the development of performance management for collaborative networks with a knowledge maturity model”, International Journal of Networking and Virtual Organisations, Vol. 12, No. 3, pp. 179-200. Ramsey, J. and Wagner, B. (2009), “Organisational Supplying Behaviour: Understanding supplier needs, wants and preferences”, Journal of Purchasing & Supply Management, Vol. 15, No. 2, pp. 127-138. Spohrer, J., Maglio, P., Bailey, J and Gruhl, D. (2007), “Steps towards a science of service systems”, Computer, Vol. 40, pp. 71-77. Toossi, A., Lockett, H.L., Raja,, J.Z. and Martinez, V. (2013), “Assessing the value dimensions of outsourced maintenance services", Journal of Quality in Maintenance Engineering, Vol. 19, No. 4, pp. 348-363. Ueno, A. (2008), “Which management practices are contributory to service quality?”, International Journal of Quality & Reliability Management, Vol. 25, Iss. 6, pp. 585-603. Ukko, J., Tenhunen, J. and Rantanen, H. (2007), “Performance measurement impacts on management and leadership – perspectives of management and employees”, International Journal of Production Economics, Vol. 110, Nos. 1-2, pp. 39-51. Ukko, J., Tenhunen, J. and Rantanen, H. (2008), “The impacts of performance measurement on the quality of working life”, International Journal of Business Performance Management, Vol. 10, No. 1, pp. 86-98. Ulaga, W. and Chacour, S. (2001), “Measuring Customer-Perceived Value in Business Markets”, Industrial Marketing Management, Vol. 30, No. 6, pp. 525-540. Vargo, S.L. and Lusch, R.F. (2004), “Evolving to a new dominant logic for marketing”, Journal of Marketing, Vol. 68, No. 1, pp. 1-17. Vargo, S.L. and Lusch, R.F. (2008), “Service-dominant logic: continuing the evolution”, Journal of the Academy of Marketing Science, Vol. 36, No. 1, pp. 1-10. Vargo, S.L., Maglio, P.P. and Akaka, M.A. (2008), “On value and value creation: a service systems and service logic perspective”, European Management Journal, Vol. 26, pp. 145-152. Verdecho, M.J., Alfaro, J.J. and Rodriguez-Rodriguez, R. (2009), “Foundations for collaborative performance measurement”, Production Planning & Control, Vol. 20, No. 3, pp. 193-205. Wenger, E.C. and Snyder, W.M. (2000), “Communities of practice: the organizational frontier”, Harvard Business Review, Vol. 78, pp. 139-145.


Yin, Y., Qin, S. and Holland, R. (2011), “Development of a design performance measurement matrix for improving collaborative design during a design process”, International Journal of Productivity and Performance Management, Vol. 60, No. 2, pp. 152-184.