Developing Collaborative Improvement in service
industries: lessons from a case study
Master thesis, MSc Technology Management
University of Groningen, Faculty of Economics and Business Author: R.H.J. de Kluiver
Student number: 1624040
1. Introduction
Although implementing ongoing improvements to products and processes (a.k.a. continuous improvement; Boer et al., 2005) is widely acknowledged as a way to improve a firm’s competitive position, our understanding of the topic is incomplete. First, while continuous improvement within
firms is much studied (Deming, 1986; Imai, 1986; Showalter and Mulholland, 1992; Bessant et al.,
1994; Wu and Chen, 2006) little is known about continuous improvement between buying and
supplying firms, called ‘collaborative improvement’ (Boer et al., 2005). Moreover, the existing work
on continuous improvement has strongly focused on manufacturing environments. As far as we are aware, there are no studies of collaborative improvement in the service industries (Boer et al., 2005; Middel et al., 2005; Middel et al., 2007; Chapman and Corso, 2005). The aim of this paper is to extend the knowledge on collaborative improvement in the service industries.
In our research we first focus on what collaborative improvement in the service industries may entail. We expect that as the service industries differ on various facets from manufacturing industries (Zeithaml et al., 1985; Sampson and Freule, 2006) the content and purpose of collaborative improvement is likely to differ across industries. Second, we focus on when collaborative improvement with suppliers is necessary in the service industries. Collaborative improvement with suppliers is costly but only necessary in some buyer-supplier relationships (Spekman, 1988). For example, the need for collaborative improvement with strategic suppliers is higher as the competitive environment is more volatile (Hamel and Prahalad, 1994). Finally, although the need for collaborative improvement may be high, collaborative improvement may not necessarily be implemented. Boer et al. (2005) and Middel et al. (2005; 2007) identified several factors that influence the development of collaborative improvement in the manufacturing industries (e.g. power and trust). We extend these studies to the service industries.
Our paper contributes to both theory and business practice. First, it increases the theoretical understanding of collaborative Improvement as it extends the existing literature to the service industries. Such an extension is very important as service-oriented firms in industrialized economies currently employ over two-thirds of the total workforce and this share only rises (Roth and Menor, 2003). Second, our research also contributes to practitioners in the service industries by increasing their understanding what collaborative improvement is, when it is necessary, and which factors may influence its implementation. While the importance of collaborative improvement has greatly risen due to increased competition in service industries (Harmon et al., 2006) and increased outsourcing over the past decades (Handley and Benton, 2009), such an understanding by practitioners is currently lacking. This imposes barriers for practitioners to reap the potential benefits of collaborative improvement. A Deloitte consulting report (2008) underpins the need for increased knowledge in this area by indicating that there is a lot of potential for collaborative improvement but that many suppliers are disappointed about “the outsourcers’ overall ability to provide continuous process and technology improvements.”
We perform a case study concerning (the development of) collaborative improvement at the largest Telecom provider in the Netherlands, and the suppliers with which this firm believes collaborative improvement is most necessary.
2. Theory
In this section, we discuss (1) what collaborative improvement in the service sector entails, (2) when collaborative improvement is necessary in the service sector and (3) which factors influence the development of collaborative improvement in the service sector. Figure 1 shows that we expect that the need for collaborative improvement increases the occurrence of collaborative improvement, but that this relationship is moderated by enablers and disenablers to the development of collaborative improvement.
Figure 1: Research framework
Need for CI Collaborative
Improvement Enablers and disenablers to CI development
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2.1. Collaborative improvement in the service sector
Collaborative improvement (a.k.a. ‘Collaborative (small-step) Innovation’ or ‘Inter-company (continuous) Improvement’; Chapman and Corso, 2005) is defined as continuously searching for and implementing improvements to products and processes within a ‘network of firms’ (Boer et al., 2005). It is a form of continuous improvement (i.e. the planned, organized and systematic process of ongoing, incremental and company-wide change of existing practices aimed at improving company performance, Boer et al., 2000) reached through collaboration between firms that are in a buyer-supplier relationship.
2.1.1. Collaborative improvement in manufacturing industries
Research concerning collaborative improvement has taken place in ‘extended manufacturing enterprises’. The idea behind such supply chains of manufacturing firms is that a firm needs to look outside its boundaries to find the resources and competencies needed to produce its products (Middel et al., 2005). Within such extended manufacturing enterprises, collaborative improvement is seen as ‘a purposeful inter-company interactive process that focuses on continuous incremental innovation aimed at enhancing the EME overall operational performance’ (Cagliano et al., 2005). Collaborative improvement can occur on different levels within the firm (Cagliano et al., 2005). First, buying firms can aim to increase the level of collaboration on operations to enhance supplier performance with regards to product cost, plant efficiency, delivery lead time, product quality, volume flexibility and product functionality (Dabhilkar et al., 2009). Second, buying and supplying firms can build capabilities in order to mature collaborative improvement between them. In this way, more significant improvements to operational performance at the buyer as well as the supplier can be realized over time.
2.1.2. Continuous improvement in service industries
Continuous improvement in general is ‘the planned, organized and systematic process of ongoing, incremental and company-wide change of existing practices aimed at improving company performance’ (Boer et al., 2000). Continuous improvement in the service industry can aim at increasing different performance dimensions within a firm (Showalter and Mulholland, 1992), such as the cost, efficiency, lead time, quality, flexibility and functionality of the service (Dabhilkar et al., 2009). More specific, it should be aimed at those processes within a firm that are essential in meeting customer expectations, since meeting these expectations creates satisfaction of the customer with a service (Parasuraman et al., 1991). It is mostly done by multi-functional teams, using structured tools in order to come up with and implement such process improvements (Cole, 1989). Continuous improvement systems often used in the service industry are: quality circles, suggestion systems, total quality management, just-in-time, time-based competition, customer-driven, interactive planning, learning organization and peak performance (Showalter and Mulholland, 1992).
2.1.3. Research proposition
Collaborative improvement in service industries can be seen as a purposeful inter-company interactive process that focuses on continuous incremental innovation aimed at enhancing the overall operational performance at the buyer. Collaborative improvement in service industries can aim at improving different performance dimensions such as the cost, efficiency, lead time or quality of the service that a buyer delivers to its customers. Above all, collaborative improvement in service industries should be aimed at those processes at the buyer and the supplier that are essential in meeting the expectations of the buyer’s customers using systems like quality circles, total quality management and customer-driven.
2.2. Factors influencing the need for collaborative improvement
Developing close ties with suppliers is not necessary in every buyer-supplier relationship. Several factors influence the need for collaboration with suppliers (Spekman, 1988).
collaboration is needed when technology changes rapidly, because these changes also cause a need to reconfigure processes in the service supply chain. Fourth, when purchasing volume is high with a certain supplier, collaborating with this supplier is potentially more beneficial than with low-volume suppliers. Fifth, service firms need to collaborate closely with suppliers when the supplied processes are critical to the quality of the service. In his research, Spekman (1988) identifies supplier competency and reliability as a sixth factor related to buyer-supplier collaboration, this factor is a condition for collaboration however instead of influencing the need for collaboration.
2.2.1. Research proposition
In sum, literature indicates that a partnership in the form of collaborative improvement should not be developed with every supplier. Therefore, firms in the service industry need to look at the factors that cause a need for collaborating, so that a firm can select those suppliers with which collaborative improvement development is needed and subsequently those relationships where it is not necessary. In line with Spekman (1988), we expect that collaborative improvement is necessary and more beneficial when (1) competition increases, (2) product lifecycles shorten, (3) used technology changes rapidly, (4) purchasing volume with the supplier is high, (5) the supplied processes are critical to quality.
2.3. Factors influencing the development of collaborative improvement
Various factors influence the development of collaborative improvement in manufacturing environments (Dornier et al., 1998; Boer et al., 2005; Middel et al., 2005; Middel et al., 2007). In Table 1 and 2, we provide an overview of enabling respectively disenabling factors for collaborative improvement from four of the most recent studies concerning collaborative improvement. The study in which the factor was identified, a short description of the factor and a typical example of the factor are stated in these tables.
Table 1: Enablers
Study Enabler Description of factor Example
Boer et al. (2005)
Communication Open and honest communication of opinions/problems
Are the real opinions that firms hold about each other expressed in meetings?
Vision Shared ideas about the intensity, organization and management of
collaborative improvement
Is the general goal of collaborative improvement clear among partners and is this goal expressed in operational terms?
Approach Bottom-up learning by doing
Are improvement projects jointly performed?
Trust Preparedness to engage in new initiatives not specified in contract
Competence Individual/organizational improvement and project/change management skills
Do the involved firms have previous
experience with continuous improvement?; Are the persons involved experienced project managers?
Individual behavior
Shown commitment, political and opportunistic aspects by individuals
Does opportunistic behavior take place ('we don't need them, they need us')?
Culture National culture Is preference for dialogue and consensus part of the national culture within which a firm operates?
Partner characteristics
Firms' strategy, structure and size.
Is the selection of improvement projects dominated by one firms' strategy? Dornie
r et al. (1998)
Vision sharing Shared goals among partners
Are specific improvement goals clear among buyer and suppliers?
Teamwork Working in teams to perform improvement projects
Do teams with employees from buyer and supplier work together to perform
improvement projects? Partnership Long-term, mutually
rewarding relationship
Do individual firms see the relationship as long-term and are risks and rewards shared? Middel et al. (2007) Open communication Open exchange of
knowledge and information
Are communication channels used
effectively?; Is information and knowledge exchanged regularly?
Facilitation Facilitate learning and improvement initiatives through interventions
Are joint meetings being held?; Does coaching take place?
Committed attitude
Committed attitude from the Systems Integrator towards collaborative improvement
Does the systems integrator show an active and committed attitude?; Is a sense of urgency created? Sense of direction Mutual understanding on the concept of collaborative improvement among firms
Does the systems integrator clearly explain and discuss its collaborative improvement vision toward its partners?
Middel et al. (2005)
Goal sharing Alignment of objectives and priorities between buyer and supplier
Are potential benefits perceived by all partners?
Trust and long-term
perspectives
Long-term balance of benefits for partners
Organizational improvement
Exploitation of
improvement potential
Are skills available within the different firms to perform the improvements?
ICT support ICT systems used for distance interaction and knowledge management
Are ICT systems used for regular and effective interaction between firms?
Openness Open sharing of
information and readiness to discuss problems
Are partners honest in sharing problems when they arise?
Table 2: Disenablers
Study Disenabler Description of factor Example
Middel et al. (2005) Diffusion of used techniques
Different continuous improvement techniques/methods used
Do different firms use similar continuous improvement methods?
Mental map “Old attitudes”: why should we collaborate?
Do employees see the benefits of collaborative improvement? Lack of trust Lack of trust causes unwillingness to
share information
Are suppliers willing to share their information with their buyers?
Different interests among suppliers
Different suppliers have different interests and focus on different issues
Do the different firms in the collaboration focus on the same issues?
(Poor)
communication
Suppliers problems might not be reported, or only reported and no action is undertaken
Are problems reported in an honest way when they arise?
Certification Strict quality requirements can limit possibilities to change processes
Do strict quality requirements limit the possibility to change processes?
Lack of knowledge
New people, unfamiliar with way of working
Is the turnover in personnel high?
Lack of priorities
Going back to usual business when main problem is solved instead of continuous improvement
Is searching for and
implementing improvements a continuous process? Boer et al. (2005) Commercial reality
Power Relative power positions of buyers and suppliers
Is the buyer easily replaceable for the supplier?
To obtain a clearer overview, we grouped the various factors. As we will explain, four categories emerge if we group the various factors: 1) Relational governance, 2) Capability, 3) Power and (4) Business strategy (Table 3).
Table 3: Grouping of (dis)enablers
Category Enabler (+) / Disenabler (-) Study
Relational governance Vision (+) Boer et al. (2005)
Communication (+) Boer et al. (2005)
Trust (+) Boer et al. (2005)
Individual behavior (+) Boer et al. (2005)
Culture (+) Boer et al. (2005)
Vision sharing (+) Dornier et al (1998)
Partnership (+) Dornier et al (1998)
Open communication (+) Middel et al. (2007) Active and committed attitude from SI (+) Middel et al. (2007) Sense of direction within the S.C. (+) Middel et al. (2007)
Goal sharing (+) Middel et al. (2005)
Approach (+) Boer et al. (2005)
Teamwork (+) Dornier et al. (1998)
Facilitation (+) Middel et al. (2007)
Trust and long-term perspectives (+) Middel et al. (2005)
Openness (+) Middel et al. (2005)
Mental map (-) Middel et al. (2005)
Lack of trust (-) Middel et al. (2005)
Capability Competence (+) Boer et al. (2005) Organizational improvement (+) Middel et al. (2005)
ICT support (+) Middel et al. (2005)
Diffusion of used techniques (-) Middel et al. (2005)
Certification (-) Middel et al. (2005)
Lack of knowledge (-) Lack of priorities (-)
Middel et al. (2005) Middel et al. (2005)
Power Power (-) Boer et al. (2005)
Business strategy Partner characteristics (+) Boer et al. (2005) Different interests (-) Middel et al. (2005) Commercial reality (-) Boer et al. (2005)
2.3.1. Relational Governance
Relational coordination is a form of inter-firm coordination that relies on non-market mechanisms (i.e. shared social norms and beliefs; Noordewier et al., 1990; Lusch and Brown, 1996; Grandori, 1997; Artz and Brush, 2000; Brown et al., 2000; Ferguson et al., 2005; Patnayakuni et al. 2006; Stephen and Coote, 2007). In relationally governed exchanges, social rather than formal processes (such as contracts) are used for enforcing promises made (Poppo and Zenger, 2002). Trust, vision, communication, teamwork, commitment and thinking and acting in terms of “we” rather than in terms of “me” are mentioned as factors which influence collaborative improvement. Performing improvement projects together through regular meetings, workshops and problem solving groups is another factor that is mentioned which influences collaborative improvement. These factors can be viewed as elements of relational governance (Macneil, 2000).
2.3.2. Capability
Capability is defined as a bundle of skills and knowledge within a firm (Day, 1994).It covers aspects such as competence and organizational improvement. It relates to the actual ability to exploit improvement potential. The level of competence is determined by available skills and tools in the fields of continuous improvement and project and change management among the collaborating partners.
2.3.3. Power
suppliers. In order to successfully collaborate, parties should have an expected common future or ‘shadow of the future’. Such a common future reduces the likelihood that problems and conflicts occur (Kamann et al. 2006). Practically, it means that organizations and individuals in these organizations should have a large enough chance at meeting again (Welling and Kamann, 2001). As the transaction frequency rises, the costs of collaboration are more likely to weigh against the benefits, and the likelihood of opportunistic behavior by one of the firms at the expense of the other firm will decrease (Petkova et al., 2012; Axelrod, 1984).
2.3.4. Business Strategy
A service firm’s business strategy is determined by customer expectations. If for example cost leadership is part of the buyer’s strategy this buyer might be continuously looking for cheaper suppliers. On the other hand, when a firm aims to deliver a high-quality service, this firm might be more committed to collaborate with its suppliers in order to satisfy the customer. The buyer and supplier having different interests is also mentioned as a factor which influences the development of collaborative improvement.
In sum, we expect that relational governance, capability, power and business strategy play an important role in the development of collaborative improvement.
2.4. Research framework
In Figure 2, factors that influence the need for collaborative improvement and categories of (dis)enablers to collaborative improvement development are incorporated in the research framework. We will test if this framework holds or if it should be adapted in an exploratory case study.
Figure 2: Extended research framework
Need for CI
· Increasing competition · Short product lifecycle · Rapid changes in technology · High purchasing volume · Quality criticality
Collaborative Improvement · Inter-company continuous
improvement
· Can aim at improving different performance dimensions · Improve those processes
essential in meeting customer expectations
Enablers and disenablers to CI · Relational governance · Capability · Power · Business strategy
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3. Methodology
3.1. Sample selectionIn order to stay competitive in a market with increased competition, the back-office activities have been outsourced to specialized companies. At the same time, management wants to be able to meet (changing) customer needs and therefore continuously wants to improve the quality of all of its activities. The wish for collaboration with outsourcing partners to reach improvements is a recent development, therefore collaborative improvement within Company ABC is still in a very early phase. This offers the unique possibility to research the collaborative improvement process from the start.
3.2. Data collection
The research was conducted in two phases. In the first phase, we performed a pilot-study to validate the concepts in our theoretical framework. In the second phase, we selected several projects within the firm with high need for collaborative improvement. For these projects, we investigated the relationships between the concepts in more detail.
3.2.1. Phase one
Managers from Company ABC in the field of contract management were chosen to take part in the pilot-study to validate concepts. These managers have experience in the field of buyer-supplier relationships and can therefore contribute to the available theoretical knowledge. We asked these respondents open questions concerning what collaborative improvement is, what determines the need for collaborative improvement, and what are (dis)enablers to collaborative improvement. For each topic we furthermore asked respondents several closed questions (see Figure 2). The questions regarding what collaborative improvement is were based on the concepts of Showalter and Mulholland (1992), Dabhilkar et al. (2009) and Parasuraman et al. (1991). Furthermore, the questions concerning what determines the need for collaborative improvement were based on the concepts of Spekman (1988). Finally, the questions regarding what the (dis)enablers to collaborative improvement are, were formulated using the concepts from Middel et al. (2005;2007), Boer et al. (2005) and Dornier et al. (1998). These questions and measures are found in Appendix A.
3.2.2. Phase two
3.3. Introduction to projects
Two buyer-supplier relationships in the form of outsourcing projects were investigated in the study. From an overview of high volume suppliers, we selected projects where we expected that the supplied processes influence the quality of the service, where buyer and supplier face changing technology and where competition for the buyer is high. Table 4 presents some information about the type of outsourced activities, which business unit these activities are part of, the volume and contractual duration of the projects and the location where operational activities take place.
Table 4: Descriptive information about outsourcing projects
Project A Project B
Type of outsourced activities
Business processes part of service delivery chain (e.g. order/request processing; incident management)
Technical (e.g. IT-management) and non-technical activities (e.g. sales support and administration)
Business unit
Telecom services for company ABC’s corporate clients
IT –services for company ABC’s corporate clients
Duration of
contract 5 years 5 years
No of outsourced FTE's > 300 > 600 Location of operational activities
The Philippines India
Start of relationship with supplier
2009 2010
3.3.1. Project A
In project A, order intake, order processing and fallout handling processes concerning voice services for company ABC’s corporate clients are outsourced to a large global outsourcing firm. Company ABC’s operational manager describes the relationship as ‘a close partnership’.
3.3.2. Project B
In project B, technical as well as non-technical activities are outsourced to a mid-sized IT-services supplier located in India. Company ABC’s operational manager describes the relationship as ‘becoming closer and closer, with employees from both firms starting to see each other as colleagues’. Examples of technical activities are the monitoring and maintenance of servers, systems, databases and applications of company ABC’s corporate clients. Among the non-technical activities are sales and project support for company ABC.
3.4. Respondents
transitioning were chosen to take part in the pilot-study to validate concepts, since these managers have experience in the field of buyer-supplier relationships in general and outsourcing in specific. In phase two, the contract as well as operational managers involved in the specific projects were chosen to take part in the research, the latter to gain insights into how collaborative improvement is translated into operational activities. Finally, managers from the supplier’s firm responsible for the delivery to company ABC were involved in phase two, in order to gain insights in how these suppliers view collaborative improvement.
Table 5: Overview of respondents
Respondent Firm Project Function phase 1 phase 2
1 Company ABC A Contract/outsourcing transition manager x x
2 Company ABC A Operational manager x
3 Company ABC B Contract/outsourcing transition manager x x
4 Company ABC B Operational manager x
5 Supplier 1 A Delivery manager x
6 Supplier 2 B Delivery manager x
7 Company ABC Contract/outsourcing transition manager x
4. Results
4.1. Validation of concepts
4.1.1. Collaborative improvement
Respondents had different views on what collaborative improvement is. In Table 6, quotes about how different respondents defined collaborative improvement are shown. Multiple respondents saw collaborative improvement as developing a partnership instead of having a traditional buyer-supplier relationship. Other aspects that were mentioned are that collaborative improvement is a structured way of looking for and implementing improvements at the buyer and the supplier and that it focuses on the joint optimization of processes. The final aspect that was mentioned is that the supplier can contribute to the buyer’s strategy through collaborative improvement, which mainly offers benefits to the buyer.
Table 6: Quotes of how respondents see collaborative improvement
Respondent "Moving from a traditional buyer-supplier relationship towards a partnership" (3) (7) "The supplier contributing to the buyer's strategy" (7)
"The joint optimization of processes" (1)
Different goals of collaborative improvement were identified by respondents. An overview of these goals, which respondent identified what goal and examples of how to reach these goals is given in Table 7. Improving quality and efficiency at the buyer can be seen as the most important goals of collaborative improvement, since these goals were identified by all respondents involved in the validation phase. Also, improvement of speed was identified as a goal of collaborative improvement by multiple respondents. A specific example of quality improvement that was mentioned by all three respondents is improving ‘first time right’, meaning that a customer request is dealt with in one customer interaction. Reaching higher efficiency can be reached by creating uniform, simplified processes according to respondent 1. Important to note is that interdependencies exist between these goals. When, for example, business processes are highly uniform and simple, this will not only cause higher efficiency but also increase quality and speed since customer orders/requests can be dealt with easier.
Table 7: Goals and examples of collaborative improvement Goals of collaborative
improvement Respondent Example
Improvement of quality (1) (3) (7) Improving 'first time right' (1) (3) (7) Improvement of speed (3) (7) Jointly optimizing business processes(7) Improvement of product cost (3) Jointly reducing cost-to-serve (3)
Improvement of efficiency (1) (3) (7) Simplifying/uniforming business processes (1) Improvement of volume
flexibility Not mentioned -
4.1.2. Factors influencing the need for collaborative improvement
Increasing competition, rapidly changing technology (at the supplier and at the buyer) and quality criticality were seen as factors causing a need for collaborative improvement by different respondents (average respondent scoring >4). High purchasing volume was also recognized as a factor causing a need for collaborative improvement, albeit to a lesser extent. A short product lifecycle was not seen as a driver for collaborative improvement (average score < 2,5). This is displayed in Table 8, which shows the respondent’s individual and average validating scores for each factor. Also, quotes from these respondents are added to illustrate their points of view.
Table 8: Respondent scoring and quotes on validation of the need for collaborative improvement
Respondent: 1 3 7 Average Quote
Increasing competition 3 5 4 4,0 "To stand still is to go backwards" (1) (3) Shortening PLC in
buyer's industry 2 2 1 1,7 "Is not a direct cause" (7) Rapidly changing
technology in buyer's industry
4 5 5 4,7 "Needed to cope with future developments" (1) (7)
technology in supplier's industry
High purchasing
volume 4 3 3 3,3
"Solely purchasing volume does not cause a need for collaborative improvement (3); "Especially increases the need for collaborative improvement when relationship is long-term" (7)
Quality criticality 4 5 4 4,3 "Determines customer satisfaction" (3)
4.1.3. Factors influencing the development of collaborative improvement
Respondents had different views on what factors influence the development of collaborative improvement. Based on average respondent scoring on factors from previous research, there are factors that were seen as less relevant (average score < 2,5) and factors seen as relevant (average score > 2,5) to the development of collaborative improvement. The scoring table is given in appendix A. Factors are discussed separately per category below.
Relational governance
The category relational governance was seen as relevant to the development of collaborative improvement, with an overall score of 3,5. However, the factors (1) sharing of risks and rewards and (2) different organizational and (3) national cultures were seen as less relevant to the development of collaborative improvement. The fact that respondents saw the sharing of risks and rewards as not relevant might be caused by the respondents arguing from the buyer’s point of view. When risks and rewards are not shared, collaborative improvement is especially beneficial for the buyer, while the supplier might benefit less. This is because the supplier carries risk by investing in the development of collaborative improvement while being unsure about possible benefits. Different organizational and national cultures were not seen as important disenablers by respondents 1 and 7, according to these interviewees these differences can be easily dealt with or even complement each other. Respondent 3 however indicated national culture to be an important influencing factor. Respondent 1 also mentioned two influencing factors which were not identified in previous research: (1) the supplier providing clarity about what is and is not possible and (2) having previous experience with a supplier. The latter would enable the development of collaborative improvement since the supplier already has knowledge about the organization, processes and people within the buyer’s firm.
Capability
Capability was also seen as relevant to collaborative improvement development, with an overall score of 3,5. ICT support and the usage of similar continuous improvement techniques however were seen as not relevant to collaborative improvement development. Some ICT support is needed to facilitate communication according to respondent 1. Examples are chat programs or VoIP (internet telephony), which was seen as quite basic support. More advanced ICT support however was not seen as necessary.
Power
that when one party is more powerful than the other and this party exploits its power, the other party might be less willing to work with the more powerful party in the future.
Business strategy
The buyer’s strategy (focusing on either quality or cost) was seen as less relevant to the development of collaborative improvement. All three interviewees indicated that the firm focuses on improving quality while lowering costs and it is therefore not an ‘either/or’ situation. The factor ‘different interests’ however was seen as a relevant factor that could form a barrier to developing collaborative improvement.
4.2. Stage 2: In-depth study of two projects
Before providing the results of the two projects for our research framework, we will briefly describe the degree to which collaborative improvement is an issue in both projects.
4.2.1. Project A
In project A, possible process improvements are jointly discussed, based on which the choice is made whether or not to implement the specific improvement. A table with quotes of how respondents view the current and desired collaborative improvement is provided in appendix B.
Improving quality and efficiency were indicated to be the most important goals of collaborative improvement for company ABC. The supplier indicated the buildup of a long-term relationship with company ABC as their main goal. A more structured improvement process, more improvement initiative from the supplier and improving the performance of the entire delivery chain were found to be company ABC’s wishes for future collaborative improvement. At the same time, the supplier indicated to like more end-to-end responsibility for the processes they deliver. Risks for company ABC were found to be ‘getting stuck with a supplier’ and the risk of which party benefits from the improvements. The supplier indicated the risk of investing in collaborative improvement with uncertainty about future benefits.
4.2.2. Project B
In project B, service reviews take place to develop service improvement plans. Specific improvements contribute to reaching the higher-level improvements identified in a roadmap. A table with quotes of how respondents view the current and desired collaborative improvement is provided in appendix B. Reaching higher levels of customer satisfaction by improving quality and lowering costs was indicated to be company ABC’s main goal of collaborative improvement. We found the supplier’s goal to be serving company ABC’s end customer better, thereby creating a long-term and profitable relationship with company ABC. Company ABC wishes to see more improvement initiative from the side of the supplier and a more effective improvement process, whereas the supplier likes to gain more understanding of the end customer’s preferences. Relying on trust and promises instead of facts is seen as a possible risk of developing collaborative improvement within company ABC. The supplier indicated to face the risk of decreasing revenues when collaborative improvement would lead to efficiency improvements, but also indicated not to worry about this since collaborative improvement is needed in order to sustain a long-term relationship with company ABC.
4.3. Need for collaborative improvement
company ABC. The suppliers in both projects however indicated that collaborative improvement is needed to ensure a future relationship with company ABC. Also, respondents in both projects indicated high levels of competition, changing technology, purchasing volume and quality criticality to be present. An overview of individual and average scoring on these factors is shown in Table 9. Also, respondent´s quotes that substantiate the importance of these factors are incorporated in Table 9.
Table 9: Factors that influence the need for collaborative improvement
Project A Project B
Respondent: 1 2 5 Avg. 3 4 6 Avg.
Increasing competition in buyer's industry
5 5 5,0 4 4 4,0
Buyer:"Continuously improving
performance is needed to stay ahead of competition" (respondent 4)
Increasing competition in supplier's industry
4 4,0 5 5,0
Supplier: "Developing CI is a way to
differentiate and form a partnership with company ABC" (respondent 5)
Rapidly changing technology in buyer's industry
5 5 5,0 5 4 4,5
Buyer: "CI is a must to deal with
continually changing market conditions" (respondent 3)
Rapidly changing technology in supplier's industry
n.a. 3 3 3,0 5 4 5 4,7
Supplier: "We have to cooperate to cope
with technological changes such as cloud computing" (respondent 6)
High purchasing volume for buyer with supplier
4 4 4,0 5 3 4,0
n.a.
High purchasing volume buyer generates for supplier
3 3,0 4 4,0
Supplier: "For us, CI is needed to ensure a
long-standing and fruitful relationship with company ABC" (respondent 6)
Provided processes are critical to quality 5 5 5,0 4 5 4,5
Buyer: "Standing still means going
backwards" (respondent 2)
Provided processes are critical for buyer to achieve business strategy
n.a.
4.3.1. Increasing competition in buyer’s industry
Respondents in both projects indicated that they face strongly increasing competition in their industry. According to respondent 4, "continuously improving performance is needed to stay ahead of competition". For project A, increasing competition concerns the highly competitive Dutch telecom market. In this industry, liberalization has caused new providers entering the market, with the possibility of more new entrants in the future. The business unit involved in project B faces price pressure from foreign IT-firms now also operating on the Dutch market and competition from smaller IT-firms that have the ability to innovate quickly.
4.3.2. Increasing competition in supplier’s industry
Although the global market for business process outsourcing is growing, the supplier in project A indicated to face somewhat increasing competition. This is caused by the fact that providers in this industry have to compete with each other on price given the current economic downturn. According to the supplier in this project, collaborative improvement is "a way to differentiate from competition and form a partnership with company ABC". In project B, the supplier indicated to face highly increasing competition, which concerns the IT-outsourcing/offshoring market with more and more providers entering this market.
4.3.3. Rapidly changing technology in buyer’s industry
Respondents in both projects indicated that technology in their industry is changing rapidly. Therefore, collaborative improvement is seen as "a must to deal with continually changing market conditions" (respondent 3). Company ABC’s business unit involved in project B operates in the IT-market, where technological innovation continually takes place. An example of such technological innovation is cloud computing, to which company ABC has to adjust its current business models and service delivery. The telecom market which concerns project A also faces rapidly changing technology. An important example is the switch from the traditional delivery of voice services toward the delivery of data services.
4.3.4. Rapidly changing technology in supplier’s industry
The supplier in project B also operates in the IT-landscape, where technology changes rapidly as described in section 4.3.3. According to this supplier, buyer and supplier "have to cooperate to cope with technological changes such as cloud computing". The supplier in project A indicated that it faces somewhat changing technology, but to a limited extent since the supplier does not expect fundamental technological changes to influence its activities in the near future.
4.3.5. Purchasing volume for buyer with supplier
4.3.6. Purchasing volume buyer for supplier
Although company ABC is a large client for the supplier in project A, the supplier indicated that company ABC is still one of many clients looking at a global scale. As such, the supplier in project A indicated that the purchasing volume of company ABC for the supplier is somewhat high. The supplier in project B indicated that revenues that company ABC generates for this supplier are relatively high, being one of their largest clients at the moment. For this supplier, it is therefore very important to keep a healthy relationship with company ABC. This is illustrated by the quote "for us, collaborative improvement is needed to ensure a long-standing and fruitful relationship with company ABC" (respondent 6).
4.3.7. Quality criticality
All respondents indicated that the quality that company ABC delivers to its clients is influenced greatly by the quality the supplier delivers in both projects. In project A, the outsourced business processes are part of the delivery chain to company ABC’s clients. When an order, request or incident is processed incorrectly by the supplier, overall quality to company ABC’s clients immediately suffers. In project B, there are different services this supplier delivers. It is mainly the IT-management of company ABC’s clients performed by the supplier in that is highly critical to quality. Improvement of these processes is therefore needed, which is illustrated by the quote "standing still means going backwards" (respondent 2).
4.3.8. Criticality for achieving business strategy
Respondents from company ABC indicated that since delivered processes are critical to quality, these processes are also critical for the buyer to reach its business strategy. This is caused by the fact that company ABC’s overall strategy (and thus for both business units) focuses on delivering an excellent service/quality towards its customers. Reaching such an excellent service is done by continuously improving the quality of the service, which was already indicated by respondent 2’s quote "standing still means going backwards".
4.4. Factors influencing collaborative improvement development
4.4.1. Relational governance
Factors concerning relational governance that were validated in section 4.1 were measured in both projects. In this section, we first present and discuss the scoring of the buyer’s respondents on relational governance items. This is followed by the presentation and discussion of the supplier’s scoring on these items.
structural approach of how to reach this. Another barrier related to relational governance was found to be the reluctant attitude within company ABC toward ‘buying’ instead of ‘making’ (respondent 4). Furthermore, respondent 3 indicated the supplier’s national culture (India) where employees strictly follow the manual instead of taking initiative to also hinder the development of collaborative improvement. An overview of the buyer´s scoring on relational governance items as well as the respondent´s quotes concerning some of these factors is presented in Table 10.
On some factors concerning relational governance, disagreement between respondents existed. In project B the contract and operations manager disagreed on the factors communication style, priority for collaborative improvement and the joint execution of performance projects. The operations manager in project B indicated these factors to be present in the operational phase of the project, while the contract manager indicated these factors not to be present in the transitional phase of the project. Since collaborative improvement deals with and aims at improving operational performance, we might expect the operations manager to have a clearer understanding of these affairs. In project A, the buyer’s respondents agreed on the presence of all relational governance items except for the presence of a project champion. In the transitional phase, collaboration with the supplier is encouraged by upper management to ensure a smooth transition. However, collaboration with the supplier in the operational phase (when the transition has finished) is encouraged less by upper management. Furthermore, respondent 2 indicated that joint execution of improvement projects and teamwork with employees from both firms does not exist, while respondent 1 indicated these factors were present. This too can be explained by the difference in function between these employees. In this project, joint execution and teamwork has taken place in the transitional phases of project A, but has not taken place when activities became operational. Respondent 2 indicated that the lack of joint project execution and teamwork are in fact important barriers to the further development of collaborative improvement in project A. Finally, trust was especially mentioned as an important enabler to developing collaborative improvement. Respondent 2 and 3 even mentioned trust as a prerequisite for developing collaborative improvement. On the other hand, respondent 4 indicated that the importance of formal instead of social processes should not be underestimated. Table 10: Buyer scoring and quotes on relational governance factors
Project A Project B
Respondent: 1 2 3 4
Our firm and the supplier openly exchange knowledge and information 5 4 4 4
"Our supplier is open for discussion" (respondent 3)
There is frequent communication between our firm and the supplier
about things that go right. 5 5 3 5
There is frequent communication between our firm and the supplier
about things that go wrong 4 5 5 5
"We work together on each level of both organizations and communicate regularly" (respondent 4)
There is honest communication about problems between our firm and
the supplier 4 5 4 5
"Supplier's national culture: not taking initiative" (respondent 3)
We trust the supplier 3 5 3 4
People at our firm and the supplier like each other personally. 4 4 4 4 Ideas about the intensity and organization of collaboration are shared
between our firm and the supplier 4 4 4 5
"Improvements are part of the agreement with this supplier" (respondent 2)
Goals are shared between our firm and the supplier 5 5 5 4
"Non-committal nature of improvement agreement" (respondent 2)
Our firm and this supplier jointly execute improvement projects through
workshops etc 4 1 2 5
Employees from our firm and our supplier work together in teams 4 1 5 The supplier has been clear about what is and is not possible from the
start 4 4 2 5
Employees of our firm see the added value of collaboration with the
supplier 4 5 5 4
"Within our firm, there is a negative view on buying instead of making" (respondent 4)
Employees of the supplier see the added value of collaboration with our
firm 4 5 5 5
Collaborative improvement has priority within our firm 3 5 2 5
"Both parties are aware of the importance of collaborative improvement" (respondent 2)
Collaborative improvement has priority at the supplier 3 3 2 4 Within our firm, there is a project champion within the upper
management who advocates for collaboration with suppliers 4 2 5 5 Within the supplier, there is a project champion within the upper
management who advocates for collaboration with our firm 4 4 4 5
improvement. A barrier to developing collaborative improvement concerning relational governance identified in project A is that the joint execution of improvement projects does not take place. This was in line with what the buyer’s operations manager indicated. An overview of the supplier´s scoring on relational governance items as well as the respondent´s quotes concerning some of these factors is presented in Table 11.
Table 11: Supplier scoring and quotes on relational governance factors
Project A Project B
Respondent: 5 6
Our firm and company ABC openly exchange knowledge and
information 4 3
There is frequent communication between our firm and company
ABC about things that go right. 5 2
"There is a lack of communication" (respondent 6)
There is frequent communication between our firm and company
ABC about things that go wrong. 5 3
There is honest communication about problems between our firm
and company ABC 4 3
People at our firm and company ABC have a similar
communication style. 3 3
We trust company ABC. 4 3
"Openness and trust contribute to the development of CI between our firms" (respondent 6)
People at our firm and company ABC like each other personally. 4 4 Ideas about the intensity and organization of collaboration are
shared between our firm and company ABC. 3 2
Goals are shared between our firm and company ABC. 4 2
"Improvement targets are part of the agreement" (respondent 5)
Our firm and company ABC jointly execute improvement projects
through workshops etc 2 3
Employees from our firm and company ABC work together in
teams 3 3
Company ABC has been clear about what is and is not possible
from the start. 3 4
Employees of our firm see the added value of collaboration with
company ABC 4 3
Employees of company ABC see the added value of collaboration
with our firm 3 3
Collaborative improvement has priority within our firm 4 3
Collaborative improvement has priority at company ABC 4 3
Within our firm, there is a project champion within the upper
as company ABC.
Within company ABC, there is a project champion within the upper management who advocates for collaboration with our
firm. 4 4
4.4.2. Capability
Factors concerning capability that were validated in section 4.1 were measured in both projects. In this section, we first present and discuss the scoring of the buyer’s respondents on capability items. This is followed by the presentation and discussion of the supplier’s scoring on these items.
We found that capability works as an enabler to the development of collaborative improvement. For example, respondent 1 indicated that the supplier has skilled employees with the ability to learn quickly and that buyer and supplier have knowledge about each other’s processes since they have previous experience with working with each other. Respondent 5 mentioned the fact that buyer and supplier share a process model, thereby sharing the way of working and having insights in each other’s processes as enabling to the development of collaborative improvement. An overview of the buyer´s scoring on capability items as well as the respondent´s quotes concerning some of these factors is presented in Table 12.
Table 12: Buyer scoring and quotes on capability factors
Project A Project B
Respondent: 1 2 3 4
Our firm has previous experience with working this supplier 5 5 5 4
"We have previous experience with this supplier" (respondent 1)
Our firm has previous experience with continuous improvement 4 5 5 5 The supplier has previous experience with continuous improvement 4 5 4 5 Our firm has previous experience with project and change
management 5 5 5 5
The supplier has previous experience with project and change
management 5 5 3 5
Knowledge about relevant CI processes is available within our firm 3 4 3 5
"Our firm and our supplier use a shared process model" (respondent 4)
Knowledge about relevant CI processes is at the supplier 3 5 3 5
"The supplier's employees are highly skilled" (respondent 1)
Certification (for example ISO) at our firm does not limit the
possibilities to implement changes 4 5 4 5
Certification (for example ISO) at the supplier does not limit the
possibilities to implement changes 4 5 5
to have experience with continuous improvement. In project B, the supplier indicated a low level of previous experience with continuous improvement at the buyer, seen as a barrier to developing collaborative improvement. More specifically, this supplier indicated that company ABC wants to implement improvements too fast without considering all aspects involved in implementing the improvement. An overview of the supplier’s scoring on capability factors is presented in Table 13. Table 13: Supplier scoring and quotes on capability factors
Project A Project B
Respondent: 5 6
Our firm has previous experience with working company ABC. 4 3
Our firm has previous experience with continuous improvement 5 4
"We are experienced in continous improvement" (respondent 5)
Company ABC has previous experience with continuous improvement 4 2 Our firm has previous experience with project and change management 4 4 Company ABC has previous experience with project and change
management 4 3
Knowledge about relevant CI processes is available within our firm 4 3 Knowledge about relevant CI processes is available at company ABC 4 3 Certification (for example ISO) at our firm does not limit the possibilities
to implement changes 3 4
Certification (for example ISO) at company ABC does not limit the
possibilities to implement changes 3 3
4.4.3. Power
Power (section 4.1) was measured in both projects. In this section, we first present and discuss the scoring of the buyer’s respondents on the factor power. This is followed by the presentation and discussion of the supplier’s scoring on this category.
indicated that despite looking for cost reductions, company ABC is indeed committed to collaborate with its suppliers in order to satisfy the customer. An overview of scoring on power is presented in Table 14.
Table 14: Buyer scoring and quotes on power factors
Project A Project B
Respondent: 1 2 3 4
Our firm and the supplier have an equal amount of power 2 5 1 2 Our firm is not constantly looking for cost reductions/cheaper suppliers 1 1 1 1
"Our firm not wanting to be too dependent on this supplier" (respondent 1)
At the side of the supplier we also found that a balanced power level enables the development of collaborative improvement. For example, in project A the supplier indicated equal amounts of power to be present, which is in line with what the buyer’s operations manager indicated. This perceived power balance in project A works as an enabler to the development of collaborative improvement since neither party is tempted to exploit its powerful position. The supplier in project B however indicated to have less power than its buyer, which is in line with what both of the buyer’s respondents have indicated. The barrier that is formed when the buyer attempts to sustain its power over the supplier was confirmed by the supplier’s respondents. For example, the supplier in project A indicated company ABC to be unwilling to make a long-term commitment. When investing in collaborative improvement, this supplier indicated to like a longer-term commitment from the side of the buyer. Such a lack of long-term commitment was also recognized by the supplier in project B. This supplier identified frequent changes in organizational structure and management teams in specific at company ABC as an important barrier to developing collaborative improvement. The buyer’s unwillingness to reduce its power by taking on a long-term commitment was further confirmed by the fact that both suppliers believed that company ABC constantly looks for cost reductions and cheaper suppliers. Consequently, developing collaborative improvement seems to be especially beneficial for the buyer while the supplier seems to benefit less. An overview of these items is given in Table 15.
Table 15: Supplier scoring and quotes on power factors
Project A Project B
Respondent: 5 6
Our firm and company ABC have an equal amount of power 4 2
"Frequent organizational changes at company ABC" (respondent 6)
Company ABC is not constantly looking for cost reductions/cheaper suppliers 2 1
4.4.4. Business strategy
We found that focusing on a shared business strategy enables the development of collaborative improvement. For example, the buyer’s respondents 1, 2 and 4 indicated that the buyer and supplier have similar interests, in that they focus on delivering high quality service while striving to increase efficiency.
At the side of the supplier we also found that a shared business strategy enables the development of collaborative improvement. For example, the supplier in project B saw shared objectives to contribute to developing collaborative improvement. According to this supplier, these shared objectives are providing high quality service in a timely manner at optimum cost. An overview of the scoring on business strategy is provided in appendix C.
4.5. Revised research framework
In Figure 3, our framework that was based on previous research is revised according to the results from our case study.
Figure 3: Revised research framework
Need for CI
· Increasing competition at the side of the buyer and supplier · Rapid changes in technology at
the side of the buyer and supplier
· High purchasing volume for buyer with supplier
· High purchasing volume buyer generates for supplier · Quality criticality
· Criticality to achieving business strategy
Collaborative Improvement · Inter-company continuous
improvement
· Moving from a traditional buyer-supplier relationship towards a partnership · Aims at improving quality and
efficiency
· Improve those processes essential in meeting customer expectations
Enablers and disenablers to CI · Relational governance · Capability · Power · Business strategy
+
+
5. Discussion
quality while increasing efficiency. An important question we should ask however is whether or not maximizing quality while minimizing costs can always go hand-in-hand. For example, the buyer constantly looking for cost reductions and cheaper suppliers is more reminiscent of a traditional buyer-supplier relationship than a partnership. For the supplier, the main goal was found to be creating a long-term and profitable relationship with its buyer. Instead of expecting direct benefits of collaborative improvement, suppliers expect that the increased dependence of the buyer on the supplier due to collaborative improvement will provide them benefits such as more certainty of having a long-term relationship with its buyer. Second, we focused on when collaborative improvement with suppliers is necessary in the service industries. In our study we found that the need for collaborative improvement increases when competition increases and technology changes rapidly for the buyer as well as the supplier and when the supplied processes are critical to quality. Opposing literature, we also found that a high purchasing volume and a shortening product lifecycle does not cause a need for collaborative improvement. Finally, we investigated which factors act as drivers or barriers to the development of collaborative improvement in the service industries. We found that enablers and barriers to the development of collaborative improvement concern relational governance, capability, power and business strategy. Concerning relational governance, barriers found in the specific projects are for example dissimilar communication style and a lack of improvement initiative from the side of the supplier. Such barriers raise the question whether buying instead of making is desirable in the first place when a firm strives for the continuous improvement of activities. Concerning capability, enablers that we found are for example highly skilled employees at the supplier and previous experience with working with each other, while a low level of previous experience with continuous improvement at the buyer was found to be a barrier to developing collaborative improvement. Concerning power, we found that a balanced power level influences the development of collaborative improvement positively but that a lack of long-term commitment and frequent organizational changes on the side of the buyer form barriers to the development of collaborative improvement. Finally, concerning business strategy, an enabler that we found was for example having shared objectives among the buyer and the supplier. We will now discuss the theoretical and practical implications of these findings, and provide suggestions for further research.
5.1. Theoretical and practical implications
Our study has several implications for theory and business practice.
First, by showing what collaborative improvement in the service industries may entail, we extended the existing literature on collaborative improvement. This literature focused solely on the manufacturing industries and did not cover the service industries. Our paper is consequently also of value to business practitioners (in the service industries) who seek to develop collaborative improvement. It shows practitioners how collaborative improvement in the service industries is defined and which goals it serves.
factors to be equally important. Consequently, our paper contributes to theory by showing that the need for collaborative improvement is indeed different in the service industries. For practitioners in the service industries, our paper contributes by showing when investing in collaborative improvement is necessary.
Third, we investigated which factors act as drivers or barriers to the development of collaborative improvement in the service industries. Existing literature focused on factors that influence the development of collaborative improvement in the manufacturing industries. We therefore extended the existing literature on the development of collaborative improvement to the service industries. Although we expected and found some factors to be different in the service industries, we also found that many of these factors are similar to those in the manufacturing industries. Our paper therefore contributes to literature by showing that the development of collaborative improvement in the service industries is in some ways similar to that in the manufacturing industries, but that it is important to realize that differences do exist. For business practitioners (in the service industries), our paper shows what factors these practitioners should take into account when implementing collaborative improvement.
Finally, prior studies concerning collaborative improvement insufficiently acknowledged the supplier’s point of view. We have extended the literature on collaborative improvement by showing that the goal of collaborative improvement is different for the supplier than for the buyer. For the buyer, this goal is increasing quality and efficiency while the supplier’s goal is to ensure a long-term relationship with its buyer. Hence, our paper contributes to business practitioners by showing the different points of view that buyer and supplier have. Consequently, buyer and supplier can gain understanding about each other’s point of view when engaging in collaborative improvement.
5.2. Limitations and directions for future research
Our study has several limitations and offers several directions for future research.
First, although we used multiple data sources in this research, data was gathered at a buying firm in a specific service industry (i.e. the telecommunications sector). We would advise future studies to conduct research at several firms in different service industries to be able to come up with more generalizable results about collaborative improvement in the service industry.
Second, organizations that already engaged in collaborative improvement projects participated in this study. While our study thus captured real-life issues for these firms, it did not cover the barriers which organizations that do not currently pursue collaborative improvement practices face. More research could be conducted amongst those organizations which are lagging behind.
Third, it would be beneficial to investigate how collaborative improvement influences the buyer’s performance in the service industries. Does engaging in collaborative improvement lead to higher customer satisfaction? Do quality and efficiency levels increase when engaging in collaborative improvement? And if performance is influenced positively by collaborative improvement, to what additional cost?
trust between firms? How can differences in communication style be overcome? How can teamwork with members from different firms be enhanced when these firms are separated by distance?
Fifth and finally, the researched projects concerned activities that have been outsourced to external parties. It would be beneficial to investigate whether or not the decision to ‘buy’ instead of ‘make’ was a good decision in the first place. What are the total organization costs for these outsourcing projects? And could customer satisfaction and quality levels be higher when performing these activities in-house?
5.3. Conclusion
