The innovative road to the satisfied customer 2013 Master Thesis

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Master Thesis

2013

Pepijn Aghina 24-7-2013

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The innovative road to

the satisfied customer

The effect of innovative projects on

customer satisfaction

Pepijn Aghina S1479342 Bisschopsmolen 59 5612 DC Eindhoven p.j.aghina@gmail.com 06-24997344

Faculty of Economics and Business University of Groningen

Master thesis BA Marketing management 24 Juli 2013

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Management Summary

This research aimed to clarify the effects of innovation on customer satisfaction within the public road building industry. The public road building industry has been subject to many changes in both structure and process. Economic crisis, new legislation, the rising need for sustainable solutions, and the construction industry fraud all have had an impact on the market and have forced companies to rethink their strategies.

This research has been conducted by examining the workings of a construction company from within the company Heijmans. Their client base has furthermore been asked to

participate in the research to create a clear view of the problem statement and the formulated model.

Consequently, the current legislation has been studied. New legislation offers the opportunity to companies to be more innovative and could entail financial benefits to improving the satisfaction of customer needs. Moreover where formerly differentiation between companies was mainly focused on price and competence through scale, new opportunities have risen. Through these new opportunities customer satisfaction may play a more prominent role in the future.

The current environment and trends force a company such as Heijmans to be more

innovative and sustainable, hoping they will differentiate themselves in a positive way of the competition.

Through both an academic literature study and exploratory qualitative research a model of formulation of customer satisfaction within the public road building industry was formed. Literature regarding the topics of innovation and sustainability yielded the possible effects on this model and thus hypotheses were formed.

The following factors were identified to play a role within the model of formulation of

customer satisfaction; expectations, perceived performance, disconfirmation of expectations, and customer satisfaction itself. The model and the relations between the factors within the model were tested by conducting several linear regressions. Furthermore to test the

hypotheses; differences in scores were tested using an independent samples t-test with innovation, sustainability and double linking as independent variables and all the factors of the customer satisfaction as dependent variables.

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significant. Perceived performance on the other hand was thought to have a positive effect on both disconfirmation of expectations and customer satisfaction, both relations were indeed positive and significant. The underlying components of perceived performance were analysed and communication and the process of a delivered project were the biggest predictors of customer satisfaction. Disconfirmation of expectations was expected to yield a positive effect on customer satisfaction and although the results showed a small positive effect yet again, no significance was found.

It was hypothesized that innovation had a positive effect on expectations, perceived performance, disconfirmation of expectations and customer satisfaction itself. Though differences were found, none of them were significant. Double linking, the combination of technology push and demand pull approaches in innovation, was thought to have a positive effect on customer satisfaction. No significant difference was found however, thus an effect was not proven. Sustainability was hypothesized to have an additional effect on expectations, perceived performance, and customer satisfaction. Again, differences were found in favour of the hypotheses but no significance meant insufficient support.

Although very little significant effects were found, the scores found gave rise to suspicion that the effects of innovation are there. More research is needed to properly confirm or disconfirm these suspicions. In addition to this, current legislation and lack of experience with

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Preface

“A single conversation across the table with a wise man is better than ten years mere study of books”

-

Henry Wadsworth Longfellow

In light of this quote, I would like to thank all who have contributed through conversation to this study. Of course, two persons deserve special recognition, my supervisors from both Heijmans and the Rijksuniversiteit Groningen. Kristel van Haaren, thank you for having patience with me and the sometimes “sluggish” progress I made, though having the confidence that I would work it out. Drs. W. Jager thank you for your conversations,

insightful vision and very useful pointers when the progress of writing the research that lies before you halted. Of course Dr. Hoekstra deserves praise for her clear and to the point review.

Last but not least my brother who opened up his home to me in the name of science. I hope this research will amaze you as much as my journey towards completion amazed me. With kind regards,

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1 Introduction

“Apple computer is committed to protecting the environment, health and safety of our employees, customers and the global communities where we operate. We recognise that by integrating sound environmental, health and safety management practices into all aspects of our business, we can offer technologically innovative products and services while

conserving and enhancing resources for future generations. Apple strives for continuous improvement in our environmental, health and safety management systems and in the environmental quality of our products, processes and services.” (apple.com)

It might be odd to start a paper, which aims to research the market of the public road building industry with a quote of a computer and electronics company. However, if we compare it to the communicated ambitions and the mission statement of Heijmans, the company under inspection within this paper, many similarities can be found:

“Heijmans has the ambition to be the exemplary Dutch combined construction company in terms of profitability, quality and sustainability by the year 2015. “ (Heijmans Annual report 2011). Sustainability and innovation are fundamental to our thoughts and actions, making it possible for us to offer our clients the best solutions, now and in the future. Heijmans is thus able to make a positive contribution to the organisation of society (Heijmans Annual report 2011).

Sustainability and innovation are leading themes throughout the organisation, even charting these areas with special annual reports within these areas of expertise. The Apple customer expect these qualities in their potential purchases, they even demand Apple products to contain these aspects. The customers of Heijmans, municipal governments and the department of Waterways and Public works in this case, also have high expectations and demands. The difference between the companies lies in the possible purchasing behaviour; Apple has generated a very loyal customer base through both brand image and satisfying customers. Heijmans of course tries to influence their customers by using brand image and customer satisfaction to their advantage. The purchasing process, within the public road building industry known as procurement, currently is not fully adjusted to generate brand loyalty mostly through brand image. Focused management of customer satisfaction on the other hand, might be a tool to inspire a rise in demand for specific products and ultimately repeat purchasing.

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both business and private parties in real estate development. However, for this paper, only the business units whose focus lies on the Dutch public road building are of interest.

The Dutch public road building industry of course is very different to business-to-consumer markets or business-to-business markets. The clients within the Dutch public road building industry are either municipal or governmental contracting parties. End consumers are thus not the direct customers of a Dutch public road building industry company such as Heijmans. The direct influence of end-consumers is assumed very little, government officials whom lack insight into public opinion regarding public road demands of the end-consumer shape current policy. No known research is conducted or panels are used regarding this subject, therefore it is assumed that an end-consumer has no direct influence on policy, demands and ultimately satisfaction of the customer. There is probably an indirect effect, public opinion and societal trends might have an effect on the policy of governmental entities. As employees of municipal governments have stipulated, policy is based with general demands of the public in mind, but policies are not directly based on research held amongst the public (Appendix I Interview with a Heijmans Client Wim Venneman).

Therefore, expectations and demands are formulated by the clients of Heijmans and not by end-consumers. Where these demands and expectations used to be straightforward, in the form of traditional procurement, they are now shifting to less objective ones. In new forms, such as Most Economical Advantageous Tender (MEAT), in addition to price many other variables such as quality, design and sustainability play a large role. One can imagine that through these less absolute demands it is harder to predict expectations. Although

expectations are harder to predict, Heijmans does have more freedom of movement to improve customer satisfaction. Customer satisfaction and a resulting past performance measure have just made its appearance in the new procurement law and subsequent legislation. Although this has just been introduced and effects in the current market will probably not be identifiable, it will have an impact on the way the market operates in the future.

These changes have some ramifications for Heijmans. In order to cope with these changes they have changed from an organization with a cost emphasis to an organization with a dual emphasis (Mittal et al., 2005). Meaning both emphasize the importance of cost reduction and revenue generation. To support the revenue emphasis aspect within the dual emphasis

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Through these developments in procurement, Heijmans is pushed into a less known area where, through customer satisfaction, they might be able to improve demand for their products. Heijmans is heavily investing in innovation and sustainable innovation and in doing so hopes to positively affect repeat purchases.

From an academic point of view, this study is especially interesting because it aims to both widen and deepen the current knowledge of customer satisfaction and the effect of

innovation upon it within a business-to-government environment. Because of changes in market and regulations, both organizations and governmental entities understand the increasing importance of customer satisfaction and innovation. This creates an opportunity to research these topics in an environment, which was formerly unwilling to cooperate with this sort of research. Current literature in the fields of customer satisfaction and innovation mainly focuses on business-to-consumer and business-t0-business. There are some

fundamental differences between aforementioned environments and the

business-to-government environment. Where businesses are relatively free in choosing how they acquire products, governmental entities are not; they have to abide to strict procedures for

procurement of contractors who build their products. The goals of business- and

governmental entities are quite dissimilar; where businesses aim to satisfy a relatively small group of stakeholders (shareholders for example) governmental entities typically have to deal with larger and more groups who additionally have more conflicting interests (constituents, political parties, profit- and non-profit organizations for example). Where other

organizations generally strive for the improvement of one subject, profit or other, governmental entities under research in this study aim to improve their constituency.

Because of these differences, it is expected that the workings of customer satisfaction and the effect of innovation upon it will differ from a business-to-business environment.

Hereafter the problem statement of this report is given followed by a more extensive description of the company, the environment, procurement and finally the trends in the market.

1.1 Problem Statement

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What is the effect of innovative projects on customer satisfaction within the Dutch public road building industry?

Customers are defined as the public infrastructural clients such as the Rijkswaterstaat

(Department of Roads and Waterways), Provincial governments and Municipal governments. Later on in this chapter a more elaborate description and segmentation of these customers is given. Secondly, there are several aspects, why this problem statement is so apparent in the current market. These aspects are the following:

 Less emphasis on price criteria and more on Most Economically Advantageous Tender (MEAT) criteria

 Market under pressure which calls for more emphasis on revenue generation instead of cost emphasis

 New forms of contract, which allow more room to differentiate on basis of innovation  New legislature that enables recording past performance and customers’ own

satisfaction and handling up on these measures.

Heijmans is trying to address and fulfil the demands and expectations through new products. Because of trends in the market such as new forms of contract, different criteria, and market pressure, Heijmans is forced to recognize the demands in an earlier stage and focus on

customer needs more and more. In addition to this, price is no longer the only factor in which a company can differentiate. Finally, new legislature and plans from customers to handle accordingly. There are plans from a municipal government to start tracking past performance and their own satisfaction regarding contractors (Appendix P: 10 wegen naar innovatiever aanbestedingsbeleid en professioneler opdrachtgeverschap). Heijmans is trying to satisfy their customers through innovation and new product development. It is therefore essential that Heijmans adopt a strategy of innovation that links their technological capacity to current and future demand. Currently there is a very dominant emphasis on technology; customer demand is deemed less important (Appendix H Interview with Heijmans Employee Frits van den Boogaard). Brem and Voigt (2009) contend that a combination of both emphasis on demand and technology are needed in order to capitalize on an innovation. Frits van den Boogaard, a Heijmans employee currently researching customer satisfaction, stated that little is known about current customer satisfaction. There is very little coverage of customer

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limited and unreliable.

To put this problem into context a description is given of Heijmans and the Connect department, the different styles of procurement, its’ environment, and finally the trends within the Dutch public road building industry.

1.2 Heijmans & the Connect department

To get a grasp of the subject of this report, we will first need to establish a general view of the company and the importance for brand image for the sector in general and Heijmans in particular

1.2.1 Heijmans

Heijmans is a listed company that combines operations in property development, residential building, non-residential building, installation engineering and infrastructure. Heijmans operates in the Netherlands, Belgium, and Germany. It creates added value for customers by focusing on quality improvement, integrated projects, sustainability and profitability.

Heijmans realises projects for homebuyers, companies and government authorities.

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For this research, the focus will lay on the company’s native market namely the Netherlands. In the Netherlands the company is divided into three divisions, every division has two subdivisions:  Living o Property development o Residential Building  Working o Non-residential Building o Technical Services  Connecting (Infrastructure) o Roads o Civil

In figure 1 the relative division of revenue within Heijmans is given:

Figure 1 Percentage of revenue in 2011 per activity (Heijmans Annual Report 2011)

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Mission statement

Heijmans endeavours to be the best choice for clients when it comes to developing and realising infrastructure and accommodation in areas such as housing, employment, mobility, care, education and recreation. Sustainability and innovation are fundamental to our

thoughts and actions, making it possible for us to offer our clients the best solutions, now and in the future. Heijmans is thus able to make a positive contribution to the organisation of society.

The development and realisation of the projects requires capital and

expertise. Continuity, a good operating result and returns therefore form the basis of this. By being an attractive and inspiring employer, Heijmans wants to appeal to and retain

professionals with expertise. (Heijmans Annual Report 2011) Vision

“Heijmans is building the spatial contours of tomorrow. An environment in which energy and space are becoming scarcer therefore intelligent solutions are needed. Factors such as sustainability will significantly determine the environment for construction. At the same time, users of roads and buildings are becoming increasingly demanding. This requires diligence and thorough knowledge and experience. Heijmans adds value for its clients by combining disciplines, by making a choice for quality at a fair price and treating

craftsmanship and knowledge as its greatest asset.” (Heijmans Annual report 2011) Ambition

As said earlier, Heijmans has the ambition to be the exemplary Dutch combined construction company in terms of profitability, quality and sustainability by the year 2015. Heijmans is thereby positioning itself as an example in the sectors in which it operates (Heijmans Annual Report 2011).

1.2.2 Innovation & Sustainability

In this section, the view on innovation as well as sustainability within Heijmans will be described. Following the paragraph regarding Roads and Civil, a couple of examples of innovative- and sustainable projects will be given as well.

Innovation

Heijmans sees innovation as key to sustain and improve their current position. By emphasizing the importance of innovation, they hope to improve their knowledge

development, creativity and growth. Innovation in this sense is not merely idea generation, but also recognition of needs and action upon this recognition. Currently Heijmans is

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leading in the fields of quality, profitability and sustainability (Appendix A Interview Kristel van Haaren, Appendix B Interview Heijmans Employee Maarten van Santvoort).

Sustainability

Heijmans aims to be sustainable through Corporate Social Responsibility. The concept of sustainability is thus multi-faceted within the company and its’ layers. Company-wide, the Triple bottom line principle is used to define sustainability. Triple bottom line measures sustainability on three aspects, namely People, Planet, and Profit. Thus, corporate policy promotes entrepreneurship where economic performance is realised, while respecting social aspects and staying within ecological boundaries. While the People aspect is mostly achieved through company-wide policy, the Planet and Profit aspects are more visible in the individual projects as well as company policy. General policies encompass activities like encouraging use of electrical vehicles in order to reduce overall fuel consumption. Employees have the

opportunity to exchange their car for an electrical car for one day and multiple charging points are available at the main office. Within projects, the sustainable emphasis lies on active carbon footprint reduction. The following product is an example of a sustainable product:

Greenway LE:

Sustainable asphalt that, without loss of quality, combines the environmental benefits of a lower temperature of production (105Cº instead of 165Cº) and recycling of used asphalt granulate up to the maximum of 60% of the total volume asphalt used. This leads to both a major reduction of energy consumption and less waste because of recycling.

Sustainability is a very contemporary topic and viewed as a goal which society must chase, sustainability is not a goal in itself within road construction however. The road construction business views it as an additional factor that may help to procure business (Appendix F interview with Heijmans Employee Frank Hoekemeijer). Sustainability will therefore only be pursued when it grants more merit than solely a sustainable solution. In practice this

currently means that sustainable aspects will not be implemented unless the customer Particulate matter

Figure 2 Environmental benefits of Greenway LE as

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specifically asks for them, allows room for it through MEAT criteria, or if it can be done at no additional cost and serves as a point of parity or difference (Appendix A: Interview with Heijmans Employee Kristel van Haaren). Although there are of course, other factors that have to be weighed in this matter such as lower depreciation due to longer life span and lower cost for maintenance, construction costs are a big threshold. Government officials do not always have eye for other factors (Appendix I Interview with Heijmans Client Wim Venneman). Although MEAT criteria allow more opportunity for less emphasis on price, governmental officials are still learning to apply these criteria correctly. Because of this, there is still a heavy emphasis on price (Appendix I Interview with Heijmans Client Wim

Venneman).

1.2.3 Connect Division

The activities of the Connect division are divided into roads and civil, they involve designing and maintaining infrastructure above and below the ground. Although roads and civil of course have their own specialties they often work together in projects.

Roads

Heijmans Roads is engaged in the construction, maintenance and reconstruction of roads and cycle paths, airfields, industrial sites, and the organization of the public space in

residential and shopping areas, as well as design and installation of lighting, signage, matrix signs, guide rails, complete traffic control systems, camera -, tolls and security systems and other measures for the improvement of safety and flow of traffic on the road. Heijmans thus has numerous fields of expertise. Through these fields of expertise Heijmans is dedicated to growth of existing and development of new target markets, keeping in line with

sustainability, energy and quality trends in the market. The department of Roads has an integrated approach of design and construct for complete infrastructure solutions. Civil

Civil focuses on location-related infrastructure and infrastructure above and below ground, such as viaducts, engineering structures, cabling, pipes, energy provisions, restoration works, water purification, etc. These disciplines are supported by engineering services.

Innovative (sustainable) Projects

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Modieslab

A modular road concept, pre-fabricated slabs of high quality concrete that are laid down on poles or a stable surface. The pre-fabrication leads to a sustainable, low-maintenance and

especially quick to install (or repair) construction. Sustainable benefits are a high noise-reduction, less

emissions of CO2 and particulate matter and lower need for maintenance.

Self-healing Asphalt

A healable asphalt road, asphalt when heated will become partially fluid and mend possible cracks that are caused by use. Heijmans has added very fine steel fibres to the mixture of the asphalt and as a result, it can be heated through induction and repair itself. Benefit of this technique is an improved durability, from 50% up to a 100%.

Airjet Sealing

To prevent roads from degrading a special sealing material is injected into the asphalt using an Airjet. This sealant prevents small pebbles to detach from the road surface, which is one of the main factors that determine the lifespan of a road. Thus, lifespan is increased through less costly and invasive maintenance of the asphalt.

1.3 Procurement

Procurement is the way in which a client notifies potential tenders of an assignment and after comparison of all the offerings awards the assignment to one of the tenders. There has been a shift from traditional forms of procurement to more innovative forms. These new forms of contract are introduced to allow more room for innovation in public national procedures and European procedures. These new forms of contract will be explained more elaborately in the paragraph of form of cooperation

Through this shift in forms of cooperation, innovation is gaining on importance. Formerly, governmental entities such as municipalities or provinces were only able to select on price and demanded a very specific design within the procurement process, there is now more

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room for companies to innovate. A description of the several forms of procurement and the process itself will be explained in order to get a complete view of this transition.

The design of procurement consists of three parts:  Form of cooperation

 Procedure

 Award and selection criteria 1.3.1 Form of cooperation

There are two general forms of cooperation, traditional and integrated. Traditional cooperation means the client has already specified the design of the assignment and the tender is only asked to make an offer regarding the construction. The integrated form of cooperation is less concise in the assignment. Here only an abstract result or problem statement and goal orientation are specified, depending on the exact form of integrated cooperation.

Traditional form of cooperation

In the traditional form of cooperation, design is performed by an entity and thereafter contractors can bid to construct the project. Problems with this traditional form are numerous, but rigidity of the process and debatable point of responsibility are important factors.

Integrated forms of cooperation

Design and Construct (D&C)

In this form of cooperation, a project is both designed and constructed by a single entity. The single entity can entail several partners, a joint venture of a design bureau and contractor for instance.

Design, Build, and Maintenance (DBM)

In this form of cooperation, a project is designed, constructed and maintained by a single entity. Adding maintenance ensures the contracting party the contractor will optimize

durability for they are responsible for the maintenance and the consequential costs. Through this approach financial risk for the coming years is somewhat constrained.

Design, Build, Finance, and Maintenance (DBFM)

In this form of cooperation, a project is designed, constructed, financed and maintained by a single entity. Finance responsibility lies with the contractor, which reduces the risk of

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Design, Construct, Finance, Maintenance, and Operate (DBFMO)

In this form of cooperation a project is designed, constructed, financed, maintained, and operated by a single entity. Exploitation of the project will be governed by the contractor for the period given in the contract. Risk for the contracting party is thereby minimized to as low as possible, on the other hand administrative power and proceedings are mostly relinquished as well.

1.3.2 Procedure

There are two main categories of procedures, the national and the European procedure. An organization must follow the procedures of European once the assignment rises above a certain threshold. This threshold is based on size in €, place of implementation (e.g. closer to border region) and special circumstances (e.g. personnel needs to be able to speak Dutch). Within those two main categories, there are seven different kinds of procedures:

National procedures

Single private procedure

A procedure in which the purchasing party may suffice to request a quote from a single service provider or supplier of its choice.

Multiple private procedure

The purchasing party must request a quote from more than one tender, depending on the size of the expenditure usually at least three or five, obtained from service providers or suppliers of its choice.

Public national procedure

Is a procedure in which the publication takes place mostly on the procurement-calendar and to which all interested service providers or suppliers may submit a tender.

European procedures

Open procedure

In an open procedure, any interested economic operator may submit a tender. Selection and contract award take place simultaneously.

Restricted procedure

In a restricted procedure, selection and award are two different parts of the process. Any company may request to participate, but the contracting authority assesses which candidates are suitable. She invites least five candidates to submit a tender. Only after selection,

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Competitive dialogue (with or without prior advert)

In many ways similar to the restricted procedure, except there is an added opportunity to engage in a dialogue with tenders. Meant for complex problems this procedure is not always applicable by law.

Negotiated procedure

The negotiated procedure is used only in cases explicitly mentioned in the guidelines; for example, when it comes to services of an intellectual nature of research and

experimentation. In negotiated contracting authority selects a number of entrepreneurs and sets the terms of the contract through negotiations.

(www.europeseaanbestedingen.eu, www.out-law.com, MEAT Manual, 2011) 1.3.3 Award and Selection criteria

Dependent on the procedure, selection may coincide with the awarding of the contract. Selection criteria

When selection is instigated, first companies will be selected on basis of financial capacity and technical capabilities. Where financial capacity is based on more quantifiable numbers, technical capability is based on both quantifiable measures such as available technical resources as well as less quantifiable measures such as past performance and experience. Past performance is a factor in this research; companies can prove past performance through declarations of customer satisfaction. As these declarations are obtained through the

satisfying of the customer in its needs, this research will entail merit because it will try to create a deeper understanding of how to obtain more satisfied customers. This will be done by testing the current factors assumed important in customer satisfaction research, held within the public road construction industry, namely:

 Product  Process  Cost

 Communication within the timeline of the project  Administrative processing

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procurement starts to completion of the project is a factor of significant importance(Appendix I Interview with Heijmans Client Wim Venneman).

When a company delivers work that is satisfactory, they receive a declaration of satisfaction. These declarations state that one or more competences were completed with satisfactory result. These declarations are needed for legal issues within the procurement process, through these declarations a company shows competences, which are legally required for some projects.

A company not only enlarges its chances through delivering very broad declarations of satisfaction, meaning show several different competences within a single declaration, but might gain another benefit in the near future. Municipalities are moving towards a system in which they can register their own satisfaction organisation wide, where satisfaction might lead directly to higher chance of selection or pre-selection. In other words, satisfying a customer might lead to an increased chance to appear on the shortlist for the next assignment, further merits lie in the award criteria.

Award criteria

There are two different ways of awarding a contract:

 Lowest price

Lowest price tender wins.

 Most Economically Advantageous Tender (MEAT)

In addition to price other factors, such as quality and sustainability come into play that affect the value of the tender.

(www.europeseaanbestedingen.eu, www.out-law.com, MEAT Manual, 2011) Qualification of more subjective measures within public procurement can mean the

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1.4 The Environment

This research regards the effect of innovative projects on customer satisfaction within the public road building industry. A general description of the Dutch construction market will be given, but the main focus is on the environment of the aforementioned industry and the Heijmans connect division. Firstly, the market in which Heijmans Roads operates, secondly the main direct competitors, and finally the customers are described.

1.4.1 The market

The market of road construction consists of 230 member companies of Bouwend Nederland (The Constructing Netherlands) who have total revenue of €4.5 Billion in 2011. There are 18,000 people employed in road construction. Bouwend Nederland divides the market of road construction into two segments namely; general road construction, and specialist road construction. Specialist road construction covers the areas of milling, cement concrete road construction, runners, noise barriers, road markings and traffic measures. All other activities affiliated with road construction fall within the segment of general road construction. Where 195 companies are active in general road construction and they generated €3.8 billion with 14,450 employees, specialist road construction generated nearly €750 million with 3,500 employees. (trends en ontwikkelingen in de bouw tot 2017, Economisch instituut voor de bouw)

Source and division of revenue within general road construction segment

There are three scales of companies within general road construction; large-scale companies which have revenue of more than € 150 million, mid-scale companies that have revenue of € 15 to € 150 million, and small-scale companies which have revenue less than € 15 million. The division the total revenue is respectively 50%, 25%, and 25%.

The government is the biggest client with a share of 70% of supplied revenue. Within every scale of companies, municipal governments are the biggest clients. 50% of the revenue is generated through works that are publicly tendered. Newer contract forms (elaborate description regarding procurement and contract forms will follow in the paragraph of

procurement), like design & construct, represent 40% of revenue generation for the mid- and large-scale companies. (trends en ontwikkelingen in de bouw tot 2017, Economisch instituut voor de bouw)

Source and division of revenue within specialist road construction segment

Specialists collect 50% of their revenue from integrated projects, particularly in cooperation with parent companies. Almost 20% of revenue is achieved through direct projects for

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within the segment of specialist road construction (trends en ontwikkelingen in de bouw tot 2017, Economisch instituut voor de bouw).

1.4.2 The main competitors

Heijmans is the fourth-largest construction company in the Netherlands, after Royal BAM Group, Royal Volker Wessels Stevin and Royal Boskalis Westminster as measured by revenues over the year 2011. Royal Boskalis Westminster does not operate directly in the Dutch public road building industry, but instead supplies substitutes, because it operates in nautical construction. Royal Boskalis Westminster is therefore not incorporated into the analysis of main competitors. In hot pursuit of Heijmans is the company of TBI holdings, not far behind them with revenue of nearly €2.2 billion. The main competitors of Heijmans will now be described through some numerical and financial indicators, and main characteristics. Competitors will be described in order of size (as measured by size of revenue).

Royal BAM Group

Revenue 7,920 (in mln €)

Operating Result 150.7 (in mln €)

Average number of Employees 26,639

Activities Construction, Real Estate, Infrastructure,

Public-Private Cooperation

Table 1 Values and activities Royal BAM Group (www.cobouw.nl/cobouw50, Annual Report Royal BAM Group 2011)

Characteristics of the Royal BAM Group

BAM has been the undisputed leader in the Dutch market for years. They are the only major Dutch construction company that earns the majority of revenue abroad. The scope of BAM in comparison to Heijmans is much larger; where Heijmans aspires to be the best in the

Netherlands, BAM aims to be the leading company in Europe. The goals of the strategy of BAM are:

 Improving their situation in every home-market (i.e. Netherlands, Belgium, United Kingdom, Ireland, and Germany)

 Filling their activity matrix

 development of new concepts or products in segments with growth possibilities

It tries to achieve this through craftsmanship and an integrated approach, active human resource management and knowledge management, and Corporate Social Responsibility. As listed above BAM is active within several segments but our main focus lies on the

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Innovation and sustainability for BAM infrastructure

Within the public road industry, the innovations seem to focus on sustainability in general and CO2-reduction in specific.

Royal Volker Wessels Stevin

Profit 180 (in mln €)

Number of Employees 15,996

Activities Construction, Real Estate, Infrastructure,

Energy, Telecommunication, Subcontracting Table 2 Values and activities Royal Volker Wessels Stevin (www.cobouw.nl/cobouw50, Annual report Royal Volker Wessels Stevin 2011)

Characteristics of Royal Volker Wessels Stevin

Royal Volker Wessels Stevin (RVWS) consists of a network of organizations (approximately 125 subsidiaries), which operate rather independently. RVWS is focussing more and more on servicing and supplying niches than on mainstream construction. The organization states that wishes and demands of the client are leading within the execution of projects. Goal of RVWS is to be the most profitable organization in the long run within the sectors it is active. It aims to be an organization that seizes opportunities and introduces sustainable

innovations. The strategy of the company is based on operational excellence, broadening the value chain, and market leadership. RVWS aims to reach these goals through supplying optimal results to customers, relying on the best people available in the market, and supplying sustainable, safe solutions. (Annual report Royal Volker Wessels Stevin 2011)

Innovation and sustainability for Royal Volker Wessels Stevin infrastructure

The company directs it attention to suppliers and clients when in the process of innovation. These parties are encouraged to collaborate with RVWS in devising innovations. An emphasis on sustainability within innovation efforts is apparent. A large part of the innovations has some sustainable aspects and 13% even has the planetfit-label (Label devised by RVWS to encourage sustainable innovations). (Annual report Royal Volker Wessels Stevin 2011) TBI Holdings

Profit 24.221 (in mln €)

Number of Employees 8,500

Activities Real estate, Construction, Infrastructure

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Characteristics of TBI Holdings

TBI is a network of companies that operate both in partnership and independently, primarily in the Dutch market. The individual companies each focus on a specific market segment. TBI tries to differentiate itself through a multidisciplinary approach achieved through

cooperation between the different individual companies. TBI Holdings works with a

decentralised group structure that tries to encourage entrepreneurship from the lowest level as possible; every TBI company is therefore also responsible for their own results. Through this strategy, TBI hopes to ensure it stays connected with the customer and attuned to the wishes and needs of these clients.

Innovation and sustainability for TBI Holdings

Although there is a relatively new effort within TBI Holdings to collectively innovate, innovation does not seem to have a high priority within the company's agenda. Only since 2011 a joint investment has been made to encourage innovations and its process, this

investment of €5 million does not seem that large either if you compare it to the total revenue of nearly €2.2 billion. Instead, sustainability policy seems to focus on more on the control of both internal and external factors such as training of staff and more sustainable selection in materials and commodities. (Annual Report TBI holdings 2011)

1.4.3 The customers

There are three big parties of customers within the market of Road construction namely Rijkswaterstaat (the Department of Waterways en Public Works), Provincial governments and municipal governments. Our customer segmentation will be made along these abstract parties. Whereby several differences are apparent within segments, municipal governments can be segmented into several sub segments.

Rijkswaterstaat

Rijkswaterstaat is the executive agency of the Dutch ministry of Infrastructure and

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There are some dilemmas when building for Rijkswaterstaat. Although the department is the largest issuer of integrated projects (trends en ontwikkelingen in de bouw tot 2017,

Economisch instituut voor de bouw) which provide opportunity for innovation, if a company builds a project for them they have to relinquish their intellectual property over the delivered product. This means costs of development for innovations must be recovered within one project, after the first implementation an innovation is not legally defendable. Because of the size of most projects issued by Rijkswaterstaat, they are legally obliged to issue contracts through procurement with procedures where no exclusion or selection is allowed. Brand loyalty is because of the earlier mentioned restrictions very hard to establish. In some forms of procurement, there is some form of pre-selection but only on very objective legal criteria. Although they cannot become a loyal customer through these restrictions, their repeat

purchase intentions can be raised through satisfaction. Although procurement does not allow the use of a frame of reference for the selection of a brand, Rijkswaterstaat will be able to issue a contract that specifies a product, which is attuned to the specific offerings of a

production company such as Heijmans. Although it must be noted that demands qualified as disproportional must be stricken from the issued assignment. Another important note is the fairly large in-house knowledgebase in comparison to other customers, due to this

Rijkswaterstaat is somewhat reluctant to transfer responsibilities to external parties (Appendix A interview with Heijmans employee Kristel van Haaren).

Provincial governments

These governmental bodies are responsible for the provincial roads, on scale these are in the mid-range of projects. In pure volume and generated revenue, provinces are relatively the smallest client of the governmental parties. Provincial governments issue regional

assignments and are rather limited with regard to their size and budget. Provinces do not have a large in-house knowledge base but on the other hand, they neither have the manpower to engage in many integrated forms of procurement. Innovations are very hard to sell to the provincial governments. Provincial governments currently lack the capacity and knowledge to innovate themselves and are trying to solve this through new forms of cooperation but run into legal issues (Appendix A Interview with Heijmans employee Kristel van Haaren).

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Municipal governments

The municipal governments are responsible for the construction and maintenance of the infrastructure in the public space that lies within their municipal boundary. Municipal government assignments are generally of a smaller scale than Rijkswaterstaat issues but as mentioned before these assignments generate the majority of revenue within the sector of road construction. The scope of municipal governments is regional, as their responsibility lies within the municipal borders. This scope is widening because municipal governments are bundling their assignments so as to gain on scale and opportunity to implement an integrated approach, though this approach will be less applicable in the future because of new

legislation. Municipal governments are willing to take a risk and innovate but have to work with strict budgets and the legislature is less than optimal, to say the least (Appendix A Interview with Heijmans employee Kristel van Haaren, Appendix I Interview with Heijmans client Wim Venneman).

Other players in the road construction market are mainly large private companies, currently these companies are starting to show interest in innovative projects but these projects still have to be started and cannot yet be evaluated. For this reason, this research will focus on the public road construction market, the segment where almost all innovations currently are tested and implemented.

1.5 The Trends

There are certain trends observable within the segment of public road construction, which have a great deal of influence on the intensity and way of innovation. In this section, trends and developments will be shortly described and an elaboration about the influence of these trends on innovation will be given.

1.5.1 Construction-site employees in decline

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1.5.2 New innovative contracts

Integrated forms of contract like design & construct create opportunities to innovate; based on the premise that price will become a less prominent factor than it currently is. Quality will increase in importance as a result. Because of the integrated contracts, a more integrated approach is needed. This will limit the ability of mid- and small-scale companies to contend for larger projects. The implementation of new forms of tendering and contract will continue to increase for the coming years albeit at very different speeds of diffusion depending on the client and type of project. The largest projects issued by Rijkswaterstaat will most likely follow the format of Design, Build, Finance, Maintain (DBFM), the middle projects largely go by the design & construct format. Municipal governments still mostly use the traditional way of procurement, but will bundle projects together in the future. In this way they hope to instil a more efficient way of procurement to the process, this development will demand a more integrated approach from construction companies. New forms of contract and newly directed attention from clients also put more emphasis on maintenance, sustainability and,

environment and surroundings of projects. (Trends and developments in road construction until 2017, Economical Institute for Construction)

1.5.3 Increased market pressure

The ending of governmental incentives and further governmental cutbacks already led to increased pressure and will do so for the coming year. The market does seem to stabilise somewhat in 2013 but Bouwend Nederland predicts real growth is currently not to be

expected. They predict growth, albeit small namely 1.5%, of the road construction market and it will only be seen from 2014 and onwards. (Trends and developments in road construction until 2017, Economical Institute for Construction)

1.5.4 Past performance

Although not yet widely spread, an occurrence of some importance is structural adjustment and implementation of organization wide recording of past performance. This is made possible through a new law for procurement. This law enables governmental clients to act upon perceptions of past performance. As said it is fairly new but recently, November 2012, the board of Aldermen of Amsterdam (College van Burgemeester en Wethouders van

Amsterdam) have decided to start to reform the current system of recording of past performance. Because of bad experiences with contractors, the board decided they would need tools to exclude these contractors for future work. Until now, they have no tools to do so (Appendix C: Interview with Heijmans Employee Luca van der Putten, Appendix P: 10 wegen naar innovatiever aanbestedingsbeleid en professioneler opdrachtgeverschap). To modernize the system they have decided the system must be stricter and enable the municipal

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systematic implementation of evaluation of delivered performance. In other words, the municipal government of Amsterdam is starting an organization wide effort to record their satisfaction in a systematic way and is planning to use the resulting information actively (Appendix P: 10 wegen naar innovatiever aanbestedingsbeleid en professioneler

opdrachtgeverschap).

Amsterdam has the desire to implement this system in cooperation with market parties. This implicates that not only governmental parties must improve their knowledge regarding the systematic recording of performance evaluation but market parties may benefit from improving their knowledge as well. If market parties use the opportunity to influence the governmental party through this cooperation, it might well be to their own benefit. Amsterdam has based these plans on European guidelines, so if this plan is successful this implementation will be broadly applicable to larger municipal governments, provincial governments and the department of waterways and public works. Smaller parties will benefit less from this approach, because of the accompanying costs of implementation and

diminishing returns. Whereas large firms have great difficulty mapping all relations with external parties, smaller parties have fewer relations and less people whom manage these relations.

1.5.5 Sustainability

Sustainability is getting more attention even though all clients have tighter budgets. Through the introduction of the CO2-performanceladder companies can receive a fictional discounted price for their tender. The ladder has five levels with associated demands, the higher the level of a company, the higher the fictional discount a company receives. In this way, a company can deliver a more sustainable product at a higher price. Originally a system introduced by railway manager Prorail it is now embraced by Rijkswaterstaat and several municipal governments as well (skao.nl). MEAT criteria add another stimulant for contractors to

incorporate sustainable solutions into their product portfolio, especially since new legislature is introduced in 2013. The new legislature states that a contracting authority is obliged to award criterion on MEAT. Lowest price shall apply only if a contracting authority motivates the necessity for this in the tender documents. (pianoo.nl, Appendix Interview with

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2 Theoretical Framework

2.1 Introduction

Within this chapter, a review will be given regarding the current stance within scientific literature about the subjects of customer satisfaction, innovation and sustainability. Because little is known about the workings of these topics within the public road building industry the scientific literature is supplemented with information derived from exploratory research. This exploratory research contains information gathered through in-depth interviews with both employees and customers active within the public road building industry. This

exploratory research was aimed at identifying industry specific factors of significance within the areas of customer satisfaction, innovation, and sustainability. The theoretical framework will now cover the aforementioned subjects.

2.2 Customer Satisfaction

In this research customer satisfaction is a result of a subjective evaluative process and as a result forms an overall evaluation response regarding the process of purchase and the process leading up to and including the delivered product. The customer evaluates the process, both consciously and unconsciously, of acquisition and completion of a product, or project in this instance. This evaluation is affected by the fulfilment of expectations and judgment regarding perceived performance (Churchill & Surprenant, 1982; LaBarbera & Mazursky, 1983; Oliver, 1980; Tse & Wilton, 1988). The former is an adaptation of several theories and analysis derived from leading authors within the field of customer satisfaction as to fit the analysis of the market of public road construction.

In this chapter an explanation of the significant antecedents will be given and their

importance will be discussed. Because the antecedents in customer satisfaction are especially focused on business-to-consumer marketing not all antecedents are applicable to this

research. After this, the significant consequences of customer satisfaction will be

summarized, and in addition, their importance to the researched market will be described. As there are several different points of time customer satisfaction can be measured, an explanation for the choice of time of determination will be given in one of the last sections regarding customer satisfaction.

2.2.1 Factors of influence on customer satisfaction

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customer satisfaction they are not the main focus. Below the factors that are of influence on customer satisfaction will be explained further.

Expectations

Customers form expectations regarding levels of performance of the potential purchase (Szymanski & Henard, 2001). The forming of these expectations is a pre-purchase process (Anderson & Sullivan, 1993). The customers’ expectations are affected by three factors:

 The product and the prior experiences of the customer with the product  Communications from salespeople and reference people or groups  Individual characteristics of the customer

(Oliver, 1980)

Spreng, Mackenzie & Olshavksy (1996) define expectations as beliefs, held prior to purchase, about a product’s attributes or performance at one time in the future. This definition is very applicable to this research as it is fairly absolute. The beliefs are confirmed or disconfirmed at a pre-determined time of measurement. To work with this definition allows this research therefore to measure this concept more easily than more abstract definitions (e.g. a definition that also takes the likelihood of (dis)confirmation of expectations into account).

Expectations only have indirect effects on customer satisfaction. First of all through

confirmation or disconfirmation of expectations, the level of customer satisfaction is affected (Anderson & Sullivan, 1993). Expectations are thought to have a negative effect on

disconfirmation. This effect follows from the notion that the higher the expectations the higher the perceived standard must be to satisfy the customer. An elaboration regarding the disconfirmation process will follow later on in this paragraph.

Researches into expectations also have shown an effect on perceived performance (Anderson & Sullivan, 1993; Spreng, Mackenzie & Olshavksy, 1996; Szymanski & Henard, 2001).

Expectations have a positive relation with perceived performance as long as it stays within certain limits or “latitude of acceptance” (Anderson & Sullivan, 1993). This effect in accordance with the assimilation theory as given by Oliver and DeSarbo (1988) can be

described as follows: “Individuals are reluctant to acknowledge discrepancies from previously held positions and therefore assimilate judgement toward their initial feelings for an object or event.” In other words, a high level of expectation of a customer positively affects

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great the process of disconfirmation will be affected in a negative way. (Anderson & Sullivan, 1993; Spreng, Mackenzie & Olshavksy, 1996; Szymanski & Henard, 2001).

Perceived performance

Perceived performance is defined as what the customer perceives to be the performance of the delivered product. Perceived performance is thus defined as beliefs regarding product attributes, levels of attributes, or outcomes (Spreng, Mackenzie & Olshavksy, 1996). Perceived performance has both a direct as an indirect effect on customer satisfaction (Spreng, Mackenzie & Olshavksy, 1996; Szymanski & Henard, 2001; Tse & Wilton, 1988). Perceived performance has an indirect effect through the disconfirmation of expectations, explained below. Furthermore it also has a direct effect on customer satisfaction (Churchill & Surprenant, 1982). Tse & Wilton (1988) even contend that the direct effect achieved by perceived performance is not only apparent but also is the single largest predictor of

customer satisfaction. Customers are likely to be more satisfied with the offering as the ability of the offering to provide consumers what they need, want, or desire increases relative to the cost. (Szymanski & Henard, 2001). Disconfirmation alone may fail to describe customer satisfaction, due to the discrepancy between expectations and needed performance (Tse & Wilton, 1988). In other words, a customer’s expectations might be exceeded by perceived performance but the customer still can be dissatisfied. Therefore, although there is no disconfirmation of expectations, a customer might still experience dissatisfaction. Disconfirmation of expectations

The basic principle behind disconfirmation is the following:

“Consumers are said to be very satisfied when actual outcomes exceed expectations, just satisfied when outcomes match expectations, dissatisfied when expectations exceed outcomes”(Szymanski & Henard, 2001).

To define the form of disconfirmation of expectation used in this research the subjective approach is used. As opposed to the subtractive form, which is based on algebraic difference between expectations and perceived performance, the subjective approach is based on

subjective evaluation of the difference between expectation and perceived performance by the customer (Tse & Wilton, 1988). Disconfirmation is thus the change in attitude after

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account it is a good way to measure the discrepancy between expectations and perceived performance. As can be derived from the quote of Szymanski & Henard (2001) the effect of disconfirmation on customer satisfaction is positive, meaning that when positive

disconfirmation is measured it has a positive effect on customer satisfaction. The same holds for negative disconfirmation, this yields a negative effect on customer satisfaction.

2.2.2 Model of formulation of customer satisfaction

The following model is the depiction of relations as found in aforementioned literature and stated in the earlier paragraphs regarding customer satisfaction.

Figure 5 Formulation of customer satisfaction

A short explanation of this model will now be given. Expectations have a positive effect on perceived performance through the assimilation theory (Oliver & DeSarbo, 1988) as explained in the paragraph regarding expectations. Disconfirmation of expectations is negatively influenced by expectations because an increase in expectations leads to an increased risk of a negative discrepancy between perceived performance and expectations thereby negatively disconfirming expectations. Expectations are seen as an independent variable within this model.

Perceived performance in its turn affects customer satisfaction positively or in other words an increase in perceived performance will lead to an increase in customer satisfaction. It also affects disconfirmation of expectations, the higher the perceived performance the more unlikely a negative disconfirmation of expectations becomes. Perceived performance is seen as an independent variable and thought to be the single greatest predictor of customer satisfaction (Tse & Wilton, 1988).

Disconfirmation has both perceived performance and expectations as antecedents but is seen as a standalone entity because of the subjective evaluative nature. Depending on the either negative or positive nature of disconfirmation it has a positive or negative effect on customer satisfaction.

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2.2.3 Consequences of customer satisfaction

The main notion of keeping the customers satisfied is of course to create a certain benefit that might lead to profit in the future. According to Anderson & Sullivan (1993) customer

satisfaction is widely believed to be the best indicator of a company’s future profits. A short examination of the consequences of customer satisfaction will be depicted. The consequences discussed here are the most common cited consequences in customer satisfaction which our applicable to our research.

Repeat Purchase intention

“A Satisfactory experience would appear to be one requirement for the type of continued interest in a product that might lead to repeat purchasing” (Oliver, 1993)

A very common notion within the literature of customer satisfaction and generally accepted by leading authors is the positive effect of customer satisfaction on repeat purchase intention, which may or may not include moderators like attitude (Anderson & Sullivan, 2001; Bearden & Teel, 1983; Oliver, 1980; Oliver & Swan, 1989). Where Oliver (1980) moderates the

influence of satisfaction on repurchase intention through attitude, other authors as Anderson & Sullivan (1993) use a different path in their model. In their model satisfaction influences customers through adjusted future expectation levels. Expectation as noted before has a significant positive effect on perceived performance (Oliver, 1980). Increased customer satisfaction and the consequential repeat purchase intentions lead to improved financial performance for companies (Luo & Homburg, 2007).

Word of Mouth

“Word of mouth refers to informal communications between private parties concerning evaluations of goods and services. The valence of word of mouth may be positive, neutral, or negative.” (Anderson, 1998). This quote supplies an important distinction with regard to word of mouth in comparison to complaining behaviour, namely the acting and listening party. Complaining behaviour is targeted at the supplier of the product whereas word of mouth focuses on fellow customers. (Anderson, 1998; Szymanski & Henard, 2001). The effects of word of mouth are asymmetrical; satisfaction has diminishing returns for positive word of mouth while this effect is less apparent in dissatisfaction (Anderson, 1998). When a customer is severely dissatisfied the customer will be more likely to engage in more negative word of mouth (Szymanski & Henard, 2001).

Complaining behaviour

Complaining behaviour can be defined as actions undertaken to state problems and

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(Szymanski & Henard, 2001). It is a way for a customer to seek redress for dissatisfactory consumption experiences (Bearden & Teel, 1983; Szymanski & Henard, 2001). Complaining behaviour is aligned with severity of dissatisfaction, the more severe the dissatisfaction an increased likelihood of complaining behaviour is observable (Bearden & Teel, 1983; Szymanski & Henard, 2001).

Szymanski & Henard (2001) also state there is a negative relation between complaining behaviour and repeat purchase intentions.

2.2.4 Time-specific point of determination

As mentioned earlier there are several points in time for the customer to form their satisfaction. Therefore there are also several moments a researcher can measure this satisfaction, results may vary along the way. Many researchers measure satisfaction post purchase, during consumption or post consumption (Giese & Cote, 2000). In this case an unorthodox situation rises; the customer is not necessarily the consumer. The forming of satisfaction is therefore not only formed based on consumption of delivered product and services. Post purchase on the other hand would fall short of explaining the full array of the satisfaction spectrum as well. When a customer purchases a product it is not delivered instantly but instead may take many months or even years to be completed. Satisfaction is therefore measured post delivery, the only way thought to cover the whole process of forming satisfaction. Post delivery defined in this research as:

After the time that an individual procured project was completed, delivered to the customer and opened to the consumer for use.

Even this has its restrictions, because degradation of quality of the delivered project might happen over time. This might have an impact on the adjustment of satisfaction over time. This research has its’ limitations regarding time and therefore cannot encompass a

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2.2.5 Sources of Customer Satisfaction within public road construction After extensive interviews with several Heijmans clients and Heijmans employees active within the segment of public road construction and a study of the current customer satisfaction surveys, the following main factors and underlying sub-factors have been identified (Appendix A until and including Appendix M: Interviews, Appendix N Various Customer Satisfaction surveys of Heijmans). Past performance is not incorporated into this list as a standalone factor. Past performance currently merely works through personal experience with a company and its translation into an according image. As said before past performance is gaining on importance and governmental entities are initiating processes to record past performance in an objective way. Thus, moving it away from personal

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Factors Sub factors

Product Lifespan _{Energy emissions}

Noise properties Complications

Compliance to expectations

Compliance to or exceeding of specified demands

Process Time span _{Energy emissions}

Traffic disruption Site nuisance Flexibility

Cost Budgetary compliance _{Compliance to expectations}

Value for money

Project communication Product _Process

Cost