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A SERVICE DOMINANT LOGIC PERSPECTIVE ON VALUE CREATION IN THE MARITIME BUSINESS NETWORK CARLO BODE [email protected] Hochschule Bremen, Faculty 1 - School of International Business - Werderstrasse 73, 28199, Bremen GERMANY LUISA ANDREU [email protected] Departamento de Comerciaización e Investigación de Mercados. Universitat de València. Avda. de los Naranjos s/n 46022 València. SPAIN MARTINA G.GALLARZA [email protected] Departamento de Comerciaización e Investigación de Mercados. Universitat de València. Avda. de los Naranjos s/n 46022 València. SPAIN Abstract This paper takes a Service-Dominant (S-D) logic perspective on value creation, resources and networks in the maritime industry with a particular focus of the research application on the maritime shipping business network in the Northern German city of Bremen. Based on he contemporary relevance in the academic branch of service marketing as well as specific characteristics of the maritime shipping industry such as a unique network structure and density and strong relevance for and dependency from the world economy, a qualitative research with semi-structured in-depth interviews was conducted with the aim of understanding how operant resources in the mentioned industry create value within the context of many-to-many marketing. We conclude a general applicability of S-D logic to the context of the maritime shipping industry. The research has emphasized the role of co-created value in this business and provides a framework, which allows practitioners to identify crucial elements of value co-creation. The structure of networks in the shipping industry is depicted and the imperative part of relationships in this business is established. Key words. Maritime Industry, Service-Dominant logic, Value Creation, Qualitative Research, Bremen A SERVICE DOMINANT LOGIC PERSPECTIVE ON VALUE CREATION IN THE MARITIME BUSINESS NETWORK Abstract This paper takes a Service-Dominant (S-D) logic perspective on value creation, resources and networks in the maritime industry with a particular focus of the research application on the maritime shipping business network in the Northern German city of Bremen. Based on he contemporary relevance in the academic branch of service marketing as well as specific characteristics of the maritime shipping industry such as a unique network structure and density and strong relevance for and dependency from the world economy, a qualitative research with semi-structured in-depth interviews was conducted with the aim of understanding how operant resources in the mentioned industry create value within the context of many-to-many marketing. We conclude a general applicability of S-D logic to the context of the maritime shipping industry. The research has emphasized the role of co-created value in this business and provides a framework, which allows practitioners to identify crucial elements of value co-creation. The structure of networks in the shipping industry is depicted and the imperative part of relationships in this business is established. Key words. Maritime Industry, Service-Dominant logic, Value Creation, Qualitative Research, Bremen 1. INTRODUCTION Service-Dominant logic is understood as an emerging marketing perspective that sees service at the core of all economic exchange and is customer centric and relational (Vargo and Lusch 2004a, 2008a). In their seminal work on a new paradigm in marketing, Vargo and Lusch (2004a) describe the emerging S-D logic in ways that place heavy emphasis, among other key concepts, on the role of value that results from the interaction between a firm and its customer or between a producer and the consumer (Gummesson 1998; Grönroos 2000). Besides, Gummesson and Polese (2009) perceive the potential of network theory as still insufficiently exploited and call for empirical research of business relationships. Following the recent emergence of this new perspective, researchers identified a lack of empirical studies, which take a specific S-D logic angle on value creating processes in business to business (B2B) contexts, networks and the management of operant resources (Gummesson et al. 2010). The present paper deals with the application of a S-D logic perspective on the business context of the maritime shipping industry, where interactions and stakeholders have been rarely analyzed through the prism of value co-creation. However, specific characteristics of the maritime shipping industry such as a unique network structure and density and strong relevance for and dependency from the world economy are particular appeals for studying the proposition of this new academic perspective within this B2B context. To this end, drawing from the S-D logic, it is interesting to deepen our understanding in how operant resources in the mentioned industry create value within the context of many-to-many marketing. The systematic observation of relational phenomena and the customer’s role is supposed to enable marketers to foresee opportunities and avoid mistakes (Gummesson and Polese 2009). Foundational to the new dominant logic is the notion that value in created in concert with the customer, through experiences, interaction and relationships. The customer’s value-in-use is seen as the overriding concept, which is supported by companies’ value propositions. Recently the creation of value has become a focal point of contemporary marketing literature (Payne et al. 2008). Since academic research generally has difficulties to measure and define value (Grönroos 2008, Gallarza, Gil-Saura and Holbrook 2011), in this paper we propose an overall thought to analyze the general understanding of value in the maritime shipping industry. What is value, how is it generated? Is value understood on basis of processes that integrate resources (Vargo, Maglio and Akaka 2008), or is it rather conventionally measured in financial terms and effects on profit and revenues? Past research revealed that interactive processes largely determine the value perception of business transactions dominated by operant resources, such as employees, their knowledge and skills and the quality of the relationship between customer and supplier (Payne et al. 2008, Thai 2008). SD-Logic views operant resources as the prime source of competitive advantage. Tanking into consideration this background, in this paper, we want to establish to which extend operant resources are recognized as key value drivers, which type of resource is perceived as being most important and how they are obtained and nurtured. Once the mutually integrated resources are identified their match can be assessed (Andreu et al. 2010). The empirical research conducted aims to provide researchers and managers with more knowledge, based on the S-D logic, with a specific locus on value co-creation, the role of operant resources and networks, which could enhance value creation. The context of the research has been the maritime shipping industry in the northern German city of Bremen, a place particularly rich of maritime history and economy. Methodologically, within the recent stream of research on S-D Logic, Gummesson (2008b) suggests including network theory research into qualitative research approaches and demands a large series of case studies in order to prove the validity of S-D logic and its related concepts. With his claim in mind, for the present study we chose the in-depth interviews as the primary empirical research method. Since we identified a networked structure of the maritime shipping industry, in-depth interviews allowed us to gain insights into processes and perceptions from different angles, which provided us with a broader perspective. The paper starts with a conceptual framework that offers a literature review on S-D logic and its applications in many-to-many marketing, and in second place shows how literature from the fields of nautical sciences and logistics provided a solid foundation for a S-D logic approach, as settled in the empirical research. In the second part, after presenting the objectives and research questions, the setting and the method chosen are shown: six in-depth interviews have been conducted semi-structured, using an interview guide, which listed key issues and questions. Results from empirical research are presented, showing how they enabled us to gain specific knowledge about the processes involved in service provision and value creation as well as the roles of customers and suppliers and the resources each involved party is supposed to integrate. 2. CONCEPTUAL FRAMEWORK 2.1. S-D logic, the value concept and value creation There has been an increasing awareness of the value-creating potential that can be achieved through the application of S-D logic to the management of numerous services; Vargo and Lusch (2004a) define S-D logic as “a mindset for a unified understanding of the purpose and nature of organizations, markets and society”. They describe it as a “new conceptual lens” through which exchange, markets, enterprises and competition can be viewed from a service science perspective (Lusch, Vargo and O’Brien, 2007). Following this approach, there is an exchange between the participating parties, of competences (knowledge and skills) and resources (operand and operant) (Tronvoll, 2007), which can only be presented as value propositions by the marketer (Ballantyne and Varey, 2008) because value for the customer is generated in self-service processes. This is why co-creation of value with the customer is important and where the focus of S-D logic marketing lies (Lusch, Vargo and O’Brien 2007). The concept of value has an increasingly unanimous recognition as an imperative focus for both practitioners and researchers (Day 1999; Heskett, Sasser and Schlesinger 1997; Nilson 1992; Parasuraman 1997; Woodruff and Gardial 1996). Indeed, grounded on fundamental marketing principles, the concept of customer value has been revisited and refined by academicians and practitioners for the last 30 years (Gallarza, Gil –Saura and Holbrook, 2011). Relevant aspects of the customer-value concept have emerged in tandem with the developments that have culminated in the new service-dominant paradigm. In fact, today value is considered to be the ultimate goal of business and marketing and in 2004 the American Marketing Association adopted the term in its marketing definition. However, until now many firms and even researchers experience difficulties in defining and measuring value (Payne and Holt 1999, Tzokas and Saren 1999, Lindgreen et al. 2005, Grönroos 2008). This appears to be a significant nuisance, considering that firms’ raison d’être is the offering of propositions, which are valued by customers, and the understanding of how to deliver superior value is supposedly a source of competitive advantage (Payne and Holt 1999). Traditionally, from a goods-dominant logic perspective, value has been seen as embedded in a firm’s operand resources, to which, in different processes of the value chain, value has been added (Porter 1985). This concept however has a significant flaw. It suggests that the less disciplined a firm handles costs in the value chain, the more value it adds to the final output. When this output switches ownership value-in-exchange is created. It is measured by the price received for the goods exchanged - the nominal value. The concept also suggests that value is created by the supplier alone: the value chain stops at the customer, no customer involvement required. Contemporary research argues that the important aspects of value, value for customers and their satisfaction cannot be observed before consumption. Therefore a focus on value-in-exchange fails to determine if real value for customers has been created and makes marketers concentrate on short-term transactions, through which no sustainable competitive advantage can be obtained (Grönroos 2008). Value-creation takes place in a network involving not just two but multiple stakeholders. A supplier has a value proposition but the value actualization takes place during the customer's usage and consumption process (Gummesson 2007b). Furthermore, the notion of value cocreation has far reaching implication for both, academicians and practitioners. Indeed, cocreation must be understood a distinct form of collaboration; co-creation of value is especially interesting conceptually, in reconnecting production and consumption through interaction, marketing opportunities come into view among new groups of "value makers and takers" (Ballantyne and Varey 2008). This new perspective is a radical deviation from the traditional goods centered view, the G-D logic, which focuses around the tangible output of goods and the value embedded in those. However, S-D logic does not stand in absolute opposition to G-D logic; it is rather a reorientation in marketing philosophy, which embraces all marketing offerings (Vargo and Lusch 2004a). S-D logic has generated a considerable amount of academic interest, although the empirical approaches that can account for managerial knowledge are still arising, the present work being one of these attempts. 2.2. Literature review on logistic services In recent years, researchers interested in logistics agreed on the growing awareness of the significance of the maritime industry and an increasing appreciation and interest from the academic community (Gil, Ruiz and Servera, 2008; Pallis and Vitsounis 2010; ServeraFrancés 2010). Although previous research with an empirical testing of any of the S-D logic premises is still scarce, some of the previous knowledge based on secondary sources and scholar research has been useful for understanding the idiosyncrasy of value creation and the relationships between different agents in the shipping industry. According to the OCDE, the current competitive situation in the maritime shipping industry has evolved in recent years: competition shifts from single market participants to entire supply chains, where a growing market power accumulation has emerged among a small number of companies, largely obtained through M andA activities (van de Voorde and Vanelslander, 2009). In academic research, Berglund, Laarhoven, Sharman and Wandel (1999) provided a conceptual taxonomy for value creation in shipping: operational efficiency, integration of customer operations, vertical or horizontal integration and supply chain management are the four ways logistics providers can create value. Furthermore, in an international research among western European shipping companies, Miller (2003) confirmed the centrality of personal relationships, networks and face-to-face interaction in the shipping business. The business trip was identified as an important tool to establish and maintain these networks and relationships. In fact, all authors agreed in the need of these strategic alliances, although the complexity of networks among major shipping lines is also a commonplace in logistics literature (van de Voorde, andVanelslander 2009; Pallis, Vitsounis, and de Langen, 2009; Ferrari, Parola, and Benacchio 2008; Servera-Francés 2010). Besides a shift of capacity and container throughput from North America and Europe towards East Asia, small shipping lines, offering niche routes can benefit greatly from scale economies generated by strategic alliances (Ferrari, Parola, Benacchio, 2008). The major carriers however have already passed this point and alliances in their case are likely to produce overcapacity. In that sense, Myers (2008) proposed that carriers of bulk and project cargo passed out on the development of ecommerce solutions, which container carriers introduced a long time ago and were able to add significant customer value with online booking and track-and-trace technologies. A framework to benchmark port performance and evaluate and improve their competitive position has been provided in Cuadrado, Frasquet and Cervera (2004), where the three most critical dimensions found were time, safety and costs. More specifically, according to the relevance of time for this industry, the speed of loading and unloading, hence the quay crane performance, as been found to be the most critical determining factor (Bell, 2008). But time efficiency is not the only key element: reliability and empathy are also important antecedents of service quality in logistics, both elements being positively influenced by the use of information technology, all of them leading finally to a better customer satisfaction and loyalty (Gil, Ruiz and Servera, 2008). The multidimensionality of the maritime transport service quality is fully studied by Thai (2009), who propose a six dimensional construct: resources, outcomes, process, management, image and social responsibility. In all dimensions the human factor receives high significance, process and management related factors being the strongest determinants of service quality. All this is a valuable knowledge for a S-D logic perspective, where operant resources have a high relevance in value creation. 3. OBJETIVES AND RESEARCH QUESTIONS The research conducted in this paper aims to enhance value creation in the maritime sector with a precise interest in the shipping industry in Bremen. In order to achieve this research aim, we propose four research objectives that are related to four key areas in the S-D logic literature: (RQ1) S-D logic foundational premises, (RQ2) value co-creation processes, (RQ3) operant resources, and (RQ4) interaction and networks. RQ1: Analyze the ten S-D logic foundational premises as potential value drivers; Are the ten S-D logic foundational premises applicable to the maritime shipping industry context? Does an application of the ten foundational premises contribute to increased mutual value generation? RQ2 Value co-creation processes: two research questions are under this premise of S-D logic in its application to the maritime industry. o RQ2a: Analyze the process of value co-creation, answering questions such as what are the critical processes involved in value creation in the maritime shipping industry? and secondly, o RQ2b: Establish a framework to facilitate value co-creation, which aims to answer questions similar to: has increased intensity of co-creation positive impact on value perception for any of the involved parties? RQ3 Operant resources. Analyze the nature, role and differentiation potential of operant resources. Several questions arouse according to this issue: o RQ3a: Which are the operant resources integrated in the value creation process by the different involved parties? o RQ3b: Which operant resources are regarded as being of primary importance in the shipping industry? o RQ3c: To which extend are operant resources regarded as a potential source of competitive advantage? o RQ3d: To which extend are operant resources treated and developed according to their importance? RQ4: Interactions and networks: Analyze the role of networks and interaction in relationships and the potential of many-to-many marketing techniques. Questions to be answered by interviewees will be: How and to which extend are the different players in the industry and their customers connected? Which role can many-to-many marketing play in increasing the value derived from these networks? The research questions phrased above and the underlying objectives build the framework to guide the empirical research pursued in this work. 4. THE SETTING CHOSEN FOR THE EMPIRICAL STUDY With 2.7 million jobs in Germany, the logistics industry is an important employment factor. The maritime industry directly employs 380.000 people. The maritime shipping service providers account for a workforce of 60.000, which obtained a turnover of 31 billion Euros in 2006. According to the Bremen ship owner association a much larger number of jobs in adjacent industries depends on the wellbeing of the maritime sector, such as marine insurances and banks. (2010 annual report Bremer Rhederverein). The German merchant fleet is the world third largest after the Japanese and the Greek. By the end of 2008 German ship owners had 3.473 merchant vessels with a total gross tonnage of 76, 3 million under service. When in the 1960s containerization emerged, the backbone of globalization was born. The intermodal container paved the way for entirely new organizational models, which entered the arena of logistics services with worldwide door-to-door services. Strong growth in international trade in the 1970s fuelled the development of these services. The long lasting legislative pressure on alliances, which eventually lead to their abolishment and the recognition of the need to differentiate from competition, resulted in an increasing vertical integration in the logistics business. From basic door-to-door services maritime operators transformed into highly integrated logistics providers, being able to manage entire supply chains including operations on the cargo itself (Frémont 2009). Besides the trend towards vertical integration, growing consolidation can be observed in marine shipping. The need for higher profitability becomes evident when looking at the numerous failures of carriers at Western stock exchanges. A number of large shipping lines is privately held, and therefore not under such demanding income scrutiny as publicly traded companies. However, eventually the shipping industry too must prove that it is able to gain quality income in the competition over investors and capital (Tirschwell 2008). Both above described phenomena have changed the nature of competition in the maritime shipping industry. Have previously individual actors competed against each other, now the level has risen to competition between entire supply chains. Such supply chains are well-oiled machines, in which one member depends on the synchronization and performance of the other. This dependence reveals the growing importance of effective network and relationship management (van de Voorde and Vanelslander 2009). These customer oriented marketing perspectives are interesting to be analyzed through a S-D logic perspective In views of providing better ways of increasing customer value. In order to provide a comprehensive knowledge on the specificity of the Maritime Shipping industry as a setting for an empirical research on S-D logic, we provide the following table as a summary of its opportunities and threats to be considered as an overview for accomplishing research on value creation within this industry. Table 1: Opportunities and Threats in Maritime Shipping Opportunities Economies of scale through increased vessel size Threats Dependency on global economic development Cost savings through slow steam Economic downturns hit shipping industry first Efficiency savings through technological advancement Increased price pressure due to abolishment of liner conferences Adoption of state-of-the-art relationship management techniques Oil price volatility Outsourcing of refinement, assembling and storage functions to shipping companies. Vessel overcapacity. Capacity constrains in port facilities and hinterland connections. Increasing consolidation provides major players with growing market power In economic crises customers might focus on price only if relationship building has been neglected Scale and efficiency economies through increased collaboration between Northern German ports Piracy in the Gulf of Aden 5. METHOD As aforementioned, the context of the research is the maritime shipping industry in the northern German city of Bremen, a place particularly rich of maritime history and economy. We identified numerous parties involved in the value creation process in this industry. Our objective therefore was to obtain an insight as broad as possible, by interviewing at least one representative of each involved entity. The interview participants are all experts in their particular field of profession, drawing upon years of experience in the field of maritime shipping. The functions the participants hold include Marketing Manager, Key Account Manager, Fund Manager and Sales Director. In depth interviews are aimed to the person that is in possession of specific expert knowledge or experience and helps the researcher to set his theoretical background into context and probe his hypotheses (Bradley 2010, p.234). Hence, this research method is most suitable to gain depth insights and explanations. Furthermore, the technique allows for adjustment and refinement on the way, after additional knowledge about the research topic has been gained. The sample for our qualitative research was chosen from a set of organizations from the maritime business network in Bremen, their profiles being shown in Table 2. The six participants in in-depth interviews throughout claimed middle management positions, which makes them day-to-day participants in the value creation processes the firms conduct in concert with their customers. The level of experience ranged from five to twenty-five years in the maritime business. The following table lists the companies and positions of the individuals who contributed to our empirical research. In our case, the in-depth interviews have been conducted semi-structured, using an interview guide, which listed key issues and questions. The course of the interviews were however flexible, largely guided by the development of the conversation and the topics the interviewee was able and willing to provide most in-depth information about. All interviews lasted between 50 to 70 minutes and have been sound recorded for later analysis. Table 2: Participants‘ Profile Organization Samskip MSC Germany HCI Capital HEGO Group DHL Hanseatic Lloyd Position Manager Marketing and Sales Key Account Manager Fund Manager Head of Project Department Sales Manager Head of Marketing Years of Experience 12 8 5 25 9 6 6. RESULTS AND DISCUSSION The knowledge obtained by our empirical research is organized and discussed according to the aforementioned Research questions: S-D logic foundational premises (RQ1), Value cocreation processes (RQ2), Operant resources (RQ3) and Interaction and networks (RQ4). Some verbatim are included for a better description of the results. 6.1. S-D logic foundational premises (RQ1) Service is the fundamental unit of exchange, but often not the mere transportation activity is fundamental to a transaction in the shipping business but, and especially in the project cargo sector, the knowledge that experts handle the precious freight with greatest possible care and will do everything possible to bring the project to a satisfactory end is of high value. The following statement provides an example. “Especially in the machinery sector reliability has highest priority. A customer, who ships a machine worth a couple of million Euros, does not want to hear his shipment is stuck in a port due to erroneous documentation. These customers want things to work and don’t care about a couple of Euros more in freight rate.”(Marketing and Sales Manager of a freight forwarder and shipping line) Apart from the fact that shipping is service, a focus on these additional elements such a trust and reliability can provide considerable additional value on the customer side. Goods are a distribution mechanism for service provision: The tangible elements of service provision, the vessels, are truly distribution mechanisms for the core service shipping lines provide. More so than in any other transportation businesses, the capital requirements for the distribution mechanism of shipping lines are extremely high, which lead to the emergence of additional services such as issuing houses specialized on ship funds. Operant resources are the fundamental source of competitive advantage: one resource is of highest value in the industry and has the power to truly set a company apart from its competition: relationships. Also knowledge has repetitively been mentioned as an important competitive factor, mainly in the form of professional expertise providing trust in the providers’ abilities on the customers’ side. “…many shippers book with us, just because they know we get the things done to their satisfaction and we are there in case of any problems. Although, at times we might be slightly more expensive than the big lines.” (Marketing and Sales Manager of a freight forwarder and shipping line) All economies are service economies. All interviewees confirmed the interdependency of actors in and the complexity of the maritime economy. A separation of maritime service providers from vessel equipment producers does not do justice to this interdependency. The customer is always co-creator of value: the value creation process in shipping consists of different stages, each characterized by different degrees of customer involvement. Value co-creation in shipping is most apparent in the phases leading up to the performance of the actual shipping process. These early stages are characterized by intensive mutual resource integration, largely in form of information provision. “For the successful completion of a project it is essential to be in constant contact with the customer.”(Sales Manager of a Freight Forwarder) There was full agreement about the fact that the more a customer becomes involved in a project and the more interaction is conducted the better the outcome of the project will be. The manager of a project forwarder took the co-creational aspect a step further by stating: “Tailoring a project to the exact requirements of the customer is actually what sets a project forwarder apart from the competition. It is also a sign of respect towards the customer to grand every individual project the utmost consideration.”(Head of Project Department) The enterprise cannot deliver value, but only offer value propositions. The process of customer acquisition and business initiation is characterized by intensive interaction between the prospective customer and the service supplier, in a long-term basis (more than two years). The supplier constantly strives to establish a relationship with the customer, which is based on trust and the confidence in the supplier’s expertise and abilities. Due to the global competition even in niche markets shippers have a wide choice and the suppliers have to evaluate carefully each customer’s specific requirements in order to make a most suitable value proposition. However, sometimes logistics providers turn down requests too, as the following quote explains. “If a company like Beiersdorf asks me for a quote on a container from Hamburg to Sidney, I would just thank them politely for the request but tell them that we are not the right partner for this business. A shipper like this does not only ask us but asks everyone else in the business too and will eventually always end up with the big players.” (Marketing and Sales Manager of a freight forwarder and shipping line) A service-centred view is inherently customer oriented and relational. The role of relationships in the shipping industry cannot be overestimated. Answers to our research questions revealed that actors in the business are very aware of this fact and established a variety of measures to build and nurture relationships. The high touch approach is clearly given priority. Nevertheless, good use is made of state-of-the are communication and information technology. One interview participant highlighted the significance of relationships by statement as the following. “Top management has very intimate relations to decision makers around the world. This is the nuts and bolds in maritime shipping.” (Head of Marketing of a ship financier) The interviewee further stated that relationships are nurtured on a highly personal basis, often through business trips to the respective partners and thereby confirmed notions of Miller (2003). All social and economic actors are resource integrators. Knowledge, experience and expertise, those were the resources most often mentioned being determinant for the success of a business project in maritime shipping. Furthermore, we have established that the customer plays a crucial role in resource integration as well. Especially the professional preparation and timely delivery of data required by the shipping company is a crucial part of the customer’s role. Value is always and phenomenologically determined by the beneficiary. In the course of the interviews the importance of references in the shipping business became apparent. The fact that many shipping companies would post statements of satisfied customers on their websites and provide video footage of successful projects verifies the validity of this premise in the context of the shipping industry. The following statement shows how easily companies can verify that customers received the value they expected. “After every project, successful or not, we would arrange for a feedback meeting with the customer in order to evaluate if we have met his expectations.” (Sales Manager of a freight forwarder) 6.2. Value co-creation processes (RQ2) The aspect of co-created value appears to be highly present in maritime shipping. Co-creation happens in various forms. The reciprocal integration of resources in the form of information and expertise is the most apparent one. Information provision often is facilitated by dedicated IT platforms, online Bills of Lading and intranet menus including track and trace services, to which registered customers obtain access. Of great importance in the value creation process is the mutual knowledge generation about internal processes. The better the processes and the required resources of the other party are known, the better the own resources can be integrated. Interviewees confirmed that projects with very knowledgeable customers always have the greatest chances to run successfully. Other essential elements of value creation that appeared in the answers of the interviewees is timeliness and reliability; the ability to provide information and services in a timely manner is related to knowledge about other parties’ processes but to the largest extent to functioning relationships within the maritime business network. In the process of service provision, which is typically characterized by a meshing of multimodal service elements performed by different providers, every link bears a potential for delay and even service failure. Good relationships among the involved parties provide for a more undisruptive service provision and timely service delivery. The importance of reliability is impressively reflected in the following quote. “Especially in the machinery sector reliability has highest priority. A customer, who ships a machine worth a couple of million Euros, does not want to hear his shipment is stuck in a port due to erroneous documentation. These customers want things to work and don’t care about a couple of Euros more in freight rate.” (Manager Marketing and Sales of a freight forwarder and shipping line) The manager quoted above stated that reliability to the largest extent is a product of experience and good relations within the network of service providers. Another sales manager from a large shipping line confirmed that especially good relationships with terminal and rail operators are crucial for a quick and smooth cargo handling in the port, where according to his opinion the most delays are caused. All interview participants described their service offering as highly flexible towards individual customer requests. However, flexibility can be understood differently depending on the specific field of business the interviewee operates in. While flexibility in the case of large container lines seem to stem from size, in terms of capacity and schedule design, and from market power, smaller bulk carriers and project forwarders obtain their flexibility from highly personalized service, which provides for tailor made transportation solutions for every individual customer. This notion is reflected in the following quotation. “In contrast to the big players, who only go by price, our business is the transport planning – to think through the shipping from A to B.” (Manager Marketing and Sales of a freight forwarder and shipping line) Through the analysis of value creation processes and the role and potential of co-creational elements in the maritime shipping business we were able to identify resources and other factors characterizing value creation in this industry context. Considering the information gathered in the interviews, we propose the following framework, depicting the elements and parties involved in value creation in maritime shipping. Figure 1: Value Co-creation in Maritime Shipping The above framework depicts the processes involved in adapting a S-D logic perspective on business in maritime shipping. Distinguished is between activities directed ‘backwards’ towards cooperating logistics providers, involving mutual learning, reciprocal resource integration and relationship management. Competence development, reliability improvement, trust generation and in-house relationship management characterize internal processes. The ‘forward’ oriented activities are directed towards the customer and other involved parties such as sub-contractors and customers’ suppliers. They similarly involve mutual learning, reciprocal resource integration and relationship management. 6.3. Operant resources (RQ3) The empirical research confirmed the centrality of operant resources to business success put forward by S-D logic (Lusch and Vargo 2006). Within the shipping companies, organizational learning about customers’ processes and specific requirements especially regarding the handling of the cargo were generally perceived as crucial for successful operations. The extent to which this knowledge is required varies however among the providers of different services within the shipping business. The depth of information regarding the cargo, required by a container shipping line can be described as modest in comparison to a project forwarder transporting a power plant. The amount of required information also increases with the number of additional services booked by the shipper. Process and cargo specific information are obtained through several ways. The learning process’ complexity can range from email correspondence or telephone conversations to employees implanted at the customers’ site. These people are supposed to obtain detailed knowledge about the customer’s internal practices and manage logistics processes on the ground. In depth knowledge of customer’s products and processes does not only facilitate service provision in shipping but is also a sign of respect and mutual appreciation. Besides knowledge important in the attraction of business in maritime shipping also is the ability to present expertise in form of trusted references and a “good name”. “As a small forwarder it becomes increasingly difficult to attract big projects. You have to have a name and good references.”(Sales Manager of a freight forwarder) In order to achieve positions of competitive advantage however, expertise and relationships are clearly the dominant factors. All interview participants confirmed either one or both elements as being their company’s fundamental source of competitive advantage. Our research results here are strongly congruent with S-D logic. Expertise has been referred to as stemming from the following factors. Long reaching experience in the particular field of business Particularly skilled employees with academic or practical education and experience Top management dedicated to competence building Constant training and internal knowledge building Active promotion and development of apprentices Knowledge and the many ways it finds expression, clearly occupies a central position in the competitive struggle among the players of the maritime shipping industry. As the manager of a freight-forwarding company put it: “…it’s competences, pure and simple.” (Head of project department) 6.4 Interaction and networks (RQ5) Companies in maritime shipping find themselves being part of a complex network of market participants – service provider and competitors, customers, government entities, nongovernmental organizations and the general public. Relationships within these networks are characterized by mutual interest and dependency. Our research revealed that there is a great awareness among the market participants about this central role of relationships and therefore the development and management of relationships receives great attention in the industry and is part of daily business. This does not mean that all companies that provided interview partners operate with sophisticated CRM programs or even consider the latest state-of-the-art in Relationship Marketing theory. In fact, for most firms the management and nurturing of relationships seems to be a very natural, day-to-day task, as the following quotation emphasizes. “In this business most of the things are fixed through relationships. There are a couple of heads pressing keys here and there, they know many people and spend at lot of time on the phone. It’s difficult to understand but that’s how things are done in this business and it works.”(Fund manager of an issuing house) The “high-touch” approach is clearly given priority in the maritime shipping industry. One-toone meetings or team conferences with the customers’ people are conducted continuously to promote specific projects and to nurture good relations in general. During the course of the interviews we were able to identify a number of key reasons for the conduction of social events with business partners. To familiarize in a social atmosphere with people that is dealt with daily in a less casual environment. Foster knowledge about the other party’s products, processes and ways of decision making. To increase the sense of commitment to provide better and more personalized service. Foster friendship, interaction, supportiveness and commitment among colleagues. Establish a personal preference among the people of the own and the partner organization in order to smooth daily processes. Personal preference and trust are two factors, which received great attention by our interview partners. Predominantly in the forwarding business, business partners are often chosen on an ad-hoc basis, depending on the nature and requirements of the specific project at hand. It is obvious that a trusted company, with a record of successful projects and personal attachment will be of first choice. However, the maintenance of free choice has been stressed as well. If the preferred partner does not perform to the promised standards, the competition will be ready to serve. Another important factor of networking is the mutual learning process, which is bound to improve business processes and is a sign of respect for the other party’s business as well. The following quotation underlines the role of mutual learning in relationship management. “The customer needs to feel I am interested in his products and I actually understand what we are dealing with and how they work. You don’t need to be a doctorate engineer but it’s simply a sign of respect and appreciation, which is very important in networking.”(Head of project department) Interaction plays a vital role in maritime shipping, in relationship building and maintenance as well as in daily business dealings. Interaction manifests links and provides the business partner with the information required for successful project completion. “For the successful completion of a project it is essential to be in constant contact with the customer.”(Sales Manager of a freight forwarder) Especially in the initial stage of a shipping project the mutual information requirements call for intensive interaction. As the above statement shows however, interaction is a vital part at every stage of a project. “Initially, the largest part of the work is the interaction and relationship establishment with the customer, and then we need to prove we deserve his trust.”(Head of project department) As previously stated, companies in the maritime shipping industry are well aware of the significance of relationships in their business, the appreciation however does not seem to go beyond the simple dyad. Only one of our interview partners confirmed acquisition activities extending to the partners and sub-contractors of clients and business partners. The notion of network management appears to be widely unknown or unaccepted in maritime business. At this point we identified significant opportunities for a more effective relationship management, reaching beyond the immediate customer contact to involve the gradual network environment. 7. CONCLUSIONS This paper takes a S-D logic perspective on value creation, resources and networks in the maritime shipping industry with a particular focus of the research application on the maritime business network in the Northern German city of Bremen. After literature review on S-D logic and value-co creation, specific research propositions regarding the application of S-D logic were proposed and applied to our research context. The empirical research consisted of six in depth interviews with key actors in the maritime business network in Bremen: the research results are brought into context with the framework of the theoretical background. The nature of in the maritime shipping business let us conclude that a marketing approach based on a S-D logic perspective with a focus on customer involvement, co-creation of value, interaction, knowledge development and network maintenance will enable service providers to offer customized services, provide better value propositions to current and prospective customers and obtain greater advantages from customer relations and the networked structure of the industry. As S-D logic is thought to be a universal perspective for a “unified understanding of the purpose of organizations, markets and society” (Vargo and Lusch on www.sdlogic.net) knowledge and its descendants should be perceived as being universally responsible for competitive advantage in any industry. What we perceive as rather unique to the maritime shipping industry however is the imperative weight of relationships within and beyond the business network. At the end of this study, acknowledging as limiting factor that, taking into account the novelty of the topic, we concentrated our research in a preliminary qualitative study that will need further quantitative development. The use of such qualitative methods inevitably implies a sample size that is considerably small and insufficient to represent the population of shipping industry managers and therefore the findings of this study are strictly subjective. This limitation, among other factors, presents certain implications or opportunities for future research. This research was only conducted from one side of the consumer/provider interaction: we propose implication for future research that should engage the customer on this topic, so as to reveal the similarities or discrepancies in the two points of view. 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