Value, Variety and Viability: New Business Models for Co-Creation in Outcome-based Contracts

The authors propose that designing a manufacturer’s equipment-based service value proposition in outcome-based contracts is the design of a new business model capable of managing threats to the firm’s viability that can arise from the contextual variety of use that customers may subject the firm’s value propositions. Furthermore, manufacturers need to understand these emerging business models as the capability of managing both asset and service provision to achieve use outcomes with customers, including emotional outcomes such as customer experience. Service-Dominant logic proposes that all “goods are a distribution mechanism for service provision,” upon which they propose a value-centric approach to understanding the interactions between the asset and service provision, and suggest a viable systems approach towards reorganising the firm to achieve such a business model. Three case studies of B2B equipment-based service systems were analysed to understand customers’ co-creation activities in achieving outcomes, in which the authors found that the co-creation of complex multi-dimensional value could be delivered through the different value propositions of the firm catering to different aspects (dimensions) of the value to be co-created. The study provides a way for managers to understand the effectiveness (rather than efficiency) of firms in adopting emerging business models that design for value co-creation in what are ultimately complex socio-technical systems.