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New Business Models and Value Creation: A Service Science Perspective pp 105–129Cite as

Models of performance and value measurement in service systems

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Part of the book series: Sxi — Springer per l’Innovazione / Sxi — Springer for Innovation ((SXIINNO,volume 8))

Abstract

The emergence of service science offers new and renewed research interest to management accounting and to performance management. In terms of management accounting, the prospects of cocreation of value and servitisation lead towards analysis objectives that consider the customer to a greater extent. Secondly, the trend of dissociation between investments (costs) and sources of revenues questions the validity of the traditional logic of costing for pricing in the context of service science. In short, problems of cost and revenue allocation emerge between coproducing partners in a service system. In terms of performance management, the development of business models in which the relevance of the service component increases requires reflection on which innovative techniques should be used to measure value, also with a view to establishing incentive systems oriented towards value creation.

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Notes

  1. 1.

    On this point, however, (Lovelock and Gummesson 2004) noted that many services are partially or fully produced independently from the customer, who is not directly involved (consider, for example, car repairs, information, financial services, transport of goods), with the result that production and consumption may not be simultaneous.

  2. 2.

    We can summarise the three basic trends characterising the evolution of firms’ strategic and management scenarios (Merli 2003): (a) changes in the structure of the business relating to structural relationships between firms (network); (b) changes in business scenarios that relate to globalisation, convergence (of new actors working on the platform of the global network with new ways of collaborating), technology and the role of finance; and (c) the evolution of e-businesses related to business opportunities generated/fuelled by new technological opportunities. See also (Freeman 2005).

  3. 3.

    For example “Business exists in a complex ecosystem of service exchange. Businesses have a considerable amount of internal structures, which allows a business to be viewed as a set of components or internal service systems.” (Spohrer 2008: 31). See Chap 1 and Chap 4.

  4. 4.

    A transposition in terms of the strategic analysis of the modularity of service systems is made through the Component Business Modelling (CBM) approach (see Chap 4).

  5. 5.

    TCO is a cost management tool that aims at determining for the firm, as acquirer, those costs considered relevant or significant in the acquisition, possession, use and elimination of a good or service. With respect to a supplier, the buyer’s TCO includes not only the price of the goods/services purchased but also the costs for order management, research and supplier qualification, transportation, receipt, inspection and any eventual restitutions, storage and disposal. This analysis can be relevant not only to assess supply relationships but also in terms of outsourcing decisions. On the characteristics and application methods of this instrument, see (Ellram 1993), (Ellram and Siferd 1998) and (Pitzalis 2009).

  6. 6.

    In this sense, the terms interorganisational cost management (Cooper and Slagmulder 1999; Hoffjan and Kruse 2006) and open book accounting (Hakansson and Lind 2007; Giannetti 2009a) are often referred to.

  7. 7.

    The role of management accounting in service companies should therefore go beyond the simple measurement of internal efficiency that characterises production companies (Lowry 1993).

  8. 8.

    Analytics is part of business intelligence technologies and processes that handle data to understand and analyse the performance of organisations (Smith and Goddard 2008, p. 128).

  9. 9.

    See, in particular, (Verweire and Revollo 2009).

  10. 10.

    For a critical analysis of these links, see also (Nørreklit and Mitchell 2007).

  11. 11.

    (Davenport and Harris 2007, p. 43), for example, demonstrate the case of a hotel company that, through analytics, defined prices to optimise the exploitation of available production capacity.

  12. 12.

    See, as an example, the analysis on cost drivers carried out by (Banker and Johnston 1993) to examine the impact on costs of the volume and complexity/variety of services offered.

  13. 13.

    The use of appropriate costing systems can be useful to “discover” the value created by certain specific groups of customers who buy specific bundles of services. It should be noted that “components” or modules of services can be a source of value if they are proposed as a unique offer to specific customers. For the analysis of the profitability of customers, time-driven activity-based costing can also be used: through time equations, it seems particularly suited to simulate the economic effects resulting from the personalisation of certain types of services. On customers as a fundamental object of analysis of the value created in services, see also (Collini 2006) and Cugini et al. (2007). On time-driven activity-based costing, see (Kaplan and Anderson 2007). It is worth mentioning that this variant of activity-based costing, given its relatively recent introduction, has not yet seen a great deal of useful empirical evidence to assess its potential effects. See also (Giannetti 2009b).

  14. 14.

    A process must clearly be part of a valid business model to allow the benefits of a sophisticated analysis of the information to be reaped.

  15. 15.

    (Davenport and Harris 2007, p. 36), for example, note that in a sample of 32 companies, most of those that show a high intensity of analytics adoption designed to generate and maintain competitive advantage are companies with a high intensity of information content, belonging, however, to different sectors.

  16. 16.

    See, for example (Brignall and Ballantine 1996) and (Lapierre 1997).

  17. 17.

    Of course, this hypothesis could not hold, in particular within the service sector. If we consider, for example, the rating sector, i.e., the evaluation of the creditworthiness of companies, we see that the market is dominated by a few operators and has high entry barriers. In this case, high prices can maximise the value of rating agencies, at the detriment of their customers; similarly, the reduction of control activities by rating agencies may determine costs to the community that may be difficult to overturn on the same credit rating agencies (Hill 2004). In general, in the service sector, it would seem particularly important to increase competition, for the benefit of users and weaker partners (see, for example, the debate on the “Bolkestein” European Directive No 2006/123/EC).

  18. 18.

    Consider, for example, all web-based services that do not involve any payment for the user but whose volume of traffic creates the conditions for obtaining revenues.

  19. 19.

    In particular, this is first defined in terms of incremental cash flow that the service user derives in terms of new revenues and costs, to which is added the cost incurred by the service provider. The modality of sharing the value created between the partners by defining the pricing of the service is only considered secondarily.

  20. 20.

    The example used by (Grӧnroos and Helle 2010, pp. 581–584) shows a very simplified case of outsourcing services: the evaluation of the new service is implemented mainly in terms of cost savings while the expected increase in revenues is considered as a certain value. The difficulty of assessing the value created for the customer can often lead to inadequate pricing of the service (Rapaccini and Visintin 2009).

  21. 21.

    The estimate of expected cash flows does not take into account the flexibility of firm behaviour, which is certainly relevant in the context of innovative services, that have a substantial technological dimension. Evaluation methods should consider the value of flexibility, which could be estimated with the methodology of real options.

  22. 22.

    For example, the survey proposed by (Sharma and Kumar 2010) on the use of EVA does not identify, in the vast literature analysed, studies that specifically address the issue of performance measurement in the field of advanced services.

  23. 23.

    In this perspective, it would be appropriate for accounting practices to comply with this agency problem, in response to economic changes also linked to the development of service science (Mattessich 2006). For example, methods similar to those used in the insurance industry to estimate embedded value, which links firm value to the expected value of the margins of the previously acquired policy portfolio, coud be used for advanced services. According to this technique, the value of the portfolio in place is determined by estimating the present value of the expected subsequent profits that the portfolio will generate over its remaining life.

  24. 24.

    In concentrated firm ownership, the conflict would occur between shareholder-managers and firm creditors.

  25. 25.

    See, in particular, (Hall and Murphy 2003), Kedia and Philippon (2009) and (Johnson et al. 2009).

  26. 26.

    This suggests the use of performance parameters calculated as the difference with respect to the general trend, or, preferably, the sector of belonging. For top managers , market-oriented performance parameters should be adjusted by the effect of exogenous factors, outside of their control, while for operational roles bonuses should reflect the specific contribution to improving the performance of the firm.

  27. 27.

    A short-term horizon of incentive schemes can induce decisions at odds with the perspective of maximising long term value and also incentivise accounting manipulations aimed at increasing short-term performance.

  28. 28.

    In line with the criteria of the Financial Stability Board (2009), the Bank of Italy (2009) explained the guidelines for the definition of incentives in Italian banks. In particular, it requires that bonus payments be deferred over time and linked to long-term performance indicators, appropriately adjusted for risks assumed. It also suggests that remuneration be symmetric with respect to the results achieved, therefore considering penalties for underperformance and takes into consideration the results at business unit and, where possible, individual level.

  29. 29.

    See, for example, (Evans 2004).

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Authors and Affiliations

  1. Istituto di Management, Scuola Superiore Sant’Anna, Pisa, Italy

    Roberto Barontini, Lino Cinquini & Andrea Tenucci

  2. Dipartimento di Economia e Management, Università di Pisa, Pisa, Italy

    Riccardo Giannetti

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Barontini, R., Cinquini, L., Giannetti, R., Tenucci, A. (2013). Models of performance and value measurement in service systems. In: Cinquini, L., Minin, A.D., Varaldo, R. (eds) New Business Models and Value Creation: A Service Science Perspective. Sxi — Springer per l’Innovazione / Sxi — Springer for Innovation, vol 8. Springer, Milano. https://doi.org/10.1007/978-88-470-2838-8_7

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