Double Co-creation in Service Accounting

Transcription

1 Double Co-creation in Service Accounting Hans Weigand 1, Paul Johannesson 2, Maria Bergholtz 2, 1 Tilburg University, P.O.Box 90153, 5000 LE Tilburg, The Netherlands H.Weigand@uvt.nl, J.JayasingheArachchig@uvt.nl 2 Stockholm University Department of Computer and Systems Sciences, Sweden Pajo, maria@dsv.su.se Keywords: service design, REA, value co-creation, service process, service accounting 1 Introduction As has been pointed out by several service science researchers [7,1], and has been recognized in the accounting field for quite some time (e.g. [9]) traditional management accounting approaches have serious limitations with respect to service accounting, [12]: (1) services are used in some customer process, possibly outside the borders of the enterprise and with a high degree of variability [3]. Standard management control approaches are problematic in this situation, and the costs have a strong element of uncertainty. The value that the service adds to the process is hard to measure. (2) service execution builds on a largely fixed capacity of operant resources. This capacity cannot be stocked. Marginal costs are relatively low or sometimes negligible. That is why priority is given to capacity utilization rather than efficiency. However, a one-sided focus on contribution margins leads to a downward spiral of price competition whereas the goal should be to increase the value for the customer [6] and the Joint Productivity Gain [6]. (3) market price is only loosely connected to cost price. To acquire a customer base, often high discounts are given in the initial phase. The yearly accounts often do not give a good indication of the sustainability of a service. (4) performance management cannot be based on simple counts of objects or transactions nor on monitoring of standardized internal processes. Instead, what is relevant is the total cost per customer and the value of a customer (cf. [4]). As observed by Goldkuhl [5], a service provider sometimes offers a service that not only delivers value to the customer but also to the provider itself. From an accounting perspective, a problem is to model such services that offer value on both sides of the enterprise border. The goal of this paper is to extend an ontology-based service accounting framework [12] with service as a means for co-creation of value from both the server-provider and server-consumer side.

2 2 Hans Weigand et al. 2 Service for Co-creation of Value For a typical goods producing company, its interactions with customers can be quite limited [2]. Without any involvement from the customers, the company procures raw materials and assets from suppliers, uses these resources to produce goods to be sold, and distributes the goods to retailers and other outlets. The only role of the customer is to select which goods to purchase and to pay for them. Thus, the company carries out a conversion process in isolation transforming input resources to output resources, see Fig. 1. Fig1. Single agent process versus service-process versus co-service process In contrast to a goods producing company, a service provider always has to work closely with its customers. A service can never be carried out by a provider in isolation, as it always requires a customer to take part in the process, at least in the sense of providing input resources. In such a service process, the provider and the customer together co-create value, as both of them provide resources to be used or consumed in the process. For example, in a photo sharing service, the service provider will supply hardware and software, while the customer will provide photos and labour. Together, they engage in a process that results in value for the customer, shareable photo albums. This process can be compared to that of a hardware supplier, who produces computers in isolation from the customer, who will later on buy the finished product and use it without any interaction with the supplier. Pictorially, a service process can be viewed as in Fig. 1 II, which shows how both a service provider and a customer jointly contribute to the service process that produces an output for the benefit of the customer. In order to make the concept of service as co-creation more precise, it is useful to distinguish between service as a process and service as a resource. The word service is sometimes used to denote a process, e.g., in the phrase Today, our company carried out 25 car repair services. In other cases, service is used to

3 Error! Use the Home tab to apply title to the text that you want to appear here. 3 denote a resource, e.g., Our company offers car repair services for the fixed price of 200 euros. A service process [2], see Fig. 1 II, is a conversion process that uses or consumes resources from two agents, called provider and customer, and produces resources that are under the control of the customer, i.e. the customer has rights on these resources. Thus, a service process produces an output that is valuable to the customer. In order to capture the idea of double co-creation, the notion of service process can be extended to that of co-service process, where the provider also benefits from the output. A co-service process, see Fig. 1 III, is a conversion process that uses or consumes resources from two agents, called provider and customer, and produces resources that are under the control of the customer as well as resources that are under the control of the producer. An example of a co-service process could be an electronic tax form that reduces the effort for tax payers but also ensures that the internal revenue service receives tax forms of high quality [5]. Another example is a a free online editor service that people can use for free but where the provider gets access to the edited documents, which it can use for profiling through data mining techniques. 3 Service ontology In REA [8] a service is an economic resource as it is viewed as valuable by some agent and can be transferred between agents [11]. As such it inherits all features of resources, in particular: (i) It can be exchanged between agents as part of an economic transaction. The receiving agent gets control of the service in the form of use rights; (ii) To produce a service, other resources have to be spent, and by consuming the service, other resources are being modified. This is not different from goods. For services, the production and consumption events have to coincide in time; (iii) The service delivery is governed by a contract - a bundle of commitments in REA terms. The fulfillment is often not instantaneous but done over a period of time. This resource view of services deviates from the commitment-based approach in [6]; not because commitments would not play a role in service delivery, but because services do not differ from goods in that respect. The resource view of services has also been criticized. Talking about consuming and producing a service is rather abstract. This can be remedied, we claim, by a closer look to the use stock flow in REA. Another objection is that services are not resources because they cannot be owned and stored. However, owning and storing are not essential features for resources; what is essential is the control relationship between agents and resources, and this is more nuanced than a binary ownership feature. Exactly this point is a major consequence of a service-dominant logic [10]. 3.1 Use as allocation and deallocation Instead of saying that the service is consumed, we better say that the service is used. The use stock flow in REA expresses that some resource is input to a process

4 4 Hans Weigand et al. without being consumed, e.g. use of a machine in manufacturing. The simplest application of the REA use stock flow is spatial allocation where space can be used, for example to store or transport some goods. Space has a certain capacity and it can be allocated to a material resource for some period. The period has a start and end. We claim that the use stock flow is not atomic from an event modeling perspective and should be seen as an economic abstraction. A micro-analysis distinguishes allocation and deallocation (release) events. From these atomic events we can calculate how much capacity has been used in some period and assign a cost value. What is the role of the allocation event in the conversion duality? There is a physical duality (in terms of mass) between goods intake and material in stock, but the inventory space does not play a role in this equation. However, there is another duality (in terms of volume this time) between the space given away and the space occupied by the material in stock. We assume that such an allocation duality exists in most cases, although the formulation will differ per case. For services supporting other services, there are always close dependencies on the time dimension. 3.2 Support as non-creative production In conversion processes we have operand resources that are consumed and produced (created). We also have operant resources that provide input (are affected negatively, used ) but are not consumed [10]. Symmetry suggests that we can also distinguish resources that are affected positively (so they are at the output side) but not produced. Let us call this stock inflow support. Like the use, it can be analyzed in more detail as a combination of start support and end support. This kind of stock flow makes sense for processes in which the material resources are not really transformed physically, e.g. the process of transport, custody, care or maintenance, but also for the production of a service. For instance, the transport service is supported by a process in which a truck and a driver are used (allocated). The process may involve some consumption and production (e.g. the truck consuming fuel and producing carbon dioxide), but these stock flows are of a different kind and secondary. 3.3 Service pattern in REA Using REA with the two modifications just described we can model a complete service pattern in which three processes can be distinguished: the service delivery (combination of use and support events), the service exchange (in which the Consumer pays for the service) and the service use. These correspond to the left part, the middle and the right part of Fig. 2. The diamonds represent dualities (C= Conversion duality, X = Exchange duality). Whether an economic event is an increment or a decrement depends on the perspective from which it is seen. In other words, an economic event is always viewed from one actor s perspective. In the diagrams, this actor is indicated by means of a subscript to each economic event name, P for the provider and C for the customer.

5 Error! Use the Home tab to apply title to the text that you want to appear here. 5 Fig. 2. Service pattern with double co-creation of value (operational level, agents omitted) For reasons of space, we did not include the purchasing of operand resources nor the disposal of waste. The service use can be outside the scope and control of the service provider. What service orientation has taught us is that value creation exceeds the enterprise borders. This requires a relaxation of the REA focal-enterprise view and some of the current definitions [12]. Thus, the events of the service pattern are not solely viewed from the perspective of the service provider. The Customer in the pattern should be read as an abstraction. It can be filled in with more concrete resources or processes, e.g. a manufacturing process in the B2B case. Directly or indirectly, the exploitation of this Customer resource generates revenues, or part of the total revenues, the value-in-use. Similarly the Provider resources serves as a metaphor for direct or indirect changes in revenue/price/cost from the service provider perspective. The right-most conversion process in Fig. 2 are, furthermore, an example of the aforementioned co-service process, where resources are created/improved for the benefit of not only the service customer but both the service provider and service customer together (highlighted in gray in the picture). 3.4 Consequences for the REA definitions Extending the REA models over the borders of the enterprise requires some reconsideration of the central concepts. Originally, the REA ontology was focused on a single enterprise. In that case, inflow and outflow (as part of the exchange) are unambiguous. When conversion processes were added, a generalization to increment and decrement was made, but still the unique enterprise perspective determines whether something is a decrement (the company gives it up) or an increment. However, since events are controlled by agents, the stock flow also says something about the control relationship between the resource and a particular organizational agent. Or we should say, two particular agents as both in McCarthy s and in Hruby s reference model, there is a provider and a recipient involved (or inside party and outside party, the mapping is not 1-1). Still later, an independent-observer-view was developed [iso] for modeling supply chains. In this view, again there are two agentevent relationships, called from and to. For instance, a payment is an event that affects Money, the from role identifies the Buyer, the to role the Seller. There is

6 6 Hans Weigand et al. not absolute increment/decrement anymore, although a single perspective (so-called trading partner view) could be derived, for instance, for Buyer, where there is a decrement Money event. In our extended enterprise view, we face the same problem as in the independentobserver-view. We propose to solve this problem in the following way. We use Hruby s provider and receiver role for each event. When agent A provides an event, then A gives up control over the resource, and B gains control. This is true for both increment and decrement. The only difference between the two is that for the decrement, the event is linked to the resource input and in the case of an increment, the event is linked to the resource output. So what the model expresses, is that in the case of decrement, the modeled resource is given up (by the provider), and in the case of increment, the modeled is gained (by the receiver). The complementary effects are not modeled, and, as a kind of Closed World Assumption, are interpreted as deletions. In other words, although the receiver (in the case of decrement) gains control over the resource at the moment of transfer, the resource is counted as lost (not only for agent A but in an absolute sense). When we follow this interpretation of the provider/receiver role, then the event logs provide information about (a) which resources exist and (b) under whose control they are. If we now assume that for every agent we know to which organization it belongs (via the organizational unit relationship), then we also know for each organization, which resources it controls at some moment. In graphical models that go beyond the single enterprise, we may use different colours for the agents and/or resources of each economic agent involved. What does this mean for the exchange? Deviating from the independent-observerview, we model this process not by two but four events: A sells X (decr), B buys X (incr), B pays M (decr), A receives M (incr). X is the good sold, X is the good received. These are not modeled as one resource (of course, that would be confusing as they are controlled by different agents). Similar for the Money paid and received (think of M as A s bank account and M as B s bank account). In terms of the semantics given above, it implies that after the process is finished, X and M do not exist anymore (or, viewed as banks, are decremented) whereas X and M start to exist (are incremented). The amount of increment or decrement is in the event. This is a correct representation. What about the dualities? First, we can note that in this process, there is a conversion duality in the sense that what is given up is equal to what is gained (in physical mass, as far as goods are concerned, and in value, as far as money and goods is concerned). So mass(x) = mass(x ), and value(m+x) = value(m+x ). Secondly, the exchange duality says that the value of X and M (and of X and M) are the same. We can say that this duality is grounded in the fairness of economic exchanges. However, not every process is an economic exchange, even if the process involves independent agents. So the exchange duality only applies to specific processes.

7 Error! Use the Home tab to apply title to the text that you want to appear here. 7 4 Demonstration The proposed extension wrt double co-creation of value to the service accounting framework will be applied to public sector case regarding tax collection and tax law enforcement. The principal agent is the government agency called the Internal Revenue Service (IRS) and the principal market segment consists of the tax-payers. The IRS collects tax from the tax-payers and the goal is to get as accurate taxdeclarations, and accordingly tax-payments, as possible. In order to reach this goal,the IRS has provided an online declaration-service that helps taxpayers to interpret the taxation-laws correctly as well as aids the taxpayers in filling in the yearly declaration forms. If the tax-payer chooses to purchase and use this service he/she will get advice and help to declare, i.e. value on the service-consumer side. In doing this, however, he/she also provides value for the service-provider since the resulting paid taxes may be more accurate/lawful and perhaps thus even larger than if the unformed taxpayer tried to interpret the taxation-laws on his/her own. To analyze the service accounting aspects regarding double co-creation of value we apply the extended service pattern of Fig. 1 onto the declaration service. For reasons of space only the focal point of double co-creation of value with respect to provider/customer (e.g. IRS/taxpayers) is depicted in the figure, exchange processes are omitted. Fig. 3 Service as a means for double co-creation of value The IRS uses operant and operand (Electricity and Personell) resources in order to create the Declaration service. The latter is used by the taxpayer for the benefit of the same. In doing so the taxpayer uses her own resources as well as gets control over new resources. The latter is modelled as the tax-payer resource being supported. In addition to the IRS and the taxpayer using resources to co-create value for the customer, the IRS also gets value in terms of control over new resources. These resources are in Fig. 3 manifested as the IRS agent (a resource) being supported. This can be further concretized by incrementation of more concrete resources such as for instance an increase in paid taxes to the IRS.

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