Governing mobile service innovation in co-evolving value networks
Proefschrift
Ter verkrijging van de graad van doctor aan de Technische Universiteit Delft, op gezag van de Rector Magnificus prof.dr.ir. J.T. Fokkema, voorzitter van het College voor Promoties in het openbaar te verdedigen op donderdag 17 december 2009 om 15.00 uur
door Gerardus Adrianus DE REUVER
Ingenieur in de technische bestuurskunde
geboren te Leiden
Dit proefschrift is goedgekeurd door de promotor: Prof.dr. M.L. Mueller
Copromotor: Dr. W.A.G.A. Bouwman
Samenstelling promotiecommissie: Rector Magnificus, Voorzitter Prof. dr. M.L. Mueller, Technische Universiteit Delft, promotor Dr. W.A.G.A. Bouwman, Technische Universiteit Delft, copromotor Prof. dr. Jao-Hua Tan, Technische Universiteit Delft Prof. dr. ir. N.H.G. Baken, Technische Universiteit Delft Prof.dr. M.W. de Jong, Universiteit van Amsterdam Prof.dr. H. Hämmäinen, Helsinki University of Technology Dr. J. Whalley, University of Strathclyde
ISBN 978-90-79787-13-5
Printing: Gildeprint Drukkerijen, Enschede Published and distributed by: Next Generation Infrastructures Foundation P.O. Box 5015, 2600 GA Delft, the Netherlands E: [email protected] I: www.nginfra.nl
This research was funded by the Freeband program, by IST-FP6 MobiLife, and by the Next Generation Infrastructures Foundation program.
Keywords: service innovation, mobile services, value networks, governance, coevolution, business models, organizational networks, walled garden
Cover design by Margje Willemsen (Buro In Petteau)
Copyright © 2009. G.A. de Reuver. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior permission in writing from the copyright owner.
Printed in the Netherlands
Voor Jasmijn
Acknowledgements First of all, I would like to thank my co-promotor Harry Bouwman. His passion for the mobile domain, network concepts and empirical research has inspired much of the work in this thesis. Especially in these last months of the journey, his loyal support has been invaluable. I look forward to extending our collaboration and jointly advancing our research program on ICT-based service innovation in the years to come. I would also like to thank my promoter Milton Mueller for his confidence in me as well as his comments during the later stages of the research project. The ideas and analyses within this thesis have been refined and improved thanks to various discussions in the academic circle. More specifically, I would like to thank the participating professors and fellow PhD candidates of the ECIS Doctoral Consortium in 2007. The work also benefited from reviews and presentations in the more regular academic conferences, especially those of the ITS conferences, International Conference on Mobile Business and Bled eConference. I also enjoyed the spirited discussions when presenting earlier versions of the work at the Edispuut sessions and the colloquia at the ICT section of our department. This work would not have been possible without the participation of industry representatives. I kindly thank all those executives for their time to participate in the interviews and survey in this thesis. The research project has been carried out within the frame of two larger research projects: the Dutch Freeband User eXperience (Frux) project and the European project IST-FP6 MobiLife. In these projects, I enjoyed the collaboration as well as the freedom in doing the dissertation work. I would like to thank the people with whom I collaborated in these projects, that is, those from Ericsson, Telematica Instituut, TNO, VtsPN, VUMC, Waag Society, and Web Integration in the Frux project, and those from Nokia, Elisa and NEOS in the MobiLife project. A special word of appreciation to Timber Haaker for the pleasant collaboration and numerous co-authorships during both projects. I would also like to thank my colleagues from the Information and Communication Technology section of Delft University of Technology. My roommate Nitesh: Thank you for being the first to hear (and scrutinize!) any new line of argument, and sharing the typical frustrations and occasional joys of a PhD trajectory. Finally, I would like to thank my friends and family. Margje, thank you for your invaluable assistance in designing the front cover of the book! My parents: thank you for your unconditional support. I thank Mariska for her loving support and for ensuring there is so much more than just work. Finally, I thank my eternal baby-girl Jasmijn for all the joy she brought. In the short period we had with her, her eagerness to explore the world has set an example that I will always memorize.
Table of contents
1 Introduction...... 1 1.1 Problem statement ...... 1 1.2 Literature overview ...... 2 1.3 Research objective and main question...... 4 1.4 Relevance of this thesis...... 5 1.5 Research approach ...... 6 1.6 Outline ...... 7
2 Theoretical framework...... 9 2.1 Value networks ...... 9 2.2 Governance mechanisms ...... 13 2.3 Service innovation phases...... 18 2.4 External drivers...... 20 2.5 Coevolution...... 20 2.6 Propositions...... 25
3 Domain description ...... 27 3.1 Mobile services...... 27 3.2 Value networks ...... 30 3.3 Governance mechanisms ...... 34 3.4 Service innovation phases...... 36 3.5 External drivers...... 37 3.6 Conclusions ...... 46
4 Case studies...... 47 4.1 Case study protocol...... 47 4.2 i-mode...... 51 4.3 Event Assistant...... 70 4.4 Attendering service...... 75 4.5 WijkWijzer...... 84 4.6 Cross-case analysis...... 92
5 Survey...... 99
5.1 Research model ...... 99 5.2 Method...... 100 5.3 Results...... 104 5.4 Discussion ...... 105 5.5 Limitations ...... 106 5.6 Conclusions ...... 107
6 Discussion and conclusions ...... 109 6.1 Main findings ...... 109 6.2 Contributions to theory...... 110 6.3 Implications for research domain...... 112 6.4 Recommendations to practitioners ...... 114 6.5 Limitations ...... 116 6.6 A research program on governing ICT-enabled service innovation in value networks ...... 117
References...... 121
Appendix A Interview protocol ...... 133
Appendix B Overview of interviewees ...... 135
Nederlandstalige samenvatting...... 137 List of figures Figure 3-1 Comparison of wireless access technologies ...... 38 Figure 4-1 i-mode – Value network (2002-2006)...... 52 Figure 4-2 i-mode – Value network (Open WAP portal; 2007-2008)...... 53 Figure 4-3 i-mode – Explaining the transition from i-mode to open WAP portal..56 Figure 4-4 i-mode – Explaining the phase transition from on-portal towards off- portal content (content provider perspective)...... 59 Figure 4-5 i-mode – Governance dynamics in content provider - KPN relationship ...... 63 Figure 4-6: Event Assistant - Value network (Implementation/Roll-out phase) ...71 Figure 4-7 Event Assistant - Governance mechanisms (Implementation/Roll-out phase)...... 73 Figure 4-8 Attendering service – Value network ...... 77 Figure 4-9 Attendering service – Governance between police organizations .....79 Figure 4-10 Attendering service – Governance with application providers ...... 81 Figure 4-11 WijkWijzer – Value network ...... 85 Figure 4-12 WijkWijzer - Governance between research institutes and police organizations ...... 87 Figure 4-13 WijkWijzer - Governance with application provider WI...... 90 Figure 5-1 Research model ...... 100
List of tables
Table 4-1 Case study selection...... 49 Table 4-2 i-mode – Operationalization of governance dimensions ...... 68 Table 4-3 i-mode – Summary table...... 69 Table 4-4 Event Assistant – Operationalization of governance dimensions...... 74 Table 4-5 Event Assistant – Summary table ...... 75 Table 4-6 Attendering service – Operationalization of governance dimensions..83 Table 4-7 Attendering service – Summary table ...... 84 Table 4-8 WijkWijzer – Operationalization of governance dimensions...... 91 Table 4-9 WijkWijzer – Summary table ...... 91 Table 4-10 Cross-case summary table ...... 93 Table 5-1 Measures for service innovation phases...... 102 Table 5-2 Measures for governance mechanisms ...... 103 Table 5-3 Convergent and Discriminant validity of measurement model ...... 104 Table 5-4 Trimming the structural model ...... 104
1 Introduction
1.1 Problem statement Mobile service innovation requires a broad set of resources and capabilities that are not controlled by one single actor. Such resources can be found on the infrastructure level, i.e. the telecommunication network, handsets and billing infrastructure; and on the middleware and application level, i.e. applications, service platforms and content. Because these resources are dispersed among operators, equipment manufacturers, content providers and application developers, these actors have to work together to develop and offer value-adding services to end-users, which raises the issue as to how the collective actions of these interdependent but legally separate actors can be governed. Until recently, operators controlled most of the activities in the area of mobile service innovation. Operators have been accustomed to being in control of the network, service delivery and customer interaction since the emergence of the first voice services (Sabat, 2002). When GPRS technology enabled the first generation of mobile Internet services, operators generally acknowledged that they would need to obtain content from third parties. To manage relationships with third parties, they copied the successful Japanese i-mode model (Natsuno, 2003), which implied launching mobile Internet portals that provide access to content services from a range of third party providers. Operators maintained control of the communication network, as well as controlling access to the customer, customer data and transactions. In order to be admitted to the portal, content providers had to meet several conditions regarding branding and technology. These conditions were relatively stringent, especially compared to the fixed Internet environment, where content providers and Internet service providers have no relationship at all. Generally speaking, this model is referred to as the `walled garden’, because operators control access to the customer and only provide access to selected content providers. The merits of this model, in comparison to the more open models used on the fixed Internet, have been heavily debated. Vesa (2006), for example, argues that successful mobile service innovation can only be achieved through control and orchestration by operators. By contrast, Peppard and Rylander (2006) argue that operators should leave service innovation to other firms, and focus on creating value rather than on controlling the value network. Allee and Taug (2006) argue that collaborative relationships between operators and third parties will speed up mobile service innovation, while Methlie and Pedersen (2007) argue that the choice between walled gardens and open models ultimately explains the success of a business model, as it influences the diversity and quality of service, as well as innovation speed. Recently, the collaboration between operators, content providers and application developers has begun to change. Analysts observe that operators are replacing walled gardens with more open, flexible models of collaboration (OVUM, 2006). For example, operators increasingly allow end-users to access
1 content sites that are not listed on their portals. As yet, it is unclear whether this trend will continue and what factors explain these dynamics. To summarize, there are different ways to organize mobile service innovation among interdependent but legally separate actors. There is a serious debate among experts in the mobile services domain regarding the relative merits of closed versus open collaboration models. In addition, the nature of collaboration models appears to be shifting over time. This raises questions as to how and why the way organizations work together in developing and offering mobile services is changing.
1.2 Literature overview Several schools of literature may help us understand the practical problems at hand. Here, we discuss the concepts and gaps in existing literature, and the way this thesis can contribute to theory. The organizations involved in developing and offering mobile services can be viewed as a value network, where goods, services, revenues, knowledge and intangible benefits are exchanged between organizations (Allee, 2000a). Value networks are built around a service concept and involve only those organizations that work together to provide that service. Interorganizational networks have been a topic of interest in business strategy research (e.g. Allee, 2000a) and strategic management (e.g. Gulati et al., 2000). Value networks can be considered a specific type of interorganizational networks. They are different from business networks (e.g. Kambil & Short, 1994) and business ecosystems (e.g. Moore, 1993), which are not bound to a service offering. Compared to the more traditional value chain concept (Porter, 1985), value networks explicitly acknowledge nonlinear, horizontal and dynamic relationships. Earlier studies have examined the position of value networks as opposed to more general value chains (e.g. Allee, 2000a; Stabell & Fjeldstad, 1998) and applied their findings to the mobile domain (e.g. Maitland et al., 2005; Van de Kar, 2004). However, thus far, dynamic perspectives on how value networks change over time have been few. Existing studies on the dynamics of interorganizational networks tend to focus on structural attributes, i.e. the closeness and interconnectedness of the networks, rather than on how these networks are actually being organized (e.g. Halinen et al., 1999). This thesis contributes to theory on interorganizational networks by providing a dynamic perspective on value networks. Although organizational science has traditionally focused on organizing activities within the boundaries of the firm, it has by now acknowledged the importance of interfirm relationships. The central concept used to describe and analyze how activities and resource exchanges are being organized is that of interorganizational governance. Governance typically involves the structure, power and process by which decisions are made as to how to organize collective action (Von Tunzelmann, 2003). Specifically, it refers to the mechanisms that are used to safeguard, coordinate and adapt the exchange of resources (Jones et al., 1997). Studies on interorganizational governance are prominent in organizational science (e.g. Hennart, 1993), marketing literature (e.g. Heide, 1994) and strategic management (e.g. Poppo & Zenger, 2002). While intrafirm activities are governed
2 through employment contracts and formal authority, similar mechanisms are lacking on an interfirm level. Existing research on interorganizational governance in organizational science and marketing literature suggests mechanisms of formal contracts and power differences (e.g. Hennart, 1993). In addition, sociological perspectives suggest that trust, reputation and social values are relevant as well (e.g. Powell, 1991). However, such governance concepts are rarely applied to interfirm relationships in service sectors (Ferguson et al., 2005). Furthermore, most studies on interorganizational governance examine the transactions between two organizations in a relatively stable environment rather than dynamic value networks. Scholars like Dhanaraj and Parkhe (2006), Hoang and Antoncic (2003), and Lorenzoni and Lipparini (1999) have called for research that moves beyond this dyadic, transactional level towards a dynamic network perspective on interorganizational relationships. For these areas of research, the mobile telecommunications domain is an interesting one, given the high level of interdependence between the actors involved and the industry dynamics (Camponovo & Pigneur, 2003). This implies that mobile telecommunication value networks are highly complex, making this a valuable area of study. This thesis contributes to this area of research moving beyond the dyadic, transaction-level perspective, towards a network-level, dynamic view on governance in a highly complex domain. Generally speaking, phasing models help understand how organizations change over time (cf., Afuah & Tucci, 2003). Literature on service innovation and innovation management provides several phasing models that may be relevant (e.g. Tidd et al., 2001). In the course of the development, implementation, roll-out and exploitation of a service, the activities that need to be governed change. Different resources become important and dependencies and power balances change. This raises the question as to what governance mechanisms are used in the various stages of service innovation. Existing studies do not explain how service innovation phases may influence the dynamics of governance within a specific value network. External conditions may also have an impact on governance mechanisms. Value networks do not operate in a vacuum, but are influenced by developments on an industry-wide level, including market-related, technological and regulatory changes. However, existing literature fails to take the impact of these drivers on interorganizational governance into account. Several theories on organizational change are available in literature. Organizational evolution theory looks at how an organization may adapt to changing environmental conditions (Nelson & Winter, 1982). However, value networks consist of multiple interacting organizations. Moreover, governance dynamics drivers, like service innovation phases and external drivers, operate on multiple levels. Coevolution theory explains how interdependent organizations interact to respond to changing environments, explicitly taking into account explanatory factors on multiple levels (Koza & Lewin, 1998; McKelvey, 1997, , 1999). Although these concepts have been applied to organizational science, as yet the number of empirical studies is still small. Besides simulations (e.g. McKelvey, 1999; Monge & Contractor, 2003) and conceptual studies (e.g.
3 Peltoniemi, 2006), few studies collect empirical data. The few empirical studies that have been published focus on individual firms or entire industries rather than on interorganizational networks (Rodrigues & Child, 2003). In fact, some scholars have simply transferred coevolution concepts originating from biology to the area of strategic management, without empirically testing the validity (e.g. Eisenhardt & Galunic, 2000). So, although a coevolutionary perspective may be useful in explaining governance dynamics in value networks, empirical tests are lacking. Recent studies on the dynamics of organizational networks argue in favor of using coevolution as a meta-level perspective (Monge & Contractor, 2003). Koza and Lewin (1998) also call for more research on the coevolution of interorganizational relationships that takes into account a variety of factors at multiple levels. Empirically grounded studies on the coevolution of value networks would thus contribute to existing literature. Studies investigating mobile telecommunications have given ample attention to interorganizational relationships. Starting with analytical accounts of how data services influence the value chains of operators and third parties (Barnes, 2002; Li & Whalley, 2002; Maitland et al., 2002; Sabat, 2002), subsequent studies have contrasted various role-division models, mainly comparing operator-centric and disruptive models (Camponovo & Pigneur, 2003; Panagiotakis et al., 2005; UMTS Forum, 2002). As discussed in section 1.1., the shift from walled gardens towards open models has also been the subject of academic research (Ballon, 2009; Feijóo et al., 2006; Methlie & Pedersen, 2007; Peppard & Rylander, 2006; Vesa, 2006). We contribute to this area of research by introducing concepts from the broader areas of business strategy and organizational science, and by studying the dynamics of mobile services value networks empirically. To summarize, there are a number of knowledge gaps in existing literature. Although value networks and their structural characteristics have recently received ample attention, their dynamics have rarely been examined. Organizational science provides various conceptualizations of interorganizational governance on a dyadic level, but network-level, dynamic perspectives are to a large extent lacking. Moreover, there are no theories that explain governance dynamics by considering neither service innovation phases nor externally changing technological, market-related and regulatory conditions. Although coevolution seems a useful approach to integrating these perspectives, empirical studies on the coevolution of organizations are generally scarce, and in particular when it comes to organizational networks.
1.3 Research objective and main question Based on the knowledge gaps identified in the previous section, we formulate the following research objective. The objective of this research is to provide insight into how and why the mechanisms used to govern mobile service innovation within value networks change over time in a process of coevolution, taking into account factors at various levels of analysis
4 The levels of analysis include the value network level, i.e. the phases of mobile service innovation, and the environment level, i.e. generic technological, market- related and regulatory conditions. Based on this, we formulate the following main research question for this study: What is the influence of external and value network level drivers on the dynamics of governance mechanisms in mobile services value networks? In answering this question, we adopt a coevolutionary perspective that includes both levels of analysis. In this thesis, we examine the mobile service innovation domain. We define a mobile service as a service delivered over a wireless or mobile network to a mobile user in a mobile session and/or via a mobile application. As such, it can include a wide range of different value propositions, including information, communication, entertainment and transactions. The unit of analysis is the set of governance mechanisms employed between the actors in a value network offering a specific mobile service, during various phases of mobile service innovation. As such, we are not concerned with the life cycle of a particular type of service or of the mobile network over which it is transmitted (cf., Van den Ende, 2003). We only look at interorganizational governance, which means that the mechanisms employed within organizations are not studied. We do not only consider actors exchanging tangible assets, but also those providing intangible assets, such as customer ownership. As such, the type of relationships actors may have in the value network extends beyond the buyer-supplier relationship.
1.4 Relevance of this thesis For over a decade, academics have been discussing the potential added value of mobile services. It is especially context-awareness, multimodality and personalization that are expected to increase the value of mobile services in the everyday lives of users (Klemettinen, 2007). Thanks to the current infrastructure and service platforms, this promise can slowly become a reality. At the same time, there is a definite awareness that developing such services is a very complex matter. Matching the added value for end-users and the providers of a service in a multi-actor context is challenging (Bouwman et al., 2008b). This study sheds light on how service development and exploitation are organized. Compared to a situation where all activities were organized in-house within functional silos, organizations nowadays increasingly need to work together. Infrastructure, middleware, content, applications and platforms are developing into separated layers that, from a technological point of view, can be combined. This means that innovation now may transcend traditionally separated value chains. As a result, there are all kinds of issues companies have to address. There may be tensions between the organizations in a value network as they need to balance competition and collaboration (Brandenburger & Nalebuff, 1997). This thesis will contribute to our understanding of the concepts involved and provide valuable input to relevant discussions, including those regarding walled gardens and open models.
5 What this study will not do is provide clear-cut evidence as to which governance mechanisms work best under which circumstances. To do so would require measuring the performance of value networks, which is highly challenging due to the multi-actor and dynamic setting of the research. Value networks consist of multiple actors that may have very different strategic objectives. When studying multiple phases of a service innovation, the way performance is measured will change. Finally, the fact that, generally speaking, companies are reluctant to share objective profits and revenue figures, or unable to specify them for specific services, is a pragmatic limitation.
1.5 Research approach We begin by examining the core concepts of the research question by surveying existing literature on value networks, interorganizational governance, service innovation phases, external drivers and coevolution. This will result in a set of provisional propositions that connect these concepts from a coevolutionary perspective. Because there are no existing coevolutionary theories on governance dynamics in value networks, the propositions are still fairly abstract at this stage, rather than being hypotheses that can be tested (Bacharach, 1989). We apply the propositions to the domain under investigation by discussing typical mobile services, value networks, governance mechanisms, external drivers and service innovation phases in the mobile domain. At this point, we specify the concepts in the afore-mentioned propositions with regard to the research domain. The empirical phase of the research consists of qualitative case studies and a quantitative survey. In the case studies, we examine the propositions, with the aim of to refining them into directly testable hypotheses. The hypotheses are then tested in the survey. As a rule, multi-method studies allow for more stringent theory testing, because they help avoid the potential method bias found in single- method research (Galliers et al., 2007). Although case studies are often used in exploratory and theory-development research, scholars increasingly advocate using them in theory-testing approach as well (cf., Johnston et al., 1999; Modell, 2005). Whereas surveys can only test the covariance between constructs, case studies make it possible to trace the direction of causality and gain a rich understanding of the underlying mechanisms (Jaspers, 2007), thus fulfilling the other two conditions for establishing causality. In addition, they make it possible to discover new patterns have not been predicted by the propositions (Gable, 1994). Based on the case studies, we test and further specify the theoretical propositions. As a result, we develop directly testable hypotheses that are tested in the survey. Carrying out a survey after the case studies makes it possible to test the resulting hypotheses in a more stringent and quantitative way. The specific design of the case studies and survey methods is discussed in the relevant chapters. However, at this point we can discuss some of the generic methodological issues involved when studying organizational networks. Halinen and Tornroos (2005) pose the following challenges: (1) setting the boundary to the network, as the interconnectedness of actors makes any boundary arbitrary; (2) handling the complexity of the findings, as it is not easy to describe all actors, interconnections and intricacies without drowning in the
6 richness of data; (3) taking into account the time dimension, as networks may change over time given their flexible nature; (4) comparing cases, as each case is unique and historically constructed. Although we cannot solve these principal issues, our aim is to explicate, in the relevant chapters, the decisions that are made when designing and carrying out case studies and surveys with regard to the above-mentioned four issues, indicating the arguments in favor of and the limitations of our methodological choices.
1.6 Outline In chapter 2, we present the theoretical framework of our research. Firstly, we discuss theories regarding value networks and related concepts involving value chains and other types of interorganizational networks, after which we elaborate on interorganizational governance and its relevance within a network context, which results in a definition of the concepts as well as their underlying dimensions. Next, we discuss the various service innovation phases and the way they relate to existing theories on service innovation and innovation management. After that, we discuss external drivers and the impact they may have on business models in general, as well as theories on coevolution. Finally, we present a number of propositions that explain governance dynamics in value networks from a coevolutionary and multi-level perspective, and thus combine the concepts of governance in value networks, service innovation phases and external drivers. In chapter 3, we describe the research domain, i.e. mobile service innovation. We begin by discussing typical elements of mobile services business models, including service concepts, technologies, organizational arrangements and financial models, after which we specify the concepts of the two propositions presented in Chapter 2 for the research domain, discussing several illustrative examples of how changing technological and market-related conditions influence governance in value networks. In Chapters 4 and 5, we conduct an empirical test of the propositions. In Chapter 4, we present the methodology and the results of the case studies, with the aim of testing and refining the propositions that have been further specified in Chapter 3. We present both within-case and cross-case analyses. We conclude with a refined and more detailed version of the propositions from Chapter 3, in the form of directly testable hypotheses. In Chapter 5, we test the hypotheses in a survey, presenting the underlying methodology and main results. In Chapter 6, we discuss the results. Firstly, we present our findings as they relate to the two core propositions. Next, we discuss the theoretical and scientific implications and provide practical recommendations. We close by discussing some of the limitations to this study and suggest avenues for further research in the form of a research program involving value network governance.
7
2 Theoretical framework The central aim of this thesis is to provide insight into the governance dynamics of value networks from a coevolutionary perspective, taking the service innovation phases and external drivers into account. In this chapter, we discuss these five concepts from a theoretical perspective, with the aim of grounding them in relevant literature. This results in a definition of the relevant concepts, as well as a set of provisional propositions on the way they may be related. We begin by discussing value networks and examining why they exist, based on the resource-based perspective. We explain why, as a unit of analysis, value networks are more relevant than the traditional concept of value chains. We define the concept of value networks and connect it to related concepts regarding interorganizational networks. Next, we focus on interorganizational governance, and discuss the various, disparate strands of literature on this concept. Firstly, we explore transaction cost economics and the criticism it has received from sociological perspectives. This ultimately leads to a conceptualization of governance in value networks, including its main dimensions. In the next section, we discuss phasing models in the area of service innovation. Based on various models from innovation management, business venturing and new service design, we derive a provisional service innovation model including a detailed elaboration on the various activities that need to be governed in the various phases. In the fourth section, we discuss external drivers based on a literature survey regarding the impact external drivers may have on organizational change and strategies. In the next section, we study coevolution theory. Firstly, we analyze the core concepts of coevolution and look at how they are defined in studies on complex adaptive systems, after which we discuss the way coevolution has been applied to organizational science. Finally, we apply the concepts of coevolution to the area of value networks and governance. This leads to a set of provisional propositions.
2.1 Value networks In this section, we begin by explaining why multiple firms rather than individual firms should be used as the unit of analysis, based on the resource-based view of the firm. Next, we discuss why value networks are more useful than traditional concepts, like value chains. We discuss the definition of value networks as well as its position regarding related concepts of interorganizational networks.
2.1.1 A resource-based view Wernerfelt (1984, p. 172) defines resources as `those (tangible and intangible) assets which are tied semi-permanently to the firm’. Barney (1991, p. 101) specifies this definition by adding that resources should be valuable to the firm: `all assets, capabilities, organizational processes, firm attributes, information, knowledge, etc. controlled by a firm that enable the firm to conceive of and
9 implement strategies that improve its efficiency and effectiveness’. Das and Teng (2000) divide resources into property-based resources, such as human resources, patents, contract, copyrights, trademarks and physical resources, and knowledge-based resources, such as organizational, technological and managerial resources. In ICT-services industries, one important type of resources refers to customer ownership, i.e. access to the customer, the customer data and customer transactions (Weill & Vitale, 2001). In addition, so- called dynamic capabilities are also required to coordinate and redeploy resources effectively, including rapid and flexible innovation and management capabilities (Eisenhardt & Martin, 2000; Teece et al., 1997). Barney (1991) notes that, until the 1980s, most strategic research focused on opportunities and threats in the environment of organizations, implicitly assuming that all firms within an industry have identical resources or that that the available resources are highly mobile. An example of this is Porter’s (1985) SWOT analysis and competitive positioning frameworks. Barney proposes two alternate, more realistic assumptions, namely that firms do not have homogenous resources and that the mobility of the resources may in fact be limited. This means that the resources needed to develop, implement and commercialize services may not be available within an individual firm. Moreover, the resources may not be perfectly mobile, which means that a firm lacking specific resources may not be able to acquire them over time. As we discussed in Chapter 1, mobile service innovation requires several resources on various levels. The resource-based view argues that such resources are heterogeneously spread over multiple firms. As such, multiple firms have to combine their resources to develop and provide services, which is why we argue that it makes more sense to use a set of organizations rather than an individual firm as the unit of analysis in this thesis.
2.1.2 From value chains to value networks Porter (1985) defined a value chain as the set of activities and/or firms that create a specific product or service. In addition, he defines value as the amount of money buyers are willing to pay for a product or service. The value chain explicates the value that is created and the activities that contribute to the creation of value. In this way, the value chain outlines the transformation of various kinds of input, for instance raw material, to various kinds of output, for instance a finished product or service. The value chain model distinguishes primary activities, i.e. creating, selling and transferring the end product, from supporting activities, i.e. procurement, technology development, human resource management and firm infrastructure. It can be used to analyze the competitive advantage of firms, identify cost drivers in each value-adding activity or help decide how to distinguish oneself from one’s competitors. While this approach is often used to analyze the activities of individual firms, it can also be used to analyze the exchanges and activities of a series of firms involved in producing value, or even entire industries. Although the concept of value chains has been widely used, it has also been the subject of criticism. Firstly, Stabell and Fjeldstad (1998) argue that it is
10 an approach that is less suitable for certain specific service sectors. The underlying assumption of input being transformed into a standardized bulk product via by a fixed set of activities does not hold for two types of service offerings. One of them involves solving situation-specific customer problems, for instance in the case of a doctor, where primary and support activities have to be carried out simultaneously, dealing with unique cases, non-linear value-adding activities, and interdependence between the activities, while the other mainly creates value by facilitating a network relationship between customers, using a mediating technology, for example in the case of a telecommunications service or a bank. In this type, input and output are conflated rather than chronologically separated. Secondly, Allee (1999; , 2000a; , 2000b) finds that the value chain model focuses on the exchange of tangible assets between firms and buyers, while in today’s economy intangible assets have become increasingly important. She asserts that these intangible assets include customer or external capital (alliances and relationships with customers, strategic partners, suppliers, investors and the communities); human capital (individual capabilities, knowledge, skills, experience and problem-solving abilities that reside in people within an organization); and structural capital (systems and work processes that leverage competitiveness, including IT, communication technologies, images, concepts and models of how the business operates, databases, documents, patents, copyrights and other `codified’ knowledge). Allee advances a value network model in which tangible as well as intangible resources are being exchanged. Thirdly, the value chain model implies a linear structure, which in today’s world is no longer the case (Hearn & Pace, 2006), in particular when we look at the telecommunications industry, as illustrated by Li and Whalley (2002), who explain that, whereas TV, voice and data services used to be offered via individual networks in isolated, linear value chains, after the liberalization of the telecommunications market and the introduction of Internet technology, relationships in these chains have become less close and long term-oriented. In addition, Internet technology has created new markets that have been entered by players from different industries. The authors argue that these developments imply that there are no longer linear, silo-like value chains, but that the industry can be better described in terms of value networks consisting of various actors from a range of industries working together to deliver goods and services to end- users. To summarize, although the traditional value chain model applies to production industries, it is less suitable for service industries. Furthermore, with non-tangible assets becoming increasingly important in the today’s economy, the value chain model has a too narrow a view on value. A special case can be made for the telecommunications industry, in which convergence has made any thoughts of linear value chains obsolete. For these reasons, we have decided to focus on value networks rather than value chains in this study.
11 2.1.3 Defining value networks Terms like value network, value net and value web are often used interchangeably. Allee’s description (2000a) underlines that the value exchanges between parties within a network can be both tangible and intangible in nature, i.e. `[a network in which] goods, services, revenue, knowledge and intangible benefits are exchanged between the partners of that network’. Van Eck et al. (2000, p. 5) define a value network as `a graph that represents a number of collaborating actors that create, distribute and consume objects of value’. Campbell and Wilson (1996, p. 3) argue that a value-creating network is `a series of dyadic and triadic relationships that have been designed to generate customer value and build sustainable competitive advantage to the creator and manager’. Bovel and Martha (2000, p. 24) emphasize the flexible nature of value networks by defining them as `a dynamic network of customer/supplier partnerships and information flows’. All these definitions refer to a number of firms, organizations, actors, departments, or customers and suppliers who `collaborate’, participate in a `network’, or have `interorganizational ties’. Some of the definitions mention a goal for the network (`to generate customer value and build sustainable competitive advantage to the creator and manager’) or a set of activities (`create, distribute and consume objects of value’). Setting the boundaries to any type of interorganizational network poses a challenge, given its very interconnected nature (Halinen & Tornroos, 2005). Montalvo et al. (2005) state that a value network consists of firms that are involved in a specific service offering to specific end-users. This means that the firms in a value network should in some way contribute to the service offering. We include only actors who provide resources that are specific and/or essential to the service offering (cf., Hawkins, 2004). We are aware that, even when we use this narrower definition, there is still room for debate as to how essential or specific an asset should be. We thus define a value network as: a dynamic network of actors working together to generate customer value and network value by means of a specific service offering, in which tangible and intangible value is exchanged between the actors involved. There are various interorganizational network concepts that are distinct from the value network concept. Business ecosystems are defined as `members that work cooperatively and competitively to support new products, satisfy customer needs, and eventually incorporate the next round of innovations’ (Moore, 1993). While actors in value networks collaborate to enable a service offering, the relationship between actors in business ecosystems is also competitive. In addition, the boundaries of an ecosystem are defined by the intensity of the relationships, rather than by a specific service offering. As such, an ecosystem is a different unit of analysis. Similarly, business networks (Blankenburg Holm et al., 1999) are not bound to a specific service offering but comprise a set of related actors with a relatively arbitrary boundary. Our perception of the concept of value network is independent of the type of organizations participating in the network, or the way in which they work together. It is also independent of the exact goal of the network, other than
12 realizing a specific service offering. In this way, the concept of value networks includes sub-types such as strategic alliances (Gulati, 1998), virtual organizations, supply chain collaboration and value webs (Selz, 1999).
2.1.4 Conclusions In this section, we explained that providing a service requires a set of actors with heterogeneous resources. We refer to such a dynamic set of actors as a value network. In contrast to other concepts regarding interorganizational networks, value networks are limited to the actors involved in a specific service offering.
2.2 Governance mechanisms In value networks, legally independent actors exchange resources and organize joint activities in order to develop and offer services. In this section, we look at theoretical perspectives on how this kind of collaboration can be governed. Firstly, we discuss transaction cost economics, which was the first to analyze governance dimensions. Next, we discuss the criticism to which this theory has been subjected and what that implies for conceptualizing governance. Finally, we apply this conceptualization to value networks.
2.2.1 Transaction cost economics: Markets and hierarchies Transaction cost economics (TCE) is often seen as the first attempt to analyze the way economic action is organized. The TCE framework was the answer to the classical paradox presented by Coase (1937): while we know that organizing activities within (large) firms involves high costs due to coordination, bureaucracy and shirking, for some reason firms prefer to do so rather than buying the product from an external company on the market. Williamson (1979) introduced the concept of transaction costs to solve this paradox, defined as the costs involved in purchasing goods from an external party rather than producing them in-house. These costs include searching the firm to buy the goods from, drawing up sound contracts to govern the exchange, and controlling whether contracts are fulfilled. A core concern is how to use these kinds of contracts to minimize opportunistic behavior on the part of suppliers. If transactions are conducted more frequently or if the assets needed to produce the goods being exchanged are more specific, transaction costs will increase, making it more advantageous to organize the activities within the firm. If the internal coordination costs outweigh the transaction costs, firms will decide to buy from an external party. As such, TCE distinguishes two governance institutions. Hierarchy governance is used to organize activities within a firm, while market governance is used to organize them outside the firm. In hierarchy governance, coordination mainly takes place via authority and employment contracts, while in markets legal contracts and price information are dominant. Since its conception, the TCE paradigm has received critique from various angles. Most of the critique is empirically rooted, observing that TCE does not fit the reality of economic life. We cluster the criticisms into two main streams that are discussed in the next sections, i.e. (1) those that criticize TCE for omitting the social embeddedness of economic behavior and (2) those that criticize its
13 dimensionality. While we are aware that TCE scholars have made amendments to the original theory in attempts to solve the critique, we discuss the critique on TCE in its original form for sake of clarity here.
2.2.2 Social embeddedness of transactions The core of this critique is that TCE does not take into account the effect of social relationships on economic behavior and outcomes. Scholars who express this criticism commonly base it on the argument by Granovetter (1985), who argues that most economic models, including TCE, tend to underestimate the fact that transactions are embedded in social networks. As such, the behavior and outcomes can only be understood when those aspects are taken into account. This argument echoes the increasingly popular social network perspectives on economic behavior (Nohria & Eccles, 1992), which challenged economists to revisit their ‘black box’ views on social behavior (Podolny & Page, 1998). Transactions are embedded both structurally and relationally. With regard to structural embeddedness, Gulati et al. (2000, p. 203) argue that `the conduct and performance of firms can be more fully understood by examining the network of relationships in which they are embedded’. Basically, their argument is that, because defecting from an agreement to exchange an asset would damage the reputation of a firm, its embeddedness in larger social networks seriously reduces any incentives to defect. As a result, structural embeddedness in networks can reduce the costs of coordination and contracting, as it allows trust between firms to develop, knowledge about each others’ capabilities, and the visualization and sanctioning of opportunistic behavior. As such, this approach moves beyond the view on network governance adopted by transaction cost economics, as it not only includes dyadic ties between organizations, but also their structural embeddedness as well. A similar point is made by Jones et al. (1997), who argue that structural embeddedness leads to social mechanisms that govern exchange processes. Jones et al. (1997, p. 914) advance the concept of network governance as `a select, persistent and structured set of autonomous firms (as well as non-profit agencies) engaged in creating products or services based on implicit and open-ended contracts to adapt to environmental contingencies and to coordinate and safeguard exchanges. These contracts are socially – not legally – binding.’ The resulting structural embeddedness then resolves any problems by restricting access to exchanges, by developing a macro-level culture, introducing collective sanctions and using reputation as leverage. The structural embeddedness thus makes it possible to overcome problems regarding adaptation, coordination and safeguarding by using social rather than hierarchical or market-related mechanisms. With regard to relational embeddedness, Uzzi (1997) distinguishes between arm’s-length ties and embedded ties between organizations. Instead of following calculative, self-interested and informed decision-making rules, firms with embedded ties opt in favor of heuristic and qualitative rules while aiming for long-term cooperation. In the case of embedded ties, the quality of a relationship is considered more important than the quality of the transaction. Efficiency is thus not the only criterion used to make decisions, which is of course quite different
14 from TCE’s quest for transaction costs minimization. Uzzi further finds that, even in end-game, small-numbers bargaining circumstances, where TCE and related economic theories would predict opportunism, embedded ties firms still choose to cooperate. In addition, Ring and Van de Ven (1994) argue in favor of taking the altruistic side of economic transactions into account, asserting that organizations not only look for economic efficiency in their relationships, but also for what the authors call equity: reciprocity, including the sociological meaning of being indebted to each other. Ghoshal and Moran (1996) argue that the failure on the part of TCE to include such social mechanisms may even lead to dismal effects. TCE’s almost exclusive focus on opportunistic behavior and hierarchical mechanisms means that it neglects the existence of social control. If managers are to follow the TCE guidelines and increase hierarchical control, this makes them more dependent on those controls, removes voluntary and extra-role behavior and encourages opportunistic behavior that is hard to detect. The distinction between arm’s-length and embedded ties is also prominent in literature on governing marketing channels (e.g. Heide, 1994; Heide & John, 1990). The embedded nature of economic transactions implies that they need not be viewed as mere cost generators, but it can also be argued that they create value in their own right (Tsang, 2000; Zajac & Olsen, 1993). This argument is the core of the relational view on transactions of Dyer and Singh (1998), who advance the concept of relational rents, i.e., `supernormal profits jointly generated in an exchange relationship that cannot be generated by either firm in isolation and can only be created through the joint idiosyncratic contributions of the specific alliance partners’. They argue that, to maximize relational rents, firms should not use third-party enforcement, which means that they should not rely on market governance, in which the government settles conflicts, or hierarchy, in which a legitimate organization settles conflicts. Instead, they should rely on self- enforced formal (financial and investment hostages) or informal (goodwill, trust, embeddedness) agreements, which would avoid contracting costs and reduce the costs involved in monitoring, adaptation and renegotiation. The authors argue that this view on interfirm exchanges as a value generator may well lead to other choices in governance modes than one that that sees transactions as mere costs generators, as TCE does. Critics of the underembedded nature of TCE called for a third form of governance, see Powell (1991), which was called network governance, based on the argument that being part of a social network is the main source of the mechanisms associated with this approach to governance: social contracts, trust and reputation.
2.2.3 A pluralistic view on governance While TCE views markets and hierarchies as a dichotomy or at least as extremes on a one-dimensional scale, this view is not supported by empirical research. For example, Von Tunzelmann (2003) carried out a historical analysis and found that the three governance forms have always coexisted and complemented each other, although the degree to which each of them tends to dominate has varied
15 over time. Lowndes and Skelcher (1998) have found that partnership networks use a mixture of market, hierarchy and network governance. Hennart (1993) also observes that empirical studies often find governance dimensions to be conflated. He argues that the method of organizing should be distinguished from the economic institution, and he asserts that coordination within a firm does not merely have to be hierarchical in nature and that market transactions can be based on other things besides price. Similarly, we argue that governance in value networks need not be limited to trust-based mechanisms only, but can also include market-like contracts and hierarchical authority. Bradach and Eccles (1991) have advanced a plural form of governance, defined as `an arrangement where distinct organizational control mechanisms are operated simultaneously for the same function by the same firm’. For example, companies often make and buy the same product, they often franchise units and own units in the same restaurant or hotel chain, and sometimes use a direct sales force as well as third party distributors. Consequently, Bradach and Eccles (1991) hypothesize that the decision in favor of a certain governance mechanism is not deterministic, but that in many cases either governance modes will work and are only selected on the basis of vague and random circumstances, such as who comes up with the idea for a new site, who has cash, are qualified managers available, etcetera. So, Bradach and Eccles (1991) oppose the view that market-based and hierarchical governance are located at the extreme ends of a continuum and that they are mutually exclusive. The authors maintain that, in practice, mechanisms like price, authority and trust are often combined. Furthermore, they argue that governance mechanisms are often complex because there is already a social structure on which new governance mechanisms are based, for example when price mechanisms are introduced in hierarchies. Therefore, they argue that, in order to use the mixed approach to governance it is important not to look only at individual transactions, but the dynamics of entire structures, because the transactional context determines the extent to which individual transactions can be influenced. To account for these empirical findings, we follow Hennart (1993) in distinguishing the institution of governance from the mechanisms being used. In addition, we follow Bradach and Eccles in arguing that the mechanisms can be used together and that they are in fact independent dimensions. This implies that, hierarchical, market-like and network-like mechanisms may be used in value networks.
2.2.4 Applying governance mechanisms to value networks We can now apply governance dimensions to value networks. We can understand hierarchy types of mechanisms as authority-based governance. Authority in interorganizational relationships does not stem from employment contracts like in a firm but from power differences. The assumption that authority- based governance may be used in value networks is also consistent with existing literature. For example, Selz (1999) argues that, in what he calls `value webs’, there is typically one dominant actor orchestrating the activities among the organizations, basically telling them what to do. This also corresponds with the
16 idea of a nodal company in value networks (cf., Van de Kar, 2004). Similarly, Dhanaraj and Parkhe (2006, p. 659) discuss the `hub firm’, which `possesses prominence and power gained through individual attributes and a central position in the network structure, and that uses its prominence and power to perform a leadership role in pulling together the dispersed resources and capabilities of network members’. Pfeffer and Salancik (1978) argue that the dependency of one organization on another determines the potential power of this other organization. The interdependence among two organizations is not necessarily symmetric and balanced, because the level of dependence is a function of three factors: the importance of the resource, i.e. whether the resource is essential for the survival of the organization and the relative magnitude of the exchange; the extent to which the external organization has discretion over the allocation and use of the resource, which is a result of possession, access, use or regulation of the resource; and the available alternatives in terms of acquiring the resource elsewhere, which can be influenced by concentration of control over the resources, for example by monopolies, cartels or customer collectives. An organization is typically asked for something in return for obtaining a resource from an external organization. For example, if an organization needs a product from its supplier, the supplier will ask for a financial payment. In this way, organizations are influenced by those who control the resources they need. In case the interdependence between organizations is asymmetric, this affects the power equilibrium. We can conceptualize market-based mechanisms in value networks as contract-based governance (e.g. Ring & Van de Ven, 1992). The mutual relationships of contracts and trust are heavily debated in literature. According to Podolny and Page (1998), trust provides advantages over contracts, because contracts do not provide protection to unanticipated changes, and because trust is needed when contracts expire and renegotiations take place. Zaheer et al. (1998) argue that contract negotiations tend to become cheaper and the likelihood of conflict is reduced when the level of trust between organizations and/or individuals is higher. According to Chaserant (2003), a contract can be understood as a negative signal, because it implies that one party does not trust the other. He argues that the level of trust can be increased by using incomplete contracts, because the inherent risk provides a clear signal of interest in the relationship, which makes trust an important complement to a contract when dependencies increase. Existing studies indicate that trust-based governance reduces the reliance on contract-based governance, because there is less need for extensive formal arrangements with regard to unexpected events (Ring & Van de Ven, 1994; Wigand et al., 1997). By contrast, Klein Woolthuis et al. (2005) have argued that contracts and trust can serve as substitutes and complement each other, and need not be mutually exclusive alternatives. Similarly, Reuer and Arino (2007) have found that firms that work together repeatedly tend to use enforcement-based contracts rather than opting in favor of trust-based governance. Consequently, we conclude that existing literature is inconclusive when it comes to the exact relationship between contracts and trust.
17 2.2.5 Conclusions In this section, we have discussed existing literature on the way interorganizational activities in networks are governed. We began by discussing TCE and the sociological criticisms it has received. We argued that not only trust- based governance, but also authority-based and contract-based governance can be used in value networks. Authority-based governance may stem from resource dependence asymmetry, while contract-based governance can be complementary as well as serve as a substitute for trust-based governance. In our view, these three governance mechanisms are independent dimensions.
2.3 Service innovation phases Governance has to do with the activities that need to be organized in a value network. Different activities have to be carried out at different stages of (mobile) service innovation. Heikkinen and Still (2008) argue in favor of distinguishing development and commercialization stages in networks, because actors have different motives, which may well result in alternative governance mechanisms. The development process from business idea to established business can be divided into a number of phases (Kubr et al., 1998). Phasing models generally help us understand how innovation and change influence a firm’s strategies and business models (Afuah & Tucci, 2003). Existing literature offers a number of phasing models on service innovation from various perspectives. According to innovation management literature, new products and services follow a life cycle from innovation through to development and maturity, after which they enter a phase where they are overtaken by new generations of products and services. Rapid and frequent product and service innovation is prevalent in the early phases, while the later stages are characterized by stable product and service concepts, with only incremental changes motivated by cost- effectiveness (Tidd et al., 2001). A similar phasing model is proposed by Veryzer (1998), who observes that the unguided exploration of new technologies leads to converged product formulation and further specifications. After the specified product has been evaluated, it goes through increasingly specific prototyping stages, after which product is commercialized. In literature regarding business venturing, the development process from business idea to established business is divided into various stages. Burgelman (1983) describes four processes that may overlap each other and be iterative: defining the activities in the innovation project; gaining support within the organization; implementing the new product; and embedding the innovation in the company’s strategy. According to Mason and Rohner (2002), four phases can be distinguished: Phase I: venture vision - validating the concept; Phase II: alpha offering - building while planning; Phase III: beta offering - testing the concept; Phase IV: market offering: calibrating and expanding. In each of these phases, different actors, resources and capabilities are needed, and as a result the components of the business models are subject to change. New service development phasing models emphasize the stages prior to full commercial launch. Alam and Perry (2002) note that many innovation phasing models focus on products rather than on new service development. They suggest
18 a ten-stage model for customer-oriented new service development, i.e. strategic planning, idea generation, idea screening, business analysis, formation of cross- functional team, service design and process/system design, personnel training, service testing and pilot run, test marketing, and commercialization. Johnson et al. (2000) distinguish the stages of design, analysis, development and full launch. According to Räisänen et al. (2005), the technical service development life cycle includes functionalities needed to provide service from development to retirement. They distinguish the following activities: service creation, service provisioning and general service life cycle management (throughout the life cycle). Service provisioning can be divided into service deployment, service usage, service retirement and operational management. At the lowest level of abstraction, Räisänen et al. (2005) distinguish the following activities with regard to the service usage level: service discovery, service selection, service negotiation, service composition, service adaptation, service execution and service termination. In each of these phases, there important hurdles need to overcome. In the service creation phase, technological factors are the most important, whereas in the service provisioning phase extra attention should be paid to environmental factors, such as legislation and market adoption. It is important to emphasize that, in practice, the process is not sequential but iterative in nature. It can be seen as a loop in which services may be optimized on the basis of feedback from an operational network as well as other kinds of input. In marketing literature, the most popular phasing concept is the product life cycle (PLC) concept, developed by Theodor Levitt in 1965 (Kotler, 2000; Moon, 2005). Based on the assumptions that products have a limited life time, product sales pass through distinct stages (each posing different challenges, opportunities, and problems to the seller), profits rise and fall at different stages of the product life cycle, and that products require different marketing, financial, manufacturing, purchasing, and human resource strategies in each stage of their life cycle, he distinguished four stages: introduction, growth, maturity, and decline. The life cycle stages as described by the more strategically oriented Johnson & Scholes (2002) are quite similar to those suggested by Levitt. The stages they distinguish are development, growth, shake-out, maturity and decline. The shake-out stage can be seen as a ‘slowing growth phase’ between growth and maturity, in which users and buyers are increasingly selective with respect to buying services and the weakest competitors disappear from the market. Based on existing phasing models, we distinguish three phases in the life cycle of mobile services and underlying business models; (I) Development/R&D, (II) Implementation/Roll-out and (III) Commercialization. We have previously tested this phasing model in a case survey (De Reuver et al., 2009d, , 2009e). The start of the Development/R&D phase is triggered by initial conceptualizations of the service (the solution to a problem) and business model. R&D (basic and applied research) and technology play a dominant role in this phase, with the core activities being service or product definitions, investment in new technologies and collaboration with technology providers. The transition from the
19 first toward the second phase is marked by the launch of the service on the market. Activities in this phase include testing service concepts in focus groups, field experiments, rolling out the technology, testing alpha and beta versions of the service, and (small-scale) roll-out on the market. The service moves from the second to the third phase once it reaches critical mass, after market experiments have proven successful. Core activities in this phase are retaining rather than capturing market share, commercial exploitation on a day-to-day basis, and focusing on operations and maintenance. As such, the Commercialization phase subsumes the previously identified stages of market offering, maturity and decline. In reality, the life cycle of (mobile) service innovations will not follow the linear path outlined here. There may be iterations (De Jong & Vermeulen, 2003), in particular when development and/or business models do not perform as planned. Moreover, the various phases may overlap (Alam & Perry, 2002), e.g. when supplementary services are added to an established service concept, in which case Development/R&D and Commercialization activities will be important. The service innovation phases need not mirror the way the relationship between the actors participating in a value network evolve. Actors entering a value network for a new service may have previous relationships. Nor does the fact that an actor leaves a particular network have to affect the existing relationships, because the actors involved may also work together in other value networks. This means that the relationship between actors in a value network can be in the negotiation, commitment or execution stage, independent of our service innovation phase construct. As such, the value network is itself structurally embedded within a larger social network (cf. Section 2.3).
2.4 External drivers Maintaining a `fit’ with external factors is important in keeping a business model sustainable over time (Morris et al., 2005). Hughes et al. (2007) demonstrate that external constraints on business models can be technological, economic, cognitive, structural, legal, political and cultural in nature. According to Hill and Jones (1995), there are two types of environments that can influence the performance of firms: the industry or competitive environment and the macro- environment. At the industry level, Porter’s (1985) model of competitive and industry analysis is relevant, whereas at the macro-environment level, factors identified in the PESTEL framework, i.e. political, economic, social, technological, environmental, and legal factors are relevant (G. Johnson & Scholes, 2002). In this study, we summarize the competitive and macro-level environments into market-related drivers, i.e. influence of suppliers, customers and competitors, technological drivers, i.e. influence of changing technology and innovations, and regulatory drivers, i.e. privacy, intellectual property rights, and competitive and other kinds of regulation.
2.5 Coevolution We adopt a perspective in connecting the previously discussed concepts of value networks, governance, service innovation phases and external drivers. Firstly, we
20 discuss the core concepts that underlie coevolution, including the way it is embedded in literature on complex adaptive systems. Next, we provide an overview of the ways coevolutionary concepts have been applied to organizations in earlier studies. Finally, we explain how the core concepts of this study can be connected from a coevolutionary perspective, and what propositions can be formulated accordingly.
2.5.1 From evolution to coevolution Since the seminal work by Nelson and Winter (1982), evolutionary perspectives have increasingly been applied to explain organizational change and the existing variety of organizational forms. Nelson and Winter were among the first to substitute the static economic models with concepts from biological evolution. In their book, they develop a rather formal model of economic change, using concepts like genes to model organizational routines, mutation to explain search processes and the market as the environment in which organizations need to operate and survive. A structured overview of evolutionary systems in organizational science is provided by Monge and Contractor (2003), who explain that evolution takes place via three fundamental processes: variation, selection and retention. Variation refers to changes in an organization, which can be intentional when people (managers) try to solve specific problems, but it may also occur `by chance’, in which case it is called blind variation. Selection processes `choose’ some variations and reject others. The selection mechanisms can be within the control of organizational managers, but they may also be found in the environment, for example market forces such as competitive pressure. Retention is the process by which a variation becomes an integral part of the organization. The combination of intentional variation and retention can be conceptualized as the process of adapting to the environment. Much of the theoretical debate on evolutionary models has thus far focused on which of the three fundamental processes in evolution is the most relevant (Levinthal, 1997; Lewin & Volberda, 1999; McKelvey, 1997). Some scholars argue that adaptation processes (i.e. intentional variation followed by retention) are the most relevant, while others claim that selection forces account for the larger part of organizational change. Rational adaptation theories assume that organizations adapt their strategy and organization to changes in the environment through intentional variation and retention. One example of this is the static contingency theory in the classical work by Lawrence and Lorsch (1967), who specifically examine how organizations should deal with technological and market-related change. An example of a selection theory is the population ecology from Hannan and Freeman (1977; 1984), who argue that organizations cannot always adapt to their environment due to inertial pressure, which can be internal to the organization, for instance in the form of sunk costs, imperfect information about the environment and the organization, internal political forces opposing reorganization and existing organizational values that are hard to change. On the other hand, inertial pressure can be created by the external environment, for instance legal and fiscal entry and exit barriers to
21 certain markets, imperfect information about the environment, considerations regarding external legitimacy and collective rationality. Most selection and adaptation theories only take the effect the environment has on an organization into account, and do not acknowledge the way changes within the focal organization may affect the environment as such. However, Monge and Contractor (2003) explain that, in reality, organizations not only compete but also form cooperative ties in order to survive. Organizations that are tied together in cooperative relationships are said to be part of a community. Because communities redistribute resources among the organizations involved, they increase their chances of survival. As such, the evolutionary life cycles of the organizations within a community are no longer a given, but interconnected. In other words, the organizations coevolve. Because value networks consist of organizations that work together and on that basis can be viewed as a community, it seems to make more sense to speak of coevolution rather than evolution.
2.5.2 Core concepts in coevolutionary theory Coevolution of interdependent agents is a core process that is studied in complex adaptive systems (CAS). CAS are studied in the field of complexity science that comprises economists, biologists and computer scientists (Waldrop, 1992). Waldrop provides an overview of the history and ideas in complexity science, and defines CAS as spontaneously self-organizing systems that adapt to the environment (Waldrop, 1992). Gell-Mann (1994) explains that CAS are involved in learning cycles, in which a system receives stimuli from the environment, theorizes about them, develops new behavior on the basis of this theory, and measures the outcome of the behavior, which then serves as input for a new iteration. Gell-Mann (1994) explains that if a CAS finds other CAS in its environment, and if they become interdependent, the output of one CAS becomes the input for others. As a result, their learning and adaptation cycles become interrelated and they start to coevolve. According to Holland (1996), such coevolution may lead to self- organization. Holland observes that various systems seem to be organized in an order fashion without central control. He has developed a conceptual model in which CAS consist of interacting agents who behave according to stimuli- response rules. As agents gain experience, they adapt their rules (similar to the learning cycles in Gell-Mann, 1994). Because each agent finds other adaptive agents who are part of the CAS in their environment, they start to interact, leading to complex temporal patterns. These patterns then lead to coherence without any central direction in the system. Self-organization relates to the idea of aggregation. Gell-Mann (1994) points out that CAS can be found at relatively low levels, such as individual organizations or organisms, and that if they cooperate they aggregate towards higher order CAS. Waldrop (1992) describes Holland’s related idea of aggregation in CAS. He sees CAS a networks of multiple agents that act in parallel. As agents form symbiotic, competitive or exploitative ties they aggregate towards a higher-order CAS. This aggregation forms the link between individual
22 agent behavior rules and self-organization, as the aggregate of the individual actor behavior eventually leads to emergent order. Monge and Contractor (2003) give a list of necessary but insufficient conditions for self-organization: at least one component of the system should be able to self-create and self-renew independent of forces in the environment (i.e., at least one component should exhibit autocatalysis), at least two system components should be mutually causal, the system should be open to the environment and it should operate in a far-from-equilibrium state. Although coevolution may thus lead to self-organization, Kauffman (1993) argues that such coevolution does not take place continuously but rather in certain episodes for which there are necessary conditions. Kauffman’s specific interest is how order emerges from seemingly complex networks, including how it develops when it is disturbed by sudden events in the environment. Kauffman argues that systems can be in a state of order, fluid complexity or chaos, depending on their complexity. Conditions that are needed for coevolution to occur include the complexity of the system, i.e. the system should be sufficiently interconnected.
2.5.3 Coevolution in organizational science Coevolution has been translated to the domain of organizational science. For example, Kauffman’s ideas have repeatedly been applied to organization and business studies (Andries & Debackere, 2007; Levinthal, 1997; McKelvey, 1999, , 2002; Rivkin, 2000). Despite its instant appeal, it is difficult to apply concepts of coevolution to organizational science. First of all, coevolution is an analogy and most scholars agree that it should be transposed to organization studies with care. For example, fitness measures of organizations are multidimensional rather than individual survival rates (Andersen, 1999), and the biological concepts of generations and reproduction do not play a role in organizations (Nelson, 1995). Coevolution in organizations is defined by McKelvey (1999)) as `mutual causal changes between a firm and competitors, or other elements of its niche, that may have adaptive significance.’ Coevolution can take place between two organizations (direct coevolution) or between multiple organizations (diffuse coevolution) (Baum & Singh, 1994). As we are interested in the coevolution of value networks and their environment, we focus on diffuse coevolution. McKelvey (1997) distinguishes microcoevolution, which takes place within the boundaries of a firm, and macrocoevolution, which is the coevolution of the firm with its environment. The focus in this research is on macrocoevolution, as the intrafirm level of analysis falls outside its scope. Lewin and Volberda (1999) list a number of properties of co-evolution, one of which is that it is a multilevel process, as co- evolutionary effects take place at multiple levels within and between firms. Multidirectional causalities are another property, as organizations and their parts do not evolve in isolation, but co-evolve with each other and with a changing organizational environment. A third property is nonlinearity, as changes in one organization is not always caused by direct interaction with another organization, but can also be caused by indirect feedback through the rest of the system. Yet
23 another is positive feedback, which means that the behavior of one organization affects the behavior of others, which in turn affects the focal organization. This leads to a form of circular causality. The fifth property of co-evolution is path and history dependence, as the variations in adaptations within a population may be a result of the heterogeneity in the population at an earlier point in time, which means that variations are not only caused by changes in niches or distinct external conditions. Secondly, coevolution should be distinguished from seemingly related concepts like adaptation, multidirectional change and positive feedback. A key factor to what differentiates coevolution from adaptation is that adaptation is a one-way process, while coevolution is concerned with two-way or multidirectional change (Peltoniemi, 2005). According to Baum and Singh (1994), the objective of coevolutionary research is to gain insight into this multidirectional change, by examining how direct interactions and feedback between organizations and their environment trigger their dynamics. As such, the authors argue that coevolution is not only concerned with how a system changes as a result of systemic changes in its environment, but also how it responds over time to changes in the system itself. In other words, the actions of one organization influence those of other organizations with whom it coevolves, which in turn influences the focal organization, generating feedback loops. Although this concept of positive feedback is a core element of coevolution and positive feedback and coevolving systems have similar outcome properties, McKelvey (2002) argues that they are not the same. He states that coevolution also involves complex causality, damping effects and nonlinear effects (`significant coevolutionary reactions and development may be instigated by very small initiating events’). He offers a similar argument when he explains why coevolution is not the same as mutual causality, asserting that coevolutionary relationships are reactive in nature and, although they can sometimes be predicted, they are not predictive-causal as mutual causality. Thirdly, there are several challenges to conducting empirical research on coevolution in organizations. Lewin and Volberda (1999) argue that empirical research on coevolution poses inherent methodological challenges, as it requires longitudinal measurements and multiple levels of analysis, while at the same time including the historical context, mutual, simultaneous, lagged and nested effects, path dependence and the institutional and macro environment. The authors argue that, although more longitudinal empirical research on coevolution is possible, access to appropriate data remains a relevant issue. In addition, they mention that the time dimension in longitudinal research is arbitrary. Presumably due to the above-mentioned issues, there are few existing empirical studies on coevolution in organizations (Flier et al., 2003). Although there are a number of simulation studies involving coevolutionary models in organization studies (e.g. McKelvey, 1999), there have only been a handful of empirical studies, some of which investigate the coevolution between firms and their institutional environment (e.g. Carney & Gedajlovic, 2002; e.g. Rodrigues & Child, 2003). Strategic renewal of firms is the core element of the coevolutionary studies conducted by Flier et al. (2003) and Huygens et al. (2001). Koza and
24 Lewin (1998; 1999) study the forces driving firms to enter strategic alliances by analyzing the coevolution of strategic alliances with a firm’s strategy, the institutional, organizational and competitive environment, and the management’s intentions for the alliance.
2.5.4 Conclusions In this section, we have explained that coevolution is a more useful perspective than evolution in the context of value networks. We also explained the way coevolution is related to self-organization and aggregation, as used in complex adaptive systems. We discussed how coevolution has been applied in organizational science, including the small set of empirical studies on the topic. In the next section, we combine the theoretical insights from this chapter into a set of provisional propositions that integrate the core concepts.
2.6 Propositions In this section, we adopt a coevolutionary perspective to propose relationships between the core concepts in the study, connecting governance in value networks to external drivers and service innovation phases. It is difficult to use coevolution to make predictions on the future behavior of a system. As McKelvey (2002) puts it: `we cannot allow ourselves to be seduced into thinking that the nature of coevolutionary reactions is predictive’. This is basically a result of the complex causality and nonlinear effects involved (McKelvey, 2002). In addition, distinguishing dependent and independent variables that allow us to making predictions about causality, is problematic with coevolutionary models. As Baum and Singh (1994) note, in relatively simple systems with simple relationships without complex feedback processes, modeling a system with dependent and independent variables remains a useful activity. However, if systems become more complex, feedback loops between variables become increasingly important, making it ’less meaningful to separate dependent from independent variables’. Instead of aiming for such hypotheses, Axelrod and Cohen (1999) argue that it is possible to produce higher-level propositions that may even lead to actionable conclusions. Although the assumptions underlying complexity science would argue that system behavior is context-specific and resides in the intricacies of detailed interactions, Richardson et al. (2001) argue in favor of adopting a more pragmatic approach by developing propositions with a certain sense of humility. We build our propositions mainly on the ideas of McKelvey (1999; 2002), who in turn expands on Kauffman (1993). McKelvey (2002) states that the rate of coevolutionary change varies, and that coevolutionary dynamics move towards dynamic equilibrium, which can be distorted by an event. He predicts that, when such an event occurs, series of coevolutionary reactions will take place, leading to a new state of dynamic equilibrium. For such periods to occur, organizations in a system must be heterogeneous, adaptive/learning, connected, interactive and mutually influencing in nature (McKelvey, 2002). There also needs to be a sufficiently high level of connectivity between the agents in a system to initiate coevolution. If the levels are too low, interconnectedness does not lead to
25 coevolution, while levels that are too high will lead to chaos. Moreover, there should be certain `instigating events’ that exceed the threshold value of a system and cause it to enter an adaptive cycle of coevolutionary reactions. We apply the above-mentioned concepts to governance dynamics in value networks. Value networks consist of several actors who control heterogeneous resources and who have to work together to offer a specific service (see section 2.1). As such, a value network can be seen as an interconnected, heterogeneous system or a community in terms of coevolution theory. The instigating events that are conditional to coevolution can be modeled as the external drivers to be found in the environment (see section 2.4) and the transitions between service innovation phases (see section 2.3). We argue that coevolution only takes place when there are instigating forces that punctuate periods of stability. In other words, we predict that governance dynamics in value networks only occur as a result of either service innovation phase transitions or external drivers. Although coevolution theory does not allow predicting the microstate adaptations that may occur in coevolution, it does predict that such adaptations ultimately lead to an emergent order, which allows the set of organizations to adapt to the changed circumstances, in this case service innovation phases and/or external conditions. In our view, the emergent order in the value network results from coevolution in the form of the governance mechanisms that are installed in them. Following this line of reasoning, we propose the following. P1) Service innovation phase transitions influence governance in value networks P2) External drivers influence governance in value networks Because at present, there is no theory connecting these concepts, we do not specify the direction of these relationships, but instead explore the relationships in the case studies to develop more specific hypotheses, which are then tested in the quantitative survey.
26 3 Domain description We can now apply the theoretical perspective on the core concepts of this study to the research domain. Given that we study mobile service innovation, we begin by defining and classifying mobile services. Next, we discuss value networks in the mobile domain by providing an overview of typical roles and resources after which we discuss the governance-related concepts of walled gardens and open models. Subsequently, we discuss the service innovation phases that are used in mobile domain. We conclude with and extensive discussion regarding external drivers in relation to technological, market-related and regulatory conditions. We illustrate their potential impact on governance in mobile services value networks on the basis of cases involving mobile web services and billing processes. While we are aware that the mobile service industry is highly dynamic in nature, the developments and data in this chapter are updated until 2008.
3.1 Mobile services Firstly, we discuss the definition of mobile services, including their underlying dimensions. Next, we classify mobile services in a set of generic categories.
3.1.1 What are mobile services? While other electronic services are bound to a fixed location, mobile services allow users to consume the service anytime, anyplace. This aspect is prominent in the definition of mobile services, i.e. assuming mobility on the part of the user of the services, the devices, the sessions or applications, and mobile services may be offered via mobile and wireless networks. It is important to note that mobile services include, but are not limited to, services that are offered over wireless networks. For example, a music file can be side-loaded through the Universal Serial Bus (USB) connection of a fixed desktop computer, and then consumed while on the move at a later moment. Similarly, a mobile payment service may use Radio Frequency Identification (RFID) technology, which works at a short range but does not provide mobility management. Another differentiator is the personal nature of mobile devices due to the fact that most people have their own mobile device. There is almost no other item that is carried everywhere by users in quite the same way, which makes it possible to identify users and collect data about their demographics, handset type or typical behavior, which can then be used to personalize service experiences and thus strengthen the existing symbiotic relationship. However, it also means that issues regarding privacy, security and identity management become even more important in the case of mobile services than they are in the case of other electronic services. In addition to static personal information, real-time user-related contextual information can make mobile services more useful and relevant. Contextual information can be any information that is relevant to the use of a service. One example is location-based information, which is typically generated through the Global Positioning System (GPS) or network triangulation. Other types of contextual information are information about the time of day, air temperature,
27 device battery power, tasks in the user’s agenda, social contacts, or even blood pressure and heart rate. Contextual information allows for automatic service delivery at the relevant time, the tagging of user-generated content and a more efficient use of the service. However, the use of contextual information also raises issues with regard to privacy and security. Although the above-mentioned characteristics of mobile services seem to be fairly straightforward, Arnold (2003) discusses the mobile phone as an innovation with paradoxical consequences. While the mobile phone is wireless and portable, it is also fixed in that users require a fixed number to be reachable. In addition, while the personal nature of the mobile phone makes it a private device, its frequent use in the public sphere makes it public as well. Moreover, while the mobile phone brings users closer to the people with whom they communicate, it also creates a distance between themselves and the people around them. Compared to fixed networks and desktop computers, wireless networks and devices pose various technological challenges to service developers. As far as the networks are concerned, data rates are often lower than fixed networks, while the costs per data packet are higher. Handheld devices generally have less processing power, less available memory and limited battery power, which put a limit on the use of high-end applications and compression technologies. Web- content and navigation techniques have to be adapted to the small screens and keyboards, which is a complex affair, because there are many different types of handsets, operating systems and micro-browsers.
3.1.2 Mobile service classification In the remainder of this section, we discuss several types of services that are made possible by mobile technologies. Information services. Typical information services include search services, news and weather, transportation timetables and yellow pages. Information can be modified easily, consumed repeatedly by the same or different users, and reproduction is fast and cheap. Barnes (2002) notes that information on the mobile Internet typically includes text (e.g. news, stock prices, film listing, advertisements, product descriptions and restaurant locations), audio (e.g. voice, wireless Internet radio and music files), graphics (e.g. wireless bitmap or Graphics Interchange Formats (GIFs)) and video (e.g. animated graphics files, mobile and wireless TV and video files). Mobile content either may be developed specifically or existing content may be adapted to the mobile channel (Feijóo et al., 2009). Mobile information services can be delivered through text messaging (SMS), Multimedia Messaging Service (MMS) or mobile Internet. Mobile Internet using the Wireless Application Protocol (WAP) was launched in 1999 by the Japanese operator DoCoMo. Their so-called i-mode service provided a portal to the content of several providers. Billing and connectivity are both provided by the operator, while the unified look and feel of the content gives end-users a coherent user experience. i-Mode has been copied in similar concepts like Vodafone Live!, T-Zones and Orange World.
28 In addition to these on-portal content models, several off-portal WAP sites have also been developed. The most successful among them are those that offer content downloading services for mobile device personalization, such as ringtones and wall papers. In addition, applications are becoming increasingly important, especially those that can be downloaded to smartphones. Location data can be used to make information services more useful, e.g. by filtering the content being distributed to the user. In addition, they also enable new types of services, including navigation services that provide driving directions or maps, and tracking and tracing services aimed at finding the location of family members, friends or objects (Van de Kar, 2004). Communication and messaging services. Mobile data services can complement voice communication services. The most popular of these services has been person-to-person SMS (short text messaging). While initial expectations regarding this service were low, it has proven to be the most popular service to date. More advanced messaging using pictures and video data is made possible through MMS. At the moment, video telephony services are heavily promoted by 3G operators. The use of mobile e-mail is also increasing, mainly via specialized devices like the Blackberry. A potential disruptive innovation as far as SMS is concerned is instant messaging or group messaging. Instant messaging is a solution that has been adapted from the fixed Internet using presence information. In contrast to SMS, users do not pay for every message they send, but only for the data traffic they generate. Entertainment services. Entertainment services include downloading music, watching television, playing games, jokes, horoscopes, gambling and chatting. A special type of mobile entertainment services is mobile TV. While entertainment is often developed by professional artists or news agencies, there is a growing trend involving user-generated content, made possible by camera- enabled phones for making pictures and videos. As a result, users become active contributors and content developers rather than mere passive consumers. Communication, entertainment and information value elements are combined in user-generated content or mobile web 2.0 services. Following the increasing popularity of these services on the fixed Internet, they are becoming relevant on mobile devices as well. They include mobile social networking, mobile Wikis, mobile blogging, mobile Twitter and photo sharing. Transaction services. Another type of services is related to transactions and payments. Mobile payments involve “wireless transactions of a monetary value from one party to another using a mobile device […] over a wireless network” (Ondrus & Pigneur, 2005, p. 1). These could be micro-payments, e.g. for transportation tickets or vending machines, or macro-payments, e.g. for movie tickets, shopping or restaurants (Mallat et al., 2004). Such services are typically referred to as m-commerce. A related type of services is mobile banking, i.e. accessing account balances and carrying out transactions (Mallat et al., 2004). Mobile remittance services are particularly relevant in developing countries, because they make it possible to transfer money between individuals in the absence of financial institutions.
29 Business services. Businesses can also benefit from using mobile services. Examples of business services include mobile sales-force automation, mobile supply-chain management (SCM), mobile e-mail, Personal Information Management (PIM) applications, mobile tracking and tracing, and mobile dispatching and scheduling (Wang, 2008). Benefits associated with the adoption of these applications include reductions in travel time and greater flexibility in working environments. In addition, back office processes can be streamlined through automatic and on-the-spot administrative processes. Businesses can also adopt services aimed at localizing and exchanging data regarding goods, for example by using RFID solutions. A specific type of business services are emergency support services. Police officers, for example, can benefit from mobile devices providing access to back office systems, or they can be alerted when there is an incident in their vicinity that warrants their attention.
3.1.3 Conclusions Mobile services can relate to any type of service offered over a mobile device, connection and/or session. Based on the value proposition, we classified mobile services into information, communication, entertainment, transaction and business services.
3.2 Value networks Value network-related concepts are often applied to analyze the mobile services arena, typically by analyzing the available roles and role division models (e.g. Ballon, 2009; Camponovo & Pigneur, 2003; Peppard & Rylander, 2006). Actors providing mobile services can play a variety of roles and there is no generic role division that applies to all services. Each role can be related to a type of resource that is required to offer mobile services. In this paragraph, we propose that resources can be clustered in four categories, i.e. relating to the network, users, application and content.
3.2.1 Network related roles The network infrastructure, which consists of antennas, base stations and core network, is provided by network manufacturers. Although they may not play a direct role in every individual mobile service offering, they are important in the long term because they have a say in which new technological standards will be developed. Consolidation has taken place in the network manufacturing market, and there are currently three dominant players (Ericsson, Lucent-Alcatel and Nokia-Siemens). In most cases, a network infrastructure is leased to operators. The UMTS Forum (2002) defines the key function of a network operator as providing access and transport services, typically holding the license to use the network. The largest European operators are Vodafone, T-Mobile, Tele2, Telia Sonera, TDC, Orange, mobilkom and OTE. The many mergers and acquisitions have made this a fairly consolidated market. Mobile Virtual Network Operators (MVNOs) play the role of agent between the network operator and end-users (UMTS Forum, 2002). Kuo and Yu (2006)
30 divide MVNOs into two categories: other telecommunication operators and non- telecommunication operators. The non-telecommunication operators usually operate in different industries from the one in which they already have an established brand and retail channel. Kiiski (2006) distinguishes data-only, voice only and voice and data MVNOs. As MVNOs purchase capacity from an infrastructure company, they are relatively flexible in terms of their service portfolio and relationships with other actors, which allows them to focus on niche markets wherever possible. The number of MVNOs varies per country, e.g. in the USA, UK, Finland and the Netherlands there are many, while in Japan, Italy and South Korea none are active as yet (Netsize, 2007). A recent development involves mobile virtual network enablers (MVNEs), which are brokers who provide access to the infrastructure from operators to a large set of MVNOs. To use mobile services end-users need handsets, which are provided by handset providers. Network operators often bundle subscription packages with ‘free’ handsets to encourage the adoption of advanced handsets. In the current market, there are about 100 vendors producing over 2,000 different phones. About 80% of the market is controlled by the big players Nokia, Samsung, LG Electronics, Motorola and Sony-Ericsson. In addition to mainstream handsets, smartphones, which include the iPhone from Apple, but also competing models from Nokia, RIM and HTC, are becoming increasingly important.
3.2.2 User related roles Generally speaking, customer relationships, transactions and data are essential for any e-business model (Weill & Vitale, 2001). Firstly, users need to be identified and authenticated to personalize services and for the purpose of identification. Especially with regard to transaction services, secure and reliable authentication methods are required. Typically, this is carried out through SIM card-based methods provided by the network operator, but alternative approaches are emerging as well. In addition, there are approaches for providing anonymous subscriber identities to third parties, to allow personalization of services without infringing on end-user privacy. Secondly, billing facilities are required to charge users for services that involve premium-priced content. Billing fees include a charge for using the network resources and one for the content or service. Charging for network resource usage is often based on metered or packet charging, i.e. users are charged based on the time or amount of resources consumed. Flat fee models are emerging as well. The billing and collections provider “issues bills (or the equivalent) and arranges for collection of payments from customers” (UMTS Forum, 2002, p. 3), either through prepaid or post-paid billing arrangements. Accounting and dividing the revenues among the actors involved in offering the service is usually carried out by the same actor, who will claim a share of the revenues and control customer data in relation to the transaction. Such transaction-related information is essential for settling revenue share arrangements and gaining feedback on service usage. At the moment, it is usually the network operator who plays the role of billing provider, although other actors in the fixed Internet and banking domain are also adopting this role.
31 Charging for content primarily involves either of two methods: WAP-based billing, which is mostly used on the portal of the operator, and Premium rate SMS-based billing, which is mostly applied outside the operator portal. Thirdly, customer support is often required for mobile Internet services. While multiple actors can be responsible for the proper functioning of the service and fair billing, there is often one point of contact for the end-user in case of problems. Fourthly, data about the end-user are required for many of the aspects of service delivery. Information regarding the handset and browser being used is required for a proper presentation of the content, to ensure a good service experience. In addition, user profiles may be used to personalize service experiences. Moreover, to allow for the provision of context-aware services, dynamic information about the context of the user is needed. This can be referred to as the role of contextual information provider (De Reuver & Haaker, 2009). An important example of this type of information is location-based information, which can be provided by the network operator by triangulating the position of the user, or using GPS technology.
3.2.3 Software roles Most types of services require applications and platforms to run both on user devices and at the service providers’ end. Specifically, content adaptation platforms are often required to adapt web-based content to a WAP-based format that suits the specific user device. Also, users may require micro-browsers, operating systems and Java applications to access certain services. Developments like mobile web services and intelligent devices are paving the way for a more prominent role of software-related actors in the near future. Applications run on platforms that allow consumers to access Internet services on their mobile devices and enable enterprises to extend their commercial applications to the mobile network (Kuo & Yu, 2006). Because, at the moment, few platforms are developed in-house, the actors involved primarily come from the computing industry, for instance operating system and middleware vendors (Tilson & Lyytinen, 2006). Depending on the type of mobile service, several platforms may be required, including mobile marketing platforms, user profiling platforms, enabling platforms, distribution platforms and device application platforms. To provide location-based services, expertise and data are needed on geographical information systems (GIS). For example, maps and geospatial data need to be available to offer routing information to users, and geospatial calculation is required to compute meaningful spatial information from the raw coordinates of the user position.
3.2.4 Content roles As far as content services are concerned, various additional roles can be distinguished. Raw content needs to be created by content developers who provide, design and produce various kinds of products or services for all kinds of end-users (Kuo & Yu, 2006). Raw content is typically sold on a wholesale basis
32 to operators or content and application providers. There is a trend towards user- generated content (i.e. mobile web 2.0), and users can to a certain extent take over the role of the traditional content providers. However, content developers are also developing new formats based on this trend. A content provider is an actor providing and distributing content (Grover & Saeed, 2003). There is a large and diverse range of content providers in the industry. Although content providers can create their own content, they usually provide content they obtained elsewhere. While content developers and providers may focus specifically on mobile services, for many organizations the mobile channel is just another channel for distributing their content, for example, broadcasting organizations, traffic information providers, banks and tourist information offices already provide content services to customers using traditional channels like TV or the fixed Internet. Advertisers form a specific type of content providers, because they offer sponsored content. They basically provide sponsored content to content providers, aggregators and service providers, to be included into their content services, for which advertisers pay a fee. Advertisers can also provide free (sponsored) services or content on their own. Advertisers can be any actors willing to pay for the distribution of their brand name, products and services. Advertising agencies play an important role in delivering and possibly adapting advertisements to mobile devices. Like content providers, advertisers can focus specifically on the mobile channel or expand their marketing mix with mobile advertising. When content from a number of providers is combined in a single service, a content aggregator is required. Generally speaking, there are passive aggregators, who merely bundle content, and active aggregators, who carry out filtering, editing or customization (Barnes, 2002; Li & Whalley, 2002). Many content services are embedded in portals: “a network site that aggregates, presents, navigates, and delivers a wide range of Internet communication, commerce, and content services to a large number of visitors” (Sabat, 2002, p. 522). A portal is a ‘gateway’ to the mobile Internet, as it is the first point of contact (Kuo & Yu, 2006). Barnes (2002) places portals under ‘market making’, as they are aimed primarily at marketing and selling content, including program development, service delivery and customer care. Compared to regular Internet portals, mobile Internet portals have a strong need for customization and personalization. On the mobile Internet, the most widely used portals are those of the operators. However, other content aggregators, for instance Internet players, increasingly provide mobile portals as well. In addition, the proliferation of smartphones has led to so-called application stores, where handset providers offer access to downloadable content applications. To assure the adoption of a service, promotion and marketing are often required. In principal, any actor involved in the service offering can play this role. Because operators have strong brand names and large marketing budgets, they are often the ones who play this role. As the amount of content on the mobile Internet is increasing, search engines become more important. Search engine providers can help manage
33 content and content complexity. It is often actors from the fixed Internet, such as Google or Yahoo!, who play the role of search engine provider.
3.2.5 Typical role division models The are some common role division models. Panagiotakis, Koutsopoulou, & Alonistioti (2005) and UMTS forum (2002), for example, discuss basic models: (1) the network operator-centric model, in which the operator owns the customer contact and performs the roles of connectivity provider, content aggregator and biller, (2) the service/content aggregator-centric-model, in which the content aggregator combines content from third parties into a service offering and collects payment independent of the network operator, and (3) the service/content provider-centric model, in which the publishing of content and billing/payment is conducted by the content provider. A key parameter in these three models is customer ownership, which is located respectively at the operator, content aggregator and service/content provider. Similarly, Ballon (2009) contrasts Telco-centric, device-centric, aggregator-centric and service- centric business models. A related distinction is the one between the Internet- based and telecommunications-based model. In the telecommunications-based model, access to network and content are controlled by the same entity, i.e. the operator, whereas, in the Internet-based model, these roles are divided, because Internet service providers typically do not provide content. A clash between these two models becomes apparent in the mobile Internet domain.
3.2.6 Conclusions Typical mobile services value networks comprise roles on four different levels. Those providing network-related resources involve an operator, network manufacturer and handset provider. User-related resources are provided by an authentication provider, billing provider, customer support provider and user information provider. With regard to software, we can distinguish application providers, platform providers and consultancies. Finally, at the content level, content creators, content providers, content aggregators and portal providers can be distinguished. These roles may be assigned to different types of actors depending on the service, business model and innovation stage. In particular roles relating to access to the end-user are battled for by operators, handset providers, content providers and application providers.
3.3 Governance mechanisms Typically, network operators play many of the roles discussed in the previous section. As a result, content providers depend on operators when it comes to gaining access to the customer and performing the activities involved in authentication, billing and localization, which puts operators in a powerful position (Wehn de Montalvo et al., 2004). Operators have adopted various strategies to determine how much freedom they give to content and service providers in terms of access to their customers. Feijóo, Marín, Martín, & Rojo (2006) have identified a continuum between full operator control, with constrained participation from other parties, and full participation of others, without operator control. These two
34 options are called the walled garden and the open model respectively. Nordic operators typically use open models that allow content providers to access their network, while Japanese operators have adopted semi-walled garden approaches (Methlie & Pedersen, 2007).
3.3.1 Walled gardens Jaokar and Fish (2004) define the walled garden as “a mechanism to restrict the user to a defined environment, i.e. forcing them by some means to stay within the confines of a digital space”. In this model, users can only access content on the operator’s portal and have no access to other WAP sites (OVUM, 2006). Although most content on a portal is developed by third party content providers, operators take care of most activities, including controlling, approving and managing the quality of the content, as well as navigation and customer care (Feijóo et al., 2006; OVUM, 2006). The brands of the operator and the content providers have more or less merged, and their relationship is close (OVUM, 2006). As far as end-users are concerned, the advantage of the walled garden portal is that they receive a consistent end-user experience, because all content has the same look and feel. However, their freedom of choice is limited by the amount of content offered on the portal (Feijóo et al., 2006). Operators choose walled garden models because they guarantee a large share of the revenues (Feijóo et al., 2006) and reduce the risk of them becoming mere connectivity providers. However, some analysts claim that operators, due to their limited creativity, have not appeared to be able to provide a good user experience. In addition, the visibility of operator portals is low, because in most cases the operators have to carry out any promotional activities by themselves. Walled garden models are threatened by emerging billing solutions that bypass the operator, the increasing availability of high-quality content, alternative solutions, downloading of premium contents, and the increasing popularity of independent WAP sites (OVUM, 2006). In addition, operators are becoming increasingly aware of the strategic option of generating revenues with off-portal data traffic and additional revenues, for instance sponsored search (OVUM, 2006). As a result, walled gardens are increasingly opened up.
3.3.2 Open models In an open access model, users can access content from any provider (Feijóo et al., 2006). Apart from optional agreements on billing and authentication, there is no relationship between the operator and content providers. In an open access model, customers can access more diverse content, and content providers are not constrained by demands from the operators. Competition between content providers and greater freedom to experiment may lead to more innovative services. On the other hand, operators may stop investing in innovative network and middleware technologies if they are uncertain whether or not they can still recoup a sufficient portion of the revenues. Also, a lack of central billing, security and customer support may increase complexity for consumers.
35 3.3.3 Hybrid models There are several hybrid models in which third party providers and content services coexist with operators. In these models, operator and third party branded content is mixed. An example of such a model is the i-mode ecosystem model, which offers users official and unofficial sites that both use the operator’s billing facilities, i.e. a semi-walled garden model that allows users to browse and download content off-portal from a set of exclusively approved partners (OVUM, 2006). In this model, operators only provide connectivity and billing and do not control the content provider using its billing services. Nevertheless, operators impose certain conditions on content providers, for instance a maximum content fee for end-users. A related model is the one used by Orange’s Gallery WAP site, which provides access to other WAP sites to users from any network (OVUM, 2006).
3.3.4 Conclusions The choice between walled gardens and open models may influence service innovation at a strategic level. Walled gardens and hybrid models are said to protect customers from receiving offerings from obscure content providers. In addition, operators claim walled gardens guarantee a predictable and stable service experience as a result of the rules imposed by the operator. On the other hand, closed models may make it harder for content providers to innovate. As their new services need to meet various rules and standards, this may increase lead time and costs. With regard to the innovativeness of new mobile services, walled gardens may pose a strategic challenge. We cannot simply apply the concepts of interorganizational governance (see Chapter 2) to the mobile domain. Walled gardens involve some form of authority from operators and predefined rules. However, which other mechanisms may be used is not clear. Which mechanisms are predominant in more open models is also unclear, although there will probably be less authority- based governance.
3.4 Service innovation phases To a limited extent, typical phases of mobile service innovation are described in existing academic and popular literature. While Kallio (2004) distinguishes a phasing model consisting of development, deployment, and usage, provisioning and maintenance, she does not define these phases. In a somewhat generic manner, Van den Ende (2003) distinguishes a fluid and transitional/mature phase of mobile service innovation. It would appear that mobile service innovation takes place in an ad hoc and unstructured manner. Although several scholars prescribe phasing models that may help structure mobile service innovation, these models may not necessarily be used in practice. Heikkinen and Still (2008) describe an action research project, in which they divide the development of a new mobile service into phases of formation, service development and service piloting. Zeidler et al. (2008) describe five stages in developing mobile software, i.e. idea generation for new products, business model development, management of legal aspects,
36 market research, user experience design and implementation of mobile services. Van de Kar (2004) suggests a staging model of analysis, preparation, synthesis, implementation and testing. Räisänen (2008, p. 86) provides a more detailed prescriptive process model of service management that includes the following life cycle phases: requirement specification, service creation, service configuration and provisioning, service operation, and service retirement. He also provides and illustrates an in-depth approach to modeling new (mobile) services. To summarize, there are few studies that describe how mobile service innovation is carried out in reality. Although various attempts have been made to prescribe phasing models and activity sets, it is as yet unclear to what extent these are adhered to in reality, which means that specifying the phases of service innovation in the mobile domain is not yet feasible.
3.5 External drivers In this section, we discuss the technological, market-related and regulatory drivers found in the mobile domain. We illustrate their impact on governance in mobile services value networks on the basis of two illustrative cases.
3.5.1 Technological drivers Mobile services technology can be considered on several levels, i.e. infrastructure, service platforms and devices.
Wireless networks The wireless industry has seen a dramatic technological evolution over the past fifteen years. Starting from analog, voice-only, circuit-switched transmission, today’s networks provide high-speed, packet-switched, digital voice and data services (Kumar, 2001). Two types of wireless access technologies can be considered. Cellular networks cover wide areas, possibly entire countries. In parallel, other wireless access technologies have emerged that often provide higher data rates but at the same time cover smaller areas. These short-range technologies are typically used to cover smaller, densely populated areas, such as city centers or university campuses. Larger coverage can be gained by configuring them to support hand-offs between antennas or by integrating them with cellular networks. Wireless access networks are often classified on the basis of two dimensions: end-user data rates and network range. Typically, there are trade- offs between these dimensions: cellular network technologies offer high ranges and modest data rates, while other technologies, such as WiFi, offer higher data rates but at a shorter range. See Figure 3-1 for an illustration. Deploying a cellular network requires high levels of investment, which include not only the costs of deploying antennas and underlying infrastructure, but the costs of acquiring a license for using spectrum as well. Evolving generations of cellular networks reuse existing antenna sites and the core network assets of previous generations. As a result, cellular networks are typically controlled by large, international network operators, which means that it is hard for new players to enter the market.
37 Mobility
High Speed
Vehicular (rural) 3G Long Term Vehicular (urban) G G UMTS Evolution S P Pedestrian M R EDGE HSPA S Nomadic
Fixed urban WiMAX DECT Indoor WiFi Bluetooth Personal Area 0.1 1 10 100 User data rate Figure 3-1 Comparison of wireless access technologies Short-range access networks, on the other hand, are easier to deploy. The costs of antennas and transceiver stations are typically lower and, because they cover smaller areas, no high up-front investments in the network are involved. In addition, many of these technologies are license-exempt. When the first generation of cellular networks was deployed in the 1980s, it provided analog voice telephony and adoption levels were low. Cellular networks became popular after the second generation networks were rolled out. In most European countries, the GSM (Global System Mobile) standard is used, while in the USA cdmaOne is dominant. These two were the first technologies providing digital voice telephony that equaled the quality of wired networks. In addition, GSM introduced international roaming, i.e. the possibility of using one’s telephone abroad. Although GSM provides high quality voice telephony, it is less usable for data services, because data rates are too low. In addition, circuit-switched transmissions are inefficient, as it occupies a fixed amount of bandwidth. As a result, users are charged based on the time they are connected to the network, rather than on the amount of data actually transmitted. To overcome these problems, evolutions to GSM were developed: GPRS and EDGE. In addition to higher data rates, which allow for Internet browsing, these technologies offer packet-switched transmission, allowing users to be `always connected’. Third generation mobile networks were expected to bring true broadband quality. Currently, there are two competing standards: W-CDMA (for instance UMTS in Europe) is the follow-up of GSM, while CDMA2000 builds on cdmaOne networks. Besides slightly improved data rates, the main advance of UMTS is that it allows prioritization of traffic according to desired quality of service. As the capacity and data rates of UMTS do not suffice for efficient broadband access, evolutionary improvements have been developed. HSDPA (High-Speed Downlink Packet Access) provides higher download data rates,
38 increases the capacity of the antennas, and reduces the response time of the network. This is complemented by the technology HSUPA (High-Speed Uplink Packet Access), which increases the capacity of the upload. When combined, data rates are achievable that are comparable to wired ADSL networks. Standardization of next evolutions are currently taking place, and will probably simplify network architectures, increase data rates, and reduce latencies and costs per data packet (UMTS Forum, 2006). An important development regarding cellular networks is IP Multimedia Subsystem (IMS), which is part of the UMTS standard. IMS is a central component in the network that can integrate cellular networks with fixed networks and short-range access networks, such as WiFi. Because the integration takes place within the cellular operator’s network, the operator remains in control of the end-user (Cuevas et al., 2006) and allows operators to limit access to public Internet pages (Braet & Ballon 2007). The fully IP-based evolution based on UMTS is called Long Term Evolution (LTE). Compared to UMTS, LTE has much a higher network capacity, which enables it to offer high throughput with low latency, and it is fully IP-based. These properties allow operators to provide much more elaborate mobile services and reduce time-to-market for new services, because they can be developed independently of the access medium on which they are implemented. LTE is called a 3.9G communication technology. In parallel to the evolution of cellular networks, short-range access technologies are emerging, mostly originating from the fixed Internet domain. The best-known example is Wireless LAN (or WiFi), which is a wireless extension of the Ethernet standard that can typically reach around 50 meters. There are multiple WiFi standards, providing 11 megabit per second up to over 100 megabits per Secondly, while the next generation WiFi, 802.11n, is expected to provide even higher data rates. While the technology merely offers a wireless access point to a fixed network, access points can be combined to cover larger areas. Compared to cellular networks, WiFi is faster, cheaper and more efficient when deployed in densely populated areas. However, security, interference and a lack of wide area coverage are drawbacks. In practice, WiFi is used for in-home Internet access, corporate voice over IP and Intranet, public access points to the Internet, and peer-to-peer networking (Bohlin et al., 2006). The mobile version of WiMAX (Worldwide Interoperability for Microwave Access) is a new technology offering ranges of a few kilometers. Compared to WiFi, it offers higher data rates, a higher range and better security. In addition, it enables a more efficient use of spectrum than WiFi. Its disadvantages are that it is more expensive and costly to deploy and less suitable for local high-speed coverage. In addition to Internet access, WiMAX can be used to complement WiFi networks, covering the gaps between WiFi access points. It can also be combined with cellular networks to increase the capacity of these networks. There are several personal area network (PAN) technologies, which are typically used for machine-to-machine communication (Frodigh et al., 2001). These very short range technologies include Bluetooth, Ultra Wide Band and Zygbee. Bluetooth was originally developed to replace cables at low costs and
39 low power. It uses the same unlicensed spectrum as WiFi and can cover between 10 and 100 meters at low data rates. Ultra Wide Band has not yet been widely adopted because of potential interference. It uses very low power pulses in a high spectrum range and can range about 20 meters. Zygbee is used mostly as a low cost, low power way of tracking industrial products in logistic processes.
Service platforms There are various middleware technologies and application platforms that enable mobile devices to access the Internet. The first attempt to enable mobile Internet was WAP (Wireless Access Protocol), the purpose of which was to enable the fast and easy delivery of relevant information and services to mobile users. Although WAP-based browsers never met these expectations, the transport mechanism is still in use (Jaokar & Fish, 2004). The central element of the WAP architecture is the WAP gateway between the application server and the mobile device. The gateway communicates with the application server using regular HTTP traffic. However, at the end-user client, it uses Wireless Markup Language (WML) to overcome the limitations of HTTP on the wireless Internet (Jaokar & Fish, 2004). WAP can also be used to push Internet content to end-users by using the WAP push protocol, i.e. by including the link in an SMS message. The WAP protocol has been the basis for i-mode, which is a proprietary means to browse WAP sites on a mobile device. An alternative to accessing applications on a remote server is to run applications on the handset itself, using Java 2 Micro edition (J2ME) or Binary Runtime Environment for Wireless (BREW). For J2ME, Extended HTML (xHTML) markup is used to adapt the content to fit the screen of the device. Platforms delivering generic service elements, including contextual information, authentication, billing and user profiling, are becoming increasingly important. Although such platforms have long been closed, open APIs are being installed that allow third parties to access user-related and contextual information. In this respect, generic reference architectures, like eTOM and its extensions, are relevant. While IMS-based platforms may be used, alternative technologies, such as web services based ones, may be relevant as well (see Box 3-1).
Box 3-1: Mobile web services versus IMS The case of mobile web services illustrates the way technological drivers may affect governance models in the mobile domain and is discussed extensively in De Reuver et al. (2009b). Web service technology and the underlying service-oriented architecture have enhanced the flexibility and interoperability with regard to service development of the fixed Internet. Combined efforts on the part of companies (e.g. IBM, Sun, and Microsoft) and organizations (e.g. W3C, OASIS, and OMA) in the IT world have resulted in a stack of XML-based Web services standards (e.g. SOAP, UDDI, WSDL and WSFL), based on principles of interoperability and standardization. As a result, web services can combine a variety of services from different providers and present them as a single integrated business function. A
40 logical next step towards making mobile data services deployment easier, faster and more efficient would be to apply web services technology, i.e. mobile web services (MWS) (Pashtan, 2005). This is made possible by the increased intelligence in mobile devices, through technologies like Java 2 Platform Micro Edition. While MWS may be used to provide content-related services to end- users, there are also important opportunities in bundling new and existing services (Farley & Capp, 2005), and in delivering generic service elements. Among the possible generic service elements based on MWS are charging, authentication, authorization, accounting, security, contextual information and billing. It is interesting to note that the same type of functionalities is also provided by another technology, IP Multimedia Subsystem (IMS), a standard that originated within the telecommunications industry (3GPP, IETF) (Camarillo & Garcia-Martin, 2006; Cuevas et al., 2006; UMTS Forum, 2003). The choice between IMS and MWS is not merely a technical one, but may have a considerable impact on the interdependencies between actors in the mobile industry. Because IMS is implemented in the mobile operator’s core network, content providers will have to negotiate and adhere to the operator’s requirements with regard to the use of functionalities. As a result, operators retain control over end–users, which reinforces their privileged position. By contrast, MWS can in principal be hosted by any party, allowing third parties to assume roles that are normally played operators, such as billing, authentication and providing contextual information. Theoretically, this could reduce operators to mere connectivity providers. From a broader perspective, the differences between IMS and MWS could be seen as the traditional clash between the closed telecommunications sector and the more open Internet world. While MWS can be used by third parties to reduce their dependency on operators and thus enforce open collaboration, IMS can conversely strengthen the current walled gardens.
Mobile devices While early mobile phones merely offered voice telephony and text messaging functionalities, the current trend moves towards multifunctional consumer electronics devices. Currently, high-end mobile devices offer radio/music/video players and editors, Internet browsers, agenda functions, voice recorders and cameras. In addition to GSM access, most current devices have Bluetooth and Infrared functionality, and they can increasingly access 3G and WiFi networks. While mobile phones are taking over these traditionally separated consumer electronics functions, the opposite trend is also visible, as MP3-players are equipped with cellular communication functionality. In a similar development, processing power, data storage capacities and screen resolution have increased tremendously. However, there are still considerable differences between more high-end devices, such as PDAs and smartphones, and regular mobile phones. In terms of software, today’s devices are capable of executing Java applications and browsing the Internet through
41 specialized mobile phone browsing software, and have specific operating systems (for instance Microsoft Windows Mobile, Google Android and Symbian).
3.5.2 Market-related drivers With regard to market-related drivers, we discuss end-user related drivers and convergence in this section.
End-user adoption Over the last 15 years, the significance of the mobile industry has increased dramatically. While, in 1993, worldwide mobile revenues were only US$ 30 billion, they increased steadily, to 250 billion in 2001 and almost 400 billion by 2004 (OECD, 2005). According to some, the mobile industry can even be considered the fourth most important sector, with worldwide revenues of US$ 1 trillion at the end of 2008 (Rossouw, 2008). Worldwide, the number of mobile subscriptions reached 2.14 billion in 2005, almost twice the number of fixed subscriptions (1.28 billion) (Srivastava et al., 2004). The mobile market seems almost saturated, with a penetration rate in Europe of around 85% (Forrester, 2006). In the Netherlands, there are almost 19 million mobile phone connections, equaling 1.1 connection per inhabitant (TNO, 2008). Almost 4 million people possess a 3G phone (Netsize, 2009). Wireless communication services are increasingly replacing wired services. In developing countries, fixed networks have not even been rolled out, whereas mobile networks have (Kaul et al., 2008). In the Netherlands, the number of fixed subscriptions (around 60% in 2004, TNO, 2005) is decreasing, with about 19% of the population substituting their fixed connection with a mobile one (TNO, 2008). Although a large variety of mobile services is available, as far as the consumer market is concerned, most of the more advanced services have not yet been widely adopted. SMS messaging, search services, ring tones and icons continue to be the most popular services (Bouwman et al., 2007). While many users have a phone with which they can access the mobile Internet, only a fraction of them actually uses theirs for that purpose, with the exceptions of Japan and South Korea, where there are more mobile Internet users than wired users. For example, an operator like T-Mobile only gains 7% of its total European revenues from the mobile Internet (TNO, 2008). Longitudinal research conducted in Finland (Bouwman et al., 2007) shows a gradual increase in the use of mobile data-services. The most important services in this respect are mobile e-mail and Internet surfing, the use of which gradually increases over the years. Travel and mobile commerce-related services are less well-established. Few users are as yet familiar with context and location-aware services. Ironically, some of the services that initially were thought to be possible killer applications, like Mobile TV, stock trading and mobile adult content, are now among the least popular services. An analysis of these services indicates that services really have to match the behavior of consumers and business people. The adoption of advanced mobile services is most likely limited to specific niche market segments and is generally speaking associated with gradual growth rates.
42 Industry convergence At the moment, sectors in the mobile domain are converging. Internet players like Google enter the arena by providing search engines, operating systems and even phones. The technical convergence of fixed and mobile networks has persuaded Internet Service Providers to enter the mobile arena. Handset providers, like Apple and Nokia, are moving up in the value network and have started offering application platforms and portal-like stores where users can purchase content. An area where the impact of market convergence on governance mechanisms in value networks is clearly visible is that of billing processes (see Box 3-2).
Box 3-2: How new billing processes reshape the mobile industry In our previous study (De Reuver et al., 2009a), we analyzed five process models for billing in the light of technological and market-related drivers that were identified by industry practitioners. The assets required for premium SMS and WAP billing processes are controlled by the network operators. Important relevant technological assets are the billing platform and the infrastructure that allows the authentication of the users though (U)SIM card technology. The informational assets involved include the user’s identity, address information and bank account number. The installed base of users that can be targeted by network operator-based billing is large, and it is a convenient method for end-users as they already have a subscription and handset. As a result, it is difficult to substitute the billing-related resources of the network operators. Other actors apart from the network operator have little information on the end-user. Portal content, content and application providers only receive information from network operators on the amount of clicks on their WAP site without information on the identity of the users. In the off-portal scenario, content providers hosting their content at aggregators depend on the aggregator for usage information, while the SMS service providers only gain aggregated customer transaction data through the operator’s SMS Center. Because network operators control all assets required for billing in this scenario, dependency of content and service providers on network operators is high. They depend on the operator to contact and bill the customer, and they have limited access to data on customer behavior. Operators charge high fees for billing: typically 50% for premium SMS in Europe (Garner et al., 2006). The dependency of content providers on the network operators has allowed the latter to set the rules, which has been exemplified in so-called walled gardens, in which the customer relationship is closely guarded. Technological developments are expected to affect the way the billing process is organized, e.g. the integration of mobile and wireless networks, mobile web services, the IP Multimedia Subsystem (IMS) and the increase of intelligence in mobile devices. Technological changes will provide opportunities for content and service providers to become less dependent on network providers and may enable alternative process models for billing end-users.
43 Market-related developments are also relevant. The network operator portals will decrease and end-user traffic will be diverted to off-portal WAP sites, e.g. using the .mobi domain. Given the emergence of search engines, the role of portal provider may shift towards the search engine provider. Content aggregation will increasingly be fulfilled by the SMS service providers, although actors involved in the fixed Internet are also entering the mobile industry to take on this role. Mobile search portal providers, such as Google and Microsoft, are relevant, albeit mainly in advertisement-based models. Specialized billing and collections providers are entering the market, in particular financial institutions (e.g. banks) and specialized payment providers (e.g. PayPal). These parties are not interested in providing content services or in customer relationships, but instead target the fees that can be obtained by providing billing and collections services. MVNOs are growing in number and diversity. By offering connectivity to end-users, MVNOs obtain the billing relationship. Currently, MVNOs offer only basic voice and SMS services, while end-users increasingly demand data services. While starting an MVNO and extending the service offering with data services is an expensive and complicated matter, it is expected to become easier after the introduction of Mobile Virtual Network Enablers (MVNEs), who offer wholesale capacity and enabling services to a diverse set of actors wanting to set up an MVNO. MVNEs can offer similar billing functionality to MVNOs as operators can, they require access to the SIM or USIM for user authentication. While operator-centric models are likely to proliferate in the short term, billing methods centered on other players in the value network will become a reality in the longer term. Especially content aggregator-centric and fixed ISP- centric models have a high potential. Although, as far as larger payment amounts are concerned, the payment provider-centric models are attractive, strategic considerations are expected to lead to a deadlock situation, as is already apparent from the lack of developments around mobile payments. The existence of alternative ways of billing end-users will influence the interdependencies in the mobile industry. We expect that the emergence of alternative billing methods will make content providers less dependent on network operators when it comes to billing for their content and application services. This will reduce the power operators can exert over content and application providers in terms of setting the rules. In the end, this may force network operators to drop their current (walled garden) approach, which in turn will lead to more open models of collaboration in the mobile billing domain.
3.5.3 Regulatory drivers While there is almost no formal regulation on the fixed Internet, it does play a role in the mobile domain, even though most existing rules apply to the infrastructure rather than services and platforms. Generally, the mobile service industry is considered a deregulated market. Operating a mobile infrastructure requires licenses for most network access technologies. Exceptions are license-exempt technologies of WiFi and UWB. Auctions were used when licensing UMTS frequencies in several European countries, including the UK, Germany and the Netherlands. The
44 auctions were considered successful by the governments involved, as they raised billions of Euros. However, the high prices also brought the purchasing operators deeply into debt, and some claim that this hindered the innovation needed for a successful take-off of 3G services (Forge, 2004). Spectrum assignment with the aid of cognitive radio may be a future direction that calls for more flexible regulatory regimes (Delaere & Ballon, 2007). Since liberalization and privatization, policy-makers have feared a potential lack of competition in the sector. National regulatory authorities (NRAs) have been installed to safeguard competition. When operators have a competitive advantage, they can be obliged by the NRAs to grant other parties, e.g. MVNOs, access to their networks. Rather than regulating mobile Internet services, NRAs have focused mainly on voice services-related issues regarding the relationship between operators (e.g. interconnection, interoperability, infrastructure sharing, and roaming), between operators and third party service providers (e.g. administrative and special access) and between operators and end-users (e.g. SIM lock, mobile retail rate regulation, consumer interests, mobile number portability and network coverage) (Ubacht, 2004, p. 227). Antitrust legislation also restricts the actions of parties operating in the sector. Especially in the case of context-aware services, privacy regulation plays an important role. Consumer protection regulation includes privacy regulation. Privacy-related issues include anti-spam regulation; the right to locate mobile users (location privacy); and increasing use of camera phones and associated picture right (Pitkänen et al., 2006; Srivastava et al., 2004). In addition, issues on network neutrality are relevant. Currently, most operators pose technical and contractual barriers to mobile voice over IP services offered by third parties. Such services are enabled by increasing smartphone functionality, higher data rates and reduced latency in the networks. These drivers enable third parties to bypass network operators by providing person-to- person communication services directly to the end-user. Debates on network neutrality and associated regulatory actions may become relevant as third parties force operators to open up their networks to third party voice services. Depending on the specific service and application domain, other regulation may be relevant as well. For example, when mobile services are provided to police officers, more stringent security regulation applies than to consumers.
3.5.4 Conclusions We have discussed various drivers in the mobile domain. Technological drivers include ever-evolving network technologies, including IP-based convergence, the increasing importance of service platforms and the emergence of intelligent and multifunctional devices. The latter two apply in the case of mobile web services, which consist of a set of technologies that may reduce the authority of operators over content providers and application providers. Market-related drivers involving a slow adoption of advanced services and industry convergence were also discussed. The latter was illustrated in a case involving new billing processes originating from other sectors that may also reduce operator authority in value
45 networks. Finally, we discussed regulatory drivers, although they are relevant mainly to underlying infrastructures rather than service innovation.
3.6 Conclusions In this chapter, we applied core research concepts to the mobile service innovation domain. We defined mobile services as the services that assume mobile users, applications, sessions or devices and that may be offered over mobile or wireless networks. We divided them into the value element categories of information, communication, entertainment, transactions and business services. With regard to value networks, we discussed the roles and resources with regard to network, users, software and content. We found that much less is known on the phases of mobile service innovation, which prevents applying these concepts to the domain. Although, with regard to walled gardens and open models, more information is available, this information cannot be linked directly to theoretical concepts involving authority, contracts and trust-based governance. With regard to external drivers, we discussed technology-related trends in mobile networks, service platforms and devices. We also discussed market-related developments regarding end-user adoption and industry convergence. Regulatory drivers were found to be less relevant as they mainly pertain to mobile networks rather than services. We illustrated these trends using two cases involving the impact of mobile web services and new billing processes respectively on governance in mobile services value networks.
46 4 Case studies In Chapter 2, we developed propositions on the coevolution of service innovation phases, external drivers and governance in value networks. The propositions do not specify the direction of the causal relationship between these concepts. In this chapter, we develop more specific hypotheses that should be directly testable. We do so by studying a set of cases on mobile service innovation in value networks. The following two propositions are examined. P1) Service innovation phase transitions influence governance in value networks P2) External drivers influence governance in value networks Generally speaking, case studies are advised when it comes to analyzing contemporary phenomena in their real-life setting, taking into account their rich, qualitative intricacies (Benbasat et al., 1987; Eisenhardt, 1995; Yin, 1984). Especially when combined with surveys, case studies are considered a powerful research instrument. However, the method is generally criticized for lacking formal approaches. Case studies tend to be relatively ill-structured and much comes down to the individual capabilities and competences of the researcher. In addition, some of the core concepts of the method, such as the unit of analysis, have been criticized for being vague (e.g. Brunbaum, 2007). Furthermore, while textbooks on quantitative research methods prescribe how to visualize results, presenting qualitative case results in a way that persuades the skeptical reader is a challenging matter (Ahlstrom, 2007). Case study research is even more complicated and ambiguous when studying organizational networks. Halinen and Tornroos (2005) identify the following challenges: (1) setting the boundary to the network, as the interconnectedness of actors makes any boundary arbitrary; (2) handling the complexity of the results, as it is not easy to describe all the actors involved, interconnections and intricacies without drowning in the richness of data, (3) taking into account the time dimension as networks may change over time given their flexible nature and (4) comparing cases, as each case is unique and historically constructed. Although we cannot solve these principal issues, we discuss the decisions we made in designing and executing the case study in this chapter, providing arguments and indicating limitations.
4.1 Case study protocol Following Yin (1984), we explain the case study protocol by discussing the case study selection, the questions (i.e., the information to be collected and the sources used to locate the information), field procedures (i.e., general sources of information and procedures to collect that information) and the method we used to analyze the data.
4.1.1 Case study selection In any case study, selecting the proper unit of analysis is critical. In this thesis, we are interested in the way governance dynamics in value networks relate to
47 external drivers and service innovation phases. In Chapter 3, we assumed that multiple governance mechanisms can be used simultaneously. Consequently, the unit of analysis we use is the multitude of governance mechanisms employed between the actors in a value network offering a specific mobile service during the phases of Development/R&D, Implementation/Roll-out, and Commercialization. The unit of observation is the relationship between two (types of) actors, which we then aggregate at the network level. The inherently interconnected nature of organizational networks to some extent makes setting the case boundaries arbitrary (Halinen & Tornroos, 2005). In Chapter 3, we defined a value network as a dynamic network of collaborating actors that intends to generate customer value and network value by means of a specific service offering, and in which tangible and intangible value exchanges between actors take place. As such, the set of organizations within the case boundaries may change over time. In Section 4.1.3, we explain how we set the boundaries. We use the following set of necessary, non-sufficient criteria in selecting case studies. Firstly, the cases should involve a mobile service, i.e. a service delivered over a wireless or mobile network, to a mobile user, in a mobile session and/or via a mobile application. Secondly, the service should be offered by a value network of actors, consisting of at least three organizations. Thirdly, service development should have a history of at least one year to allow us to collect data about the dynamics of the case. Fourthly, the case should be accessible, meaning we had to be able to interview (a) key informant(s). We used theoretical sampling (Yin, 1984) to select the cases. We started with an extensive study on the mobile Internet portal with the highest number of users in the Netherlands: i-mode, including the content sites embedded in the portal. We also took into account how the service evolved from a walled garden portal into an open, WAP-based portal. Although we are aware that i-mode has been studied previously, especially in the Japanese context, we decided to select it because our study focuses on governance mechanisms, while previous studies focused on the business model as a whole. In addition, we include the dynamics of the i-mode value network including its demise and transition towards an open WAP portal. The i-mode case focuses on service innovation (1) involving operators, (2) in a commercial setting and (3) aimed at large-scale exploitation. It is worthwhile to see whether results similar to ours are found in related domains. To do so, we test the propositions in a number of contrasting cases (see Table 4-1). Although the Event Assistant case is also a commercial service aimed at widespread adoption, it does not involve any operators directly. The off-portal content service offers information to conference visitors. The Attendering service offers location- specific alerts to police officers. Although the service is not intended to generate profits, because it is being offered in the public domain, the service providers still aim to launch it on a full scale. The WijkWijzer case also involves a service offered at police officers, but it was developed within an R&D project that was not aimed at full-scale exploitation.
48 Table 4-1 Case study selection Large-scale For-profit Operator exploitation involvement i-mode √ √ √ Event Assistant √ √ Attendering service √ WijkWijzer
As in any case study on organizational networks, comparing the cases is challenging, embedded as they are in social, political and historical contexts, which means they are all unique in some way (Halinen & Tornroos, 2005). Furthermore, some cases involve many more actors than others, and not all cases may deal with all the phases. Although, to some extent, we were not aware of these differences prior to studying the cases, the richness of everyday reality makes it impossible to select perfectly similar cases. However, we assess these differences as an alternative explanation for the findings.
4.1.2 Case study questions In the case studies, we examine propositions P1 and P2. More specifically, we aim at developing specific, directly testable hypotheses that link concepts from the innovation phases and external drivers to governance mechanisms from a coevolutionary perspective. To do so, we must first describe key phenomena in each case, and relate them to the afore-mentioned concepts. The core part of the case study is to explore causalities that explain governance dynamics. While doing so, we take potential interaction effects and feedback loops between the concepts that the propositions do not predict into account. In contrasting cases, we also discuss alternative explanations relating to the case domain.
4.1.3 Field procedures Because written sources rarely discuss ‘soft’ concepts like governance, we used interviews as our primary information source. We collected information about the past and present situation. We started the case studies by approaching key informants. Next, we selected respondents working at the organizations within the value network to be interviewed. As we are interested in how organizations interact, a suitable approach for finding subsequent interviewees is asking who the respondent deals with (i.e., snowballing approach). As such, we use the informants’ perceptions to delineate the network boundaries, assuming this to be a function of the importance and relatedness of the actors (Halinen & Tornroos, 2005, p. 1293). Interviewees should be or have been directly involved in day-to- day and/or strategic decisions regarding the service offering and deal with other organizations directly. Typical job descriptions of interviewees include business developer, account manager, marketer, project manager, CIO, CTO or (in smaller organizations) CEO. We stopped trying to find respondents when no new prospects were recommended by interviewees, or when additional interviews did not provide new insights. We also held interviews with experts on the cases when applicable, but these transcripts were used as background information rather
49 than analyzed in-depth. We provide an overview of the interviewees in Appendix B. The interviews were semi-structured, and the items included in the interviews are based on the case study questions of the previous section. Questions were asked regarding the present both on the current and past situation. Subjective measures on the performance of the service and governance structure were used to establish the respondent’s satisfaction with the situation. The generic interview protocol is provided in Appendix A. During the interviews, follow-up questions were asked to clarify earlier responses. The interviewees were explicitly invited to talk about any issues they felt were relevant to the case, even beyond the specific questions in the interview protocol. Moreover, we allowed interviewees to make sidesteps and elaborations. Prior to each interview, the questions were adjusted to the respondent expertise and potentially interesting discoveries in the case. Striking or puzzling findings from previous interviews were used as input for clarification in subsequent interviews. The interviews were transcribed and the transcripts were submitted to the interviewees to reduce possible errors and clarify misunderstandings. Immediately after every interview, memos with striking points and first interpretations were written down. These memos were used as input while analyzing the interview data (see Section 4.1.4). Interviews were complemented with documents available on the public Internet, as well as with information provided by the respondents. These documents were used as sources of background information. Specifically, the information was used to derive the timing of events interviewees found it hard to remember exactly. For each case, a database was compiled including interview transcripts, documents analyzed and intermediary reports on the case study analysis. The final analysis of the cases as presented in Section 4.2 to 4.5 was presented for validation to the key informants, selected other interviewees, and people who expressed an explicit interest in reviewing the case description prior to publication.
4.1.4 Analysis of data Each case was first analyzed in its own right. Important events were coded to construct a timeline and linked to phases, as suggested in theory. Similarly, information relating to the roles and actors involved was used to outline the value network. Next, we analyzed the transcripts for each individual interview, using Atlas-TI 5.0, which is one of the most frequently used software tools used to structure the qualitative analysis of interview material. The advantage of using Atlas is that it helps to compare the findings of a large set of transcripts in a structured approach. Transcripts were printed, after which we annotated the important concepts mentioned in the interview. Next, we inserted these codes into the Atlas program. While analyzing the interview transcripts, we focused on key concepts involving governance, phasing and external drivers. However, to prevent premature closure (Miles & Huberman, 1994), we kept an open mind to explanatory factors beyond the conceptual model and coded them as well.
50 Moreover, to prevent focusing to much on labels rather than underlying content (Miles & Huberman, 1994), we used labels that were very close to the exact wording of interviewees. We constructed a causal map containing the codes and their relationship for each individual interviewee. These causal maps were first drawn on paper and then inserted into the Atlas program. These causal maps could include feedback loops between the concepts when mentioned by the interviewee. After coding the individual interviews, we merged them at case level using the Atlas program. We arrived at a large number of codes, some of which were partly overlapping or too idiosyncratic in nature. For example, at one point, we had over 370 codes in the i-mode case. We then started to merge codes that pointed to similar concepts, for example we merged codes like `guidelines’, `prescriptions’ and `rules’ into one overarching code `rules’. Codes that did not appear to be essential to the research were removed. We also identified a large number of relationships between concepts after merging all network views for all interviewees in a case. Sometimes, interviewees did not agree on the causal links, and we went back to transcribed material to draw conclusions. To analyze the resulting material, we constructed network views that focused on the core concepts. For example, we imported all codes dealing with governance mechanisms of a specific relationship into the network view and imported all neighboring codes. In this step, codes that referred to similar concepts were again merged. Codes that were rarely mentioned were either removed from the network view or merged with the code to which they pointed. While writing the case study reports, we used the Atlas program to query all quotations for each code in the final causal network model. This provided an extra check as to whether the interpreted causal connections were indeed supported by the interviewees, and led us to adapt statements in cases where respondents provided different information. Furthermore, we used interesting quotes in the report to support and illustrate the findings. The remainder of this chapter provides the results from the analysis. We begin by describing the actors and roles involved. Next, we operationalize the phasing and governance concepts by analyzing specific case findings, after which we try to explain why the phasing transitions occurred as they did, to determine how they interact with external drivers and governance mechanisms. Finally, we focus on explaining governance dynamics, linking them to external drivers and phasing concepts, in order to test the propositions. All findings are derived from the interviews, unless specifically mentioned otherwise.
4.2 i-mode i-mode was a portal service offered to Dutch KPN subscribers, which provided access to mobile Internet sites of a large number of content providers. In the i- mode model, customers could only access the content listed on the portal, as it was technically difficult to navigate to so-called off-portal content. Accessing the service also required a specific i-mode (enabled) phone. Prior to launching the service, KPN partnered with Japanese operator DoCoMo, who had successfully exploited the concept in its home market. The i-mode service was launched in
51 2002, but it was replaced in 2007 by a new service concept called KPN Vandaag, also referred to as an open WAP portal. The new portal continues to provide links to content offerings, but also allows customers to access content outside of the portal. In addition, users no longer need a specific phone.
4.2.1 Actors and roles Figure 4-1 graphically represents the core value network during the i-mode period. e.g., Rabobank, Sportsplaza, ANWB
Content provider
KPN
DoCoMo Network e.g., Momac, operator XWITS, License Service2Media provider Portal provider Application Investor provider Content management provider
e.g., Toshiba, NEC, Mitsubishi
Handset provider
Figure 4-1 i-mode – Value network (2002-2006) During the i-mode period, KPN provided the portal and the network over which the content was transmitted. Content providers provided the content, such as banking services, sports information, news or traffic information. Because content sites can be seen as services embedded within the higher level portal service, we
52 explicitly include them within the case boundaries. Often, content streams had to be adapted to the i-mode format, which was typically done by application providers. DoCoMo provided the license for using the i-mode concept, trademark and technology to KPN and collaborated closely while developing the service. Japanese handset providers developed specific, GSM-based i-mode handsets. Following the transition towards the open WAP portal, European handset providers became much more relevant. Management of the portal and content was outsourced by KPN to a specialized application provider called Momac, which meant that DoCoMo was no longer relevant (see Figure 4-2).
e.g., Rabobank, Sportsplaza, ANWB
Content provider
Momac KPN e.g., Momac, Application XWITS, platform Network Service2Media provider operator Content Application management Portal provider provider provider
e.g., Nokia, Sony-Ericsson
Handset provider
Figure 4-2 i-mode – Value network (Open WAP portal; 2007-2008) We interviewed various KPN representatives dealing with i-mode and the open WAP portal, in the past and present. We also interviewed representatives from Momac and from six content providers. In addition, we used written material, including newsletters, press releases, news articles and a Master’s thesis.
53 4.2.2 Phasing Because the interviewees could not remember the timing of all the key events exactly, we used documents analysis to reconstruct the phasing. We searched for keywords like `i-mode’ and `WAP KPN’ on the KPN press release database and the Emerce news message archive. From 30 relevant postings (available on request), we constructed the following timeline. In July 2000, DoCoMo acquired a stake in KPN Mobile and the first plans were made to launch i-mode in Europe. At the time, there was even a plan to start a pan-European multimedia company. During 2001, preparations were carried out to launch i-mode, which happened on 18 April, 2002 (and March of 2002 in Germany) with 50 content providers. Until February 2004, the number of German and Dutch customers owning an i-mode phone grew to 1 million, although only a fraction used the service frequently. Over 250 content services were offered at the end of 2005. A first change to the revenue model was made in 2005, when KPN started to offer flat fee i-mode subscription, rather than charging per packet. In 2006, the Open Mobile Internet initiative (OMI) was launched; a coalition of content providers wanting to change business model conditions imposed by operators. In 2007, KPN announced that it would stop selling i-mode phones, after already terminating its advertising campaign for the service. The alternative WAP portal KPN Vandaag was launched at the end of 2007. When we try to link these events to the phasing concepts, we find that the Development/R&D phase ran from September 2000 to March 2002. During this period, ideas for the i-mode portal and service concept were developed. Technologies were made available, both for the platform itself and for the i-mode handsets, which had to be adapted to fit the European GSM standard. In organizational terms, KPN was recruiting content providers that would be part of the portal when the service was to be launched. In May 2002, the i-mode site and underlying content sites were launched, which can be considered the start of the Implementation/Roll-out phase. To determine how long this phase lasted, we looked at market uptake, technology maturity and the effects of the service. In the years after the launch, both KPN and content providers struggled to gain a critical mass of adopters. Driven by promises made to shareholders, KPN put in a lot of effort to bring 1 million i- mode subscribers on board by the end of 2003. Although this objective was met, only a small part of these customers actually used the service regularly. Without exception, content providers were very disappointed by the number of subscribers to their services, which is illustrated by the following quote. After one year, in 2004, it turned out there were 17,000 paying customers […] 17,000 of 3 million customers who use Internet banking service, that is totally nothing […] I talked to someone from a large newspaper and he said: […] “We only have 2,000 [customers] and are extremely disappointed.” [CP/6] Content providers had several technology-related problems, including handset recognition, user identification and security certificates for banking services. Although KPN interviewees did not explicitly point to these limitations, we
54 consider this to be an indication of immature technology architecture. With regard to the service effects, many interviewees said it laid the groundwork for the development of today’s mobile Internet services. Intangible benefits, like learning about mobile Internet and preparing the market, were more important results than the actual revenues. Taking the slow uptake, technology problems, and its effects into account, we argue that, during its life cycle, i-mode never moved from Implementation/Roll-out to profitable Commercialization. The open WAP portal was launched around 2007. KPN interviewees all agree that adoption levels rose quickly after the launch, and the number of subscribers grew exponentially. It seems the mobile content market rapidly matured, both from a consumer and content provider perspective. On the one hand, launching a new portal implies going back to the Development and Implementation phases. On the other hand, this transition can be seen as a path towards a true commercial exploitation of the mobile Internet concept. Moreover, interviewees from KPN consider the KPN Vandaag portal to be a natural evolution of the i-mode portal. Therefore, we argue that the Open WAP portal can be considered to be in the Commercialization phase. Some content providers still offer their content on the Open WAP portal from KPN. Others, however, have launched independent WAP sites not listed on any operator portal. Strictly speaking, these evolved content sites are no longer part of the i-mode service or of the Open WAP portal KPN Vandaag. However, we feel the excluding off-portal content sites from the case would be too artificial a separation, as they have naturally evolved from the i-mode content sites. Therefore, we include them within the case boundaries. This transition towards an open off-portal operator-independent WAP site can also be seen as a phasing shift. The transition makes it possible to reach a larger market and the content providers we interviewed say this is much more successful than the i-mode sites. As such, the transition allows them to exploit their services commercially, compared to the problematic uptake in the i-mode walled garden. As such, the transition from operator portals towards off-portal content offerings confirms the transition towards the Commercialization phase. • Development/R&D phase: DoCoMo – KPN alliance formation (May 2000) until i-mode launch (May 2002) • Implementation/Roll-out phase: i-mode period (2002-2007) • Commercialization phase: Open WAP portal and off-portal content sites (from 2007 on)
Explaining the phase transition from i-mode to open WAP portal Using the Atlas program, we mapped the causal connections underlying the governance dynamics mentioned by the interviewees. To gain insight into the interaction effects between external drivers and innovation phases, we first explored the reasons behind the phase transitions. Because the transition from i- mode to WAP was made by KPN, the following is mainly based on KPN interviews. The causal map that we constructed is presented in Figure 4-3 and discussed in the remainder of the section. In this causal map, the rectangles represent codes within the Atlas program, that is, the name of the concept,
55 followed by the number of quotations in all interviews and the number of causally- related codes within brackets respectively. The arrows represent the causal relations mentioned in the interviews.
MD i-mode not reason to buy for consumers {4-2}
MD I-mode too early {3-1} KPN Internal tensions {14-2}
is cause of is cause of is cause of
i-mode failure {5-10}
is cause of is cause of TD Jap Eur Network different {4-2} PH i-mode --> WAP {22-26}~
is cause of is cause of
Unattractive i-mode handsets {13-6} is cause of
is cause of is cause of is cause of MD Handset providers don't want TD WAP surpassing i-mode {8-2} i-mode {17-2}
is cause of
TD i-mode WAP different {23-8}
Figure 4-3 i-mode – Explaining the transition from i-mode to open WAP portal Note: TD = Technological drivers; MD = Market-related drivers; PH = Phase transition
The transition, noted as PH i-mode --> WAP in Figure 4.3, was mainly triggered by the disappointing uptake of the i-mode service (i-mode failure in Figure 4.3). Although some of the interviewees referred to this as a failure, others pointed to the positive effects regarding learning and market readiness. Although we explicitly asked KPN interviewees, none of them referred to failing governance as a cause for the disappointing uptake. In fact, KPN content managers were quite pleased with the close collaboration with content providers:
56 I am convinced that if there would not have been [such a close relationship with content providers], the portal and sites would have looked much less attractive. Everything would have gone less smoothly, less quickly. […] This has been the ideal collaboration (KPN/11) An important explanation for the i-mode failure relates to handsets. WAP and i- mode were slightly different technologies (TD i-mode WAP different). These differences are indicated as technological drivers in the Figure 4.3, although they may have been purposively caused by DoCoMo to gain intellectual property over the i-mode license, which could then be used to charge license fees to handset manufacturers and operators. The issue with DoCoMo was […] that they had added some details within cHTML, making it slightly different from standard cHTML. […] They had defined an extra markup language in which you could visualize symbols in a certain way in the i-mode menu. […] Once xHTML was standardized at a certain point in time, all i-mode components were included, […] except those special characters in the menu. That remained proprietary information on the part of DoCoMo. (KPN/10) Because of these small differences, handsets had to be specifically built. Japanese i-mode handsets could not be simply placed on the Dutch market, as they were not based on GSM. These Japanese versus European differences of access technology are noted as an external technological driver in Figure 4.3 (TD Jap Eur Network different). Contrary to what DoCoMo may have hoped, European manufacturers were unwilling to make specific i-mode handsets, because that would not have fitted with their high volume-low cost business model. I-mode in Europe was simply too small to achieve sufficient economies of scale. This unwillingness to manufacture specific i-mode handsets is listed as a market driver in the Figure (MD Handset providers don’t want i-mode), and is illustrated by the following quote. [Handset manufacturers] are not going to make different flavors for each operator. They can do so, but then they are in a different kind of business model. […They said:] `We are making standard-complying handsets: that’s it.’ (KPN/10) Only Japanese manufacturers were willing to make specific European standard i- mode handsets, persuaded by DoCoMo’s large buying power. Although these were the first color handsets on the market in Europe, the brands were unknown, and especially the early handsets looked unattractive or did not function properly (Unattractive i-mode handsets). Later, i-mode compatible handsets were marketed by European operators like Nokia and Ericsson, but these handsets never worked perfectly. Moreover, these were mostly older handsets, as the manufacturers launched their i-mode handsets several months after launching their WAP handsets. In short, technological drivers of the technology differences between Japanese and European networks and the lack of convergence between WAP and i-mode, and market-related drivers of unwilling European
57 manufacturers resulted in unattractive phones. Because consumers are very sensitive to the fashionability of handsets, this led to a disappointing uptake. Although i-mode was initially superior to WAP, this turned out to be a temporary advantage. A far larger set of players was focusing on WAP technology, which probably caused WAP to evolve more quickly than i-mode, and eventually surpassed it (TD WAP surpassing i-mode). Because the quality of WAP-based phones, content sites and portals was higher than that of i-mode KPN eventually decided to move from i-mode towards an open WAP portal. According to the interviewees, this was mainly instigated by the marketing department, which was looking to increase the potential base of mobile Internet customers, while the wishes of content providers played no role in this strategic decision. It made no sense to keep focusing on i-mode when consumers wanted the more fancy WAP handsets: The advantage i-mode had decreased gradually until a few years ago. Then customers no longer asked for i-mode because they could do as much on other devices. And then they do not have a choice between ten i- mode devices but between eighty WAP devices. [KPN/2] While the handset-related story recurs in several interviews, some alternative explanations were mentioned by only one respondent. These included market- related drivers, like a lack of market readiness (MD i-mode too early), i-mode not being a reason to choose KPN as a provider for consumers (MD i-mode not reason to buy), and a low interest on the part of retail shops to sell relatively complex i-mode products. Another alternative explanation mentioned by just one interviewee is internal misalignment (KPN internal tensions). Because in 2002, KPN’s director promised to have 1 million customers in one year time, this became a priority for the company’s marketers. As a result, they gave away i- mode phones to their existing customers, although these customers hardly started to actually use the service. As a result, the i-mode business did not mature, and even sometimes threatened the existing voice and SMS business, as the early phones did not work properly. After the 1 million subscriber mark was met, the marketers’ enthusiasm for i-mode ceased. The tension between established voice business and the new i-mode business is illustrated by the following quote. [It] continuously was a dream [of i-mode] competing with an established business [of voice and SMS] that delivered a lot of cash […]. After 2004, the rationalization started. If i-mode only forms such a small part of revenues, and also is no reason to buy [a KPN subscription], why use it any longer? (KPN/8) To conclude, from KPN perspective, a mixture of technological and market- related drivers caused i-mode to fail and triggered the transition towards the open WAP portal, partially mediated by the disappointing uptake of i-mode. In summary, technology and market-related drivers have triggered the transition from Implementation/Roll-out phase to Commercialization phase
58 Explaining the phase transition from on-portal towards off-portal content While KPN interviewees argued that the collaboration with content providers was highly satisfactory, content providers themselves told us a totally different story. Over time, they became increasingly disappointed with the i-mode portal. To a large degree, the transition towards off-portal content sites can be explained by this dissatisfaction. The relationships are displayed in Figure 4-4, and discussed in the remainder of this section.
PH i-mode --> WAP {22-26}
has questionable impact on is cause of
CP <--> OP OMI {37-5} PH Op portal --> Off-portal {5-5}
is cause of is cause of
CP Unhappy {11-16}
is cause of
TD/MD Operator substitutes {10-4}
Figure 4-4 i-mode – Explaining the phase transition from on-portal towards off-portal content (content provider perspective) Note: CP = content provider; OMI = Open Mobile Internet initiative
All the content providers we interviewed were to some degree dissatisfied about their dealings with operators, and some even were clearly frustrated (CP Unhappy). Their reasons fall into two categories: (1) rules from operators in the walled garden models and (2) a lack of attention from operators. In the walled garden model, there are several limiting rules from operators. First of all, the structure of the portal menus necessitates content providers to divide their content sites into multiple categories or to refine their content to fit specific categories. Although content providers were allowed to list their brands within their content site, they complained that the portal structure harmed their brand identity. Secondly, when i-mode was launched, billing schemes were non- transparent. As a result, consumers were shocked about their monthly bills, and to this day, people believe that mobile Internet is expensive. Thirdly, because operator portals used slightly different markup languages and style sheets various implementations needed to be built for each new service concept, resulting in high costs. Moreover, features that were present in one portal (e.g. i- mail alert service in i-mode) were not available in those provided by Vodafone, T- Mobile and Orange, which posed limitations: So you wanted to make a nice service, but then got stuck with limitations from diversity which made you not launch it at all. For example, the i-mode
59 alert service was something very good from i-mode, but other operators did not have it. So you could not expand on that. (CP/2) The operators made very strict rules and boundaries as to what content providers could and could not do. One interviewee found this to be a good thing, feeling that similarity of user experiences and preventing malicious content providers to get to consumers is a good thing. According to another interviewee, operators try to do things “too well”, while players like Google have no problem launching an imperfect application. In fact, most of the content providers we interviewed found operator rules to be hindering and limiting, as is illustrated by the following quotes. The content providers play no role at all in this story, the operators decide everything […] We would like to use an advertisement model, but we have to wait and see whether we are allowed to do that. Every time, we have to wait and there are certain rules. (CP/5) The largest hindrance was the operators, because of their portal vision. […] If you did not get a green light, you did not get your site on the portal. (CP/4) Overall, content providers found that operators interfered too much with their core business. Interviewees often referred to the ISP-model on the fixed Internet, claiming this to be their ideal governance model. XS4ALL does not come to me at the end of the month either, saying: “So many million people have visited your site; give us your money” (CP/4) I really expected it to be some kind of Internet on your mobile phone and not a handicapped Internet. I had always taken into account a smaller screen. But all these organizational issues, I was certainly not expecting. (CP/5) Paradoxically, the same content providers argue that they were constrained by not getting sufficient attention from operators. Firstly, promotion and marketing for content sites was a sensitive issue. Some content providers found that operators should do part of the marketing and complained that all the attention went to ringtone providers, who had the highest revenues. Furthermore, they argued that it was hard to find their content within the portal and that operators did not do enough to increase content accessibility, e.g. by solving this in the browser. Secondly, services like mobile banking required specific security certificates for encryption, but operators did not install them, possibly due to the small number of subscribers who actually used these services. Thirdly, handsets were highly diverse and required much effort in adapting content, as automatic handset recognition was not provided by operators. Many content providers needed to outsource this activity to specialized application platform providers, which raised their costs: At a technical level, there was a multitude of protocols, browser versions, screen resolutions and screen sizes, making it insanely expensive for the
60 average content provider to emulate all content on the fixed Internet in the right way to all these variants. That cost a fortune. (CP/6) In any case, building it yourself was as good as impossible. It was undoable to get the capacity and knowledge in-house. Plus: to check your own sites you have to get three subscriptions in order to check how you look on different portals. (CP/4) Content providers argue that KPN was different than other operators, and even state that KPN was the only one really trying to do its best. The friendly content provider meetings in which problems could be exchanged were considered helpful and open, and many content providers state the only operator they actually talk to is KPN. As one content provider put it: “Everything I say applies the least to KPN [compared to other operators]”. The problems mentioned by content providers are in part caused by an external factor, e.g. the high diversity of handsets. Content providers tend to frame them as technical problems that just had to be solved. However, an important part of the problems are the direct or indirect result of the rules operators imposed in walled garden models or of the lack of attention from operators in their relationship with specific content providers. The result of these problems was that creativity and innovativeness were constrained by the many technical complexities, making it difficult to try out new service concepts. On the one hand, content providers found operators should interfere less with their rules, while on the other hand they should be more involved to make things easier. In conceptual terms, the focus on authority-based governance (i.e. strict rules) and the lack of sufficient trust-based governance (i.e. joint problem-solving) led to the dissatisfaction of the content provider. The dissatisfaction of the content providers (CP Unhappy) provoked three main reactions: (1) Finding technology/market alternatives for operator roles, (2) Coalition forming in the Open Mobile Internet Initiative and (3) Transition from operator portal sites to off-portal sites. Finding substitutes for operator resources in new technologies and market players (TD/MD Operator substitutes) was one reaction. Especially Google Maps (for localizing users), iPhone (for usability and content presentation), cookies (for user identification) and WiFi (for network connectivity) were considered important alternatives, as illustrated by the following quotes. iPhone and also the Google phone will simply force operators to be just gatekeepers again. (CP/5) You see that Google Maps is already starting. They no longer need data from operators, but localize antennas themselves. Then you will have location-based services without needing the operator. (CP/4) Content providers also tried to solve the issues by forming a coalition in the OMI initiative (CP <--> OP OMI). Firstly, they developed a joint problem definition, listing the issues they wanted operators to solve. Next, they started talking with operators to solve the issues effectively. Important results were the establishment of standardized domain names, transparent billing schemes, standardized user
61 identification procedures and joint promotion. Regardless of these advances, content providers find it hard to tell if OMI was the decisive factor in the shift from operator portals towards open models (PH Walled --> Open model), as illustrated by the following quote. [To what extent did OMI really impact these developments, for example portals becoming more open?] We think it has certainly accelerated it. We also secretly think that we as OMI have been used as an excuse in certain cases. […] Without us they also would have stopped [operator portals], because they saw that it was not cost-effective. And you see in Asia or America, that there is already open Internet on mobile. (CP/4) At least we managed to get all parties at the table, both operators and content providers. Whether that really led to something… (CP/2) Another approach to dealing with the dependencies towards operators was for content providers to launch content sites that were not listed on operator portals (PH Op portal --> Off-portal), which became possible as soon as operators opened their walled gardens and allowed customers to visit off-portal content. The next quote illustrates that this was the solution to the complexities within operator portals. So there we said: let us go open, and then we will have at least one platform, assuming Internet on your mobile is a protocol and nothing more and nothing less. (CP/4) A large part of my visitors arrive via a portal, but that need not be the operator’s one. But I think that mobile Internet will be just like the fixed Internet: you have to establish a good position in search engines. That need not be i-mode. Nowadays, I think everybody is getting such a cheap starting page. If you are listed on that, that is just good enough. (CP/3) Overall, we see that the dissatisfaction of content providers led to a phase shift, i.e. shifting from operator towards off-portal content sites. Because the dissatisfaction was ultimately caused by too much authority-based governance and not enough trust-based governance, we found an effect from governance concept to phasing concept. This is different from what we expected, which was that phasing transitions would lead to changing governance rather than the other way around. An important difference between the operators’ and content provider’s perspectives is that, in the Implementation/Roll-out phase, strict rules were considered beneficial by operators in order to protect customers, while they were perceived as a limitation by the content providers.
4.2.3 Governance dynamics
KPN and content providers The phase transitions of i-mode towards open WAP and of operator portal towards off-portal content sites have had a major impact on the governance
62 mechanisms being used between content providers and KPN. These causalities are displayed in Figure 4-5, and discussed next.
GOV KPN <--> CP Close relation {51-8}
reduces reduces TD/MD Operator substitutes {10-4}
PH Op portal --> Off-portal {5-5} reduces reduces
GOV KPN --> CP Rules {57-11} is cause of reduces
PH i-mode --> WAP {22-26}
reduces has questionable impact on
GOV KPN --> CP Contract {13-1} Res dep KPN --> CP {20-2}
has questionable impact on is cause of
GOV KPN --> CP Power {3-5}
Figure 4-5 i-mode – Governance dynamics in content provider - KPN relationship Note: GOV = Governance mechanism; Op = Operator
There are many resource-interdependencies between KPN and content providers. KPN depends on content providers for their content, ownership of services, knowhow, tools and ability to develop and try out new services quickly. KPN also needs formal approval of content providers if they are to mention their name in promotions. To attract users for the mobile Internet subscription, KPN depends on content providers to promote their services. The major resource that content providers need from KPN is customer ownership, i.e. reaching customers through an attractive position on the portal, as well as user identification and profiling. The representatives of KPN and its content providers we interviewed agree that, during the i-mode phase, rules were a dominant governance mechanism. They are used to decide which content providers were allowed to be added to the portal, and involved technical, user-related and background-related criteria. The technical criteria included correct URLs, maximum size of the content and technical reliability. Content-related criteria were taken over from
63 DoCoMo and involved typical i-mode criteria (Natsuno 2003) of stickiness, freshness, depth and user benefit. These were applied by evaluating the storyboard delivered by content providers. Background-related criteria involved checking the background of content providers, including their track record on the fixed Internet. Small new players were allowed a trial period to prove their credibility. KPN interviewees came up with examples of content providers who were denied entrance to the portal after evaluation on the basis of these criteria. However, they could not remember any cases involving the eviction of content providers from the portal based on the above-mentioned rules. As such, the rules could be considered above all entrance rules. Apparently, exit rules were not considered to be important. During the i-mode period, rules were a dominant mechanism in the relationship between KPN and content providers (GOV KPN --> CP Rules). According to some KPN interviewees, the rules for being admitted to the WAP portal (PH i-mode --> WAP) are less demanding than for i-mode. For example there is no longer a maximum size of content sites. Other KPN interviewees argue that the rules may still be more or less the same, but that content providers now automatically meet those rules as their business and priority for mobile Internet have increased, so KPN needs to check for following the rules less often. Content providers seem to agree that the rules have become less strict. Content providers indicate that open portals (PH Op portal --> Off-portal) have given operators far less power over what an end-user and a content provider does, and that they have less to say about what a service looks like. This shift is illustrated as follows. The relationship has indeed become more equal. Before, you needed them much more because of the portals they had. So, for every little thing you had to knock at their door, and get permission. If you wanted to add another kind of content, they had to check whether that still fitted the portal structure. […] Now we are somewhat freer to do so. (CP/4) After the transition, official contracts no longer were required for being placed on the portal (GOV KPN --> CP Contract). KPN portal managers can now simply add links to content they find interesting for consumers, even if no formal agreement is in place. This is fundamentally different from the i-mode model, in which formal agreements were always required. This reduces KPN’s dependency on content providers. Furthermore, it makes interviewees question whether, in practice, there is any difference left between official and unofficial content providers, as both are listed on the portal. In short, the use of contracts and their practical value have been reduced following the phase transition. From KPN’s perspective, the relationship with content providers was considered rather close during the i-mode period (GOV KPN <--> CP Close relationship). They argue that the transition has reduced involvement with content providers. There is now a standardized way of solving problems with content providers, and much of the interaction is conducted using a self-service intranet application rather than on a personal basis. This is also related to the downsizing of the so-called content house, with only a fraction of the people managing relationships with content providers now being left. One interviewee mentioned
64 that there are no longer that many problems, so the friendly meetings with content providers to exchange experiences and solve problems together are no longer needed. That the relationships have become much less close and intimate is illustrated by the following quote. A disadvantage [of the transition towards open WAP] is that, in the relationship with content providers, not as much is learned from each other as the distance becomes bigger. Relationship management was better in the old model. […] They are called content partner for a reason, we should actually do that more. (KPN/6) Content providers also find that the role of the operator and the relationship with operators becomes less close in open portals. Content providers comment that they do more on their own and no longer need KPN and operators. One other content provider explained that former joint content investments with operators have now ended following the introduction of the flat fee models for consumers. Although this organization had invested heavily in operator relationships, they no longer launched joint campaigns. Interestingly, content providers even expect there will no longer be any kind of relationship in a few years time. In addition to the launch of off-portal content (PH Op-portal --> Off-portal), aided by the transition towards the open WAP model, technological and market- related changes make it increasingly possible for content providers to substitute operator resources (TD/MD Operator substitutes), thus again reducing the operator’s involvement and rules.
KPN and DoCoMo KPN needed Japanese operator DoCoMo because that company owned the license of the i-mode concept and technology. Moreover, DoCoMo had relationships with handset manufacturers that were needed to persuade them to manufacture specific i-mode handsets for European GSM and UMTS technologies. DoCoMo practically made all the decisions for KPN with regard to handsets, including configurations and tools. KPN also copied a large part of the DoCoMo business model directly, because it had limited experience with mobile Internet themselves. DoCoMo chaired the meetings of the so-called i-mode alliance, which included all the European operators offering i-mode. There was a very close collaboration prior to launching i-mode, with DoCoMo employees working at KPN to develop the technology. After the transition from i-mode towards the open WAP portal, the relationship between the two organizations to all intents and purposes ended. Because the i-mode portal was still being offered to existing customers, a formal agreement remained in place, but any actual collaboration was ceased.
KPN and handset providers The i-mode protocol required handsets to meet specific guidelines, for example specific menu structures. Because European providers were not willing to deliver i-mode specific handsets, most providers were Japanese, e.g. NEC, Toshiba and Mitsubishi. Given the differences between GSM and Japanese access networks,
65 the handsets had to be adapted. This made KPN highly dependent on handset manufacturers, which they needed to adapt the handsets. During the i-mode period, developing handsets and customizing them was very complex. Employees of the handset providers worked at KPN to develop and debug handsets. With the transition towards the open WAP portal, things have become much simpler in this respect. Handsets now have to meet predefined standards, which makes things far simpler. In the i-mode period, new handsets had to be checked before putting them on the market to make sure they met the predefined i-mode specifications. Furthermore, it makes KPN less dependent on handset manufacturers: For one i-mode handset we had five Samsung engineers from Korea here on our department developing for a few months. Each day they came asking whether it was better and then went debugging until it was finished. That was really necessary. Now, you no longer have that at all. A little bug fixing and that is it. For us, it has become much simpler […] and easier. (MH)
Content providers and application providers Only one content provider interviewed fully develops its mobile Internet sites in- house, but all the others depend on the expertise, knowledge and application platforms from application providers to do so. During the i-mode period, some content providers had a revenue-sharing agreement with their application providers. However, when we conducted the interviews, all the content providers had arrangements based on cost-based charging for developing and hosting applications. One reason given for this was that business was growing and the is a need to make strategic decisions autonomously without unclear relationships. Nevertheless, they generally comment that it is a rather close, long-term oriented relationship, in which content providers and application providers exchange ideas and experiences, and cooperate in multiple projects. Content providers do so as they also require the expertise from previous and ongoing projects carried out by application providers to stay up-to-date, especially in the early phase of mobile Internet in which they currently find themselves. One content provider explained that, when they have a request for a new service, they approach the application provider, who in turn provides a functional specification and cost estimation. After they agree, the system is built and the application provider is paid for the hours involved: The agreement is that we provide a monthly fee, in which a set of services is included they do for us. And for all additional things, we ordinarily pay an hourly rate. So, the basic package we have, and the options we pay for. Just like a car (CP/4)
4.2.4 Conceptual analysis The rules on menu structure and branding in the i-mode model are imposed by KPN on content providers. Content providers argue these rules to impact their decisions, as they limit their freedom to design content sites. Therefore, we argue
66 that the rules imposed by KPN on content providers are a mechanism underlying authority-based governance. The rules imposed by operators on content providers do not explicitly force decisions on them regarding ongoing activities, service concepts and technological choices, but they do limit the freedom of choice that the content providers have in making decisions. As such, it is an indirect, pre-structured way of influencing, but it is indeed asymmetric, so we still conceptualize it as authority-based governance. While the rules may be no problem as such, it becomes an issue if the rules are not considered useful and even limiting, as they were in this case. For those content providers who complied with the above-mentioned rules, KPN drew up formal contracts detailing liability, pricing and storyboards to be used. We consider these contracts a form of contract-based governance. The interviewees rarely elaborate on trust between KPN and content providers, and merely state it was not an issue. There was indeed a close relationship between KPN and the content providers in the i-mode model, as there was a certain degree of joint responsibility. KPN used newsletters and informal meetings with content providers to discuss future plans and issues KPN should solve for content providers. As we discussed in Chapter 3, joint action, problem-solving, sharing of long term plans and close relationships are all aspects of relational governance. Therefore, we consider these mechanisms manifestations of trust-based governance. However, it should be taken into account that content providers were unhappy with the attention KPN gave to solving their problems and that, from their perspective, trust-based governance was actually lacking. Although DoCoMo had power over KPN during the Development/R&D and Implementation/Roll-out phase, they also worked together closely on a shared objective, which means that there was a mix of authority-based and trust-based governance. Similarly, there was close cooperation between KPN and handset manufacturers during the i-mode period, indicating trust-based governance, The relationship between content providers and application providers is typically a buyer-seller relationship, as content providers decide what the application or content site should look like, so authority-based governance is the primary mechanism. An overview of how we operationalize the governance mechanisms to the theoretical dimensions is provided in Table 4-2. We found that the rules between KPN and content providers became less important in governing the relationships, after the transition from the Implementation/Roll-out phase towards Commercialization, i.e. there was less authority-based governance. However, technological and market-related drivers, like replacing the operator by Google and Apple-based platforms, and the general trend of opening walled garden models also explain the reduced use of authority-based governance by KPN. The transition from Implementation/Roll-out towards the Commercialization phase used contract-based governance less relevant. Generally speaking, both perspectives argue that these mechanisms were used (even) less after the transition from Implementation/Roll-out towards Commercialization.
67 Table 4-2 i-mode – Operationalization of governance dimensions Authority-based Contract-based Trust-based KPN – KPN dictates rules on Contracts detailing Joint problem-solving; Content content providers storylines, liability sharing long term providers plans; close relation DoCoMo dictates Close collaboration KPN – business model and prior to i-mode launch DoCoMo handset specifications to KPN KPN – KPN depends on Close collaboration to Handset handset providers for develop i-mode providers i-mode phones phones Buyer-supplier Contracts detailing Close, long-term Content relationship (i.e. costs relationships providers – content providers Application specify requirements providers on applications and sites)
Governance mechanisms between KPN and DoCoMo did not change between Development/R&D and Implementation Roll-out. However, joint activities were ceased after the transition towards the Commercialization phase. Similarly, after the transition towards Commercialization, there was no trust-based governance and authority-based governance left between KPN and handset providers, and instead there is now contract-based governance. Contracts have also become increasingly important between content providers and application providers, and there is trust-based governance, as the relationships are still rather close and long-term oriented. An overview of the governance mechanisms and their relation to phases and external drivers is provided in Table 4-3. The plus and minus signs are used to simplify the qualitative findings, although there is no predefined measurement scale. In this case, we found that not all players were satisfied with the governance mechanisms in place. Although KPN commented that authority- based governance, in the form of strict rules, and trust-based governance, in the form of close collaboration, worked well, content providers were particularly dissatisfied. In response, they actively attempted to substitute the operator’s resources in order to become less dependent, and to form an alliance to demand operators to solve their technical issues. As a result of the dissatisfaction of content providers with the governance mechanisms being used, they started to become involved in off-portal content sites. We conceptualized the transition from on-portal towards off-portal content as part of the phase transition from Implementation/Roll-out towards Commercialization. Along these lines, we can argue that the use of authority- based governance thus indirectly led to the transition from Implementation/Roll- out towards Commercialization. Hence, there may have been a causal
68 relationship between the phase and governance concepts in the opposite direction as was proposed. Table 4-3 i-mode – Summary table Dev/ Impl/ Comm Techn Market Regul R&D Rollout driv driv driv Auth + - - - 0 KPN – Content Ctr + - - - 0 providers Trust 0 - - - 0 Auth + + 0 0 0 KPN – DoCoMo Ctr 0 0 0 0 0 Trust + + 0 0 0 Auth 0 0 0 0 0 0 KPN – handset Ctr 0 0 0 0 0 0 providers Trust + + - 0 0 0 Auth + + + 0 0 0 Content providers – Ctr 0 0 0 0 0 0 Application providers Trust 0 0 - 0 0 0 Note: Dev = Development; Impl = Implementation; Comm = Commercialization; Auth = Authority-based governance; Ctr = Contract-based governance; Trust = Trust-based governance; shaded areas = no information available
We found that especially Internet-related technology and market-related drivers influenced governance mechanisms, as they allowed content providers to replace operator resources. It is to be expected that new types of relationships will be formed in the future between content providers and Internet players like Google and Apple. Already, Apple plays the role of gatekeeper by deciding which applications are allowed to be offered to their handset owners. New forms of authority-based governance may be imposed on content providers by Internet players in the ongoing Commercialization phase. Similar trade-offs may be expected between ensuring quality content by imposing rules and giving freedom to content providers to foster innovation. Handset providers influence the business models of content providers and operators, as they create a diversity of handset specifications, which creates costs and efforts to adapt content. However, we found that operators and content providers lack the leverage power needed to influence these players, and that handset providers are not actively part of value networks providing services. Of course, this is likely to change with the current trend towards device-centric platforms pursued by Nokia and Apple. The i-mode case shows that several strategic choices on the part of KPN influenced governance dynamics. Firstly, at the start of the Implementation/Roll- out phase, authority-based governance was introduced, after KPN decided to copy DoCoMo’s business model, which meant that several strict rules were imposed on content providers. Secondly, KPN decided to launch the open WAP portal, which led to a transition towards the Commercialization phase and reduced all types of governance mechanisms. This raises the question as to what extent governance dynamics are in fact the result of phase transitions and
69 external drivers, and to what extent they are the brought about by the strategic decisions on the part of the operator. There are some limitations with regard to our definition of phases. Firstly, one can argue that the transition from i-mode towards open WAP portal, and from on-portal towards off-portal content sites, implies that the companies went back to the initial Development/R&D phase rather than directly to Commercialization. One could also argue that, as they use different business models and services, the new portals and services should have been seen as a distinct unit of analysis. Secondly, it can be debated whether content sites embedded within a portal should be considered part of the same service offering or different units of analysis.
4.3 Event Assistant In the i-mode case, we found that operators became less involved in mobile service innovation, as a result of the transition towards open portals and of content provider efforts to reduce their dependencies, i.e. by launching off-portal content sites, using Internet technologies to substitute operator resources, and forming a coalition to demand open standard interfaces. Although operators are looking for ways to counter this trend, it could be argued that future value networks may depend less on operator involvement. Given that operator involvement is decreasing, and that operator strategic decisions may have had an impact on governance dynamics, we study a case involving a for-profit mobile Internet service in which operators do not play a central role: the Event Assistant. Although the Event Assistant service concept was originally developed in a Vodafone R&D project, it was marketed by a start-up company called Log On. Through the Event Assistant service, business conference visitors receive the conference agenda, travel information, SMS and voting functionality, a social networking application, and links for downloading presentations. The service can be accessed by any device through its WAP browser and is designed to be easy to understand for first-time users. In addition, it is free of charge for end-users, because it is sponsored by conference organizers and sponsors. When conducting the interviews (at the end of 2007), the spin-off company had employed two people and two senior advisors. In terms of its track record, the service concept had won two industry innovation awards in the course of 2006 and had serviced several conferences.
4.3.1 Actors and roles The service concept was developed in a pilot project by Vodafone R&D. At the time, only one external organization was involved that provided the content management platform. After the project ended, Vodafone decided not to continue developing the service, and the project manager decided to create his own spin- off company to market the service. After the spin-off, the value network has become much more complex (see Figure 4-6). Log On plays the role of service provider, including marketing and promotion. Three application providers provide cross-media, streaming video and mobile Internet platforms. According to the interviewee from Log On, the mobile
70 Internet platform provider called XWITS is the most important application provider as it performs content rendering, i.e. handset recognition and translating content to WAP format that fits the device. SMS voting is carried out through SMS brokers, who in turn have relationship with operators.
e.g., conference locations; ICT providers; professional conference Conference organizers sponsor Intermediary seller
Log On Streaming Cross-media video platform Service platform provider provider provider
XWITS
Mobile Internet SMS broker platform provider
Figure 4-6: Event Assistant - Value network (Implementation/Roll-out phase) Professional conference organizers pay a fee to Log On to use the service in their conferences, which they can earn back through commission fees from meeting sponsors. Sometimes, ICT providers and conference locations bundle the service with their registration software and location rental offerings respectively. Log On still has a relationship with Vodafone R&D, with the latter company using the service in its yearly conference and sharing knowledge. In the future, the service provider is looking to extend the relationship by becoming a test centre for new technologies and service concepts. We interviewed the founder of Log On’s and the director of XWITS, and accessed various publicly available news articles and press releases. The Log
71 On interviewee indicated that XWITS would be the only relevant organization to interview, as this actor represented the major interdependency.
4.3.2 Phasing In 2005, the demonstrator service was developed by Vodafone R&D to showcase the potential of mobility and the mobile Internet for specific user segments. Because the service was not designed to be marketed and Vodafone considered business conferences too much of a niche market, the project was eventually ended. As such, we consider this period the Development/R&D phase. After Log On was founded in 2006, the service was marketed, indicating the start of the Implementation/Roll-out phase. In terms of market uptake, only 0.1 percent of the total serviceable market had been reached, according to the Log On interviewee. Furthermore, the company was still growing fast as second- round investments had just been made and personnel was being recruited. At the end of 2007, the technological platform and application had already been fully developed, but still needed to be automated to reduce costs and lower prices. Therefore, we argue it was still in the Implementation/Roll-out phase at the time we conducted the interviews (end of 2007). • Development/R&D phase: 2005 (pilot project in Vodafone R&D) • Implementation/Roll-out phase: 2006-2007 (launch on market by spin-off Log On)
4.3.3 Governance dynamics In the Development/R&D phase, the service was developed by Vodafone R&D, which only collaborated with an external mobile Internet platform provider. As such, interorganizational governance was hardly relevant for this phase, and we focused our interviews on the Implementation/Roll-out phase. We now discuss governance mechanisms in that phase and the factors explaining them (see Figure 4-7). The Log On and XWITS interviewees consider their relationship a simple, typical buyer-supplier relationship. XWITS primarily fulfills the requirements from service providers and only occasionally provides advice based on its expertise (Log On <--> AP Involvement). No revenue-sharing models are used, but the company charges cost-based fees for developing and hosting applications. All agreements are written down into contracts and formal specifications, detailing what the system should do and how it should be integrated with the service provider systems (Log On <--> AP Formal agreements). While formal agreements are leading, there is a certain level of flexibility when problems need to be solved. The relationship between application providers and SMS brokers is strict, using standard specifications and automatic billing. Contracts are most important between Log On and conference organizations, although reputation is also relevant in the conservative events market.
72 Log On <--> AP Sustainable relation {10-2}
is associated with
Log On <--> AP Involvement {4-2}
is associated with
Log On <--> AP Formal Log On <--> Op No relation {7-3} agreements {12-2}
is cause of is cause of is cause of
MD Event market {9-2} TD Internet technology {2-1}
Figure 4-7 Event Assistant - Governance mechanisms (Implementation/Roll-out phase) Because it is an event type of service (MD Event market), operational problems have to be solved quickly, before the conference is over. XWITS explains that, to do this efficiently, more formal agreements and specifications are required. However, the interviewees do not consider these contracts very special or interesting, as they even appeared to wonder how their standard buyer-supplier relationship could be interesting to our research: [Our contracts with application providers are] not all that exciting, for development they have a rate and for hosting they have a rate. That is about the only parameters you have. (Log On/1) Because Log On depends on its application providers for its application platform, sustainable relationships with application providers important (Log On <--> AP Sustainable relationship), e.g. by selecting stable and reputable partners. However, the interviewee explains that investing in sustainable relationships is also his personal preference. Technological and business model choices have been made such as to limit the dependency on operators and handset manufacturers. Handsets are automatically recognized by the mobile Internet platform, and the service does not require specific devices. User identification is carried out through unique URLs, billing is irrelevant as end-users do not pay for the service themselves, and customer ownership resides at conference organizers so operator portals and marketing are not needed. These business model choices and Internet technologies (TD Internet technology) allow the service provider to be independent from operators. In addition, advanced technologies like localization are not part of the service concept, as it should be accessible to basic handsets and non-experienced users in order to service the full event market (MD Event market). Furthermore, the Log On founder also personally prefers not to be dependent on operators unless it is absolutely necessary:
73 Having worked for some time at an operator is very useful. What you should try to do as an application developer is to bypass them as much as possible. [...] The service has been built in such a way that it does not interest me at all what type of handset they have or how they access the Internet, it is just Internet-based, rather than bound to an operator. (Log On/1)
4.3.4 Conceptual analysis The relationship between Log On and its application providers is mainly a typical buyer-supplier relationship, in which Log On lays down requirements for applications, which means this is a form of authority-based governance. The requirements are laid down in formal specifications, which are then built for a predefined fee, indicating a form of contract-based governance. The occasional advice from application providers and the focus on sustainable, long-term relationships shows there is also a degree of trust-based governance. Between Log On and intermediary sellers, contract-based governance is used. See Table 4-4 for an overview. Table 4-4 Event Assistant – Operationalization of governance dimensions Authority-based Contract-based Trust-based Buyer-supplier Contracts on cost- Occasional advice Log On – relationship based fee from AP Application Formal specifications Sustainable, long- providers term relations Log On – Contracts Intermediary sellers
Because the Development/R&D phase was conducted internally by Vodafone R&D, no relevant governance mechanisms are found. As such, we can only draw conclusions regarding which governance mechanisms were used in the Implementation/Roll-out phase (see Table 4-5). We found that market-related drivers relating to the event specific nature of the service led to an increased use of contract-based governance between Log On and its application providers. A summary of the governance mechanisms and relationship with the phases and drivers is provided in Table 4-5 Moving all Vodafone R&D in-house activities in the Development/R&D phase towards a spin-off company in the Implementation/Roll-out phase is treated as part of the phase transition. Rather than changing the governance mechanisms in the value network, this shift influenced the role division among the actors involved. It may have been expected beforehand that governance would be an issue in this case, as the value network comprises a variety of intermediary sellers and application providers, and as the event specific nature of the service requires quick problem-solving which may pose coordination-related issues. However, the interviewees report few collaboration problems that may relate to
74 how their activities are being governed. They use basic buyer-supplier relationships and contracts to organize activities. We sometimes got the feeling interviewees wondered how their relationships could be of interest to our research. According to them, the choices to not involve operators and the use of Internet standards reduces complexity of the activities that need to be handled and makes governance less complex. Table 4-5 Event Assistant – Summary table Dev/ Impl/ Comm Techn Market Regul R&D Rollout driv driv driv Auth + 0 0 0 Log On – Application Ctr + 0 + 0 providers Trust 0 0 0 0 Auth - 0 0 0 Log On – Ctr 0 0 0 0 Intermediary sellers Trust - 0 0 0
An alternative explanation for the governance mechanisms found is the personal preference of the Log On interviewee in favor of using sustainable, long-term relationships when dealing with application providers. Similarly, he explains that it was his personal experience that made the company decide to design the service in such a way that no operators needed to be involved.
4.4 Attendering service Thus far, we studied services developed and offered by for-profit organizations, and aimed at consumers or business users. As we described in Chapter 3, domain-specific trends, like the end of walled gardens and reducing dependency on operators, may have a large impact on any governance dynamics found. In addition, the for-profit element may increase the influence of market-related drivers. To test these domain-specific effects on governance dynamics, the following two cases involve mobile service innovation within a public service domain: the Dutch police force. In this domain, no operators are involved directly, and there are no debates on the merits of walled gardens versus open models like there are in the commercial domain. Nevertheless, organizing service innovation within the Dutch police organization is a challenging affair. According to one stakeholder, it typically takes as long as eight years to develop and implement a new service, largely due to the organizational complexity of the police force. Historically, the Dutch police have been highly decentralized, with each municipality having its own police force. In 1993, the 200 police forces were merged into 25 regional forces and one special, national force. The resulting 26 `police regions’ operate relatively autonomously, without direct guidance from the national government. As a result, each police region developed its own stack of ICT systems over the years. This heterogeneity led to issues of interoperability, as it was often difficult to exchange information between police regions. Because the national government considered this situation undesirable, a central ICT service organization was established in the late 1990s, which now owns and maintains the existing ICT systems, controls
75 access to police databases and operates the secure mobile communication network (C2000). A special assignment to the ICT service organization is standardizing the ICT systems and creating a uniform, national architecture. To gain insight into the background of mobile service innovation at the Dutch police force, we conducted several interviews in 2006 with the people responsible for ICT at the police regions of Groningen, Gooi-Vechtstreek and Amsterdam-Amstelland. In addition, we interviewed the CTO and heads of product development and research and innovation at the Supply organization. The Attendering service is a service concept that was developed and tested in an innovation project that ran between 2004 and 2008. The service is offered to police officers on the street and pushes location-specific information regarding outstanding fines, local regulations or recent incidents. While there was already a mobile application to access police back-office systems in a pull- modus, this application pushes information whenever it is relevant based on the officer’s location. The client application runs on a GPS-enabled PDA and interacts with a server platform which is linked to police back-office systems.
4.4.1 Actors and roles Until January 2008, the central police ICT organization consisted of two independent parts: a Demand-side organization that collects requirements for new services from police regions, and a Supply-side organization that maintains, integrates and outsources ICT systems. The service concept was developed by the Demand organization’s Research and Innovation department and the police region of Groningen, where it was also tested in a pilot study. To integrate the service with back-office systems, the Supply organization became involved as well. Although the Demand and Supply organizations were merged in 2007, their respective project participants remained in different departments. Two external, commercial application providers were directly involved in the project. Geodan Mobile Solutions (from here on referred to as Geodan) provided the client application running on the PDAs, and had already been involved in the past development of a pull-based mobile information service for police officers. Intergraph developed the server that provided links to police back- office systems, and was selected because they were already providing the operational geographical information system to the police. Although the region of Groningen was initially steering these application providers, technical project management role was later taken over by the Supply organization, see Figure 5- 9. We conducted interviews with the key representatives of each of the five organizations in the summer of 2008, two of whom we also interviewed once before in 2006. We also studied project evaluations written by the Supply organization, the Demand organization and the Groningen police region respectively.
76 Police ICT organization “Supply” Police region Groningen Police ICT Technical organization project “Demand” manager Project manager Project Systems manager integrator Test-bed region Software provider
Intergraph Geodan
Platform Handset application application provider provider
Figure 4-8 Attendering service – Value network
4.4.2 Phasing Before the official start of the project in 2004, Groningen, the Demand organization and Geodan had already been developing underlying service ideas, independently of each other. The interviewees of Groningen police region and the Demand organization then decided to work out the service concept in a joint research project. During the innovation project, the theoretical value of the service concept was tested via workshops and desk research. Next, in 2006, a prototype was developed by the two application providers. To gain insight into the feasibility, added value, costs and benefits of the service concept, the prototype was tested by 35 Groningen police officers in 2007 and 2008. Initially, the prototype was not stable enough for operational use, which was solved in January 2008. In 2007, the project won the Police Innovation Price, triggering much media, political and foreign attention. After the pilot project ended in July 2008, the project managers from Demand organization and Groningen region wrote a joint project evaluation advocating the national roll-out of the service. Although service ideas were developed prior to the project, we consider the official project launch in 2004 as the start of the Development/R&D phase. This phase lasted until 2005 as the service concept was developed in more detail, and the application providers were selected as project partners. Although, in 2007, the prototype was launched, it was aimed at testing the service concept rather than intended as a first step in the roll-out. Therefore, we consider building
77 and testing the prototype in 2006 to 2008 to be part of the Development/R&D phase. At the time of the interviews, the decision whether to roll out the service on a national scale had yet to be taken, so the Implementation/Roll-out phase had not started yet. To conclude, we only have information on the Development/R&D phase, which lasted from 2004 until mid-2008. Although this limits the possibility of tracking dynamics across phases, it does provide insight into how activities were governed during this first phase. Furthermore, it involves several activities like service conceptualization, prototype development, and prototype testing spanning a 4.5 year period, allowing us to see whether governance mechanisms change in such a prolonged and complex phase. And finally, there are in fact very few examples of (mobile) service innovation at the Dutch police that actually reached the Implementation/Roll-out stage.
4.4.3 Governance dynamics
Police organizations The Groningen police region and the Demand organization freely chose to collaborate and had similar objectives, i.e. conducting the research and developing a successful service concept and prototype. The collaboration took place on an equal basis and without much formalization. When talking to the interviewees, we noted both preferred pragmatism to formalizing all agreements, and had similar perceptions on the governance issues encountered in collaborating with the other players. The interviewees from Groningen police region and the Demand organization depended on the Supply organization (Gron/Demand --> Supply Dependency in Figure 5-9) for access to the secure communication network and the backoffice databases. In addition, the Supply organization automatically becomes involved when the service is ready to be implemented, as it is the police regions’ preferred supplier. At that point, the service and technology would be evaluated against the uniform architecture and standards, which could lead to delays and extra costs in rebuild the system. To prevent this from happening, the Demand organization and Groningen decided to involve the Supply organization early on, i.e. when developing the service concept (Supply involved early). However, the interviewee from Demand organization and Groningen explain that this increased costs as the prototype had to fit the uniform architecture and standards. Furthermore, the Supply organization had to integrate the systems from the application providers, which also increased the costs and project lead time (Project delay & budget overrun). While Interviewees from the Demand organization and the Groningen police region have job descriptions relating to innovation and research, the main part of the Supply organization is involved with maintaining and standardizing existing ICT systems. According to Groningen police region and the Demand organization, this implies it gives less priority to innovation projects. One example is that the Supply organization unilaterally suspended its work on the project twice because its budget had been spent, without informing the other organizations. Another example is that the project managers of the Supply organization were replaced four times in the course of the project (Supply Project
78 leaders replacements). After each replacement, the new person had to work his way into the project, which increased project costs, and former agreements were sometimes cancelled. In addition, such replacements eliminated interpersonal trust, which reduced trust from the other organizations in the Supply organization as a whole (Gron/Demand --> Supply Low trust). The priority of the project for the Supply organization increased somewhat during the project as external media and political triggered a sense of urgency (EXT External attention): If the minister […] appreciates it and we also won an innovation price recently awarded by the minister of internal affairs, you create […] an external pressure […] and you need it, because […] if you are working on something `new’, it is difficult [in dealing with the Supply organization]. (Dem/2)
Gron / Demand --> Supply Supply involved early {9-3} Dependency {5-2} is cause of
is cause of GOV Supply <--> Demand / Gron Formalization {19-3} is cause of Project delay & budget overrun {17-9} is cause of Supply Project leaders replacements {9-3}
is cause of is cause of GOV Gron / Demand --> Supply Low trust {5-2}
EXT External attention {24-3} Supply Lack attention {14-3} reduces Figure 4-9 Attendering service – Governance between police organizations Note: Gron = Groningen region; EXT = External drivers; Supply = Police ICT organization `Supply‘; Demand = Police ICT organization ‘Demand’
While the interviewees of the Groningen police region and the Demand organization adopt a pragmatic approach, they argue the Supply organization is generally not suited to innovative tasks and tends to focus too much on control and formalization (Supply <--> Demand – Gron Formalization). One example is that, for every alteration, formal proposals and risk analyses were made. Rather than trusting each other, the Supply organization insisted on formalizing all
79 agreements. Another example is the Prince2 method applied by the Supply organization, which the other interviewees consider too formal for an innovation project. Formalization, procedures and paperwork are contrary to what the interviewees from the Demand organization and the Groningen police region consider advisable in this type of innovation project, and should only be done once the roll-out of the service is started. Generally speaking, it is not possible with something innovative to lay down up-front contracts with external providers and Supply organization listing all specifications. You cannot draw them up perfectly up-front, and for providers it would be uncertain whether they will meet the specifications. Therefore, you have to work based on trust. But this does not work if the provider works in a billing-per-hour fashion. (Reg/1) As a result of project delays, the technology has now become outdated and technological revisions are needed. In retrospect, the Demand organization interviewee regrets involving the Supply organization at an early stage: If I were to do it again, I would first test the concept with a throw-away architecture and learn a lot from it just like we did now. I think that is cheaper and quicker. (Dem/2)
Police and application providers The application providers were involved in the project as subcontractors who were paid for the hours they invested in developing and testing the applications. In addition to the coordination efforts needed, as two application providers were jointly involved (AP Complex coordination), several governance-related issues are mentioned, see Figure 5-11. Application providers were steered by the police organizations, but their expertise was taken into account while taking technology decisions. Initially, it was hardly specified what the applications should look like, as the functionality of the service was still unclear (GOV Gron/Demand --> AP No specifications). At this stage, the Groningen region directly steered the activities of the application providers, and trusted the application providers to do their best to develop an innovative service and technology. Most activities were coordinated on an ad hoc basis, and instead of specifying what had to be done application providers were paid per hour (GOV Supply <--> AP Ex-post hour- based charging). If you look back and try to find plans, contracts and designs, you find they are totally missing. […] If you investigate the contracts with external providers, it merely defines so many thousands of Euros [will be paid for] to do `something’. […] That makes a project unmanageable. (Sup/1) In 2006, the Supply organization took over Groningen’s role of technical project manager and started to steer the application providers directly (Supply replaces Groningen as proj mgt). Although this was a more formalized arrangement (Supply <--> AP Written agreements), project management was still rather loose. Both application providers argue they were driven to make the project successful, for example to showcase their innovative capabilities to new customers.
80 Intergraph argues that existing technologies were merely combined rather than conducting actual research, using the standard buyer-supplier relationship. However, the police organizations do not seem to trust that the application providers did their utmost and gave their fullest attention in developing the applications and solving the technical issues when the prototype was tested (GOV Gron/Demand --> AP Low trust). For example, application providers sometimes claimed that problems were solved, but the functionality was still not to be working when tested. Sometimes, information provided by the application providers proved to be incorrect, and one of the application providers replaced personnel in the project, so the resources could not be reliably estimated. Another issue was that the source of technical issues was unclear to the police organizations and they perceived the application providers to be blaming each other. The application providers, on the other hand, argue that problems have been solved in a transparent and open approach. The following quote illustrates the lack of trust from police organizations with regard to the application providers. [They did not want to work to make the project successful?] No. They are both commercial parties and have participated based on billing-per-hour. They wanted each hour invested to be paid. […] Those contracts were such that they got money for the full 100 hours, and when those hours were spent, the money was spent. And then they said: the money is spent, we need another 100 hour contract and you have to pay again. And in my view, it was not properly arranged what they had to do for that. […] They purely did billing-per-hour development and were not triggered to deliver good solutions. [Sup/1]
Gron / Demand --> AP No specifications {13-2}
AP Complex coordination {6-1} is cause of is cause of Project delay & budget overrun {17-9} is cause of GOV Supply <--> AP Ex-post hour-based charging {25-5} is cause of is cause of GOV Gron / Demand --> AP Low trust {10-3} is cause of
GOV Supply <--> AP Written Supply replaces Gron as proj mgt agreements {16-3}~ is cause of {18-2}
Figure 4-10 Attendering service – Governance with application providers There also appears to be an issue of distrust among the application providers themselves. Application Geodan explains that the provider of handset
81 applications often gets blamed in case of technical issues, as handsets are the most visible to the end-user. Geodan also argues that for them the project may have been more important than for Intergraph. However, Intergraph does not support this view: We saw that Intergraph was rather busy. I had the impression the project was more important to us than it was to them. I do not know if that is true, but it is my impression. [Geodan/1] For all parties there was a higher-level interest that the pilot would be successful. […] I do not know the technical details but there have been some technical hick-ups. But the willingness to cooperate was always there, and all has been solved. [Intergraph/1]. Possibly, the perspectives of the players involved were different, which would explain the differences in opinion. Another explanation may be the very lack of attention given to the project by Intergraph, as suggested by the other players, which would have made issues involving trust and collaboration issues less concerning to them. Following this line of reasoning, Intergraph may just not have perceived or remember the problems as severe, due to a lower interest in the project. It could also be that, since the project ended with various delays and budget overruns, the interviewees want to sketch a story that clears them of any responsibility. The question as to how application providers could have been governed better is a recurring issue in all the interviews. The interviewees seem to agree that, in an innovative project, the functionality of the final prototype is often not clear at the start, which means that perfect specifications what has to be done are not possible. The interviewees the Demand organization and the Groningen police region find that application providers should have collaborated more closely, in geographical terms as well, and solve problems pragmatically. As such, they seem to find a solution in applying more trust-based governance rather than contract-based governance. On the other hand, the Supply organization and Geodan mention that stricter specifications and activity management should have been applied. As such, they seem to suggest that more contract-based and authority-based governance would have reduced the time and investment needed in the project. Application provider 5, on the contrary, indicated all collaboration was quite satisfactory.
4.4.4 Conceptual analysis Collaboration between the Groningen police region and the Demand organization was based on trust-based governance as they had shared objectives, were free to choose to collaborate and did not formalize any agreements. The Groningen police region and the Demand organization interacted with the Supply organization mainly on contract-based governance, given the high reliance on paperwork, formalized agreements and contracts. There is also some degree of authority-based governance, as the Groningen police region and the Demand organization specified what Supply organization had to build. However, the Supply organization apparently had the power to impose its standards and
82 temporarily suspend its work on the project. Trust-based governance was absent in this relationship, although the Demand organization and the Groningen police region argue that using this type of governance would have been more effective in this phase. Between police organizations and application providers, we find that collaboration took place on an ad hoc basis with little formalization and specifications, so the main governance mechanism used was trust-based governance. However, this turned out to be problematic, as trust between the police organizations and application providers was actually missing during the project. During the project, authority-based and contract-based governance increased, especially when the Supply organization took over steering the application providers. The interviewees disagree as to whether more contract- based and authority-based governance or more trust-based governance should have actually been applied. The operationalization of governance dimensions is summarized in Table 4-6 Table 4-6 Attendering service – Operationalization of governance dimensions Authority-based Contract-based Trust-based Groningen – Shared objectives; Demand no formalization of organization agreements Groningen police Formalization of Groningen/ region and the agreements and Demand Demand proposals; formal organization – organization put project Supply functional management; organization specifications to Supply org Loose steering of Low extent of No specifications of Police application providers formalization and deliverables organizations – specification Ad hoc coordination Application of activities providers Ex post costs calculation
We found no technological, market-related or regulatory drivers influencing the governance mechanisms, even though we did ask our interviewees specifically (see Table 4-7). Although advancing technology did outdate the final prototype, this did not change the governance mechanisms. The merger between the Supply and Demand organizations did take place during the project, but did not impact their relationship within the project. External media and political attention led to more involvement of the Supply organization, but interviewees did not indicate any impact on the governance mechanisms employed. Various actors were dissatisfied with the governance mechanisms being applied. The Groningen police region and the Demand organization argue that the use of contract-based governance by the Supply organization has increased the costs and project duration. However, their dependency on the Supply
83 organization and a lack of leverage prevented them from changing this. By contrast, the Supply organization found that more contract-based governance and less trust-based governance should have been used to steer the application providers. Table 4-7 Attendering service – Summary table Dev/ Impl/ Comm Techn Market Regul R&D Rollout driv driv driv Auth - 0 0 0 Groningen region – Ctr - 0 0 0 Demand organization Trust + 0 0 0 Groningen / Demand Auth 0 0 0 0 organization – Supply Ctr + 0 0 0 organization Trust - 0 0 0 Auth 0 0 0 0 Police organizations – Ctr - 0 0 0 Application providers Trust + 0 0 0
The case shows that there is a trade-off between using contract-based and trust- based governance in the Development/R&D phase. As the service concept was not clear at this stage, it was not feasible to exactly define the specifications to the applications that Geodan and Intergraph had to deliver. In fact, this would have introduced the risk that no innovative solutions would have been developed. The lack of market-related drivers that can be found in commercial settings may have reduced focus on delivering efficient solutions. On the other hand, it may be considered naïve to trust commercial application providers to do their ultimate best while not knowing what exactly has to be done. In fact, trust in the application providers was reduced in the course of the project, as it got delayed and as several technical issues emerged during the pilot study.
4.5 WijkWijzer The WijkWijzer was developed in an R&D project that was co-funded by government and research institutes. Rather than aiming primarily at developing a service that could be rolled out on a full scale, the project objectives were to create knowledge on `we-centric services’ and on human-centered design. The WijkWijzer service is based on the idea of `we-centric services’, which are meant to support people in their communication and collaboration in dynamic groups that may emerge of change over time. Typically, these kinds of services add value by locating colleagues, finding out who has relevant information on the user’s current situation and/or discovering which group members are available for direct communication. The we-centric service called WijkWijzer aims at facilitating the exchange of communication and knowledge between community police officers and emergency police officers.
4.5.1 Actors and roles Although the R&D project included other research activities and service innovations as well, we limit our scope here to the organizations that were
84 directly involved with the WijkWijzer, as visualized in Figure 4-11. The project was initiated by the Telematica Instituut (TI), a research institute that was also formally and legally in charge of the project. With regard to the WijkWijzer work package, daily operational decisions were delegated to the competing research institute TNO. Together, TNO and TI conducted user research and developed ideas for the service concept. Because they required knowledge on the police domain to do so, the police Supply-side ICT organization was involved in the project; the same organization that was present in the Attendering service case. In addition, they approached police regions to participate in workshops and a pilot study to develop and test service ideas. Based on the service ideas from TI, TNO and the Supply organization, technology partners Web Integration (WI) and Ericsson implemented the required technical systems, i.e. a handheld client (WI) and a server (Ericsson).
Telematica TNO Instituut Police ICT organization Operational- Strategic- “Supply” level project level project leader leader Domain expert User User research / research / Intermediary Service Service towards concept concept regions development development
Ericsson Web Integration
Platform Handset application application provider provider
Figure 4-11 WijkWijzer – Value network We conducted interviews with project participants from all the organizations, except WI, who, despite numerous requests, declined to participate. In addition, we had access to all project plans and deliverables.
4.5.2 Phasing1 Between 2004 and 2006, the WijkWijzer service concept was developed, refined, prototyped and tested using a user-centered design approach, i.e. project team
1 Partly adopted from De Reuver & Steen (2008)
85 members sought interaction with future and potential end-users during the innovation project. Various steps were taken in the service concept design process. First of all, a workshop was organized that involved police officers, from which lessons were drawn regarding area bound work, while existing communication, information and cooperation opportunities were identified, which may be solved through innovative mobile services. One of the four opportunities that were articulated in this workshop was deemed to fit the we-centric concept best: the need for community police officers to communicate with other police officers, firemen or ambulance personnel, and with network partners, such as the municipality, social welfare workers or school headmasters. This meant that the service should support community police officers in communicating and cooperating with network partners, i.e. others outside the police force. Secondly, a so-called rapid ethnographic study was conducted to observe and understand the daily work of police officers through their personal experience. In a workshop, these observations were validated by community police officers. Based on the observations and the workshop, the scope of the service concept was narrowed by focusing on supporting community police officers to share their knowledge with emergency police officers. Thirdly, the resulting service concept was evaluated in two additional workshops involving police officers, to validate the problem and the proposed solution, and the choice of stimulating community policy officers and emergency police officers to share knowledge with each other. A mock-up was then evaluated with police officers in a workshop, with the aim of discussing the functionality, followed by a small-scale test, in which police officers used the mock-up on the street during their work. The final step in the design of the service was the validation of the added value of the WijkWijzer service. In a quantitative approach, an analysis was carried out of the amount of past incidents in which the service could have been useful. In a qualitative approach, workshops were conducted in which storylines involving the use of the service were rated by practitioners. In terms of the phases in the conceptual model, the service developed from a vague concept into a service concept that may be implemented and rolled out. Up to that point, the design choices in the service component had been made in relative isolation from choices in the technological, organizational and financial domains, making it hard to decide whether or not the service concept could actually be implemented within the police organization. The prototype was intended to validate the added value of the service concept, rather than a first step towards implementation. Therefore, we conclude that the service concept has been in the Development/R&D phase between 2004 and 2006, and has not (yet) reached the Implementation/Roll-out phase.
4.5.3 Governance dynamics
Research institutes and police organization The interviewees from the two research institutes felt highly dependent on the Supply organization in terms of gaining access to two of their resources, i.e. access to end-users at the police regions and police back-office systems. This
86 was an issue throughout the project, (see Figure 4-12) (All --> Supply Collab issues). Suppy Reluctant to approach Supply Security procedures {10-2} regions {10-3}
is cause of is cause of is cause of
All --> Supply Collab issues {10-6} Service Added value low {13-1}
is cause of
is cause of GOV TI --> All Limited power {5-3}
is cause of is cause of
GOV TI --> All Cannot remove GOV TI --> All Equal basis {14-3}~ actors {8-4}
is cause of Supply Low priority & interest is cause of is cause of {28-2} is cause of
TI --> All High degree of freedom {2-6} is associated with
is cause of R&D setting {11-6} is cause of GOV TI --> All Loose project mngmt {8-2} is cause of is cause of
GOV TNO --> All Little is causeGOV of TI --> All Flexible project formalization {6-1} plan {11-2}
GOV TNO --> Supply No pressure {5-2}
Figure 4-12 WijkWijzer - Governance between research institutes and police organizations Note: TI = Telematica Instituut
The Supply organization was assigned to approach police regions in order to access end-users, which was essential for the project because it aimed to conduct human-centered design, i.e. making design decisions in interaction with end-users. However, the Supply organization was reluctant to do so (Supply Reluctant to approach regions). One of the interviewees explained that the Supply organization has a facilitating role and does not want to push services without being asked by the regions. A contributing factor is that the Supply
87 organization thought the added value of the WijkWijzer concept as a service in its own right would be low, which was later partially confirmed in the design study (Service Added value low). Interviewees from the research institutes speculate that the Supply organization probably feared losing its reputation, after its image had already become negative due to past lack of attention to innovation: We sometimes thought: `Why are they being so difficult? All they have to do is phone a region and ask if a pilot can be conducted; why are they being so difficult about it?’ […] People [at the Supply organization] were willing to collaborate, but they were also scared of sticking their necks out. […] They kept on saying: `we will not tell the police [regions] what they have to do, but they have to tell us themselves.’ (TI/1) The WijkWijzer uses data on past incidents to determine which information should be pushed to the end-users. Although these databases are maintained by the Supply organization, it turned out that accessing them was not allowed, due to security regulations (Supply Security procedures). The Supply organization also rejected the alternative solution of copying the database structure without its content. During the pilot, data had to be imputed manually, which made the results less usable. Overall, the interviewees felt that the security issues and reluctance to approach police regions delayed the project and meant that the pilot study could only be executed for two days on a non-fully functional prototype. Some interviewees argued that part of the above-mentioned issues can be attributed to the lack of a clear incentive for the Supply organization to make the project a success. Its involvement had been advocated internally by a senior researcher who retired shortly after the project had started. After that, the Supply organization’s management was uncertain what they wanted to gain from the project, which reduced their interest in the project, and some of the interviewees speculate that this limited their efforts to meeting predefined obligations that did not involve solving security obstacles and approaching police regions (Supply Low priority & interest). I think it would have been possible [to gain access to the police databases], yes, but [… the Supply organization takes] a certain risk doing this with an external party. […] And you only do that if something is to be gained. But if you think: we really will not use [the service concept], you are not prepared to take those risks. After all, they will be taking risks for their own experiments as well of course. (Er/1) Although TI was legally in charge of the project, it did not have sufficient power in practice to enforce a solution to the above-mentioned problems (GOV TI --> All Limited power). When making any strategic decisions on project-related activities, all interests and preferences had to be equally weighted (GOV TI --> Equal basis). TI could only steer other actors indirectly, e.g. by discussing issues with higher-level management of the partner organization and/or research program, or by using external project reviews as an argument to change the project focus. Removing the Supply organization from the project may have been a solution in a commercial setting, but was not an option in this case (GOV TI -->
88 All Cannot remove actors) as that would have violated the project sponsor’s requirements (R&D setting). TI had delegated operational management of the WijkWijzer development to TNO. However, TNO was mainly interested in pursuing research objectives (R&D setting), rather than testing the service concept extensively, and therefore did not exert much pressure on the Supply organization: We never simply approached a police region, but always kept cooperative contact with the Supply organization. So if it took the Supply organization a long time, we would just wait. In this respect, it was a strange project. If I had been project leader and on a deadline, I would have said they had two months to get it done, and otherwise we would take measures. In another project I would have said that... And if we had been more in the project leader role. (TNO/1) Proving that the Supply organization did not meet its obligations was practically impossible, because all the actors had a high degree of freedom in carrying out their tasks (GOV --> TI All High degree of freedom). Formal contracts did not detail any actual deliverables, nor did the project plans, even though they were more concrete. In addition, project plans were used flexibly and adjusted each year, and they did not fully specify the project deliverables due to the innovative nature of the project (GOV TI --> All Flexible project plan). The TI interviewee explains that, although he trusted other players in doing so, aiming at motivating them to achieve innovative results (R&D setting), it also prevented them from proving that the Supply organization’s performance was below par. Operational decisions were also hardly formalized (GOV TNO --> All Little formalization); one of the interviewees recalls no more than three memos, a handful of articles and one ten-page requirement sheet in a three year period. Some interviewees argued that the project team was so small that formal agreements were not required, while others explained that more memos, action points and deadlines would have been used in regular, commercial service development projects (R&D setting).
Research institutes and application providers The functional requirements drawn up by TI and TNO were implemented by Ericsson and WI. However, in particular Ericsson provided feedback and solutions proactively that were accepted by TI and TNO. Initially, WI was put in charge of managing the implementation work package at an operational level, but this role was soon reassigned to Ericsson. Here, we focus on the collaboration issues with regard to WI (see Figure 4-13). Generally speaking, WI had little affinity with conducting research, instead considering the project an opportunity to develop with and sell products to the Supply organization and police regions (WI Own interests). Reluctance on the part of the Supply organization’s to approach police regions prevented WI from doing so (All --> Supply Collab issues), which is why TI allowed WI to bypass the Supply organization and start selling the application to other markets like neighborhood watches and security officers (WI Going around Supply).
89 GOV TI --> All Loose project mngmt {8-2}
All --> Supply Collab issues {10-6} is cause of
TI --> All High degree of freedom is cause of {2-6} is cause of
WI Going around Supply {6-3} has questionable impact on WI Own interests {6-2}
is associated with is cause of
WI Opportunistic behavior {6-7}
contradicts is cause of Supply, TNO, TI --> WI Low trust E --> WI Good collaboration {3-2} contradicts {3-1}
WI Incompetent {5-2}
Figure 4-13 WijkWijzer - Governance with application provider WI As a result of the relaxed project management (GOV TI --> All Loose project mngmt), WI became detached from the actual project work. Some interviewees argue that WI was behaving opportunistically, e.g. because they allegedly adjusted their existing products slightly to receive subsidy and find new sales opportunities in the security sector (WI Opportunistic behavior). Other interviewees argued that WI was incompetent when it came to conduct research- oriented development, because it lacked experience in innovation projects and was unable to lead the implementation work package effectively (WI Incompetent). By contrast, one interviewee asserted that their collaboration was actually satisfying, as they delivered exactly what was agreed (Ericsson --> WI Good collaboration). Most of the other organizations, however, distrusted WI to some extent (Supply, TNO, TI --> WI Low trust). Like the Supply organization, WI could not be removed or substituted, as this would have violated subsidy requirements. Ultimately, WI simply became less and less involved in the project and its tasks were transferred to Ericsson.
4.5.4 Conceptual analysis As illustrated by the collaboration issues involving the Supply organization and WI, project leaders TI and TNO had only limited means to influence the other players. Although TI was legally in charge of the project, it lacked the power to
90 enforce decisions, which implies that authority-based governance was not present in this case. Project plans were mainly used as a means of communication and provided only general descriptions of deliverables. In addition, they were used flexibly and adjusted when necessary. Operational decisions and design choices were rarely formalized. In short, there was no contract-based governance. Generally speaking, the actors were free to carry out research and development activities. Both project management and project plans were flexible. The high degree of freedom enabled WI to become involved in work that was not directly related to the project. The overall conclusion has to be, therefore that trust-based governance was the most important mechanism. Table 4-8 summarizes the operationalization. Table 4-8 WijkWijzer – Operationalization of governance dimensions Authority-based Contract-based Trust-based Rules from Supply High-level project High degree of TI – Other organization on plans freedom to all actors project security procedures Little formalization of Loose project partners decisions management
No market-related drivers were found, because there were no customers of competitors (see Table 4-9). Technological drivers were also absent, probably because most of the technology being used was not highly innovative. Regulatory drivers were also not found, although the strict security-related guidelines from the Supply organization may be considered a result of laws regarding the police force. Table 4-9 WijkWijzer – Summary table Dev/ Impl/ Comm Techn Market Regul R&D Rollout driv driv driv Auth - 0 0 0 Research institutes – Ctr - 0 0 0 Supply organization Trust + 0 0 0 Auth - 0 0 0 Research institutes – Ctr - 0 0 0 Application providers Trust + 0 0 0
In this case, there is a trade-off between using authority-based and contract- based governance to monitor players and make sure they doing their best, and using trust-based governance to motivate them, by giving them a high degree of freedom in carrying out their tasks. We saw that, although trust-based governance may work for competent, benevolent organizations, it is less effective in cases involving incompetent or possibly opportunistic players. Each actor had its own reasons for participating in the project. In addition, none of the organizations effectively represented the end-user’s interests, which reduced the focus and sense of urgency among the project players. Authority-based
91 governance would probably have been more suitable in this case. However, TI lacked the power to exert any kind of authority-based governance. An alternative explanation refers to the R&D setting in which the project took place. Firstly, the objective of the R&D project was not primarily to develop a viable service but to conduct research. The interviewees stressed that this project was different from their normal product development projects, which is probably why it was more loosely managed. They argued that commercial projects would have relied more on contract-based and authority-based governance. Secondly, because the R&D setting required looser management, due to the fact that deliverables could not be fully specified up front, the project leader had to have specific qualities. One of the interviewees commented that, especially TNO, WI and the Supply organization did not have enough affinity with conducting research, which prevented them from organizing their activities effectively. The same interviewee also stated that they focused too much on developing the service concept rather than doing research. Thirdly, in a commercial setting, the problematic collaboration with the Supply organization would probably have led to an escalation of the problem or substitution of the organization by other actors. In fact, service innovation was delayed, little new conceptual knowledge was generated, a pilot of only two days involving a limited part of the service functionality was conducted, and there will be no actual implementation and roll-out. However, most actors appear satisfied with the project results: the Supply organization was not highly interested in the service, and Ericsson and TNO were able to carry out the research in which they were interested, which did not involve designing a viable service concept as such. One of the interviewees even explained that the short duration of the pilot was actually beneficially, as it reduced their workload, and as they were not too interested in the service anyway. Although WI was not available to be for interviewed, apparently it was not really interested in make the actual service a success either. The lack of market-related drivers may explain why little action was taken to solve the issues.
4.6 Cross-case analysis Table 4-10 combines the summary tables from this chapter. In the Development/R&D phase, we found that authority-based governance was used in the i-mode case, but not in the Attendering service (AS) and WijkWijzer (WW) cases. Contract-based governance was used only in the AS case, while trust- based governance was used in all three relevant cases. As far as the Implementation/Roll-out phase is concerned, we found authority-based and contract-based governance in both the i-mode and the Event Assistant (EA) case. Trust-based governance, however, was only found in the i-mode case and not in the EA case. The i-mode case includes the Commercialization phase, during which authority-based governance was used. Market-related drivers influenced governance mechanisms in the i-mode and EA cases, but not in the other two cases. Technological drivers only influenced governance in the i-mode case. An interaction effect between external drivers and a phase transition was found in the i-mode case. Regulatory drivers played no role in any of the cases.
92 Table 4-10 Cross-case summary table Dev/ Impl/ Comm Techn Market Regul i-mode R&D Rollout driv driv driv Auth + - - - 0 KPN – Content Ctr + - - - 0 providers Trust 0 - - - 0 Auth + + 0 0 0 KPN – DoCoMo Ctr 0 0 0 0 0 Trust + + 0 0 0 Auth 0 0 0 0 0 0 KPN – handset Ctr 0 0 0 0 0 0 providers Trust + + - 0 0 0 Auth + + + 0 0 0 Content providers – Ctr 0 0 0 0 0 0 Application providers Trust 0 0 - 0 0 0 Dev/ Impl/ Comm Techn Market Regul Event Assistant R&D Rollout driv driv driv Auth + 0 0 0 Log On – Application Ctr + 0 + 0 providers Trust 0 0 0 0 Auth - 0 0 0 Log On – Ctr 0 0 0 0 Intermediary sellers Trust - 0 0 0 Dev/ Impl/ Comm Techn Market Regul Attendering Service R&D Rollout driv driv driv Auth - 0 0 0 Groningen region – Ctr - 0 0 0 Demand organization Trust + 0 0 0 Groningen / Demand Auth 0 0 0 0 organization – Supply Ctr + 0 0 0 organization Trust - 0 0 0 Auth 0 0 0 0 Police organizations – Ctr - 0 0 0 Application providers Trust + 0 0 0 Dev/ Impl/ Comm Techn Market Regul WijkWijzer R&D Rollout driv driv driv Auth - 0 0 0 Research institutes – Ctr - 0 0 0 Supply organization Trust + 0 0 0 Auth - 0 0 0 Research institutes – Ctr - 0 0 0 Application providers Trust + 0 0 0
Authority-based governance can involve a buyer-supplier relationship in which the buyer imposes requirements on the supplier (e.g. Log On and its application providers in the EA case); a power difference between actors enabling the more powerful actor to enforce decisions on the other (e.g. DoCoMo and KPN in the i- mode case) and a power difference where the more powerful actor lays down
93 generic rules to with other parties must comply if they are to gain access to its resources (e.g. KPN and its content providers in the i-mode case). The latter passive, implicit type of authority-based governance was used both by KPN in the i-mode case and by the Supply organization in the AS case. Both actors possess power, as they control resources on which other organizations depend, including (1) access to the communication network over which the service was transmitted, i.e. the cellular network (i-mode) and the secure network (WW and AS); (2) access to the customer, i.e. through the operator portal (i-mode) and through the Supply organization’s contacts with police regions (WW); (3) access to customer data, i.e. customer profiles and billing relationship (i-mode) and databases containing past incidents (WW and AS). In addition, the actors on whom authority-based governance was imposed were dissatisfied, i.e. content providers argued that the predefined rules constrained their innovative potential and brand identity (i-mode), while the other police organizations and research institutes argue that the strict procedures and formalization delayed and obstructed service innovation. In addition, the dependent organizations complained in general that the more powerful actor did not put in sufficient effort to solve their problems, i.e. technical problems regarding handset and portal heterogeneity (i-mode), integration of systems (AS) or actively approaching police regions and bypassing security regulations (WW). In fact, the only case where no actor reported being dissatisfied with the governance mechanisms being used was the EA case, where in fact little authority-based governance was exerted by an actor controlling access to critical resources. It should be noted, however, that, in the i-mode case, KPN was highly interested in making i-mode a success, while the Supply organization was considered less involved in the AS and WW cases. A typical response of actors on whom authority-based governance is imposed is to substitute the critical resources on which they depend. In the i- mode case, content providers actively attempted to reduce their dependency on operators by forming a pressure group, substituting operator resources by Internet-based technologies and launching off-portal content. In the EA case, Log On designed its business model and technology architecture in such a way as to prevent dependency on operators, even prior to launching its service. In the WW case, WI substituted the Supply organization with other security sector actors. However, the other actors in the WW case were unable to do so, due to external sponsor requirements. In the AS case, police organizations could not substitute the Supply organization’s resources, because they needed access to the secure communication network and databases. While commercial actors could use Internet-based technologies to substitute operator resources, the actors in the public domain were unable to do so, due to the closed and secure nature of police systems. Trust-based governance may involve joint problem-solving and sharing long term plans (e.g. KPN and its content providers in the i-mode case), close collaboration (e.g. KPN and DoCoMo in the i-mode case); long-term orientation of the relationship (e.g. Log On and its application providers in the EA case), ad hoc coordination based on shared objectives (e.g. Groningen police region and
94 the Demand organization in the AS case), ex post calculation of costs without specifying what the supplier has to do to satisfy the buyer (e.g. police organizations and application providers in the AS case) or basically giving project partners a high degree of freedom (e.g. TI and the other organizations in the WW case). We found that the existence of trust between actors is neither sufficient nor needed for trust-based governance to emerge. In the i-mode case, although there was trust between KPN and the content providers, authority-based governance was the primary mechanism. In the WW and AS cases, trust-based governance was used to organize activities with application providers, but in reality it turned out that there was in fact preciously little trust between them. Contract-based governance can involve contracts on liability (e.g. between KPN and content providers in i-mode case) or costs (e.g. content providers and application providers in i-mode case); formal specifications as to what the supplier should deliver (e.g. Log on and the application providers in the EA case); or formalization of agreements and proposals (e.g. Supply organization and the police regions in the AS case). Trust-based and contract-based governance did not occur simultaneously in any of the relationships, so they appear to be negatively correlated. This is exemplified by a trade-off on how to govern relationships with application providers which is seen in several cases. In the commercial cases, contract-based and authority-based governance was used to steer application providers, while trust-based governance was the main mechanism used in both the other. There was, therefore, a trade-off between preventing opportunistic behavior by using strict authority-based and contract- based governance and creating openness to stimulate innovative results by using trust-based governance. The differences may be partly attributed to differences between the commercial and public domain settings, as the latter includes fewer market-related drivers that necessitate a cost-effective collaboration. On the other hand, the difference may also be related to a stronger focus on creating something new in the case of the AS and WW service innovation projects, as this would make it harder to set up detailed specifications at the start of the project as to what application providers should deliver. As far as coevolution is concerned, we find support for the claim that factors at various levels influence governance dynamics. More specifically, changes in governance mechanisms are caused both by transitions between phases as well as by external drivers. In addition, we found that governance dynamics mainly play a role shortly after phase transitions, and less so during the phases. This supports the idea from coevolution theory that relatively stable periods are punctuated by short periods of change after an instigating event has occurred.
4.6.1 Domain-specific explanations We selected contrasting cases to test how differences across domains would influence our findings. As operators play the role of gatekeeper in the walled garden model (see Chapter 4), it may be expected that operator involvement influences the governance mechanisms being used. We did find that in the i- mode case, where KPN used authority-based governance to impose its rules on
95 the content providers. This type of governance was absent in the EA case, in which no operators were involved. Moreover, the interviewees in the EA case explicitly argued that not involving operators reduces much of the complexity involved in organizing mobile service innovation, which makes governance a less critical issue. In the AS and WW cases, however, the Supply organization acted in a way that was similar to the way KPN operated in the i-mode case. As discussed earlier, both possessed similar resources regarding access to the network, customer and customer data, and influenced the actions of dependent organizations by imposing a priori rules. This implies that, outside the commercial mobile services domain, similar issues relating to authority-based governance may emerge, even when there are no operators. In addition, while trying to explain governance dynamics in the i-mode case, we found that operator decisions may be a causal factor. KPN exogenously decided to launch an open WAP-based portal, which triggered the transition towards Commercialization phase, after which trust-based, authority-based and contract-based governance were reduced. As such, we conclude that operator involvement may lead to authority-based governance and can also partly explain governance dynamics. When comparing the commercial and public domain cases, we found that different governance mechanisms are used. As discussed earlier, relationships with application providers are organized through authority-based and contract- based governance in the commercial cases, while trust-based governance is used in the public domain cases. In addition, the R&D/Development phase takes between one and two years in the commercial domain cases, while it takes up to three and even 4.5 years in the public domain cases. This may be due to the fact that there were no market-related drivers in the public domain cases. As a result, there may have been fewer incentives to develop the service concepts and applications quickly and efficiently. Finally, we selected a case in an R&D setting in which the primary objective was to conduct research rather than to develop and commercialize a viable service concept. We found that, in this case, there was less contract-based governance, with few formalized agreements and specifications, which interviewees considered to be typically for an R&D setting. In addition, to foster innovativeness and allow players to conduct the research in which they were interested, trust-based governance was used to allow for a sufficiently high degree of freedom. In addition, we found that service innovation aiming at widespread adoption generally speaking has a certain focus, as the actors aim at satisfying future customers. In the R&D project, there were no such customers, especially since the Supply organization, which was intended to represent customer interests, had little interest in the service concept. Most actors were more interested in pursuing their own research-related interests than in developing a viable service concept, which reduced the level of authority-based governance and led to a low sense of urgency and a lack of focus, as a consequence of which there will be no Implementation/Roll-out and Commercialization.
96 4.6.2 Limitations There is a degree of (intended) heterogeneity among the cases we selected that may influence our results. It is only in the i-mode case that all three service innovation phases are present. The EA case does not reach Commercialization, while its Development/R&D phase is to a large extent irrelevant, since most activities took place within the boundaries of one company. The AS and WW cases only involve the Development/R&D phase. In addition, the duration of the phases varies considerably, i.e. the Development/R&D phase takes one year in the EA case, while it takes over four years in the AS case. To a certain extent, this may be considered typical of this type of research, and we encountered similar issues in a previous case survey using the same conceptualization (De Reuver et al., 2009d, 2009e). In addition, although our methodological choices elicited phase heterogeneity, it may also be present in other studies on service innovation. As we included a wide variety of cases, the unit of analysis varies. We defined the unit of analysis as the governance mechanism(s) being used in a value network developing, implementing and commercializing a specific service concept. While the i-mode case is a portal service in which several content sites are embedded, the other cases deal with individual service concepts. It could be argued that innovations involving broader service concepts, like i-mode, are likely to involve larger numbers of activities, actors and risks. More specifically, it may be that KPN decided to use authority-based governance in the form of imposing a priori rules on content providers because ad hoc coordination and closer involvement would have increased coordination costs too much, considering the large set of embedded content sites. The degree of useful information regarding our concepts and their relationships varied strongly across the interviews. While coding the interviews, some transcripts were assigned dozens of codes and complex causal mappings, while others merely contained a handful. There may be various reasons, Firstly, some interviewees could only reflect on a subset of our core concepts and/or their relationships with other actors because of their specific role. In particular larger organizations like KPN have a high level of task specialization, which meant that its interviewees could only reflect on relationships with one specific type of actor. Secondly, not all the interviewees were equally capable of reflecting on their daily activities at a more abstract level and of establishing causal connections. This may also be because some of the interviews took place during the service innovation, while others merely looked back on past projects, which generally speaking makes it easier to discern a larger pattern. Thirdly, there had been previous contacts with some of the interviewees, which may have persuaded them to be more open. Finally, it is worth expanding on people’s tendency to provide unbiased, critical reflections. Generally speaking, there is a risk of interviewees attempting to provide strategic and socially desirable answers in order to create a positive reflection about their role in the value network. We suspect that this especially played a role in the WW and AS cases, in which various interviewees requested reviewing the case study report prior to publication, which would indicate they were very cautious about sharing sensitive
97 information. Moreover, in the AS case, the interviewees mentioned that positive PR was one of the core objectives of the project, which may have led them to provide positive answers. We found further indications in favor of this possibility, as the police interviewees to a remarkable extent shared the same view, even though their answers tended to contradict the answers provided by the application providers. Although Atlas proved a useful tool for analyzing the interview transcripts in a structured way, it was still up to the researcher to connect the causal dots, because explanations are sometimes hidden between the lines, and some of the information may be contradictory in nature. In addition, assigning labels to codes that closely resembled the wording of the interviewees helped us gain insight into the mechanisms underlying the abstract governance dimensions. This prevented us from drawing conclusions too quickly and enabled us to iterate between the conceptual level and the codes and to reflect on intermediary conclusions. One of the most useful features of Atlas was the ability it provided to go back to quotes when writing case study reports, which in several cases led to adjustments and revisions of the relationships that we believed we had identified.
4.6.3 Hypotheses From the case study results, we can formulate the following hypotheses that include the direction of the relationships. These hypotheses will be tested in the survey study in Chapter 5.
H1a) Authority-based governance will be used more in R&D/Development phase H1b) Contract-based governance will be used less in R&D/Development phase H1c) Trust-based governance will be used more in R&D/Development phase H1d) Contract-based governance will be used more in Implementation/Roll-out phase H1e) Authority-based governance will be used more in Implementation/Roll-out phase H1f) Trust-based governance will be used more in Implementation/Roll- out phase H1g) Contract-based governance will be used less in Commercialization phase H1h) Trust-based governance will be used less in Commercialization phase H1i) Authority-based governance will be used less in Commercialization phase H2a) Technological drivers influence governance mechanisms H2b) Market-related drivers influence governance mechanisms H2c) Regulatory drivers do not influence governance mechanisms
98 5 Survey In the previous chapter, we developed a set of hypotheses on the basis of the findings from the case studies. In this chapter, we test these hypotheses using a different method and sample. More specifically, we conducted a survey among practitioners and academic experts involved in mobile services. Firstly, we present the research model that we aim to test and its delineations. Next, we discuss our approach, including sample selection, level of analysis and measures. The measures are derived from the theoretical and domain-related insights from Chapter 2 and 3, and are tested using a confirmatory factor analysis. We then present the results of the survey study, which are analyzed using structural equation modeling, which combines the measurement and causal part of the model. Next, we discuss the findings and their implications with regard to the hypotheses, and compare them to the results of the case studies. Finally, we present the limitations of the survey.
5.1 Research model At the end of Chapter 4, we presented a list of hypotheses that are directly testable in a survey. The hypotheses relate governance mechanisms to service innovation phases and external drivers respectively. However, measuring these external drivers in a quantitative study is not feasible. The impact of a driver depends on the specific circumstances. In addition, it is not possible to measure technological or market-related drivers on a simple Likert-scale, as they comprise various qualitative elements, which is why we focus on the interrelationship between service innovation phases and governance mechanisms in value networks. Therefore, hypotheses H2a to H2c are not tested in this chapter. The survey was designed to test the following hypotheses:
H1a) Authority-based governance will be used more in R&D/Development phase H1b) Contract-based governance will be used less in R&D/Development phase H1c) Trust-based governance will be used more in R&D/Development phase H1d) Contract-based governance will be used more in Implementation/Roll-out phase H1e) Authority-based governance will be used more in Implementation/Roll-out phase H1f) Trust-based governance will be used more in Implementation/Roll- out phase H1g) Contract-based governance will be used less in Commercialization phase H1h) Trust-based governance will be used less in Commercialization phase H1i) Authority-based governance will be used less in Commercialization phase
99
The hypotheses are visualized in Figure 5-1. + Development Authority-based phase + governance - - Implementation / + Contracts-based Roll-out phase governance - + Commercialization + Trust-based phase - governance
Figure 5-1 Research model
5.2 Method In this section, we describe the methodology used in the survey, including the sample selection, level of analysis and measures.
5.2.1 Sample We collected the data through an online questionnaire between September and November 2007. To place the questions into their proper context, we asked the respondents to focus on their most important service offering. Academic respondents were asked to focus on the service offering with which they were most familiar and adopt the point of view of the organization with which they were most familiar. Finding respondents for this type of survey is a challenge, keeping in mind that there is no database with all the relevant players in the mobile services industry. Respondents were recruited using the social network of the researchers and their colleagues (35 respondents), social networking websites (10), mobile-related news magazines (1) and business presentations on the Internet (4). In addition, nine academic experts were recruited via conference papers and journal articles on mobile business models and related topics. Respondents were also asked if they knew any other potential participants in their relational network, which added another 23 respondents to out population. Fourteen anonymous respondents were recruited by a Dutch alliance of content providers. In total, 521 invitations were sent out, to which 137 people responded. The reasons provided for not taking part in the survey were lack of time, lack of expertise needed to answer the questions and lack of interest in the study. A specific group of non-respondents consisted of hardware providers and network manufacturers, who commented that they did not feel involved in mobile services, but only in technology platforms. Several academics also turned down our invitation, predominantly because they felt they had insufficient expertise to answer the detailed survey questions. To control for non-response bias, we compared the answers given by early and late respondents and found no
100 significant differences. Of the 137 respondents, 8 were removed, because they provided incomplete answers, while another 29 were removed after they indicated that no other organizations were involved in their service offering, i.e. no inter-organizational governance was involved. The final sample contained 96 respondents, 79% of whom came from industry, while the remaining 21% consisted of academic and consultancy experts. Although the survey targeted an international audience, most respondents were Dutch (48). Other regions included in the sample are Scandinavia (12), Germany (7), USA (5), Austria (6), the UK (4), Italy (3), France (3), Latin-America (1), Australia (1), South-Africa (1) and other European countries (5). Most industry respondents indicated they work at organizations that have been active in the mobile domain since 2000 (65%), while 35% work at organizations that were active even before that date. In addition, 41% of the respondents were active in the mobile field before 2000, while 59% entered the domain at a later date. Our sample represents a wide variety of `most important services’, including advertising, banking, blogging, communication, e-mail, entertainment, erotic content, games, health, Internet, location-based services, news, office, portal, radio, sports information, streaming, surveys, transport information, TV, user-generated content, weather information and workforce management. Of the total number of respondents, 23 adopted the point of view of a (virtual) network operator, 14 that of an application/software provider, 20 that of a consultancy firm, 25 that of a content/service provider, publisher or content aggregator and only 3 that of a hardware/equipment manufacturer. The organizations in our sample interact on a daily basis with no (6%), one (25%), two (27%), three (18%), four (7%), five (5%) or even more (12%) organizations.
5.2.2 Level of analysis While most studies on governance in, for example, marketing literature focus on buyer-supplier relationship in marketing channels, we are interested in governance throughout the value network. While it would in principle be possible to measure all the relationships separately, this is considered infeasible in large- scale survey research, given the respondent workload (Vesalainen, 2003) and the likelihood of non-response. Besides, we would have had to include name generator questions to identify the relevant dyads (Marsden, 1990). Another issue has to do with determining the proper number of dyads to be studied, as organizations in value networks may have anywhere between one and several thousands direct partners. According to Marsden (Marsden, 1990), putting an upper limit on the number of dyads included in a study is unadvisable. Therefore, we decided to adapt our measures to the relationships between the respondent’s organization and all other organizations he or she perceives to be part of the value network.
5.2.3 Measures We used three to four indicators for each construct. With the exception of the Trust-based governance construct, all items were pre-tested in a survey including
101 30 respondents and they were found to cluster as expected in an Exploratory Factor Analysis. Because we found no scale in literature for the Phasing constructs, we developed our own scale, based on the conceptualization discussed in Chapter 2. We define the Development/R&D phase as the period of initial conceptualizations of the service concept and business model and the development of new technologies. The Implementation/Roll-out phase is defined as the period when the service is launched on the market, which involved the roll- out of technology, testing of alpha and beta versions and small-scale market roll- out. The Commercialization phase is defined as the period after critical mass has been reached in the market, with the core activities being commercial exploitation on day-to-day basis and retaining customers. Respondents were presented with the list of activities included below and were asked to rate the extent to which the activities were currently carried out for the service offering, on a Likert 7-point scale (Not carried out at all – Core activity). Table 5-1 Measures for service innovation phases Item Please indicate to what extent the following activities are currently carried out for the service offering: Dev_1* Researching new technology Dev_2 Deciding on service concept Dev_3 Deciding which partners to involve Dev_4* Conducting focus group sessions Impl_1 Preparing launch of beta version of service Impl_2* Implementing full-scale technology architecture Impl_3 Small-scale roll-out of service Impl_4* Offering beta service to end-users Comm_1 Offering commercial (1.0) version of service to mass market Comm_2* Focusing on retaining customers Comm_3 Extending the basic service offering with additional services Note: * = Removed from final measurement model
With regard to all governance-related items, we asked the respondents to indicate whether they agree with statements about other organizations involved in the service offering, measured on a Likert 7-point scale (Strongly disagree – Strongly agree). Authority is defined here as the extent to which organizations have power over each other. It is only the perceived power other organizations have over the respondent organization that is measured here, rather than the other way around. For the items in the scale, two items are adapted relating to supplier power from Mooi (2007), who extends the scale introduced by Ganesan (1993). Contract-based governance is defined here as the extent to which organizations adhere to legally binding agreements in their collective action (cf. Klein Woolthuis et al., 2005) that may relate to enforcement and controlling activities (Reuer & Arino, 2007). As such, the scale suggested by Carson et al. (2003) was adapted to measure the extent to which organizations mutually enforce contracts.
102 Trust is often seen as a multidimensional concept. In this thesis, trust is considered at an interorganizational rather than an interpersonal level (Zaheer et al., 1998). Both reliability and benevolence-related aspects of trust are applied (Kemp & Ghauri, 2001), using a measurement scale suggested by Krishnan et al. (2006). Table 5-2 Measures for governance mechanisms Item Please indicate to what extent you agree with the following statements about the other organizations involved in the service offering: Auth_1 Some organizations are more powerful than us Auth_2 Other organizations can force decisions on us Auth_3* Other organizations possess more authority than we are Auth_4 *(R) We are more powerful than the other organizations When an unexpected situation arises, a win-win solution is found that Contr_1 (R)* may even contradict formal contracts Organizations are flexible and responsive to requests from each other, Contr_2 (R) even if not obliged by formal contracts Problems between organizations are solved jointly through Contr_3 (R) communication and cooperation rather than just by referring to formal contracts Organizations will adjust to changing circumstances even if they are not Contr_4 (R) bound by formal agreements Sometimes the other organizations change the facts slightly in order to Trust_1 (R)* obtain what they want Other organizations have promised to do things without actually doing Trust_2 (R) them later Our organization is generally doubtful of the information provided to us Trust_3 (R) by other organizations Other organizations are generally doubtful of the information we provide Trust_4 (R) them Note: (R) = Reversely coded; * = Removed from final measurement model
An acceptable model fit was found for the confirmatory factor analysis (CFA), using Amos 7.0: χ2 (63) =74.11, p=.16; CFI=.97; TLI=.95; RMSEA=.04. To solve a Heywood case, the variance of the error term on Auth_1 was fixed to 0.005 (Bagozzi & Yi, 1988). Convergent validity is acceptable, as all factor loadings for each individual indicator in its respective construct are statistically significant (p<.001) and standardized regression weights exceed .48 (see Table 5-3). In addition, for all latent variables we find average variance extracted exceeding the .50 benchmark (Fornell & Larcker, 1981). Construct reliability is acceptable, with Cronbach’s alpha exceeding .6 for all constructs. Discriminant validity is acceptable, as the square of two constructs’ correlation is smaller than the average variance extracted estimates of the two constructs (Fornell & Larcker, 1981).
103 Table 5-3 Convergent and Discriminant validity of measurement model Construct Item Std factor Variance Cronbach loading extracted alpha Trust_1 .48 Trust-based governance Trust_2 .98 .56 .73 Trust_3 .70 Auth_1 1.00 Authority-based governance .66 .72 Auth_2 .57 Contr_1 .71 Contract-based governance Contr_2 .78 .56 .81 Contr_3 .75 Dev_1 .76 Development phase .57 .72 Dev_2 .74 Impl_1 .84 Implementation/roll-out phase .70 .82 Impl_2 .83 Comm_1 .53 Commercialization phase .52 .60 Comm_2 .87
5.3 Results We apply Structural Regression modeling, using Amos 7.0 to test the research model from Section 5.1. Based on modification indices, we add a path from trust- based governance to contract-based governance. The a priori model from Section 5.1 has an acceptable fit (χ2 (53) =60.72, p=.22; CFI=.97; TLI=.96; RMSEA=.04). We remove paths that have non-significant unstandardized regression weights, to obtain a parsimonious model (see Table 5-4 for the incremental change in model fit). Residuals and modification indices do not suggest additional paths between the endogenous variables in the model. Table 5-4 Trimming the structural model Path removed χ2 df p A priori model 72.30 65 .25 Implementation phase Æ Authority-based governance 72.58 66 .27 Commercialization phase Æ Contract-based governance 73.95 67 .26
The final model has an acceptable fit (χ2 (67) =73.95, p=.262; CFI=.983; TLI=.973; RMSEA=.032). See Figure 5-2 for the model, from which the measurement part and errors have been omitted for the sake of clarity. We fixed the estimates of the errors to the Governance constructs, and one of the loadings for each latent variable. We found a Heywood in the error variance of Trust_3, probably due to the two-indicator factors combined with a relatively limited sample size (Kline, 2005). Following the guideline provided by Chen et al. (2001, pp. 503-504), we confirmed that the model is overidentified, that it converges without constraining the error variance to be positive and that it contains no influential cases. As such, it is allowed to fix the error variance to 0.005. In the final structural model, the factor loadings are very close to the loadings found in the CFA. In terms of normality, critical ratio for skewness and
104 kurtosis was found acceptable for most variables. Non-parametric bootstrapping indicates a robust overall model fit, as the p-value for the Bollin-Stinen statistic equals .495. Bias-corrected 95% confidence intervals indicate that most coefficients in the model are robust.
Figure 5-2 Structural model, measurement model and error terms omitted Note: † p < .10; * p < .05; ** p < .01; *** p < .001
The final model presented in Figure 2 partially supports our hypotheses. We find support for the hypothesis that Authority-based governance is mostly used in the Development/R&D phase (H1a), and to a lesser extent in the Commercialization phase (H1i). However, the Implementation phase does not significantly influence the Authority construct, which means hypothesis H1e is rejected. We find support for the hypothesis that Contract-based governance is mostly used in the Implementation/Roll-out phase (H1d), and to a lesser extent in the Development/R&D phase (H1b). However, the Commercialization phase does not significantly impact the Contract-based governance construct (H1g). Regarding trust-based governance, we reject the hypothesis that it is being used more in the R&D/Development phase, as we find evidence that it is actually being used less (H1c). The hypothesis that trust-based governance is being used more in the Implementation/Roll-out phase is supported by our findings (H1f). However, we reject hypothesis H1h, which proposes that trust-based governance is used less in the commercialization phase, as our findings indicate the opposite. Furthermore, there is a path from Trust-based governance to Contract- based governance. Consequently, while there is no direct relationship between the Commercialization phase and Contract-based governance, there is an indirect path mediated by Trust-based governance. In other words, as the use of trust increases in the Commercialization phase, the use of contracts decreases.
5.4 Discussion The results indicate that, the choice of governance mechanisms can to a significant extent be explained by the phases of mobile service innovation. Nevertheless, we found several differences between the results of the case
105 studies and those of the survey. For several hypotheses, we found no significant relationship. This may be due to the relatively small sample size, and it could be expected that significant relationships would be found if the sample size is increased. There are also contradictory results with regard to trust-based governance. In the case studies, trust-based governance was found to be most dominant in the R&D/Development phase and less in the Commercialization phase, while the survey yields opposite results. In the case studies, we found that, although trust may be considered relevant in service innovation, its existence is not a necessary or sufficient condition for trust-based governance to emerge. Even if actors trust each other, they may still draw up contracts and rely on strict rules, and actors who do not trust each other may still resort to shared objectives and close relationships to govern their collective activities. In the survey method, our measures measured the existence of trust rather than whether it was actually used to organize activities, which may explain the difference in the results. Another explanation involves the level of observation. In the case studies, we distinguished the different types of relationships between different types of actors wherever relevant. For example, we found that governance mechanisms that dominated the relationships between operators and content providers were different from the ones between content providers and application providers. Due to limitations of space in the survey, we decided to use the value network level as the level of observation in this case, i.e. asking respondents to aggregate their governance level of their relationship with other actors in general. Possibly, such aggregations may involve a loss of data and richness, and explain the difference between different types of relationships, i.e. governance at a generic value network level need not equal governance at a relational level. This may also explain the difference in results. Another possible explanation relates to the measures we used. In the case studies as well as the survey, we used the same definition of the core concepts. However, in the case studies, we discovered various underlying manifestations of the governance dimensions that were not specifically included in the survey. Especially in the case studies, we found that governance dimensions may have different concrete manifestations (see Section 4.6). Another explanation may have to do with the time frames in which data were collected. Because external drivers may change exogenously over time, the results may change as well, depending on when the information is collected.
5.5 Limitations We are aware that there are some limitations regarding the measuring scales. When studying the relationships between actors, there may be asymmetry between perceptions (Straub et al., 2004). Especially with regard to sensitive issues, such as trust and power, the perceptions of the actors in a relationship may be different. However, past research has shown that reciprocity in answers is often acceptable (Marsden, 1990). For future research, we plan to complement the results of the survey discussed in this paper with in-depth case studies
106 involving multiple organizations and individuals within those organizations, in order to control for these effects. Generally speaking, a sample size of about 100 is generally considered the minimum for structural equation modeling, which means that increasing sample size would increase validity. In addition, the sample was not assembled using randomization due to the fact there is no database with all the relevant players in the mobile services industry. The use of experts within the sample is also a limitation as they may lack the inside information on governance mechanisms.
5.6 Conclusions The main conclusion of this chapter is that empirical evidence indicates that the phase in which mobile service innovations find themselves explains the governance mechanisms being used by the organizations involved in their business models. When service concepts are being developed and partners are being recruited, there is usually one organization in the value network controlling the activities, i.e. a center of gravity. As organizations begin rolling out and implementing services, contracts become a much more important mechanism. In the commercialization phase, trust-based governance becomes the dominant mechanism, after it has become increasingly important during the roll-out and implementation phases. Other research directions would be to compare the findings with regard to operators, content providers and application developers, and to control for the resource-dependencies and embeddedness in the network. Contrasting small start-ups and large, established companies may also provide additional insights, as well as contrasting disruptive and sustaining innovations.
107
6 Discussion and conclusions In this chapter, we begin by providing an overview of our main findings. Next, we discuss how the findings influence theory and the research domain, and provide recommendations for practitioners. We conclude by discussing the main limitations to the study and provide directions for future research.
6.1 Main findings The aim of this thesis is to create an understanding as to how and why the mechanisms that are used to govern mobile service innovation in value networks change over time in coevolution with factors found at multiple levels of analysis. The findings of this thesis serve to answer the main research question, and will be outlined below. Our findings show that governance mechanisms in mobile services value networks change over time, and that this can be explained by factors at multiple levels. At the value network level, these factors are transitions between different phases of service innovation. At the level of the environment of the network, these factors are changing market-related and technological conditions, while regulatory drivers do not appear to play a role. We found three dimensions of governance mechanisms: (1) authority- based governance (i.e., actively enforcing decisions and imposing predefined rules on actors depending on access to resources), (2) contract-based governance (i.e., contracts detailing liability and costs, and formal specifications of deliverables and proposals) and (3) trust-based governance (i.e., joint problem-solving, sharing of long term plans, close collaboration, ad hoc coordination based on shared objectives, and flexibility in carrying out joint activities). According to our results, these governance dimensions may be used in conjunction, although contract-based and trust-based governance appear to be negatively related. As we saw in this study, external technology and market developments can trigger governance dynamics. We found that various developments in the Internet domain influence the governance between operators, content providers and application developers. Previously, operators controlled access to customers and customer data, making application developers and content providers heavily dependent, creating a power difference that enabled operators to exert authority- based governance over the dependent actors. However, developments like mobile web services, new billing processes (see Chapter 3), alternative localization technologies, increasingly intelligent devices and web browser technology (see Chapter 4) enable content providers to take on typical operator roles like billing, authentication and user profiling provider. As a result, dependency decreases and less authority-based governance is used. Moreover, we found that decreased dependency also reduces the need to safeguard access to critical resources by developing close, long-term relationships, which means that the level of trust-based governance is also reduced. We found that the degree to which certain types governance varies in the different phases of mobile service innovation. During the innovation cycle, the
109 activities in need of governing change. At first, service concepts and underlying technologies need to be developed and refined, which we conceptualized as the Development/R&D phase. After that, technologies are implemented and integrated with existing systems, and the service is slowly rolled out, which takes place in the Implementation/Roll-out phase. Once a technology is mature and a critical mass of users has been reached, the value network enters the Commercialization phase. According to our results, the Development/R&D phase is governed mainly through authority-based governance, although trust-based governance was used as well in the case studies. In the Implementation/Roll-out phase, contract-based governance was found to be the most prevalent. Our results are least conclusive when it comes to the Commercialization phase, with trust-based governance being most prevalent in the survey, while authority-based governance was mentioned most frequently in the case studies. Consequently, although governance dynamics appear to change depending on the service innovation phase, our findings do not allow us to draw tenable conclusions on the exact impact.
6.2 Contributions to theory We contribute to existing literature on value networks because we have studied these networks from a dynamic rather than the more commonly adopted static perspective, and by providing evidence that value networks change over time, which means that adopting a dynamic perspective is required. In addition, we provide insight into the way value networks are being governed. As such, we move beyond the usual accounts of value networks that focus mainly on the structure and division of roles and resources. In contrast to what is often assumed in literature, we have shown that networks do not solely rely on trust-based governance, but also on typical market-related and hierarchical mechanisms. Although there may be no formal hierarchy, authority-based governance is often present, as a result of resource dependencies. In addition, while the relationships between actors are usually long-term oriented, that does not preclude the use of formal contracts. As such, we conclude that governance mechanisms involved authority, contracts and trust cannot simply be equated with hierarchy, market and network. Moreover, we have found empirical support for the claim that governance is a diverse concept, and that various governance mechanisms can be used at the same time within the same institution (cf., Bradach & Eccles, 1991). The sequencing of trust and contracts may be an area for future research. This study has been one of the first to consider the concept of interorganizational governance in a dynamic, network-oriented perspective. As such, we provide an answer to calls raised by Dhanaraj and Parkhe (2006), Lorenzoni and Lipparini (1999) and others to develop a network-level, dynamic perspective on organizational networks, rather than adhering to traditional, transaction-level and dyadic perspectives. We found that governance changes over time and that the changes involved may be explained by factors at multiple levels. Therefore, future studies on governance should control for multi-level, time-related factors when attempting to explain governance, i.e. the phase in the
110 service innovation cycle and changing market-related and technological conditions. Although maintaining such a holistic and dynamic perspective may raise several methodological and measurement issues, at the same time it will increase our understanding of the problem at hand. Future research on a value network level of analysis may benefit from the measures developed in this study. In the survey, we applied existing measures involving authority, contracts and trust to the network level of observation. Our analysis of the measurement model indicated that convergent and discriminant validity was acceptable for this measurement instrument. Therefore, future research on governance in value networks can benefit from adopting our measurement instrument. We found that governance mechanisms are sometimes chosen explicitly, while in other cases they are the result of relatively arbitrary, implicit decisions. For example, some actors simply replicate existing business models, including the underlying governance mechanisms, while others use the same mechanisms they used in the past or followed personal preferences. In addition, there are certain limits to choosing governance mechanisms, as at least two organizations are involved, each of which can in most cases impose changes unilaterally. In addition, the selection of specific governance mechanisms was found to be subject to specific preconditions. With regard to authority-based governance, a precondition is that there is a power difference, which means that it is not possible for a less powerful actor to enforce this governance mechanism. A prerequisite for trust-based governance is that there is interorganizational trust, which may take some time to develop. Contract-based governance may be an inevitable choice if one of the organizations involved is highly focused on formalization and procedures. We conclude that although, in some cases, conscious choices regarding governance are possible, which is congruent with adaptation theories, there are significant limits to that as well. By linking the various service innovation stages to governance mechanisms, we have increased our increase understanding as to how services are developed over time. We developed a theoretically grounded phasing model of service innovation, consisting of development, implementation/roll-out and commercialization. This phasing model was supported by the results of the case studies. We developed a set of indicators to measure the construct of service innovation phases and its three underlying dimensions, which was found to be a valid measure in the survey. Future studies on service innovation and the dynamics of value networks can benefit from adopting the phasing conceptualization and measurement instrument presented in this study. With regard to coevolution, this study has shown that it is a concept that can be used to understand governance dynamics. Propositions based on coevolutionary thinking were specified at domain level, developed in more detail in the case studies and tested in the survey. Based on coevolution theory, we expected that instigating forces would be required at multiple levels of analysis to trigger a period of upheaval, followed by a period of equilibrium. More concretely, we expected external forces, i.e. market-related and technological drivers, and forces at the value network level, i.e. phase transitions, to be needed to trigger
111 governance dynamics. Although the survey did not provide evidence of the speed of change in governance mechanisms, it did indicate that difference governance mechanisms are used at different phases, which is congruent with coevolution theory. In the case studies, we found little evidence of governance dynamics during the various phases, with shifts taking place shortly after phase transition. Moreover, the case studies showed that external drivers may indeed change governance mechanisms, mediated by resource dependencies. As such, we found support for the coevolutionary hypotheses. In short, we have demonstrated that coevolution theory can indeed help formulate `modest’ propositions (Richardson et al., 2001) and that these propositions can be tested empirically.
6.3 Implications for research domain At the start of this study in 2006, operators controlled most of the service innovation activities in the so-called walled gardens. Content providers and application providers have often argued that the strict rules make it hard for them to create innovative services, for which we found evidence in the case studies. Our findings reveal a trend towards less operator involvement and power in the mobile domain. New billing technologies and processes provide alternatives for dividing the billing provider role, which is now controlled by operators (see Chapter 3 and De Reuver et al., 2009a). Web services technologies combined with increasingly intelligent devices allow application developers to bypass operators in providing generic service elements like authentication, charging, localization and billing (see Chapter 3 and De Reuver et al. (2009b)). In the case studies, we saw that generic web technologies, alternative user-positioning methods and increasingly user-friendly devices also make it possible to replace operator resources. Similarly, the introduction of non-operator WAP portals for the distribution of content and flat fee data subscriptions has made operator involvement less critical. These developments reduce dependency on operators, leading to less authority-based and trust-based governance. In one case, where operators were purposefully left out of the value network, we found that authority- based governance and the associated collaboration problems were indeed absent. On the other hand, operators increasingly try to reassert their power over other actors, using a variety of technologies. The IP Multimedia Subsystem can be seen as an attempt to regain control, as it places all generic service elements within the confines of the operator’s core network (Cuevas et al., 2006). UMTS Long Term Evolution can be viewed as an extension to the IMS, guaranteeing quality of service of data transmission. Such network-centric technologies centralize all user data within the operator network. Keeping in mind the expected uptake of advertising and context-aware services, controlling customer data will become even more important in the future, and while many of the technological and market-related trends identified in this thesis point to less operator involvement, we may see the opposite happening in years to come. In the near future, authority-based governance may be imposed by handset manufacturers. Until recently, they hardly played an active role in mobile service innovation. When we conducted exploratory interviews at the end of
112 2006, operators and content providers commented that, as far as they were concerned, handset manufacturers were unimportant. In addition, when we conducted the survey in the fall of 2007 (see Chapter 5), a significant number of potential respondents from hardware providers turned down our invitation, commenting that they did not feel they were involved in mobile services. In the case studies (see Chapter 4), none of the interviewees pointed to manufacturers as being actively involved in service innovation. All this changed dramatically in the summer of 2007, when the iPhone was launched. Its manufacturer Apple suddenly started distributing content to consumers via its portal, thus becoming a central actor in content aggregation and distribution. Simultaneously, Nokia started to focus increasingly on making its devices more intelligent and open to third party applications. A similar strategy has since been copied by many manufacturers, including the recent launch of Google’s phone, operating system and application store. As a result, handset manufacturers increasingly control the relationship with customers as well as the relationship with application developers through the device and application store. Already, some content providers have raised concern about the arbitrary rules Apple allegedly applies when deciding whether or not certain applications can be sold via its portal. To summarize, we expect that handset manufacturers will play an increasingly important role in mobile service innovation and may well take over the role of gatekeeper from the operators, which may allow them to impose their rules on content providers. In addition, content providers may increasingly start to form close ties with handset manufacturers. In other words, despite the demise of the operator-controlled walled garden model, new players may reinstall authority- based and trust-based governance. Using authority-based governance to organize action in value networks is not something that is unique to the commercial mobile services domain. In Chapter 4, we found that mobile service innovation in the public domain (in a case involving police regions in the Netherlands) is controlled by a central ICT organization controlling access to critical resources, including a secure communication network and access to user data. This role is similar to the one played by operators in the commercial domain. Like the content providers, the people who develop new service concepts for the police and commercial application providers have to meet several security guidelines and formal procedures before being allowed access to these resources, which, according to what they told us, limits to create innovative solutions efficiently. This means that, even in a different domain of mobile service innovation involving the police, similar patterns of authority-based governance can be found. In this thesis, we hardly found any regulatory drivers on governance dynamics. However, this may change in the years to come. Increasingly context- aware services may trigger attention of regulators for privacy and security related issues. Similarly, the penetration of high-quality content services may make regulatory issues regarding copyright of unique content more relevant. The influence of such increased regulation on governance of mobile service innovation may be an important area of future research.
113 6.4 Recommendations to practitioners Prior to this study, there was little understanding as to why and how governance mechanisms being used in value networks change, which means that our main contribution is to increase our understanding of the concepts and causalities that underlie governance dynamics. Although we would like to provide clear-cut advice to practitioners as to which governance mechanisms they should apply under which circumstances, the findings of this thesis do not allow us to do so, because that would have required measuring the performance of value networks, which is a highly challenging task, due to the multi-actor and dynamic setting of the research. As illustrated in this study, value networks comprise multiple actors that may have very different strategic objectives (i.e., profit and not-for-profit companies, start-ups and established businesses, operators and content providers, large companies and small companies). For example, some organizations may feel that tangible benefits are more important, while others may place greater value on intangible benefits. In addition, some actors may find it more important to safeguard customers and control access to customer data than to develop an innovative service. The revenue-sharing and cost structure may also lead to very different perspectives as to whether a service innovation is considered viable for each of the actors involved. In addition to the multi-actor issues, the dynamics of service innovation should also be considered. When studying multiple phases of service innovation, as conceptualized in this study, performance measures will change. For example, although the profitability of a service concept may seem a relevant measure, this will likely correlate with the service innovation phase concept. Similarly, the duration of a phase may be a relevant performance measure in the implementation phase, as implementation should be carried out as quickly as feasible. On the other hand, the commercialization phase should last as long as profits are being made. Finally, a pragmatic limitation is that companies are generally reluctant to share objective profits and revenue figures or unable to specify them for specific services. Despite these limitations, we do have three important messages to practitioners involved with mobile service innovation. Firstly, practitioners should pay more attention to the question as to which governance mechanisms they should do than they do at the moment. One of our previous studies shows that practitioners generally speaking are more concerned with making decisions on concrete service-related and technological issues than with more abstract interorganizational arrangements, including governance (De Reuver & Bouwman, 2008). Given the relevance of concepts involving open innovation, the decision which governance mechanism to use becomes increasingly important. The case studies in Chapter 4 show that organizations often make implicit choices involving governance mechanisms, for example, by copying those used by competitors or using the same governance mechanisms they used in the past. This study provides evidence to suggest that governance is indeed important. In the case studies, we discovered that authority and contracts may have an adverse effect on the innovative potential of organizations on which they are imposed. Several of the people we interviewed were upset and generally speaking dissatisfied with the governance mechanisms under which they were
114 expected to operate, claiming that they had increased costs and time or made the end result less innovative than it could have been. In a number of cases, they realized the impact of the governance mechanism that was in place in the course of the service innovation, after giving it little thought at the start of the project. Although we should take into account the perspective of these less satisfied actors, it does indicate that it is likely that proper governance mechanisms are important to successful mobile service innovation. In a previous study, we found that addressing issues regarding governance, entrance rules and partner selection has a significant impact on the performance of a value network, and indirectly even on its profitability (De Reuver et al., 2009c). The concepts developed in this study with regard to governance mechanisms and service innovation phases have been used as a basis for a more practical and broader design method for ICT-based service innovation (De Reuver & Faber, 2008; Faber & De Vos, 2008). This method has been applied and validated in various design-oriented studies and empirical tests (Bouwman et al., 2008a; Bouwman et al., 2008b; De Reuver & Bouwman, 2008; De Reuver & Steen, 2008). In light of the apparent importance of the decision which governance mechanism to use on the one hand, and the current general lack of attention among practitioners, we urge them to take a closer look at this important subject. Secondly, practitioners should be aware that they will often be constrained with regard to their ability to change existing governance mechanisms. As we discussed in Section 6.2, actors may not have sufficient leverage to do so unilaterally. Trust-based governance can only be installed when there is a sufficiently high level of interorganizational trust, while authority-based governance requires either power imbalance or the consent from those actors on which authority is imposed. Nevertheless, organizations can attempt to influence governance mechanisms and try to induce changes. More powerful actors may enforce changes to the mix of governance mechanisms, while less powerful actors may attempt to do so by joining forces through alliances or by looking for resources to substitute the resources controlled by a more powerful actor. Although we do not go as far as Ballon (2009), who argues that designing business models in the mobile arena is irrelevant, as they are predetermined by power differences, we do warn practitioners that they may be able to influence existing governance mechanisms to a lesser extent than they may prefer. Thirdly, practitioners should take advantage of this study’s rich conceptualization of governance in value networks. Rather than sticking to simplistic dilemmas involving open versus closed collaboration models, practitioners should take into account a multitude of governance dimensions with multiple underlying mechanisms. In addition, they should be aware that governance mechanisms change over time. As such, we provide a more realistic conceptualization of mobile service innovation governance than the popular walled garden versus open models debate. We found that regulatory drivers are in fact absent in mobile service innovation governance. Policy-makers have typically ignored mobile service innovation, and instead focused on regulating access to infrastructures. However, the actual challenges for companies lie in developing services and service
115 platforms. In this respect, operators continue to control critical resources with regard to access to customers and customer data. Moreover, we have found that the strict rules and contracts imposed by operators on content providers who want to access their resources are thought to limit the innovativeness of the content providers involved. Developments like opening up walled gardens and the introduction of handset provider-centric role division models present similar issues regarding the organization of access to critical resources. We would urge policy-makers to examine the way service innovation is governed in the mobile domain more closely and to consider fostering more open, trust-based ways of collaboration. Because, in the future, access to customers and customer data will become more and more relevant, it is important to prevent monopolies in this area as well as with regard to the mobile infrastructure.
6.5 Limitations Having discussed the limitations of the case studies and survey methods in Chapters 4 and 5 respectively, we now reflect on the study from a holistic perspective. Firstly, we can discuss a number of issues that are specific to measuring coevolution. As discussed in Chapter 2, it may be necessary to measure microstate adaptations in a longitudinal approach (cf., Lewin & Volberda, 1999). However, in our survey, we only conducted measurements at one point in time, which allowed for cross-sectional rather than longitudinal analyses. Within the relatively short time period of a PhD thesis, it was not possible to repeat the survey a number of times. In the case studies, we analyzed events in the past as well as ongoing phenomena. As such, we did have access to data on how governance changed over time, although there may have been a historical bias, relying as we did on the memory of the people we interviewed. Future research may indeed benefit from carrying out longitudinal measures to establish more grounded claims on the speed of change. However, we argue that practical feasibility will always remain an issue in any research design. Secondly, both methods relied on a similar source of information, i.e. the stakeholders who are used as informants. In the case studies, we attempted to use documents as a second source of information, but found that little is actually written down regarding governance. An argument could be made in favor of using direct observation as an alternative source of information, but attending all project meetings and especially informal contacts would demand a high workload as well as an extreme level of cooperation on the part of the informants. Thirdly, there are limitations to the survey that make it difficult to compare its results with those of the case studies. In the survey, we used the value network as a whole as a level of observation rather than the types of relationships, like we did in the case studies. Distinguishing the types of relationships that are relevant to a specific case of service innovation requires an in-depth understanding of what is going on on the inside, which is not feasible in a survey, due to constraints on informant workload and anonymity. In the survey, we did not measure external drivers, which introduces a risk of interaction effects. Finally, we had to make deductions on our measures in the survey due to space
116 limitations. To solve this, we measured the generic governance dimensions rather than the various practical mechanisms, like we did in the case studies. For example, with regard to trust-based governance, we measured the presence of trust rather than the associated governance mechanisms, like joint responsibility and sharing long-term plans. This is a limitation, in light of the fact that, in the case studies, we found that trust is a necessary though not sufficient condition for trust-based governance. Fourthly, this study did not include several predictors that may also explain governance in value networks. One example is the structural embeddedness of actors in value networks and broader networks, which, according to Uzzi (1997), generates trust. Typical TCE predictors, such as uncertainty, frequency and asset specificity, were also not included in the model, nor was the potential moderating effect of the disruptiveness of the innovation or the difference between start-ups and corporate venturing. Heide (1994) argues that path dependency partly determines governance dynamics, which is similar to the argument presented by Bradach and Eccles (1991), that governance mechanisms may be emerge as a result of `the vagaries of circumstance’. Including or controlling for these predictors was not possible due to limitations of space in the survey and the need for focus in the case studies. Moreover, we would argue that developing a new theory on the impact of service innovation phases on governance mechanisms demands a focus on new propositions at the expense of validating established ones. Although the supporters of such established theories may criticize our work for not taking these predictors into account, we can in turn criticize existing studies that do not explicitly take the phase of service innovation into account as a predictor. Nevertheless, we agree that there is a risk of spuriousness regarding any causal relationships that are found, as long as the researcher does not control for other predictors. Future research should, therefore, combine both our new predictors and existing predictors to explain governance dynamics. Fifthly, the mobile service innovation phases are not mutually exclusive, as we have shown in the survey results. However, we did treat them as such in the case studies, to make sense of what happens. Moreover, the duration of the various phases was not taken into account, even though it may have a crucial impact on the performance of a value network.
6.6 A research program on governing ICT-enabled service innovation in value networks Service innovation is becoming increasingly important as the main part of Western economies is concerned with providing services. At the same time, organizational networks are becoming increasingly important as well, both within and between organizations. It is, therefore, reasonable to assume that other domains face issues similar to the ones we have investigated in this study, for example how to organize access to critical platforms to enable new services, and how to govern value networks in such a way that the services developed are innovative. Accordingly, a research program is emerging (Lakatos, 1976) on how service innovation can be governed in value networks. Our study has been the
117 first to examine governance dynamics in value networks. We have provided empirical evidence to suggest that the dynamics of interorganizational governance can be explained by taking the service innovation phases and external drivers into account. As such, this thesis can be considered a first step in generating our understanding with regard to governing service innovation in value networks, which can be extended in future studies. In this section, we suggest directions for further research within this emerging research program, for which this study can serve as a basis. It should be stipulated that such research needs to be rigorous and multidisciplinary in nature. Future studies should be designed in such a way that they combine the rigor of our survey and the level of detail of the case study measures to increase our understanding and predictive ability. With regard to the level of observation, they should measure dyadic levels of interorganizational governance, like we did in the case studies. This will lead to more detailed information and prevent loss of information due to aggregation. Such a multilevel approach would likely benefit from social network analysis techniques, which makes it possible to explain the structure of a value network as well as track its dynamics. Such descriptive data regarding value network structure should be combined with our governance measures. The value network structure, as well as concepts involving trust and authority, could then be measured, not only at an interorganizational level, as we did in this study, but also at an interpersonal level. In addition to measuring the strategic aspects of the way value networks are organized, operational level measures may be relevant as well. Process models can often indicate how activities are orchestrated. In studies involving process models in value networks focusing on the billing of content services, we saw that these may help explain dependencies and coordination (De Reuver et al., 2009a). Longitudinal measurements would also be required when studying the impact of external drivers on governance dynamics. External drivers can be assessed through qualitative research. The richer information would probably increase the explained variance of such a study compared to the survey conducted in this thesis. The performance of the value network is likely to be another relevant concept in constructing a grand theory on service innovation governance. As discussed in Section 6.4, measuring the performance of a value network is a challenging matter, due to the multi-actor and dynamic setting, in addition to pragmatic considerations involving access to relevant data. A separate research project can be defined as to how to construct such a measuring instrument for quantitative survey studies. Such an instrument should combine perceived as well as objective measures of performance. It should control for multi-actor interests, the variety of division of costs and benefits and the dynamic aspects during the various service innovation phases. Moreover, it should include tangible and intangible measures of value network performance (De Reuver et al., 2009c). Typical trade-offs will be between the completeness of the information and respondent workload. A more detailed theoretically grounded measurement instrument should be developed in qualitative research and tested in a
118 quantitative approach. This will lead to a reusable instrument to measure value network performance. Follow-up research in the above-mentioned directions can be done in the area of mobile services, but it would also be relevant in other domains. Similar concepts involving legitimacy, collective action and value network dynamics are relevant in other areas as well. Here, we discuss three of these areas and indicate possible directions of research: user-involved service innovation, R&D projects involving service innovation and smart living. Although, in this study, we have focused on professional organizations involved in developing and offering mobile services, users are becoming increasingly involved in service innovation. Thus far, service providers and operators mainly use end-users to provide them with input or to test prototypes, beta versions and new concepts. However, it is becoming increasingly common to involve users actively at each incremental step of the service creation, from concept generation through to commercial offering. Once service providers become accustomed to using end-users in this way, they will become a critical resource, which may lead to a new type of resource- dependency in value networks. The question arises whether the concepts and theory on governance in value networks still holds when involving end-users. More specifically: how can we make sure that service providers can rely on end- users in their production process? Should organizations maintain their relationship with end-users via contracts, monetary incentives or long-term, close relationships? Should different mechanisms be used in different phases of the innovation trajectory? What would be the opportunity for intermediaries to specialize in bringing users and providers together? A future study could explore these questions. In this study, we have analyzed a case involving service innovation in a government-co-funded R&D project, where the service concept is unlikely to be implemented and rolled out on a larger scale, as it is thought to add insufficient value. Government-funded R&D projects are an important policy instrument to foster innovation as well as promoting the knowledge economy. In addition to generating fundamental knowledge and scientific theory, an increasingly important concern is ‘valorization to the real world’. Although prototyping and service concept development is becoming increasingly important, including in technology-oriented projects, they often fail to reach the commercial stage. Existing studies (Heikkinen & Still, 2008) suggest that one reason for this state of affairs may be that, in most cases, the objectives of R&D network participants are only shared during the research project and diverge after the project has finished, which is why service concepts and prototypes being developed in such projects are rarely implemented by the same set of actors. Moreover, in many cases, resources and capabilities are required from actors who are active in different industries, which means that the innovation in question has to transcend industry boundaries. Future research may examine how the likelihood of entering the commercialization stage of R&D aimed service concepts may be increased, and how organizational design choices may foster the likelihood of eventual market success.
119 Our findings may also be relevant in areas distinct from mobile services. One example is that of the smart home, which is expected to provide fiber-based multimedia, healthcare and energy services to consumers. Rolling out broadband networks and coupling such critical infrastructures and applications requires the efforts of operators, service providers and other institutions. Because, as far as the individual actors are concerned, there may not be a viable business case, there is a potential risk of deadlock. To organize the collective action of the actors involved, proper governance mechanisms need to be in place. Possibly, the authority of a nodal actor could be used to lead the innovation project by orchestrating and regulating the activities of other actors in the network. However, this study shows that the legitimacy of this actor in the eyes of the other players may be a key question, i.e. would other players allow the nodal player to take such a strategic position? In addition, it would be worthwhile to examine when (i.e. in which phase of the innovation process) such an authoritative approach is needed, and when (and if) there comes a point when a shift towards a more open competition is warranted. These questions may be part of future research that tests the applicability of the concepts defined and used in this study to other domains.
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131
Appendix A Interview protocol The following interview protocol was used as a basis for the interviews. Depending on interviewee expertise (e.g. awareness on just one type of relationship or background) and the results of earlier interviews, the protocol was adapted.
Background How should operators, content providers and application developers work together to make mobile Internet successful? And what works best: an open or closed model of collaboration? These questions are the topic of my PhD research at Delft University of Technology, carried out within the Freeband/FRUX project. After a large-scale international survey among operators and content providers, the next step in my research is studying a number of examples of mobile service innovation in-depth. Specifically, I look to
General issues • Since when have you been involved with the service offering? • What exactly is your role?
Governance • How dependent is your organization on the other organizations? How has this changed over time? • To what extent is there actual collaboration with the other organizations? Are responsibilities shared? • Is there an equal relationship with the other organizations? Who makes decisions? • Are the activities laid down in contracts or formal agreements to a large extent? • Are there any rules governing the collaboration? How strict are they? • Is there trust between the organizations? • Did the way of collaborating change in different phases of service innovation? • What has been the driver behind these changes? • Does the way of collaborating work well? How could it be improved?
133 Satisfaction with governance mechanisms • Do you consider the service successful? Regarding which aspects (e.g. revenues, profit, customer base, learning effects, image, customer satisfaction, strategic advantage, overall, financial)? • What has influenced the success?
Closing remarks • Are you aware of any prior research on this service? • What did you think about the conversation? • Did I omit any questions I certainly should have posed? • Do you have any questions yourself? • Are there any persons or organizations I should talk also to? • Do you have any documents about the service I could look into (e.g. project plans, progress reports, meeting annotations)? • Next procedure: Transcribing the interview, sending for approval.
134 Appendix B Overview of interviewees Table B-1: Interviewees
i-mode Date Job description KPN/1 KPN Dec 2006 Director TV & Media KPN/2 KPN Dec 2007 Product manager mobile Internet KPN/3 KPN Jan 2008 Product market manager mobile Internet KPN/4 KPN Jan 2008 Development marketer KPN/5 KPN Feb 2008 Proposition manager mobile data services KPN/6 KPN Feb 2008 Head of content support KPN/7 KPN Mar 2008 Ex-strategic director KPN/8 KPN Apr 2008 Ex-marketing manager KPN/9 KPN Apr 2008 Content manager KPN/10 KPN Apr 2008 Senior innovation manager KPN/11 KPN May 2008 Senior product manager mobile terminals Momac/1 Momac Jan 2008 Senior Account manager Momac/2 Momac Feb 2008 Co-founder CP/1 OMI Jan 2007 President Bank/Consultancy Consultant CP/2 Sports information Mar 2008 Commercial manager provider Manager mobile CP/3 Public transport Mar 2008 Market manager consumers information provider CP/4 Magazine publisher Apr 2008 Product and marketing manager OMI Member of the board CP/5 Leisure information Apr 2008 Co-founder provider CP/6 Bank May 2008 Adjunct director m-commerce OMI Founder CP/7 ANWB May 2008 Manager portals mobility CP/8 OMI May 2008 President Expert/1 TNO May 2008 Expert
Event Assistant Date Job description Log On/1 Log On Nov 2007 Founder XWITS/1 XWITS Dec 2007 Director
Attendering service Date Job description Dem/1 Police ICT Demand Aug 2006 Researcher organization Dem/2 Police ICT Demand Jul 2008 Researcher organization
135 Gron/1 Police region Nov 2006 Project manager Groningen Gron/2 Police region Jul 2008 Project manager Groningen Sup/1 Police ICT Supply Aug 2008 Project manager organization Geodan/1 Application provider Aug 2008 Manager 4 (handset) Intergraph/ Application provider Aug 2008 Manager 1 5 (server)
WijkWijzer Date Job description TI/1 Telematica Instituut Jul 2008 Project manager TNO/1 TNO Aug 2008 Project manager Sup/2 Police ICT Supply Sep 2008 Product developer organization Sup/3 Police ICT Supply Jul 2008 Researcher organization Er/1 Ericsson Sep 2008 Systems engineer
136 Nederlandstalige samenvatting
Het organiseren van mobiele dienstinnovatie in co-evoluerende waardenetwerken
Hoofdstuk 1: Inleiding en onderzoeksdoel Bij mobiele dienstinnovatie zijn veelal meerdere organisaties betrokken. Het aanbieden van mobiele internetdiensten vereist niet alleen een telecommunicatienetwerk en mobiele telefoons, maar ook applicaties, platforms, toegang tot de klant en waardevolle content. Deze hulpbronnen zijn vaak verspreid aanwezig bij mobiele operators, hardwareleveranciers, applicatieontwikkelaars en content partijen. Het ontwikkelen, implementeren en exploiteren van mobiele diensten vereist samenwerking tussen deze actoren. Hoe deze samenwerking moet worden vormgegeven is vaak onderwerp van discussie. Voorheen maakten mobiele operators de dienst uit in zogeheten ommuurde tuinen, waarin zij bepaalden onder welke voorwaarden content partijen toegang konden krijgen naar de consument. Langzamerhand worden deze gesloten modellen vervangen door meer open samenwerkingsvormen. Het is echter onduidelijk hoe en waarom deze samenwerkingsvormen nu precies veranderen. De verzameling organisaties die betrokken is bij een specifieke mobiele dienst wordt in de literatuur ook wel een waardenetwerk genoemd. De mechanismes om de collectieve activiteiten van organisaties te beschermen, te coördineren en aan te passen worden door organisatiewetenschappers aangeduid met de term governance. Echter, bestaande literatuur bestudeert governance veelal tussen twee organisaties op een vast moment in de tijd. Een dynamisch perspectief op governance in waardenetwerken ontbreekt. Factoren die veranderingen van governance-mechanismes zouden kunnen verklaren zijn te vinden op meerdere niveaus. Op het niveau van het waardenetwerk zelf zijn er verschillende fases van de dienstinnovatie met wisselende activiteiten en machtsverhoudingen. Op het niveau van de omgeving van het waardenetwerk zijn er veranderende technologische, marktgerelateerde en reguleringsgerelateerde factoren. Een perspectief van co-evolutie houdt rekening met factoren op meerdere niveaus en strookt met de complexiteit van waardenetwerken, maar empirische studies over de co-evolutie van organisatienetwerken zijn vooralsnog schaars. Gegeven de hiaten in de literatuur is het doel van dit onderzoek: Inzichtelijk te maken hoe en waarom governance-mechanismes om mobiele dienstinnovatie te organiseren in waardenetwerken in de loop van de tijd veranderen, hierbij gebruikmakend van een co-evolutie perspectief en aandacht gevend aan factoren op meerdere analyseniveaus. De bijbehorende onderzoeksvraag specificeert deze analyseniveaus:
137 Wat is de invloed van de fases van dienstinnovatie en externe omgevingsfactoren op de dynamiek van governance-mechanismes in waardenetwerken bij mobiele diensten? Bovenstaande probleemstelling wordt uitgewerkt in hoofdstuk 1 van het proefschrift. Op basis van een overzicht van relevante theorie worden proposities opgesteld (hoofdstuk 2), die worden gespecificeerd op het domein (hoofdstuk 3). Vervolgens worden deze proposities nader ontwikkeld en getoetst middels kwalitatief case study onderzoek (hoofdstuk 4) en een kwantitatief survey onderzoek (hoofdstuk 5). Op basis van de empirische bevindingen wordt antwoord gegeven op de onderzoeksvraag en worden lessen getrokken voor theorie, domein, praktijk en vervolgonderzoek (hoofdstuk 6).
Hoofdstuk 2: Theoretisch raamwerk Aan de hand van bestaande literatuur worden in hoofdstuk 2 de kernbegrippen uit het onderzoeksdoel gedefinieerd en met elkaar in verband gebracht. Allereerst wordt een waardenetwerk gedefinieerd als een dynamisch netwerk van samenwerkende actoren die middels een specifieke dienst waarde voor de klant en zichzelf trachten te creëren en die tastbare en niet-tastbare hulpbronnen uitwisselen. Een waardenetwerk beperkt zich dus tot die organisaties die betrokken zijn bij een specifieke dienst. Vervolgens wordt in dit hoofdstuk uitgelegd hoe het begrip governance wordt gehanteerd in economische en sociale wetenschappen en wordt dit in verband gebracht met waardenetwerken. Hieruit volgt dat drie typen governance-mechanismes kunnen worden beschouwd binnen een waardenetwerk: autoriteit, contracten en vertrouwen. Deze mechanismes zijn wederzijds onafhankelijke dimensies van governance en sluiten elkaar niet uit. Vervolgens worden uit literatuur drie fases van dienstinnovatie afgeleid: (1) Ontwikkeling / R&D; (2) Implementatie / Uitrol; en (3) Commercialisatie. Voorts worden er drie typen externe omgevingsfactoren afgeleid uit de literatuur: technologische, marktgerelateerde, en reguleringsgerelateerde factoren. Hierna wordt het begrip co-evolutie besproken. Co-evolutietheorie zoals toegepast in de organisatiewetenschappen door McKelvey (1999; 2002) voorspelt dat zogeheten instigerende gebeurtenissen kunnen leiden tot een serie van kleine veranderingen die uiteindelijk kunnen leiden tot een aanpassing aan de nieuwe omstandigheden. In dit onderzoek beschouwen we deze uiteindelijke aanpassing als een verandering in de governance-mechanismes in het waardenetwerk. De instigerende gebeurtenissen beschouwen we als transities tussen fases van dienstinnovatie en / of veranderde externe omgevingsfactoren. Deze toepassing van de co- evolutietheorie leidt tot twee proposities. P1) Transities tussen fases van dienstinnovatie beïnvloeden governance-mechanismes in waardenetwerken P2) Externe omgevingsfactoren beïnvloeden governance-mechanismes in waardenetwerken.
138 Hoofdstuk 3: Domeinbeschrijving In hoofdstuk 3 worden de kernconcepten toegepast op het onderzoeksdomein. Allereerst wordt een mobiele dienst gedefinieerd als elk type dienst dat wordt geleverd via een mobiel toestel, mobiel netwerk en / of mobiele sessie. Vervolgens wordt het begrip waardenetwerk nader gespecificeerd op het mobiele domein. Typische actoren in mobiele waardenetwerken zijn operators, handset leveranciers, content-providers en applicatieontwikkelaars. Hun rollen zijn gerelateerd aan hulpbronnen op het niveau van het netwerk, de eindgebruiker, software en content. Deze partijen strijden met name om rollen die betrekking hebben op toegang tot de eindgebruiker. Theoretische concepten van governance-mechanismes zijn niet eenvoudig toe te passen op het mobiele domein. Domeinspecifieke concepten zoals ommuurde tuinen en open modellen verschillen dan wel in gebruik van autoriteit, maar de rol van contracten en vertrouwen is minder duidelijk. Ook de drie fases van dienstinnovatie zijn lastig te specificeren op het domein, omdat maar weinig bekend is over de onderliggende processen van mobiele dienstinnovatie. Tot slot van het hoofdstuk worden externe omgevingsinvloeden uitvoerig behandeld. Technologische factoren zijn met name de ontwikkelingen in mobiele infrastructuren en IP-gebaseerde convergentie, het toenemend belang van service platforms, en het opkomen van intelligente, multifunctionele toestellen. Marktgerelateerde factoren zijn de langzame adoptie van geavanceerde mobiele diensten door eindgebruikers en convergentie in de industrie. Reguleringsinvloeden zijn met name relevant op het gebied van infrastructuren en minder voor specifieke eindgebruikerdiensten. Twee cases illustreren hoe mobiele web service technologie en nieuwe billing processen de machtsposities van operators in mobiele waardenetwerken kunnen veranderen.
Hoofdstuk 4: Case studies Hoofdstuk 4 behandelt een viertal case studies naar mobiele dienstinnovatie in waardenetwerken. Het doel van deze empirische stap is om de algemeen geformuleerde proposities aan te scherpen tot direct testbare hypotheses. De eerste en meest uitgebreide casus is die van i-mode: een mobiel internetportaal dat sinds 2002 aangeboden werd aan Nederlandse consumenten, en die in 2007 overgegaan is in een open WAP-gebaseerde portal. De i-mode casus is exemplarisch voor het onderzoeksdomein, omdat het een commerciële dienst is gericht op grootschalige exploitatie, waarbij operators zijn betrokken. Drie contrasterende cases zijn geselecteerd. De Event Assistant dienst biedt informatie voor congresbezoekers. Net als i-mode is het een commerciële dienst, gericht op grootschalige exploitatie, maar operators spelen geen rol. De Attendering service biedt locatiespecifieke waarschuwingen aan politieagenten. De dienst is dan wel gericht op grootschalige adoptie, maar dan in het publiek in plaats van commercieel domein. De WijkWijzer dienst is ook gericht op politie agenten in het publieke domein, maar is ontwikkeld binnen een onderzoeksproject dat niet gericht was op grootschalige exploitatie. Er zijn interviews gehouden met betrokkenen binnen de organisaties in de waardenetwerken. De interviewvragen waren gebaseerd op de concepten in de
139 proposities. De interviews werden uitgeschreven en gecodeerd met behulp van de kwalitatieve analysetool Atlas TI. Vervolgens werden causale diagrammen geconstrueerd aan de hand van uitspraken in de interviews. In de verslaglegging van de case studies in hoofdstuk 4 worden telkens eerst de concepten gespecificeerd naar de case bevindingen en vervolgens een conceptuele analyse uitgevoerd. Op basis van gestructureerde vergelijking tussen de cases worden conclusies getrokken. De domeinspecifieke verschillen tussen de cases worden hierbij expliciet meegenomen als alternatieve verklaringen. Uit de cases blijkt dat verschillende governance-mechanismes worden gebruikt in de verschillende fases van dienstinnovatie. Zowel vertrouwen als autoriteit worden vooral gebruikt in R&D / Ontwikkeling en Implementatie / Uitrol fase, en minder tijdens Commercialisatie. Contracten worden vooral gebruikt in de Implementatie / Uitrol fase en minder in de andere fases. Bovendien blijken marktgerelateerde en technologische omgevingsfactoren van invloed op governance. Met name de opkomst van internettechnologieën en de toetreding tot de markt van internetspelers als Google en Apple reduceren het gebruik van autoriteit en contracten. Reguleringsgerelateerde factoren speelden geen rol in de cases. Actoren zijn vaak ontevreden over de gebruikte governance- mechanismes. Content providers in de i-mode casus waren ontevreden over het gebruik van autoriteit en contracten door de operator omdat dit hen zou hebben beperkt bij het komen tot innovatieve diensten. Hoewel in de cases over dienstinnovatie bij de politie volledig andere actoren aanwezig waren, voelden ook daar dienstontwikkelaars zich beperkt door de strikte regels van een machtige speler. Uiteindelijk leidt de analyse tot een specificatie van propositie P1 naar hypothese H1 zoals weergegeven in onderstaande tabel. Tabel: Hypothese H1 Autoriteit Contracten Vertrouwen
R&D / Ontwikkeling + - + Implementatie / Uitrol + + + Commercialisatie - - -
Propositie P2 wordt als volgt gespecificeerd.
H2a) Technologische omgevingsfactoren beïnvloeden governance- mechanismes H2b) Marktgerelateerde omgevingsinvloeden beïnvloeden governance- mechanismes H2c) Reguleringsgerelateerde omgevingsinvloeden beïnvloeden governance-mechanismes niet
Hoofdstuk 5: Survey onderzoek In hoofdstuk 5 wordt hypothese H1 getoetst middels een kwantitatief survey onderzoek onder 96 praktijkmensen en experts. Hypothese H2 werd niet
140 getoetst, omdat externe omgevingsinvloeden lastig kwantitatief zijn uit te vragen in een survey. De respondenten zijn afkomstig uit verschillende landen en werken bij operators, applicatieontwikkelaars, content providers, adviesbureaus en hardwareleveranciers. Voor het meten van governance-mechanismes werden bestaande meetschalen van dyadisch niveau omgezet naar het netwerk meetniveau. Voor de fases van dienstinnovatie werden nieuwe schalen ontwikkeld en vooraf getest. Het meetmodel wordt getest in een confirmatieve factoranalyse, waaruit blijkt dat de algehele fit van het model, convergente validiteit, constructvaliditeit en discriminante validiteit acceptabel waren. Middels een structureel vergelijkingsmodel in AMOS 7.0 is het gecombineerde meetmodel en verklarend model getest en deels aangepast. Een aantal hypotheses bleek niet significant in het uiteindelijke model, mogelijk vanwege de kleine steekproefgrootte. Het uiteindelijke model laat zien dat de keuze van governance- mechanismes significant kan worden verklaard aan de hand van de fases van dienstinnovatie. Wanneer dienstconcepten worden ontwikkeld en partners worden gezocht, is er meestal één organisatie in het waardenetwerk die op basis van autoriteit de activiteiten coördineert. Bij het uitrollen en implementeren van diensten worden contracten belangrijker. In de commercialisatie blijkt vertrouwen het belangrijkste mechanisme. Bij het governance-mechanisme vertrouwen werden tegenstrijdige resultaten gevonden ten opzichte van de case studies. In de case studies bleek dat deze meer dominant was in de R&D / Ontwikkeling fase, maar in het survey onderzoek meer in de Commercialisatie fase. Dit verschil komt mogelijk voort aan verschillen in meetniveau en meetinstrument.
Hoofdstuk 6: Discussie en conclusies Hoofdstuk 6 presenteert de conclusies van het proefschrift. De belangrijkste bevinding van het onderzoek is dat governance-mechanismes in waardenetwerken bij mobiele diensten inderdaad door de tijd heen veranderen en dat dit kan worden verklaard aan de hand van factoren op meerdere niveaus. Op het waardenetwerk niveau zijn dit transities tussen de fases van dienstinnovatie en op het niveau van de omgeving zijn dit externe technologische en marktgerelateerde factoren. Het dynamisch perspectief van de studie draagt bij aan theorievorming over waardenetwerken. De studie draagt bij aan theorie over governance, omdat het concept voor het eerst in een dynamisch perspectief op netwerkniveau is onderzocht. De bevindingen van het onderzoek laten zien dat een dergelijk perspectief een verklarende waarde heeft en dat het controleren voor tijdgerelateerde factoren navolging verdient. Aan theorie over dienstinnovatie voegt de studie een fasemodel toe over het proces waarin diensten worden ontwikkeld. Dit fasemodel is uitgewerkt in een herbruikbaar meetinstrument dat tevens getoetst is. Wat betreft co-evolutietheorie, laat de studie zien dat dit concept kan worden gebruikt om de dynamiek van governance te begrijpen. In overeenstemming met met theorie over co-evolutie is gebleken, dat instigerende factoren zoals faseovergangen en externe omgevingsinvloeden inderdaad kunnen leiden tot korte periodes van verandering, gevolgd door een dynamisch
141 evenwicht. Bovendien is geïllustreerd hoe co-evolutie kan helpen om te komen tot `bescheiden geformuleerde’ proposities, die empirisch kunnen worden getoetst. De studie draagt bij aan het onderzoeksdomein van mobiele dienstinnovatie. Hoewel de door operators gedomineerde ommuurde tuinen ten einde lijken, kunnen gelijksoortige autoriteitsmechanismes en problemen nog altijd een rol spelen. Enerzijds zullen operators hun machtspositie weer proberen terug te nemen met behulp van technologieën als IP Multimedia Subsystem en UMTS Long Term Evolution. Anderzijds zullen handset leveranciers wellicht de nieuwe machtige speler worden en zijn er eerste tekenen dat ook zij hun autoriteit zullen gebruiken in relatie met content providers. Praktijkmensen moeten meer aandacht besteden aan de keuze van governance-mechanismes dan dat zij nu doen, omdat de studie laat zien dat dit van belang is voor dienstinnovatie. Hierbij dienen zij zich bewust te zijn van de beperkingen om governance-mechanismes daadwerkelijk te veranderen. Praktijkmensen kunnen gebruik maken van de rijke conceptualisatie van governance-mechanismes in waardenetwerken in dit proefschrift om zo voorbij te gaan aan de vaak simplistische discussies over gesloten en open modellen. Regelgevers en beleidsmakers moeten hun aandacht verschuiven van infrastructuren naar dienstinnovatie, omdat de studie laat zien dat de keuze voor governance-mechanismes tot een gebrek van innovaties in de mobiele sector heeft geleid. De toenemende rol van dienstinnovatie en organisatienetwerken in de Westerse economie maakt de onderwerpen in dit proefschrift steeds belangrijker. De ideeën in dit proefschrift kunnen als opmaat worden beschouwd tot een multidisciplinair onderzoeksprogramma naar het organiseren van dienstinnovatie in waardenetwerken. Dit soort onderzoek zou plaats kunnen vinden in het mobiele domein, maar ook in andere domeinen. Het proefschrift sluit af met een aantal onderzoeksvragen voor een dergelijk onderzoeksprogramma: Wat is een meetinstrument om de performance van waardenetwerken te meten, hierbij rekening houdend met de tijdgerelateerde en stakeholderspecifieke factoren? Op welke manier moet governance van relaties met eindklanten worden vormgegeven wanneer die actief betrokken worden bij dienstinnovatie? Hoe kan dienstinnovatie in R&D projecten zo worden georganiseerd dat de dienstconcepten daadwerkelijk de commercialisatie-fase bereiken in plaats van te stranden in de ontwikkelfase? Hoe moet dienstinnovatie worden georganiseerd in relatie met een dienstenplatform, bijvoorbeeld in het domein van intelligente leefomgevingen?
142 Curriculum vitae G.A. (Mark) de Reuver was born on 6 June 1982 in Leiden, the Netherlands. He obtained his gymnasium-diploma in 2000 from the Groene Hart Lyceum at Alphen aan den Rijn. Subsequently, he studied Systems Engineering, Policy Analysis and Management at Delft University of Technology, from which he obtained his Bachelor (2004) and Master degree (2005). During his Bachelor study, he conducted an external research project at Riga University of Technology, Latvia, resulting in an academic paper. His Master thesis was carried out at Orange Netherlands at The Hague, the Netherlands, where he developed wholesale business models for location based services. Mark worked as a PhD researcher at the section Information and Communication Technology, faculty Technology, Policy and Management, at Delft University of Technology, starting from 2006. During this period, he has worked in the IST-MobiLife project (2006) and the Freeband User eXperience project (2006-2008). He published articles in the journals Telematics and Informatics, International Journal of Electronic Business, Journal of Theoretical and Applied E-commerce Research, INFO, and Electronic Markets. In addition, he presented his work at several conferences including the ITS conference, Bled conference, International Conference on Mobile Business, World Congress on the Management of eBusiness, and the International CICT Conference. He presented his PhD research at the ECIS doctoral consortium in 2007. During his PhD period, he supervised thirteen Master thesis projects, and lectured a Master elective course on mobile service innovation.
143 Publications
Journal articles De Reuver, M., & Haaker, T. (2009). Designing viable business models for context-aware mobile services. Telematics and Informatics, 26, 240-248. De Reuver, M., Bouwman, H., & MacInnes, I. (2009). Business models dynamics for start-ups and innovating e-businesses. International Journal of Electronic Business, 7(3), 269-286. De Reuver, M., Bouwman, H., & MacInnes, I. (2009). Business model dynamics: a case survey. Journal of Theoretical and Applied E-commerce Research. De Reuver, M., Bouwman, H., De Koning, T., & Lemstra, W. (2009). How new billing processes reshape the mobile industry. INFO, 11(1). De Reuver, M., Bouwman, H., & Haaker, T. (2009). Mobile business models: organizational and financial design issues that matter. Electronic Markets, 19(1), 3-13.
Conference papers De Reuver, M., & Bouwman, H. (2008, 10-12 November). Resource dependencies in mobile services value networks. Paper presented at the 1st International Conference on Infrastructure Systems, Rotterdam, Netherlands. Bouwman, H., De Reuver, M., & Visser, A. (2008, September). Understanding trends in mobile service bundles. Paper presented at the 19th European Regional ITS Conference, Rome, Italy. De Reuver, M., & Bouwman, H. (2008, 7-8 July). Governing mobile service innovation in converging value networks. Paper presented at the International Conference on Mobile Business, Barcelona, Spain. De Reuver, M., Bouwman, H., & Haaker, T. (2008, June 15 - 18). Capturing value from mobile business models: Design issues that matter. Paper presented at the 21st Bled eConference - eCollaboration: Overcoming Boundaries Through Multi-Channel Interaction, Bled, Slovenia. Haaker, T., Bouwman, H., Kijl, B., Galli, L., Killström, U., Immonen, O., et al. (2007, November 6-9). Challenges in business models for context aware services. Paper presented at the CollECTeR Iberoamérica, Cordoba, Argentina. De Reuver, M., Bouwman, H., & Flores Hernández, G. (2007, September). Exploring technology design issues in business models for mobile web services. Paper presented at the 18th European Regional ITS Conference, Istanbul, Turkey. De Reuver, M., Bouwman, H., & MacInnes, I. (2007, July 12-13). What Drives Business Model Dynamics? A Case Survey. Paper presented at the Eighth World Congress on the Managment of eBusiness Toronto, Ontario, Canada
144 De Reuver, M., Haaker, T., & Bouwman, H. (2007, June 4 - 6). Business model dynamics: a longitudinal, cross-sectional case survey. Paper presented at the 20th Bled eConference, Bled, Slovenia. De Reuver, M. (2007, June 4-6). Governance dynamics in value networks: A co- evolutionary perspective on 4G mobile services value networks. Paper presented at the ECIS Doctoral Consortium Wasserauen, Switzerland. Haaker, T., Kijl, B., Galli, L., Killström, U., Immonen, O., & De Reuver, M. (2006, November 30 – December 1). Challenges in designing viable business models for context-aware mobile services. Paper presented at the 3rd International CICT Conference, Copenhagen, Denmark. Immonen, O., Haaker, T., Galli, L., Killström, U., De Reuver, M., & Pitkänen, O. (2006, November 30 – December 1). Can advertising based earnings logic become a basis for future mobile business models? Paper presented at the 3rd International CICT Conference, Copenhagen, Denmark. Killström, U., Mrohs, B., Immonen, O., Pitkänen, O., Galli, L., De Reuver, M., et al. (2006). A new mobile service architecture addresses future mobile business environments. Paper presented at the Wireless World Research Forum Meeting, Heidelberg, Germany. De Reuver, M. (2006, October 5th). Governance dynamics in value networks: Towards a co-evolutionary perspective on 4G mobile services value networks. Paper presented at the 9th PREBEM Conference on Business Economics, Management and Organization Science, Amersfoort, The Netherlands. De Reuver, M., Bouwman, H., & Haaker, T. (2006, August). Testing critical design issues and critical success factors during the business model life cycle. Paper presented at the 17th European Regional ITS Conference, Amsterdam, The Netherlands. Bouwman, H., MacInnes, I., & De Reuver, M. (2006, June 12-16). Dynamic Business Model Framework: A Comparative Case Study Analysis. Paper presented at the ITS 2006 - 16th Biennial Conference, Beijing, China. Merkuryeva, G., Shires, N., Morisson, R., & De Reuver, M. (2003, September 18- 20). Simulation based scheduling for batch anodising processes. Paper presented at the Harbour, Maritime & Multimodal Logistics Modelling and Simulation, Riga, Latvia.
Book chapters De Reuver, M., Bouwman, H., & Flores Hernández, G. (2009). Exploring technology design issues for mobile web services. In B. Preissl, J. Haucap & P. Curwen (Eds.), Telecommunication Markets: Drivers and Impediments (pp. 309-324). Heidelberg: Physica-Verlag. Bouwman, H., De Reuver, M., & Schipper, H. (2008). A Standalone Digital Music Vending Service. In H. Bouwman, H. De Vos & T. Haaker (Eds.), Mobile service Innovation and Business Models. Berlin: Springer. Bouwman, H., Faber, E., Fielt, E., Haaker, T., & De Reuver, M. (2008). STOF Model: Critical Design Issues and Critical Success Factors. In H.
145 Bouwman, H. De Vos & T. Haaker (Eds.), Mobile service Innovation and Business Models. Berlin: Springer. De Reuver, M., & Bouwman, H. (2008). The Dynamic STOF Model in Practice. In H. Bouwman, H. De Vos & T. Haaker (Eds.), Mobile service Innovation and Business Models. Berlin: Springer. De Reuver, M., & Bouwman, H. (2008). A Practitioner View on Generic Design Issues and Success Factors. In H. Bouwman, H. De Vos & T. Haaker (Eds.), Mobile service Innovation and Business Models. Berlin: Springer. De Reuver, M., Bouwman, H., & De Koning, T. (2008). The Mobile Context Explored. In H. Bouwman, H. De Vos & T. Haaker (Eds.), Mobile service Innovation and Business Models. Berlin: Springer. De Reuver, M., & Steen, M. (2008). A We-Centric Service: The PolicePointer. In H. Bouwman, H. De Vos & T. Haaker (Eds.), Mobile service Innovation and Business Models. Berlin: Springer. De Reuver, M., & Faber, E. (2008). Organization domain refinement. In E. Faber & H. De Vos (Eds.), Creating successful ICT-services: Practical guidelines based on the STOF method. Enschede, Netherlands: Telematica Instituut.
Master thesis De Reuver, M. (2005). Location Based Services for Wholesale: Where should Orange go? Master Thesis, Delft University of Technology, Delft, The Netherlands.
Reports De Reuver, M. (2006). Business model voor WijkWijzer (FRUX/D2.7-III). Enschede. Killström, U., Häyrynen, A., Galli, L., Immonen, O., Pitkänen, O., Haaker, T., et al. (2006). Marketplace Dynamics and Socio-economic Implications (MobiLife deliverable D1.8).
146 NGInfra PhD Thesis Series on Infrastructures
1. Strategic behavior and regulatory styles in the Netherlands energy industry Martijn Kuit, 2002, Delft University of Technology, the Netherlands. 2. Securing the public interest in electricity generation markets, The myths of the invisible hand and the copper plate Laurens de Vries, 2004, Delft University of Technology, the Netherlands. 3. Quality of service routing in the internet: theory, complexity and algorithms Fernando Kuipers, 2004, Delft University of Technology, the Netherlands. 4. The role of power exchanges for the creation of a single European electricity market: market design and market regulation François Boisseleau, 2004, Delft University of Technology, the Netherlands, and University of Paris IX Dauphine, France. 5. The ecology of metals Ewoud Verhoef, 2004, Delft University of Technology, the Netherlands. 6. MEDUSA, Survivable information security in critical infrastructures Semir Daskapan, 2005,Delft University of Technology, the Netherlands. 7. Transport infrastructure slot allocation Kaspar Koolstra, 2005, Delft University of Technology, the Netherlands. 8. Understanding open source communities: an organizational perspective Ruben van Wendel de Joode, 2005, Delft University of Technology, the Netherlands. 9. Regulating beyond price, integrated price-quality regulation for electricity distribution networks Viren Ajodhia, 2006, Delft University of Technology, the Netherlands. 10. Networked Reliability, Institutional fragmentation and the reliability of service provision in critical infrastructures Mark de Bruijne, 2006, Delft University of Technology, the Netherlands. 11. Regional regulation as a new form of telecom sector governance: the interactions with technological socio-economic systems and market performance Andrew Barendse, 2006, Delft University of Technology, the Netherlands. 12. The Internet bubble - the impact on the development path of the telecommunications sector Wolter Lemstra, 2006, Delft University of Technology, the Netherlands. 13. Multi-agent model predictive control with applications to power networks Rudy Negenborn, 2007, Delft University of Technology, the Netherlands. 14. Dynamic bi-level optimal toll design approach for dynamic traffic networks Dusica Joksimovic, 2007, Delft University of Technology, the Netherlands. 15. Intertwining uncertainty analysis and decision-making about drinking water infrastructure Machtelt Meijer, 2007, Delft University of Technology, the Netherlands.
147 16. The new EU approach to sector regulation in the network infrastructure industries Richard Cawley, 2007, Delft University of Technology, the Netherlands. 17. A functional legal design for reliable electricity supply, How technology affects law Hamilcar Knops, 2008, Delft University of Technology, the Netherlands and Leiden University, the Netherlands. 18. Improving real-rime train dispatching: models, algorithms and applications Andrea D’Ariano, 2008, Delft University of Technology, the Netherlands. 19. Exploratory modeling and analysis: A promising method to deal with deep uncertainty Datu Buyung Agusdinata, 2008, Delft University of Technology, the Netherlands. 20. Characterization of complex networks: application to robustness analysis Almerima Jamaković, 2008, Delft University of Technology, Delft, the Netherlands. 21. Shedding light on the black hole, The roll-out of broadband access networks by private operators Marieke Fijnvandraat, 2008, Delft University of Technology, Delft, the Netherlands. 22. On stackelberg and inverse stackelberg games & their applications in the optimal toll design problem, the energy markets liberalization problem, and in the theory of incentives Kateřina Staňková, 2009, Delft University of Technology, Delft, the Netherlands. 23. On the conceptual design of large-scale process & energy infrastructure systems: integrating flexibility,reliability, availability,maintainability and economics (FRAME) performance metrics Austine Ajah, 2009, Delft University of Technology, Delft, the Netherlands. 24. Comprehensive models for security analysis of critical infrastructure as complex systems Fei Xue, 2009, Politecnico di Torino, Torino, Italy. 25. Towards a single European electricity market, A structured approach for regulatory mode decision-making Hanneke de Jong, 2009, Delft University of Technology, the Netherlands. 26. Co-evolutionary process for modeling large scale socio-technical systems evolution Igor Nikolić, 2009, Delft University of Technology, the Netherlands. 27. Regulation in splendid isolation: A framework to promote effective and efficient performance of the electricity industry in small isolated monopoly systems Steven Martina, 2009, Delft University of Technology, the Netherlands. 28. Reliability-based dynamic network design with stochastic networks Hao Li, 2009, Delft University of Technology, the Netherlands.
148 29. Competing public values Bauke Steenhuisen, 2009, Delft University of Technology, the Netherlands. 30. Innovative contracting practices in the road sector: cross-national lessons in dealing with opportunistic behaviour Mónica Altamirano, 2009, Delft University of Technology, the Netherlands. 31. Reliability in urban public transport network assessment and design Shahram Tahmasseby, 2009, Delft University of Technology, the Netherlands. 32. Capturing socio-technical systems with agent-based modelling Koen van Dam, 2009, Delft University of Technology, the Netherlands. 33. Road incidents and network dynamics, Effects on driving behaviour and traffic congestion Victor Knoop, 2009, Delft University of Technology, the Netherlands. 34. Governing mobile service innovation in co-evolving value networks Mark de Reuver, 2009, Delft University of Technology, the Netherlands.
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