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Classical concept of a value creation network

  • Value creation solely on the production level
  • Transaction: Purchase of a well specified product
  • Final product creates benefits for "customer" through consumption - Interdisciplinary success story Supply Chain Management

Economics as a scientific discipline focuses on the design and control of multi-agent socio-technical systems under economic objectives.

In the classic view individual agents are linked to other agents and collaboratively create value by “adding value” to the goods they produce along the supply chains or supply networks. Control is based on negotiation processes between network nodes with the goal of optimal coordination of the entire network in the sense of a Pareto-efficient use of its resources.

New perspective for looking at value creation networks

  • Coordinating mechanisms of complex transactions
  • Value creation on a consumer level - Integration of consumer into provider activities
  • Integration of provider into customer activities - Inclusion of provider and customer networks (e.g. social networks)

In the case of services, however, network transactions are no longer classic transfers of ownership for money (purchase), but often more complex transactions will have to be executed: The customer often does not acquire ownership of objects, but rather the right to have their attributes changed. (In a transportation service, for example, the right to obtain a spatio-temporal change of state of objects that are already in his possession.) In these cases an efficient coordination requires the participation of the customer (or demand network) in the context of service provision (production) and the simultaneous “consumption” (use) of the service.

This observation is not new and has well been reflected e.g. by a debate on “service dominant logic” in marketing literature or “service oriented architectures” in information systems literature. The central core of this discussion is a paradigm shift away from understanding companies as locations of production processes, in which some type of “added value” is created, which is then generating revenue by the purchase of consumers. Rather, an alternative view is taken: companies submit only “value propositions”, which unfold their value through the use of consumers. Here, the “value-in-exchange” can still be considered to relate to the customer who acquires physical products or services. But it is much more important to focus on the “value-in-use”, i.e. the utility, which is generated in the course of the process and which is highly context-dependent.

 

The consequences of this perspective are twofold:

  • On the one hand, consumers are actively involved in “configuring” the value proposition of the service provider. In addition, coordinating the activities of the entire supply chain or supply network of the considered service provider plays an important role in the value-added activities, be it via centralized or decentralized coordination. The success of the service process essentially depends on the effective and efficient interaction of the participants. Furthermore, the buyers (and their networks) take on different roles such as a supplier of ideas, evaluators, co-designer or tester, by being involved in the design of a product or service.
  • On the other hand, value-adding activities may get providers to become an integral part of the process of their customers, and even after the time of the transaction continue to contribute to the service. On the demand side too, the value creation may not be an individual one, but may be embedded into a network of activities (similar to the production side network). The benefit arises from value co-creation in an interactive process of various network participants.

Relevant questions

The analysis of production and resource utilization processes is a classic objective of economics. In the field of supply chain management, strong connections to mathematics and computer science have proven successful for decades. Mathematical optimization models and stochastic models e.g. help to analyze provider networks and their structure. Computer Science has become indispensable in the field of Advanced Planning Systems and efficient data management.

In addition to the classic challenges of coordination of value-adding networks (efficient search for transaction partners, efficient selection mechanisms, transaction-cost-minimizing contract design, efficient execution of the transaction) new questions arise:

  • How should (static and dynamic) value creation networks be modelled?

  • How can decentralized and asynchronous decisions be analyzed?

  • How can value creation of supplier and consumer networks be coordinated?

  • Which agent plays which part in value creation?

  • Which contract types are suitable for the adequate distribution of the created value?

  • How can transaction partners create and share new innovations and knowledge within these networks?

The central goal of CoVaCo is to replicate the success of supply chain management by combining a “service-oriented economics” of value networks with the theory and tools for analyzing social networks into a common framework, hereby creating a similarly successful, but even more fundamental connection between economics, mathematics and computer science. It is also obvious that the pursuit of this new perspective on the coordination of value networks raises a number of new legal questions in many different areas.

By combining these skills the following modules should address the respective research questions and reach an integration of the involved disciplines’ perspectives:

  • Modeling value co-creation
  • Supplier and Consumer Networks
  • Mechanism Design:
  • Information Retrieval and Data Mining
  • Legal Dimension of Service Networks