Value co-creation in the delivery of outcome-based contracts for business-to-business service

Working paperThis study introduces the concept of outcome-based contracting (OBC) as the mechanism for firms to focus on delivering value-in-use, and as the driver for value co-creation as the firm would need to jointly deliver outcomes with the customer. The paper analyses two OBC-type contracts between the UK Ministry of Defence and two of its industrial partners. We find that in delivering to outcomes and achieving value-in-use, the state-dependent nature of value in usage „pushes back‟ into the organization, requiring the firm to re-evaluate the way they are structured to receive changes from customer state-dependencies so as to deliver a better service. Our analysis presents seven generic attributes of value co-creation (AVCs) essential for the capability to deliver value-in-use. These are behavioral alignment, process alignment, congruence in customer expectations, congruence in firm expectations, empowerment and perceived control, behavioral transformation, and complementary competencies. The attributes discovered through qualitative data were matched with previous academic literature and operationalized and a measurement instrument was developed. The instrument was then validated by performing an exploratory and second order confirmatory factor analysis.This research was made possible through the joint funding of the Engineering & Physical Science Research Council (UK) and BAE Systems on the Support Service Solutions: Strategy & Transition (S4T) project consortium led by the University of Cambridge. The authors gratefully acknowledge the staff of BAE Systems and MBDA as well as members of the ADAPT IPT, 16th Regiment, ATTAC IPT, MoD and the RAF who have all contributed substantially towards this research