Chapter4* ValueCo-CreationProcessandValueOrchestrationPlatform

KyoichiKijima1andYusukeArai2

Abstract NewservicebusinessessuchasAmazon,iTunes,andRakutenhaveacommoncharacteristic:theyactasaplatformfororchestratingandfacilitatingvalueco-creationbycustomersandproviders.Inthevalueco-creationprocess, customersandproviders interactwitheachotherandco-createnewvalues.Thevalueorchestrationplatforminvitescustomersandprovidersto”getonboard”andfacilitatestheprocessof co-creating value while leaving the control of the process entirely in the hands of providers andsometimesofcustomersaswell.

Suchatwo-layeredservice-systemmodelisalsoapplicablefortherevitalizationofalocalcommunity.Forexample, industrial tourism is a commonmeans to createnewvalues inanareaby involvingvariousstakeholders including restaurants, hotels, sightseeing spotsmanagers, and factories. Having a valueorchestrationplatformtofacilitatethesestakeholders’valueco-creationisdefinitelyneeded.However,incontrasttoprivatebusinesses,thereareoftennoclear”systemowners”responsiblefortheprocess.Thisismainlyduetothepowerstructureinthecommunityortheindependenceofstakeholders.

Thischaptermodelsthevalueco-creationprocessandvalueorchestrationplatformfromservicescienceperspective and discusses value orchestration management strategies for business systems. It alsodiscussestherelevanceofthemodeltolocalrevitalizationinJapan.

To achieve thesepurposes,wefirst examine severalmajorperspectives fromwhich servicehasbeenarguedsofarandclarifyourresearchpositioninthefieldofservicescience.Then,weproposeaprocessmodelofvalueco-creationconsistingoffourphases:co-experience,co-definition,co-elevationandco-development.Finally,bydevelopingavalueorchestrationplatformmodelandrelatingittotheprocessmodel,weanalyzemanagementstrategiesfororchestratingvalueco-creationnotonlyinbusinessbutalsoincommunityservicesystems.Wealsoadoptamathematicalapproachtotheanalysisofanetworkexternalityproblemthatinevitablyariseswhenaplatformattractscustomersandproviders.

KeyWords:ServiceSystemModeling,ValueCo-CreationProcess,ValueOrchestrationPlatform,Curation,LocalRevitalization

1TokyoInstituteofTechnology(Correspondingauthor:kijima@valdes.titech.ac.jp) 2KyotoUniversity(arai.yusuke.4u@kyoto-u.ac.jp)* A chapter of Global Perspectives on Service Science: Japan, Stephen K. Kwan et al. (Eds), Springer, 2016

1Introduction

With the establishment of sophisticated logistics and the rise of information technology, new servicebusinesses,whetherrealorvirtual,havebecomeincreasinglyimportant.Onecommoncharacteristicoftheseservicebusinessesisthattheyhavetwolayers(Figure1). AsshowninFigure1,inthevalueco-creationprocess,customersandprovidersinteractwitheachotherandco-createnewvalues.Theotherlayer invites customers and providers to ”get on board.” It facilitates and orchestrates new value co-creation by customers and providers, but leaves the control of the process entirely in the hands ofprovidersandsometimesofcustomersaswell.Wecallthislayerthevalueorchestrationplatform. WebsitessuchasAmazon,eBay, iTunes,Rakuten,andYouTubeprimarilyserveasvalueorchestrationplatformsbecausetheyconnecttensofthousandsofproviders(sellers)tomillionsofcustomers(buyers).Forexample,thestrengthoftheAppleAppstoreliesinitsfunctionasavalueorchestrationplatform.Thestoreisinterestedininvitingasmanyusersandappropriatedevelopersaspossibleontoit,butittakesnophysicalorfulllegal”possession”ofthesoftwareitdistributes.

Fig.1Valueco-creationandValueorchestration

Theessentialideaofavalueorchestrationplatformdatesbackseveraldecades,anditstraditionalandwell-knownexamplesincludecreditcardsandshoppingmalls(RefertoTable1).

Table1Someexamplesofvalueorchestrationplatforms

Service Valueorchestrationplatform Customers Providers

CreditCard VISA Customers Restaurants,Hotels Newspapers Newspapers/Magazines Readers Advertisers Television TVStations Viewers Advertisers Shopping ShoppingMall Buyers Tenants/sellers ElectronicCommerce B2B,B2Cexchanges Buyers Sellers OperatingSystem Microsoft/Windows Users Softwaredevelopers Games Nintendo Gamers Gamepublishers iPhoneApp AppleAppStore Users Appdevelopers

Byobserving these concrete examples,wewere able to validateourdefinitionof valueorchestrationplatform: a business model that entirely emphasizes value orchestration and allows customers andproviders to interact with each other and co-create new values, often using information andcommunicationtechnology(ICT).

This paper provides amodel of the value co-creation process and value orchestration platform fromservicescienceperspective,andthendiscussesvalueorchestrationmanagementstrategiesbyreferringtocurrenttypicalbusinesses.

Todoso,wefirstexamineseveralmajorperspectivesfromwhichservicehasbeendiscussedsofarandclarifyourresearchpositionintermsofservicescience.Then,weproposeaprocessmodelofvalueco-creationconsistingoffourphases:co-experience,co-definition,co-elevationandco-development.Finally,bydevelopingavalueorchestrationplatformmodelandrelatingittotheprocessmodel,weanalyzethreemanagementstrategiesfororchestratingvalueco-creation―SIPS(Sympathize,Identify,Participate,andShareandSpread),curation,andempowerment―byreferringtoactualcasesinwhichsuchstrategiesareimplemented.Wealsoadoptamathematicalapproachtoanalyzenetworkexternalityproblemsthatinevitablyarisewhenaplatformattractscustomersandproviders.

2CharacteristicsofService

Service is increasingly important tomanyfields.However, each specialization sees service somewhatdifferently[2][15].

Studies ineconomicsandthesocialscienceshavedistinguishedservice(intangibles) fromagricultureandmanufacturing(tangibles).Inthesescientificfields,serviceistheresidualofagricultureandman-ufacturingactions.Measurementsofthegrowthoftheservicesectoraremadeintermsofthenumbersandtypesofjobs(employment)andfirms(sectorgrowthandcompetitiveness),contributionstotheGDP,and thebalanceof trade.Gronroos compares certain aspects of thedifferencebetweenproducts andservicesineconomics[6].

Studies in Industrial Engineering, Management Science and Operations Research emphasizemathematical modeling of service systems. For example, networks of stochastic service systems arevigorouslymodeledonthebasisoftheircapacityanddemandcharacteristics,whilequeuingtheoryisoftenadaptedasthemodelusedtoassessservicecapacityandperformance.

Computerscientistsand informationsystemsspecialists talkaboutwebservicesandservice-orientedarchitectures (SOA) as modularizing capabilities, making them discoverable and providing standardprotocols forusing capabilities aspart of complexnetworksof entities that ownandoperate servicecapabilities.

In the psychological and behavioral sciences, service is seen in the context of customer-providerinteractions as something to be experienced, remembered, and evaluated. Experience of customer-provider interactions isbeing increasinglydesignedon thebasisof theattitudesofpsychologistsandbehavioralscientists.Inthismethod,individualsrememberhowpleasantandunpleasanttheinteractionwasandevaluatethemwhencomparingalternativesandmakingchoices.

Inservicemarketingandoperationsmanagement,thewell-knownconceptualframeworkof theGapModelofServiceQualityisoftenusedtounderstandtheservicequalityofanorganization[19].Themodelidentifiesacustomergapand fourprovidergapsandproposes that thesefivegapsmustbeclosed inordertoincreasetheservicequality.Accordingtothemodel,closingthecustomergap,whichisdefinedasthedifferencebetweenthecustomer’sexpectationandtheactualexperienceoftheservice,isthemostcriticaltodeliveringqualityservice. Asbrieflyreviewedsofar,theconceptsof, interestsin,andapproachestoservicearequitediversifiedamongdisciplines.

Servicescienceisanemergingareaofstudythatdrawsondecadesofpioneeringworkintheresearcharea of servicemarketing, service operations, servicemanagement, service engineering, service eco-nomics, and service computing [14][9][3][2]. Service science defines service as a phenomenonobservableintheworldintermsofaservicesystemwithvalueco-creationinteractionsamongentities[9]bytakingabird’seyeviewofvariousperspectivesinwhichservicesystementitiescanbepeople,businesses,non-profits,governmentagencies,andevencities.

Aservicesystemisadynamicinteractionamongproviders,customers,ICT,andsharedinformationthatcreatesvaluebetweentheproviderandcustomer[16].Valueandvaluecreationareattheheartofserviceandarecriticaltounderstandingthedynamicsofservicesystemsandfurtheringservicescience[17].

Servicescienceisthestudyofservicevalueco-creationphenomenaamongservicesystementities[10].Asaspecializationofsystemssciences, it triestoshedlightonascientificapproachtounderstandingsocial value and identifyingpropositions that canbe formulatedand theories that canbe empiricallytested[2][15].

The goal of service science is to promote innovation in service and increase service productivity.Innovationisakeytoproductiveserviceandisbornfromtheintersectionofdifferenttypesofknowledge.Tothisend,promotinganinterdisciplinaryapproachiscrucialtothefield.Measuringvalueco-creationiscomplexandinvolvesmanyrationalandexperientialdimensions.

Serviceitselfhasbeencharacterizedwithseveralperspectivesinservicescience.Intherealistresearchtraditionandaccordingtothegoods-dominantlogic[17][18],serviceischaracterizedasanoutcomethatcanbemeasuredbyattributesandvariablesinafunctionaldomain.

According to service-dominant (S-D) logic, interpretative consumer research, and consumer culturaltheory(CCT),serviceisdefinedasanexperienceandaphenomenon.Itclaims,”Valueisalwaysuniquelyandphenomenologicallydeterminedbythebeneficiary”[17][18].Therolesofproducersandconsumersare not distinct, because value is always co-created -jointly and reciprocally -in interactions amongproviders and beneficiaries through the integration of resources and application of competences.Individualserviceexperiencesareembeddedinspecificindividualandsocialcontexts.Indeed,serviceexperiencesarenotstablebutareratherdynamic,andtheyarereconstructedonthebasisofpreviousexperiences.Serviceexperiencesareboth intra-andinter-subjectivebecause individualsdonot live inisolationbut rather aspart of different groups andnetworks, andbecause goods render service thatresultsinvalue.

TheNordicSchoolApproachandNewServiceDevelopment(NSD)approachserviceasaprocess.Valueco-creation isanactive,creative,andsocialprocessbasedoncollaborationbetweentheproviderandcustomer that is initiated by the provider to generate value for customers. However, it is a form ofcollaborative creativityof customers andproviders aimedat enhancing theorganization’s knowledgeacquisition processes by involving the customer in the creation ofmeaning and value, although it isinitiatedbyproviders.Suchcollaborativevalueco-creationoftenrequiresgreatereffortonthepartofboththecustomerandproviderthandoesatraditionalmarketinteraction.Thepeopleonbothsidesmust

thinkaboutwhattheywanttogetoutofacooperativerelationship.

Table2SomePerspectivestoService

Perspective/Paradigm/Logic

GoodsDominantLogic ServiceDominantLogicInterpretativeConsumerResearchConsumerCulturalTheory

NordicSchoolApproachNewServiceDevelopment(NSD)

Whatisservice? Serviceasanoutcome(Newkindsofserviceproductsorattributes)

Serviceasanexperience(Valuable,subjectiveexperiencesindifferentevents)

Serviceasaprocess(Anew,well-functioningprocess)

Emphasis Serviceismeasuredbyattributesandvariablesinafunctionaldomain.

Valueisalwaysco-created,jointlyandreciprocally,ininteractionsamongprovidersandbeneficiaries

Valueco-creationisanactive,creativeandsocialprocessbasedoncollaborationbetweenproviderandcustomer

Whatvalueiscreated?Value-in-exchange Value-in-contextValue-in

Value-in-contextValue-in-use

These perspectives about service are not exhaustive and are used to provide different, rich, andcomplementaryanglestounderstandingservice(RefertoTable[2]).

Focusing on service as an outcome is certainly a dominantmethod, especially for service design, insituationsinwhichanorganizationisinterestedinimplementingvaluecreationmechanismsforproducts,software,orprocedures.

Regardingserviceexperience,wecandiscussmotivationsforcustomerstobuyandotherbeneficiariestosupport value co-creation. Service experiences are a valuable data source for innovation. In thepsychological and behavioral sciences, service has been seen in the context of customer-providerinteractionsassomethingtobeexperienced,remembered,andevaluated.Theexperienceofcustomer-provider interactions isbeing increasinglydesignedon thebasisof theattitudesofpsychologistsandbehavioralscientists.

Intheperspectiveofserviceasaprocess,wehelpmanagersadvancetheserviceco-creationprocessandallocateresources,aswellasdecodeandrecordarchitecturalelementsandphasesofinnovation.Wealsodiscusstheactionsofcustomersandprovidersintermsoftheserviceprocess.

3Four-Co-PhaseModelofValueCo-CreationProcess

Toopenuptheconceptofvalueco-creation,weidentifyvalueco-creationinteractionasanactive,creative,andsocialprocessbasedoncollaborationbetween theproviderandcustomer that is initiatedby theprovider to generate value for customers. It is a form of collaborative creativity of customers andprovidersthatisusedtoenhancetheorganization’sknowledge-acquisitionprocessesbyinvolvingthecustomerinthecreationofmeaningandvalue,althoughitisinitiatedbytheprovider.

Such collaborative value co-creation often requires greater efforts on the part of both customer andproviderthandoesatraditionalmarket interaction.Peopleonbothsidesmustthinkaboutwhattheywant togetoutofacooperativerelationship.Customersneed to trust theprovider tonotmisuse theinformationtheyprovideorunfairlyexploittherelationship.Providersneedtoactivelymanagecustomerexpectationsabouthowtherelationshipwillevolve.Providersmustprovidecapabilitiesforco-creationandalsoreceivethetoolsandtrainingnecessarytoco-createefficiently.

However,itmaybetoosimpletoassumethatbothsidesknowabouttheother’spreference,expectations,orcapabilitieswhenparticipatinginthecollaborativeprocess.Rather,theymayormaynotneedtolearnabouteachothertoshareinternalmodels(mentalmodels).

Thisconsiderationleadsustotheideaofserviceasadynamicinteractionprocessinwhichcustomersandprovidersaremutuallylearningandcollaboratingbyco-experience.

Now,weproposeanewmodelcalledthe”Four-Co-PhaseModeloftheValueCo-CreationProcess”(RefertoFigure2)[11].

Themodelexplicitlydefinesserviceasavalueco-creationinteractionbetweencustomersandprovidersandidentifiesfourphasesthatoccurintheprocess.Thefirsttwophases,co-experienceandco-definition,arerelativelyshort-rangeconcepts fordescribingserviceappreciation,whilethefinal twophases,co-elevationandco-development,refertothelong-rangeactivitiesnecessaryforserviceinnovation.

Fig.2Four-Co-phaseModelofValueCo-Creation

A.Co-ExperienceofService

Whenparticipating in thecollaborativevalueco-creationprocess, customersandprovidersmayhavelittleorno ideaabout theother’ s capabilities andexpectations.Hence, rather than reducing thegapbetween the needs (or expectations) and seeds (or capabilities), by co-experience, the provider andcustomershareaninternalmodeltoco-defineamutualunderstandingabouttheservice.

B.Co-DefinitionoftheSharedInternalModel

By interacting with each other, the customer and provider may learn about the other’ s preference,capabilities,andexpectationssothattheymayco-defineandshareacommoninternalmodel[4][18].

Satisfaction for both sides is generatedby the co-experienceof the service and the co-definitionof asharedinternalmodel.Forexample,atasushibar,throughconversation,thechefrecognizesacustomer’spreferences, mental and physical condition, and appetite and the customer learns about the day’sspecialties and seasonalfish. If they are able to share a common internalmodel (i.e., understand theother’spreference,capabilities,andexpectations),thenbotharehappy.Thisisatypicalprocessofco-experienceandco-definition.

C.Co-ElevationofEachOther

Ingeneral,asystemisdefinedasapairofentitiesandsetsofrelationshipsamongentities[8].Hence,itisrelevanttorelatethevalueco-creationprocesstotheentitiesoftheservicesystemaswellastotherelationshipsamongthem.

Wecalltheformerco-elevation,whichfocusesmoreonvalueco-creationledbyentitiesinthesystem.Co-elevation isazigzag-shapedspiralprocessof customerexpectationsandproviderabilities.Higherexpectationsofservicebyintelligentandliterateindividualsleadtohigher-qualityserviceandgreatersocialvalues(needs-pull).High-qualityservice, inturn, increasescustomerexpectations(seeds-push).Forexample,inthemorning,Tokyocommutersubwaytrainsarriveanddeparteverythreeminutesand40seconds.Thedriving force forsuchpunctual, safe,and frequentservice is thehigh levelofservicedemandedbycustomersandtheprovider’sabilitytomeetsuchrequirements.

D.Co-DevelopmentofValue

Wename the last phase co-development because it pays attention to the co-innovation generatedbysimultaneous collaboration among various entities. Co-development of service innovation is usuallycarriedoutinthecontextofcustomersevaluatingandassessingthevalueandproviderslearningfromcustomer responses. Collaborative improvement of Linux software by anonymous engineers anddevelopersisatypicalexampleofco-development. 4ValueOrchestrationManagementStrategiesThevalueorchestrationplatformfacilitatesandorchestratesnewvalueco-creationprocessbycustomersandproviders. SinceweassumetheprocessconsistsoffourCo-phases,itisclearthattheplatformhastotakecareofeachofthemtosupporttheactivities.Figure3firstshowsthatinordertosupportco-experience and co-definition phases by attracting customers and providers, the platform has to takeappropriate involvement strategies. Secondly, by introducing a term of curation, the figure claimsimportance of re-examining content and meaning of existing information and putting a newinterpretation.Finally,empowermentofcustomersandprovidersisconcernedwithco-elevationandco-developmentphases.

Fig.3ManagementStrategiesofValueOrchestration

4.1SIPS:Strategiesforattractingcustomersandproviders

4.1.1SIPS

Platform orchestrator is primarily concerned with the methods to get appropriate customers andproviders”onboard”theplatformandtovitalizeinteractionsbetweencustomersandproviders.Hence,strategiesfortheplatformtoattractandinvolvecustomersandproviderstomaximizeprofitarecrucial.Indeed,oneoftheadvantagesofanonlinevalueorchestrationbusinesssuchase-commerceisthattheyhaveno limitations on thenumber of customerswho canparticipate, so that they can enjoy scale ofeconomy.

AcycleofSympathize,Identify,Participate,andShareandSpread(SIPS)(Figure4)isusefulforidentifyinghowcustomersandprovidersbecomeinterestedinaplatform(Dentsu2011,[5]).Itgeneratesinterestamongcustomersandtheprovidertowardco-experienceandco-definitionphases.

Fig.4SIPS

TheSIPSmodelproposesthatthetriggerforcustomersandproviderstobecomeinterestedinaservicesystemistheirhavingsympathytowardit.Presently,peopleareconnectedwitheachotherthroughsocialmediaoutlets such as Facebook andTwitter. They communicate through rather subjective commentsaboutwhattheyexperience,andthecommentsthatgainacertainlevelofsympathyforbeingusefulandinterestingspreadquicklythroughoutthesemediaplatforms.Asaresult,themediatriggerssympathyto,forexample,ashoppingmallandleadstoitsidentificationasaninterestingplace.

IntheSIPSmodel,participationdoesnotnecessarilymeanpurchaseofsomeproductsorservices.Rather,itemphasizesthattheexperiencewouldleadtosharingandspreadingthroughacommoninternalmodel.

4.1.2NetworkExternalityManagementinSIPS:AMathematicalAnalysis

When a value orchestrationplatformdrives SIPS to get customers andproviders onboard, it faces anetworkexternality(effect)problem.Thisisanessentialfeatureofthevalueorchestrationmechanism,andtheplatformmustsolvetheproblemtobesuccessful.

Networkexternalitiesaresaidtoexistwhenconsumerutilityinacertainmarketdepends(usually,inapositiveway)onconsumptionofthesamegoodorservicebyotheragents.

A value orchestration platform faces two types of network externality: intra-side and between-side.JoininganSNS(socialnetworkservice),themoreofyourfriendsuse,forexample,Facebook,themoreattractive itbecomes toyou.Themorecolleaguesand friendsuseanAndroid-basedsmartphone, themore temptation you feel to use one. These are typical examples of (positive) intra-side networkexternality.However,youmayhesitatetocometoashoppingmallifyouexpectalargenumberofpeopletoalsobetherebecauseof,forexample,abigChristmasdiscountsale.Thisisanexampleofanegativeintra-sidenetworkexternality.

Ontheotherhand,injoiningusingane-commerceplatform,abuyertakesintoaccountthenumberofpotential sellersusing thesameplatform, inaddition to thepricesheshouldpay. Inotherwords, theoppositenetworksizeworksasa typeofqualityparameter in theplatformchoice.This isdue to thebetween-sidenetworkexternality.

Becauseofthesebetween-sidenetworkexternalities,theattractivenessoftheplatformforthecustomerisdeterminedbythecharacteristicsoftheproviderandviceversa.

Ingeneral,themorecustomersandprovidersparticipateandgetinvolvedinasystem,themoreprofittheplatformcanexpecttogain.Thisisatypical”chickenandeggproblem”becausetoattractnicetenantstoashoppingmall,youneednumerousgoodcustomersbuttoattractcustomerstoit,youneedattractivetenants.Morerealistically,fromtheproviders’viewpoint,themorecustomersparticipateintheplatform,themoreattractivetheplatformis.However,fromthecustomers’perspective,thevarietyratherthanthenumberofprovidersmaybeimportantinmanycases.

Here,toderiveusefulstrategiesfortacklingthischickenandeggproblem,weconductaformalanalysisbasedonasimplemathematicalmodel.Thoughthemodelheremaylookoverlysimple,itrepresentsthemostessentialfeaturesofstrategiesforaplatformtoattractcustomersandproviders[13][7][12].

Weillustratethemodelintermsofashoppingmall,butsimilarargumentscanbeappliedtoothervalueorchestration platforms (Figure 5). Let us assume that the number of customers and merchants(providers)aremandn,respectively.Insomecasesmandnmaybeinterpretedasanindicatorofthevarietyofcustomersandproviders,respectively.Incaseofe-commerce,wemayassumethatmandnbeessentiallybeany integers,becausethankstocurrentcomputationanddatabasecapabilitiestheycanprocessbigdataaboutcustomersandproviders.

Then,thebenefitUthatacustomergainedbyparticipationcanbeexpressedby

U=an − f,

Fig.5VarietyManagementofValueOrchestration

whereaistheutilityforthecustomerobtainedbyvisitingeachtenantandfdenotestheparticipationfee(e.g.,registrationfee).Symmetrically,wecanrepresentthebenefitVofatenantbyparticipationintheshoppingmallby

V=bm − g,

wherebistheutilityforthetenantbyservingeachcustomerandgexpressestheparticipationfee(e.g.,tenantfee).However,sincemisdeterminedbythebenefitofthecustomers,wemayassume

m=F(U),

whereFisanincreasingfunctionofU.Thismeansthatthehigherthebenefittothecustomerisexpected,themorecustomerswillwanttovisittheshoppingmall.Byentirelysymmetricarguments,wehave

n=G(V),

whereGisanincreasingfunctionofV.Now,theplatform’sutilitycanberepresentedby

P=m(f − c)+n(g − d),

wherecanddaremanagement/maintenancecostsfortakingcareofcustomersandtenants,respectively.

Ourkeyquestionhere ishowtheplatformcanmaximizetheutilityPbyassumingthattheirdecisionvariablesarefandg.Byasimplecalculation,weareabletoclaimthattheoptimalf*andg*shouldsatisfythesesymmetricequations.

f*=c −bn+F/F’ and g*=d − am+G/G’

whereF’=dF/dUandG’=dG/dV.

Byobservingthem,wecanderivethefollowingpropositions.

Proposition1

Ifbnissufficientlylarge,thenf*maybelessthanc.Asymmetricstatementalsoholds.

Thepropositionsuggestsabelow-coststrategy.Indeed,itimpliesthatsometimesitisreasonablethattheoptimal f* is below the marginal cost c or that g* is below d to encourage customers or tenants(providers)tojoin.

Forexample,AmazonJapanrecentlyintroducedfreedelivery,throughwhichcustomerscanbuy,say,apencilsharpenerfortwodollarswithoutpayinganyadditionalshippingcost.(IntheUS,AmazonoffersSuperSaverShipping,whichallowscustomerstopurchasegoodswithoutanyshippingcostwhenthetotalchargeforthepurchasescosts25$ormore.)Intermsoftheproposition,sincenisveryhuge,theaccesscostf* bycustomersisalmostzeroandlessthanc.

Thefreedeliverycampaignseemsincrediblebecauseitiscertainlynotabletoproduceaprofitandevenseems likely to cause a loss. However, Mr. Jasper Chan, President of Amazon Japan, claims that thecompanydoesnotworry about short-termprofits but is rather seeking long-term success. It is theirphilosophy that if they keep providing the best products to customers, then they will be ultimatelysuccessful.Therewill likelybesometransactionsthosewould incura loss,butthecompanywantstoestablishareputationashavingthemostcomfortableInternetshoppingexperienceandisnotworriedabouttheselosses.

A below-cost strategy can often be adoptedwhen a business is started. For example, in the softwareplatformsMicrosoft started by allowing free access to developers (providers) in order to encourageapplicationstobecreatedandchargingusers(customers).Similarly,Nintendomadeprofitfromgamepublishersandsettheconsolepricetogamersbelowthemarginalcost.Theseexamplesillustratehowaplatformcanmakeprofitfromoneofthetwosides.

Proposition2

If F’islarge,thencustomersshouldbechargedbyasmallfee.Asymmetricstatementalsoholds.

A largeF’ impliesthat,evenifthecustomer’sbenefitincreasesslightly,thenumberofcustomerscanincreasegreatly.Accordingtotheproposition,ifcustomersaremuchmorevaluablecomparedtotenants,it is reasonable for the platform to charge the tenants more than the customers. This suggests anasymmetricchargingstrategy,inthatitencouragesnotbalancingthesidesofcustomersandtenantstomaketheservicesystemmoreattractive.

Forexample,Facebookhassofarprofitedfromdevelopersbysettinguseraccesscostbelowthemarginalcost.However,inSeptember2011,thecompanydeclaredthatforthenextfiveyears,theywouldstrengthentheirrelationshipswith”launchpartners.”Thismeansthattheyintendtoshifttheir

emphasisfromuserstodevelopersbytakinganasymmetricchargingstrategy. Inmostcases,Rakuten,Japan’slargeste-commercecompany,chargesamuchlowercommissionratetomerchants thandoesAmazon.AccordingtoMr.Mikitani,ChairmanofRakuten,merchants involved inRakutenaremajorretailerswiththeirownstrengths.BecausetheycanselltheirproductsmorecheaplythanAmazon,Rakutenchargesamuchlowercommissionratethanitscompetitor[1].

4.2ValueCurationStrategy

While strategy for involvement of customers andproviders focuses on how to attract customers andproviders to the platform, value curation is essential for the platform to encourage customers andproviderstoco-elevateandco-develop.

Curationcanbedefinedasahighlyproactiveandselectiveapproachofvalueorchestrationthatcollects,selects, analyzes, edits, and reexamines the content and meaning of existing products, service, andinformationoncustomersandproviderstoprovideanewinterpretationofandanewmeaningtothem.Based on the newly developed interpretation andmeaning, it facilitates a value co-creation processinvolvingcustomers,providers,information,andtechnology.

Tocollect information,sufficient technologyandmethodology isnecessary forharvestingappropriateinformation from an enormous amount of data on the Internet and databases. To provide a newinterpretation of the information, it is necessary to combine human intelligence with technology toevaluate,understand,andprocessdata;digoutinformationandvaluefromthatdata;andvisualizewhatthe data indicates. To facilitate a value co-creation process, multiple approaches to the mental andphysicalaspectsofhumanbeingsinbothonlineandofflinespacesareessential.Blendingnewcontentwhile filtering and managing other useful information is a productive and manageable solution forprovidingprospectivecustomerswithasteadystreamofhigh-qualityandrelevantcontent.Whilepurecreationmaybedemandingandpureautomationdoesnotengage,contentcurationcanprovidethebestofboth.

Forinstance,theEastJapanRailwayCompany(JREast)isnowwellknownforcuratingcontent.Thislargerailway company employs 60,000 people and has lines covering the Tokyo and Tohoku areas. SinceJapanesesocietysuffersfromanincreasingelderlypopulation, thecountrycannotexpect largefuturegrowthintherailwayindustry.Asaresult,thecompanyisnowexpandingtoanewbusinessbyutilizingexistingstationsasshoppingspaces.AccordingtoJREast’s2020Vision,thecompanyplanstoincreasesalesfromnon-railwaybusinessfrom30%to40%intenyears,withatargetsalesamountof1,240billionyen.

Underthesloganof”stationrenaissance,”JREasthasgivenanewmeaningtoitsstationsandestablishedthem as a ”drop-in area” rather than a ”transit point.” It has also introduced unique shoppingmallscalled”E-Cute,”acoinedwordcreatedoutofacombinationof”Eki”(stationinJapanese)and”cute.”Thecompanyhasnotsimplydividedthestationspaceintorentableareasforappropriatetenantsbuteditedthesalesspaceonthebasisofauniqueconcept:theycuratethecontentofeachshoppingmall.ThefocusofJREast’svalueorchestrationisidentifyingqualitiesintenantcandidatesandeditingthosetenantsforhowmuchconsistentvaluetheywillprovideforeachstation.

Forexample,Shinagawastation’sthemeisproviding”premiumprivatetimethroughhighqualityservice.”Thecompany,inablindtastetest,selectedthemostappropriatepatisserieaccordingtotheirownvaluesystemfrommorethan20candidates.Theysuccessfullypersuadedverypopulartenantstorentspaces,manyofwhichwerehesitanttojoinE-Cute,goingsofarastoevenproposeauniquebusinessmodeltoatenantorencourage thesaleofnewproductsonlyavailableat thestation’sE-Cute.Asaresult,at theShinagawastationyoucanenjoyalineupofnewbusinessoperationsandbrands.

4.3EmpowermentStrategiesofStakeholders

Empowerment is another aspect of value orchestration, particularly for the co-elevation and co-developmentphases.Specifically, thisreferstohowaplatformempowerscustomersandproviderssothateachsidefindstheotherattractiveandbotharemotivatedtointeractwitheachother.Customersareempowered by lifting up their aspiration level, while providers are empowered by referring to theircapabilityofprovidingservice.

Forexample,Rakutenseemskeenonitsbalancedempowermentattheco-elevationphase.Thecompanybegan in 1997 as an onlinemall namedRakuten Ichiba andhasnowgrown to includebusinesses inbanking cards and travel. Presently, approximately 60 million customers and 36,000 merchantsparticipateinRakutenIchiba,and40milliontypesofproductsandservicesarefeaturedhere.

Rakuten’sbusinessmodelissimple:thecompanymainlyearnsmoneyfrommerchantsintheformofparticipationandconsultationfees,butcustomers(buyers)joinatalmostnocost.Usingasuperdatabase,they conduct cross-business analyses and predict user behavior. They employ sophisticated searchmethodsandsocialmediasuchasTwittertodeliverusefulinformationespeciallyforeachcustomer,i.e.,empoweringthecustomerbypersonalizingserviceonindividualbasis.Duetothis,acustomerbecomesmoreinterestedinRakutenashe/shewouldknowwhenithasanythinghe/shewants.

To themerchants, theyoffer insightsandfindingsobtained fromtheirdataanalysis. Inaddition, theyempower themerchants by consulting and teaching themmethods tomake a profit on theplatform,which is called E-commerce consultation (ECC). Rakuten is unique in giving small-and medium-sizemerchantstheabilitytocreateblogsandwebsites,whichare,ofcourse,crucial foronlinebusiness. Ifthesesmallmerchantsgrowintobigonesbecauseofthisempowerment,thenRakutencanearnmorecommissionsfromthem,closingthepositiveandwin-winfeedbackloop.

Furthermore, Rakuten empowers customers at the co-definition phase. According to the company,customersgotoaphysicalstorenotonlybecauseitisconvenientbutalsobecausetheycantalktoshopstaffaboutwhattobuy.RakutenwantstocreatethesameenvironmentontheInternet.Todoso,theyhaveintroducedachattingsystemonwhichcustomerscannegotiateadiscountoraskquestionsaboutapurchase.Thisisviewedasamethodfortheplatformtosupportcustomersinco-defininganinternalmodelwiththemerchant.

5LocalRevitalizationbyValueOrchestration

Inthissection,toshowsomegeneralityofthevalueorchestrationplatformmodel,wewillapplyitto awidercontext.Indeed,wetrytoarguelocalrevitalizationinJapanintermsofthevalueorchestrationplatform.

ThisisoneofthemostcriticalissuestoboosttheJapaneseeconomyandhasbeentackledformanyyearsby the central government as well as local government agencies. Local areas possess various localresources.However, it isnoteasytoutilizetheseresourcestocreateanewserviceforrevitalizingthelocal economy. First, difficulties in conducting a market survey, engaging in product planning anddevelopment, acquiring thenecessary expertise forpioneeringmarket channels, developing ahumannetwork, raising necessary funds, and securing appropriate human resources are often encountered.Second, therecanbea lackof informationaboutmarketsoutside the localareaaswellasa lackofadevelopedhumannetwork.Thus,itismoredifficulttoevaluatetheworthoflocalresourcesandapplythem to new approaches. Because of these factors, it is difficult to complete certain tasks such asestablishing a local brand and increasing the value of local resources throughout the region. Third,considerableeffortisoftenexpendedindevelopinganewproductorservice,butlaterthereisadearthofresourcesoralackofcreativeeffortdedicatedtopublicityandpromotionactivities.Often,thepublicityand promotional activities of government institutions and trade organizations are not focused oninforming consumers.Rather, there is a tendency toobserve theprinciplesof fairnessor trade rules,whichbecomethecriteriaforpromotion.

Governmentagenciesoftentrytotakeinitiativeinorchestratingvalue,butthetaskisnoteasy.Mostofthemhavetoomuchpridetocollaborateandfindacommonobjective,andsomearetoobusywitheventsandfestivalstolookataholisticpictureoftheeconomicandsocialre-vitalizationofthearea.

Forinstance,theSuwa-OkayaarealocatednearSuwakoLakeinthecenterofHonshu,Japan’smainisland,isnotonlyabigindustrialclusterconsistingofmorethan2,000smallandmedium-sizeadvancedprecisemachinerycompaniesandfactories,butisalsorichwithlocalresources.InSuwaCity,wecanfindnotonlyanindustrialclusterofprecisionmachinerycompaniesbutalsoculturalresourcessuchastheSuwaLake,TateshinaPlateau,FujimiPlateau,andKamiSuwa/ShimoSuwahotsprings.Inaddition,wecanfindediblesanddrinkssuchaseel,miso,andJapanesesake.Large-scalepubliceventssuchastheOnbashiraFestivalandtheSuwaLakeFireworksFestivalarealsoheldhere.Theselocalresourcesareutilizedforactivitiestorevitalizethelocalareabyautonomousorganizations,tradeorganizations,NPOs,localgroups,and individuals.However, each organizationperforms these activities independently,with hardly anyeffortspentinunitingitsactivitieswiththoseconductedbyotherorganizations.

The companies in the industrial cluster have sufferedbecause overseas competitors inAsia cannowprovidesimilarproductswithacertainqualitylevel.Littlesynergyexistsbetweentheindustrialclusterandothercommercialconcerns.Moreover,nosufficientmotivationispresentforrevitalizationamongstakeholdersinthearea.

Sofar,localgovernmentagencieshavetriedtoactivateandinitiatecollaborationamongstakeholders,buttop-downinterventionhasoftenfailedtoworkproperly.Thecities,towns,andvillagesintheSuwaareahaveacommonhistoricalbackground.However,despitetheirgeographicproximity,thereisverylittlecollaboration among industry, commerce, and events. In addition, the organizations and individualsinvolvedinvariouslocalrevitalizationactivitieshavenotsoughtcooperationwithindustries,agenciesorotherorganizationslyingoutsidethelocalarea.

Foroverayear,wehaveengagedinaprojectfordevelopinganarea-basedinformationplatform(aprojectforconstructingaplatformforsharinganddisseminatinglocalinformation)fordeliveringandsharinglocalinformationabouttheareaaccordingtothevalueorchestrationplatformmodel.

Intheprojectforconstructingaplatformforsharinganddisseminatinglocalinformation,the”curator”createdaFacebookpagetoserveasaplatformfortheuseSuwaarea’s localresourcesforthearea’srevitalization.Useofthisplatformcreatesaprocessofvaluableco-creationamongconsumerswithinandoutsidetheSuwaareaandservestorealizethegoalofincreasingvalueaddedcreationintheSuwadistrictasawhole.Asthecuratorconductsself-interestpromotions,alinkiscreatedbetweenconsumersandtheactivitiesdesignedtorevitalizethelocalareabyemployinglocalresources.

Sharing and disseminating information designed by third parties from their own perspectives has ahigheraddedvaluethaninformationdisseminatedbypeopleandautonomousorganizationsinvolvedinrevitalizingthelocalarea.Thecuratorhasastrongsenseoflocalinformation.Ingeneral,itisnecessarytobeabletoidentifywithconsumerswhendesigninginformationfordisseminationconcerningtheuseoflocalresourcesforactivitiesrelatedtotherevitalizationofthelocalarea.Therefore,oneoftheissuesistheconstructionofamechanismtocontinuouslydevelopsuchcurators.Toenableserviceprovidersandconsumersco-createvaluebyusingtheplatformforsharinganddisseminatinglocalinformation,themost important aspect is the participation of service providers. This is why the curator offersopportunitiestolocalserviceproviderstolearnhowtouseFacebook.Inaddition,serviceprovidersinlocal and administrative institutions and trade organizations create opportunities for debates andexchangesofinformation(workshopsetc.),duringwhichconsumerscanofferopinionsandsuggestionsconcerningtheservicesoffered.

Curators are people involved in promotion and publicity of others’ interests, and they freely involvethemselves in activitiesof informationdissemination.This acts as a trigger for link creationbetweenvariousentitiesintheSuwaregionthatservetoimprovetheperformanceoftheentireregion.Byusingthisplatform,interestedconsumersvisittheSuwaregionandcreatepositivefeedbackwhentheyrelatetheir experiences toother consumers, resulting in the creationof a stratumof consumerspassionateabouttheSuwaregion.Thus,wecanexpecttheperpetuationoftheselinks.

Therefore,byusingtheplatformforsharinganddisseminatinglocalinformation,curatorsusethevalueoflocalresourcesforactivitiesaimedattherevitalizationofthelocalareafromtheirownviewpoints.Theyachievethisrevitalizationbyfinding,grouping,organizing,sharing,andcuratinginformationfordisseminationinlinewithconsumerfeelings.Thisleadstoconsumerparticipation(SIPS)aswellastheconnectionoftheseconsumerstoprovidersofvariousservicesrelatedtotherevitalizationofthelocalareaonthesameplatform(empowerment).

Accordingtoourexperience,whenweimplementvalueorchestrationmanagementstrategiesforlocalrevitalization,weessentiallyneedtoembedthefunctionsoftheplatform(i.e.,involvement,curation,andempowerment)inthevalueco-creationprocess.Forthisembedding,weneeda”servicesystemproducer”todesigntheareaasaservicesystemandtakeinitiativetoactivateapositivefeedbackcycleofvalueco-creation.

Weidentifiedthreedifferentrolesfortheproducer.Thefirstisaroleoftakingtheinitiativetoattractandinvolveappropriatepeopleinsideoroutsidethesystembyshowinguniqueideasanddirectingthemtoashared future. The role is called ”idiot.” The term is a direct literally translation from Japanese toemphasize he/she thinkｓ outside the box. The second is a role of calmly analyzing the presentsituationusing variousdata and information from the viewpoint of adisinterestedparty.We call therole”outsider.”Thethirdisaroleofimplementingnecessaryactivitiesandbreakingfreefromthepast.Therolemaybecalled”youngster,”althoughithasnothingtodowithphysicalage.

Another important observation is that for local revitalization, itmaybe inadequate to involve all thestakeholdersinthesystemduringthefirststage,eventhoughlocalgovernmentagenciesusuallysetupan executive committee by inviting numerous stakeholders from various categories. Rather, it worksbetter if, at the beginning, only highly motivated producers who play the roles of ”idiot,” ”outsider,”and”youngster”decisivelytakemaneuverablestrategies,andthentheygetothersinterestedpartiestofollowthem.

Finally,butnotlessimportantly,empoweredstakeholdersarecrucial.StakeholdersneedtobenotonlyexpertsintheirspecialtiesbutalsofamiliarwithICT.Onlyempoweredstakeholderscanbeinvolvedintheprocessofvalueco-creation.

6Conclusion

Inthischapterweintroducedacomprehensiveframeworkconsistingoftwonewmodelsofthevalueco-creation process and value orchestration platform, as inspired by recent service businesses, such asAmazonandRakutenine-commerce.

Theprocessmodelofvalueco-creationopensuptheconceptofdynamicvalueco-creationandidentifiesfourphasesinit;co-experience,co-definition,co-elevation,andco-development.

Thevalueorchestrationplatformisaplatforminwhichcustomersandprovidersareorchestratedandfacilitated such that they can interact and co-create new values. Combining these two models, wediscussed three management strategies for orchestrating value co-creation; SIPS, curation, andempowerment.Wereferredtorealcasestoillustrateeachofthethreestrategies.

Theconceptofavalueorchestrationplatformisgeneralenoughtoexplainvariousservicesystems.Wearecurrentlydiscussingitsrelevancetopublicandvolunteerservices.Particularly,sincetheearthquake,tsunami, and the nuclear power plant disaster that occurred on March 11, 2011 in Japan, we haverecognizedthatthecommunityservicesystemshouldbecomeavalue-orchestrationplatforminvolvingpoliticians, bureaucrats, doctors and medical staff, local people, and volunteers to support the localpeople.However,thepowerstructureandinformationflowamongthesegroupsandhowitwouldaffectsuchaplatform isnot as clear as it is inbusiness cases.Weneed further consideration to tackle thecomplexityofthisproblem.

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