Managing service networks' success

Managing Service Networks' Success is one of the key challenges in the serviceeconomy nowadays. Services constitute the fastest growing industry in Europe inthe 21st century. They account for roughly 70% of gross value-added and employment.Also, services continue to be offered through 'service networks.' In orderto successfully manage service networks, one has to analyze factors explainingthe sustained competitive advantage of networks. Strategic Marketing and ManagementTheory offers theoretical explanations for that. But, before discussingthat, the object of analysis (service networks) must first be defined.There are many approaches towards classifying services (e.g. Chase 1978; Kellogand Nie 1995; Lovelock 1983; Rathmal 1974; Schmenner 1986; Wemmerlov1990) and towards classifying networks as well (e.g. Hakansson and Snehota1995; Iacobucci 1996; Jarillo 1988; Miles, Snow and Coleman 1992; Powell1990). This paper defines service networks as relating to the provision of a service-oriented cooperation of more than two legally independent partners which,nonetheless, are not independent in terms of economic cooperation. The relationshipsbetween enterprises which provide the services go beyond pure market aspects('spot contracts'). That is, they continue for a specific time frame and are not'one off', but ongoing in the market. Likewise, there is an exchange of resourcesbetween the participating network partners (Pfeffer and Salancik 1978) resultingin mutual resource dependency (Ahlert and Evanschitzky 2003; Evanschitzky2003).The rationale behind engaging in a network-like form is the search for the exchangemechanism that minimizes the sum of service 'production' costs and transactioncost deriving mainly from negotiating the contract and controlling agreeduponrules (for a summary: see Rindfleisch & Heide 1997). Potential inefficienciesof arms-length transaction and the rigidity of hierarchy have led firms to explorethe continuum between these two extremes (O'Driscoll, Carson, & Gilmore2000). Adding to this essentially transaction-cost-based approach towards networks,a more managerial approach leads to the question of which type of configurationbest fits the relatively resource-induced power between the servicecentral('back-office') and the service-provider ('front-office'). The rationale behindthis resource-based approach towards networks is not to minimize costs, butto maximize value through gaining access to other firms' valuable resources (Das& Teng 2000: 35). Resource Dependency Theory proposes three factors (resourceimportance, availability of alternatives and degree of discretion) that determine thedegree of dependency between two units (Pfeffer & Salancik 1978). Maximumdependency occurs when one unit has unfettered discretion over an important resourceto which no alternatives exist (Medcof 2001).Based on this reasoning and the definition of service networks introducedabove, the main objective of this study is to 'break down' and explain the successof service networks. By means of resource theory and industrial organization economics,two generally recognized but competing views that explain success arepresented. Through the construct of network marketing, the authors attempt to develop a basis for integrating both explanatory approaches. Subsequently, hypothesesare developed and tested empirically on a sample of 122 service networks ofpredominantly German origin. Finally, managerial implications are highlightedand direction for further research is suggested.