The Value Co-creation Through Joint Failure Recovery: B2B Settings

Abstract

The co-creation of value through joint recovery management has attracted increasing interest in the business-to-business (B2B) service context. However, the underlying process of joint recovery management is less understood. Through the qualitative interviews with suppliers and customers firms and applying the conceptual thinking of service-dominant (S-D) logic and service logic, this research explores the joint recovery practice through which the value is co-created in the context of B2B markets. The analysis reveals value emerges from interaction and their resource contributions to six main activities of joint recovery management, including the prevention, identification, notification, analysis, the resolution of failure and the implementation of the mutually selected solution. Interestingly, the findings indicate that the supplier supports the value creation process through recovery activities and by performing different roles, while the customer can engage in recovery management activities by their resource contribution to the recovery activities, which results in the co-creation of monetary and non-monetary values. The current study serves as a tool for scholars and managers who wish to enhance the value co-creation process through joint recovery management activities in B2B settings.

Keywords

Value co-creation joint recovery business-to-business customer engagement

Introduction

Value co-creation is one of the fundamental determinants of the supplier–customer relationship in the business environment (e.g., Vargo & Lusch, 2004). ‘Value results from the beneficial application of operant resources sometimes transmitted through operand resources’ (Vargo & Lusch, 2004, p. 7). According to service-dominant (S-D) logic, a supplier contributes to the co-creation of value by applying and integrating their resources for making the value proposition, and customers actualize the value using their resources in their context (Vargo & Lusch, 2008). Therefore, value is always co-created but determined by the beneficiary (Vargo & Lusch, 2008). S-D logic also stresses that the extended activities, promises and assurances are expected from both sides overtime after the value is already proposed (Vargo & Lusch, 2004). The service logic argues that suppliers extend their offering and play various roles to support customer practice in the actualization of value; thus, the customer is the sole creator of value, while co-creation of value is possible when the supplier establishes an interaction with the customer’s value-creating processes (Grönroos, 2011). S-D logic and service logic also mutually agree that customers can participate in core and extended offerings at various levels (Grönroos, 2011; Vargo & Lusch, 2008). Co-production, nested within the co-creation of value, is defined as customer optional involvement in supplier offering and extended activities, especially when service is used in the customer processes (Vargo & Lusch, 2008).

Another stream of marketing research indicates that service failure frequently occurs in the course of the business-to-business (B2B) context and restricts the process of value creation (Hübner et al., 2018). Failure in the business environment has dynamic and complex nature (Nik Bakhsh & Riivits-Arkonsuo, 2021). The prevention and resolution of failure need high interaction between a supplier and a customer, and the customers’ participation in the recovery provided might afford the supplier and the customer with opportunities to facilitate the value co-creation process (Payne et al., 2008), through jointly shaping the recovery management activities. Yet the process of recovery management is addressed predominantly from the supplier side. Mutual processes of value co-creation through joint recovery management, roles and resource contribution to joint recovery have seldomly been studied in B2B settings (Baliga et al., 2021). Besides, S-D logic and service logic provide a solid foundation for the studying of value creation. They provide little detail on the underlying activities and parties’ role and resource contributions to the value creation process (Aarikka-Stenroos & Jaakkola, 2012). Thus, drawing on integration of S-D logic (Vargo & Lusch, 2008), service logic (Grönroos, 2011), and B2B recovery management literature, this article aims to first explore the underlying process of collaborative activities of recovery management and then identify the roles played and contributed resources by parties, and the nature of value emerges from the joint recovery activities in the business context.

Joint Recovery Management and Value Co-creation

According to Koc (2017, p. 1), service failure refers to ‘any type of error, mistake, deficiency, or problem that occurs during the provision of service, causing a delay or hindrance in the satisfaction of customer needs’. Failures in the B2B environment destruct the process of value creation and typically snowball beyond the dyadic client–supplier relationship (Van Doorn & Verhoef, 2008). Therefore, suppliers often develop and implement a systematic approach that requires a high level of interaction and resource integration at the different organizational levels (Döscher, 2013). B2B recovery management has been studied as the sole suppliers’ activity including the prevention, identification, notification, analysis, solution and control of failure (e.g., Baliga et al., 2021). However, based on service logic and S-D logic, customers can participate in such extended activities as co-producer (Grönroos, 2011; Vargo & Lusch, 2008).

In the business-to-consumer setting, the co-creation of recovery is defined as the ‘[j]oint creation of a service recovery through a series of interactions and dialogs between a customer and a service provider to identify a recovery solution that satisfies the customer’s needs in the situation’ (Park & Ha, 2016, p. 1). However, B2B recovery management literature elaborates on suppliers’ resource contributions to recovery activities (e.g., Hübner et al., 2018). According to service logic, the supplier plays various roles to support the value creation process such as failure recovery (Grönroos, 2011). While, the roles performed by parties, the underlying process, and co-crated value driven from joint recovery management context remain unknown. To further develop our understanding of joint recovery management, the authors defined it based on S-D logic (Vargo & Lusch, 2004), service logic (Grönroos, 2011) and B2B recovery management definition (Döscher, 2013):

‘Supplier and customer interaction and resource integration to jointly prevent, handle and resolve the product or service failures through which value is co-created in the context of B2B markets.’

This study responds to the call made by Vargo and Lusch (2008) to shed more light on the processes of value co-creation in the business context and recent studies on B2B recovery management to invest more effort in exploring the dynamics and different aspects of successful B2B recovery management (Oflaç et al., 2021).

Methodology

Due to the exploratory nature of the present study and the challenging nature of recovery research (Božič et al., 2020), the authors used a qualitative research design to answer the questions regarding the parties’ role, the underlying processes and the driven value from the joint recovery activities, thus developing the understanding of the joint recovery management in B2B settings. Given the superficial attention of contemporary recovery literature to the process of joint recovery management, we opt for the grounded theory (Glaser, 1992) as the research approach in this study. The authors conducted a series of online semi-structured skype interviews with senior, middle-level and frontline managers of nine industrial suppliers and customer firms in Iran because Iran experiences a high level of competition in the B2B market (Spivack, 2016), and businesses must offer high-quality services and extended offers, such as effective recovery management, to their customer to increase their market share.

An expert interview is a powerful tool commonly used in recovery research (Döscher, 2013), which enables us to capture participants’ views on the recovery activity on the infant field of joint B2B recovery management. The interviews were conducted via skype because of the COVID-19 crisis during 2021.

To prevent methodological error during interviews, we used semi-structured interviews to reach sufficient consistency across the interviews. The interview questions consisted of open-ended and follow-up questions to develop positive interaction and increasingly engage the participants to acquire fresh ideas during the interviews. The questions were designed based on the previous findings on the main aspects of recovery management such as activities of supplier and customer, recovery perspective, possible outcome of failure and resolution (e.g., Döscher, 2013). Since the management of failure recovery represents a sensitive topic, the anonymity of companies and persons was promised.

Collection of Data

The theoretical sampling in two phases was conducted to collect the qualitative data from the research participants with an average of 11 years of professional experience. To increase our confidence in the generalizability of the findings and reach a certain degree of variance in recovery perspectives, we conducted our research in diverse B2B sectors such as technology, food, machinery and telecommunication which are lucrative but failure-prone industries in Iran. In the first phase of data collection, we interviewed five participants from the four supplier firms to understand the joint recovery activities from a strategic perspective. Thus, the directors of teams that frequently interact with industrial clients in failure situations and failure recoveries—such as sales, service/product quality, service/product warranty, and customer relations departments—were identified via phone calls, and they agreed to participate in the research. Then, the gained insights from the first phase helped the authors to conduct six additional interviews with participants (middle-level and frontline managers such as team leads and members) from the same divisions of the supplier firms until no new information was obtained. In the third phase of data collection, using the knowledge derived from the first and second phase interviews, we performed 10 qualitative interviews with participants (five from strategic and five from an operational perspective) from associated four customer firms in quality, purchase and supply departments to comprehend joint recovery from the customer’s perspective. The saturation was reached at the 21st interview. These industrial clients were contacted because they were the main customers of the suppliers’ business and had a long-term relationship with the respective supplier.

Data Analysis

Based on a systematic three coding processes introduced by the grounded theory methodology, we first analysed the qualitative using of open coding process with Nvivo 12 which resulted in 98 concepts. Then through axial coding, 76 core categories were developed. In the last step, using selective coding we continued the procedure of coding to find the higher-level constructs. As the result, the core categories were selected, the relationship between the core categories was developed, and the existing categories were refined (Strauss & Corbin, 1990). In the end, 54 theoretical concepts were generated to reflect a theory on the general process of joint recovery management in the business environment. The interpretation was discontinued when no new information was generated by further coding.

The author used multiple criteria to verify the quality of the data collection and analysis. For instance, to ensure the reliability of data, the participants with a sufficient level of knowledge on failure resolution were selected and the interviews were profoundly transcribed (Nascimento & Steinbrich, 2019). Then, fundamental insights driven from transcripts were verified by feedback shared by four previously interviewed participants to ensure the consistency and validity of the conclusions. To limit the subjectivity of coding, the procedure is replicated by another individual who was familiar with the research questions and procedure (Syed & Nelson, 2015).

Findings

The most important finding of this study is the emergence of the general framework of joint recovery management through which the value is co-created in the business setting. The framework presented in Figure 1 indicates the main roles performed by the supplier and customer, the process of interaction and resource integration underlying the joint recovery management which is discussed in the following sections.

Figure 1.

Source: The authors.

Interaction and Organizational Resources

Table 1 shows the type of failures in each sector addressed by the participants. In general, the results indicated that intrafirm and interfirm interaction of employees are essential means for value co-creation through joint recovery activities which often can take formal and informal forms.

Table 1.

Type of Failure in Each Sector.

Sector	Low Quality	Delay in Delivery	Incorrect Invoicing	Wrong Product Delivery	Non-functional Communication	Wrong Number of Product Delivery	Wrong Use of Items
Food	6	6	4	3	4	6	3
Technology	4	3	2	2	5	–	4
Machinery	5	4	3	4	3	4	4
Telecommunication	3	3	3	4	4	3	3

Source: The authors.

According to supplier employees’ statements (SS),

‘The early development of personal relationships with customer’s employees helps you to handle things differently than when there is a formal business relationship, right?’

According to customer employees’ statement (CS),

‘Friendly and sometimes personal beside the working relationship is important … so, the problem can be fixed quicker’.

Through the interactions, suppliers and customers affect each other’s processes and create a shared sphere in which the customer can engage in recovery activities and the supplier can contribute to the value creation process by extended activities.

Our results revealed that the suppliers’ and customers’ intrafirm interaction happens in parallel to interfirm interaction which facilitates the resource integration during the joint recovery activities. Besides, the interfirm interaction opens several doors to customer engagement in joint recovery management. The supplier firms’ participants stated that the recovery activities require the allocation and integration of various operant and operand resources such as equipment, technological (database, customer profiling system, failure diagnosis systems), relational/social and financial resources, and human capital (e.g., skills, proactive attitude, reaction ability and willingness to help, understanding of customer need and expectations). Based on these findings, we argue that the suppliers often adopt the role of value process organizer as they structure the organizational resources to support the value co-creation process through recovery activities.

‘Depending on the situation, our experts integrate their skills, knowledge, and experience to solve the issue in a best way’. (SS)

‘Our suppliers are resourceful; they know how to deal with the problem, and they have experts who have knowledge and resources to handle the problems’. (CS)

Customers can also play a role as a co-organizer of resources by integrating their interfirm and intrafirm resources to contribute to the failure recovery activities. The primary resources are mentioned as operand of physical (e.g., equipment and safety stock), technological, human (e.g., ability to express the expectations, ability to create a mutual understanding, willingness to share the information) and the relational/social resources (e.g., relationship with other suppliers in B2B network).

‘Customer can give us information that helps us to narrow down the solutions. They also give us new ideas about problem-solving’. (SS)

‘If a problem happens, for example in the production line, our experts analyse and discuss it with the supplier and provide them with required information on the situation’. (CS)

Roles of Suppliers and Customers

Our findings show that in the pre-recovery phase, the prevention of failure allows the supplier to avoid the unnecessary cost associated with the failure situation. However, the development of a manual understanding of product/service’s requirements and expectations (e.g., through formal and informal communication/information sharing) is essential for preventing the failure situation and supporting the value creation process.

‘We even ask our sales team to check the customers’ previous order data because we think that this time the customer ordered something very different’. (SS)

‘It is essential to make everything clear mutually with the supplier as much as possible; the information sharing beforehand helps with avoiding failures’. (CS)

The importance of failure identification to support value creation was confirmed by the customer and supplier employees. Several interviews conveyed that despite the supplier’s failure identification effort, failures occur frequently in the B2B settings, and they are identified by customers themselves. In particular, the failures can be identified after the delivery through the customer’s internal processes such as quality tests.

‘To support our services and identify the potential problems, we use our expert knowledge and internal tool which help us to communicate the problem with customers as early as possible’. (SS)

‘We have quality control engineers who control the items going to the warehouse … if there is a problem, we contact the supplier and tell them that their product has a problem’. (CS)

As the interviewed suppliers suggested, they act as a value-protector by preventing, identifying (caused by themselves or customers) and providing pre-defined alternative solutions to protect the value creation process against the negative consequences of potential failure situations. The customer’s critical role through clarification of expectations in the pre-recovery phase was reported. The information provided by the customer is a critical resource contributing to recovery management, which requires the customer’s interfirm and intrafirm resource integration. Then the customer can play the role of a co-preventer of failure in the pre-recovery phase.

The notification of failure depends on the locus of failure, which occurs from supplier-to-customer or customer-to-supplier. The interviewees commented that the early notification allows the supplier to immediately start the recovery process and enables the customers to make choices until the problem gets resolved. The results revealed that the notification failure comprises several activities that require internal resource integration in both supplier and customer firms to inform their parties on failures of services.

‘When the supply team informs us of the delay in the delivery of the products, we contact the customer and inform them, and if there is any problem, the customer informs us.’ (SS)

‘We often check the batch when it arrives in our warehouse. If there is any problem … our quality team notifies our supply department and reports the problem to the supplier.’ (CS)

Therefore, the failure should be precisely analysed to determine the root cause of the problem. Depending on the locus of failure, the analysis of failure is done by the supplier or customer. However, the collaborative analysis of failure is required when the failure’s root cause remains uncertain or difficult to identify. In this situation, a high level of interaction and information sharing is needed simultaneously within and between parties.

‘If the customer informs us that there is a problem, we might send them a team of quality engineers, who knows the product design, to check the product in the customer production line, and then we can look together’. (SS)

‘Supplier technical team comes to find the root cause of the problem and the solution that serves the best of both of us.’ (CS)

In the case of supplier-induced error, the resolution of failure should be held on the supplier side. Since service offering comes with contracts such as guarantees, often for extended periods, the supplier has some solutions and compensations ready. Then, through negotiation, they might collaboratively select the most favourable solution and decide on the related resource requirements. Interestingly, even customers help with the temporary resolution of failure (e.g., by amending the product in the customer’s premises). When the root cause of failure is hard to identify, the customer and supplier collaboration for the resolution of failure reaches the highest level. The participants also noted that failure is the customer’s primary responsibility when customers themselves cause failure. In this case, the supplier might engage in the failure resolution through its resource contribution.

‘That is why we do our best to find a way that gives them the product on that particular day … we together discuss this to determine which solution serves them better.’ (SS)

‘Sometimes, if the problem can be fixed in our production line, we process the items ourselves.’ (CS)

Therefore, the supplier can adopt the value-supporter role through the resource contribution towards the recovery management activities and offer pre-defined solutions to customers to mutually agree on the shared sphere. The results indicate that the failure situations should be resolved quickly to retrieve the perceptional value such as customer satisfaction. Thus, the supplier plays the role of a value-retriever. In the cases of customer-induced problems, the suppliers play the role of the value-option counsellor by voluntarily applying their knowledge and offering solutions through their resource contribution. Thus, they increase the customer perceptional value and play the value-booster role and assist the customers in implementing and playing the role of a value-facilitator.

The customers play the role of a co-diagnoser of failure and co-notifier of failure by identification and notification of failure through resource contribution and diagnostic skills. The customers explained that they negotiate with suppliers on the solutions and evaluate the alternatives and the required resources to implement them. These kinds of interaction and communication enable the customer to play the role of a co-evaluator of the solution. The participants also mentioned that depending on the locus of failure, the customers contribute to the designing and implementation of solutions, thus playing the roles of a co-developer and co-implementor of the solution.

Jointly Created Value

Our results revealed that the role played by parties and the resource contribution to prevention, identification, notification and resolution of failure, as extended activities support and facilitate the value generation, often positively impact business relationships, operational efficiency and the economic situation of customer business. The customers’ resource contribution and information sharing through participation in recovery activities facilitates the value actualization by helping suppliers to prevent the failure and offer them the customized and optimal solution which result in financial and perceptual benefits for customers. Thus, the value can be experienced in monetary and non-monetary forms. From the monetary perspective, the supplier’s resource contribution to the environmental, uncertain root cause, or customer-induced failure resolution activities leads to a decrease in cost that customers dedicate to failure resolution. Besides, the prevention of failure decreases the customers’ monetary losses and the unnecessary cost of failure activity in the future. From the non-monetary perspective, most customer employees mentioned that the prevention of failure through information sharing has an impact on their relationship with their customers in the business network and their reputation in the marketplace. In addition to the relational benefits, the perceptual value (Grönroos, 2011), such as customer trust and satisfaction commitment, was perceived to increase after the joint recovery management. In general, the customer stated that the co-production of recovery activities, as extended activities, motivates them to spread a positive word of mouth and recommend the supplier to other firms in their community. Thus, customers can adopt the role of a co-advertiser.

Conclusions

Theoretical Contribution

The present study is among the first empirical research that contributes to our understanding of joint recovery management through which the value is co-created in the B2B recovery context. The S-D logic and service logic provide less information about the role of parties and process of resource integration in value-creation (e.g., Grönroos, 2011; Vargo & Lusch, 2008), and recovery management literature neglect the customers’ role in co-production of recovery (e.g., Döscher, 2013). Although, recent researchers have shown an increased interest in joint recovery activities (e.g., Bagherzadeh et al. 2020), and the importance of value co-creation (e.g., Petri & Jacob, 2017), there is little published data on the joint recovery management constituting the value co-creation in B2B context.

Our study is one of the few to take a dyadic approach to study value co-creation in specific B2B service recovery settings, which indicates that in the service recovery context, customers in these settings can participate in recovery activities through resource integration and interaction with the supplier and play an important role through co-production of recovery activities. In contrast to earlier findings on B2B recovery management, this study has found that the customer can participate and integrate their resources into six main recovery activities from which value is co-created including the prevention, identification, notification, analysis, resolution and implementation of failure.

The current study sheds more light on the performed roles and the organizational resources allocated by supplier and customer to joint recovery activities to co-create value. Notably, this study’s findings show that by recovery management, the supplier can support the value co-creation process through extended activities and by performing the value option counsellor, value protector, value process organizer, value supporter, value retriever, value booster and value facilitator roles; while the customers can engage in the recovery management and perform the role of co-preventer, co-organizers, co-diagnoser, co-notifier of failure, co-producer, co-evaluator, co-implementor of the solution and co-advertiser through their resource contribution to the recovery activities. The findings support evidence from previous observations (e.g., Aarikka-Stenroos & Jakkola, 2012) on the various roles and resource contribution of exchange parties to the joint activities through which the value is co-created in the B2B environment.

Our findings also suggest that emerged value through joint recovery management can be evaluated in monetary and non-monetary terms. A notable example of monetary value is the decrease in failure resolution cost when the failure is caused by customer error or an uncertain factor, while non-monetary value can be listed as the increase in customers’ perceptual value (satisfaction, trust, and commitment) as well as their reputation in the marketplace. Our study has enhanced understanding of the processes of value co-creation through joint recovery activities which contribute to value creation literature that has been discussed at the conceptual level (Vargo & Lusch, 2008) and added to the rapidly expanding field of B2B recovery management context (Zhu & Zolkiewski, 2015).

Managerial Implications

The implications of the presented framework, first, for value creation and, second, for recovery management in a business environment are extensive. Recovery management as extended and supportive activities has mainly been designed to support the value creation process. Customer participation in recovery management activities, through interaction and resource integration, can lead to the mutually created monetary and perceptional value, which are emphasized in a business relationship in the B2B setting. Therefore, shedding more light on the roles performed by the supplier in supporting value creation and the customer’s role in recovery management gives the marketers and practitioners a better understanding of joint recovery management in the business environment. The framework with the underlying process of joint recovery management provides a beneficial managerial tool for developing the interaction and resource integration and offers more insight into joint recovery activities in the B2B settings. It also helps to analyse the processes, resources and capabilities to identify the areas where they can improve the collaborations with the customers to effectively prevent or handle the failure situation. This study also highlights the recovery activities in which the customers might engage and perform an active role. Particularly, this study indicates that customers can play different roles in all stages of recovery management from the prevention of failure to implementing the solution. This provides a deeper understanding that helps managers to improve the interaction and information sharing before and during the recovery process. Our findings emphasize the importance of joint activities in developing mutual understanding between supplier and customer, which in turn, helps the implementation of effective recovery management. Therefore, we significantly advise that parties establish various communication channels and platforms to provoke interaction and information sharing that concern the requirements and expectations before and during the recovery management. The supplier firms’ managers and practitioners can utilize the proposed framework to understand their customer value creation process. The value such as higher satisfaction, commitment and trust might also open more avenues for future collaborative activities. The findings might be of interest to the supplier firm seeking to increase customer engagement in the production activities. Our findings suggest that the supplier should guide the customer to engage in recovery management because customer resource contributions play an essential role in effectively preventing and handling failure situations. In conclusion, our framework enables both suppliers and customers to develop, implement and improve a joint recovery management system through which the superior value can be co-created in the B2B context.

Limitations and Avenues for Future Research

Despite these fundamental contributions, there are some limitations concerning the present study. First, our samples were collected only from Iran and different B2B sectors, thus contextual factors specific to each sector were disregarded. Although the informant interviews have been commonly used in recovery studies, it is possible that some of the important joint recovery measures were disregarded. Future studies are suggested to test the proposed model with a bigger sample size and identify how suppliers’ and customers’ roles vary depending on sectors and types of failures. Future research can also consider the role of digitalization in the presented model of joint recovery management in the B2B environment.

Footnotes

Declaration of Conflicting Interests

The authors declared no potential conflicts of interest with respect to the research, authorship and/or publication of this article.

Funding

The authors received no financial support for the research, authorship and/or publication of this article.

ORCID iD

N. Nik Bakhsh

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