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CONCEPTS OF CUSTOMER ORIENTATION - INTERNET BUSINESS MODEL FOR CUSTOMER-DRIVEN OUTPUT

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The growing focus on customer relationship forces enterprises to redesign their processes more customer oriented. This article suggests a classification of customer orientation from the customer’s perspective. Within this classification we discuss processes to obtain customer-oriented products and services in enterprises. To create a comprehensive solution to a customer’s problem, i.e. a bundle of customized products and/or services, we present an internet business model. It uses the internet technology to realize value chain and supply chain activities between different actors and an intermediary who coordinates the network.
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CONCEPTS OF CUSTOMER ORIENTATION - INTERNET
BUSINESS MODEL FOR CUSTOMER-DRIVEN OUTPUT
Dipl.-Betriebswirt (FH) Christian Scheer
Chemnitz University of Technology, Information Systems & Management,
D-09107 Chemnitz, Germany
phone: +49/371/531-4855, fax: +49/371/531-4376
chris.scheer@isym.tu-chemnitz.de
Prof. Dr. Peter Loos
Chemnitz University of Technology, Information Systems & Management,
D-09107 Chemnitz, Germany
phone: +49/371/531- 4375, fax: +49/371/531-4376
loos@isym.tu-chemnitz.de
ABSTRACT
The growing focus on customer relationship forces enterprises to redesign their processes more
customer oriented. This article suggests a classification of customer orientation from the customer’s
perspective. Within this classification we discuss processes to obtain customer-oriented products and
services in enterprises. To create a comprehensive solution to a customer’s problem, i.e. a bundle of
customized products and/or services, we present an internet business model. It uses the internet
technology to realize value chain and supply chain activities between different actors and an
intermediary who coordinates the network.

1.
METHODOLOGY
Customer orientation is a central theme in literature. Nevertheless it gives the impression that
comprehensive and individual customer’s needs are not covered. Normally the customer receives
individual products and services which are not integrated. At this point we ask specifically how these
customer needs can be handled. We answer the question by focusing the possibilities of internet based
markets and internet-driven virtual value chains. First of all we define parameters to measure the
customer orientation from the perspective of the customer. Existing parameters discussed in the
literature only focus the perspective of the seller. In a second step we transfer the parameters in a
matrix which helps us to classify the customer orientation. Based on this matrix we discuss suitable
production concepts to supply the range of customer-oriented products and services. As a result we
note that the traditional crafted customization can not produce self allocatable individual and complex
outputs, i.e. an integrated bundle of customized products and/or services to satisfy a comprehensive
and individual need. We present an internet business model to create an adequate solution. This
business model uses the internet technology to realize value chain and supply chain activities between
different actors and an intermediary who coordinates the network.
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Christian Scheer, Peter Loos
2.
CLASSIFICATION OF CUSTOMER ORIENTATION
Many of the so called seller markets are changing to buyer markets. This leads to an enhancement of
customer-centered activities on production-oriented markets. As a result there is a demand for
everyday products and services (commodities) as well as for individualized benefits on consumer
goods and supplies.
In order to classify the spectrum of customer-oriented products and services it is necessary to define
appropriate parameters [cf. Lampel and Mintzberg (1996), p. 21]. Reichwald and Dietel describe the
customer orientation issues focusing on production. They differentiate the complexity and the
variability of tasks in the production program. [cf. Reichwald and Dietel (1991), p. 405] Pine et al. use
the alteration rate of products and processes to distinguish between standardized and customized
products. [cf. Pine et al. (1993), p. 108-110, 116-117] However, the success in customer orientation
will be granted in adaptation of customer’s needs to products and/or services (in the following
abbreviated with the term output). Therefore it is important to measure the personalization from the
view of the customers [cf. Picot (1991), p. 353-354]. At this point we need parameters which describe
the customer’s felt adaptation.
A suitable parameter is the degree of individuality. It describes the orientation of the output to a
customer’s individual need according to his personal situation. The individuality arises with the
individual content or value of an output.
The relation between the individuality of an output and customer’s need depicts only a single feature
of an output because different features can have different levels of individuality. Furthermore, a
customer would like to look on various features in order to find a personalized product or service [cf.
Lancaster (1971)]. The features describe all parts (e.g. product attributes, price, colour) of the output
which make a difference to a customer. In this context an additional parameter has to be established:
the degree of complexity. Complexity depicts the output from a multi-layered basis. It describes the
variety of different features of an output. Figure 1 shows the relations between the customer’s need,
output, feature and value.
1,n
1,1
1,n
1,1
Output
bundle
Feature
consist
Value
0,n
0,n
0,n
is
instance
1,1
0,n
1,1
1,n
1,1
Customer's
Specific
has
has
supply
feature
value
need
output
e.g buy a car
customer's car
colour
red
Figure 1:Relation between customer’s need, output, feature and value
As a result we note that a customer’s focus can be described with the felt individuality and complexity
of the output. Picot and Maier use the term “specificity” to describe the customer orientation of the
output. It increases with the decrease of the alternative usage of the resource. [cf. Picot and Maier
(1993), p. 9]
Furthermore it is possible to break down the parameters by a granular gradation. First of all we will
view the parameter individuality. It depicts the number of allocatable values of one feature:
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Concepts of Customer Orientation – Internet Business Model for Customer-driven Output
No individuality: the value of a feature is fixed and can not be changed (e.g. one unchangeable
colour of a car).
Limited individuality: the value of a feature can be chosen from a pre-defined selection which
offers more than one values (e.g. 5 colours are selectable).
High individuality: the product is unique, there are no restrictions for the specification of the
value (e.g. self allocatable colour).
The complexity describes the number of allocatable features of the output. A break down of the
parameter complexity will look like this:
No complexity: no feature can be chosen (e.g. interior, engine and colour of a car are not
assignable).
Limited complexity: the features can be chosen from a pre-defined selection which offers
more than zero features (e.g. mutual dependent specification of colour and interior).
High complexity: there are no restrictions for the design of features. The customer can
determine the features (e.g. the construction of the car can be designed).
We are now able to transfer the parameters and the granular gradation in a matrix. Doing this, we give
some examples of products and services (cf. figure 2).
Complexity
high
building a house
yacht
individual journey
health care products/services
consulting
redecoration products/services
moving house services
meal in a restaurant
services around a car
interior decoration products
repair patch
car with standard equipment
limited
package tour
tailor-made clothes
standard software
train journey
petrol
fastfood
individual colour of a car
commodity
haircut
non
basic food
individual music cd
Individuality
non
limited
high
Figure 2: Parameters individuality and complexity of customer-oriented outputs from
a customer’s perspective
Furthermore we differentiate between three classes of outputs to classify different degrees of
individuality and complexity [Based on: Langlinais and deLeon (1999)]. These classes focus on the
releasing moment of manufacturing which can be customer-driven and/or seller-driven:
Seller-driven output: it is manufactured and standardized independently from individual
customer’s need. The production process is seller-driven.
Customer-centric output: it offers a number of pre-defined options. The customer can
customize the output within these options. The production process is both seller and customer-
driven.
Customer-driven output: it allows the customer an individual design of the product and
service. The production process is customer-driven.
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Christian Scheer, Peter Loos
See figure 3 for a compiled classification of personalized outputs in the perspective of the customer.
We are now able to measure the felt adaptation in three classes of outputs by the parameters
individuality and complexity.
Complexity
high
building a house
yacht
individual journey
health care products/services
customer-
consulting
redecoration products/services
driven output
moving house services
meal in a restaurant
services around a car
interior decoration products
repair patch
car with standard equipment
limited
customer-
package tour
tailor-made clothes
centric output
standard software
train journey
petrol
fastfood
individual colour of a car
commodity
seller-driven
haircut
output
non
basic food
individual music cd
Individuality
non
limited
high
Figure 3: Classification of customer-oriented outputs from a customer’s perspective
3.
ORGANIZATIONAL IMPLEMENTATION OF CUSTOMER ORIENTATION
The question arises how enterprises can realize the customer orientation. We try to answer this
question by considering the classes of the classification and the parameters (cf. chapter 2) as input
factors for the Contingency Theory [cf. Kieser (1999), p. 171-176]. These factors influence the
business processes and the organizational structure. As a result we are able to define suitable
production concepts (cf. figure 4).
The seller-driven output can be completely controlled by the seller and is manufactured independently
from the customer’s needs. The processes and the organizational structures can be designed in a seller-
driven environment without influence of the customer. The model of mass production can realize the
seller-driven output. It leads to standardized outputs concerning design and distribution [cf. Lampel
and Mintzberg (1996), p. 21-22]. Mass production pursues the principle of Henry Ford: “You can have
any color car you want as long as it’s black” [Pine (1993), p. 7]. The production of variants can also be
used to realize seller-driven outputs with limited personalization. Here the customer gets products or
services in different variations of features which are set by the manufacturer and cover average
individual needs. Each variation is made for a small group of customers. This can lead to a high
number of variants which won’t fit exactly the customer’s needs. [cf. Piller (1998), p. 876; Piller
(2001), p. 175-176, 184]
A customer-centric output will be realized in a process which is customer and seller oriented. At the
beginning of the value chain the business processes and the organizational structure are driven by the
interests of the manufacturer. This changes at the order penetration point, also called freeze point. At
this point the seller integrates the customer’s specification in the production process. In general the
specifications of the customer are integrated as late as possible [cf. Wildemann (1995), p. 249-256].
„Value chain customization begins with the downstream activities, closest to the marketplace, and
may then spread upstream. Standardization, in contrast, begins upstream, with fundamental design,
and then progressively embraces fabrication, assembly, and distribution” [Lampel and Mintzberg
(1996), p. 25]. Starting at the order penetration point, the output will be adapted within a range of pre-
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Concepts of Customer Orientation – Internet Business Model for Customer-driven Output
defined options (i.e. values and features) to fit customer’s needs. Another way of customer orientation
is to extend the standardized product or service with additional value-adding services. [cf. Pine (1993),
p. 171; Cleland and Bruno (1997), p. 23] The concept of mass customization can be used to implement
the customer-centric manufacturing of outputs “with enough variety and customization that nearly
everyone finds exactly what they want” [Pine (1993), p. 44]. Finally, mass customization offers the
customer a number of pre-defined values. They can be used to define the also pre-defined features of
the individual product or service [cf. Piller (1998), p. 879; Piller (2001), p. 207]. Individuality can also
be created with additional services, a specific degree of delivery service and a kind of product image.
Decisively the customer chooses the options which are relevant for his satisfaction. The resulting
complexity for the manufacturer can be reduced by the mass production of modular outputs, new
concepts of production, usage of information technology, supply networks and additional points of
order penetration. [cf. Pine (1993), p. 47, 171; Piller (2001), p. 207-209 ; Piller (1999), p. 4-8; Piller
(1998), p. 878]
Complexity
high
thesis: internet business
model with intermediary
limited
mass
customization
crafted
customization
production of
variants
mass
non
production
Individuality
non
limited
high
Figure 4: Organizational realization of customized outputs
A customer-driven output will be realized with the degree of individuality and/or complexity
determined by the customer. The organizational structure must be designed order specific to combine
required resources and functions. The trigger of all activities is the customer’s order. As a rule there is
a relation between high complexity in the direction of individuality. If an output has a high complexity
in the view of the customer (i.e. a bundle of products/services) it is usually seen as an individual
output. Therefore it consists of a bundle of individual parts.
Necessarily the customer-driven output with a high individuality has to be manufactured in a crafted
customization (also called single item production or engineer-to-order production). It realizes an
assignable degree of individuality which can’t be offered by standardized outputs, variants or pre-
defined options [cf. Reichwald and Dietel (1991), p. 406; Piller (2001), p. 184-185]. The crafted
customization uses order-specific processes to realize individual outputs [cf. Reichwald and Dietel
(1991), p. 406, 436].
Picot emphasizes that a high degree of vertical integration (e.g. one enterprise which realizes all
activities in the value chain) is necessary to produce outputs with a high specificity, strategic
relevance, uncertainty and frequency [cf. Picot (1991), p. 345-347]. As a result the crafted
customization is used by a single or a cooperation of few enterprises [cf. Picot (1991), p. 340, 348-
349]. A problem arises if the output is both individual and complex like the customer driven output
(see figure 4 in the top-right corner). The intra-organizational crafted customization is able to produce
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Christian Scheer, Peter Loos
individual parts but has not enough resources to realize the required complexity of both individual and
complex outputs. The additional high complexity of individual outputs can not be covered by the
provided resources of a small number of enterprises (we assume a relationship between the complexity
of the output and the required resources of the enterprise). Picot indicates that high vertical integration
can not be realized if relevant resources (e.g. know-how, capital) are not covered by a single
enterprise. In this case he suggest a cooperation of enterprises. [cf. Picot (1991), p. 347-348, 353]
Hence we suggest an internet-based business model. It uses the internet technology to realize the value
and supply chain activities between different actors in an inter-organizational crafted customization.
The usage of the internet allows the cooperation of a high number of enterprises with low transaction
costs. As a result we are able to manage the complexity which is necessary to produce a
comprehensive output.
4.
INTERNET BUSINESS MODEL TO CREATE A CUSTOMER-DRIVEN
OUTPUT

In the age of e-business, value creating networks based on the internet are called internet business
models [cf. Rayport (1999); Timmers (1998); Rappa (2001)]. Hagel III uses the term economic web
and describes „clusters of companies that collaborate on a particular technology” in order to „deliver
independent elements of an overall value proposition that grows stronger as more companies join”.
[Hagel III (1996), S. 71, 72] Timmers describes the internet business model as „an architecture for the
product, service and information flows, including a description of the various business actors and their
roles; and a description of the potential benefits for the various business actors; and a description of
the sources of revenues” [Timmers (1998), p. 4]. A similar definition is given by Rappa: „The
business model spells-out how a company makes money by specifying where it is positioned in the
value chain” [Rappa (2001)]. The base of value and supply chain relationships is the internet
technology and its services [cf. Österle (2000), p. 36-40; Rayport (1999)].
Internet business models emerge from virtual structures in the corporations [cf. Byrne et al. (1993), p.
36-38; Alt et al. (2000), p. 101-102]. They implement loosely and partly connected value chain and
supply chain relationships based on internet technology. The transition from the virtual corporation to
the internet business model is the result of the additional organizational and technical design of the
chains between the actors [cf. Hagel III (1996), S. 72].
The internet business models consist of different actors which sum up their resources. According to
the common classification they can be divided in: companies (in the context of business), employees,
public administration and customers. Caused by the intermediation on internet based markets [cf.
Sarkar et al. (1995)] it seems to be necessary to emphasis the intermediary to be a sub-class of the
company. [cf. Österle (2000), p. 39; Wigand and Benjamin (1995), chapter 4 and 5]
The relations between the actors can be classified in product and service flows, information flows and
financial flows [cf. Stadtler (2000), p. 7; Alt et al. (2001), p. 6]. While materially products and services
imply physical exchange relations (traditional value chain), digitalized exchange relations, like digital
products and services, financial transactions and information itself, can be handled by the internet
(virtual value chain). [cf. Scheer and Loos (2002), chapter 2 and 3]
The actors cooperate in their supply and value chain relationships with internet technology. This
internet based communication model is called „business bus“ [Österle (2000), p. 37] or „it-platform”
[Alt et al. (2000), p. 102]. It contains the „totality of technical, applications and business standards on
which software solutions, electronic services, etc. are based. [...] The business bus produces the m:n
capability of Business Networking” [Österle (2000), p. 39]. This is the basis of the relations between
the actors and the exchange of information, finances, digital products and services [cf. Alt et al.
(2001), p. 6]. Furthermore the physical flows of products and services are informational connected to
the digital ones. [cf.. Scheer and Loos (2002), chapter 2]
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At this point we add the following definition: An internet business model is a network of different
actors and their resources which are linked together by the internet technology. Based on the internet
the network adds value to digital products and services and handles financial transactions and
information. Physical products and services are informational integrated.
Based on the characteristics of internet business models we create a specific business model for
realizing a customer-driven output with a high individuality and complexity. The customer-driven
output requires an unique assignable bundle of individual products and/or services (cf. chapter 3). First
of all unique individuality can be realized in a crafted customization or maybe in a mass customization
with a huge number of pre-defined options and an early order penetration point. In our model various
parts with individual features will be produced by independent companies within a crafted
customization or mass customization and even by public administration. These actors get their orders
from an intermediary and are coordinated by him. Being aware of mutual dependent specifications, the
intermediary bundles the different parts and creates a complex output. This output fits to the
customer’s needs and his expectations concerning individuality and complexity. All exchange
relationships of value chain and supply chain can be supported by the internet. If we contemplate only
digital products and services it is possible to manage the exchange relations within the internet and its
services.
The internet technology is necessary because of apparent reasons. It helps to realize an inter-
organizational crafted customization with low transaction costs and cooperation of a high amount of
specialists. Furthermore the internet technology and its services are decisive to handle the individuality
and complexity of the customer-driven output. To adapt the needs into the features and values of the
output, the business model needs multimedia and interchangeable techniques. They help the customer
to explain his needs, the intermediary to understand them and to adapt the needs into feature
specifications and the suppliers (companies, employees and public administrations) to produce the
required intermediate products and services. At this point the internet technology offers simple
techniques of illustration like the hypertext markup language (HTML), the moving pictures expert
group formats (MPEG) for audio and video, interactive applications (e.g. java applets) and the virtual
reality modeling language (VRML) or the Java API for virtual reality (Java3D) to implement virtual
realities. Furthermore the complexity of the output leads to a supply chain of different enterprises and
their resources. Within this supply chain it is important that all activities can be simultaneously planed
and managed. Therefore it is decisive that the connection of suppliers and intermediary is straight
forward, e.g. within a virtual private network (VPN). Systems for supply chain management (SCM)
can work on top of this interconnection. It is also important to interconnect the information systems of
each actor. Thereby the internet technology can be used to realize business objects (e.g. San Francisco
Framework) and an inter-organizational data interchange with the extensible markup language (XML)
and appropriated protocols like simple object access protocol (SOAP).
Intermediary
Public
Company A
Company B
Customer
Administration
Company A1
Employee
Internet technology, internet services and communication rules
physical flow / traditional value chain
digital flow / virtual value chain
Figure 5: Internet business model to create the customer-driven output
Figure 5 shows the structure of the internet business model to implement the customer-driven output.
All digitalized exchange relations between the actors can be realized by using the internet technology,
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Christian Scheer, Peter Loos
its services and communication rules. To be part of this virtual value chain [cf. Rayport and Sviokla
(1996)] each actor needs access to the internet (thin arrow). Physically implemented relations between
the actors are not necessary. Except handling physical flows (thick arrow). This differentiates to the
traditional value chain and its physical flows. In our business model a customer has a comprehensive
and individual need (e.g. buy a car) and looks up for a bundle of products and/or services (e.g.
information, selection, financing, insurance, purchase, admission and maintenance) to be satisfied
[Example from: Österle (2000), p. 46]. The customer may coordinate his satisfaction by himself.
Furthermore he would need the appropriate knowledge to search, evaluate, select, check and bundle
single offered products and services [cf. Fey et al. (2000), p. 262; Bakos (1997), p. 1678-1686].
Because of the complexity of these tasks he transfers them to an intermediary. The intermediary
acquires the customer’s need and initiates an order-specific value chain. He coordinates different
actors in supply chain and bundles their resources and intermediate products and services to a
customer individual and complex output. Alt et al. describe him as an aggregator and integrator [cf.
Alt et al. (2001), p. 10-11]. After releasing the output (e.g. a bundle of products and services
concerning the bargain of the car) and delivery to the customer, the temporarily established
cooperation disbands. The actors can re-cooperated for further customer orders in various roles.
With the presented internet business model we can realize an order-specific value creation network.
Various companies create individual intermediate products and services. The intermediary coordinates
the activities and bundles the intermediate outputs to a customer-driven output. The customer feels no
limited adaptation because he is the trigger of all activities. Additionally there is no pre-definition of
individuality and complexity. By using the internet technology it is possible to create a virtual value
chain which allows an inter-organizational crafted customization and the intermediate bundling with
low transaction costs. As a result we are able to manage the complexity which is necessary to produce
a comprehensive output.
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