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The Effect of DART model of Value Co-creation on Logistic Service Innovation

Capability in Germany

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Proceeding of Industrial Engineering and Service Science, 2013

The Effect of DART model of Value Co-creation

on Logistic Service Innovation Capability in
Germany
Soroush Moeinzadeh and Yudi Fernando

Graduate School of Business, Universiti Sains Malaysia, Penang, 11800, Malaysia

soroush_moeinzadeh@yahoo.com, yudi@usm.my

ABSTRACT
This paper investigates the effect of the DART model of value co-creation on logistics service innovation capability. An
exploratory study was conducted in the German logistics and transportation industry sector and one hundred six set of
questionnaires that are used for the analysis. The theoretical model was subjected to analysis applying SmartPLS
(SEM). The results derived from this study are as follows: the DART model of value co-creation significantly influence
on logistics service innovation capability positively. The model improves lead time reduction, optimization of or-
der-delivery process along with contributing to improve customer relationship. The papers’ results indicate that organ-
izations should pay attention to upgrade the level of involvement in their interaction and relationship experiences as it
is a market requirement, specifically in the use of service innovation capability to maintain competitiveness.

Keywords: DART model of value co-creation, service innovation capability, logistic service provider (LSP), Germany

1. Introduction
The logistics and transportation are growing rapidly, as a matter of fact, and more logistics service providers have
been innovated. The development of ideas and innovations has been rapid with the ever growing focused on cost
reduction, agility, customer relationship and increased value to customer through co -creation to achieve superior
performance. The emerging new business model in the logistics and transportation industry is generally recogniz ed
as the low-coat operator and carrier that enable providers to compete with competitors in the market and close co l-
laboration with customers (manufacturer, retailers, and consumers) to meet their requirements. Logistic services
possess is rigid in contrast with other service industries. However, logistics service is a unique subset of services
that extend the borders between goods suppliers, service providers, and customers. Logistics services have become
gradually significant for successful supply chain processes [1]. Logistics services may be influenced constructing
closer relationships with customers [2].
Furthermore, the delivering superior logistics services have become a constant and serious attention for numerous
firms. Following to superior of operation, still logistics managers have frequently ignored an external and direct
measurement to understand what the customer truly values that renowned as challenging on superior customer value
delivery [3]. According to the current results of the 2009 Fourteenth Annual Third-Party Logistics Study were pro-
vided by Langley and Capgemini LLC [4] revealed that the three fundamental success factors in customer-provider
relationships are namely; good communication, openness, and transparency. Besides that the cons equences stress
the significance of an ability to drive the relationships deeper through collaboration . In a nutshell, as previous stud-
ies [5,6,7,8] have exposed the importance of the concept of customer orientation, it is not comprehended practiced
yet [4]. Yazdanparast et al, [9], pointed out the three challenges lead to lack of ability to provide services required
by the customers are as follows;
The first challenge is identifying the customers’ desired services that are often the intricate matters logis tics man-
agers. According to the Gale [10] this identification comprises both the value of service as a function of quality and
price, and the quality of service, as a function of the physical product and customer service. In the same year, No-
vak et al., [11] claimed that the value created by logistics service is emanated from the acuities of the customers
related to the gap between the service performed by the provider and the service received by the customer. He also
proved that the perceived value increases if the gap gets smaller.

Copyright © 2013IESS.
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The second challenge is providing the customers’ anticipated services so that the services create value for the cu s-
tomers and accommodate wants and needs of customers based on a cost-effective method [12]. Therefore, balancing
value and cost is a problematic exercise since currently markets categorized by shrinking margins and constricted
budgets.
The third and last challenge is continuously modernizing the services comply with the value drivers for c urrent and
potential customers [13]. Thus, managers need to constantly recreate and revise their service offerings comply with
the continuous changes in things that customer’s value, [12]. All the three challenges may be supported by linking
customers in reconsidering the drivers and offering services. This embedding customer in creating services may be
discovered more in a revised perspective which is recognized as the service -dominant (S-D) logic [14,15]. The S-D
logic perspective shifts the focus from an outdated goods dominant to an innovative service dominant perspective of
value creation [9]. Lusch and Vargo, [16] stated that value cannot be embedded if it is co-created with customers.
Therefore, S-D logic stresses service as the key of value creation, exchange.

2. Literature and hypothesis development

In the operations management study, Logistics Service Providers (LSPs) are determined as firms, which execute logis-
tics activities of customers either fully or only partially [17, 18]. Additionally, Sink et al. [19] represented that logistics
service providers (LSPs) are typically as providers of industrial logistics services that specializes in providing various
types of logistics like 1) transportation; 2) warehousing; 3) inventory management; 4) order processing; 5) information
systems; 6) and value-added activities. The growing importance of providing value and building solid relationships with
customers by an experience, as opposed to just a product or service, has brought about the development of what Pine
and Gilmor [20] called the experience economy.

2.1. Service Dominant-Logic (SDL)

Various business domains are concentrating on service influential logic at the moment. Cova and Salle [21] also sup-
ported the concept and mentioned the main focus point of service logic is what the consumer wants to obtain from the
service which is the existence of a reality called value. On the other way Nam et al [22] stated that the value of a prod-
uct is co-created over activities amongst service supplier and user as the main service dominant-logic (SDL). Service
management literature and practice also discuss that when value comes to services, customers perform various founda-
tional parts in value-creation mechanisms. In addition, theory of marketing lately established the idea of the service
dominant-logic (SDL), in accord with this view; the customer becomes firmly implanted in the service offering and
eventually is responsible for the value added to the process [14].
According to Lusch and Vargo [16] S-D logic suggests that value in either the factory or the distribution process cannot
be set if it is co-created with customers. Generally, S-D logic stresses the role of service as the heart of value creation,
exchange, and marketing. Moreover, value co-creation is the domain where an organization has a profound interactive
exchange of ideas and a deep channel of communication with its customers. However, value co-creation appears with a
rate of predicted risk for the customer in that they expect a range of accountability for the satisfactory nature of the re-
sult [23], and also related risks of the activities accepted and carried out [24].

2.2. Resource-Based View (RBV)

In this study, the model supported by the resource-based theory that examines the relation between internal characteris-
tics of the firm. RBV represents the type, size, and nature of resources and capabilities which are key factors of a firm’s
capacity to make profits [25]. Barney [26] argued that, resources are those kinds of firm’s physical characteristics such
as financial, human, and technological resources that enable a firm to apply value-creating strategies. As the competi-
tive advantage is the main priority, therefore, firms can generate competitive advantage by bringing together the
well-adjust resources to create organizational capabilities. The prior scholars such as Russo and Fouts [27]; Bharadwaj
[28] are also stating that organization’s capabilities refer to their ability in assembling, integrating, and deploying val-
ued resources that are normally in compound or as co-company. An obvious example of the capability is an ability of
management to combine skills and technologies through various sectors in an organization. Moreover, the capabilities
of resources become competencies as long as there are valuable, rare, inimitable, and non-substitutable, and exploitable
which [29, 26]. For instance, combined skills and technologies that enable to adapt faster to changing opportunities than

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rivals and generate competency for the organization. Rey et al. [30] noted that competencies and capabilities are ema-
nated from business routines and organizational processes. The resource based view declares that a firm attain a com-
petitive advantage while it carries out a strategy of value-creating that is not being executed at the same time by any
existing or likely competitors [26].

2.3. DART model of Value co-creation

Superior interactions with high quality that facilitate an individual customer to co-create inimitable values and experi-
ences with the firm are the fundamental keys to revealing innovative sources and foundations of competitive advantage.
Moreover, Prahalad and Ramaswamy [24] stated that both the customer and the firm will have to participate in
co-creating value. Superior interactions with high quality that facilitate an individual customer to co-create inimitable
values and experiences with the firm are the fundamental keys to revealing innovative sources and foundations of com-
petitive advantage. Moreover, both the customer and the firm will have to participate in co-creating value [24]. Thus,
the DART model tries to present a scheme for value co-creation which is initially built from the four interactions’
blocks between the company and customer that simplify co-creation experiences and values. Dialogue, access,
risk-benefits, and transparency perform as the foundation for dual interaction of customer and firm and as the four
blocks of DART. Prahalad and Ramaswamy [24] claimed that these significant blocks of customer-company interaction
is challenging the managers in top positions who have traditionally taken on disclosure of risks, transparency of finan-
cial statements, and dialogue and open access to customer and communities.

3. Hypothesis development
Yazdanparast et al, [9] stressed that value is co-created while customers and providers' customers engage in interaction
and dialogue by activities such co-design of product and service, production and delivery of the service or goods. Take
into consideration that the dialogue is problematic while costumers are not able to have the equal access and transpar-
ency to data and information [24]. Dialogue is a conversation over time because of which the firm and the customer
learn more about each other’s requirements and capabilities [16]. Traditionally, firms have benefited from exploiting the
asymmetry of information between them and the customers or partners. So, it is impossible for the customers to access
to abundant information as they need from the community of other market participants as well as the firm. McKinnon,
and Sweeney [31] pointed out the importance of a close relation with customers for logistic service providers to develop
their logistics innovation.
Hypothesis: There is a positive and significant relationship between the DART model of value and
logistic service innovation capability
H1. There is a significant relationship between dialogue and logistic service innovation-capability.
H2. There is a significant relationship between access and logistic service innovation-capability.
H3. There is a significant relationship between risk assessment and logistic service innovation-capability.
H4. There is a significant relationship between transparency and logistic service innovation-capability.

4. Methodology
To examine the relationship DART model of value co-creation and logistical service innovation capability during the
March of the year 2013 the authors conducted a survey among the logistic service providers (LSPs) of the German lo-
gistics and transportation sectors. Figure 1 illustrates the proposed relationship among two main variables or constructs.
One of these variables (value co-creation) is not directly observable. Instead, it has to be measured by other variables
(DART variables). In this study, the authors designed a questionnaire with five sections; three of them related to re-
spondents demographic and company profile, two of them related to main constructs: DART model of value co-creation
(dialogue, access, risk assessment, and transparency), and logistic service innovation capability.
In the DART model part of the questionnaire authors asked each LSP to measure the level of agreement regarding value
co-creation activities in their companies according to the four dimensions; dialogue, access, risk assessment, and trans-
parency. They were adopted and adapted from Prahalad and Ramaswamy [24] and also based on an expert view of the
measurements. This is to offer respondents with an easy understanding of the questions.

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The second part of the questionnaire was designed to measure the level of logistics service innovation capability by
adopted and adapted items from Daugherty, Chen, & Ferrin [32], Chapman, Soosay, & Kandampully [33] which they
compelled companies to think through the potential of the new resources (technology, knowledge and relationship net-
works) and they stressed once more the significance of recourse-based view as a fundamental stage for considering the
innovation capability.

Value Co-creation
• Dialogue
• Access Logistics Service Innovation-Capability
• Risk assessment
• Transparency

Figure 1. Model and hypotheses

This study employed the close-ended approach in which items were measured using a five-point Likert scale. Meas-
urement scale was anchored from strongly disagree to strongly agree. The unit analysis is top management of LSPs
which including director or logistic managers. Approximately, all the provinces of Germany have respondent and total
respondents are one hundred six out of one thousand and five hundred which means response rate of 7.06 percent.
SmartPLS based Structural Equation Modeling (SEM) was used to assess the model proposed and testing the hypothe-
ses.

5. Results and Findings

In order to ascertain the specific background of some specific LSPs’ profile and also to ask about the technology ac-
quired by logistics service providers as particular component in resource base view (RBV) were questioned. Moreover,
the respondents’ opinions about Logistics Innovation Ingredients were also asked to distinguish how they implement
their innovations successfully.
Interestingly, about 84 % of LSPs acquire high levels of internet. Other types of technology are applied by the following
present; optical scanners with 34.0 %, electronic data interchange with 32 %, port-net/trade-net with 22 %, warehouse
management system with 22 %, auto online tracking system with 36 %, vehicle routing/scheduling system with 36 %,
inventory control system with 27 %, auto storage and retrieval system with 15%, distribution resource planning system
with 23 %.
Furthermore, all the respondents were tested to what extent they are aware about the logistics innovation ingredients
which are important for successful implementation of their companies such as realistic planning (52.8%), availability of
good information (53.8%), system flexibility (50.9%), intra-organizational communication and training (50.05), cost/
benefit ratio (48.1%), attitude change (44.3%), but the 63 of respondents denoted top management support with the rate
(59.4%) as the most significant ingredient to implement logistics innovation successfully.
After explaining the demographic and company profile, factor analysis and reliability analysis are conducted to assess
the validity of the measures (Table 1). The result of factor analysis of the DART model of value co-creation exhibit that
the most of research instruments (16) passed the reliability assessment as the latent variables loaded greater than 0.7,
instead of DA3, DD1, DA4, E1, E2, and E5. Since the composite reliability is more appropriate to PLS based SEM and
the study instruments were all considered to be consistent with the results obtained [34]. Table 1 indicates that the in-
ter-correlations of most of the latent variables are significant at p<0.05 and highly significant at p<0.01. Thus, the re-
search instrument was specified to have sufficient discriminant validity. In conclusion, this measurement model dis-
played adequate reliability, convergent validity and discriminant validity. Therefore, this model will be employed for
hypothesis testing.

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TABLE 1. Validity AND RELIABILITY Analysis

Validity and Reliability

Constructs Compo- Cronbach Number of
Items Loadings AVE site Reli- alpha items
ability (Dropped)
Access DA1 0.827 0.743 0.780 0.753 5(2)
DA2 0.677
DA5 0.699
Dialogue DD2 0.864 0.696 0.873 0.787 5(1)
DD3 0.856
DD4 0.781
Risk assessment DR1 0.833 0.744 0.878 0.819 5
DR2 0.675
DR3 0.840
DR4 0.850
Transparency DT1 0.773 0.781 0.838 0.738 5
DT2 0.607
DT3 0.872
DT4 0.739
LSI-Capabilities E3 0.751 0.734 0.774 0.766 5(3)
E4 0.721
E6 0.720

To check the relationships between the constructs proposed in the theoretical framework, SmartPLS showed how well
the structural model forecasted the hypothesized relationships by the R² of each endogenous construct and also PLS
estimated the path coefficient which has indicated the strengths of the relationships between the independent and de-
pendent variables. Therefore, all these path coefficients were significant at p < 0.01 which proved the hypothesis H1,
H2, and H3 except the H4. In addition, this study found R² (the coefficient of determination) of 0.419 for logistic ser-
vice innovation capability (LSIC), which is significantly large (> 0.30).
TABLE 2. SUMMARY OF THE STRUCTURAL MODEL

Hypothesis Testing
Hypothesis Standard t-value Remarks
Path Beta Error
(STERR)
H1 Dialogue -> Capabilities 0.655 0.200 3.279*** Accepted
H2 Access -> Capabilities 0.491 0.136 3.610*** Accepted
H3 Risk -> Capabilities 0.383 0.199 1.930* Accepted
H4 Transparency -> Capabilities 0.222 0.174 1.278 Rejected
Note: *p<0.10; **p<0.05; ***p<0.01

The R² value was 0.419 signifying that 41.9 % of the variance in the extent of LSIC can be explained by the DART
model of value co-creation. In detail, DART model of value co-creation was positively related (except of them, dia-
logue β = -0.655, p<0.01) to the extent of the LSIC. In sum, this study also tests covariance between variables that are
constrained by the path. And also cross loading of valuables represent those are all above the Goodness of Fit (GoF)
large (0.36) and the model has fitted completely. After fitting model we tested the structural model to test the hypothesis
proposed. The t-value is generated using bootstrapping with re-sampling of 300 to measure the statistical significance of
the path coefficients. Hypothesis testing with a t - value above 1.65 will be accepted and hypothesis will be rejected if
its t-value were less than 1.65.

6. Discussion
Results revealed that DART model of value co-creation was positively significant on logistics service innovation capa-
bilities (LSIC). Therefore, this study is original and makes contributions in several ways. It also provides the empirical
findings of the DART model of value co-creation in logistics sector which fill a gap in literature examining its effect on
logistics service innovation capabilities (LSIC). In order to support any potential effect on LSIC the combination of
service dominant-logic (SDL) and resource based view (RBV) are necessary to extend and support the theoretical mod-
el. This study also contributes practically to logistics managers, in the way to understand and apply the opportunities on
the complex nature of supply chain management-relationships and service innovation-capabilities. The variables that

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having positive significant influences on the logistic service innovation capability of the LSP are dialogue, access, and
risk assessment.
As transport and logistics is regarded to the planning and implementation of the global shipment of goods and people.
This founds the backbone of the European economy where logistics service providers (PLSs) and the transport operates
as global businesses. Therefore, in this extremely competitive, distributed, and agile industry, innovative ICT solutions
as innovation capability for improving the collaboration and information exchange in B2B business networks are highly
desirable. Following that, Future Internet technologies can ease major developments in B2B efficiency for leading to
positive socioeconomic and ecological impact. Therefore, managers and decision makers should have more attention on
all the processes of interactions with their both employees and customers to enhance the profitability and efficiency of
their business.
In order to enhance confidence in the generalizability of the study, the number of respondents should be extended. Be-
sides that, research on both employees and customers that are playing the important role in this market should be inves-
tigated, as well as their idea about the factors (DART) that influence service innovation capability in order to provide a
holistic view on the current problems of logistic performance and market performance. With the increase of competi-
tiveness, distributed, and agile industry, the necessity of study in service innovation capability for improving the col-
laboration and information exchange in the other B2B business networks is needed as well. In a nutshell, the outcome of
the study delivers a precious insight to all interested parties to recognize the factors that are capable to enhance the lo-
gistics service innovation capabilities. It is suggested that the managers and decision makers to prioritize their resources
and to more attention on the customer needs and wants in the case to promote their controlling and performance for
sustainable growth in the future.

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