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Effects of social capital on risks of outcome-based contracts from the supplier's perspective

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If you have a question about this talk, please contact Yongjiang Shi.

Jingchen Hou from Cambridge Service Alliance (CAS) is going to share her recent research work with us in the servicetisation and collaboration relationship arenas.

“Outcome-based contracts (OBC) refer to the agreements between the supplier and the customer that the supplier is paid based on the outcomes of total solutions or outcomes of customer value in a continual use situation. OBC has become prominent for firms carrying out a servitization strategy, especially for the provision of advanced services where availability and capability are delivered. Risks and customer relationships are identified to be two important issues in OBC . In this research, social capital is introduced to study the relationships between suppliers and customers. A review of the literature identifies several research gaps: the risks of outcome-based contracts have not been studied systematically; the construction of social capital in OBC has not been proposed, and the effects of social capital on risks have not yet been explored. To fill the research gaps, a series of case studies were conducted. The main findings are firstly, that two types of outcome-based contracts are found to be solution OBC and customer OBC , and two approaches to deliver OBC in practice are the supplier-customer binary approach and the alliance or joint venture approach. Secondly, it has been found that the two risk categories in the supplier-customer binary approach are commercial risk regarding the contracting of OBC , and operational risk regarding the implementation of OBC . However, in the alliance or JV approach, failure to construct social capital is another major risk category. Thirdly, eighteen risk factors are identified to be the influencing factors resulting in commercial risk and operational risk in OBC with a supplier-customer binary approach. Fourthly, the social capital building blocks in three dimensions (structural, relational and cognitive social capital) in OBC with the two approaches are proposed separately. Fifthly, the effects of social capital on the risks in OBC with the two approaches are explored. A risk management process for outcome-based contracts is proposed, which may contribute to both the research and practice in servitization.”

This talk is part of the Manufacturing Research Forum series.

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