Spenncon

The Problems in the Industry and at Spenncon

In the case about Spenncon we can read about several problems that Spenncon and the overall industry face today. The reason for these problems can be explained by using the transaction cost theory and the governance structure. In the case of Spenncon the emphasis is on volume uncertainty, behavioral uncertainty and asset specificity.

Volume uncertainty is the "inability to accurately forecast the volume requirements in a relationship" (Geyskens et al 2006). This will end with the supplier experience unexpected production costs or excess capacity. Because of the cyclical nature of the industry we can conclude that Spenncon has high volume uncertainty.

Spenncon's behavioral uncertainty is also high. This has to do with difficulties in knowing for certain that contractual agreement has taken place (Geyskens et al 2006). This again, has to do with all the sub suppliers involved in the process in the contractor industry.

The asset specificity in the case of Spenncon is low. This is due to the standardized products and the low degree of adjustment between Spenncon and the customers (Nes and Biong 2003: 131).

If we the place the high uncertainty and the low asset specificity into a model (Nes and Biong 2003: 129, attachment 1), we can see that Spenncon could use both market -and relational governance. Due to the given case and all the problems it is clear that Spenncon (today) only use market governance, and that it is to be questioned if this is for certain the best governance structure for Spenncon to use.

Value Creation

Value creation is about identifying the needs of the customers and to satisfy these needs (Dwyer and Tanner 2006: 366).

Spenncon, today, seem to be a part of the value chain, and that value is only created through transforming inputs into standardized concrete products with basis in a budget or a "frame" given by the customers (Stabell and Fjeldstad 1998). I believe that Spenncon should try to move toward the value shop. Indeed, Spenncon makes a standard product in large numbers, but they have the knowledge to solve the needs of a client's problem. Instead of creating value only through making the product, Spenncon could create value through problem-finding and acquisition. It is the customer that "owns" the problem, and it is Spenncon's job to solve it (Stabell and Fjeldstad 1998).

As mentioned above, value creation is about knowing who the customer is, and to fulfill their needs, but it is not all of Spenncon's customers that need the "value shop-treatment". Therefore they have to segment their customers in order to use the resources on the customers that need it.

Segmentation

According to the case, Spenncon is aware of their problems when it comes to segmentation. They have tried to segment based on yearly turnover, but this showed to be difficult and unclear.

Always-a-share and Lost-for-good

This way of segment has to do with finding out which customers that need more "tender, love and caring" than the other (Jackson 1985).

The always-a-share customers are those customers that can easily switch the patronage from one vendor to another. The lost-for-good customers are those customers that have high switching costs and are more likely to stay in the relationship (Jackson 1985).

Because of the bidding process, all of Spenncon's customers are always-a-share, but some of them should be moved over to the lost-for-good area. With basis in the case we can say that Skanska and Veidekke are those kinds of customers that should be kept at always-a-share. This is because they are also competitors in the way that they are their own suppliers as well as they buy from Spenncon only based on price. They do not need problem solving as mentioned under value creation. Skanska and Veidekke is more likely to become short-term customers.

The other customers, PEAB and NCC, could easily be more loyal customers if they are moved over to the lost-for-good. By moving these customers they are more likely to get long-term relationships (Jackson 1985).

Segmentation by using profitability

By using enough historical data it is possible to estimate the probability of another purchase out into several future time periods. By using this purchase probability it should be possible to calculate