Available online at [Link].

com

Industrial Marketing Management 38 (2009) 45 – 59

Creating value offerings via operant resource-based capabilities

Liem Viet Ngo 1 , Aron O'Cass ⁎
University of Newcastle, Newcastle Graduate School of Business, University House, Auckland Street, Newcastle, NSW 2300, Australia
Received 12 October 2006; received in revised form 1 November 2007; accepted 12 November 2007
Available online 10 January 2008

Abstract

There is growing recognition that leveraging firm resources appears to be an essential precondition for securing a competitive position in the
marketplace and also for creating value for the customer. In moving forward within the new dominant logic as espoused by Vargo and Lusch, with
its focus on operant resources, this research empirically examines the role of operant resource-based capabilities as antecedents to a firm's value
offering. The findings show that firms seeking to create a superior value offering for customers should invest in and nurture operant resources-
based capabilities. The heterogeneity of operant resource-based capabilities helps explain value offering differentials in which firms that
emphasize strongly innovation-based capability as a dominant operant resource-based capability appear to create a superior value offering
compared to those emphasizing marketing-based capability, while firms that focus strongly on production-based capability create little for the
customer in value offering.
© 2007 Elsevier Inc. All rights reserved.

Keywords: Behavioural orientations; Operant resource-based capabilities; Value offering

1. Introduction attention to the extended product that creates value as

determined by customers. They also focus on more than
There is a growing call for a paradigm shift in marketing. physical resources (operand) and direct attention to skills and
Some have called for a shift from market focus to customer knowledge (operant) resources in value creation. Such a shift
focus and value creation. Sheth and Sisodia (2003) argue that appears to be headed toward the notion of customer value,
“the focus now has to shift from markets to customers and from which interestingly is a cornerstone in consumer behaviour, as
transactions to interactions, a dual transformation from current well as relationship marketing (Christopher, 1996; Zeithaml,
generation marketing to next generation marketing. Marketing 1988). Yet, surprisingly little theory exists and few studies have
is thus headed towards interaction and customer focus” (p.142). been conducted to examine the role of firm capabilities and their
The debate has been added to recently by Vargo and Lusch differential contribution to customer value as perceived by
(2004) who focus on the shift from operand resources to operant management in strategic marketing. As the term “customer
resources, with a view that a more appropriate unit of exchange value” has been interchangeably used in both consumer
might be the application of competencies, or specialized behaviour (e.g. Woodruff, 1997) and strategic marketing (e.g.
knowledge and skills for and to the benefit of the receiver. Slater & Narver, 1994) to refer to the concept of value, here the
Such operant resources are intangible, continuous and dynamic. term value offering is used to refer to value created by firms for
Importantly, the views of both Sheth and Sisodia (2003) and customers, while the term customer value is used to refer to
Vargo and Lusch (2004) imply a greater focus on creating value value perceived by customers.
for customers beyond just the tangible product, with greater There is growing recognition that value and value creation
appears central to the business models pursued by firms (Slater,
⁎ Corresponding author. Tel.: +61 2 4921 7729; fax: +61 2 4921 7398.
1997; Woodruff, 1997). However, little is still known about how
E-mail addresses: [Link]@[Link] (L.V. Ngo), the notion value offering is incorporated into business
[Link]@[Link] (A. O'Cass). processes, especially in the context of service-centered
1
Tel.: +61 2 4921 5578. dominant logic. Given the call for a paradigm shift and growing
0019-8501/$ - see front matter © 2007 Elsevier Inc. All rights reserved.
doi:10.1016/[Link].2007.11.002
46 L.V. Ngo, A. O'Cass / Industrial Marketing Management 38 (2009) 45–59

focus on value and value creation, we seek to assist in the through the eyes of customers are various, including product
further development of the new dominant logic by working utility (Zeithaml, 1988), perceived benefits over the costs
toward creating a value-creation business model. The overall (Christopher, 1996), market-perceived quality adjusted for the
goal of this study is to model how operant resource-based relative price (Gale, 1994), and perceived benefits over sac-
capabilities create the firms' value offering for customers. rifices (Eggert & Ulaga, 2002).
As such, the substantive differences regarding the customer
2. Theoretical background value concept may lead to limited application of the concept in
the practice of managing firms toward superior value-creation
2.1. Operant resource-based capabilities vs. behavioural processes (Woodruff, 1997). Generally speaking, in the context
orientations of value-creation process, value should be understood in a dual
form, which consists of value-in-use and value-in-offering.
An examination of the literature reveals that many of the key Value-in-use refers to the voice of the customer in which value
constructs in marketing including market orientation have scope created in consumption, judgment, and confirmation made by
for greater theoretical and empirical insights in performance-based the customer in the marketplace (Ballantyne & Varey, 2006;
research. It has been argued that market orientation lacks an Lusch, Vargo, & Malter, 2006; Lusch, Vargo, & O'Brien, 2007;
underlying theory providing full explanatory mechanisms for its Vargo & Lusch, 2004). On the contrary, value-in-offering refers
contribution to firm performance (Hunt & Lambe, 2000). A to proposed value that the firm builds in its market offering
paradigm shift from market focus to customer focus as called for upon that the customer consumes, judges, and confirms in the
by Sheth and Sisodia (2003) alludes to the notion that market- value-in-use form. While attempting to know what constitutes
oriented activity is no longer a dominant behavioural orientation value and how to create it, managers should give attention to
that firms may adopt in pursuing competitive advantage, examining the features that need to be in products and services
particularly in the context of value creation. Other behavioural to create value. A marketer must offer all of the value(s) that
orientations including (but not limited to) innovation–orientation customers are seeking in the marketplace (Mittal & Sheth,
(Hurley & Hult, 1998) and production–orientation (Pelham, 2001). Indeed, customers' product knowledge has been ad-
2000) exist to contribute to firm success. Innovation-oriented vanced due to the rapid development of information and com-
firms pursue competitive advantage by placing heavy emphasis on munication technology, they are increasingly demanding and
innovations in both technical and non-technical activities (Hurley highly value-conscious. Moreover, emerging trends in market-
& Hult, 1998), while production-oriented firms place an emphasis place and technological innovations impact value co-production
on production efficiencies (Kotler, 2000; Pearson, 1993). (Prahalad & Ramaswamy, 2000), pushing firms to put more
The marketing literature has identified the role of various effort into developing value-creation programs, often from their
behavioural orientations as a premise for value-creation pro- own perspective. Thus, conceptualizing a firm's value creation
cesses (Jaworski & Kohli, 1993; Narver & Slater, 1990). from only the customer's perspective, may not be helpful to
However, in moving from performance to value creation, the marketers in determining various value-creating strategies to be
mechanisms for creating value for customers depend on a firm's pursued in different markets. Value, which is considered a
capabilities. Slater and Narver (1994) proposed that the source of competitive advantage (Woodruff, 1997), should be
emphasis today has shifted to capabilities that enable firms to understood from executives' perceptions, as well as customers
consistently create superior value for their customers. In deed, and thus, this construct is conceived of as the value offering
competitive advantage is obtained, when firms possess re- through the “value-in-offering” perspective.
sources or skills that are valuable, unique, imperfectly imitable, While acknowledging value-in-use as the ultimate outcome
and non-substitutable (Barney, 1991). Upon further considera- that stands above any form of value in value-creation process, in
tion, firms obtain competitive advantage when they possess this study we place our emphasis on value offering and its
capabilities that can be converted into value for customers antecedents. Specifically, we attempt to validate an untested
(Slater, 1997). Thus, the significance of focusing on capability theoretical proposition suggested by Vargo and Lusch (2004)
space in the context of value creation is important and meaning- that “the service-centered view of marketing implies that
ful on both theoretical and managerial grounds. marketing is a continuous series of social and economic pro-
cesses that is largely focused on operant resources with which
2.2. “Value-in-offering” vs. “value-in-use” the firm is constantly striving to make better value propositions
than its competitors”. These processes in the context of value-
The extant literature has primarily viewed the concept of in-offering perspective are discussed in terms of operant
customer value from the “value-in-use” perspective. The main resource-based capabilities.
theme underlying this conventional perspective sees that value
is defined in the marketplace by the customer (Webster, 1994). 2.3. Operant resource-based capabilities
A firm's value offerings are those that customers assess and
utilize to achieve their consumption goals (e.g. Woodruff, The role of resources and capabilities are of paramount
1997). Specifically, customers perceive value based on their importance in creating superior value for the customer, and in
judgment of the trade-off between “what they get” (perceived achieving competitive advantage over competitors (Barney,
benefits, quality, or performance) and “what they give”. Value 1991; Peteraf, 1993; Prahalad & Hamel, 1990; Slater & Narver,
 L.V. Ngo, A. O'Cass / Industrial Marketing Management 38 (2009) 45–59 47

1994; Wernerfelt, 1984). Resources and capabilities are central separated) in defining capabilities. They are argued to be
constructs to the resource-based view (RBV), which emerged in manifested within capabilities, which are not resources in and of
the 1980s as a major shift from the industrial structure or IO themselves, but are the integrative processes by which resources
view (Hall & Weiss, 1967; Mason, 1939; Porter, 1980), which are applied to add value to the resource inputs (Day, 1994).
emphasizes the importance of external environmental factors. From these repeated efforts, complex patterns of coordination
The central logic for this shift is the inability of the IO view to between people, and between people and other resources occur
explain why some firms within the same industry facing iden- (Grant, 1991, 1996). These coordinated patterns of behaviour
tical conditions outperform others (differ in performance) are often quite consistent, yet they remain dynamic and change
(Hawawini, Subramanian, & Verdin, 2003). The RBV empha- as the firm's needs change. A synthesis of resource-based view
sizes resources and capabilities as central to understanding and service-centered dominant logic indicates that capabilities
competitive advantage and superior profitability (e.g. Admit & possess operant characteristics as they act on both operand and
Shoemaker, 1993; Day, 1994). operant resources to produce effects, but they are not operant
The RBV takes an ‘inside-out’ perspective to offer an ex- resources. Thus, firm capabilities hereafter are labeled as ope-
planation for firm success or failure (Dicksen, 1996). Resources rant resource-based capabilities.
are valuable inputs for the firm that enable it to produce Having considered the resource-based view on capabilities,
effectively and efficiently market offerings that have value for and working toward consistency with the service-centered do-
customers (Admit & Shoemaker, 1993; Fahy, Hooley, Greenley, minant logic, we conceptualize an operant resource-based capa-
& Cadogan, 2006; Griffith & Harvey, 2001; Hunt & Morgan, bility as one that has three facets; possession of, application of,
1995; Morgan, Clark, & Gooner, 2002; Srivastava, Fahey, & and full utilization of resources. The possession and applica-
Christensen, 2001). Resources can be categorized into tangibles tion dimensions refer to the availability and application of
and intangibles available to the firm (Barney, 1991; Wernerfelt, sufficient resources, which enable the firm to engage in value-
1984). According to Hunt and Morgan (1995), tangible creating activities (e.g. innovation, marketing, production). The
resources can be physical items such as facilities, raw materials, full utilization dimension refers to the extent that the resources
equipment, cash reserves, and the like, while intangible re- are maximized toward value-creating activities. As such, an
sources can be skills and knowledge of employees, knowledge operant resource-based capability is defined as an integrative
of customers, competitors, suppliers, and the like. process of applying collective knowledge, skills, and resources
An examination of the extant literature reveals that the to perform functional activities.
tangible–intangible resource dichotomy (Hunt & Morgan, 1995) Within the context of the above conceptualization the extant
is analogous to the operand–operant resource dichotomy literature has addressed a theoretical contention that value
suggested by Vargo and Lusch (2004) in the service-centered offering is created by operant resource-based capabilities (core
dominant logic. According to Vargo and Lusch (2004), operand value-creating capabilities) which exist throughout the entire
resources refer to resources (e.g. physical resources such as organization (Slater & Narver, 1994). Particularly, innovation-
facilities, raw materials, land, and the like) on which an ope- based, marketing-based, and production-based capabilities are
ration is performed to produce an effect, whereas operant deemed the essential “core value-creating capabilities” that en-
resources (e.g. intangibles such as competences, organizational able a firm to consistently create superior value for its customers
processes, and the like) refer to those that operate on operand (Bisp, 1999; Slater & Narver, 1994). A broader look at this view
resources to produce effects. A closer look at the literature on reveals that certain types of operant resource-based capabilities
operant resources reveals different kinds of resources that are should correspond to the core processes for creating economic
classified as operant including skills, knowledge, mental com- value (Day, 1994). In the quest for creating value offering,
petence, core competence, technology, organizational processes, business practices inspire multiple operant resource-based ca-
relationships with competitors, suppliers, and customers (Hunt, pabilities that provide firms with multiple platforms for value
2004; Vargo & Lusch, 2004). creation. In this fashion, operant resource-based capabilities that
Given the nature of resources as presented above, in the directly contribute towards value offerings for customers are
quest for creating superior value for the customer, firms will (or classified in a manner that matches the core operational func-
should) have as many processes, as are necessary to transform tions of the firm such as innovation, marketing, and production.
their resources (operand and operant) into valuable outputs Moller (2006) argues that competitive intensity and the ex-
based on functional activities (Day, 1994; Vorhies & Morgan, panding scale of business operations press firms to specialize in
2005). Capabilities are manifested in typical business activities a narrowing set of core value-creating capabilities. Drawing on
(Day, 1994) and are something beyond resources. While these insights, we categorize operant resource-based capabil-
resources represent assets possessed by the firm, capabilities ities into innovation-based, marketing-based, and production-
are the glue that combines, develops, and transforms the re- based capabilities.
sources to create value offerings for customers (Day, 1994; Innovation-based capability has been labeled in the literature
Grant, 1991; Morgan, Kaleka, & Katsikeas, 2004; Teece, as either the capacity to innovate (Hurley & Hult, 1998) and
Pisano, & Shuen, 1997). As such, capabilities are built upon the organizational innovation intensity (Weerawardena & O'Cass,
processes developed by firms, by bringing people and resources 2004). The first is operationalized as the number of innovations
together in repeated efforts (Vorhies, Harker, & Rao, 1999). In successfully adopted by the firm, while the latter is a subjective
this fashion, both behaviour and ability are synthesized (i.e., not measure referring to the extent to which a firm implements its
48 L.V. Ngo, A. O'Cass / Industrial Marketing Management 38 (2009) 45–59

innovations. Both approaches have limited applicability in the 2.4. Value offering
service-centered dominant logic, in which innovation-based
capability is different from innovation intensity and beyond the The importance of understanding value from a “value-in-
capacity to innovate. In this study, innovation-based capability offering” perspective brings forth an essential challenge at the
is defined as the integrative process of applying the collective heart of all firms' existences: what value to build in products.
knowledge, skills, and resources of the firm to perform inno- Many have discussed brand equity as the added value with
vation activities pertaining to technical innovations (products which a given brand endows a product (Farquhar 1989). In the
and/or services, and production process technology) and non- marketplace, brand value is created when consumers interact
technical innovations (managerial, market, and marketing). and respond to the marketing activities related to the brand.
Relatedly, marketing-based capability is defined as the Differences in consumer responses to marketing efforts deter-
integrative process of applying the collective knowledge, skills, mine brand asset valuation (Ambler et al., 2002). Thus, brand
and resources of the firm to perform marketing activities. This equity is also defined as “the differential effect of brand know-
definition is in line with the literature on marketing capability, in ledge on consumer response to the marketing of the brand”
which marketing capability is argued to enable firms' to add value (Keller, 2002, p.7). In a similar vein, Ambler (2000) signified
to their products and services to meet competitive demands the role of brand knowledge by suggesting that brand equity is
(Day, 1994; Vorhies et al., 1999; Vorhies & Morgan, 2005; “what we carry around in our heads about the brand”. It is worth
Weerawardena & O'Cass, 2004). In this context a range of noting that the customer mind-set is the premise of these
marketing activities including product, pricing, distribution, definitions (Keller & Lehmann, 2001) and the notion of brand
marketing communication, selling, market intelligence manage- equity is applicable in the context of consumer perspective. As
ment, marketing planning, and marketing implementation are such, while it is acknowledged that brand equity is a source of
theorized to encompass a broader notion of marketing-based value creation, in the context of this study, the value offering is
capability. conceived from the firm perspective.
Further, production-based capability is a capability that However, the extant literature has yet to fully explore the
enables a business to pursue a product-market specific business issue of value creation and value offering from the firm
strategy (Cleveland, Schroeder, & Anderson, 1989). In this perspective. Customers look for products that deliver offerings
study, production-based capability is defined as the integrative that include attribute performance (e.g. quality, innovative
process of applying the collective knowledge, skills, and re- performance features, personal preferences) and pricing value
sources of the firm to perform production activities (e.g., (e.g. fair and beneficial pricings) and compare them against
production adaptability, quality control, productivity, and pro- competitive offerings (Mittal & Sheth, 2001). These physical
duction scheduling) of the business. These production activities attributes represent the two tangible dimensions of the value
are not only relevant in relation to physical products, but also offering to the customer. However, the tangible product itself is
services. not the only part of the value offering created for the customer
The conceptualization of innovation-based capability, mar- (Webster, 1994). In this sense the products are considered only
keting-based capability, and production-based capability follow as distribution mechanisms for value delivery embedded in
the Type I second-order factor model as outlined by Jarvis, services (Vargo & Lusch, 2004) delivered via product offerings.
MacKenzie, and Podsakoff (2003). Specifically, innovation- Customers buy benefits, not products and they want to obtain
based capability is conceived of as a second-order construct the services the products render. They may desire to keep in
with three first-order factors including innovation-based pos- touch with the firm to get a hassle-free experience, which
session, innovation-based application, and innovation-based includes easy access, rapid response, and relational nurture
full utilization. Similarly, marketing-based capability and (Mittal & Sheth, 2001). For example, American Express,
production-based capability are conceptualized as second- SYSCO, and 3M are typical examples of firms building superior
order constructs, each has three first-order factors. For example, relationships with customers. We thus consider relationship
marketing-based capability consists of marketing-based posses- building as the third dimension of the value offering.
sion, marketing-based application, and marketing-based full Having a hassle-free experience via relationship building is
utilization and production-based capability consists of produc- not the final stop of a value-creation avenue. Customers also
tion-based possession, production-based application, and pro- want to co-construct the consumption experience that suits their
duction-based full utilization. These first-order factors are context, as some find it beneficial to exercise their influence in
reflective indicators, each of which consists of multiple reflec- every part of the business system (Prahalad & Ramaswamy,
tive indicators. 2004). Marketing practice has witnessed the emergence of firm-
Based on the above conceptualization of capabilities, and customer interaction in which customers increasingly engage in
extending the argument of Vargo and Lusch (2004), which co-production activities, such as engagement in treatment dia-
considers possessing resources and their use, as the two logues with doctors, ordering books via [Link], buying
fundamental sources of competitive advantage, we theorize furniture at IKEA. America Online, Cisco Systems, Dell, eBay,
innovation-based capability, marketing-based capability, and Yahoo! and many others have been encouraging high-quality
production-based capability as second-order constructs each interactions that enable customers to co-create value with the
consisting of three facets of an operant resource-based capability: firms. In supporting the service-centered perspective, the cus-
possession of, application of, and full utilization of resources. tomer is fundamentally an operant resource and is involved in
 L.V. Ngo, A. O'Cass / Industrial Marketing Management 38 (2009) 45–59 49

the production of value to various degrees. As such, co-creation than existing products. As such, in creating superior attribute
becomes the fourth dimension of the value offering. performance (e.g. quality, innovative performance features, and
Having considered the above dimensions of value offering, personal preferences), firms need to possess, apply, and fully
we define value offering to the customer as the value that firms utilize resources needed to engage in product innovations.
build in a particular product and/or service (brand) in terms of Breakthroughs in feminine protection such as dri-weave tech-
attribute performance (e.g., quality, innovation, and customiza- nology at P&G enables the firm to develop a line of feminine
tion), pricing (fair price and value price), relationship building hygiene products such as Always, Whisper, Tess, and Otros
(easy access, rapid response, and relational nurture), and co- Dias providing customers with a superior performance attribute
creation of the offering, to outperform competitors. As such, the and with much greater comfort and discretion than previously
conceptualization of value offering follows the Type I second- thought possible (P&G, 2006).
order factor model as outlined by Jarvis et al. (2003). Speci- Innovation-based capability can also add significant value to
fically, value offering is conceived of as a second-order con- the market offering via innovating experience environments for
struct with four first-order factors (e.g. performance value, new co-creation experiences. With new products and services
pricing value, relationship building, and co-creation value) as like networked Handycam, CyberShot cameras, and the
reflective indicators, each of which consists of multiple ref- PercasTV personal-casting service, Sony has built an experience
lective indicators. environment where virtually anybody can be a content creator
(Sony, 2006). Having superior innovation capabilities enables
3. Hypotheses development Sony to create a superior value offering for the content creators
and helps them achieve greater efficiency. Such superior tangible
Within the context of value-creation processes, operant and intangible value offerings (e.g. Handycam and personal
resource-based capabilities refer to the extent to which the firm content creation environment) rest on distinctive capability in
possesses and applies knowledge, skills, and resources to perform product and process (e.g. display technology and epic-making
its functional activities, while the value offering represents the production systems). Consequently, to achieve superior co-
value outcomes derived from implementing value-creation pro- creation value for the customer, firms should be able to develop
cesses. Creating a value offering for the customer depends upon new ways (e.g. managerial, market, marketing innovations) to
the firm's ability to develop capabilities as the means to create motivate customers to co-create value as well as ways to
superior performance on the attributes that are important to the successfully monitor and manage the process along the way. As
customer (Ohmae, 1988; Stalk, Evans, & Shulman, 1992). Firms such, firms possessing a higher level of capabilities pertaining to
are considered as dynamic collections of specific operant technical and non-technical innovations appear to create
resource-based capabilities in a given market structure, which enhanced value for the customer. Thus, it is hypothesized that:
are drivers of value offering for the customer. The value offering is
the outcome of operant resource-based capabilities that accrue to a Hypothesis 1. Innovation-based capability has a positive
product or service. As such, we theorize operant resource-based impact on a firms' value offering.
capabilities of the firm as drivers of its value offerings, and
therefore its ability to create value. 3.2. Marketing-based capability and value offering

3.1. Innovation-based capability and value offering The extant literature suggests that marketing activities act as
antecedents of value offerings to the customer. Possessing
Possessing superior innovation-based capability enables superior marketing-based capability as such enables firms to
firms to continuously create advancement in value offerings, create offerings that are of value for customers. The rationale
for which customers still seek out their products even if they do behind this proclamation is that marketing action represents the
not market them (Kim & Mauborgne, 1997). The substantial effect of accumulated marketing investments in products and
success of innovation-oriented Japanese firms against US com- services (Yoo, Donthu, & Lee, 2000). In the same vein, Aaker
petitors in the 1980s, can be explained by the notion “core (1991) posits that the value of a firm's products and services (e.g.
competences” which resulted from heavy investment in R&D brand equity) can be strengthened by enhancing the efficiency
and the development of new technology (Prahalad & Hamel, and effectiveness of its marketing programs. Indeed, marketing
1990). Indeed, such innovation-oriented firms continuously processes such as attractive advertising and aggressive promo-
develop leading edge positions based on their technology tion campaigns can enable firms to successfully communicate
breakthroughs to not only satisfy current needs but also create and position products and services against competitors. As such,
value offerings that go beyond expectations of the customer. a firm's marketing-based capability is reflected in its ability to
Innovation-based capability and value offering for the cus- differentiate products and services from competitors and build
tomer are closely associated. Attribute performance appears to successful products and services, which in turn enhance the
be a result of product innovations. Indeed, Porter (1983, p.22) value offerings for customers (Kotabe, Srinivasan, & Aulakh,
argues that “product innovation is the dominant mode of in- 2002). Thus, it is hypothesized that:
novation and aims primarily at improving product perfor-
mance”. Product innovations enables firm to provide new Hypothesis 2. Marketing-based capability has a positive
performance attributes that fulfill key customer needs better impact on a firms' value offering.
50 L.V. Ngo, A. O'Cass / Industrial Marketing Management 38 (2009) 45–59

3.3. Production-based capability and value offering City. A master list of 1000 Vietnamese companies, identifying
one senior executive per company, was drawn from the local
Firms can provide higher value offering to customers via business directory, DPI HoChiMinh City Business Directory
having highly extensive production adaptability, quality control, 2005. The 1000 companies were selected from the directory (a
productivity, and production scheduling. As such, it is argued total of about 13,000) based on firm size targeting medium and
that production-based capability is associated with a firms' large companies. The rationale for excluding small-sized firms
value offering. Specifically, firms that place heavy emphasis on from the sampling frame was that they are too small in terms of
productivity (e.g. labor and volume efficiencies) can produce the scope of their business activities, whereby the theoretical
widely available and relatively cost-competitive products, and conjecture is not applicable for them. Specifically, small busi-
thus provide higher pricing value for the customer (Kotler, nesses have their own constraints in terms of resource poverty
2000). For example, having greater productivity against its (Cavusgil, 1994; Roth, 1992), thus bringing small businesses
rivals by utilizing “cross-docking” inventory system enables into the equation could cloud the theory. Indeed, it is evident in
Wal-Mart to provide “everyday low prices” as a key component much of the extant research in strategic marketing that attention
of its offering to the customer (Stalk et al., 1992). In addition, has been given to medium and large-sized companies (e.g.
having greater production system adaptability has the effect of Matsuno & Mentzer, 2000) using sales volume and/or number
keeping the cost and speed of changing from one product type of employees as a common criterion for the classification of
and output to another down. This view is also consistent with firms (Coviello, Brodie, Danaher, & Wesley, 2002; Cross,
the transaction cost theory, which describes advantages avai- Hartley, Rudelius, & Vassey, 2001; D'Amboise & Muldowney,
lable to firms that create benefits for customers in the form of 1988). The final sample of 400 companies was randomly se-
pricing value (e.g. fair and beneficial prices) through lowered lected from the master list of 1000 utilizing systematic sampling
production costs (Coase, 1937; Noble, Sinha, & Kumar, 2002). in which firms were arranged in decreasing order of sales
Ensuring quality performance by achieving a high level in the volumes. As the ordering of the firms is related to the charac-
consistency of the product in meeting design specification also teristics of interest (e.g. firm size), systematic sampling in-
results in higher attribute performance. As such, a firm's ability creases the representativeness of the sample (see Malhotra, Hall,
to deliver to customers greater value offerings is achieved via Shaw, & Oppenheim, 2006). The systematic sampling is also a
key aspects of production-based capabilities. Thus, it is hypo- widely adopted approach in marketing research when sampling
thesized that: frames are available (e.g. Armstrong, 1991; Johnson, 1999).
The questionnaire was translated into Vietnamese forward and
Hypothesis 3. Production-based capability has a positive
backward by two certified translation institutions. Specifically,
impact on a firms' value offering.
the questionnaire was translated forward from English into
Vietnamese by B.E.S.T, a certified translation institution in
4. Research design Vietnam following a quality assurance procedure. Following the
forward translation the questionnaire was then translated back-
4.1. Empirical setting ward into English by the Foreign Language Center - Vietnam
National University - HCMC. Finally, a comparison between the
A quantitative-based descriptive study via a survey of business two translated versions was made for equivalency resulting in the
executives related to firm capabilities and value offering was final version of the questionnaire. A drop-and-collect technique
developed. With respect to the selection of the empirical setting, was employed in this study as the data collection method. This
Vietnam and DPI HoChiMinh City Business Directory 2005 was approach has been argued to improve response rates among
selected as the country setting sampling frame of this study. The organizational respondents compared to mail questionnaires and
rationale for this selection was twofold. First, Vietnam was chosen other impersonal delivery systems (Ibeh, Brock, & Zhou, 2004;
as the empirical setting as it has been considered an emerging Lovelock, Stiff, Cullwick, & Kaufman, 1976). In particular, a
economy with growth potential and a new dragon in Asia (Schultz response rate of 40 to 90% is often considered satisfactory for
& Pecotich, 1997; Vietnam Development Gateway, 2006). A drop-and-collect surveys (Balabanis & Diamantopoulos, 2004;
stable and high growth rate of 9% in Vietnam's economy over the Brown, 1987; O'Cass & Pecotich, 2005). Moreover, using drop-
last decade has placed Vietnam as the second-highest growth and-collect technique is encouraged in developing countries such
economy in the Asia Pacific region, after China (Nguyen, Jung, as Vietnam (Ibeh & Brock, 2004) where interpersonal interactions
Lantz, & Loeb, 2003). Second, HoChiMinh City is the largest are preferred as modes of information exchange (Hofstede, 1980).
commercial and industrial business centre of Vietnam with the
GDP of $AU14 billion by 2005, occupying 20% of the whole 4.2. Measurement instrument development
nation's GDP (DPI-HCMC, 2006).
The Department of Planning and Investment, HoChiMinh 4.2.1. Item generation
City (DPI-HCMC) is a highly respectable statutory organization Having considered similarities of various procedures for
set up to provide guidance of investment procedures and to developing measures of constructs (e.g. Churchill, 1979), a two-
issue business licenses. With a network of 13,000 registered stage procedure was developed for this study. Specifically, stage
firms, DPI-HCMC serves as a centre for business information one involved mainly generating items while stage two placed
and maintains a database of registered firms in HoChiMinh emphasis on the refinement of items by conducting expert-
 L.V. Ngo, A. O'Cass / Industrial Marketing Management 38 (2009) 45–59 51

judges evaluation of face validity and pre-test. Then the survey The production-based capability scale consisted of 12 items
was finalized after developing and applying decision rules for capturing three components of this construct (possession,
removing and/or keeping representative items. In stage one, 94 application, and fully utilization) as essential dimensions of
items were generated capturing four constructs; innovation- an operant resource-based capability. Items pertaining to the
based capability (19 items), marketing-based capability (22 first two dimensions were newly developed, while those
items), production-based capability (20 items), and value pertaining to the last dimension were modified from the scale
offering (33 items). These items were generated from re- of production-based capability developed by Cleveland et al.
searchers' expertise and prior work in the extant literature by (1989) and Stanley et al. (1996). All items were measured via a
Weerawardena and O'Cass's (2004), Atuahene-Gima (1993), seven-point scale with scale poles ranging from ‘strongly
Vorhies, Harker, and Rao (1999), Vorhies and Morgan (2005), disagree’ to ‘strongly agree’, ‘not at all’ to ‘extensively’, and
Cleveland, Schroeder, and Anderson (1989) and Stanley, ‘minimal’ to ‘extensive’.
Fawcett, and Smith (1996), Mittal and Sheth (2001), and Value offering was measured via a 21-item scale capturing
Vargo and Lusch (2004). four components of this construct (attribute performance,
pricing value, relationship building, and co-creation). This
4.2.2. Face validity scale was developed, based on the earlier work of Mittal and
In this study, twelve expert judges from within the marketing Sheth (2001) and Vargo and Lusch (2004). All items were
discipline were given the conceptual definitions of the four measured via a seven-point scale with scale poles ranging from
constructs with corresponding items and a set of instructions for ‘strongly disagree’ to ‘strongly agree’.
judging. The expert judges were asked to rate each item as either
“not representative”, “somewhat representative”, or “very 5. Analyses and results
representative” to the construct definition (e.g. Zaichkowsky,
1985). After receiving the expert-judges feedback, decisions 5.1. Preliminary analysis
about which items to delete and/or keep were based on a three-
stage procedure that was developed as a synthesis of the sumscore Following the drop-and-collect survey administration
approach (e.g. Lichtenstein, Netemeyer, & Burton, 1990) and the method modified from the framework of Ibeh, Brock, and
complete approach (e.g. Obermiller & Spangenberg, 1998) Zhou (2004), 259 usable responses were obtained, producing an
increasing in level of sophistication at each stage. In summary, effective response rate of 60%. Preliminary data analysis was
71 items were kept in the refined item pool, which was then undertaken to examine the mean and standard deviations, and
critically examined to ensure the most parsimonious set of following this initial assessment correlations and reliability
measures (see Low & Lamb, 2000). As suggested by Churchill estimates were computed. Table 1 provides the composite
(1979), expertise of a highly reputed scholar in marketing was means, standard deviations and correlations.
employed in the examination of the parsimony of the refined item The descriptive statistics indicated that based on the number
pool. Consequently, the most parsimonious set of measures was of employees, 62% and 31% were characterized as medium and
produced with 71 items. large firms, respectively, and 7% was unclassified. In relation to
sales volume, 51% had less than $1 millions in sales, 15% had
4.2.3. Final measure between $1 and $2 millions in sales, 17% had between
The innovation-based capability scale consisted of 19 items $2 millions and $4.9 millions in sale, 7% had less than
capturing three components of this construct (possession, $10 millions in sales, and 10% had more than $10 millions in
application, and full utilization) as essential dimensions of an sales. The analysis also indicated that services firms accounted
operant resource-based capability. Items pertaining to the first two for 28% of the respondents, construction 25%, garment and
dimensions were newly developed, while those pertaining to the textile 13%, plastics and rubber 12%, industrial manufacturing
last dimension were modified from Weerawardena and O'Cass's 10%, foods and beverage 8%, and leather and shoes 4%.
(2004) work. All items were measured via a seven-point scale Regarding respondents, the descriptive statistics indicated that
with scale poles ranging from ‘strongly disagree’ to ‘strongly marketing executives accounted for 59.1% of the respondents,
agree’, ‘not at all’ to ‘extensively’, and ‘minimal’ to ‘extensive’. non-marketing executives 37.8%, and 3.1% unclassified. The
The marketing-based capability scale consisted of 19 items preliminary analysis indicated that some items had moderate
capturing three components of this construct (possession, levels of skewness (between − 1.75 and − 0.372) and kurtosis
application, and fully utilization) as essential dimensions of (between 3.18 and − 0.071).
an operant resource-based capability. Items pertaining to the
first two dimensions were newly developed, while those Table 1
pertaining to the last dimension were modified from the scale Descriptive statistics and correlations among variables
of marketing-based capability developed by Atuahene-Gima Variables Mean STD. 1 2 3
(1993), Vorhies et al. (1999), Vorhies and Morgan (2005), and 1. Innovation-based capability 5.13 0.92
Weerawardena and O'Cass (2004). All items were measured via 2. Marketing-based capability 5.05 1.07 0.66⁎⁎
a seven-point scale with scale poles ranging from ‘strongly 3. Production-based capability 5.16 1.20 0.43⁎⁎ 0.12⁎
disagree’ to ‘strongly agree’, ‘not at all’ to ‘extensively’, and 4. Value offering 5.82 0.80 0.68⁎⁎ 0.62⁎⁎ 0.23⁎⁎
‘minimal’ to ‘extensive’. ⁎p b 0.05; ⁎⁎p b 0.01.
52 L.V. Ngo, A. O'Cass / Industrial Marketing Management 38 (2009) 45–59

Partial Least Squares (PLS), specifically PLS-GRAPH Table 2

v.3.00 was utilized to assess the adequacy of measurement Result of measurement model
models of the four constructs and the predictive relevance of the Measurement model paths Factor t-value
conceptual model, and thereby test the three hypothesized re- loading
lationships. The selection of PLS was based on three main Innovation-based capability CR .95 AVE .48
reasons. First, PLS is a variance-based structural equation IC Possession CR .93 AVE .68
IC1: availability of knowledge to engage in 0.78 24.16
modeling technique that is more advantageous than covariance- technical innovations
based approaches when measures are not well established IC2: availability of skills to engage in 0.79 24.49
(Fornell & Bookstein, 1982). In this context, PLS is appropriate technical innovations
in this study as a number of new and refined measures were IC3: availability of resources to engage in 0.81 29.87
developed (see Dawes, Lee, & Dowling, 1998; Smith & technical innovations
IC4: availability of knowledge to engage in 0.83 40.40
Barclay, 1997). Second, as PLS focuses on the explanation of non-technical innovations
variance using ordinal least squares, this technique is better IC5: availability of skills to engage in 0.86 64.50
suited for the investigation of relationships in a predictive rather non-technical innovations
than a confirmatory fashion (Fornell & Bookstein, 1982). The IC6: availability of resources to engage in 0.85 55.94
main objective of this study was to predict the contribution of non-technical innovations
IC Application CR .92 AVE .66
operant resource-based capabilities to firm value offering, thus IC7: application of knowledge to engage in 0.76 21.71
it is mainly concerned with maximizing the prediction of res- technical innovations
pective constructs. Finally, as PLS allows the examination of IC8: application of skills to engage in 0.77 20.53
measures and theory simultaneously (e.g. Fornell & Bookstein, technical innovations
1982), PLS is suitable for examining the measurement proper- IC9: application of resources to engage in 0.81 26.75
technical innovations
ties (outer-measurement model) and hypotheses (inner-struc- IC10: application of knowledge to engage in 0.82 42.83
tural model). non-technical innovations
In this study we assessed the adequacy and significance of IC11: applications of skills to engage in 0.85 54.62
outer-measurement models (the relationships between the non-technical innovations
observed indicators and the construct they measure) and the IC12: application of resources to engage in 0.82 42.52
non-technical innovations
predictive relevance of individual paths and the structural model. IC Utilization CR .87 AVE .50
Given the theoretical formulation of the four constructs being IC13: utilization of product innovations 0.61 14.86
hypothesized as the Type I second-order factor model as outlined IC14: utilization of production process innovations 0.49 6.76
by Jarvis et al. (2003), conventional procedures used to assess IC15: utilization of managerial innovations 0.79 34.53
the validity and reliability of scales composed of reflective IC16: utilization of market innovations 0.76 23.67
IC17: utilization of marketing innovations 0.75 21.33
indicators are applicable (Diamantopoulos & Winklhofer, IC18: utilization of technical innovations 0.62 11.01
2001). Consequently, the adequacy and significance of reflective (product and production process)
outer-measurement models were assessed through an examina- IC19: utilization of non-technical 0.82 34.79
tion of a range of indices including individual indicator loadings, innovations (managerial, market, marketing)
composite reliability, average variance explained (AVE), boot-
Marketing-based capability CR .96 AVE .61
strap t-statistic, convergent validity, and discriminant validity. MC Possession CR .97 AVE.83
The theoretical formulation of the model focused on the MC1: availability of knowledge to engage in 0.90 60.76
second-order–first-order construct development for the operant marketing activities
resource-based capabilities and value offering. Given the theo- MC2: availability of skills to engage in 0.93 91.90
retical formulation of the constructs being hypothesized as marketing activities
MC3: availability of resources to engage in 0.90 56.36
second-order factors the outer model tests were conducted and marketing activities
the results are presented in Table 2. Table 2 provides the factor MC4: availability of knowledge to engage in 0.93 87.87
loading derived from PLS analysis for the second-order factors marketing management
based on the arguments and presentation of results by MC5: availability of skills to engage in 0.92 93.67
Weerawardena, O'Cass, and Julian (2006). The first-order marketing management
MC6: availability of resources to engage in 0.88 43.41
constructs for innovation-based capability (IC), marketing- marketing management
based capability (MC), production-based capability (PC) and MC Application CR .94 AVE .74
value offering (VO) explained between 48% and 70%. The MC7: application of knowledge to engage in 0.91 69.43
second-order factors (constructs) variance explained ranged marketing activities
between 50% and 91%, with loadings ranging between 0.55 and MC8: application of skills to engage in 0.93 81.05
marketing activities
0.96, and composite reliabilities of between 0.87 and 0.97 as MC9: application of resources to engage in 0.55 1.51
indicated in Table 2. marketing activities
Assessing measurement validity is important and on this MC10: application of knowledge to engage in 0.93 92.07
issue Fornell and Larcker (1981) argued convergent validity is marketing management
achieved if the average variance explained (AVE) in items by
their respective constructs is greater than the variance
 L.V. Ngo, A. O'Cass / Industrial Marketing Management 38 (2009) 45–59 53

Table 2 (continued) Table 2 (continued)

Measurement model paths Factor t-value Measurement model paths Factor t-value
loading loading
MC Application CR .94 AVE. 74 Relationship Building CR .90 AVE .64
MC11: application of skills to engage in 0.92 75.54 VO11: ensuring that customers have easy 0.69 12.90
marketing management access to the business at any time
MC12: application of resources to engage in marketing 0.89 47.09 VO12: ensuring rapid response standards to 0.86 40.37
management deal with any customer enquiry.
MC Utilization CR .92 AVE .63 VO13: having continuing relationships with customers 0.83 38.98
MC13: utilization of incorporation of customers' needs 0.61 13.36 VO14: delivering add-on values (special offers, status 0.79 22.39
into products recognition) to keep customers.
MC14: utilization of pricing programs 0.65 14.68 VO15: maintaining long term relationships with our 0.80 30.11
MC15: utilization of distribution system 0.77 27.24 customers.
MC16: utilization of marketing communication 0.82 41.50 Co-creation Value CR .93 AVE .69
programs VO16: interacting with customers to serve them better 0.81 33.25
MC17: utilization of market information management 0.86 47.50 VO17: working together with customers to produce 0.86 49.86
activities offerings that mobilize them.
MC18: utilization of market planning activities 0.87 46.48 VO18: interacting with customers to design offerings 0.84 37.48
MC19: utilization of marketing implementation 0.88 62.58 that meet their needs.
activities VO19: providing services for and in conjunction with 0.88 65.44
customers.
Production-based capability .97 AVE .70 VO20: co-opting customer involvement in providing 0.80 23.11
PC Possession CR .97 AVE .91 services for them.
PC1: availability of knowledge to engage in production 0.94 94.10 VO21: providing customers with supporting systems to 0.76 17.80
activities help them get more value.
PC2: availability of skills to engage in 0.96 184.22
production activities
PC3: availability of resources to engage in 0.94 96.07 unexplained (i.e., AVE N 0.50). Therefore, in order to assess the
production activities constructs convergent validity, the squared multiple correlations
PC Application CR .97 AVE .91 from the factor analysis were initially examined. The computed
PC4: application of knowledge to engage in 0.94 85.81
results of the AVEs are shown in Table 2. All constructs and
production activities
PC5: application of skills to engage in 0.96 159.21 their second-order factors using both methods had an average
production activities variance explained (AVE) greater than or equal to 0.50, there-
PC6: application of resources to engage in 0.94 107.78 fore meeting the recommended criteria for convergent validity.
production activities We assessed convergent validity by computing composite
PC Utilization CR .95 AVE .74
PC7: utilization of production system adaptability 0.79 25.09
measures for the constructs, and undertook an assessment of
(product type) discriminant validity as recommended by Gaski and Nevin
PC8: utilization of production system 0.78 24.04 (1985) and O'Cass (2002). If the correlation between two
adaptability (volume) composite constructs is not higher than their respective
PC9: utilization of quality control 0.88 52.06 reliability estimates, then discriminant validity is argued to
PC10: utilization of labor productivity 0.91 57.06
exist. Therefore, construct correlations were examined and
PC11: utilization of product volume productivity 0.90 54.99
PC12: utilization of production scheduling 0.87 37.92 compared to the reliabilities calculated in the preliminary data
analysis. Correlations ranged from 0.12 to 0.68 and the
Value Offering CR .94 AVE .50 reliabilities ranged from 0.87 to 0.97. The comparison of
Attribute Performance Value CR .91 AVE .67 individual correlations between constructs revealed that no
VO1: ensuring customers' personal preferences 0.80 30.37
correlations were higher than their respective reliabilities, and as
are satisfied
VO2: delivering quality products and/or services. 0.76 22.66 such, discriminant validity is argued to exist. Therefore, the
VO3: delivering products and/or services that 0.84 36.33 measurement model provides an assessment of convergent and
are exactly what customers want discriminant validity.
VO4: delivering products and/or services that 0.83 27.72 The assessment of nomological validity of the scale was also
exceed customers' expectations
discussed indicating the theoretical background and which part
VO5: delivering products and/or services 0.83 38.93
with innovative performance features. of the extant literature containing the concepts of interest this
Pricing Value CR .87 AVE .57 study used and built on. Specifically, theoretical predictions in
VO6: pricing policies are fair to all customers 0.72 17.59 this study were closely and comprehensively tied to two domains
VO7: pricing policies are consistent and accurate 0.76 19.48 of the extant marketing literature that were synthesized into this
VO8: pricing policies are more beneficial for 0.80 29.81
customers than our competitors.
study. The first domain is the RBV literature with the emphasis
VO9: pricing products according to how 0.71 18.59 on operant resources. The conceptualization and operationaliza-
valuable customers perceive them to be. tion of operant resource-based capabilities (e.g. innovation-
VO10: delivering quality products and/or 0.76 25.28 based, marketing-based, and production-based capabilities)
services which are priced right. were based upon the prior work in the RBV literature by Day
(continued on next page) (1994), Grant (1991), Morgan, Kaleka, and Katsikeas (2004),
54 L.V. Ngo, A. O'Cass / Industrial Marketing Management 38 (2009) 45–59

Teece, Pisano, and Shuen (1997), Hunt and Morgan (1995), except for the production-based capability-value offering path
Fahy, Hooley, Greenley, and Cadogan (2006), Morgan, Clark, (b0.015). Defined as the ratio between estimate and standard
and Gooner (2002), Griffith and Harvey (2001), Weerawardena errors, the critical values greater than 1.64 and 1.96 are
and O'Cass's (2004), Atuahene-Gima (1993), Vorhies et al. statistically significant at 90% and 95%. As such, the bootstrap
(1999), Vorhies and Morgan (2005), Cleveland et al. (1989) and critical ratios are of magnitudes above the acceptable benchmarks
Stanley et al. (1996). The second domain is value creation with for all the paths, except for production-based capability — value
the emphasis on value-in-offering perspective. Value offering offering. Overall, the results indicate that H1 and H2 were
was conceptualized and operationalized from prior work in the supported, whereas H3 was not supported.
value-creation literature by Mittal and Sheth (2001) and Vargo Given that the hypotheses were supported (except for H3), it
and Lusch (2004). Importantly, given acceptable convergent and was considered relevant to assess the magnitude of the
discriminant validities, the test of the structural model then relationships and test for any significant difference in the
constitutes a confirmatory assessment of nomological validity relationships of the constructs innovation-based capability (IC),
(Anderson & Gerbing, 1988). marketing-based capability (MC), and production-based cap-
ability (PC) with VO (value offering). To examine differences
5.2. Hypotheses testing we undertook to test the difference between the correlations of
IC–VO and MC–VO, which tests the difference between two
With respect to the predictive relevance of individual paths, non-independent correlations. To undertake this examination a
the strength and significance of individual paths were Hotelling–Williams test was undertaken, as it is recommended
computed, providing evidence for testing the proposed when comparing non-independent correlations that share a
hypotheses. The beta coefficients, t-values, individual variance variable (Steiger, 1980). The results of the tests indicate that the
due-to-path, along with R2 for each endogenous construct are difference between IC–VO and MC–VO was significant
reported in Table 3 as indices for predictive relevance of (t = 1.65). As such, while the effects of IC and MC on VO
individual paths. The predictive relevance of the structural were significant there is also a difference of the magnitude of
model was assessed via the average variance accounted for the relationships, with the IC–VO relationship being signifi-
(AVA). All indices were computed on the basis of 200 cantly stronger than the MC–VO relationship. Following the
bootstrapping runs (Chatelin, Vinzi, & Tenenhaus, 2002). same procedure, a test of differences was also undertaken for the
The focus here is on the inner model results where the constructs IC–VO and PC–VO, and MC–VO and PC–VO. The
hypothesized relationships between the latent variables speci- results of this test indicate that there are significant differences
fied as H1 to H3. Evaluation of the relationships was via in the magnitude of the correlations between these constructs [t
statistical results that attempt to explain the data, congruence (IC–VO & PC–VO) = 9.04; t (MC–VO & PC–VO) = 5.82].
with the hypotheses and precision. An examination of the These results combined with the tests of the hypotheses indicate
results for the hypotheses was undertaken via r2, average that IC and MC appear to be more strongly related to superior
variance accounted for (AVA), and regression weights and value offering.
bootstrap critical ratios (t-values) and path variance.
In Table 3, the AVA for the endogenous variables is of an 6. Discussion and implications
acceptable magnitude in the inner model at 0.55. Given the
strength of the paths associated with the constructs is acceptable a This study was conducted with the objective of shedding
reasonable criterion for evaluating their significance is the light on mechanisms by which firms seek to create value
absolute value of the product of the path coefficient and the offerings for their customers through operant resource-based
appropriate correlation coefficient (Falk & Miller, 1992). This capabilities. Our findings support the previously untested
produces an index of the variance in an endogenous variable central premise of a value-creation theory of the firm, where
explained by that particular path, where 1.5% (.015) of the operant resource-based capabilities drive value offerings for
variance is the recommended cut off point for acceptable path customers.
variance magnitudes. The paths in Table 2 exceed this criterion As indicated in Hypothesis 1, innovation-based capability
was hypothesized to have a positive effect on a firm's value
offering. The findings support this hypothesis, thus demon-
strating that from the firm's perspective, possessing higher
Table 3
Partial least squares results for hypothesized relationships
levels of capabilities pertaining to technical and non-technical
innovations enables firms to create superior value offering for
Predicted Predictor Path Variance due-to- Critical
variables variables weights path ratio
the customer with new performance attributes, innovative
experience environments for new co-creation experiences, and
H1 value Innovation-based 0.56 0.403 7.32
the like. Such superior tangible and intangible value offerings
offering capability
H2 Marketing-based 0.23 0.146 3.43 rest on distinctive capability in product and process innova-
capability tions. Taking the view that superior value created for customers
H3 Production-based 0.012 0.003 0.24 is analogous to superior performance, the findings are in line
capability with the proposition that innovation-based capability enables
AVA 0.55
firms to achieve superior performance as documented by
 L.V. Ngo, A. O'Cass / Industrial Marketing Management 38 (2009) 45–59 55

Damanpour and Evan (1984), Kimberly and Evanisko (1981), Third, our study provides new insights into the RBV
Weerawardena and O'Cass (2004), and Weerawardena et al. literature by developing a parsimonious scale for measuring
(2006). Importantly, the findings support a theoretical proposi- operant resource-based capabilities and assessing their differ-
tion that innovation-based capability is one of main contribu- ential effects on a firm's value offering. Specifically, our study
tors to the creation of value for customers (e.g. Slater, 1997; advances the measurement of firm capabilities by explicating
Slater & Narver, 1994; Webster, 1994). the concept of operant resource-based capability and position-
The findings also indicate that marketing-based capability has ing it within the service-centered dominant logic as suggested
a significant and positive effect on a firm's value offering, thus by Vargo and Lusch (2004), which articulates that value results
supporting Hypothesis 2. Possessing superior marketing-based from the beneficial application of operant resource (e.g.
capability appears to enable a firm to communicate, position, and knowledge and skills). Despite the considerable literature on
differentiate products and services against its competitors, thus building firm capabilities, there exists a lack of a thorough
enhancing its value offering for customers. Taking the view that theoretical understanding of capabilities (Day, 1994). Our work
superior value offering is aligned with superior performance, the on capabilities extends that by Day (1994) in two ways. First,
findings are consistent with previous empirical studies addressing we clarified the differences between resources and capabilities
a positive relationship between marketing-based capability and in the context of service-dominant logic. Second, we elaborated
firm performance as documented by Cooper and Kleinschmidt that organizational processes are the hallmark of capabilities
(1991), Vorhies and Morgan (2005), and Weerawardena and and they are aligned with coordinated patterns of behaviours.
O'Cass (2004). The findings also validate a theoretical proposi- We clearly identified these processes/behaviours as possession,
tion by Bisp (1999), Slater (1997), Slater and Narver (1994), and application, and utilization of resources which are implicitly
Webster (1994) that marketing-based capability is a contributor to reflected in the definition of capabilities by Day (1994, p.38) as
the creation of value for customers. “complex bundles of skills and accumulated knowledge,
Unexpectedly, no evidence was found to support Hypothesis exercised through organizational processes, that enable firms
3, which theorized that production-based capability has a to coordinate activities and make use of their assets.”
positive effect on value offering. This suggests that production- Specifically, we suggested that operant resource-based capabil-
based capability is not as important as innovation-based and ities, conceptualizing as a Type I second-order construct model
marketing-based capabilities in creating the value offering from reflecting the possession, application, and full utilization of
the firm's perception. The tests of the differences between the resources pertaining to functional activities (e.g. innovation,
magnitude of the relationships between operant resource-based marketing, and production) in creating superior value offering
capabilities and value offering indicate that innovation-based for the customer. The findings validate the conceptualization of
capability and marketing-based capability appear to be more an operant resource-based capability as having three facets:
strongly related to superior value offering. To some extent, this possession of, application of, and full utilization of resources,
finding corroborates a theoretical premise by Drucker (1954) thus providing a sound and reliable instrument for measuring
that marketing and innovation are the two key functions to capabilities to the emerging research on the service-centered
achieve a businesses primary purpose to create a customer, in dominant logic. This instrument will enable researchers to
which creating superior value offering for the customer is of assess the extent to which operant resources (e.g. knowledge
paramount importance. Importantly, this theoretical premise and skills) are embraced through a value-creation process.
was validated in the context of developing economy. In a Fourth, as far as the measurement instrument concerned, our
transitional economy like Vietnam, marketing and innovation study advances the notion of value by measuring value offering
appear to be prudent choices for the firm to create superior value for the customer from the management perceptions as a “value-
offerings for the customer. in-offering” perspective and linking this with operant resource-
Our study addresses a number of theoretical implications to the based capabilities. Value offerings through the eyes of the firm
marketing literature. First, the findings highlight the importance represent an essential outcome of the new dominant logic.
of operant resource-based capabilities as sources of creating Importantly, the findings were derived from the sound and
superior value offering for the customer. Specifically, the findings reliable measure of value offering, thus demonstrating a strong
lend empirical support to an untested proposition in value-based reflective second-order model fit of value offering with observed
competition theory suggested by Slater and Narver (1994) and data.
Srivastava, Fahey, and Christensen (2001) that a value offering Fifth, our study also extends RBV theory, which focuses on
comes from successfully exploiting core capabilities such as the firm capabilities — firm performance linkage, by advocat-
innovation-based and marketing-based capabilities. ing a theoretical conjecture that firm success is the result of
Second, in the context of capability-based competition creating superior value offerings for customers via operant
theory, Stalk, Evans, and Shulman (1992, p.62) proposed the resource-based capabilities. The findings echo and extend the
theoretical conjecture that “competitive success depends on theoretical contention of Vargo and Lusch (2004), by indicating
transforming a company's key processes into strategic capabil- that value results from the beneficial application of operant
ities that consistently provide superior value to the customer”. resource (e.g. knowledge and skills). Importantly, while past
Our study took this theoretical conjecture and validated it, by research has considered firm capabilities (e.g. innovation-based,
showing that the value offering was found to be contingent on marketing-based, and production-based capabilities) as a
operant resource-based capabilities (innovation and marketing). primary predictors of firm performance (e.g. Cleveland et al.,
56 L.V. Ngo, A. O'Cass / Industrial Marketing Management 38 (2009) 45–59

1989; Cooper & Kleinschmidt, 1991; Damanpour & Evan, although multiple mechanisms of value creation appear to
1984; Kimberly & Evanisko, 1981; Stanley et al., 1996; Vorhies complement each other or co-exist, one would be the dominant
& Morgan, 2005; Weerawardena & O'Cass, 2004), this study is mechanism over the others. The findings provide managers with
among the first to examine their impact on the firm's value an important implication that the degree of value offering is
offering to the customer utilizing a broader conception of highest with the innovation-based value-creation mechanism,
operant resource-based capabilities. second highest with the marketing-based value-creation mechan-
As such, new insights are provided into value creation, by ism, and lowest with production-based value-creation mechanism.
empirically supporting a proclamation that firms seeking to
maximize profits should increase value offerings created for 7. Limitations and future research directions
customers by investing in and nurturing operant resources-based
capabilities. Interestingly, it is suggested that the heterogeneity In moving forward with operant resource dominant logic
of operant resource-based capabilities might explain value research, we acknowledge a number of limitations with a view
offering differentials. Specifically, firms that strongly emphasize toward extending the present study. First, value offering
innovation-based capability as a dominant operant resource- pertaining to “values built in products by the firm” was chosen
based capability appear to create superior value for the customer as the measure of value offering to the customer, which in a more
compared to those emphasizing marketing-based capability as general sense may include “values perceived by customers”.
their dominant resource-based capability, while firms that Although value is created by the firm, it is determined in the
strongly focus on production-based capability create little for marketplace by customers, who place a set of demands on it for
the customer in terms of value creation. delivering specific value, through various aspects of the offering.
From the perspective of the empirical setting, this study As the value offering is multifaceted, future researchers could
extends the extant literature by testing and validating the resource- explore implications of business orientations and operant
based value-creation model utilizing data from Vietnam's resource-based capabilities on other aspects of value offering
emerging economy. The findings highlight the relevance of including “values perceived by customers”, “values of brands to
innovation and marketing in Vietnam's emerging economy, customers”, and “value of customers to the firm”. In particular,
indicating that Vietnam's medium and large companies are the use of brand equity and customer equity could help to extend
compelled to be innovative and marketing-oriented in efforts to the current findings and provide additional insights into the
achieve superior business success. Within the context of mechanisms of the value-creation process.
Vietnam's market environment policies have been instituted to Second, future research may explore the role of value creation
liberalize the economy. Taking such economic changes into and strategic postures adopted by the firms. In response to an
account it appears that those with higher levels of innovation and increasingly informed, sophisticated, and value-conscious global
marketing capabilities are reporting better performance than those customer, firms should be committed to value-creation strategies,
with a lower level of innovation and marketing capabilities. a strategic space that determines the nature and scope of a firm's
From managerial perspective, our study highlights important value-creation mechanism. Successful firms today can be
implications for managers in relation to the value-creation considered value-based enterprises converting operand and
processes. The findings validated the positive effect of operant operant resources into a chain of outputs valued by the customer.
resource-based capabilities on value offering, thus offering The study is also limited as it was designed as a cross-sectional
managers a practical implication that in the quest for building survey. Value creation can be a lengthy process and as such, use of
proposed value in their offerings, firms should invest in longitudinal studies should be considered in the future research.
developing operant resource-based capabilities in three key Regarding the empirical setting, this study was conducted in
functional areas (e.g. innovation, marketing, and production). one cultural setting, Vietnam, thus the ability to generalize the
Theoretically, the profile of value offering that encompasses findings beyond this empirical setting may be restricted. Although
attribute performance, pricing value, relationship building, and Vietnam shares many characteristics with other emerging
co-creation value enables managers to understand what economies (Hoskisson, Eden, Lau, & Wright, 2000), there
constitutes value and how to assess value in the context of the might be some idiosyncrasies that limit the generalizability of the
value-in-offering perspective. findings. As such, caution is warranted in attempting to generalize
Accordingly, managers should understand that while max- these findings to other settings (i.e., business environments).
imizing value offerings built in products and/or service as the Replications of this research should be conducted in the future
primary indicator of business success. The proposed value within different regions and different countries such as developed
offering scale constitutes an initial attempt towards developing a countries, where business culture and the way of doing business
comprehensive instrument for assessing value created by the firm might be different from that of developing countries. Cross-
for customers. In summary, managers are provided through the national research is desired to test the differences in the
findings of this study with three specific mechanisms of value- contribution of operant resource-based capabilities across cultural
creation processes including (1) innovation-based capability → contexts, thus indicating the extent to which the findings of this
value offering (the innovation-based value creation); (2) market- study can be generalized to other empirical settings. Replications
ing-based capability → value offering (the marketing-based value of this study in different empirical settings should render proper
creation); and (3) production-based capability → value offering qualifications to the findings of this study. It is also expected that
(the production-based value creation). Managers are advised that the match between theory and empirical findings presented in this
 L.V. Ngo, A. O'Cass / Industrial Marketing Management 38 (2009) 45–59 57

study gives confidence that similar findings will be found in other value offering. Creating synergy between operant resource-
empirical settings. based capabilities and value offering is vital in a firm's
movement toward a new dominant logic for marketing.
8. Conclusion

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