Among the difficulties that professional service firms (PSFs) need to face today literature highlights two main phenomena: 1. the supply of high complex services (usually with low volume) increasingly more variegated to meet clients preferences and needs: consequently the production process is not ‘fixed’ but rather ‘designed’ by the characteristics of the clients, which is increasingly more variegated, in order to adapt to differences in client preferences. Consequently, to calculate the cost of providing the services required by the clients, it is first necessary to identify the relationship between the activities carried out by the company and the individual services offered to the clients and then to calculate the cost of the services that the client uses. 2. the need to reconcile customization strategies with cost containment policies to increase efficiency: this is a particularly complex issues where the bigger share of cost is indirect. The understanding of the effects of cost management policies aimed at increasing company efficiency and effectiveness has been further advanced by process value analysis and business process reengineering: however, none of these approaches assumes a customer perspective, as costs analysis is still based on an internal rather than a customer-based assessment. Measuring costs in companies which provide heterogeneous and interrelated services is a difficult matter, especially because clients can consume many combinations of services; such issue cannot be simply solved by measuring the time that people take to carry out the various tasks, as some authors claim. Moreover, when value refers both to the service dimension and to the relational dimension (as in PSFs) traditional cost management tools provide little guidance about how to link firm costs to sale prices. These findings indicate the need to deepen our understanding of the cost side of value creation in service companies, in order to identify the links between the value a company creates for its customers and the related absorption of costs. In this vein, (marketing) literature provides a fundamental insight in recognizing that services are composed of attributes (also called service components) which are the true root of value-for-customer. This paper, based on a case study, draws upon previous research on value for customer and strategic cost management to investigate the link between PSF’ costs and pricing/value drivers through service attributes and to highlight the cost accounting system which can impede or facilitate the management of the cost-value relationship. The paper contributes to this emerging research stream by further disentangling the links between cost formation and value creation: the analysis: our analysis addresses these issues by focusing on the service components driving value-for-customer and establishes crucial nexuses between costs arising from service provision and value delivery to the different customers. Findings show that: 1. service components might become an object of cost calculation in PSFs 2. activity based costing system allows to accurately calculate the cost of the service components provided to the individual customers 3. it is possible to clearly identify the relationships between costs and customer value drivers

(2013). Pricing and costing in professional service firms . Retrieved from http://hdl.handle.net/10446/189351

Pricing and costing in professional service firms

Pilonato, Silvia
2013-01-01

Abstract

Among the difficulties that professional service firms (PSFs) need to face today literature highlights two main phenomena: 1. the supply of high complex services (usually with low volume) increasingly more variegated to meet clients preferences and needs: consequently the production process is not ‘fixed’ but rather ‘designed’ by the characteristics of the clients, which is increasingly more variegated, in order to adapt to differences in client preferences. Consequently, to calculate the cost of providing the services required by the clients, it is first necessary to identify the relationship between the activities carried out by the company and the individual services offered to the clients and then to calculate the cost of the services that the client uses. 2. the need to reconcile customization strategies with cost containment policies to increase efficiency: this is a particularly complex issues where the bigger share of cost is indirect. The understanding of the effects of cost management policies aimed at increasing company efficiency and effectiveness has been further advanced by process value analysis and business process reengineering: however, none of these approaches assumes a customer perspective, as costs analysis is still based on an internal rather than a customer-based assessment. Measuring costs in companies which provide heterogeneous and interrelated services is a difficult matter, especially because clients can consume many combinations of services; such issue cannot be simply solved by measuring the time that people take to carry out the various tasks, as some authors claim. Moreover, when value refers both to the service dimension and to the relational dimension (as in PSFs) traditional cost management tools provide little guidance about how to link firm costs to sale prices. These findings indicate the need to deepen our understanding of the cost side of value creation in service companies, in order to identify the links between the value a company creates for its customers and the related absorption of costs. In this vein, (marketing) literature provides a fundamental insight in recognizing that services are composed of attributes (also called service components) which are the true root of value-for-customer. This paper, based on a case study, draws upon previous research on value for customer and strategic cost management to investigate the link between PSF’ costs and pricing/value drivers through service attributes and to highlight the cost accounting system which can impede or facilitate the management of the cost-value relationship. The paper contributes to this emerging research stream by further disentangling the links between cost formation and value creation: the analysis: our analysis addresses these issues by focusing on the service components driving value-for-customer and establishes crucial nexuses between costs arising from service provision and value delivery to the different customers. Findings show that: 1. service components might become an object of cost calculation in PSFs 2. activity based costing system allows to accurately calculate the cost of the service components provided to the individual customers 3. it is possible to clearly identify the relationships between costs and customer value drivers
2013
Cugini, Antonella; Pilonato, Silvia
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