Service Coproduction with Information Stickiness and Incomplete Contracts: Implications for Consulting Services Design

Abstract

Drawing from three theoretical bases—“information stickiness” from the knowledge management literature, “service coproduction” from the service operations management literature, and “incomplete contract theory” from the transaction cost economics literature—we discuss a theoretical framework and develop models to study the efficiency of the service coproduction process in a knowledge‐intensive consulting environment. We apply, refine, and interpret these theories to determine how work should be allocated between the consultant and the client and the corresponding pricing under different contractual relationships that occur in this industry. We find that, with a pricing schedule that relates the fee adjustment to the self‐service level and one party's ownership of the residual right to specify the workload allocation, the client underinvests her efforts in the service coproduction process, whereas the consultant overinvests his efforts, resulting in an inefficient process. In addition, to improve overall process efficiency, we show that the more productive party should own the residual right to respecify the self‐service level when the final service need emerges. Our results, as well as interview data from experienced consultants, provide insights into the causes of inefficient service delivery processes and offer direction for achieving better efficiency through contract design and pricing schedules.