Table A2

Microfoundations enabling the dynamic capability to transform OC operational logistics

CategoryDefinitionCodeExample
Investment decision-makingThis category connects to the microfoundation decision-making protocols for investments (Teece, 2007) and investigates how and why the three different cases take investment decisionInvestment process
The investment process of large omnichannel logistics investments includes a lot of work evaluating and anchoring the decision
“To create a decision basis, a steering group was set up. There you have representatives from the different brands, logistics, IT and business development. IT is important to include because everything you have to do has some form of IT component or IT development” (Epsilon_PM)
“The investment decision itself then went up to Epsilon's board because it was such a big investment. Since it will be such a big transformation that will affect the whole of Epsilon, we have tried and succeeded well in getting stakeholders from the entire organization into the steering group“ (Epsilon_PM)
“Logistics does not make any decisions on its own when it comes to strategic investments. We can pursue an issue and investigate conditions and requirements. The decisions themselves, or the decision process, will occur in the various management groups that want to do this based on how they see the market and the growth” (Beta_OLog)
“It (the automation investment decision) was a very broad decision, broad and difficult. Part of the anchoring of this decision within the organization was the decision-making work itself that led to it; many key people had been involved in this work” (Gamma_Dig)
Scenario development
All logistics representatives highlighted the importance of establishing a joint scenario of online growth as a condition for investment decision
“[…] with the growth Epsilon had calculated for, online would have quite high growth, and now it has also turned out that it had even higher growth. So we saw that it would be difficult to manage it in future dark stores, but above all, since we had all these online picks in-store, Epsilon saw that we would hit the cap quite quickly in the stores” (Epsilon_PM)
“In the end, you have to decide and agree that this is the capacity we are building for. And then we are not just talking capacity in the form of annual volume or daily volume, but we are actually talking down to the hourly level. This is the capacity we can achieve. And how we have come up with this is that we have taken the daily situation at some point and looked at: what does it look like now, what do we think about growth, not just volume, but what do we think about growth in the form of assortment and customer orders. You have to create a common view of what you think about the transformation and agree on certain issues, such as will customer orders look the same in 5 years as they do now or will they be larger or smaller” (Epsilon_Log)
“For the really big investments, if you think e.g. automated picking, you have to agree on the common goal picture before you invest the money required” (Beta_ToP)
“We basically outlined the curves for online growth and we then had a hypothesis of how big this would be in the future. With that scenario of future needs, we understood that we needed a fundamental transformation of our capabilities, both IT to customer, IT in fulfillment and the logistics connected to it” (Gamma_Dig)
Loyalty and commitmentThis category connects to the microfoundation building loyalty and commitment (Teece, 2007) and analyzes how the cases work with this. Online represent small share of total share of total sales but drives high investment costs, which makes the task more challengingTop management support and leadership capabilities
A recurring theme in literature and highlighted as crucial among our cases
“It is very much about organizational structure and organizational culture. It takes hard work to get everyone on the same train at a stage like this when Beta has a digitalization that needs to take place. Furthermore, it is important to have very strong leadership with a clear picture of coordination, and that always has the right perspective. That's where you get the culture” (Beta_HoO)
“We have had a good board as well, which gives us room to venture new opportunities. At Epsilon, we have a majority owner, which decides most at the board. Then you can get this continuity and maybe dare to make more bold decisions because the owner is a little more long term” (Epsilon_PM)
“They (the omnichannel program) have really tried to create a community in the program: that the brands have been involved from the beginning, that there is transparency and trust, and it is clear whose responsibilities it is. This can be a bit challenging for new things like this so it has been very important” (Epsilon_PM)
  Anchoring decisions in organization
All cases emphasize the importance of anchoring the investment decisions in the organization by including all affected units
“Especially since Epsilon's structure is that we are a house of brands and that this (omnichannel) will affect how each brand works. There will be new processes, and you need to train each unit; it's not just within the logistics organization. So it is important to explain why we do this, that it is not only that we will be more efficient, but that we also have to do it based on lack of capacity and competitiveness” (Epsilon_PM)
“When you make an investment decision, such as investing in a new online platform, you start from the overall decision of where the company is going. These initiatives are then created based on decision material from the various business areas concerned and go up to the board for final decision. The board has representation from the associations, which means that you then have that anchoring through the board” (Beta_HoO)
“The reference groups are also important for disseminating information about the project in the organization. The members from the brands pass on information from various steering group meetings to their organizations” (Epsilon_PM)
Joint vision and strategy across company
The joint vision and strategy for omnichannel across company are identified as keys to successful transformation. Gamma and Epsilon are stronger than Beta
“We are definitely not far apart, it's just that you have to say it together, you have to build a joint base to be able to make decisions. Then, once the decisions are made, you have to start speaking the same language and so on” (Beta_ToP)
“Once you have set the strategy, building a production that supports it will not be as complex. If you have a strategy ‘this is where we are going’ and clarity, then the road there will be less complicated” (Beta_OLog)
“The digital customer meeting is one of Epsilon's strategically most important areas, and there is a joint strategy, which makes all units work toward the same goal” (Epsilon_Dig)
Governance and ownershipGovernance, incentives and ownership are part of the microfoundation governance (2007), often underrepresented in research on dynamic capabilities in logisticsIncentive alignment and P&L responsibility
This code analyzes how the cases share costs and profit across store and online
“The customer associations are the ones that actually have the P&L responsibility and are responsible for the operations. Online can therefore not, on its own initiative, more than perhaps based on a strategy, pursue these issues (online development) without agreement from the associations. The associations have input from the local activities, and then online can start the development” (Beta_HoO)
“This also requires a clear strategy for the entire organization. It also requires a clear goal picture of what you want with the journey (year by year), clear incentives and a joint structural follow-up linked to goals and incentives. The entire organization (associations and centrally) must plan and run online together. Basically, there are many joint points where the different associations agree, but online is new and there are today different views on whether/how to run online from a store perspective or from a central perspective. You have to go back and think about how the organization as a whole wants to operate online” (Beta_OLog)
“When the automated OFC will be implemented and up and running, deliveries will go both to the store and home, depending on what the customer wants. The stores simply buy this service from the OFC and decide prices against the customer. This is in line with how our governance model works” (Gamma_Dig)
We have a solution that can work. And of course, it is not optimal for the central warehouse, it is not something they want to do, but it is an example that we must jointly try to solve something. It should be good for everyone somewhere. We all belong to the same wallet” (Gamma_OFC)
  Ownership structure
All cases represent different ownership structures, which creates different challenges and advantages
“Our ownership structure means that we are run by the customer associations. This means that we may have slightly different challenges compared to some competitors. Beta is owned by the cooperative association and has a number of different associations with different CEOs around the country, who all want to make their mark on their business. […] They talk to their members, it is the members who own the customer association and that association then owns part of Beta. There are pros and cons to that” (Beta_ToP)
“I think our model helps Gamma to work with the right things. There are a lot of stores that work with online, and they challenge Gamma centrally in various decisions. The decisions may require a little more discussion, but there will also be a little better decisions; the dynamics of the model sharpen all parties more. Gamma must always bring the stores with them and since the stores have a different type of competence and a different understanding of the business, they can challenge the decisions” (Gamma_Dig)
“I feel that there is consensus within Gamma about what role online should play and where you want to go with online. Then it is extremely complex with our store structure, the individual store owners, and what they want. They are self-employed and make their own decisions, and they do not need to join Gamma's central online channel. But I think there is a joint view of where we want to take this; we want to drive volume and take market shares, that's what it's about. Once you have decided to go with the large investment in the automation solution, you have also made a decision about which path to choose” (Gamma_OFC)
IntegrationThis category corresponds to near decomposability and integration/coordination (Teece, 2007), often recurring in previous research on dynamic capabilities in logisticsIntegration between logistics and other business functions
The first code identified refers to the internal integration and coordination between logistics and other business functions (marketing, business development, etc.) as a part of omnichannel development. Gamma and Epsilon are stronger here
“In traditional retail flows to the store, we have had a very clear role; we take care of the back-end, we do not meet the end-customer. Logistics' role has been very supportive. Now, we are more a part of the customer meeting, which makes it quite important how we act all the way out in delivering the goods. So it will be much more involvement between the brands and the logistics organization” (Epsilon_Log)
“The silo idea that we previously had regarding the sales channels, which they had been quite far apart, did not have coordination and did not have a set strategy from the customer perspective, it is the same between the different business areas. So we are not where we would like to be when it comes to the end-to-end process between purchasing and the category organization, the marketing organization, the sales organization, digital, online, etc. and that it is a huge challenge” (Beta_HoO)
“It is extremely important to work closely together and to create an understanding of the various processes that need to take place. Marketing cannot reflect something that logistics cannot deliver and they need to understand logistics operations. In the same way, logistics must understand what needs to be built up to be able to deliver omni” (Beta_OLog)
Integration between online and established logistics, joint management of logistics
The second code identified refers to the increasing collaboration and integration between online and established logistics to improve efficiency and economies of scale
“This (ODC) is a large logistics center, we perform all types of tasks to supply our customers, regardless of whether it is a store or a consumer on the online side. If you have previously worked with supply to stores, you must now also understand online and think that it is the complete logistics solution that applies now. The logistics organization must think holistically here. Otherwise, we will not get the economies of scale and the effects of this investment” (Epsilon_ODC)
“This type of collaboration (between store and online logistics) has become easier now that you belong to the same organization. I do not think there is any resistance in helping each other. I think more, in the past, that it was about understanding – that store logistics did not really understand online” (Gamma_OFC)
Co-specializationCo-specialization (Teece, 2007) among our cases builds on the increased integration and cross-functional collaborationsCreating value based on increased integration between business units
First, our cases create co-specialized value by increasingly collaborate across business unit often toward customer. Gamma and Epsilon are stronger
“That those who work in logistics can see beyond efficiency and that those who drive business development can understand the complexity their work creates. Business development and logistics must work together to make the service being good enough for the customer but at the same time efficient enough for Gamma to not disrupt the calculation” (Gamma_Dig)
“It is crucial to include IT and logistics already in the development phase. Gamma has therefore established structures to promote cross-functional collaboration with, e.g. regular meetings and a “sponsor forum” where the chief strategy and digital officer, head of logistics and head of IT meet regularly” (Gamma_Dig)
“It can be a battle internally sometimes, with different driving forces from both logistics and marketing. Based on given capacity and behavior, logistics can sometimes say that: “Now we are making larger windows for this to be efficient and cost-driven at all.” The logistics and the brand concerned then sit down and agree on which way forward to choose. It's not always just one big cloud of demands that comes our way, it's actually a collaboration to find the right way forward” (Epsilon_Log)
“The (omnichannel) program has lots of different reference groups where we capture the different parts. There, the logistics organization can present how they design the ODC, get input if something new has happened and what the various representatives see going forward. The logistics organization can then take these important inputs back to the drawing board to see how they can be managed in the solution” (Epsilon_ODC)
With automation partner
Gamma and Epsilon also co-specialize with their automation partner by designing and adapting a solution to their specific idiosyncrasies
“We have had much help from having an expert to brainstorm ideas with. The provider comes up with proposals that we review to see if we understand how it could work in reality. We have an interactive process that works well, and together, we then come up with a solution that on the drawing board will work” (Epsilon_PM)
“It has been an integrated process, but the automation solution is still fundamentally based on provider's solution; it has been the footprint for everything” (Gamma_PM)
“Gamma will gain major economies of scale as our automation partner will operate around ten such facilities in the near future. Gamma will therefore have lots of synergies. Our partner will be able to have a completely different type of monitoring of the systems than what we could manage to have on our own” (Gamma_Dig)
Learning and knowledge managementThe category, learning and knowledge management (Teece, 2007) is well established in logistics researchContinuously learning
A theme highlighted by previous research that all our cases work with as part of the transformation
“We work with daily management, information and improvement meetings where employees are involved and can influence decisions. When there are changes, you involve those who are affected and discuss: how can this be done in the best way in our production, how do they want to do it and what support will be needed to succeed” (Beta_OLog)
“We have gaps in both behavior and competence that we need to close. The best we can do is train our existing staff because then we can bring a lot of what we are good at today with us to the new structure” (Epsilon_Log)
“In the project, we work a lot with “train the trainer.” it is about identifying key people early on who receive training and who become ambassadors in their organizations. These people will work in different parts (of the ODC) and will then have been involved for a long time and tested the solution, regardless of whether it is automation or our transport solution” (Epsilon_PM)
  From automation partner
For Gamma and Epsilon, we identified learning from automation partner as an important aspect
“We have felt somewhere that we need to connect with the best in the world on this in order to access their knowledge” (Gamma_Dig)
“It is okay to discuss things and both are open to asking for help. Both parties can say ‘we cannot do this, but we will solve it if we help each other we will solve it’” (Epsilon_PM)
Learning between online and established logistics
A type of learning important for the omnichannel transformation that we identified among all our cases was the mutual learning between online and established logistics
“A large part (of OFC improvement work) has been a transfer of responsibility to clarify leadership. The goal of the relocation and reorganization is to give those who, for example, work in the OFC more responsibility for the processes and efficiency work. Logistics has built more of a warehouse structure in the organization and distributed responsibilities further down to drive employeeship, responsibility and quality. With that kind of responsibility also comes efficiency improvements” (Beta_ToP)
“Logistics skills were in demand when we took over the OFC and I feel that we have really contributed positively with the experiences that logistics brought with us. Online and OFC have been something of a start-up for Beta, but it's not that, it's logistics – take an order, pick it up and deliver it in a rational way” (Beta_ToP)
“There is a very big difference working with online logistics in the new OFC versus how Gamma works in the established DCs that deliver to stores” (Gamma_PM)
“We have weekly meetings so that the logistics department (responsible for the future OFC operations and recruitment), understands what they need to recruit, what the profiles are and when and how we involve new employees in the project and educate them” (Gamma_PM)

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