When Customers Push Back: The Dangers of Service Divestment and How to Avoid Them

[We’re pleased to welcome authors Christina M. Haenel of the University of Goettingen, Hauke A. Wetzel of Massey University, and Maik Hammerschmidt of the University of Goettingen. They recently published an article in Journal of Service Research entitled “The Perils of Service Contract Divestment: When and Why Customers Seek Revenge and How It Can Be Attenuated,” which is currently free to read for a limited time. Below, they reflect on this research:]

Divesting from unprofitable customers is a widely-established practice in many service industries. Service providers often demote (i.e., they cut back services) or terminate customer service contracts (i.e, they end service provision). The idea is that investing less in unprofitable customer relationships saves costs and enhances firm profitability.

Our recent study forthcoming in Journal of Service Research shows, however, that such practices may severely harm future business. In particular, service contract demotion and termination trigger customer revenge, including aggressive behaviors towards employees, negative word-of-mouth, and third-party complaining for negative publicity.

The good news for service providers who rely on divestment practices is that customer revenge depends on the divestment practice and the targeted customers. Customer revenge is much less likely if customers implicitly agree with the service provider’s initiative. Unsatisfied customers are less likely to become angry and take revenge when their contracts are terminated than when they are demoted. For satisfied customers it is the other way around. Thus, when service providers wish to divest from specific relationships, they should terminate unsatisfied customers’ contracts but they should demote satisfied customers’ contracts.
For many service providers our findings may come as a surprise as terminating service contracts is generally viewed as a last resort. Drawing an analogy to romantic relationships (that many of us may have experienced themselves) helps to understand the findings: It can be very relieving if an unhappy relationship is ended, whereas we prefer to get a second chance if we value a relationship.

Our study offers another counterintuitive finding. Offering financial compensation or an apology turn out to be double-edged swords that can serve to remedy customer revenge after experiencing service divestment—or reinforce it. It is best to offer financial compensation or apology only to “turn around” customers who implicitly disagree with the service provider’s divestment choice and are likely to take revenge (i.e., if satisfied customers’ relationships are terminated or if unsatisfied customers’ relationships are demoted). It does not make a difference whether financial compensation or an apology are offered. This is an interesting finding in itself as offering an apology is a much cheaper option.

Overall, we contend that for service divestment initiatives to minimize customer revenge, the customer’s perspective on the relationship should be accounted for. If the firm’s chosen divestment approach aligns with the customer’s take on the relationship, service providers may well adopt service divestment practices without fueling customer rage.

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Life Principles for Systemic Change

[We’re pleased to welcome authors Sandra Waddock of Boston College and Petra Kuenkel of the Collective Leadership Institute. They recently published an article in Organization & Environment entitled “What Gives Life to Large System Change?,” which is currently free to read for a limited time. Below, they reflect on the motivations and innovations of their research:]

As scientists issue ever more frightening reports on the impact of climate change on human civilization, and as the implications of growing inequality become increasingly evident, it has become increasingly clear to us that systemic transformation is needed. Though a great deal has been written about the need for transformational change, we observed that few studies focused on the underlying principles that make systems function effectively—or do what we call ‘giving life’ to the system. Reflecting on the Stockholm Resilience Centre’s ideas about the risks associated with transgressing planetary boundaries, we believe many people and particularly the change agents among us need to take ‘deliberate, integral, and adaptive steps’ to reduce humanity’s impacts on the planet.

In seeking principles for our paper in Organization and the Natural Environment, ‘What Gives Life to Systems Change,’ we drew on a wide range of sources, from architecture, urban planning, biology, enlivenment, appreciative inquiry, systems thinking, resilience theory, complexity theory, physics, and regenerative capitalism, to name a few sources. We were determined to draw out and synthesize the common elements—the core principles—that enhance the flourishing of living and human systems. Ultimately, we concluded that six principles are vital to providing what architect Christopher Alexander in developing pattern language called the ‘quality without a name,’ and we call ‘what gives life.’

One principle is purpose—or what we label intentional generativity, that is. the urge that all living systems have to continue into the future (at the most minimal level, to survive). A second principle is that of connectedness or, more technically, contextual interconnectedness with requisite diversity, which argues from new understandings in ecology, biology, and quantum physics that living systems are integrally interconnected, and also that healthy living systems require diversity so they do not depend on any one species or element for their flourishing.

Another principle—and they are presented in no particular order—is that of boundedness or permeable containment. The idea here is that living systems have some sort of boundary that provides identity, and a form of permeable barrier that allows for new energetic inputs and the removal of waste to keep the system healthy. Emergent novelty is a fourth principle, and is based on the idea that flourishing living systems are constantly changing, that is, becoming new in some way, in creative processes of emergence. Living systems cannot be fragmented or they lose the character of life. Therefore, and must be considered as wholes, so the fifth principle is =mutually enhancing wholeness (or wholeness). The sixth principle, following Maturana and Varela, is that of proprioceptive consciousness (or simply consciousness). Consciousness argues that all living systems have a cognitive aspect and that the property of having life involves a degree of mental or learning activity.

Many details and implications are in the whole article, which we urge both change agents and scholars in management to read. As we think about these principles, we urge scholars, designers, urban and other planners, and change agents to carefully weigh the importance of these principles as they think about designing tomorrow’s societies, organizations, and communities.

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How to manage the unmanageable – or how leaders can tap into the self-organized communities in their organizations

[We’re pleased to welcome authors Benjamin Schulte, Florian Andresen, and Hans Koller of Helmut-Schmidt-University–University of the Federal Armed Forces. They recently published an article in the Journal of Leadership and Organizational Studies entitled “Exploring the Embeddedness of an Informal Community of Practice Within a Formal Organizational Context: A Case Study in the German Military,” which is currently free to read for a limited time. Below, they recount the motivations and innovations of this research.]

What motivated you to pursue this research?

Right from the outset of our research project on communities of practice (CoPs) within the German Federal Armed Forces, the question of how self-organizing communities interrelate and coexist with the hierarchy of a military organization caught our attention.

Armed forces, in general, face numerous challenges such as rapid technological advancements and emerging threats such as cyber warfare to which they need to adapt their internal processes and resources quickly. Thus they – much like contemporary business organizations – are compelled to become more adaptive to an ever more complex and unpredictable environment. The armed forces, however, remain mostly structured around bureaucratic principles with an emphasis on standardization, alignment, and control, which usually result in tendencies towards organizational inertia.

Embedding communities of practice in such an organizational setting thus creates a complex situation. CoPs, on the one hand, drive local innovation, whereas the formal organizational hierarchy ensures overall stability and efficiency. Moreover, communities require autonomy to break away from existant paths but simultaneously need to be coupled to the formal system as otherwise, they might produce local change at the expense of overall organizational fragmentation.

Given this, the armed forces offered us an unique research setting to explore how (military) leaders navigate this tension between self-organizing CoPs and formal systems and embed these two contradictory elements for organizational adaptability.

What has been the most challenging aspect of conducting your research

Given that CoPs are part of the informal organization, and therefore, organic they do not appear on organization charts and are often unknown to upper echelon managers. Besides this, we decided to explore our research questions inductively employing qualitative methods. In light of this, a significant challenge was to discover interesting empirical cases for our study in the first place. Hence we had to work our way through the hierarchy down to the frontlines until we found fruitful areas to research. Yet, our efforts were rewarded as we received hints towards several community-like structures evolving at the organizational outskirts, one of which we investigated in detail for the study at hand.

Were there any surprising findings?

During our investigations, we did not only found various leadership practices that together enabled and embedded the community dynamics, but we also discovered that the observed CoP was able to generate new resources, which allow the organization to better resonate with environmental changes.

What is the most important/ influential piece of scholarship you’ve read in the last year?

Based on our empirical findings obtained from the armed forces we developed a grounded model about how leadership works at the interface between CoP and formal system. In explaining this model we draw and build on the thoughts from Mary Uhl-Bien about complexity leadership theory. Thus, one could say that Uhl-Bien and Arena’s 2018 article “Leadership for organizational adaptability: A theoretical synthesis and integrative framework” profoundly influenced our thinking about leadership in complex organizations.

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An Investigation of Nonbeneficiary Reactions to Discretionary Preferential Treatments

[We’re pleased to welcome authors Kimmy Wa Chan of Hong Kong Baptist University, Chi Kin (Bennett) Yim of the University of Hong Kong, and Taeshik Gong of Hanyang University ERICA. They recently published an article in Journal of Service Research entitled “An Investigation of Nonbeneficiary Reactions to Discretionary Preferential Treatments,” which is currently free to read. Below, they reflect on this research:]

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Some service firms, particularly those in the hospitality industry, have resorted to explore less structured preferential treatments, in addition to traditional loyalty programs. The most famous example being The Ritz-Carlton who gives its staff the discretion to spend up to US$2,000 for offering free treats or room upgrades to selected guests, without any approval from a supervisor. Offering discretionary preferential treatments (DPTs) could be an effective customer relationship management tool because they are not granted based on contractual and publicly stated policies, thus will not become firms’ ongoing obligations. Doing so also stimulates a feeling of being special because it encourages decision flexibility by frontline employees to offer unexpected, surprise benefits, above and beyond the core services. Yet, service managers need to evaluate DPTs on their ability to stimulate positive effects among beneficiaries while still preventing negative reactions of nonbeneficiaries. Particularly, they are advised to apply their understanding of nonbeneficiaries’ psychology when implementing DPTs.

Our study offer some important insights on how nonbeneficiaries react to witnessing DPTs in order to help service companies manage the offering of DPTs effectively. For example, to avoid nonbeneficiaries’ feelings that they are treated badly, employees could help nonbeneficiaries understand why the DPT was granted in order to enhance the perceived deservedness of beneficiaries. This research also suggests that nonbeneficiaries who have strong relationships with the firms might react more negatively to witnessing DPTs that are offered on a one-off basis. We are not asking firms to restrain from strengthening relationships with their customers. Instead, employees may be trained to identify those frequent customers and only offered DPTs when they could be offered on a continuous basis. Moreover, a DPT perceived to have high continuity creates a hopeful pathway for nonbeneficiaries to achieve similar treatments in the future. Firms should make their DPTs available for a longer period or framing them accordingly to induce more hope among nonbeneficiaries. Better yet, firms may help nonbeneficiaries to see not receiving the preferential treatment as a challenge rather than threat. Service firms could also offer multiple and smaller or more accessible goals, e.g., granting DPTs based on a multitude of reasons such as being a regular customer, being nice or polite, etc. Findings from this research emphasize that implementing DPTs requires close monitoring to avoid too much autonomy of the employees in turning DPTs into sweethearting behaviors. Firms still need to provide employees with general guidelines for whom they prefer to target with DPTs. Finally, firms can leverage database technology to provide employees with an easy access to customer information for granting customized DPTs to targeted customers.

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The Cascade Effect of a Workplace Struggle Against Neoliberal Hegemony

[We’re pleased to welcome authors Florence Palpacuer and Amélie Seignour of the University of Montpellier. They recently published an article in the Journal of Management Inquiry entitled “Resisting Via Hybrid Spaces: The Cascade Effect of a Workplace Struggle Against Neoliberal Hegemony” which is currently free to read for a limited time. Below, they reflect on the motivations for this research:]

JMI_72ppiRGB_powerpointWhat motivated you to pursue this research?

Certainly, the trigger for this research was the huge media crisis happening in France in the winter of 2010, about a series of employees’ suicides at France Telecom: management practices all of a sudden became a daily topic of debate among a broad variety of stakeholders, from political parties to major corporate leaders, union representatives, religious organizations, and observers of various kinds: everybody had an opinion!

We quickly observed that France Telecom epitomized the kind of restructuring we had studied in other large multinationals in the country, prompted by financialization and deeply undermining the social values and solidarities that had formed the ethics and social unity of these companies.

Looking deeper, we discovered a vibrant, innovative social movement stemming from within the firm to question the role of business in society and the living conditions it offered at the workplace. We were quite fascinated and decided to further investigate this movement.

What has been the most challenging aspect of conducting your research? Were there any surprising findings?

Indeed, we were amazed to discover this incredibly rich and inspired social movement cutting across the firm, civil society, and later on, the State, to turn the issue of work pressure and work organization into a political question, to make visible the suffering of workers who were deprived of their work ethics and identity, and to launch effective policies and actions to transform management practices.

A key challenge for us was to answer the “so what” question in academic terms. We were deeply immersed into the case, and the case itself had such strong resonance with broader transformations of French capitalism, the world of work, and civil society debates, that we believed the case was self-explanatory…well, it wasn’t!

This “so what” question forced us to theorize the case, to go beyond the building up of the story – already quite an intense exercise given the multi-level and multi-actor set up of the case – and to come up eventually with our neo-Gramscian take on the ‘hybrid space’.

In what ways is your research innovative, and how do you think it will impact the field?

The neo-Gramscian hybrid space is a very promising tool to explore the kind of social-political transformation we need to see happening in corporations and the economy, if we are to answer the social and environmental challenges of our times.

This framework highlights the key role of movements spanning across the firm, civil society, and the State, in the capacity of resisters to produce lasting changes in the hegemony. We show that change agents should act together both from within and beyond their institutional roles, in order to share and generate new forms of knowledge, resources and actions that will give them a transformative capacity.

We hope that this rich story of resistance, and its conceptual rendering, will inspire others to research and promote such transformations.

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Integrating Experience-Based and Practice-Based Perspectives on Value Co-Creation in Collective Consumption Contexts

[We’re pleased to welcome authors Carol Kelleher of Cork University, Hugh N. Wilson of the University of Warwick, Emma K. Macdonald of the University of Warwick, and Joe Peppard of MIT. They recently published an article in Journal of Service Research entitled “The Score Is Not the Music: Integrating Experience and Practice Perspectives on Value Co-Creation in Collective Consumption Contexts,” which is currently free to read for a limited time. Below, they reflect on this research:]

What motivated you to pursue this research?

Three interrelated and enduring research questions motivated this study as well as my other studies on collective consumption: 1) what is the individual experience of the collective? 2) what is the collective experience of the individual? and 3) how do they impact each other?
In many service settings, such as when attending a live orchestral music performance, the value that a customer derives from the experience depends on their interactions not just with service employees (such as when buying tickets, being ushered to a seat, or when hearing the music played by the musicians) but also from interactions with other customers in the service environment (such as others in the audience who sit together – in silence or not – to enjoy the musicians’ playing). We label these collective consumption contexts. Other examples, which have their own ‘rules of behaviour’, include spectator sports, choral singing, slimming clubs and orienteering, and examples in the online world include multi-player gaming and peer-to-peer IT support.

A key challenge for service managers in these contexts is to understand how customers coordinate with each other, particularly when there is variation in customers’ skill levels. Despite the difficulty, it is ultimately the service provider’s responsibility to ensure that the service experience is optimised for all customers irrespective of individual variation, lest it detract from the value that customers perceive.

What has been the most challenging aspect of conducting your research? Were there any surprising findings?

To address this challenging managerial issue, I conducted a six-month immersive study with the London Symphony Orchestra (LSO), a world leading orchestra, as part of my PhD. At the time, the LSO had a strong understanding of its core customers but did not know why 70% of first-time attendees failed to return. The problem did not appear to be pricing, as discounting a second visit did not improve return rates. Rather, this study’s findings resulted in the recognition that a key problem was how to support social learning.

In what ways is your research innovative, and how do you think it will impact the field?

An overarching implication for service managers is that they need to anticipate potential barriers to value co-creation that can arise from differences in customers’ prior learning. Immersive customer insight is needed to identify whether individual customers are able to learn the accepted ways of behaving, what barriers exist to this social learning, and where more expert customers will be only too happy to help less experienced peers. Service organizations can then design ways to facilitate social learning between novices and experts so as to optimize value for all.

What advice would you give to new scholars and incoming researchers in this particular field of study?

First, study and research what you are passionate about – this will be your energy source. You will always have a smile on your face, continue to be surprised and never be bored.

Second, research and scholarship is a shared social construction within the community of practice of experts and novices to – be generous and give generously. We need to appreciate the opportunity and responsibility to sustain such communities, assist junior or novice scholars and, each in our own way, leverage our shared endeavors to contribute to the greater good.

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Organization Studies Special Issue on Family Business

[Editor’s Note: We’re pleased to welcome Trish Reay, Editor-in-Chief, Organization Studies]

Organization Studies has just published a Special Issue on Family Business. I invite everyone to download and read this interesting and engaging set of articles about family-controlled firms. Many people don’t know that family firms are the most widespread form of business organization, but it’s true!  In addition, the dynamics between a controlling family and other aspects of the organization reveal many opportunities for interesting research. Articles in this special issue of Organization Studies address the following topics:

  • Cultural reproduction and status maintenance in Japanese family firms,
  • Institutional pressures and corporate philanthropy in China
  • Family firm identity maintenance by non-family members
  • Institutional preservation work at a family business in crisis

The guest editors (Carlo Salvato, Francesco Chirico, Leif Melin and David Seidl) provide an excellent overview and introduction to the Special Issue.  All articles are free to download for a limited period of time. I encourage everyone to check them out.

Below is a list of the fascinating articles in this issue: