N o RD 2004 N o RD 2004 Bo Edvardsson & Tore Strandvik (2004): Critical Phases in Customer Relationships Critical Phases in Customer Relationships Bo Edvardsson

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Bo Edvardsson & Tore Strandvik (2004): Critical Phases in Customer Relationships

Critical Phases Critical Phases in in

Customer RelationshipsCustomer Relationships

Bo Edvardsson & Tore StrandvikBo Edvardsson & Tore Strandvik

Presentation at AMA Doctoral Consortium, Miami October 28th 2004

Bo Edvardsson is professor, Service Research Center (CTF), University of Karlstad, Sweden

Tore Strandvik is professor, CERS Centre for Relationship Marketing and Service Management, HANKEN Swedish School of Economics and Business Administration,Helsinki, Finland

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Traditional CI definitionTraditional CI definition

“ A critical incident is one that contributesto or detracts from the general aim of the activity in a significant way. We define criticalincidents as specific interactions betweencustomers and service firm employees thatare especially satisfying or especially dissatisfying.Hence, not all service incidents were classified,only those that customers found memorablebecause they were particularly satisfying ordissatisfying” Bitner, Booms and Tetreault 1990, p. 73

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Another traditional CI definitionAnother traditional CI definition

“ For an incident to be defined as critical,the requirement is that it can be describedin detail and that it deviates significantly,either positively or negatively, from what isnormal or expected. In this study we consideronly negative critical incidents, i.e. customerencounters that do not proceed normally butcreate friction, irritation and dissatisfaction.” Edvardsson 1991, p. 3

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History of our studyHistory of our study

Background

Critical incident studies (exploring criticality)

”Directive Incidents” = incidents changing the directionof a relationship

”Critical Phases” = period of time with increased sensitivityin the business relationship that may changethe actors’ attitude and/or behaviour in therelationship

2000

2002

2004

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” ...a need for a redefinition of the concept”critical incident”. As these incidents mayredirect and affect the future evolution ofa customer relationship, it might be morerelevant to use the concept ’directive incident’to depict the function these incidents have onthe relationship. Directive incidents would represent ... turning points in the relationship”

Directive Incidents?Directive Incidents?

Edvardsson and Strandvik 2000

Background

Turning points, breaking points, inflection points,very critical critical incidents ... is what we arelooking for

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The aim is to explore the contents and drivers of criticalphases in business-to-business relationships

We take a customer management view thus we areinterested in understanding customer perceptions ofthe relationship and customer behaviour related to therelationship

Two explorative studies: IT consultants and Advertising agencies. A small number of cases but focused datacollection considering contextual and dynamic aspects.

Aim of the studyAim of the study

Background

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Better insight into what kind of situations,factors and processes that lead to changes in customer relationships.This would give an understanding of the roots of relationship dynamics.

Instead of structural and cause-effect models we envision process models, consideration of configurations, systems. A different way of seeing and depicting compared totraditional research concerning business relationship dynamics.

Managerially implications would be increased effeciencyin listening to the other party and managing own activitiesand resources.

Motivation for the study and potential outcomeMotivation for the study and potential outcome

Background

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Only the buyer is interviewed about the critical phase.In a business relationship, however, both parties areactive and may have diverging perceptions.

Bias because of the retrospective view. Things may notbe recalled as they happened but are (re-)constructed.On the other hand, this interpretation is present in thebuyer’s mind and is thus the ”interpretation-in-use”.

Delimitations and limitationsDelimitations and limitations

Background

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Early impulses directing our workEarly impulses directing our work

Making fuzzy expectations precise, implicit expectations explicit, andunrealistic expectations realistic, facilitates long-term quality and customer satisfaction in professional services. (Ojasalo 2001)

The ending process (of a business relationship) is always bothtemporally and contextually embedded and to a significant degreeactor-driven: a picture of idiosyncrasy rather than deterministicdevelopment. (Halinen and Tähtinen 2002)

Incidents that traditionally would be defined as critical are notcritical for the customer relationship. Still there were cognitiveeffects and word-of-mouth effects. As these incidents are rememberedthey may accumulate over time and may be combined with similaror different observations leading to a reaction on the relationshiplevel. (Edvardsson and Strandvik 2000)

Framework

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Inspiration for our thinkingInspiration for our thinking

”Precipitating events bring change to the existing relationship andfunction as impulses for the parties to take actions to end theirrelationship. These events may be sudden and dramatic or partof a series of events creating pressure for relationship change.Precipitating events occur during the relationship and even duringits ending process and are perceived by the managers as reasonsto act towards its termination” (Halinen and Tähtinen 2002)

”In the proposed model (of relationship ending) we have suggestedthat different factors in varying combinations influence the endingprocess. Managers’ interpretations of these factors and subsequentactions and decisions concerning the relationship are crucial forits future development. Depending on the history of the relationshipand on managers’ interpretations of its current situation as well asfuture potentials, the ending process is likely to vary in terms ofits stages. ... Thus it is highly probable that every process ofrelationship ending is somewhat unique”. (Halinen and Tähtinen 2002)

Framework

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More current inspirationMore current inspiration

Tikkanen and Alajoutsijärvi 2002: a need for contextual viewof customer satisfaction and relationship dynamics

Flint et al. 2002: changes in Customers’ Desired Value (=expectations) are contextually driven and related to tension perceived in the relationship

Holmlund 1997, 2004: different analytical levels/units that can be usedto analyse business relationships, hierarchically ordered and dialecticallyrelated

Dubois et al 2004: changes in a company’s supplier base over time wasdue to complex interplay between continuity and change in several dimensions

Tähtinen 2002: Relationship ending may happen simultaneosly at differentlevels, multiple ending paths are possible, several stages (that have not tofollow each other in a particular order, might be simultaneosly present) areidentified

Framework

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IndicationIndication

The literature reviewed seemed to indicate that a perspective on single critical incidents or events istoo constrained. If a change in a relationship is framedas related to an ”incident” it will perhaps result in anexplanation with a too high focus on the incident.

Perhaps the perspective should be a system perspectivewith an interest in identifying when the system is fallingdown or changing.

Framework

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The CIRC modelThe CIRC model (Critical Incidents in a Relational Context)(Critical Incidents in a Relational Context)

Relationshiphistory

Relationshipfuture

External context

Internal context

CriticalIncident in theRelationship

Framework

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The CRIP modelThe CRIP model (Critical Phases in a Relational Context)(Critical Phases in a Relational Context)

Relationshiphistory

Relationshipfuture

External context

Internal context

Initialstate

CriticalIncident

Process

Outcome

A Critical Phase in

the relationship

Framework

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Empirical studiesEmpirical studies

Customers to IT-companies (Sweden 2000) 14 relationships 25 processes reported

Customers to advertising agencies (Sweden 2001) 14 relationships 14 processes reported

Retrospective Interviews based on the CIRC-model, start with a ”critical incident”, detect the outcome

Customers’ narratives were analysed using the CRIP-model, compare cases with different out- comes to detect distinguishing features.

Empirical study

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4

3

2

Relationship futureRelationship history

Internal context

External context

5

?

?

?

1?

Interview guideInterview guide

Empirical study

Two exploratory empirical studies were carried out concerning companies' evaluation of their IT consultants and advertising agencies respectively. Data was collected in loosely structured personal interviews. The perspective is thus the business customers' perspective.

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We classified the effects of the incidents from the first study into three categories; broken relationship and negative attitude change (dissolved relationship), negative attitude change (fading relationship) and unchanged attitude change (sustained relationship).

The second study included also positive incidents which thus gives an additional category; a strengthened relationship.

Analysis of the storiesAnalysis of the stories

Empirical study

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Incidents in the studiesIT-consultants/Ad agencies

25/14

Attitude change?

Yes No

Behaviouralchange?

15/12

Behaviouralchange?

10/2

Yes No No

6/5 9/4 10/2

Dissolution Fading Sustained

Strengthened

-/3

D i r e c t i v e i n c i d e n t s

Critical phases in the current studyCritical phases in the current study

Findings

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Reactions to directive incidents

Dissolved

Fading

Sustained

Strengthened

Cognitive reactionEmotional reactionChanged behaviourChanged intentionsChanged attitudeOutcome

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Observations 1Observations 1

Directive incidents seem to be related to thewhole context. Although some general featurescould be found there is a multitude of patternsleading to a change.

A similar view has been proposed in a studyfocusing on relationship ending processes (Halinen and Tähtinen 2002)

Findings

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Observations 2

• A negative attitude forms the basis for a more careful assessment of the relationship with the service provider and a search for alternative service providers.

• The narratives indicate that many factors and activities are combined and that lack of both technical and social competence escalates the situation and trigger a negative process.

• A high quality relationship may erode quickly even if the customer has been happy for many years with the service provider.

Findings

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• Our interpretation of fading processes is that lack of

competence resulting in unfulfilled promises may well be solved if the service provider demonstrates a proactive and service oriented attitude resulting in proactive problem solving

• A combination of factors in the history of the relationship with the service provider together with the existing market situation and switching barriers form the basis for a critical phase.

• The social competence seems to hold back switching while lack of technical competence will drive customers away.

Observations 3

Findings

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• Some drivers of critical phases tend to come back over and over again. They seem to be built into the service system, service processes or service offerings.

• We found that some IT-service providers tend to over promise; others lack the social and technical competencies needed to solve customer problems the way the customer expects or information-problems e.g. unclear or misunderstood contracts.

Observations 4

Findings

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Observations 5Observations 5

Communication is essential in the relationship in order to manage expectations and experiences. Listening and understanding as well as teaching and influencing.

This happens in business relationships through key (contact) persons. A change of the person will cause turbulence and possible critical phases and change in the relationship. Social competence is a part of this aspect.

This observation can be related to the idea of different types of expectations (Ojasalo 1999)

Findings

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Communication

Communication

Lack of Communication may lead to Critical PhasesLack of Communication may lead to Critical Phasescaused by fuzzy, implicit and unrealistic expectationscaused by fuzzy, implicit and unrealistic expectations

Fuzzy expectations

Implicit expectations

Unrealistic expectations

Precise expectations

Explicit expectations

Realistic expectations

Focusing

Revealing

Calibrating

Adapted from: Ojasalo 2001

Buyer

Seller

High riskfor

CriticalPhases

Lower riskfor

CriticalPhases

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Communication

Communication

Lack of Competence leads to Critical PhasesLack of Competence leads to Critical Phaseseven when Communication is efficienteven when Communication is efficient

Fuzzy expectations

Implicit expectations

Unrealistic expectations

Precise expectations

Explicit expectations

Realistic expectations

Focusing

Revealing

Calibrating

Ojasalo 2001

Buyer

Seller

High riskfor

CriticalPhases

Lower riskfor

DirectiveIncidents

High riskfor Critical

Phases if lack of

competence

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Future researchFuture research

Many factors seems to influence a change in relationships. The contextual CRIP model depicts a “garbage can”-type model that indicates that critical phases may arise from idiosyncratic processes.

What would be needed are models, concepts and language to describe: processes, change, phases, contextual configurations.

A critical phase and a change process can be perhaps be managed, at least influenced if diagnosed.

Future research

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Appendix 1 Advertising Agency Advertising Agency Dissolution (case 4) Fading (case 5) History The company was satisfied with what

the advertising agency had produced. "We were impressed by the creative work they had done before". The agency was chosen due to the creative work they had done before in line with what the company wanted. The relationship with the agency was 7-8 months old and the agency had produced some campaigns

The company had not worked together with the advertising agency once before and was satisfied with the brochure which was produced then. Further more, the agency had satisfied customers in Sweden within this industry and was recommended by persons who the company trusted.

Internal context The respondent trusted the agency, especially the project-leader and the work they did met the expectations. The respondent stressed the importance that the team at the agency shared the same values as the team in "our company".

The respondent contacted a Norwegian advertising agency to produce a new brochure which was to be designed in line with the company's new profile and a number of new articles and new models. The company expected the agency to have the competence and resources needed to carry out this special project.

External context The company had a number of advertising agencies to choose from and…(see future)

The company had a number of agencies offering this service in Sweden but the chosen Norwegian agency was viewed as a natural choice due to its good reputation and experience in this industry. However, they had heard that some Danish companies recently had problems in their relationship with the agency but did not pay much attention to this information.

Future … the plan was a long-term co-operation since the agency knew the industry well.

The complicated process has changed the company's attitude in a negative direction but the relationship is not broken.

Case: Advertising AgencyCase: Advertising Agency

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Directive course of incidents Initial state (IS) Trigger (T) Process (P) Outcome (O)

(IS) The respondent gave the agency a clear description of the result of the work of the advertising agency to make sure that nothing was unclear. (T) After some time, a communication problem arose. Furthermore, the job was not finished on time. This resulted in tensions in the relationship and stress, since the advertising campaign could not be launched according to the plan. Triggering factors: lack of communication and an uninterested project-leader caused a delay. The campaign material was not ready on time and designed as promised. (P)Furthermore, this resulted in stress and communication problems that worsened the situation combined with internal struggle for power at the advertising agency. The conflict grew and the agency went out of business. (O) Respondent 4 broke the relationship as soon as the campaign was finished. The agency went out of business and the company did not have to split up the agreement in a formal way.

(IS) Representatives from the company met with a team from the agency to discuss the details about the brochure, the time plan and what the company expected from this advertising activity. It was easy to describe what to do and to decide on these issues. The persons from the agency seemed to be very professional. (T) The problems started when the first drafts arrived. The brochure was not designed in line with what was agreed on earlier, and the person in charge of the project did not seem to listen and understand. (P) It soon became clear for the company that the agency team had completely misunderstood what was expected of them, and even more problematic, they did not want to listen to the critique and suggestions from the company. The new line of products was to be shown in a Swedish kitchen environment. "We suggested in detail how this could be done, but they insisted on something different, which we did not like". Most important was the fact that they did not listen enough and when they listen and understood, they did not want to do what we had agreed on early in the project. We invited two people from the agency to our company during two days and showed them our products, our manufacturing plant, different kitchen environments etc. but this was not enough. However, it caused a delay, and it also resulted in a conflict about cost issues. (O) A compromise was reached and the company is satisfied with the result.

Dissolution Fading

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Appendix 1 Advertising Agency Advertising Agency Strengthened (case 13) Sustained (case 8) History The company had a satisfied

relationship with the advertising agency for more than three years. What was produced had created trust between the parties.

The agency was chosen based on its reputation and the creative work they had done for other companies. The company had 4 years of experience working with this agency.

Internal context The respondent felt that their earlier relationship had developed over time and is now perceived to be quite satisfactory. "I trust the creative employees at the advertising agency".

The company knew the agency well and the advertising agency knew the industry well and had experts on producing advertising films.

External context The company had a few advertising agencies to choose among but it was natural to continue with this agency. Furthermore, the agency has its main office in this town. The company is "a big customer at this small agency".

A number of alternative agencies were available. "My view is that we use this agency because it has experts in this field and we are prepared to pay them well. My role is not to give them the creative ideas. I should give them a very good brief and explain our business goals and our target groups, then they should be able to carry out their job".

Future The company was impressed, the relationship was strengthened and the attitude became even more positive after this episode. The company expects prompt and flexible responses. This is not the first time the agency has shown their professionalism in this area.

The company is satisfied with the agency and the attitude is now even more positive than before this incident. "We understand that sometimes you face this type of situations."

Case: Advertising AgencyCase: Advertising Agency

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(IS) The company knew the advertising agency well and was so far satisfied with what had been produced. In connection with a yearly "party" in the town, involving the company as the main sponsor, a soccer event was to take place and some T-shirts had to be produced why the advertising agency was contacted. (T) When the company realized that they had forgotten to order the T-shirts, they perceived this as a critical incident in their relationship with the advertising agency. (P) The response however, was not only prompt but also very understanding and professional. This impressed the company due to the service-oriented and quick response and problem solving capacity. (O) In spite of the very short time, the agency was very understanding, supportive and with no negative attitude fixed the T-shirts and delivered them the next day. The relationship was strengthened.

(IS) It was the first time the company used an advertising film in their marketing. The advertising agency was given "free hands" to do the job. The agency knew our company and industry well and the respondent said: "I assumed that they understood what we wanted, if not, they should have asked me for more detailed information". The respondent described for the agency how he understood the agreement about the film and it was based on many years of practical experience in marketing. The idea was also discussed with different people in the company, and the respondent got support from within the company. (T) When the first version of the film was presented to us, we were very disappointed. "It was not what we had in mind". There was a disagreement between the agency and the respondent, who suggested some major improvements in the film. (P) The agency responded in a professional way and the film was improved based on the respondent's suggestions. The agency team had a listening attitude and reacted promptly, which led to a fruitful interaction. We feel that they care and that we are in focus". (O) The film was improved based on our ideas and together with the team at the agency, we arrived at a good result.

Strengthened Sustained

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Appendix 1 IT-consultancy IT-consultancy Fading (case 1) Dissolution (case 5) History The company decided to use a small

local IT-consultancy firm (5 consultants) to develop a new IT-system (or IT infrastructure). The company had already an agreement with them (as with a couple of other consultants). After some months it was clear that the consultants did not have to needed competence to carry out what was agreed on. A conflict developed concerning delays, invoices, the contract and what to pay fore or not.

The company had decided to develop a production control-system which had to be introduced within a couple of months. The company has used the IT-consultants for some years in different projects. They trusted the consultants who had done a good job in previous projects.

Internal context The company knew the consultants well but had not used them before. The consultants had a good reputation and were recommended by others who the company trusted.

“The cooperation has always been to our satisfaction. They have demonstrated competence and been service oriented”. It was natural to ask them since they know the company and our production-process well.

External context The company had a number of IT-consultants to chose among but decided to use this local company. “Our references showed that they were the best for this project”. Best had to do with quality in relation to cost/price.

The company had a number of consultants to chose among. The main reason to use these consultants were their in-depth knowledge about the production-process.

Future The IT-consultants had not the competence we need. “The job was done but not on time. The relationship is not broken but we will most likely not use them in the future”.

The company was very clear about what should be carried out and when. But after some weeks in the project, the IT-consultants were not listening or they did not want to understand what was in the contract. The relationship is broken and we will not use them in the future.

Case: IT-consultancyCase: IT-consultancy

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(IS) The consultants gave the company a clear description of how to carry out the project. The references showed that they had the experience and competences needed. (T) After some time it became clear that the five consultants did not have the competences needed. They were open about this but at the same time they wanted the company to pay for what was not done. There were also some disagreement when it comes to the contract. Furthermore, the job was not finished on time. This resulted in tensions in the relationship and stress. Triggering factors: lack of competence. (P) The consultants were focused on solving the situation and carry out also the “difficult problems” - which had to do with the interface between different soft-wares - and they did. However, the delay caused problems for the company and the conflict grew. (O) The relationship is not broken but the company we will most likely not use the consultants in the future.

(IS). The IT-consultants had a good reputation; competent, service-oriented and the company trusted them in different ways. (T) The consultants did not control the project and the situation after some time. The reason was that a group of consultants decided to leave the IT-company and it was not possible to replace them with enough experienced consultants. (P) The project was not managed after some time, and it was clear that the new system was not to be introduced (replacing an old system) on time. This caused a lot of problems and extra costs for the company. The IT-consultants did not have the competence needed to sort out the situation and this resulted in a conflict about what to pay fore, too high prices being charged and compensation for a delayed project. (O) The project was finished but very late, causing a lot of extra costs for the company and the conflict grew. The relationship is broken and the company has a very negative attitude towards the IT-company.

Fading Dissolution

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Appendix 1 IT-consultancy IT-consultancy Sustained (case 14) Dissolution (case 24) History The company had a satisfied

relationship with the IT-company for some years. But in one project a consultant, carrying out a job at the CEOs office, turned out to be different. His attitude was very arrogant and this caused a conflict. The company complained and the consultant was promptly replaced.

The company had used this IT-company for many years and the problems started when a new “sales person” became responsible for the relationship. “His main task was to make sure that we received what we needed both in terms of hard-ware and soft-ware”.

Internal context The respondent felt that a trust-based relationship had developed over time with the IT-company.

The company knew the IT-company quite well and was satisfied with what had been delivered so far.

External context The company had a few IT-consultants to choose among but it was natural to continue with this one.

When the company started to buy from this IT-consultant, not many alterative were available.

Future The company was impressed how prompt the consultants was replaced with another with both the right competence and attitude. This did not cause any delay in the project.

The company was very dissatisfied with how new sales-persons were introduced and replaced. They did not know either the hard-ware, nor our company. “This caused us many problems and irritation. We will not use them in the future. The relationship is broken”.

Case: IT-consultancyCase: IT-consultancy

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(IS) The company knew the IT-company well and was so far very satisfied with what had been carried out in previous projects. (T) When the company realized that the consultant was very arrogant and different - when it comes to e.g. attitude, behavior and he did not dress well - from what they was used to. (P) The respondent contacted the manager at the IT-company who took immediate action and replaced the consultant. (O) The company was impressed by the prompt action from the IT-company’s management. The relationship was unchanged.

(IS) The IT-company knew the customer well based on a number of years’ cooperation. (T) The problems started when a new sales-person took over the responsibility for the relationship. His competence and attitude was not what the company was used to and expected. (P) The problems were discussed and a new sales-person was introduced but the problems were not solved and the conflict grew. (O) The company decided to turn to another IT-company and the relationship is broken.

Sustained Dissolution

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Thank You !

Documents

N o RD 2004 N o RD 2004 Bo Edvardsson & Tore Strandvik (2004): Critical Phases in Customer Relationships Critical Phases in Customer Relationships Bo Edvardsson