1. 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 & 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

2. N o RD 2004 N o RD 2004 Bo Edvardsson & Tore Strandvik (2004): Critical Phases in Customer Relationships Traditional CI definition “ A critical incident is one that contributes to or detracts from the general aim of the activity in a significant way. We define critical incidents as specific interactions between customers and service firm employees that are especially satisfying or especially dissatisfying. Hence, not all service incidents were classified, only those that customers found memorable because they were particularly satisfying or dissatisfying” Bitner, Booms and Tetreault 1990, p. 73

3. N o RD 2004 N o RD 2004 Bo Edvardsson & Tore Strandvik (2004): Critical Phases in Customer Relationships Another traditional CI definition “ For an incident to be defined as critical, the requirement is that it can be described in detail and that it deviates significantly, either positively or negatively, from what is normal or expected. In this study we consider only negative critical incidents, i.e. customer encounters that do not proceed normally but create friction, irritation and dissatisfaction.” Edvardsson 1991, p. 3

4. N o RD 2004 N o RD 2004 Bo Edvardsson & Tore Strandvik (2004): Critical Phases in Customer Relationships History of our study Background Critical incident studies (exploring criticality) ”Directive Incidents” = incidents changing the direction of a relationship ”Critical Phases” = period of time with increased sensitivity in the business relationship that may change the actors’ attitude and/or behaviour in the relationship 2000 2002 2004

5. N o RD 2004 N o RD 2004 Bo Edvardsson & Tore Strandvik (2004): Critical Phases in Customer Relationships ”...a need for a redefinition of the concept ”critical incident”. As these incidents may redirect and affect the future evolution of a customer relationship, it might be more relevant to use the concept ’directive incident’ to depict the function these incidents have on the relationship. Directive incidents would represent... turning points in the relationship” Directive Incidents? Edvardsson and Strandvik 2000 Background Turning points, breaking points, inflection points, very critical critical incidents... is what we are looking for

6. N o RD 2004 N o RD 2004 Bo Edvardsson & Tore Strandvik (2004): Critical Phases in Customer Relationships The aim is to explore the contents and drivers of critical phases in business-to-business relationships We take a customer management view thus we are interested in understanding customer perceptions of the relationship and customer behaviour related to the relationship Two explorative studies: IT consultants and Advertising agencies. A small number of cases but focused data collection considering contextual and dynamic aspects. Aim of the study Background

7. N o RD 2004 N o RD 2004 Bo Edvardsson & Tore Strandvik (2004): Critical Phases in Customer Relationships 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 to traditional research concerning business relationship dynamics. Managerially implications would be increased effeciency in listening to the other party and managing own activities and resources. Motivation for the study and potential outcome Background

8. N o RD 2004 N o RD 2004 Bo Edvardsson & Tore Strandvik (2004): Critical Phases in Customer Relationships Only the buyer is interviewed about the critical phase. In a business relationship, however, both parties are active and may have diverging perceptions. Bias because of the retrospective view. Things may not be recalled as they happened but are (re-)constructed. On the other hand, this interpretation is present in the buyer’s mind and is thus the ”interpretation-in-use”. Delimitations and limitations Background

9. N o RD 2004 N o RD 2004 Bo Edvardsson & Tore Strandvik (2004): Critical Phases in Customer Relationships Early impulses directing our work  Making fuzzy expectations precise, implicit expectations explicit, and unrealistic expectations realistic, facilitates long-term quality and customer satisfaction in professional services. (Ojasalo 2001)  The ending process (of a business relationship) is always both temporally and contextually embedded and to a significant degree actor-driven: a picture of idiosyncrasy rather than deterministic development. (Halinen and Tähtinen 2002)  Incidents that traditionally would be defined as critical are not critical for the customer relationship. Still there were cognitive effects and word-of-mouth effects. As these incidents are remembered they may accumulate over time and may be combined with similar or different observations leading to a reaction on the relationship level. (Edvardsson and Strandvik 2000) Framework

10. N o RD 2004 N o RD 2004 Bo Edvardsson & Tore Strandvik (2004): Critical Phases in Customer Relationships Inspiration for our thinking ” Precipitating events bring change to the existing relationship and function as impulses for the parties to take actions to end their relationship. These events may be sudden and dramatic or part of a series of events creating pressure for relationship change. Precipitating events occur during the relationship and even during its ending process and are perceived by the managers as reasons to act towards its termination” (Halinen and Tähtinen 2002) ” In the proposed model (of relationship ending) we have suggested that different factors in varying combinations influence the ending process. Managers’ interpretations of these factors and subsequent actions and decisions concerning the relationship are crucial for its future development. Depending on the history of the relationship and on managers’ interpretations of its current situation as well as future potentials, the ending process is likely to vary in terms of its stages.... Thus it is highly probable that every process of relationship ending is somewhat unique”. (Halinen and Tähtinen 2002) Framework

11. N o RD 2004 N o RD 2004 Bo Edvardsson & Tore Strandvik (2004): Critical Phases in Customer Relationships More current inspiration Tikkanen and Alajoutsijärvi 2002: a need for contextual view of 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 used to analyse business relationships, hierarchically ordered and dialectically related Dubois et al 2004: changes in a company’s supplier base over time was due to complex interplay between continuity and change in several dimensions Tähtinen 2002: Relationship ending may happen simultaneosly at different levels, multiple ending paths are possible, several stages (that have not to follow each other in a particular order, might be simultaneosly present) are identified Framework

12. N o RD 2004 N o RD 2004 Bo Edvardsson & Tore Strandvik (2004): Critical Phases in Customer Relationships Indication The literature reviewed seemed to indicate that a perspective on single critical incidents or events is too constrained. If a change in a relationship is framed as related to an ”incident” it will perhaps result in an explanation with a too high focus on the incident. Perhaps the perspective should be a system perspective with an interest in identifying when the system is falling down or changing. Framework

13. N o RD 2004 N o RD 2004 Bo Edvardsson & Tore Strandvik (2004): Critical Phases in Customer Relationships The CIRC model (Critical Incidents in a Relational Context) Relationship history Relationship future External context Internal context Critical Incident in the Relationship Framework

14. N o RD 2004 N o RD 2004 Bo Edvardsson & Tore Strandvik (2004): Critical Phases in Customer Relationships The CRIP model (Critical Phases in a Relational Context) Relationship history Relationship future External context Internal context Initial state Critical Incident Process Outcome A Critical Phase in the relationship Framework

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

16. N o RD 2004 N o RD 2004 Bo Edvardsson & Tore Strandvik (2004): Critical Phases in Customer Relationships 4 3 2 Relationship future Relationship history Internal context External context 5 ? ? ? 1 ? Interview 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.

17. N o RD 2004 N o RD 2004 Bo Edvardsson & Tore Strandvik (2004): Critical Phases in Customer Relationships 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 stories Empirical study

18. N o RD 2004 N o RD 2004 Bo Edvardsson & Tore Strandvik (2004): Critical Phases in Customer Relationships Incidents in the studies IT-consultants/Ad agencies 25/14 Attitude change? Yes No Behavioural change? 15/12 Behavioural change? 10/2 Yes No 6/59/410/2 Dissolution FadingSustained 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 study Findings

19. N o RD 2004 N o RD 2004 Bo Edvardsson & Tore Strandvik (2004): Critical Phases in Customer Relationships Reactions to directive incidents Dissolved Fading Sustained Strengthened Cognitive reaction Emotional reaction Changed behaviour Changed intentions Changed attitude Outcome

20. N o RD 2004 N o RD 2004 Bo Edvardsson & Tore Strandvik (2004): Critical Phases in Customer Relationships Observations 1 Directive incidents seem to be related to the whole context. Although some general features could be found there is a multitude of patterns leading to a change. A similar view has been proposed in a study focusing on relationship ending processes (Halinen and Tähtinen 2002) Findings

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

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

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

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

25. N o RD 2004 N o RD 2004 Bo Edvardsson & Tore Strandvik (2004): Critical Phases in Customer Relationships Communication Lack of Communication may lead to Critical Phases caused 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 risk for Critical Phases Lower risk for Critical Phases

26. N o RD 2004 N o RD 2004 Bo Edvardsson & Tore Strandvik (2004): Critical Phases in Customer Relationships Communication Lack of Competence leads to Critical Phases even when Communication is efficient Fuzzy expectations Implicit expectations Unrealistic expectations Precise expectations Explicit expectations Realistic expectations Focusing Revealing Calibrating Ojasalo 2001 Buyer Seller High risk for Critical Phases Lower risk for Directive Incidents High risk for Critical Phases if lack of competence

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

28. N o RD 2004 N o RD 2004 Bo Edvardsson & Tore Strandvik (2004): Critical Phases in Customer Relationships Case: Advertising Agency

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

30. N o RD 2004 N o RD 2004 Bo Edvardsson & Tore Strandvik (2004): Critical Phases in Customer Relationships Case: Advertising Agency

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

32. N o RD 2004 N o RD 2004 Bo Edvardsson & Tore Strandvik (2004): Critical Phases in Customer Relationships Case: IT-consultancy

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

34. N o RD 2004 N o RD 2004 Bo Edvardsson & Tore Strandvik (2004): Critical Phases in Customer Relationships Case: IT-consultancy

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

36. N o RD 2004 N o RD 2004 Bo Edvardsson & Tore Strandvik (2004): Critical Phases in Customer Relationships Thank You !