Entrepreneurial service organizations
Robert C. Ford
While some might argue that all service organ izations must be entrepreneurial to survive in an increasingly competitive global marketplace, there are some specific characteristics of entre preneurial organizations that apply to service organizations as well.
Entrepreneurship encompasses acts of or ganizational creation, renewal, or innovation that occur within or outside an organization (Sharma and Chrisman, 1999). Entrepreneurial actions are the ways organizations implement entrepreneurship (see entrepreneurship). Ireland and his colleagues (Kuratko, Ireland, and Hornsby, 2001) define entrepreneurial actions as any newly fashioned behaviors through which companies exploit opportunities others have not noticed or aggressively pursued. ‘‘Novelty, in terms of new resources, customers, markets or a new combination of resources, cus tomers or markets is the defining characteristic of entrepreneurial actions’’ (2001: 61). It seems reasonable to state entrepreneurial actions are taken by firms and individuals that have an entrepreneurial orientation (EO). Lumpkin and Dess (1996: 137), echoing Miller (1983) state: ‘‘The key dimensions that characterize an EO include a propensity to act autonomously, a will ingness to innovate and take risks, and a ten dency to be aggressive toward competitors and proactive relative to marketplace opportunities’’ (see entrepreneurial orientation). Thus, an entrepreneurial service firm can be distinguished from a non entrepreneurial ser vice organization by the degree to which it takes entrepreneurial actions and displays an entrepreneurial orientation. 114 entrepreneurial service organizations
Distinguishing service organizations from other types of organizations is an equally chal lenging definitional issue. Most writers identify intangibility as the key feature that distinguishes a service from a product organization (Bowen and Ford, 2002). The fact that the service prod uct is intangible has several important implica tions for the management and leadership of this type of organization. Producing an intangible product means that the customer and only the customer can define its quality and determine its value. It also means that services cannot be stored in inventory, are generally co produced through some encounter between the customer and a service provider, and are simultane ously consumed and produced, making each service experience a different and unique prod uct for each customer (Bowen and Ford, 2002; Zeithaml, Parasuraman, and Berry, 1985; Groonros, 2000; Lovelock, 2000).
A common definition of service is ‘‘an act or a performance offered by one party to another. Although the process may be tied to a physical product, the performance is essentially intan gible and does not result in ownership of any of the factors of production’’ (Lovelock, 2000: 3). Because a service is consumed as it is produced (or performed), service organizations focus on the production process rather than a production outcome. This is a critical difference between services and manufacturing organizations. If you can’t see the service product, then the act of producing it becomes the focus for defining how it is perceived in the customer’s mind (Groonros, 2000). Perhaps the best way to define a service is to rely on Pine and Gilmore’s (1999) distinction. They state: ‘‘experiences occur whenever a company intentionally uses services as the stage and goods as props to engage an individual. While commodities are fungible, goods tangible, and services intangible, experi ences are memorable’’ (1999: 11–12). The vari ability in individual perceptions of experiences creates entrepreneurial opportunity.
Services are experienced holistically and con sist of a service product (e.g., hamburger, rock concert), a service setting (e.g., physician’s office, Olive Garden Restaurant), and a service delivery system (e.g., people, equipment, organ ization, and other systems that permit the deliv ery of the service product to the customer in the service setting) (Ford and Heaton, 2000). As these three elements collectively comprise and define the customer’s experience, the variability in the ways they can be combined and managed creates entrepreneurial opportunity.
It should be noted that all services are not the same, as they can range from the monopolistic large electrical and public utility services to the entrepreneurial street corner entertainer. Thus, services can range from a capital intensive category of organizations with high barriers to entry, like a public utility, to a limited or no capital industry, like a website design service. Although all services produce an intangible ex perience, the degree to which that experience requires supporting tangible products, a suitable service setting, and delivery systems will vary widely across services.
Many writers have labored hard to distinguish among the types of services that exist. Lovelock and Yip (1996), for example, offer a classification scheme based on the type of processes used to create the service experience. They suggest ser vices can be divided into people processing, pos session processing, and information based services. People processing offers tangible actions to the customer in person and require that the customer be actually at the ‘‘service factory.’’ Examples include healthcare, trans portation, and food and lodging services. Posses sion processing involves tangible actions to physical objects to improve their value to cus tomers and include such services as auto repair, freight transportation, and warehousing. In formation based services depend on collecting, manipulating, interpreting, and transmitting in formation to create value. These services include accounting, education, Internet auctions, and consulting. Some believe that even these classi fications are inadequate to completely cover the variety of services that exist. Maister (1983), for example, subdivides professional services into three types of client work: Brains (professional services requiring innovative and unique knowledge to solve complex problems, such as a defense attorney), Grey Hair (professional ser vices that require successful experience in simi lar situations, such as a civil engineer), and Procedures (professional work that relies on well established and efficient routines, such as a dentist).
Other writers offer typologies based on the degree to which the customer comes into contact with the organization to receive the ser vice (Mills and Margulies, 1980; Chase, 1981; Schmenner, 1986). Thus, in this approach, a service can range from a pure service requiring customer presence (e.g., surgery, rock concert), to mixed services which require both customer contact and support facilities or back of house requirements (e.g., banks, restaurants), to quasi manufacturing which require virtually no cus tomer contact (e.g., distribution centers, repair shops, web based services, customer service centers). Perhaps the simplest categorization is that offered by Albrecht and Zemke (1985) as ‘‘help me,’’ ‘‘fix it,’’ and ‘‘value added’’ services. The point is that there are multiple types of service organizations with many different types of structures, strategies, market environments, and production processes. Nonetheless, they share the characteristic of intangibility and all the derivative features that producing an intan gible experience creates.
While it is increasingly difficult to find the point at which the traditional product produ cing manufacturing organization crosses over into an experience producing service organiza tion, there are still major differences in how they are managed, organized, and staffed. Although entrepreneurial service organizations have not been widely studied as a distinct topic of empir ical research and theoretical development (e.g., Davidsson and Wiklund, 2001), it is possible to suggest several key issues for both new and existing service organizations to address in seek ing to gain the benefits of being entrepreneurial (Covin and Miles, 1999).
Entrepreneurship in both large and small or ganizations promotes the search for competitive advantages through product, process, and market innovations (Ireland et al., 2001). These authors go on to state: ‘‘These advantages are the product of proper positioning within the firms’ industry; effective exploitation of idiosyncratic firm specific resources, capabilities, and core competencies; and successful participation in unique networks or cooperative arrangements with other companies’’ (2001: 53). Since all entrepreneurial organizations seek ways to in novate to gain competitive advantage, services firms can look to their service product, service environment, and service delivery systems for opportunities to create an innovative niche.
The process for finding that innovative niche begins by identifying their current and potential customers’ key drivers. If the organization’s mis sion is to satisfy a niche in a large industry (e.g., to be a specialty restaurant chain, a local mort gage broker, or a neighborhood clinic), then it needs to identify the key drivers of the customers in that niche to find out what they are and how they can be met in a way that distinguishes this organization from competitors. The research lit erature identifies customer orientation as an im portant differentiation for entrepreneurial firms, and this would include service organizations as well (e.g., Agarwal, Erramilli, and Dev, 2003). What this means to the entrepreneurial service firm is that it should begin any strategic planning effort by identifying its present and hoped for customers’ key drivers and then set itself and its processes up to meet them. While identifying customer key drivers sounds simple to do, aver age scores for service providers hover in the 60s and 70s, reported by the American Customer Satisfaction Index, suggesting that most service organizations are not doing very well in satisfy ing their customers. It also means considerable entrepreneurial opportunity.
The entrepreneurial service firm must find new ways to convince its present and future customers that its service product, environment, and delivery systems are somehow better able to meet their needs than any other available com petitors in a chosen niche. A restaurant might do this with a novel ‘‘we guarantee you’ll like our dinner or it’s free’’ ad, by focusing only on some food that its customers tell it is desirable but currently unavailable in the marketplace, or some similar differentiating strategy that will establish a niche in the minds of its potential market.
Industry structure also has implications for entrepreneurial outcomes such as new entry suc cess. Since heterogeneity is a characteristic of the service product, this offers the potential for un filled market niches (Chrisman, Bauerschmidt, and Hofer, 1998). Panera Bread is a good example, as it fills a niche between the casual dining product and the fast food product. The company discovered an unmet customer need which created an innovative niche opportunity 116 entrepreneurial service organizations for a quick casual food restaurant. Their effort to fill that niche has been well rewarded.
Geographical location can also create niches for entrepreneurial service organizations. Pro viding a hot pizza is difficult when the produc tion process is far away. Churches, retail stores, financial services, and even some healthcare ser vices are selected on the basis of their location. Thus, the degree to which a geographic niche is unfilled with competing service offerings can have a bearing on entrepreneurial service organ izations. These are only a few of the entrepren eurial opportunities that a careful assessment of the customer’s key drivers can identify.
Successful service organizations display some key characteristics (Berry, 1999; Ford and Heat on, 2000; Bowen and Ford, 2002). They listen constantly to their customers, hire employees for attitude and train for skills, align their operating polices, procedures, human resources, and deliv ery systems with their service mission, continu ously improve the service experience, create supportive environmental settings, quickly find and fairly fix service failures and problems, and actively respond to customer expectations, wants, needs, and behaviors. These key characteristics of successful service organizations strongly resem ble those of entrepreneurial organizations, which is why many argue that successful service organ izations are also entrepreneurial.
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