Microsoft Word - WP No. 15 2008-04-11.docALBERT GRAF
EDITED BY HATO SCHMEISER
MAY 2007
Albert Graf∗
ABSTRACT
The research topics HRM and customer involvement are usually investigated sepa-
rately. On the one hand, research shows that the spectrum of roles and functions of
customers as key company stakeholders has changed dramatically in the last few
years. In service companies, now more than ever, customers becoming active play-
ers, which can exert significant influence especially on customer contact employ-
ees. On the other hand, HRM research concentrates so far primarily on the relation-
ships and configurations within organizations that lead to optimal human resource
architecture, and not beyond organizational boundaries. The analysis of the inter-
relatedness of this two research topics shows that customers can actually signifi-
cantly influence the success of a company’s HRM. If the objective of the HRM
function is to adapt and add value to the organization, it has to rethink its concepts
to include new factors relevant to the organization. Corresponding implications and
future directions for practice and research are outlined.
1. INTRODUCTION
New perspectives have emerged over the past decades focusing on intangible resources,
the co-creation of value, and relationships. The dominant logic of marketing has been
questioned and is under attack from various sides, e.g. by the proposal of Vargo and
Lusch (2004). Vargo and Lusch (2004, p.1) are calling for a new dominant logic in
marketing "in which service provision rather than goods is fundamental to economic
exchange". In this context they also argue the necessity to change how the role of cus-
tomers in the service provision process is conceived. The customer should always be
thought of as co-producer and is always involved in the production of value. This value
has an immediate impact on relationships between customers, employees, and compa-
nies. In the past, these relationships were generally sales driven, but fundamental
∗ The author is with the University of St. Gallen, Institute of Insurance Economics,
Kirchlistrasse 2, 9010 St. Gallen, Switzerland.
3
changes in customer behaviour have made it necessary for the relationships to become
more customer-driven. Changes in framework conditions, customer attitudes, and be-
havioural patterns result in a new allocation of roles between the company and its cus-
tomers. In this dynamic context, the forms and the importance of customer involvement
in the service provision process are also subject to change. All this has dramatic impact
on the relationship between customers, employees, and the company, and can bring
about a significant transformation for the organisation, well as its functional compo-
nents, such as human resource management (HRM). However, to date, HRM and cus-
tomer involvement generally have been investigated separately.
The involvement of customers in the service provision process and, particularly, the
interaction between customer and employee has a significant influence on the company:
there is a dynamic ongoing process in the relationship between the organisation and its
customers (Irons, 1994). Since customers, employees, and companies constantly exert a
mutual influence on each other, they should not be considered as isolated parts of the
service management process. Rather, employees, companies, and customers all need to
be included - in the form of an integrated service provision management. HRM, which
has become a key element in developing and improving organisational effectiveness
(Pfeffer, 1995; Ferris et al., 1999), can play a central role in this context. However, until
now, HRM research has not yet included factors beyond the organisational boundaries
(Lepak and Snell, 1999; Hornsby and Kuratko, 2003). Most HRM research is still con-
centrated on the more traditional personnel functions such as ability, job satisfaction,
attitude, and performance, thus focusing on the individual as the unit of analysis
(Hoobler and Johnson, 2004).
To add value and improve organisational effectiveness, HRM activities need to be syn-
chronised with the changes mentioned above, moving toward a stronger customer ori-
entation, customer-driven relationships, and the resulting organisational changes. This
raises a critical issue: What are the consequences of changes in customer roles and in-
volvement for HRM in practice and research? The purpose of this article is to address
this question within a service context with a focus on customer contact employees in
relationship intensive services. Therefore, an analysis is made of changing customer
roles and functions and their effect on employees. Subsequently challenges and impli-
cations for HRM in practice and research are discussed.
4
The literature pays particular attention to the characteristics of customer involvement
that are essential to a service company’s success, in line with the premise that “the cus-
tomer is always a co-producer” (Vargo and Lusch, 2004, p. 10). Customer involvement
can be defined as “the amount of participation perceived by the consumer to be required
to engage in a particular activity or service” (Good, 1990, p. 4). According to this defi-
nition, customer involvement is dependent on the type of service and the customer’s
needs. It is determined by what role the customer desires to play within the service
process (Bitner et al., 1997; Good, 1990). The spectrum of customer involvement
ranges from passive customer participation, such as mere physical presence, to a very
high degree of customer integration, such as where customers partially or even pre-
dominantly take on the service provision themselves. In this latter case, companies can-
not effectively deliver the service results without customers’ co-operation.
Research into customer involvement has become increasingly sophisticated and a num-
ber of important approaches have been developed and enhanced. A short history of the
discipline reveals that Lovelock and Young (1979) were the first to argue that an in-
crease in productivity in the service industry can be achieved through a stronger in-
volvement of customers in the production process. In this context, Mills et al. (1983)
speak of customers as “partial” employees, an implicit expansion of the corporate or-
ganisational frontier to include customers. Mills and Morris (1986) describe this expan-
sion in such a way that the customer becomes a temporary member of or a participant in
the company. The next research developments pointed out that the customer’s involve-
ment in the generation of services is the main source of input uncertainty (Argote, 1982;
Bowen and Jones, 1986; Bowen and Schneider, 1988; Larsson and Bowen, 1989). All
the above-mentioned works attempt to provide an approach that companies can use to
deal with this input uncertainty. Customers are seen throughout as a “negative” source
that must be managed as efficiently and effectively as possible. Bowen (1986) proposed
a different approach, describing how customers can be managed as internal organisa-
tional human resources. The use of this approach was intended to lead to an increase in
productivity by having customers carrying out certain service operations themselves and
thus management’s important strategic task is to define the optimal role for the cus-
tomer, e.g., as a productive resource or as a contributor to quality, satisfaction, and
value (Bowen, 1986; Bitner et al., 1997). The main focus of this research is on provid-
5
ing customers with a contributory role, but only within a field that is defined or limited
by the company. For a comprehensive review of the literature on customer participation
and associated customer roles, see, Bendapudi and Leone (2003), Chervonnaya (2003),
Bitner et al. (1997).
Figure 1: Development of customers as part of the service process
In the context of new communication technologies and changing customer attitudes and
behavioural patterns, new forms of customer involvement have emerged; customers
now want, even demand, new and more sophisticated roles. “Modern” consumers adopt
new, active, and multidimensional roles. These changes have changed the focus of how
customers are considered in research. Wikström (1996, p. 360) describes this change as
follows: “the whole mental map with its view of customer’s role has also altered dra-
matically. The customer is no longer regarded as a passive receiver but is coming to be
seen as an active and knowledgeable participant in a common process.” In the past,
customers were mainly considered as a “negative” factor that, perhaps unfortunately,
could not be ignored, and that management had to deal with in an effective and efficient
way. This view is increasingly being replaced by the insight that customers are a valu-
able resource and that their involvement offers companies new opportunities. In re-
search various customer roles are discussed in this context, including up to ten different
process-specific customer roles as described in the paper of Chervonnaya (2003). Based
on an analysis of this literature as well as innovation and community literature, three
categories of customer roles can be differentiated with regard to the level and quality of
Organization and management of communities are
customer driven; companies become part of a customer
community. (von Hippel, 2001b; von Krogh, 2003)
Customer as
new products and services.(von Hippel, 2001a and 2005;
Ulwick, 2002)
Customer as
Ramaswamy, 2000 and 2003; Gibbert et al., 2001)
Customer as source
Customer as
human resource
uncertainty and as a negative factor. (Mills et al., 1983)
Customer as partial
customer driven; companies become part of a customer
community. (von Hippel, 2001b; von Krogh, 2003)
Customer as
new products and services.(von Hippel, 2001a and 2005;
Ulwick, 2002)
Customer as
Ramaswamy, 2000 and 2003; Gibbert et al., 2001)
Customer as source
Customer as
human resource
uncertainty and as a negative factor. (Mills et al., 1983)
Customer as partial
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customer participation: the customer as a source of competence, the customer as an in-
novator, and the customer as an advocate (see Figure 1).
2.1 Customer as source of competence
With today’s information and communication technologies, customers now have access to
practically the same information as companies do. Eradication of the previously predomi-
nant information asymmetry between companies and customers has resulted in a “shift of
power” (Prahalad and Ramaswamy, 2000). Customers have become a new source of
competence and know-how (Gibbert et al., 2001; Gurgul et al., 2002); they can actively
co-construct their own consumption experiences through personalised interaction, thereby
co-creating unique value for themselves (Prahalad and Ramaswamy, 2003). This co-cre-
ated experience and the value created through it is defined by and for the customers them-
selves, as well as by their interactions with a network of companies and communities.
This implies that the company, too, may have to perform in a manner that will enable the
customer to deal with the service encounter as efficiently and effectively as possible.
Due their know-how and competence, the following types of customers are able to make
certain definite contributions to a company (Gibbert et al., 2001):
• Image-enhancing customers can assist a firm in finding new customers.
• Organisation-enhancing customers can improve internal structures by demanding
state-of-the art solutions.
• Competence-enhancing customers improve the level of organisational competencies
by challenging a company’s employees with new and demanding projects, enabling
(or perhaps forcing) the employees to learn.
2.2 Customer as innovator
Customers can aid in the active development of new products and services. Thus cus-
tomers become innovators to the benefit of their providers. In this context, the so-called
lead-user plays an important role by participating actively in the supplier’s innovation
process. Lead-users are customers having specific needs earlier than the rest of the mar-
ket who thus benefit strongly from new innovations solving their problems (Urban and
von Hippel, 1988; Lilien et al., 2002).
7
Von Hippel (2005) distinguishes two general methods by which customers can become
innovators for companies. First, companies actively seek innovations developed by
(lead)-users that can form the basis for a profitable commercial product or service.
Lead-users may invent and develop a novel device for their own application because
such innovations cannot be supplied in a needed timeframe or are too specialised or
trivial to interest a supplier (Foxall, 1988). Companies can identify such lead-users by
the type of support they request and the quality of the questions they ask (Pitta et al.,
1996). Lead-users generally have far more sophisticated information needs than do run-
of-the-mill customers. Second, companies draw innovative users into joint design inter-
actions by providing them with “toolkits for user innovation” (von Hippel 2005, p. 74).
The principle idea of this method is that companies make a toolkit available to their
customers, enabling them to take part in the configuration of new developments or even
to create their own designs (von Hippel, 2001a; Thomke and von Hippel, 2002; Füller et
al., 2003). For example, the software game company Electronic Arts ships program-
ming tools to customers and works their creations and modifications into new games.
Toolkits for user/customer innovation are most effective and successful when they are
made user-friendly by enabling users to use the skills they already have and work in
their own customary and well-practised language (von Hippel and Katz, 2002). This
method of customer innovation leads to higher customer value as the innovations are
adapted to customer needs and ideas and it saves companies costly and time-consuming
redesign cycles.
Another approach for transforming customer know-how into innovation is proposed by
Ulwick (2002): since customers are only familiar with what they have actually experi-
enced, they should not be asked for solutions or features of products or services but for
outcomes. Customers should define what they expect the product or service to do for
them. The outcomes described enable the company to uncover opportunities in the areas
of product development and market segmentation, and to improve competition analysis
(Ulwick, 2002). For a comprehensive literature review on the customer as innovator, see
von Hippel (2005).
2.3 Customer as advocate
Whenever customers are regarded as a source of competence or as innovators, they be-
come involved in new developments under the “supervision” of or in collaboration with
8
a company. In some communities, especially those concerning with “open source” pro-
jects, in which leadership and goals are not company driven, customers are primarily the
real innovators. Customers become advocates of the value-creation process. Members of
such communities can become developers, manufacturers, and consumers of their own
products and services. Along with self-organisation and self-management, the commu-
nity idea is one of the main pillars of open source projects (von Hippel, 2001b; von
Krogh, 2003). Well-known examples of open source software communities are the
GNU/Linux computer operating system, Apache server software, and the Perl pro-
gramming language. At SourceForge.net, the world’s largest open source software de-
velopment website, more than 100,000 projects are hosted, involving more than
1,000,000 registered users. Innovation communities can be found in other areas as well,
for example, sporting goods (Shah, 2000) and the medical field (Lettl et al., 2004).
Companies need to figure out how they can include and utilise the open source move-
ment in their own business models. Successful examples are Red Hat, which offers sup-
port for a variety of open source software, and IBM, which now equips its hardware
with the Linux operating system. The increasing contribution of customers, primarily of
organised communities fostered by the latest developments in communication technol-
ogy, has changed the rules for gaining competitive advantage (Prahalad and Ramas-
wamy, 2000). Sometimes, customers even become manufacturers of their own devel-
oped innovations and achieve widespread diffusion of their innovative products (von
Hippel, 2005). Lettl et al. (2004) show a pattern in the medical field in which innovat-
ing users take over many of the entrepreneurial functions needed to commercialise the
new medical products they have developed, but do not themselves abandon their user
roles. In this context, research (e.g., Hienerth, 2004; Shah and Tripsas, 2004) has started
exploring the conditions under which users will become entrepreneurs rather than trans-
fer their innovations to established firms.
2.4 Key elements in the recent development of customer involvement
• Stronger focus on customer needs: from product to customer orientation
Current developments demonstrate the urgent necessity of a shift toward customer-ori-
ented service generation. To remain competitive and establish the potential for differen-
tiation, it becomes increasingly important to place customers’ needs and expectations in
the foreground, which means a change of perspective away from an organisational (in-
9
side-out) view toward a customer (outside-in) one, that is, it becomes necessary to de-
fine and analyse customer involvement and customer roles from the customer’s per-
spective, not from the supplier’s point of view. Customer involvement needs to not only
create positive results for companies but also create value for customers and satisfy
customer requirements.
• Customers assume multidimensional roles
In addition to the traditional customer roles regarded as dominant by companies - those
of demander, buyer, user, and cost factor - customers can and want to be engaged in
other roles, such as a source of competence and know-how, co-developer, or co-inno-
vator. The customer may take several and changing roles during the value-creation
process. To be able to assign an adequate role combination to customers, or allow them
to choose their desired combination of roles, it becomes crucial to know what roles cer-
tain customers want or are capable of at different points in the value-creation process?
• The interaction and communication between customers and companies becomes
crucial
The communication process and design of the relationship between customers and com-
panies has become a primary challenge. To better recognise customer requests and
needs so that customers can exercise new and multiple roles, companies need to become
partners in customer systems. Only effective and efficient communication and interac-
tion between customers and employees, and also between customers and companies,
can make successful customer involvement possible.
• Shift of power to customers and communities
More and more often, customers, as well as whole communities, are in the position of
having company-relevant power potential. New information and communication tech-
nologies enable customers to take on tasks, as well as roles, better and faster than com-
panies could do themselves. New media enables customers to collaborate, exchange,
and organise among themselves. Moreover, customers can form cohesive communities
in order to interact with companies and exert (positive or negative) influence.
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3. EFFECTS OF CUSTOMER INVOLVEMENT ON EMPLOYEES
As services offered by suppliers vary widely, customer roles do not have the
same relevance and importance for all types of services. If and how changing
customer roles have an impact on service provider employees depends very much
on the kind of service being offered. Figure 1 illustrates the variety and diversity
of service elements, which can be differentiated based on the nature of the inter-
action (rational, emotional, communicative) and the nature of the service (prob-
lem solution, encounter, relationship) (Haller, 2000) (see Figure 2).
Figure 2: The service component mix: a great bandwidth of service elements (adopted
from Haller, 2000: 285)
Some services can be primarily thought of as problem solutions and may be
purely technical or economic in nature. Examples here include utility and most
telephone services or online-shopping services such as eBay. Other types of ser-
vices such as encounter-based services involve emotional aspects, for example
the interaction between customers and employees which takes place in stores,
supermarkets, or hotels. If a service consists of several encounters and relational
aspects, psychological and social dimensions become increasingly significant,
Relationship
Encounter
• Interaction
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e.g., in areas of education, healthcare, and consulting, as well as in long-term
financial services relationships or those involving B-to-B business. In what fol-
lows, these kinds of services are referred to as relationship-based services. In
relationship-based services, intensive and personal contacts between customers
and employees play a central part and customers can play very powerful roles.
The impact of changing customer roles on employees, and also on HRM, is
highly relevant for relationship-based services.
A change in the role of customers has an immediate impact on the customer’s
relationship with company employees, especially the customer contact employ-
ees, the so-called boundary spanners. These employees are frequently much
closer - physically, geographically, or psychologically - to customers than to their
company or fellow employees. The customers’ assessment of the company’s ser-
vice quality is mainly based on these employees’ performance and these employ-
ees are also an important conduit of information about customer demographics
and experience to the company, particularly with regard to how often and how
well the company succeeds in satisfying customer requirements (Parkington and
Schneider, 1979; Chung and Schneider, 2002). Boundary spanners link their
company with the outside world - the customers (Chebat and Kollias, 2000; Russ
et al., 1998; Singh and Rhoads, 1991). Response to customer or community
needs, a closer integration of the customer in the service provision process, or
even customer-controlled co-operation in open-source projects all have a tremen-
dous impact on the customer-employee relationship. This leads to a number of
implications for employees, which are analysed in the following paragraphs.
• Increasing importance of emotional and communicative aspects
In the context of new and more sophisticated customer roles, encounter and relationship
aspects are becoming ever more important. The form of communication and interaction
is crucial in enabling customers to share their knowledge and ideas with a company, and
also has an impact on customer motivation and “performance” in regard to customers as
a source of competence and know-how, or acting as co-developers or co-innovators.
Building and maintaining relationships based on trust can be an important prerequisite
to getting customers to share information, know-how, and ideas. In communities, the
integrity and identity of a company and its employees will be decisive factors in
whether a relationship and collaboration can be established and maintained.
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• Extension and change of employees’ tasks
The deeper customers are involved in the value-creation process, the more customer-
employee contact there will be. This increase in contact requires organisations to “em-
ploy higher level of human capital in order to deal with the heightened information
flows and variability resulting from this increased interaction” (Skaggs and Youndt,
2004, p. 94). After all, it is mainly at the emotional and communicative level that em-
ployees are able to succeed in generating value for customers or whole communities.
Therefore, employees will need to have core competencies not only in technical aspects
of the job, but also emotional and communicative skills. Standards for customer service
may become quite ambiguous and involve individual judgement (Cardy et al., 2000).
Employees will be called upon to perform a wide range of tasks and their performance
of them will be the basis for the customers’ assessment of the company’s service quality
(Haller, 2000). The range of tasks required of employees is not simply becoming
broader; it can also change significantly over time, especially in dynamic service areas.
If customers become innovators or even advocates, employees need to develop and
maintain relationships with such customers over time. This may require acquiring new
knowledge and skills so as to keep up with the changing needs of customers or of the
company environment.
• Increasing role conflicts and role ambiguity
Customer involvement in service production as a co-producer creates a special relation-
ship between customers and employees: The inclusion of customers, as an external con-
stituent in the production of their own service, adds complexity to the service provider’s
job (Chung and Schneider, 2002). In this scenario, customer contact employees are
subject to a number of role conflicts and role ambiguities (Parkington and Schneider,
1979; Singh and Rhoads, 1991; Schneider, 1994; Chebat and Kollias, 2000). The more
sophisticated the customer role, the more complex and challenging the employee’s job
and the greater the possibility for role conflict and role ambiguity.
In general, role conflict refers to the “degree of incongruity or incompatibility of ex-
pectations associated with the role” (House and Rizzo 1972, p. 475). In the current
context, this means discrepancies between what employees believe customers want
them to do and what employees believe management wants them to do (Chung and
Schneider, 2002). As customers take on multiple roles in the value-creation process -
e.g., customer, co-worker, co-developer, or co-innovator - it becomes even more diffi-
13
cult for boundary spanners to cope with all the different expectations customers have of
them. Employees are faced with the question of which customer playing which role
should get the most attention. For example, are lead-user customers more important
than advocate customers? On very many occasions, the employee has to answer this
type of question on his or her own. Add to this dilemma the additional difficulty of try-
ing to satisfy management’s expectations, and the boundary spanner’s job becomes al-
most impossible. The fact that boundary spanners are typically relatively low in the or-
ganisation’s hierarchy adds yet another layer of complexity to the role conflict (Chung
and Schneider, 2002).
Role ambiguity arises when there is a lack of information about role expectations and
what constitutes effective or acceptable performance (Singh, 1998). Role ambiguity is
intensified when employees think or suspect that they do not possess the information
necessary to function effectively (Singh and Rhoads, 1991; Schneider, 1994). For ex-
ample, role ambiguity arises when employees do not know whether they have per-
formed adequately (i.e., there is no feedback from a superior or any signal from the
customer). Where customers are acting as a source of competence, as innovators, or as
advocates, role ambiguity may be caused by management as well as by customers, es-
pecially if customer contact responsibilities are poorly defined, assignments are not
clear, priorities change, or the appraisal varies over time.
Role conflict and role ambiguity result in dissatisfied and frustrated employees who lose
confidence in the organisation or even quit the job. A considerable body of research has
confirmed that role conflict and role ambiguity have a significant, and mostly negative,
influence on employee performance and organisational outcomes (see Nygaard and
Dahlstrom, 2002).
The employee challenges outlined above may require important changes in employees’
psychological contracts. The psychological contract comprises the expectations and
obligations that employees regard as part of their terms of their employment (Pavlou
and Gefen, 2005; Cavanaugh and Noe, 1999; Robinson and Rousseau, 1994). It may
include expectations regarding job security, training, financial rewards, and career man-
agement issues (Cavanaugh and Noe, 1999). Increasing employer expectations regard-
ing employee skills and behaviour on the one hand, and increasing role conflicts and
14
ambiguity for the employees, on the other hand, increases the potential for serious psy-
chological contract violations. The perceived fairness or unfairness of the employment
relationship can be a motivating force for employees to engage in positive or negative
behaviours (Pavlou and Gefen, 2005). In their theoretical work, Blancero et al. (1996)
linked perceived violations of the psychological contract, feelings of unfairness, and be-
havioural outcomes. The authors point out that much behaviour in the workplace is dis-
cretionary, especially that associated with customer service. Blancero et al. (1996) con-
clude that violations of psychological contracts can result in either positive or negative
discretionary or organisational citizenship behaviours. For example, an employee may
choose to ignore a customer or may take the opportunity to bad-mouth the organization.
HRM practitioners and researchers need to carefully consider the psychological con-
tracts employees have with their organisations and how violations can be managed,
even eliminated (Cardy et al., 2000).
4. CONSEQUENCES FOR HRM OF CHANGING CUSTOMER ROLES
In this paper, HRM is considered to be a part of a comprehensive (management) process
that is oriented towards and integrated in the corporate strategy. In its broadest sense,
HRM refers to the policies, procedures and processes involved in the management of
people in working organisations (Sisson 1990). A relatively new HRM research thrust,
which is gaining more and more interest, is customer-oriented HRM. Customer-oriented
HRM is targeted at meeting the expectations of customers in specific market segments
(see, e.g., Schneider and Bowen, 1993; Schneider, 1994; Bowen and Siehl, 1997; Peccei
and Rosenthal, 2001; Rogg et al., 2001; Janowski and Huffstadt, 2003). It might also be
called strategic HRM, where the strategic focus is the customer (Schneider, 1994).
However, until now, HRM research has not yet included much beyond the organisa-
tional boundaries (Lepak and Snell, 1999; Hornsby and Kuratko, 2003). This assertion
is supported by the extensive literature review by Cardy et al. (2000) on the impact of
customer orientation on the HRM functions, job analysis, selection, and performance
appraisal. The authors found that customer orientation, in the form of customer input
into selection criteria or decisions, was not addressed in the studies examined. In per-
formance appraisals, ratings were primarily based on the evaluations made by internal
collaborators, such as supervisors, peers, subordinates, and/or self. However, none in-
cluded external evaluations made by, for example, customers, as would be expected
15
from in customer-oriented focus (Cardy et al., 2000). These topics are lacking research
and a theoretical fundament.
Nevertheless, new and more sophisticated customer roles, and the accompanying impli-
cations for employees, create various challenges for a strategic and (pro)active HRM. It
will become necessary to extend the HRM perspective beyond organisational bounda-
ries, involving further stakeholder especially customers, bearing in mind that customers
with their requirements and interests are the most important stakeholder group. Due to
the importance of employees to relationship-based services, management of staff is key
to a service company’s success (Russ et al., 1998; Chung and Schneider, 2002). If the
(HR) management, especially of boundary spanners, is successful, HRM will be able to
make a vital contribution toward a high level of service quality and customer satisfac-
tion, as well as increase customer loyalty and profitability (Heskett, 1987; Schneider
and Bowen, 1993; Homburg and Stock, 2001; Rogg et al., 2001; Cook et al., 2002).
Based on the above discussion, implications and new challenges are derived for the
central HRM functions: recruitment, appraisal, reward and development. The analysis
for each HRM function looks in particular at:
1. How HRM can support and increase the customer orientation of employees and
companies so as to achieve customer-oriented service generation.
2. How HRM can reduce or minimise role conflict and role ambiguity for employees.
3. How customers can be included within HRM - resulting in “HRM for customers” -
in order to optimise customer involvement and create added value for customers.
4.1 Recruitment
HRM has the task of developing, implementing, and evaluating goals, strategies, and
instruments that will ensure that the right people with the right motivation and appropri-
ate skills are hired (Hilb, 2002). Therefore, selection criteria should include the in-
creased emotional and interactional skills required from future employees. This may
entail inquiring into a prospective employee’s experience with special custom-
ers/customer groups or requesting customer references. It will be important that em-
ployees have the skills necessary to meet the expectations of customers or whole com-
munities. In the long run, it is only when employee skills match customer expectations
and requirements, that company expectations will be fulfilled. The big challenge for
16
recruitment is, aside from the issue of cost savings, how to involve customer in the hir-
ing process.
It is feasible to lessen role ambiguity for boundary spanners by making provisions for
consideration, feedback, and autonomy (Singh, 1993). One way of accomplishing this is
to involve customer communities or single customers in the job description task so that
both (or all) parties will understand the tasks, skills, and expectations required of the
employee. Furthermore, when involving customers as innovators, it is essential to select
the right customers, for example lead users that correspond to relevant target market. In
this context, selection criteria for lead users need to be defined and applied, e.g. con-
cerning personal characteristics, level of experience, technical know-how or knowledge
of markets and customer segments. For example, game or software companies like Mi-
crosoft use detailed application processes in order to "recruit" new voluntary testers, so-
called beta testers, for their new programs or applications.
4.2 Appraisal
Employees’ roles and tasks change with the customer’s changing role. This requires an
additional dynamic adaptation and/or extension of appraisal. However, so far at least,
research in this area supports the use of concrete and tightly defined job-appraisal for-
mats, such as behaviourally anchored rating scales, which may be insufficient for an
appropriate appraisal of the skills needed in dynamic employment situations (Ilgen and
Pulakos, 1999). Scales that are tied to the technical aspects of a job are inappropriate for
relationship-based jobs where emotional and social aspects dominate. It is important
that broad skills, including emotional and communicative competence, interpersonal fit,
customer service, and customer community issues, be addressed in the appraisal. In this
context it becomes crucial to specify and to adapt the scales utilised, including those
aspects necessary to employee performance. Additionally, for a dynamic appraisal sys-
tem, it is not sufficient to merely expand the content of performance appraisal but also
the sources of appraisal. As customers themselves can best evaluate customer-oriented
performance criteria, customer performance appraisals should be an important employee
evaluation criterion. “However, more than simply expanding the number of sources, it is
important that the sources be in the best position to judge the various criteria” (Cardy et
al., 2000, p. 182). For this reason it is important to define how, how often, what, and
when in the service provision process customers should evaluate the performance of
17
employees, services, and the company. Practice shows that companies, for example,
Cisco Systems, that consistently and meticulously evaluate customer satisfaction and
use this information in judging and rewarding their employees are highly customer ori-
ented and very successful. The definition and communication of such performance crite-
ria and its impact on individual and team appraisal may substantially increase the cus-
tomer orientation of employees and the organisation and help avoid role conflict and
role ambiguity.
If customers are innovators in the business production process or add critical knowledge
and skills, it is not only employee performance that needs to be evaluated, but that of
the customers as well. Only with a fair evaluation of customer performance can appro-
priate customer “remuneration” be guaranteed. Employee or HRM customer appraisals
can be used as the basis for appropriate customer incentive programs. They can also be
used to illustrate the potential of customers as innovators or co-producers.
4.3 Reward
If HRM becomes a part of the behaviour alignment concept, it should be tied in with an
appropriate remuneration and incentive system. If an individual employee’s contribu-
tion creates and adds value to the company, customers, and employees, then it becomes
necessary to co-ordinate remuneration with such contribution. This remuneration should
be harmonised with the company’s vision, other central HRM functions, the predefined
time horizon for reaching goals (short term vs. long term), and periodic evaluation by
all groups involved. To achieve this, the following questions need to be addressed:
• To what extent does customer satisfaction or customer behaviour play a role in goal
definition and the determination of employee compensation?
• How can quality and extent of customer involvement or customer recommendations
be incorporated into the remuneration system?
• What is the basis for the time horizon?
Since customer contact employees also fulfil the important function of supplying and
filtering customer information and experiences - especially in case of customers acting
as source of competence or as innovators - this aspect of performance also needs to be
rewarded. Perhaps the amount of relevant information these employees feed back into
the organisation could become a significant part of their remuneration.
18
A new set of reward-related challenges arises out of the changing roles of customers and
their functions. An important requirement for effective customer involvement is their
motivation to contribute (Lengnick-Hall et al., 2000). In addition to performing useful
and important tasks, customers must also be willing to make direct contributions to
various organisational activities (Kelley et al., 1992). This requires a system that not
only compensates customers for their efforts, but also motivates them to stay involved
in the future. The reward system should secure and develop customer involvement.
Customers are more likely to put forth the effort to be an effective co-producer or inno-
vator if they believe their actions and ideas will make a positive difference (Lengnick-
Hall et al., 2000). Therefore, it is essential that customers are made aware of the impact
of their involvement.
Customers are becoming increasingly aware of their own worth and the best and most
innovative of them may find more than one company competing for their time and
ideas. Customers are starting to ask, “What’s in it for me?” (von Krogh, 2006, p. 46).
For very valuable customers, perhaps the company should pay to keep them involved. If
the company cannot hire these valuable assets outright, it might be able to negotiate a
flat fee or even a share of the royalties in exchange for the customer’s time (von Krogh,
2006). For instance, in 2001, the pharmaceutical giant Eli Lilly founded Innocen-
tive.com, an independent web-based community matching top scientists to relevant
R&D challenges, thus enabling major companies to reward scientific innovation with
financial incentives. It has signed up more than 90,000 biologists, chemists, and other
professionals from more than 175 countries. These “solvers” compete to overcome
thorny technical challenges posted by “seeker” companies. Each challenge has a de-
tailed scientific description, a deadline, and an award, which can run as high as
$100,000.
4.4 Development
To enhance employees’ present and future performance, HRM needs to adapt develop-
mental processes. Because changing customer roles necessitate an extension and change
of employees’ tasks, training programs need to be constantly updated so that employees
will be equipped to cope with these challenges. In addition to its traditional training
tasks, HRM now faces the challenges of managing social processes, dealing with con-
flict management in individual areas, and, at times, managing customer development.
19
Although customer willingness is a prerequisite to their involvement, it may not be a
sufficient condition: appropriate know-how and tools will be required in order for them
to participate efficiently. For example, the on-line broker Charles Schwab targets train-
ing and empowering customers, with the goal of putting customers in a position to make
financial decisions and carry out the appropriate transactions themselves. The company
offers a training course, in which its customers can learn to effectively employ the tools
it offers. Additionally, if customers as a source of competence or as innovators can be-
come more effective by learning from each other, companies should help them to do so.
Companies can provide physical or on-line sites where the customers can meet, and
offer to set the agenda, moderate discussions, and establish communication platforms
for follow-ups (von Krogh, 2006).
5. RESEARCH IMPLICATIONS
This analysis has shown that the importance and impact of customer influence on ser-
vice companies is increasing. Collaborating with customers gives companies deeper
insights into customer behaviour and preferences, reduces the cost of developing new
and improved products and services, and enhances satisfaction and loyalty as customers
become emotionally invested in the value-creation process (von Krogh, 2006). The re-
lationship between customers, employees, and companies has achieved a new level of
intensity, confronting each of the parties with new challenges.
The present analysis illustrates the widespread and important consequences of this in-
tensified relationship for employees and HRM and shows that customers can signifi-
cantly influence the success of a company. As a result, the practice of HRM has become
increasingly complex and a multitude of new and enhanced HRM approaches have been
developed. However, the inclusion of the customer as a relevant reference and/or exten-
sion of HRM beyond the organisational boundaries have been very limited so far. The
few customer-oriented HRM approaches focus only on the organisational relationships
and configurations without actually involving customers.
In practice, customers are increasingly becoming a part of the value-creation process by
taking on new roles and functions, a situation that has been described as a “shift of
power” (Prahalad and Ramaswamy, 2000, p. 81) away from the company and toward
the customer. The potential for direct and indirect customer influence on employee be-
20
haviour, particularly boundary spanners, has increased dramatically. Due to this poten-
tially powerful influence, customers can strengthen, complement, or thwart the work-
ings of the organisation, not just HRM but also development, production, and, espe-
cially, marketing. Thus, HRM is now faced not only dealing with the changing nature of
employee functions. HRM should also establish an effective way to deal with custom-
ers, negotiating with them as if they were almost employees - a daunting task that far
exceeds the type of “customer-oriented HRM” discussed in the literature to date.
In the future, the company as a whole, as well as individual functional units, will be
forced to meet the challenge of orienting to and aligning with customer needs. HRM,
marketing, and leadership will need to figure out how they can create value not just for
the organisation and its employees, but also for customers. The numerous issues sur-
rounding the inclusion of customers in HRM opens an entirely new field of research,
which requires empirical examination. Below is a list of some of the central questions
and issues that will need to be addressed. These items are not limited to HRM research,
but are also relevant for other research areas, particularly marketing research, as they
deal with customer involvement, and customer satisfaction and/or performance.
• In a set of empirical investigations, a positive correlation was found between em-
ployee and customer satisfaction (Homburg and Stock, 2001; Schlesinger and
Heskett, 1994; Heskett, 1987). The subject of the investigations was the influence
of employee satisfaction on customer satisfaction. What effect does this perceived
customer satisfaction have on the behaviour of employees? What impact does it
have on HRM tasks such as, for example, employee motivation or individual goal
setting?
• Having customers highly involved in organisational processes and exerting strong
influence on employees can cause tensions in various fields at individual and or-
ganisational levels. What kind of conflicts can evolve between internal and external
sources? How can conflicts between customers, employees, and management be
identified and mitigated? A better understanding of customer roles appears to be a
viable way of reducing or even avoiding such conflicts.
• To date, the psychological contracts of employees have been considered mainly
with respect to the exchange with the employer. However, this theory can easily be
applied to virtually any reciprocal relationship (Blancero and Ellram, 1997), for ex-
ample, buyer-seller relationships (Pavlou and Gefen, 2005) or employee-customer
21
likely to develop important psychological contracts with customers. This becomes
highly relevant when employees are engaged in close relationships with customers
who are co-workers, co-developers, or innovators. So far the impact of sophisti-
cated and changing customer roles and a high level of customer involvement on the
psychological contracts of employees and customers has not been investigated de-
spite its high importance for the success of employee/company-customer relation-
ships.
• HRM research has so far focused on the relationships and configurations within
organisations that lead to optimal human resource architecture (Lepak and Snell,
1999). Is there a link - empirical evidence - between HRM practices, customer in-
volvement, and customer satisfaction that would force HRM research to extend its
focus beyond organisational boundaries?
• Several aspects have been outlined here on how HRM can support and increase
customer-oriented service generation. However what contribution can HRM make
in creating and developing a customer-oriented company culture? Researchers
stress and provided empirical evidence suggests that HRM plays an important role
in influencing organisational climate and culture (see, Rogg et al., 2001; Ferris et
al., 2004). Ulrich (1998, p. 133) goes so far as to argue "HR can be the architect of
new cultures". However, how can this be achieved where there is or should be a
new customer orientation and in the context of changing customer roles?
• Recently, there has been some research into “why” HR practices lead to sustainable
competitive advantage (Bowen and Ostroff, 2004); however, there is still little HR
theory helping to explain “how” HRM practices lead to desired organisational out-
comes, especially if the research focus is extended beyond organisational bounda-
ries.
Answering these questions and addressing these issues will require researchers to ex-
tend the context of HRM beyond organisational boundaries. This list is intended to be a
starting point for new HRM research; especially that research addressing strategic and
customer-oriented HRM approaches. Looking at these issues will also enrich other re-
search disciplines, especially marketing research, which is strongly associated with new
customer roles and functions. It is important to start thinking (and researching) outside
conventional organisational boundaries when looking for ways to achieve performance
objectives (Lengnick-Hall et al., 2000). Bringing these two worlds together - the world
22
of the customer and the world of HRM - presents a great opportunity for enhancing pro-
gress in both through an integration of perspectives.
23
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