Values-based Service for Sustainable Business

Lessons from IKEA

Bo Edvardsson, Bo Enquist

• Publisher: Routledge
• Year: 2008
• eBook ISBN: 9781134047567
• Topic: Commerce
• Subtopic: Commerce Général

The role of values in developing and managing service companies has been under researched in the existing literature - until now. This book analyzes a large organization (IKEA) as a basis for values based service for sustainable business.

The authors provide an overview of the history of IKEA and the social and environmental perspectives that have acted as driving forces for creating economic value. They go on to develop values-based service thinking within the areas of service experience, service brand, and service leadership. The book concludes by comparing IKEA to other values-based service companies (such as Starbucks, H&M, and Body Shop); from these reflections, the book presents the key principles for a sustainable, values-based service business.

1 Setting the stage

Introduction

Value creation is a multi-faceted and important area for both scholars and managers. Value for customers of a product (for example, a car) is created in a somewhat different manner than it is for customers of a service (for example, a transportation solution). In the first case, a so-called ‘goods logic’ is required to understand value production, whereas, in the second case, the transportation solution needs a ‘service logic’ to describe and understand the customer value being created. The essential difference between ‘goods logic’ and ‘service logic’ is that the former perceives value as being embedded in physical products during manufacturing, whereas the latter holds that value is co-created with the customer and is experienced and assessed when the service is utilised within the customer’s own context.

The notion of ‘customer value’ includes not only economic value but also value that is linked to values (in the sense of ‘ideals’). From the customer’s perspective, ‘value’ is an overall personal assessment of the quality attributes of the market offering in relation to the price and other sacrifices. It is a subjective assessment of the positive and negative consequences associated with the purchase (Woodruff, 1997), including values linked to the provider. From the company’s point of view, the buying motives are the basis for a customer value proposition, which makes it a strategic issue in terms of service development, segmentation, and marketing communication (Rintamäki et al., 2007).

Values can be understood as the principles, standards, ethics, and ideals that companies (and people) live by (Waddock and Bodwell, 2007). A distinction can be made between two main categories of values: (i) a company’s core values (which form the basis of the company culture); and (ii) foundation values (which reflect the norms of society in general). Compliance with the latter category constitutes so-called ‘corporate social responsibility’ (CSR), which refers to a company’s social and environmental responsibilities. A values-based business is thus based on a combination of core company values and foundation values, which guides the company in creating customer value and a sustainable service business.

Such values are crucially important in creating customer value and forming the basis for a sustainable service business. For example, an important quality attribute of a car is its engine power; the more power it has for the same price, the better value it represents. However, this notion of ‘value’ might conflict with a customer’s personal values—that a more powerful car will cause more damage to the environment than a less powerful model. In these circumstances, a car with the same engine power but greater environmental ‘friendliness’ would be perceived as having greater customer value. It is thus apparent that personal values (in the sense of ‘ideals’) contribute to customers’ assessments of the overall value of attributes possessed by goods and services.

Relatively little attention has been devoted by scholars and practitioners to this important role played by values in creating value for customers and other stakeholders. Service management has focused on other areas—such as service offering, service quality, service encounters, technology in service, complaints management, service recovery, new service development, service competition, service strategy, and so on. However, more recently, the implications of the so-called ‘service-dominant logic’ (SDL) (Vargo and Lusch, 2004; Lusch and Vargo, 2006) have become a subject of greater interest. Mainstream business thinking is today product and production oriented and thus characterised by a ‘goods-dominant logic’ (GDL) (ibid.), which can be seen as the opposite of SDL. The main focus of the SDL paradigm is that value is co-created with customers and assessed on the basis of ‘value-in-use’. Market offerings (physical products and services) are understood as being resources that produce effects. Customers thus use their knowledge and skills when service value is created and assessed—for example, when using a mobile phone to communicate.

Despite the growing awareness of SDL, the focus in service-management research has continued to be on the structural processes of the service system, which is part of the business model. A definition of the concept ‘business model’ from a GDL point of view suggested by Osterwalder et al. (2005, p. 3) is as follows:

A business model is a conceptual tool that contains a big set of elements and their relationships and allows expressing the business logic of a specific firm. It is a description of the value a company offers to one or several segments of customers and the architecture of the firm and its network of partners for creating, marketing, and delivering this value and relationship capital, to generate profitable and sustainable revenue streams.

Our business model thinking is related to SDL and thus emphasises value-in-use and co-creation of customer value and values resonance, which we will later introduce as a label for a synergy between corporate values, foundation values and customer values.

The notion that a service culture, grounded in company core values and CSR, drives service strategy, has not been empirically examined in any great detail. This book focuses on what might be called ‘values-based service’, with particular emphasis on the role of such service in the furniture company, IKEA. ‘Values-based service’ is, in this book, defined as service that is firmly based on the core company values as well as social and environmental responsibility. When the core company values, the social and environmental values are in accordance with the values of customers and other stakeholders, resonance (rather than dissonance) occurs. To be successful, a values-based service business must seek resonance in terms of values, and avoid any suggestion of dissonance; that is, the firm and its stakeholders must have shared values. As Pruzan (1998, p. 1380) observed:

Business and public leaders are realising that good answers to complex questions can be found by supplementing the narrow language of efficiency, control and profit with multidimensional and qualitative measures that explicitly recognise the values the organisation shares with its stakeholders.

In accordance with the SDL paradigm outlined above, value can be understood as being co-created (Normann and Ramirez, 1998) through strong relationships with stakeholders (Gummesson, 2007). The key stakeholder in this book is the customer, and value-in-use is understood within the context of the customers’ needs and values. Other stakeholders worthy of consideration are the shareholders, suppliers, employees, media, partners, and non-governmental organisations (NGOs).

This book uses narratives from IKEA, together with a conceptual analysis based on SDL, and a values-based business model to create a framework of values-based service for sustainable business. IKEA was founded by Ingvar Kamprad in 1943 as a one-man mail-order furniture company in a farm village in Småland, southern Sweden. What might be called the ‘IKEA concept’ really began in the 1950s with a showroom where customers could see and touch the products, and the catalogue and the store support one another. From the beginning, the focus of IKEA was on function, quality, and low price, and these continue to be the core values of the firm, although good design has been added as a fourth core value. IKEA has become a fast-growing, global, home-furnishing group with 273 stores in 40 countries (as of February 2008). In the year ending 30 August 2007, IKEA had a turnover of 182 billion Swedish crowns (US$29 billion) and 522 million visitors to the business. IKEA’s research has revealed that the average customer returns to an IKEA store four times a year.

Aims and objectives of the book

This book is the first on the role of values in developing and managing sustainable service organisations. The focus of the book is on the role of values in creating customer and shareholder value and thus co-creating a sustainable business. The two basic questions addressed by the book are:

• What is ‘values-based service’?
• How can values create value for customers and other stakeholders?

Values can contribute to value-in-use for customers or they can diminish value. Attractive corporate values that resonate with the personal values of customers can build a business, whereas values that create dissonance with customers’ values are likely to drive customers away.

In examining these ideas in a practical business situation, it was important to choose a service company that has been successful in terms of growth and profitability. Some might argue that IKEA is a product retailer and not a service company; however, IKEA views itself as a service provider—because the company’s focus is not on the furniture itself but on ‘solutions to real-life problems’ and making a contribution to a ‘better life’ for the majority of people. This is clearly a service concept in which the physical products are perceived as platforms for service experiences that create customer value. Moreover, IKEA is a service-oriented company in the sense that the focus of the company is clearly on serving people with well-designed, quality products at a price they can afford.

IKEA has been, over the long term, a very profitable company that has become the global leader in its industry. The firm is known for a strong service culture that emphasises company core values and a strong sense of corporate and social responsibility. IKEA has demonstrated an ability to serve customers and renew its business at a time when many other companies have been more focused on narrow conceptions of shareholder value and internal issues. Other companies and organisations can learn from IKEA, and it is the aim of this book to provide inspiration and practical guidance in analysing an organisation’s values as a basis for a sustainable service business. In short, this book contributes to a better understanding of the strategic role of values in forming and directing service strategy and value-in-use for customers.

Target readership

Every reflective manager and senior executive can benefit from reading this book. The lessons to be learnt from IKEA are applicable in virtually any organisation. In particular, other firms can learn from IKEA’s long-term commitment to serving the majority of people, its global perspective, and its dynamic values-based culture that supports and directs the mission, strategy, business model, market offerings, and development of the IKEA brand. The book is thus useful for managers and executives who are engaged in the areas of marketing, human resources, product and service development, brand management, quality improvement, corporate social responsibility, and customer-relationship management. The book is also intended for MBA and executive MBA programmes at universities, business schools, and institutes, as well as for various other master’s programmes at business schools and technical universities.

Structure of the book

The first three chapters of this book provide a basis for a more in-depth exploration of the issues involved. The first chapter describes and defines values-based service and sustainable business. The chapter also introduces IKEA and notes various dimensions of the company’s business model. Chapter 2 provides an overview of the history of IKEA and the social and environmental perspectives that have acted as driving forces for creating economic value. The chapter concludes with a strategic perspective on the values-based culture of IKEA. In Chapter 3, the concept of customer value is discussed, followed by the presentation of this book’s framework for how values drive customer value-in-use. With this background, it is possible to conceptualise values-based service in terms of core company values, SDL, CSR, to create a sustainable business.

In Chapters 4–6, values-based service thinking is developed within the areas of service experience, service brand, and service leadership. In Chapter 4, the focus is on the service experience and how to make it possible for customers to ‘test-drive’ services and solutions before purchase and consumption. Chapter 5, which is about values-based service brands and marketing communication, discusses identity, image, and how to ‘live the brand’. Chapter 6 is about ‘authentic leadership’, living the values, and leaders being role models. Finally in Chapter 7, IKEA is compared with other values-based service companies (such as Starbucks, H&M, and Body Shop); from this analysis, the book presents five principles for a sustainable, values-based service business.

IKEA as a values-based company for sustainable business

Values-based businesses in general

The values of a company guide the business model, the attitudes and behaviours of the firm’s leaders, employees, and customers, as well as determining the business strategy and vision of the company. In the context of this book, such values (in the sense of ‘ideals’) are crucial for understanding customer value and value-in-use.

Costa and Bjelland (2006) made the following observation about the importance of corporate values:

… chief executives take extreme risks, diversifying from their core businesses, betting on untried technologies, acquiring companies in unrelated sectors—[in short], doing whatever they can to deliver revenue growth and bolster their stock. In this environment, executives ignore their company’s core values at their peril. The absence of values-based decision-making … is one of the common failings of … departed executives. It is leading to a polarization between those companies that continue to succeed by remaining true to those values and those that are exposed by diversifying too far, too fast.

Figure 1.1 presents this problem in terms of a matrix of two value-creation logics (service-dominant logic and goods-dominant logic) on the vertical axis and two business models (a control-based business model and a values-based business model) on the horizontal axis. The term ‘control-based business model’ refers to a short-term focus on financial results, whereas the ‘values-based business model’ shifts the focus from a short-term preoccupation with financial matters to incorporate long-term, values-driven governance principles and key performance indicators. In such...

Table of contents

• Cover Page
• Title Page
• Copyright Page
• Preface
• 1 Setting the stage
• 2 Sustainable business embedded in history and heritage
• 3 Values-based service
• 4 Values-based service experience
• 5 Values-based service brands and marketing communication
• 6 Values-based service leadership
• 7 Values-based sustainable service business
• Appendix 1: A Furniture Dealer’s Testament by Ingvar Kamprad
• Appendix 2: List of visits, interviews and project-work in IKEA