Competitive advantage of the prime integrator

Derivative Proposition 8a

The value network member that is the prime integrator is in a stronger competitive position.

Derivative Proposition 8b

The retailer is generally in the best position to become the prime integrator.

While the network member who is the prime integrator is in a stronger competitive position, we posit it is the retailer who is generally in a unique position to become the prime integrator. In a sense, the history of retail competition is largely a history of managing the level and types of service (and value) that the customer co-creates. Furthermore, retail entrepreneurs and innovators offered different approaches to integrate the customer into the value co-creation process. Notable hypotheses in this area (i.e., The Wheel of Retailing, McNair 1958; Hollander 1960, and The Big Middle, Connolly 2004; Levy et al. 2005) provide a good lens to view this evolutionary phenomenon.

Hollander’s (1960) descriptive notion of a wheel of retailing alludes to such trade-offs as retailers changing their core offering from the entry phase (with assumed relatively low retailer input and relatively high customer input) through the trading-up phase (with an assumed more equal proportion of service load between the customer and retailer at the point of transaction) to the vulnerable phase (where it is assumed the retailer’s input is considerably greater than other phases). Conceptually, however, a firm would be vulnerable at any stage to competitors who are better at integrating resources and services to collaborate with the customer to produce and create higher value, and not just during the vulnerable stage mentioned earlier.

Levy et al. (2005) model the retail landscape along the dimensions of relative offering of the retailer along with relative price and refer to “The Big Middle” marketspace, the space where the largest number of customers is conceptually located and where the largest retailers compete. Under this model retailers … “tend to originate as either innovative [high relative offering, high relative price] or low-price [low relative offering, low relative price] retailers, and the successful ones eventually transition or migrate to the Big Middle [average relative offering, average relative price] (p. 85, items in brackets added).

While the authors, note the oversimplification of the scheme for expository purposes (p. 85), we suggest the model is indicative of the phenomena of retailers actively managing the level of service for which each value co-creator (marketer and customer) is responsible. Accordingly, the retailers’ management of the balance of co-creation responsibilities has always led them to follow a more service-centered view. Despite the advantageous role retailing may serve as a prime service-integrator, and the role that technology can play in aiding service-integration, S-D logic informs all organizations. In the following section, we point out how S-D logic can inform organizations about gaining competitive advantage by becoming more service-centered through the creation of a service culture.

Leveraging employees

One of the hallmarks of S-D logic is the superordination of operant resources in relation to operand resources in their relative roles in competitive strategy. That is, as discussed, it is knowledge and skills, including in some cases a firm’s knowledge used in designing and/or making appliances, which drives its success (Vargo and Lusch 2004; Lusch and Vargo 2006). This, of course, implies that the competitive advantage of the firm is more of a direct function of the comparative advantage of competences (c.f. Hunt 2002) than it is the direct comparative advantage of its units of output—that is, its goods. The other hallmark of S-D logic is the idea that value cannot be embedded in operand resources but rather must be co-created through collaboration between firm, customer, and other value-network partner’s operant resources (Vargo and Lusch 2004).

Besides operand and operant resources being differentiated in terms of their ability to cause changes in other resources, they differ in another important regard. Operand resources are typically depletable and static in nature, while operant recourses are capable of being rejuvenated, replenished, and newly created, and are thus dynamic in nature. That is, new, innovative knowledge and skills, often with increased capability for providing increased benefits, and thus increased marketability, can be created endlessly. None of this suggests that a specific set of competences cannot become obsolete, or at least “commoditized.” Indeed, today’s high technology often becomes tomorrow’s “unskilled” labor.

Organizations can reinvent themselves as “service” organizations and develop a service culture by treating employees as the type of resources they are—pure operant resources, rather than operand resources. Reinventing the firm as a service organization using S-D logic requires the organization’s culture and its leadership style to treat employees as operant resources. The leadership of many G-D logic organizations is based largely on the manipulation of rewards and punishments and is, accordingly, a coercive form of leadership. It is also based on asymmetric information with the leader and organization holding much information private and out of the reach of employees and, in turn, employees reacting similarly and withholding vital information from management. Employees are viewed as replaceable operand resources and treated largely in a transactional mode. It is not surprising that these firms find themselves unable to compete and, as such, laying-off or ridding themselves of their most important resources.

By contrast, S-D logic points to all participants in the value-creation process who are being viewed as operant resources. When employees are viewed and treated in this manner they become empowered in their role as value cocreators. Employees as operant resources become the primal source of innovation, organizational knowledge, and value. The role of the leader is to be a servant-leader who is there to serve the employees, rather than the employees serving the manager. Hence, employee–manager interaction comprises conversation and dialog and the development of norms of relational behavior such as trust, open communication, and solidarity. In addition, because of open communication, all information is shared and thus is symmetric. In this work environment, employees can develop new and innovative ways of providing service—that is, new competences that allow the firm to compete more effectively. Further, employees of these firms are (should be) assisted in this process of competence augmentation through internally and externally supported training and educational programs.

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