Transforming Leadership for Service Business

Doctoral Thesis / Dissertation, 2014

105 Pages, Grade: A



List of Figures

List of Tables

Chapter 1: Introduction
1.1 Background
1.1.1 The increasing IT service market in the global economy
1.1.2 Service-oriented corporate transformation as a competitive strategy
1.1.3 Challenges for leaders in corporate transformation
1.2 Research objectives
1.3 Research questions
1.4 Research Methodology
1.5 Originality and significance of the research
1.6 Structure of the chapters

Chapter 2: Theoretical Review of Service Science and Leadership
2.1 Introduction
2.2 Emerging theories in service science
2.2.1 Service-dominant logic
2.2.2 Service field
2.2.3 Value co-creation with customers
2.3 General leadership theories
2.3.1 Definitions of leadership
2.3.2 Traditional leadership theories
2.3.3 Transactional and transformational leadership
2.3.5 The role of shared vision in leadership building
2.4 The contrast of leadership in goods- and service-dominant Logic
2.5 Summary and proposition: vision co-creation leadership for value co-creation business

Chapter 3: Case Study Design
3.1 Introduction
3.2 Two groups of companies for case studies
3.2.1 Chinese companies as fast-developing cases
3.2.2 Japanese multinational companies as well-developed cases
3.3 Attributes of the companies
3.4 Interview methods
3.5 Data collection and Analytic strategy

Chapter 4: Case Analysis and Discussion
4.1 Introduction
4.2 Chinese cases from Kingdee
4.2.1 Company A
4.2.2 Company B
4.3 Japanese Case Company – Company J
4.3.1 Profile of the company
4.3.2 The problems of building the shared vision
4.3.3 The actions taken to resolve these problems
4.3.4 The results
4.3.5 The process of building shared vision at a large department level
4.4 Summary

Chapter 5: Conclusions
5.1 Introduction
5.2 Answers to research questions
5.3 Theoretical implications
5.4 Practical implications
5.6 Suggestions for future research


Appendices A: The interview questions for Kingdee

Appendices B: The interview questions for Japanese companies

List of Figures

Figure 2-1: The development of general leadership theories

Figure 2-2: Level 5 Leadership

Figure 2-3: Articulating a vision

Figure 2-4: A conceptual framework for value creation in goods-dominant logic

Figure 2-5: A conceptual framework for value co-creation in service-dominant logic

Figure 2-6: The logic between vision co-creation and value co-creation

Figure 4-1: The vision co-creation process in company A of Kingdee

Figure 4-2: The vision co-creation process in company B of Kingdee

Figure 4-3: The vision co-creation process in Japanese International Company J

Figure 4-4: The framework of vision co-creation in the Kingdee Company

Figure 4-5: The framework of multi-level vision co-creation in Japanese Company J

Figure 5-1: Vision co-creation process in service-oriented business

Figure 5-2: The relationship between leadership and employees’ commitment

List of Tables

Table 2-1: The roles of the customer in two kinds of logic

Table 2-2: Representative definitions of leadership

Table 2-3: Characteristics of transformational and transactional leaders

Table 3-4: Contrasting leadership in G-D logic and S-D logic

Table 2-5: Difference of vision acceptance between goods-dominant and service-dominant logic

Table 3-1: The implementation results of a service-oriented strategy

Table 3-2: Attributes of Chinese case study companies

Table 3-3: Attributes of Japanese case study companies

Table 3-4: The steps of in-depth interviews for the Kingdee case study

Table 5-1: Issue, employee working state and focus in each phase of vision co-creation

Chapter 1: Introduction

Customers are increasingly becoming active participants and co-creators of value in the mobile Internet era. With this trend, employees are encouraged to engage in active dialogue with customers, effectively manage customer diversity and co-create personalized experiences. Such changes challenge the leadership. The relevant literature reveals that the significance to leadership of shared vision has attracted attention and become widely acceptable. However, there is a large gap in the literature regarding how to model the building of shared vision in service business.

Our study represents a first attempt to shed light on how vision co-creation between leaders and employees can affect the leadership in corporate transformation. Based on comparisons of the leadership literature regarding product-oriented and service-oriented companies, we hypothesised about vision co-creation with employees. Then, we conducted an in-depth case study in a leading software company in China and interviews in four multinational IT companies in Japan. This study suggests that vision co-creation with employees is imperative for leaders in today’s service-dominant business. In the co-creation process, six relevant working states of employees are defined: non-engagement, expectation, satisfaction, engagement, loyalty and creativity. As a firm creates a new vision, or makes the existing corporate vision into a shared vision, it goes through these phases. We propose specific implications of the issues and focus on each phase to address the concerns.

This research makes a contribution by addressing concerns that many companies are over-managed and under-led. Traditional management systems, such as management rules, PDCA, performance appraisals and incentive systems, are still indispensable but are not enough to lead employees to work in the high-tier state. The co-creation process makes the new vision come alive so that it can be imagined, experienced, pursued and worked hard for.

In the final chapter, we provide suggestions for future research. The position-centred, one-person leadership described in the previous literature leaves the substantial talents of employees largely untapped. The weakness of the old models is that they do not meet the fundamental challenges of service innovation in the knowledge economy, where self-motivation and even self-leadership are the professional obligations of every employee. The prospective research axis of leadership based on vision co-creation is promising.

1.1 Background

1.1.1 The increasing IT service market in the global economy

The global IT services market is forecast to reach an estimated US $1,147 billion in 2017 with a compound annual growth rate of more than 5% during the period of 2012 to 2017. The industry comprises services related to the application of business and technical abilities to enable organizations to manage, create and optimize their information and business processes. The industry provides product support services such as hardware maintenance and software application training and professional services such as management consulting, development, and system integration services[1].

Although the IT services industry in China has a short history, it has been expanding quickly owing to emerging driving forces such as enterprise informatization, cloud computing and large data and the new economic direction of the smarter city. However, it still absorbs only approximately 20.0% of China’s total IT investment; in most developed countries, the share is approximately 40.0%. Thus, significant growth potential remains (IBISWorld, 2013).

According to research by IDC (2011), driven by the transformation agenda, the IT services market in China is expected to increase from US$12.2 billion in 2010 to US$23.7 billion in 2015, with a compound annual growth rate (CAGR) of 12.2% between 2011 and 2015. This growth will continue to be led by the adoption of next-generation IT systems through technology refresh as well as increased IT services spending due to the implementation of China’s 12th MII Five-Year Plan. In addition, China will witness the increased adoption of outsourced and managed services through both discrete and end-to-end infrastructure outsourcing.

1.1.2 Service-oriented corporate transformation as a competitive strategy

Currently, product companies are looking for ways to regain a competitive advantage by seeking alternative approaches to value creation. Analysing only the fine management, Chesbrough (2010) argued that it has become far more difficult to differentiate companies precisely because some management techniques, such as Six Sigma, Total Quality Management (TQM), Supply Chain Management (SCM), and Customer Relationship Management (CRM), have been widely implemented in both advanced economies and developing economies. This situation leads directly to commoditization in products and reduced price competition in the markets.

Adding more service sectors to a business is a new competitive strategy for creating a differentiation advantage for companies in a growing number of industries on a global scale (Oliva and Kallenberg, 2003; Vandermerwe and Rada, 1988). The concept of servitization, introduced by Vandermerewe and Rada (1988), is now widely recognized as the process of creating value by adding services to products. Baines and his colleagues (2009) noted that servitization is the innovation of an organization’s capability and processes to better create mutual value through a shift from selling products to selling a product-service system. With this strategy, products are evolving to play an additional role of integrating a wide-ranging set of services to meet customers’ needs and create greater value for customers (Alter, 2008; Nie and Kosaka, 2016).

1.1.3 Challenges for leaders in corporate transformation

As the CEO of IBM, Palmisano (2004) said that if three-fifths of business is manufacturing, then management is basically supervisory, but that formula no longer works when business is based primarily on knowledge and services. People – rather than products – become the company’s brand. In product-centric business, work is broken down into smaller units, and different people are assigned to correctly execute each procedure; thus, value is produced inside the company. Under this conditions, customers have little or no role in value creation. Leaders can control almost all the factors of production inside the company. However, in service-oriented business, customers become co-creators of value. Therefore, employees are encouraged to engage in active dialogue with customers, effectively manage customer diversity and co-create personalized experiences (Prahalad, & Ramaswamy, 2000).

Obviously, this situation presents challenges for leadership. The process of value creation extends from inside production to outside co-creation. The employees cannot be supervised closely or given detailed instructions when they interact directly with customers; thus, how to lead them? Employees need stronger self-motivation and more creative behaviours; thus, how to lead them? Miles (1997) discussed the corporate transformation challenges confronting executive leaders. They must find solutions that allow them to sidestep complacency and energize employees to redirect their efforts. These leaders must help their employees develop a new agenda to lead them through the next phase of the company’s development.

1.2 Research objectives

The purpose of the research is to analyse the influence on leadership of value co-creation with customers and to identify the fundamental changes of leadership in the process of service-oriented corporate transformation.

Based on the analysis, the research aims to build a vision for a co-creation model to help leaders reconsider their behaviours, their focus and their impact for effective leadership in service-oriented business.

1.3 Research questions

One main research question and three subsidiary research questions are formulated to achieve the above objectives.

MRQ: How have leaders co-created vision with employees to build effective leadership in service-oriented business?

SRQ1: What problems did leaders face when they started to share the corporate vision?

SRQ2: What actions did they take to solve these problems?

SRQ3: What is the fundamental difference between the original vision and the co-created one?

1.4 Research Methodology

We conduct the research with case studies. We employ Maxwell’s (2012) methodology of qualitative research; its design steps are listed in Figure 1-1:

Data triangulation is used to ensure the objectivity of data sources. Its advantage is the nature and amount of data generated for interpretation (Nie, 2017). First, we select two groups of companies for case studies. The first group is 8 subsidiary companies of a leading enterprise-management software group in China. The second group is 4 Japanese multinational companies. We conduct deep and comprehensive interviews in the first group cases and obtain sufficient data for analysing. The data of the two groups are compared and combined to achieve the conclusions.

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Figure 1-1: Qualitative research design

Second, the comparison between the primary and secondary data provides a more comprehensive understanding of the issues. We collected the primary data from the interviews. Meanwhile, a great quantity of secondary data was collected from media coverage, books, and third-party data. This approach made it easier to examine coding specific to what the interviewees said about an event compared to the same topic in the secondary data.

In the research, the names of the interviewees have been omitted based on our agreement with them. Those leaders took part in the interviews with the premise that they would never be quoted by name, which allowed them to speak candidly. We also feel it is better to retain anonymity because we want to focus more on what these leaders did and what roles they played in the process of corporate transformation than on their private information.

1.5 Originality and significance of the research

The study of leadership as a scientific discipline started early in the twentieth century. There are an almost infinite number of ways to study or think about the phenomenon of leadership. Theories and models have been proposed to explain the key factors leaders should have to be successful, including trait theories, behaviour theories, contingency theories, transactional theories and transformational theories. Each of these theories has shed light on some aspects of leadership and provided us with some insights.

However, much more remains to be learned. Progress in understanding leadership has been slower than expected, given the large volume of publications and the immense amount of effort expended on leadership research (Yukl, 2013, p.407). O’Hara-Devereaux (2004) noted that we need to create a shared leadership with individual leaders who are self-led, which occurs at the employee level. Effective leadership is essential for coping with the growing emergent problems arising from knowledgeable employees, customers and society. There is still a need for models that provide new ways of coping with these phenomena.

The research analyses the building process of a new pattern of leadership for accelerating corporate transformation from a different perspective. There are two vital points: first, an organizational vision has no role in building effective leadership until it is widely accepted as a shared vision; second, a shared vision cannot be gained just by an announcement dominated by a company’s top leaders. There must be a co-creation process between leaders and employees to develop a compelling vision that inspires, motivates and engages all members of a staff. The study contributes to the management field by providing a process model named “vision co-creation-based leadership model”. It systematically presents the process of rebuilding leadership to generate a powerful followership through co-creation processes rather than the traditional top-down and one-way transference of vision.

This study aims to fill the gap through its findings in regard to the new concept of vision co-creation with employees and leads the way for future studies towards a deeper consideration of leadership at both the collective and the employee level.

1.6 Structure of the chapters

We organize the thesis in five chapters. The general outline of this research is presented in chapter 1. The following chapter is a literature review on new theories in service science and leadership. Based on the study of the literature, we analyse the distinct characteristics of leadership in product-oriented and service-oriented companies and provide the hypothesis of vision co-creation-based leadership. In chapter 3, we present the design of the case study. In the next chapter, we go deeper into the analysis of the vision-sharing process in the three case study companies. In the final chapter, we summarize the major findings by answering the research questions and proposing theoretical and practical implications. The research limitations and suggestions for future research are also presented in the final chapter.

Chapter 2: Theoretical Review of Service Science and Leadership

2.1 Introduction

This chapter includes three parts. First, we review the literature regarding service business, general leadership and transformative leadership theories. In the second part, we contrast leadership in product- and service-oriented business. Based on the review, we propose the concept of vision co-creation with employees in the summary part.

2.2 Emerging theories in service science

2.2.1 Service-dominant logic

Vargo and his colleagues (2008a) defined “service” as “the application of competences such as knowledge and skills by one party for the benefit of another” (p.145) and “service system” as “an arrangement of resources (including people, technology, information etc.) connected to other systems by value propositions” (p.149).

With the proposal of the concept of service-dominant logic, Vargo and Lusch (2004) provided a new perspective for observing the economic phenomenon and gave a distinct answer to the unsolved problems in the goods-dominant logic. They originally provided eight foundational premises (FP) that underpinned their case for the S-D logic. After substantial concurrence, debate, dialogue and inquiry, Vargo and Lusch (2008b, p. 7) modified and extended the original FPs into ten, as described below.

FP1: Service is the fundamental basis of exchange.

FP2: Indirect exchange masks the fundamental basis of exchange.

FP3: Goods are a distribution mechanism for service provision.

FP4: Operant resources are the fundamental source of competitive advantage.

FP5: All economies are service economies.

FP6: The customer is always a co-creator of value.

FP7: The enterprise cannot deliver value, but only offer value propositions

FP8: A service-centered view is inherently customer oriented and relational

FP9: All social and economic actors are resource integrators.

FP10: Value is always uniquely and phenomenologically determined by the beneficiary.

Based on these foundational premises, two propositions become prominent: first, the fundamental source of a competitive advantage is not operand resources but operant resources, which are stored mostly in the employees’ brains; second, the customer becomes a co-creator of value who determines the value of the service and whose satisfaction and loyalty are affected mostly by the employees of the service provider. In service-dominant logic, the customer is always buying a service flow rather than a tangible product. We contrast the key distinctions between goods-dominant logic and service-dominant logic in Table 2-1. The foundational proposition of S-D logic is that organizations, markets, and society are fundamentally concerned with the exchange of services – the applications of competences (knowledge and skills) for the benefit of a party. S-D logic embraces the concepts of value-in-use and co-creation of value rather than the value-in-exchange and embedded-value concepts of G-D logic.

Table 2-1: The roles of the customer in two kinds of logic

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2.2.2 Service field

Kosaka (2012) argued that the service value that a provider delivers depends on situational factors, such as the customer’s knowledge and needs, place, time and the like. The identical service might generate very different values as the service field changes. The role of the service field in service value is consistent with that of the electromagnetic field in physics. The service field model can be specified as (Service value) = (Service) × (Service field).

Our new proposal to create and improve service values is based on service fields and service systems, and it can be applied to various services in which providers and receivers co-create service values. Thus, the service system and the concept of service fields are applicable to modelling service value creation.

A high service value for the customer is generated when the services are provided in the high-potential service field. A high potential means that the requirement for the provided service is high. The provider should pay more attention to identifying the context between itself and the customers. Both sides play a vital role in the service value. The fact that service value depends on the service field requires service providers to learn more from customers and local culture. It is indispensable for service providers to design their services with customers from the beginning and to conduct the service activities together in the process. The service value is different even though the provided service is the same, because it depends on the service field (e.g., the customer’s needs, knowledge and characteristics; time; place; condition; situation).

The firm identifies the service field before it determines what kind of service is most valuable for the specific customer. The service value depends on the interaction between the service and the service field. Kosaka defined four steps to maximize the service value. The first step is to define the service system. Stakeholders must hold the same understanding of and objectives for the service system. Step two is to identify the service field. The next step is to create new service ideas. New knowledge is created for the expected service, based on the identification of the service field. The final step is to implement the new knowledge created.

2.2.3 Value co-creation with customers

Companies can do more to involve customers in their innovation process than simply watch them. Prahalad and Ramaswamy (2000) explained that customers can be a source of competence. Companies must find ways to process what they learn from customers so that they can encourage dialogue and actively involve customers. Such involvement is essential for mobilizing the customers’ community and managing customer diversity in the internet era. Another way for service companies to focus on customers is to create a personalized experience for them. In services, customers’ perceptions of their experiences are as important as the design and delivery of the service.

Chesbrough (2010) explained that customers are willing to pay for tailored service solutions that address their unique needs. Involving customers instead of treating them as passive consumers generates meaningful experiences that will satisfy their ideas and that they are willing to reward. In the process, customers contribute their knowledge, especially tacit knowledge, which is hard to convey to others. Co-creation can bring greater value to customers and a greater competitive advantage for the firm. The firm conducts three key processes for co-creation. First, it creates a platform to attract and support the collaboration of its stakeholders. Then, customers customize the platform to meet their own unique needs. Third, the firm further enriches the platform by incorporating all the customization efforts with customer feedback (Kotler et al., 2010).

Chesbrough (2010) argued that some companies have had great success in allowing customers to create their own preferred designs. For example, in the music industry, a more customer-driven view invites customers to be co-creators with their producer. Co-creators are active, engaged seekers of new music, not passive recipients. Friesen (2001) used the example of eBay to elucidate the co-creation process, in which eBay’s contribution is the software and process and the seller’s contribution is the specific content. Likewise, security is co-created by both buyers and sellers through the enforcement of a rating system that serves as a control mechanism during co-creation. Note that there is involvement at both ends in creating the experience environment, with customers playing an active role in the process. The ability to manage tacit knowledge can create a competitive advantage for companies. The mobile internet can enhance explicit knowledge by moving faster, but it cannot play the same important role in transferring tacit knowledge. In some sense, tacit knowledge cannot be shared by the internet, so it becomes increasingly valuable. Companies have the unique advantage of obtaining such valuable knowledge from their customers if they have policies that encourage their employees to do so.

The relationship with customers can promote the total value received by the customer as value is created and delivered over time as the relationship develops (Arnould and Thompson 2005; Payne et al., 2008; Vargo and Lusch, 2004;) discussed). Product-oriented companies regard customers as consumers at the end of the value chain. They manufacture their products based on their research, assuming that they know their customers’ desires and that customers are willing to pay for the products. However, much of the knowledge involved in the service field is tacit knowledge that customers gain from experience. Tacit knowledge interferes with the ability of providers and customers to communicate with one another. If providers cannot interact closely with customers, it can be very difficult for them to understand what a customer really wants.

Kolter (2010) defined the new model for marketing asmarketing 3.0. In today’s mobile internet era, the old rules of product-based and consumer-based marketing will not satisfy knowledgeable and informed customers. This model sees customers not as the final consuming end but as multi-dimensional human beings. Customers create self-expression and collaboration with other customers. Marketing has shifted to inviting customers to participate in the process of value co-creation. Hence, marketing is creating services and corporate culture that are consistent with the values of a company’s target customers. The example provided in the book, Apple’s Steve Jobs, engaged with customers’ emotions through telling compelling stories based on his ideas. Providers used to listen to customers’ voices to understand their minds and capture market insights. The firm used to make a product with minimal customer testing in the beginning or extensive customer input and testing later, but now the model has shifted to providing ideas and co-creating with customers.

Now customers play the key role of creating value through co-creating products and services. The new ways of creating products and services are realized through the collaboration of companies, customers, suppliers, and other partners connected by the mobile internet in a global network. Like Amazon and eBay, they leverage the power of consumer networks by platforms of consumer communications.

Whilemarketing 3.0emphasizes the human spirit and emotional marketing in embracing outside customers, Appelo’s management 3.0 (2010) provides similar perspectives on employees inside a company. This model recognizes that the firm is a living, networked system in which management is primarily about people and relationships. Employees are the most important parts of a firm, and managers must do all they can to keep employees active, creative and motivated. Leaders cannot inspire employees’ creativity with a management system based on industrial production and division of labour.

2.3 General leadership theories

2.3.1 Definitions of leadership

There are an almost infinite number of ways to study or think about the phenomenon of leadership. Researchers have defined leadership based on their individual perspectives and experiences. Yukl (2013, p.19) compiled some representative definitions published over the past 50 years, as shown in Table 2-2.

In our research, we also employ the concise and all-encompassing definition from Northouse (2010, p.3): “Leadership is a process whereby an individual influences a group of individuals to achieve a common goal”and from Burns (1979): transforming leadership is a process in which “leaders and followers help each other to advance to a higher level of morale and motivation” (p.20).

Table 2-2: Representative definitions of leadership

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2.3.2 Traditional leadership theories

During the past century, each era has had its dominant form of leadership. These theories have developed from trait theories and behavioural theories to contingency theories and transactional theories (Figure 2-1).

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Figure 2-1: The development of general leadership theories

Traits leadership considers the personal qualities and characteristics that differentiate leaders from non-leaders. The consensus was that leaders were born not made. People with some specialized traits could be leaders (Stogdill, 1974). The limitation to trait theories was that, while some leaders might have possessed certain traits, the lack of them did not necessarily mean that the person could not be a leader. After McGregor’s identification of Theory X & Theory Y managers (McGregor, 1960), research attention shifted to behavioral theories. X & Y Theory was classified by assumptions about human nature. Trait research provided a theory for selecting the right leaders for organizations, while behavioral theories studied the critical behavioral determinants of leadership and held that people could be trained to be leaders. Lewin (1935) established three major leadership styles: authoritarian, democratic or laissez-faire. In 1945, a group of researchers at The Ohio State University embarked on identifying the observable behaviors of leaders instead of personality traits. They identified two dimensions of leader behavior: initiating structure and consideration, while the University of Michigan provided two other dimensions of leader behavior: employee orientation and production orientation. Blake & Mouton (1964) developed a managerial grid, with concern for production on the horizontal axis and concern for people on the vertical axis, and plotted five basic leadership styles: impoverished management, task management, middle-of-the-road management, country club management, and team management.

Trait and behavioral theories defined particular leadership characteristics and behaviors, but they gave little consideration as to what produces effective leadership in different situations. Contingency theories strived to solve this problem. They focused on situational factors; in other words, leadership effectiveness was dependent on the situation around the leaders’ operations. Representative of these theories were the Fiedler model (Fiedler, 1967), the Hersey-Blanchard leadership model, the leader-participation model and path-goal management theory. According to Fiedler, there is no ideal leader. Both task-oriented and relationship-oriented leaders can be effective if their leadership orientation fits the situation. The condition of a managerial task was analyzed for three situations: leader-member relations, task structure, and defined position powers. The Hersey-Blanchard leadership model (Hersey et al., 2001) also took a situational perspective of leadership and argued that successful leadership was achieved by selecting the right leadership style which was contingent on the level of followers’ acceptance and readiness. It created four specific leadership styles: telling, selling, participating, and delegating. The leader-participation model (Vroom & Yetton, 1973) provided a group of contingency variables to determine the form and amount of participative decision making in different situations. Path-goal theory (House, 1971) argued that leaders should encourage and support their followers by making the path clear and easy. The theory identified achievement-oriented, directive, participative, and supportive leader behaviors.

Bass extended Burns’ theory (1979) by explaining the psychological mechanisms that underlie transactional and transformational leadership. He explained the multiple intelligences, particularly social and emotional, that contribute to the extent to which leaders are seen as transformational. Bass discussed four components of transformational leadership: intellectual stimulation, individualized consideration, inspirational motivation, and idealized influence. Transactional leadership emphasizes the transaction between leaders and employees in which the leader discusses with followers what is required and corresponding rewards or penalty. Transformational leadership achieves superior results by inspiring employees’ consciousness of the goal and vision, by motivating followers to go beyond their own individual interests for the good of the organization (Bass, 1985, 1990, 2008).

2.3.3 Transactional and transformational leadership

The concept of transformational leadership was introduced by Burns (1979) and developed by Bass (1985, 1990). Burns distinguished the two concepts of transactional leadership and transformational leadership. Transactional leaders exchange tangible rewards for the engagement of employees. Transformational leaders engage with employees and inspire and satisfy intrinsic needs.

The great difference compared with transactional leadership is that transformational leadership provides vision and a sense of mission, instils pride, and gains respect and trust (Table 2-3, Bass, 1991, p.20). These leaders can create visions that give workers the feeling of being at the active centre of their social order. Transformational leaders are expected to intellectually stimulate their followers and thus may activate the followers’ creative potential (House & Podsakov, 1994; Yukl, 1994).

Table 2-3: Characteristics of transformational and transactional leaders

(Source: Bass, 1991, p. 20)

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There are many general leadership theories, but not as many scholars engaged in the special fields. Collins (2001) gave us many valuable hints about level 5 leadership theories (Figure 2-2). Miles (1997) provided another type of achievement in corporate transformation and leadership research. This theory shows the general path that a transforming company follows: generate energy for transformation, develop a vision of the future, align the organization and culture and orchestrate the transformation. Transformational leaders are able to build a new vision that is exciting and inspiring and to focus everyone’s attention on it.

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Figure 2-2: Level 5 Leadership

2.3.5 The role of shared vision in leadership building

Miles (1997) explained that the term “vision” became salient in the United States in the early 1980s, when many large American corporations decided to undergo corporate transformation under the pressure of global competition. The best approach they could find was to build a broad vision of the desired future. Collins and Porras (1996) defined a well-conceived vision as consisting of two major components: core ideology and envisioned future (Figure 2-3). Core ideology means what the firm stands for and why it exists. The envisioned future is what the firm aspires to become.

Nanus (1992) maintains that the “right vision” has five characteristics:

- Attract commitment and energize employees,
- Create meaning in employees’ lives,
- Establish a standard of excellence,
- Bridge the present to the future, and
- Transcend the status quo.

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Figure 2-3: Articulating a vision

(Source: Collins & Porras, 1996, p. 67)

A vision not only helps a company transform itself but also enables the enterprise to transform its competitive situation (Miles, 1997). Hord (1997) argued the importance of employees’ involvement in building a shared vision and making decisions in line with that vision.

Messick and Kramer (2004) argued that leaders provide vision and direction to employees with a far grander purpose. Vision is not just a sense of direction; it is also an answer to such questions as “Why are we here?,” and it can provide meaning for the whole firm. A shared vision can be created only when leaders listen very closely to employees, appreciate their hopes, and attend to their needs (Kouzes & Posner, 2009). Senge (1997) emphasized that a shared vision is one to which many people are truly committed, because it reflects their personal vision.

The development of leadership theories suggests several characteristics that are central to leadership:

- Leadership is a process of interaction between leaders and followers
- Leadership is about influence
- Leadership appears in groups
- Leadership aims at the achievement of goals
- A shared vision changes the relationship between leadership and followership

The most widely accepted definition of leadership as a process shows it not as a trait or characteristic but as an interaction between leader and followers.

Scholars have concluded that leadership is obviously closely related to the fields of business and economics. The leadership theories in goods-dominant logic strive to solve problems and promote management effectiveness, based mainly on the individual leader or the relationship between superior and subordinate. In service-dominant logic, the process of value creation extends from inside production to outside co-creation. Employees’ creativity and self-motivation are much more needed because they cannot be supervised closely or given detailed instructions, as usual. This situation presents challenges for leadership.

2.4 The contrast of leadership in goods- and service-dominant Logic

Based on the foundational premises of service-dominant logic (Vargo and Lusch, 2004), two propositions become prominent: first, the fundamental source of competitive advantage is not operand resources but operant resources, which are stored mostly in the employees’ brains; second, the customer becomes a co-creator of value who determines the value of service and whose satisfaction and loyalty are affected mostly by the employees of the service provider. These two aspects converge at one key point: that employees have never been so vital. They substitute for physical resources and become the organization’s competitive advantage.

In goods-dominant logic, value is created mainly inside the provider, which then delivers the products in the markets (Figure 2-4). The products-based nature of this logic makes it a comparatively simple matter to determine what work contributes to the expected results and what does not. Therefore, obedience, rules, and set processes are vital factors for a successful manufacturer. Many leaders in these companies are similar to military commanders. They are directional leaders who can give their employees well-defined instructions (Annunzio & Lies, 2001). On the other hand, running a successful service organization is not the same as running a product-oriented one. Goods are no longer the whole value of exchange and descend to a carrier for service provision (FP3). Service is the fundamental basis of exchange (FP1), and superb service doubtless derives from employees’ knowledge and brainstorming. Follow-up, responsibility, and thinking based on self-motivation propel the operant resources, replacing operand resources as the fundamental source of competitive advantage (FP4).

The traditional process of value creation is company-oriented. Product design, the production process, productivity, and cost control are vital factors for a manufacturer. Work is broken down into various elaborate units. Materials and information are passed from one department to the next. Staffs are assigned to implement these steps and are structured in a hierarchy according to “superior-subordinate” relationships (Savage, 1990). The achieving of value is primarily dependent on the company’s products ― the final outputs, and services are simply regarded as adjuncts of the products to enhance the value of goods (Vargo & Lusch, 2008a). Companies and consumers have the distinct roles of production and consumption, respectively (Prahalad & Ramaswamy, 2000). Consumers are outside the processes of value creation that occur inside the company. So the leadership theories in goods-dominant logic strive to solve problems and promote management effectiveness mainly based on the individual leader or the relationship between superior and subordinate.

illustration not visible in this excerpt

Figure 2-4: A conceptual framework for value creation in goods-dominant logic

In service business, the value creation process is changed. A conceptual framework for value co-creation in this logic is shown in Figure 2-5. Within a company, various back offices provide support for customers. The value of both tangible products and intangible services is co-created by provider and customers. The product may be the same, but customers can have different service experiences. For example, while a number of people have the same iPhone, one might use it to play games, another to read e-books, and someone else might use it to send Facebook messages to friends. Apple’s co-creator-application developers use it to discover users’ likes and dislikes; this is really a revolutionary mode for application development. How can it provide so many different valuable experiences? Apple has its iTunes. It can attract so many providers, users and other stakeholders to co-create at the same time together. So, although Apple has iPod, iPhone, iPad and computers, we still regard it as a service-dominant logic company. This is also why Apple can achieve so much success. But Apple can also be in danger if it does not make continuous service innovations. We are all familiar with another global company, Amazon, the largest online retailer. Now Amazon also has a tablet product similar to Apple’s, the Kindle Fire. It is as popular as iPad in America, and some people even predict it could become more popular than iPad. Why? First, the Kindle Fire costs only $199, which is much cheaper than the $499 iPad, making it very attractive to non-Apple fans. But more importantly, it is has a strong cloud computing service that enables all the stakeholders to co-create together as well. In service dominant logic, those who can attract the most numbers of co-creators are most likely to dominate the market.


[1]According to the research report ‘Global IT Services Industry Analysis 2012-2017: Industry Trend, Profit and Forecast Analysis’ of Lucintel Research,

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Transforming Leadership for Service Business
Japan Advanced Institute of Science and Technology
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transforming, leadership, service, business, vision, co-creation, employees
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Yong Nie (Author), 2014, Transforming Leadership for Service Business, Munich, GRIN Verlag,


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