Dynamic uncertainties in service relationships

When two parties engage in a service relationship, they are essentially co-creating value for mutual benefit. This means that they are interdependent, and their decisions and actions have a direct impact on each other's outcomes. The success of the relationship depends on their ability to align their assumptions and experiences. This article expores the uncertainties and the need to actively manage the subjective aspects that contribute to the overall perception of value.

Challenges of co-creating value

In the context of co-creating value, there are several challenges that parties may encounter:

Imperfect assumptions: Each party has their own set of beliefs and assumptions about the service and service relationship. These assumptions may not always be accurate, leading to misunderstandings and potential conflicts.

Subjective experiences: Each party experiences the service and the service relationship from their own unique perspective. These subjective experiences may differ from each other, making it difficult to reach shared understandings.

Limited knowledge: Both parties have incomplete knowledge of the other party's needs, assumptions, and experiences, and how the service has impacted them. This also applies to their own needs and the impact on their own organization. This lack of information can create uncertainty and make it challenging to negotiate effectively.

Complexities of the situation (figure)

There is a degree of overlap between what each party needs from the service. In partnerships, the overlap is likely to be greater. There is also overlap between how the service impacts both parties. Neither the needs or the impacts are perfectly known. Analyses of a situation are always partial and there may be hidden needs that only become apparent when they have been fulfilled. Similarly, there may be consequences of the service that are unintended and unexpected, and therefore go unnoticed.

The rectangle symbolizes the partial knowability of needs and impacts. Neither party knows for sure what they and the party need from the service, and therefore they both work with imperfect assumptions. They both hope that the agreement is good enough and that, where it is not, or no longer so, the other party will either deviate for the formal agreement or adjust the agreement accordingly.

The same uncertainty applies to the impact of the service: each party only knows how they have subjectively experienced the impact of the service on themselves, and can only make assumptions about how the other party has subjectively experienced the impact of the service of their organization.

Further analysis

Overlap and interdependence: The degree of overlap in what each party needs and realizes from the service creates a complex interdependence. The success of the service is contingent on the alignment of these overlapping needs, which can be challenging to precisely define.

Imperfect information: Neither party possesses complete knowledge about the other's needs or realizations. This lack of perfect information leads to assumptions and subjective interpretations, contributing to potential misunderstandings and misalignments.

Subjectivity in experience: The subjective nature of the service experience adds a layer of complexity. Each party may perceive and interpret the service differently, making it challenging to establish a universally agreed-upon understanding of its impact.

Uncertainty in expectations: The parties operate with imperfect assumptions regarding each other's expectations. This uncertainty can lead to miscommunication, as assumptions may not accurately reflect the actual needs and desires of the involved parties.

Dynamic and evolving nature: The service relationship is dynamic and subject to change over time. As circumstances evolve, so do the needs and expectations of the parties involved, introducing an additional layer of uncertainty and complexity.

Communication challenges: Effective communication is critical in mitigating uncertainties, yet the complexity of the service relationship may hinder clear and accurate exchanges of information. Differences in communication styles or barriers can exacerbate the challenges.

Inherent unknowables: Some aspects of the service relationship may be inherently unknowable. This could be due to external factors, changing market conditions, or the unpredictable nature of human behavior, adding an element of unpredictability to the business dynamics.

Risk of mismatched assumptions: Since neither party has a complete understanding of the other's assumptions, there is a risk of misalignment. Mismatched assumptions can lead to unmet expectations, dissatisfaction, and strained relationships.

Cultural and contextual differences: Cultural and contextual differences between the parties can further complicate the service relationship. Divergent perspectives, values, and approaches may contribute to misunderstandings and challenges in co-creating value.

Balancing flexibility and stability: Striking a balance between flexibility to adapt to changing circumstances and stability for consistent service delivery is a delicate challenge. Too much flexibility may lead to instability, while excessive rigidity can hinder responsiveness to evolving needs.

Understanding these complexities is crucial for both parties involved in the service relationship. It highlights the need for a proactive and collaborative approach to address uncertainties, foster transparent communication, and adapt to the evolving nature of the co-created value. Recognizing the inherent challenges leads to better navigation of the intricacies of service-based business relationships.

The rational value of the service for an organization can be expressed in terms of the impact on their need. However, value from service is unique and phenomenological, so the value depends on how the impact is experienced by the recipient with certain assumptions and therefore expectations. In theory, somebody can be happy because their experience corresponded with their expectations, while the ‘real’ impact on the ‘true’ need was minimal. Let’s assume that, over time and due to increasing insight, the gap between assumptions and needs will diminish. In that case, we are looking for a smaller gap not only between experiences and assumptions, but also between impact and need.

Improvement areas

This gives us various areas to improve:

Dynamic customer assumptions: Customer assumptions about their needs are inherently dynamic, evolving over time in response to shifting business requirements. Regular reassessment and updates are imperative, ensuring continual alignment with the changing landscape of the business environment.

Ongoing provider-customer assumption alignment: The alignment of provider assumptions with evolving customer assumptions is an ongoing necessity. Regular communication and adaptability are paramount, fostering a relationship that stays synchronized with shifts in expectations, allowing for continual adaptation to changing circumstances.

Living agreements reflecting customer dynamics: Formal agreements serve as living documents, mirroring the dynamic nature of customer assumptions. Periodic review and adjustment are crucial to maintaining resonance with the evolving assumptions and needs of the customer over time.

Agile execution strategies for dynamic impact: The impact of agreement execution is inherently dynamic, subject to change as circumstances evolve. Agile execution strategies are needed, that are capable of accommodating shifts in business dynamics, ensuring sustained relevance and value.

Adaptive customer experience management: Customer experiences are dynamic, with perceptions of business impact subject to change. Ongoing dialogue and feedback mechanisms are essential, asserting their role in capturing evolving perspectives and enabling the adaptation of service delivery to meet dynamic customer expectations.

Improvement approaches

Services can be substantively improved by changing the agreements and their execution, but their subjective experience can also be improved by using psychology to change the expectations.

Changing the agreement and its execution is a ‘technical’ approach to improving the service. This recognizes that the tangible aspects of the service, such as deliverables, processes, and performance metrics, play a critical role. Adjusting these elements based on insights gained over time can lead to a more effective and aligned service relationship.

Psychological improvement acknowledges the importance of subjective experiences in the service relationship. Leveraging psychology to manage and shape expectations is a powerful strategy. By understanding the cognitive and emotional aspects that influence how individuals perceive and interpret the service, it becomes possible to enhance satisfaction and perceived value.

Combining substantive and subjective improvements creates a holistic approach to service enhancement. While substantive changes address concrete elements, leveraging psychology to shape expectations adds a layer of refinement to the overall service experience. This dual approach recognizes that perceptions and emotions play a crucial role alongside tangible outcomes in determining the success and satisfaction within a service relationship. It underlines the significance of not only delivering on agreed-upon terms but also actively managing the subjective aspects that contribute to the overall perception of value.

?