The Big Picture…
We’ve made the evolution from seeing value as being embedded in an output, to value being co-created through the application of competence (capability and skills) during interactions.
It follows, then, that we should evolve to see strategic/competitive advantage as coming from the resources the organisation has access to that apply skills and knowledge. Rather than the static output, as we would previously. We distinguish between the two types of resources as follows:
- operand (with a “d”) resources – these are fairly static, usually tangible, and they need to be acted upon to get value (such as goods)
- operant (with a “t”) resources – those that act or apply knowledge and skills (on operand and even other operant resources) to lead to value (such as humans)
And we, therefore, see the operant resources as the fundamental source of strategic advantage.
Although in service-dominant logic we say strategic benefit rather than advantage. And this reflects two things. First that service is for some beneficiary actor. And secondly, the service provider often benefits too through service exchange.
Finally, we can identify a hierarchy of these operant resources. Starting with basic operant resources (BOR) – such as our people (and also AI). There are also composite (COR) and interconnected (IOR) operant resources. Going up the hierarchy is harder to develop but gives greater strategic benefit.
We’ve all seen quotes such as the two below from Richard Branson (Virgin) and Howard Schultz (Starbucks).
Clients do not come first, employees come first. If you take care of employees, they will take care of the clientsRichard Branson
We built Starbucks brand first with our people, not with consumers. Because we believed the best way to meet and exceed the expectations of our customers was to hire and train great people, we invested in our employeesHoward Schultz
And I think a lot of you reading this will agree with them. Effectively, it is the resources that produce the output/outcome that give your organisation a benefit. Yet there will be others who feel it is the tangible goods/outcome that gives an organisation the strategic advantage.
Through a service-dominant logic lens, we observe it is the resources that apply their skills/knowledge that give the organisation a strategic benefit. And employees are one example of these “operant” resources. Let’s see why.
Goods lead to an advantage, right?
The Tesla Model 3 is TopGear‘s number 1 electric car. And, Apple’s MacBook Pro 13 inch is PC Mag‘s editor’s choice in the ultra-portable category. Whereas The Ski Girl touts Rossignol as having the best cross country skis for 2020 across several categories.
We are obsessed with goods. Which is understandable as they are tangible. And creating the best (differentiated), or the cheapest, output is seen as being at the heart of most firms’ strategies. Porter saw this in his generic strategies of: differentiation, low-cost or focus (more about those here).
And we usually fall into the goods-dominant trap of seeing these goods as having value embedded into them that we now own after buying (value in exchange). Yet these goods are really only valuable to us when used. We have to do something with them in order for value to be created. My skis, for example, are pretty useless to me in the middle of summer. And even in winter, they are only of value when I’m skiing. We call these types of resources – which have to have something done to them to lead to value – operand (with a “d”) resources.
We tend to see the operand resources as leading to the organisation’s strategic/competitive benefit simply because that’s how we are taught and led to believe.
But now I want to challenge that view and show that it is operant resources (with a “t”) that is the fundamental source of strategic benefit. (and I’ll further explain why “benefit” rather than “advantage“).
Actually, it is Operant Resources, such as your people
We have already made the evolution to observe that service is the fundamental basis of exchange. Therefore, we could simply argue that it is the quality of the service which gives an organisation its strategic advantage.
But let’s tease that logic a little more. Service is the application of skills and resources for the benefit of an entity. And so we have some resources that are able to apply skills and knowledge. They act on other resources to lead to value. And those resources could be operand resources that we’ve seen already. Or they could be other resources that are able to apply skills and knowledge. These types of resources we call operant (with a “t”) resources.
It was Constantin & Lush’s that introduced the terms operant resource and operand resource in their 1994 book “Understanding Resource Management: How to Deploy Your People, Products and Processes for Maximum Productivity“. Though you may recognise the terms operant and operand from mathematics. And that, to me, is the easier way of remembering this.
Is there an easy way to picture this?
I like to think of a simple maths equation to help me get this picture in my head. Here it is, simple as I said:
Here, the numbers – 1,2 and 3 – don’t do much on their own. It’s not that they have no value. They represent some notion of size and have a meaning. It’s just that they are static. They are operand resources.
Whereas the addition (+) represents doing something. It is the operant resource (operator if you want). It acts, in this case, on two operand resources and produces a new operand resource.
But we don’t say strategic advantage in service-dominant logic, rather we say strategic benefit. And here’s why.
Why strategic benefit and not advantage?
Vargo & Lush (2016) made the choice to use the phrase “strategic benefit” rather than “advantage”. They did so to emphasise the service-service nature of our world. And to move competitiveness to a secondary motivator, in favour of the co-creation of value is primary. As they say:
“…the realization that there is competition in the process of one actor benefiting itself through service provision to other actors, while critical, is not primary. It also points the service provider in the wrong direction, toward the competitor and thus away from the potential service beneficiary.
OK, so what are operant resources, beyond the obvious one of human resources in the value proposer organisation?
There is a hierarchy of Operant resources
I think the most obvious type of operant resources are your organisation’s people – your human resources. But there is a wider set of such resources. Operant resources are typically (Hunt 2004):
- “human (e.g. the skills and knowledge of individual employees)
- organizational (e.g. controls, routines, cultures, and competences)
- informational (e.g. knowledge about market segments, competitors, and technology)
- relational (e.g. relationships with competitors, suppliers, and customers)”
And in fact, Madhavaram and Hunt (2008) identified the hierarchy of operant resources you can see in Figure 1. Starting with basic operant resources (BOR) a firm could get its hands on – such as human resources, and I would add deep learning/expert systems from artificial intelligence. Higher up they identified composite operant resources (COR) and above them, interconnected operant resources (IOR).
As you go up the hierarchy it becomes harder to acquire and develop the operant resource. But you also gain increasing levels of sustainability and strategic benefit.
Goods as operant resources?
Perhaps confusingly, we should look at goods as operant resources. Since they freeze/embed skills and resources to be unfrozen at a different time and place. Or as service-dominant logic calls it: goods are a distribution mechanism for service.
The Main Beneficiary has Operant Resources too
But let’s not forget that in service we talk about co-creation of value. And that means the main beneficiary also has operant resources. Which makes sense as the beneficiary is an entity trying to make progress with some aspect.
Alves, Ferriera and Fernandes (2016) highlight previous studies that identify “Operant resources held by each individual may be:
- physical – include sensory-motor endowment, energy, emotions and strength.
- social – made up of both personal and cultural relationships
- cultural – include specialised knowledge and skills, life expectancy and historic imagination.”
Interestingly, Alves, Ferriera and Fernandes (2016) also looked at customer operant resources in the context of the perceived benefit of co-creation. Figure 2 shows the set up they considered.
And had the following hypothesise:
- H1 – The higher the customer self-efficacy levels the higher the level of his co-creation activities
- H2 – Customers’ levels of bridging social capital positively enhance customer’s self-efficacy levels and therefore indirectly customer’s levels of co-creation activities.
- H3 – The greater the company effort in educating the customer, the greater the co-creation of value undertaken by the customer.
- H4 – The greater the company effort in educating the customer, the greater the customer expertise.
- H5 – The greater the level of customer expertise, the greater the co-creation of value undertaken.
- H6 – The greater the level of customer expertise, the greater the co-creation of value undertaken through self-efficacy perception enhancement
- H7 – The greater the level of customer co-creation activities, the greater the level of customer perceived benefits
They found high correlation to all of these. One thing we can take away from their results is that educating the customer increases the co-creation of value undertaken.