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58 CREATIVITY AND INNOVATION MANAGEMENT

Exploring the Effect of Cognitive

Biases on Customer Support Services
Heiko Gebauer, Regine Krempl and Elgar Fleisch

In order to meet the increasingly more complex needs of customers and respond to decreasing
product margins, product-oriented firms have developed a growing interest in extending their
service business. Over the last couple of years, most product-oriented companies have
explored the numerous opportunities offered by traditional customer service and product-
related services. Currently, these opportunities have reached a certain level of maturity. A
number of practitioners and theorists stress the growing importance of customer support
services. However, the entry point to the theorizing is the observation that very few product-
oriented firms have already innovated customer support services successfully. In most firms,
cognitive biases limit the motivation of managers to facilitate creative potential for new
customer support services. In this paper, four cognitive biases are elaborated through 12
mini-cases and 8 in-depth cases. The results suggest that disbelief in the financial potential,
risk aversion, tendency to set over-ambitious objectives, and fundamental attribution error
plays a critical role in creating customer support services. These four cognitive biases, and the
key factors in overcoming them, provide guidance for managers who aim to facilitate creative
potential for customer support services.

Introduction opportunities by augmenting the product

offering during the pre-sales and sales phases

I ncreasingly more complex customer

needs and decreasing product margins are
currently putting pressure on traditional
product-oriented companies to search for
new business opportunities. One frequently
suggested means of responding to these
challenges is to extend the service business
(Oliva & Kallenberg, 2003; Sawhney, Bala-
subramanian & Krishan, 2004; Neu & Brown,
2005). Over the last couple of years, most
product-oriented companies have explored the
numerous opportunities that both traditional
customer service (CS) and product-related ser-
vices (PRS) can provide. The notion of CS
refers to Lovelock’s (1994) ‘flower of services’
framework, in which he depicts a seller’s total
offering to a customer as an eight-petalled
flower. The flower’s centre represents the sell-
er’s basic product (goods or services), while its
petals represent key elements of how the seller
serves the customer. CS includes various
aspects of facilitating supplementary services
that are required for offering products (e.g.,
information, order taking, billing and
payment). These services offer marketing
(Mathe & Shapiro, 1993; Kotler, 1994). PRS
ensure the proper functioning in the after-
sales phase. They refer to product descrip-
tion, documentation, transportation, product-
related training, inspection, spare parts and
repair. PRS require fewer assets, are often
counter-cyclical, and can provide higher
margins than the products themselves (Oliva
& Kallenberg, 2003). Both CS and PRS concen-
trate on the primary customer activity chain
of operating products such as machines and
pieces of equipment. In terms of the service
opportunity matrix proposed by Sawhney,
Balasubramanian and Krishan (2004), CS
and PRS explore growth opportunities only by
adding new service activities to the primary
customer activity chain (see Figure 1).
However, these opportunities have reached
maturity. As a differentiation strategy, main-
taining competitive advantages and achieving
service-based growth advantages through CS
and PRS are becoming increasingly challeng-
ing. In order to create new competitive
advantages and exploit additional growth
opportunities, product-oriented firms must

Volume 17 Number 1 2008 © 2007 The Authors

doi:10.1111/j.1467-8691.2007.00438.x Journal compilation © 2007 Blackwell Publishing
EFFECT OF COGNITIVE BIASES ON CUSTOMER SUPPORT SERVICES
Service opportunity matrix
Reconfiguration
of existing
activities
How?
(Type of growth)
Presales
Adding new
activities Sales
After-Sales
Primary activity Complementary
chain activity chain
Where?
(Focus of growth)
Note: The new service opportunities can be identified along two
dimensions: the focus of growth (where does growth occur?) and the type
of growth (how does growth appear?). The "where" question is typically
answered by thinking about the primary, and complementary, or adjacent
customer activity chains. The "how" question distinguishes into service
opportunities first by adding new activities and second by reconfiguring
existing activities. merging the focus of growth with the type of growth
results in the two-by-two service opportunity matrix. The four elements
of the framework include (1) temporal expansion: growth from services
that add new activities to a primary activity chain, (2) spatial expansion:
growth from services that add new activities to an adjacent chain, (3)
temporal reconfiguration: growth from services that change the structure
and control of activities within the primary chain, and (4) spatial
reconfiguration: growth from services that change the structure and
control of within an adjacent chain.
Figure 1. Service Opportunity Matrix and Service Classification
consider the ever-increasing expectations of
customers and develop services that respond
to them. As illustrated in Figure 1, new growth
opportunities stem from services that change
the structure and control of activities within
the primary activity chain; such opportunities
add new activities to the complementary or
adjacent, customer activity chain, and change
the structure and control of activities within
the adjacent chain. Moreover, most customers
not only expect the proper functioning of the
product but also desire additional support to
increase the efficiency and effectiveness of
their business processes.
In order to fulfil increasing customer expec-
tations and address additional growth oppor-
tunities, product-oriented firms must shift the
emphasis of their business from providing
products with some CS and PRS to providing
customer support services (CSS) (Oliva &
Kallenberg, 2003; Windahl et al., 2004).
However, the entry point to theorizing is the
observation that very few product-oriented
firms have already innovated CSS successfully.
One major challenge to succeed in extending
CSS is its conspicuous absence in the service
development literature. Recent literature on
service development (e.g., De Brentani, 2001;
© 2007 The Authors
Journal compilation © 2007 Blackwell Publishing
59
Service classification
Customer service (CS) • Key elements of how the seller serves the
customer
• Various aspects of facilitating supplementary
services that are required for offering
products
• Marketing opportunities by augmenting the
product offering during the presales and sales
phase
• Examples are information, order taking,
billing, payment
• Ensure the proper functioning of the product
Product-related services (PRS)
• Require fewer assets, are often counter-
cyclical and can provide higher margins than
products
• Concentrate on the after-sales phase in the
primary customer activity chain
• Examples are product description,
documentation, transportation, product-
related training, inspection, spare parts, and
repair
Customer support services (CSS) • Increase the efficiency and effectiveness of
customers business processes
• Concentrate either on reconfiguration of
existing primary and adjacent customer
activities or introducing new services in the
adjacent opportunities spaces
• Examples are taking-over customers'
maintenance function, service level
aggreements, technical advice for
optimizing customers' operating processes,
taking-over customers' spare parts
management, hire personnel, using remote
access to optimize customers' trouble
shooting process, design and construction
services, logistic services, business
consulting, extensive training, or services
for managing customers' installed base.
de Jong & Vermeulen, 2003; Matthing, Sandén
& Edvardsson, 2004) concentrates mainly on
traditional service firms. Academic research
remains silent on the subject of innovative CSS
in product-oriented companies. This study
attempts to fill a part of this knowledge gap by
addressing the following research question:
How do cognitive biases limit the motivation
of managers to facilitate creative potential for
CSS?
The paper is divided into four parts. First, a
synthesis of the attention-based theory of the
firm and valence-expectancy theory of motiva-
tion – two conceptual perspectives that are
particularly relevant to the study – is provided,
and the respective implications for CSS in
product-oriented firms are highlighted. Then,
the research methodology is explained. This is
followed by a discussion of the results. The
paper concludes by discussing implications
for management and limitations of the study.
Theoretical Background
Attention-Based Theory of the Firm
The attention-based theory views firms as
systems of structurally distributed attention in
Volume 17 Number 1 2008
60
which the cognition and action of individuals
are not predictable from the knowledge of
individuals, but are derived from the specific
organizational context and situations in which
individual decision makers find themselves.
From the managerial cognition perspective,
the central argument is that the information
processing capabilities of senior managers
exert significant influence on a variety of orga-
nizational phenomena, including strategic
decisions (Barr, Stimpert & Huff, 1992). Ocasio
(1997), for example, argues that what decision
makers do depends on what issues and
answers they focus their attention on. Atten-
tion is defined as what occupies the conscious-
ness of top managers or, in processual terms,
as allocating information processing capacity
to environmental stimuli over time (Sproull,
1984). The literature suggests that attention
instigates complex cognitive biases that go
beyond simply ‘paying attention’ to something
(Daft & Weick, 1984; Ocasio, 1997). Attention
includes the overt, visible steps of receiv-
ing and disseminating information that are
captured in the commonplace phrase ‘paying
attention to’ as well as the mental steps of
noting and encoding information (Levy, 2005).
According to the attention-based view of the
firm, the following question arises: Why do
firms undertake some strategy decisions and
moves but not others? (Ocasio, 1997; Levy,
2005).
Valence-Expectancy Theory
The literature contains various flavours of
motivation. Theorists taking a cognitive
approach offer the following model. Vroom
(1964) suggested that the formulation for
managerial motivation is Motivation =
Expectancy * Valence * Instrumentality. Motiva-
tion is the product of three factors: (1) one’s
estimate of the value of desired reward
(valence); (2) one’s estimate of the probability
that one’s effort will result in successful per-
formance (expectancy); and (3) one’s estimate
that the performance will result in receiving
the reward (instrumentality).
Implications for CSS
This paper views CSS in product-oriented
firms as a strategic decision by which man-
agers create new business opportunities. As
illustrated in Figure 1, CSS change the focus of
the value proposition to reconfiguration of
the existing customer activity chain and the
supplementary, adjacent customer activity
chain. CSS not only ensure the proper func-
tioning but also specifically help increase
the efficiency and effectiveness of various
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CREATIVITY AND INNOVATION MANAGEMENT
customer processes (Mathieu, 2001). The
attention-based view suggests that managers
have to understand why they undertake the
strategic decision to move into the CSS busi-
ness. In addition, the cognitive approach to
motivation theory suggests that managers will
succeed in paying attention to CSS if they are
motivated. Managers are motivated to create
CSS when they place a high valence on them,
are convinced of a high probability that their
effort will result in successful performance,
and when they believe that performance will
result in receiving the reward.
Research Methodology
To explore the role of cognitive biases during
the innovation of CSS, an inter-disciplinary
research approach that included case studies
on developing CSS was employed (Eisenhardt,
1989). The whole research project was con-
ducted using the method of grounded theory
(Glaser & Strauss, 1967). The grounded theory,
in general, aims at conceptually based expla-
nations for the processes operating within the
substantive problem area (Locke, 2001).
All case studies focus on product-oriented
firms. Their products, CS and PRS had gener-
ally reached the maturity stage, with the asso-
ciated decreasing profit margins and overall
profitability. These companies are confronted
by increasing customer expectations in terms
of additional support in and reconfiguration
of the customer activity chain. Thus, all com-
panies have been seeking possible means of
exploiting the opportunities of CSS.
From these case studies, a framework for
the role of cognitive biases was developed
(Strauss & Corbin, 1990). Consistent with
grounded theory development and the goal to
explore the effects of cognitive biases on cus-
tomer support services framework patterns
followed by firms that had attempted the
development of customer support services,
the data sampling was discriminate. First,
firms were selected according to different
types of CSS. As illustrated in Figure 2, the
cases cover CSS addressing the adjacent cus-
tomer activity chain by either adding new ser-
vices or reconfiguring the adjacent customer
activity chain. In addition, several cases con-
centrate on CSS for reconfiguring the primary
customer activity chain. Second, firms were
chosen according to their perceived success
in the development of CSS. In general, the
research design can be interpreted as a
‘T-design’ (Thölke, Hultink & Robben, 2001).
For the horizontal axis of the ‘T-design’, 12
mini-cases were selected. These mini-cases
involved 12 interviews with managers who
© 2007 The Authors
Journal compilation © 2007 Blackwell Publishing
EFFECT OF COGNITIVE BIASES ON CUSTOMER SUPPORT SERVICES 61

Mini-cases Indepth case studies

Reconfiguration 1. Service level 4. Fleet management of Reconfiguration

of existing aggreements customers installed base of existing
activities 2. Taking-over customers 5. Taking-over customers‘ activities B C E F
maintenance function design and construction
3. Operational services to activities
taking-over customers 6. Taking-over customers‘ H
How? operating processes personnel development How?
(Type of (Type of
growth) growth)
Presales 7. Advanced training Presales
Adding new services Adding new
activities 8. Logistic services activities A D
Sales 9. Hire personnel Sales
10. Design and construction
G
services
After-Sales 11. Process optimization After-Sales
12. Visability studies

Primary activity Complementary Primary activity Complementary

chain activity chain chain activity chain
Where? Where?
(Focus of growth) (Focus of growth)

In-depth case studies Description¹

Successful Company A Company A is a supplier of machining centers and flexible manufacturing systems.
Its customer produces mechanical components for aerospace, power generation,
automotive industry and others. The demand for mechanical components fluctuates
sharply. Thus, A has developed a innovative CSS called 'capacity support'. In case
of a capacity bottleneck, the customer can authorize A to produce additional
mechanical components.
Company B Company B manufactures products for the generation and delivery of compressed
air. B has developed a CSS called "delivery of compressed air". Company B takes
over the operation of its compressors in the customer process and the customer
pays for xm³/s of compressed air.

Company C Company C is a supplier of production systems for the semiconductor industry. C

has developed a CSS called 'preventive maintenance contract'. Customers signing
up to these contracts benefit from improved operations and more reliable
equipment availability.

Company D Company D is a manufacturer of die casting machines . Its die casting machines are
integrated into die casting cells including set of robots, a transfer line and items of
equipment for heating, cooling and moving cast parts. D developed a CSS referred
to as 'design and construction of the entire die casting cell'. This CSS optimizes the
process from die casting-compliant design, cavity filling and solidification
simulations to the achievement of high performance production.

Unsuccessful Company E Company E is a leading international parking systems company engaged in

development, production, distribution and integration of innovative parking
solutions.
Company F Company F is a leading manufacturer of office furniture systems offering modular
table, cabinet, shelf and wall systems as well as drawer units and caddies. Strong
partner brands for lighting, seating and other special items are also available.

Company G Company G manufactures weaving machines and drying plants for the paperboard,
paper and gypsum fireboard industry as well as film stretching, rapier weaving, air-
jet weaving machines. The company is a market leader in plastic film production
plants.

Company H Company H is a leading manufacturer and system supplier for paper processing,
with a main emphasis on superior paper handling and finishing in connection with
high-performance digital printing systems, the development of innovative systems
for web-finishing, as well as the production of advanced paper waste solutions.

¹ Note: In the interests of data confidentiality, the real CSS developments of the unsuccessful firms have not been
revealed.

Figure 2. Overview of the Mini-Cases and In-Depth Case Studies

© 2007 The Authors

Journal compilation © 2007 Blackwell Publishing Volume 17 Number 1 2008
62
Table 1. Results of the Mini-Cases
Cognitive process Number of mini-cases where the cognitive
process was indicated as a major impact on
managers decision to facilitate to potential of CSS
Disbelief in the financial potential
Risk aversion
Setting overambitious objectives
Fundamental attribution error
Overemphasing of conspicuous and
tangible aspects of the environment
Sunk-cost fallacy
had recently completed initiatives to exploit
the opportunities of CSS. These mini-cases
helped to answer the research question by
specifying the cognitive biases. For the mini-
cases, primary data were obtained through
interview transcripts. Members of the follow-
ing managerial functions participated in the 12
interviews: management board (5), R&D man-
agers (3), service management (2) and sales (2).
Based on the interview transcripts and second-
ary data, such as financial reports and internal
documents, 12 mini-case studies were written,
describing cognitive biases limiting CSS.
The study proceeded by exploring the dif-
ferent cognitive biases using eight bi-polar,
in-depth case studies (i.e., the vertical dimen-
sion of the T-design). The research team began
by identifying four highly successful and four
less successful companies. The expectation was
that a comparison of successful and unsuccess-
ful initiatives to develop CSS would help to
identify how cognitive biases limit managers’
decisions to facilitate the potential of CSS
(Eisenhardt, 1989). Successful companies were
those that decided to explore the CSS oppor-
tunities. On the other hand, managers in
unsuccessful companies were those who failed
to decide to move into the CSS business.
Focus groups were employed to collect
high-quality data for the in-depth case studies.
The following management functions partici-
pated in the focus groups: service manage-
ment, product management, management
board and sales. For each in-depth case study,
two focus groups were conducted. The focus
groups lasted between four and six hours with
four or five participants. While the first author
was writing down the results of the focus
groups, participants were given the opportu-
nity to provide additional written comments.
The first author integrated the written com-
ments of the participants in the case studies. In
the interest of data confidentiality, the real
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CREATIVITY AND INNOVATION MANAGEMENT
12
12
11
11
1
1
names of the successful and unsuccessful
firms have not been revealed. Figure 2 summa-
rizes the mini-cases and in-depth case studies.
The data collection and sampling of firms con-
tinued until a theoretical saturation was
reached, i.e., until a recurring pattern of cogni-
tive biases emerged from the cases (Strauss &
Corbin, 1990).
Results
Mini-Cases
Traditional inductive research methods were
used to analyse the data. A list of typical cog-
nitive biases mentioned in the existing litera-
ture guided the data analysis (Kahneman,
Slovic & Tversky, 1982; Plous, 1993; Baron,
2000; Gilovich, Griffin & Kahneman, 2002).
The list included decision-making and
behavioural biases (e.g., bandwagon effect,
confirmation bias, loss aversion), biases in
probability and belief (e.g., ambiguity effect,
optimism bias, sub-additivity effect) and
social biases (e.g., actor-observer bias, egocen-
tric bias, self-fulfilling prophecy).
The transcribed interview texts of the 12
mini-cases were coded, recoded and com-
pared systematically and iteratively until the
data were saturated and consistent structures
emerged (Strauss & Corbin, 1990). An analysis
of the 12 mini-cases revealed that four cogni-
tive biases limit the managerial decision to
innovate CSS: disbelief in the financial potential
(12), risk aversion (12), tendency to set over-
ambitious objectives (11), and the fundamental
attribution error (11). These four cognitive
biases recurred explicitly and systematically
across the 12 cases (see Table 1). Other
typical cognitive biases associated with
the service business in product-oriented
companies played only a minor role. The
© 2007 The Authors
Journal compilation © 2007 Blackwell Publishing
EFFECT OF COGNITIVE BIASES ON CUSTOMER SUPPORT SERVICES
over-emphasis of obvious and tangible charac-
teristics refers to the fact that people have
repeatedly been shown to pay undue attention
to conspicuous and tangible aspects of the
environment (Kahneman, Slovic & Tversky,
1982). This might explain whymanagers pay
more attention to tangible products and PRS
than to intangible CSS. However, only one
interviewee reported that over-emphasis on
obvious and tangible characteristics played a
critical role. In addition, the sunk-cost fallacy
(Arkes & Blumer, 1985) might explain why
managers who have already invested in the
product business invest further in it. Again,
only one interviewee reported that sunk costs
limited CSS. Finally, the other typical biases
mentioned in the literature were also not men-
tioned as critical for the development of CSS.
Thus, only the first four cognitive biases were
analysed in more detail.
The four cognitive biases can be substanti-
ated through the existing literature. The disbe-
lief in the financial potential and risk aversion
can be described using prospect theory. Pros-
pect theory is a psychological alternative to
expected utility theory. It helps to describe
how people make choices in situations where
they have to decide between alternatives that
involve risk. Furthermore, it describes how
individuals evaluate potential losses and gains
(Kahneman & Tversky, 1979). The inherent
decision processes consist of two stages: (1)
decision makers define the specific outcomes,
and (2) estimate the risk and/or probability
that the outcome will be generated. The disbe-
lief in the financial potential represents a cog-
nitive bias, making it difficult to specify the
outcomes. Risk aversion is a general concept in
economics, finance and psychology explaining
the behaviour of consumers and investors
under uncertainty. In this context, risk aversion
is the reluctance of a person to accept a posi-
tive outcome with an uncertain payoff rather
than another positive outcome with more
certain but possibly lower expected payoff.
Setting objectives is also part of a manager’s
decision-making process. During this pro-
cess, managers answer two basic questions: (1)
what objective should be reached, and (2)
when should the objective be reached. The lit-
erature recommends setting objectives that are
specific, measurable, attainable, realistic and
tangible. Setting an over-ambitious objective
means that the goal was not realistic or that
managers under-estimated the time needed to
attain the goal. The fundamental attribution
error can be substantiated through attribution
theory. The fundamental attribution error is
the tendency for people to over-emphasize
dispositional, or personality-based explana-
tions for behaviours observed in others while
© 2007 The Authors
Journal compilation © 2007 Blackwell Publishing
63
under-emphasizing situational explanations.
In the context of social psychology, people
have an unjustified tendency to assume that
a person’s actions depend on what ‘kind’ of
person he/she is rather than on the social
and environmental forces that influence the
person. However, there is no universally
accepted explanation for the fundamental
attribution error. One possible explanation is
that the error results largely from personal
perspective. When a person observes other
people, they serve as the primary reference
point. When a person observes himself, he is
more aware of the forces acting upon him.
Consequently, the attribution for other peo-
ple’s behaviour is more likely to focus on the
obvious, not the situational forces acting upon
the person that may not be obvious.
Disbelief in the Financial Potential
The first cognitive bias relates to a disbelief
in the financial potential offered by CSS. The
understanding of CSS leading to higher
overall profitability is limited by the disbelief
that CSS revenue can constitute a major part
of the value proposition in product-oriented
companies. Compared to selling an item of
machine equipment, selling CSS generates far
less initial revenue. Company A, for example,
creates additional revenue of between 20,000
and 50,000 Swiss francs by offering the pro-
duction of additional mechanical components
for customers in the event of a resource bottle-
neck. In contrast, selling the customer another
flexible manufacturing system generates rev-
enues of half a million Swiss francs. Further-
more, managers often believe that generating
additional revenue through CSS can even lead
to a loss in product revenue. When Company B
additionally offered the operation of its com-
pressors in its customer processes, the custom-
ers started to pay for x m3/s of compressed air.
Customers no longer invested in compressors
themselves, leading to a significant reduction
in product revenue. According to Kahneman
and Tversky’s (1979) prospect theory, manage-
rial aversion to losing product revenues domi-
nates managerial recognition of potential gains
through CSS.
In addition, generating potential gains
through CSS poses a threat to the existing
product sales organization. If managers
increase service revenue by developing CSS,
the authority, expertise, responsibilities or
resources of traditional product sales will
change (Ashforth & Lee, 1990). This potential
threat to the sales organization leads to inter-
nal resistance to innovative CSS and high
political costs for overcoming it. Even when
managers recognize the additional revenue of
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64
CSS, they often believe that the political costs
of exploiting it will be higher than the addi-
tional revenue earned. The lower total revenue
for CSS compared to a piece of equipment,
managerial aversion to losing product revenue
and an over-estimation of the political cost of
overcoming internal resistance to innovating
CSS explain why managers may be sceptical
about the financial potential of CSS. The out-
lined disbelief in the financial potential of CSS
explains why managers do not place a high
valence on exploiting them.
Both successful and unsuccessful compa-
nies were confronted with the initial disbelief
in the financial potential of CSS. While the suc-
cessful companies became aware of the nega-
tive impact of disbelief and started deliberate
actions to better understand the financial
potentials of CSS, two unsuccessful companies
never became aware of the limiting effect. Con-
sequently, companies F and G failed to imple-
ment specific actions for gaining a better
understanding of the financial potentials. The
specific actions followed by companies A, B, C
and D are described in the section on implica-
tions for research and practice.
Risk Aversion
Because of the second cognitive bias on man-
agerial estimation of CSS risks, managers
also have difficulty in placing a high valence
on exploiting CSS opportunities. In line with
Einhorn and Hogarth’s (1985) argument on
risk aversion, managers prefer less risky out-
comes from investing mainly in the product,
CS and PRS business to the more uncertain
outcome of investing resources in developing
CSS.
When entering the competitive service-
providing field, product-oriented companies
face different competitors, namely, other
service providers, distributors and their own
customers. In order to be efficient in this new
competitive environment, managers cannot
simply transfer competitive advantages from
the product to CSS. They must create new
competitive advantages. Traditional product-
oriented companies create competitive
advantages through technical competencies.
Offering CSS creates competitive advantages
that differ from strong technical competencies.
They create integration, customer knowledge
and partnering as well as specific applications
and operational competencies. Unfortunately,
managers in product-oriented firms often
interpret these competencies as being beyond
the scope of their traditional core competen-
cies. Moreover, building up these competen-
cies is not just beyond the scope of traditional
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CREATIVITY AND INNOVATION MANAGEMENT
manufacturing competencies, it also consti-
tutes a potential threat for existing customers.
Company B’s assumption of compressor
operations in the customer process or
company A’s production of mechanical com-
ponents, for example, uses applications and
operational competencies. These competencies
are traditionally core competencies of their
customers. By offering these CSS, both compa-
nies moved into direct competition with their
own customers. This situation creates funda-
mental strategic risks for both companies
in terms of losing existing customers. The
delivery of company C’s preventive main-
tenance agreements means gaining intimate
knowledge of the customer’s operation. This
knowledge includes production process con-
figurations, data about yield and up-time. It
will be risky if customers are not willing to
share this intimate knowledge with suppliers.
Again, both successful and unsuccessful
companies were confronted with the potential
risks and management’s risk aversion. Compa-
nies E, G and H did not recognize the limiting
effect of risk aversion on the development of
CSS. In contrast, the four successful companies
as well as company F became aware of the
latter and used, for example, a detail gap
analysis of existing competencies and those
required for CSS to convince managers that
CSS development is not beyond the scope of
their competencies. In companies E, G and H,
the management was never convinced that the
competencies required for CSS are comple-
mentary to the existing competencies. As the
field studies suggest, managers were averse to
the potential risks inherent in the decision to
develop CSS, and this explains why they did
not place a high valence on them.
Setting Over-Ambitious Objectives
The third cognitive bias limiting managerial
decision making relates to setting over-
ambitious objectives. This does not limit
valence, but has a negative effect on manage-
rial expectations that innovating CSS will lead
to the intended results. In making judgements
about the probability that offering CSS will
lead to an increase in overall profitability, man-
agers compare the observed results with their
expectations (Cyert & March, 1992). Manage-
rial perception of innovating CSS is more posi-
tive if progress in terms of overall profitability
is high in relation to aspiration, and expecta-
tions are more negative when the progress is
disappointing. Expectations are influenced
by the objectives of the CSS business set by
the managers themselves. Bowen, Siehl and
Schneider (1989) highlighted the fact that
product-oriented firms have not historically
© 2007 The Authors
Journal compilation © 2007 Blackwell Publishing
EFFECT OF COGNITIVE BIASES ON CUSTOMER SUPPORT SERVICES
included service-related goals. Due to lack of
experience in setting goals for CSS develop-
ment, most product-oriented companies find it
difficult to set appropriate goals. In conformity
with Kahneman and Lovallo’s findings (1993),
managers commonly under-estimate the scope
and difficulty of innovating CSS. Managers
tend to set over-ambitious objectives and
expect success in CSS sooner than is realistic.
When objectives are set too high, expectations
outstrip the observed increase in overall prof-
itability, creating lower expectations that offer-
ing CSS will be the right decision.
Company D, for example, expected results
from its design and construction services
sooner than was reasonable or realistic.
Expectations outstripped the observed results,
weakening managers’ conviction that CSS will
create strong business opportunities. The
excessively ambitious objectives created a
credibility gap, confirming managers’ initial
disbelief in the financial potential. Thus, a
vicious cycle of goal erosion and disbelief in
the financial opportunities set in. However,
company D very soon became aware of the
vicious cycle of goal erosion and deliberately
started a redefinition of the objectives leading
to more moderate objectives to avoid expecta-
tions that exceed the observed results. The
unsuccessful companies E and F were also
confronted with the vicious cycle of goal
erosion, but were not aware of its causes.
Instead of setting more realistic goals by
using benchmarking, Program Evaluation and
Review Technique or the Critical Path
Method, they considered that the gap between
observed results and expectation is caused by
insufficient effort of the service workers.
Fundamental Attribution Error
The fourth cognitive phenomenon refers
to over-emphasizing employee orientation
toward customer problems. It limits managers’
estimation that the performance will result
in receiving the reward (instrumentality).
Moving into CSS business requires changes
to a series of organizational factors (e.g.,
increasing employee orientation to CSS and
establishing a CSS development process).
Unfortunately, the field studies suggest that
managers merely concentrate on pushing
employees to a higher orientation toward CSS.
According to Ross’s (1977) Fundamental Attri-
bution Error, managers attribute outcomes to
people rather than to system structures. Man-
agers tend to over-estimate the instrumentality
that pushing employees toward a CSS orienta-
tion will lead to successful exploitation of the
CSS business. They do not focus sufficiently on
other antecedents for CSS. However, with-
© 2007 The Authors
Journal compilation © 2007 Blackwell Publishing
65
out a clear service development process, for
example, any decision to facilitate the potential
of CSS will fail. Company D, for example, ini-
tially thought that developing its CSS, referred
to as ‘design and construction of the whole
die-casting cell’, simply meant increasing
employee orientation toward CSS. The man-
ager responsible assumed that employees
would develop complex pieces of equipment
for die casting. To develop ‘design and con-
struction of the whole die-casting cell’, they
would have to think more in terms of
customer-oriented design and construction
processes. Needless to say, this approach did
not bring about the intended success and led
to an immediate reaction on the part of man-
agement. Instead of only forcing employees
toward a higher CSS orientation, managers
started to devote sufficient effort to establish-
ing a CSS development process. The tend-
ency to set over-ambitious goals for increasing
overall profitability and to merely push
employees to create a customer problem
orientation explains why managers under-
estimated the probability that innovating CSS
would result in better overall profitability.
Again, both successful and unsuccessful
companies were confronted with the funda-
mental attribution error. The difference
between successful and unsuccessful com-
panies relies on the awareness of the negative
consequence of the fundamental attribution
error on CSS development. While companies
A, B, C and D became aware of it, the four
unsuccessful firms failed to recognize the con-
sequences. The awareness of the fundamental
attribution error led to specific actions to
encourage employees to be CSS oriented and
to establish structures and processes necessary
for the CSS business.
Comparison of Successful and
Unsuccessful Companies
A comparison with the four struggling, unsuc-
cessful companies indicates how the cognitive
biases can lead to CSS innovation’s success or
failure. The unsuccessful companies failed to
overcome the cognitive biases. As pointed out
in the previous sections, both successful and
unsuccessful companies were confronted with
the four cognitive biases that can limit the
managerial decision to exploit the opportuni-
ties of CSS. The explanation of why companies
A, B, C and D are successful and E, F, G and H
are not stems mainly from the awareness of the
limiting effects of four cognitive biases. While
the successful companies were aware of all
limiting effects and started specific actions to
overcome them, the unsuccessful ones were
aware of only few cognitive biases. Company
Volume 17 Number 1 2008
66
E, for example, was aware only of the negative
consequence of the disbelief in the financial
potential and started to overcome it. Company
H has only overcome the disbelief in the finan-
cial potential and set adequate objectives to
avoid the credibility gap. However, partial
implementation of actions to avoid the cogni-
tive biases does not lead to sufficient manage-
rial motivation to facilitate the potential of
CSS. At least one key factor to motivate man-
agers (valence, expectancy or instrumentality)
remains limited, leading to insufficient man-
agerial motivation. In contrast, as illustrated
in Table 2, the four successful companies
finally succeeded in overcoming all four
cognitive biases through various instruments.
The description of the instruments is the
key managerial implication (see Table 3). The
instruments offer guidance for managers
seeking to exploit CSS potential.
Implications for Research
and Practice
The findings suggest that managers seeking to
exploit CSS should use the following instru-
ments. In order to foster the belief in the finan-
cial potential of CSS, market surveys and
interviews with customers should be used to
obtain a comprehensive understanding of the
financial potential of CSS. This means that
managers should encourage their frontline
staff to have frequent external contacts with
customers in order to pave the way for oppor-
tunity exploration and the generation of new
CSS ideas. External contact provides managers
with the opportunity to collect feedback on
discrepancies between customer activities
and current service offerings. When frontline
staff is educated to be sensitive to signals from
clients relating to such discrepancies, belief
in the financial opportunities becomes more
likely. Furthermore, top management should
help service managers to stimulate and
encourage information sharing between dif-
ferent frontline workers. If information from
different customer contacts is shared, as
opposed to protected, and communication
between different departments is fostered, this
will lead to a better understanding of various
CSS potentials.
The exploitation of the financial potential
of CSS poses a threat to the product sales
organization, leading to political costs.
However, managers should not over-estimate
the possible political cost. Instead, they should
focus on gaining acceptance in entering the
CSS business. In order to increase acceptance
of the CSS strategy and to overcome political
costs, the existing product sales organization
Volume 17 Number 1 2008
CREATIVITY AND INNOVATION MANAGEMENT
should be involved in the strategy formulation
for CSS. Entering the CSS business should be a
joint initiative of top management as well as
the service and product sales organization. To
co-ordinate the initiative between these differ-
ent organizational units, it is important for the
entire procedure to be systematic and trans-
parent. This prevents any prejudices that
the success of CSS business has a negative
impact on responsibilities of the product sales
organization.
A detailed gap analysis of existing compe-
tencies and those required for CSS overcomes
managers’ arguments that CSS are beyond
the scope of their competencies. The risks
of accessing intimate customer knowledge by
offering CSS through the supplier of the
product can be reduced by integrating the
customer into the CSS development process.
Customers should be integrated into the CSS
development process throughout the various
phases of idea creation, preliminary service
concept, market test and market introduction.
Furthermore, top management should also
encourage the sharing of information between
frontline managers and customers. If infor-
mation is shared, as opposed to protected,
customers’ avoidance of sharing intimate
knowledge can be reduced.
The field studies suggest that managers can
avoid setting over-ambitious goals by using
benchmarking with other firms, external
experts and such techniques as the Program
Evaluation and Review Technique and the
Critical Path Method. These methods help
managers to set realistic goals for CSS, leading
to high expectations that managerial effort
will generate the valence. Furthermore, the
entire process of moving into the CSS
business should be considered as a non-linear
process, incorporating frequent feedback
loops between the various phases of obtaining
information on the CSS market, CSS strategy
formulation, implementation and monitoring.
Incorporating frequent feedback loops enables
managers to make changes in goal-setting very
easily. Easy changes in goal-setting and fre-
quent feedback loops reduce the tendency of
managers to set over-ambitious goals.
To avoid the fundamental attribution error,
managers should establish and empower a
CSS innovation team. Empowering means
giving the CSS innovation team the autonomy
to develop CSS successfully. The innovation
team uses its judgement to supervise particu-
lar CSS innovations and react to barriers to
CSS innovation. Furthermore, typical quality
improvement methods (e.g., Ishikawa dia-
grams or Deming’s Plan, Do, Act and Check
cycle) assist managers in avoiding the funda-
mental attribution error. Ishikawa diagrams,
© 2007 The Authors
Journal compilation © 2007 Blackwell Publishing
 Table 2. Characteristics of Cognitive Biases Within Successful and Unsuccessful Companies (x = Overcoming the Cognitive Biases; o = Struggled to Overcome the
Cognitive Biases)

© 2007 The Authors

Companies Factors to motivate Valence Expectancy Instrumentality
managers to
facilitate the
potential of CSS

Cognitive biases Overcoming the Overcoming the risk Setting adequate Balancing

Journal compilation © 2007 Blackwell Publishing

disbelief in the aversion objectives avoiding encouraging
financial potential the credibility gap employees to be
CSS oriented and
establishing
structures and
processes necessary
for the CSS
business

Successful
Company A x x x x
EFFECT OF COGNITIVE BIASES ON CUSTOMER SUPPORT SERVICES

Company B x x x x
Company C x x x x
Company D x x x x
Unsuccessful
Company E x o o o
Company F o x o o
Company G o o x o
Company H x o x o

Volume 17
Number 1
2008
67
68 CREATIVITY AND INNOVATION MANAGEMENT

Table 3. Triggers to Overcome Cognitive Bias

Cognitive Triggers to overcome the limiting effect of the cognitive processes on

processes managerial motivation to facilitate the potential of CSS

Disbelief in the • Conducting market surveys and interviews with customers to obtain
financial a comprehensive understanding of the financial potential of CSS
potential • Encouraging frontline staff to have frequent external contacts with
customers in order to pave the way for opportunity exploration and
the generation of new CSS ideas
• Assisting service managers to stimulate information sharing between
different frontline workers in order to provide a better understanding
of various CSS potentials
• Gaining acceptance of entering the CSS business by involving the
product sales organization in strategy formulation for CSS
Risk aversion • Conducting a detailed gap analysis of existing competencies and
those required for CSS to overcome managers’ arguments that CSS
are beyond the scope of their competencies
• Integrating the customer into various CSS development phases (e.g.
idea creation, preliminary service concept, market test and market
introduction)
• Stimulating information sharing between frontline managers and
customers to reduce customers’ avoidance of sharing intimate
knowledge
Setting overambitious • Using benchmarking with other firms and external experts to set
objectives appropriate goals
• Using techniques as the Program Evaluation and Review Technique
and the Critical Path Method for defining adequate goals
• Incorporating frequent feedback loops to change goal setting very
easily
Fundamental • Establishing CSS inovation teams
attribution error • Giving the CSS inovation team the autoomy to implement
antecedents to develop CSS
• Using typical quality improvement methods to clearly indicate the
successive hurdles to exploit the CSS business

for example, help to indicate clearly the suc-
cessive hurdles to exploiting the CSS business.
The use of such methods enables managers
to concentrate their efforts on defining a CSS
development process and empowering
employees to be more customer problem-
oriented. Thus, these methods limit the nega-
tive impact of the fundamental attribution
error on managerial motivation.
The cognitive biases offer a complementary
perspective on the traditional service develop-
ment literature (Brentani, 2001; de Jong &
Vermeulen, 2003). To the best of the authors’
knowledge, this is the first study which inves-
tigates the influence of cognitive biases on
managerial decisions to facilitate the potential
of CSS business in typical product-oriented
companies. Through the 12 mini-cases of
product-oriented companies, four cognitive
biases were identified: disbelief in the financial
potential, risk aversion, the tendency to set
over-ambitious objectives and the fundamen-
tal attribution error. The research team further
investigated these four cognitive biases by
means of the eight in-depth bipolar case
studies. These case studies clearly indicated
the limiting effect of the cognitive biases.
Moreover, the experiences of the successful
companies led to various instruments for over-
coming the limiting effect. These instruments
provide guidance for managers wishing to
facilitate creative potential for CSS.
By focusing on the cognitive biases inherent
in the managerial decision to facilitate the cre-
ative potential of CSS, we have not explained
in detail the necessary organizational anteced-
ents to develop CSS, which are considered
beyond the scope of this paper. The objective

© 2007 The Authors

Volume 17 Number 1 2008 Journal compilation © 2007 Blackwell Publishing
EFFECT OF COGNITIVE BIASES ON CUSTOMER SUPPORT SERVICES
was merely to explain the cognitive dimension
of CSS. The effect of cognitive biases on mana-
gerial motivation to exploit CSS opportunities
offers a complementary perspective to existing
theories on service development and service
management. It suggests that despite the dem-
onstrated benefits of CSS, managerial motiva-
tion to enter the solution provider business
does not happen automatically. This tends to
be a process of overcoming typical and, in
some respects, counterproductive cognitive
biases in product-oriented companies. Never-
theless, the findings have some clear limita-
tions. The main focus was on the 12 mini-cases
and 8 in-depth cases, and the remarks were
limited to them. However, within grounded
theory, the number of cases is not relevant as
long as the patterns observed in the data are
not incidental. Testing in other substantive
areas needs to be carried out in order to gen-
eralize the cognitive biases identified here.
This is beyond the scope of the research
project presented here. Nevertheless, the
research team recommends that its findings be
applied to other companies and branches of
industry which are confronted with similar
problems.
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Volume 17 Number 1 2008
CREATIVITY AND INNOVATION MANAGEMENT
Heiko Gebauer (heiko.gebauer@unisg.ch) is
a project manager in the Institute of Tech-
nology Management at the University of St.
Gallen. His research explores how manu-
facturing companies extend the service
business.
Regine Krempl (regine.krempl@unisg.
ch) is a PhD student in in the Institute of
Technology Management at the University
of St. Gallen. Her research focuses on the
development of innovative healthcare ser-
vices.
Elgar Fleisch (elgar.fleisch@unisg.ch) is a
professor of Technology Management and
director of the Institute of Technology Man-
agement at the University of St. Gallen
(HSG) and professor of Information Man-
agement at the ETH Zurich.
© 2007 The Authors
Journal compilation © 2007 Blackwell Publishing