Operational risk of customer participation – reduce it or accommodate it?

Purpose: Despite the benefit to service quality, customer participation introduces customer variability to service processes that can be a source of operational risk. Service providers try to cope with the operational risk of customer participation (ORCP) by either reducing or accommodating it. This study, considering both the customer side and the provider side, examines the interplay between customer participation and the service provider’s strategic action and its impact on service quality. Design/methodology/approach: We use regression analysis incorporating the interaction term between strategic action and customer participation to test our hypotheses. We then compare the results across service contexts characterized by service offerings. Findings: The findings indicate that the impact of customer participation on service quality is contingent upon the strategic actions taken to address the ORCP. Overall, the reduction strategy positively moderates the relationship between customer participation and service quality, whereas the accommodation strategy negatively moderates it. Additionally, the moderating effects vary depending on the service context. In particular, when providing goods, the reduction strategy positively moderates the impact of customer participation on service quality, while the accommodation strategy diminishes it. Conversely, in customer care services, both the reduction and accommodation strategies negatively moderate the impact of customer participation on service quality. Lastly, when firms provide information and agency services, the impact of customer participation on service quality is not significantly influenced by the strategic actions regarding ORCP. Originality/value: This study enriches the literature on customer participation as there has been little empirical research that integrates the roles of both customers and service providers in the service process. Previous studies often overlooked the potential risks associated with customer participation and, as a result, did not consider the strategic actions providers might take to manage these risks. By examining the strategic responses of service providers, this study offers a more comprehensive understanding of the dynamics at play. Not only does it address the provider’s side of the service process, but it also explores how these strategies influence the overall service quality when combined with varying levels and variabilities of customer participation. It also provides managerial implications on the choice of strategic actions that make the best use of customer participation.