Values-based service for sustainable business

-Lessons from the retailers IKEA, Starbucks, H&M and Body Shop

Bo Edvardsson ([email protected])
Bo Enquist ([email protected])

CTF-Service Research Center, Karlstad University, Karlstad, Sweden

Abstract

Aim The aim of this paper is to explore the role of values-based service for sustainable busi-
ness. The two basic questions addressed are: What is values-based service? How can values
create value for customers and other stakeholders?

Design/ methodology/ approach This paper is based on extensive empirical studies focusing
on the role of values at the corporate, country and store levels in the retail company IKEA and
a comparison of the results with data from Starbucks, H&M and Body Shop. The theoretical
point of departure is a business model based on the service-dominant logic (SDL) on the one
hand and control through values focusing on social and environmental values forming the
basis for a sustainable business.

Findings Based on a comparative, inductive empirical analysis, five principles for a sustain-
able values-based service business were identified: (1) Strong company values drive customer
value, (2) CSR as a strategy for sustainable service business, (3) Values-based service expe-
rience for co-creating value with customers, (4) Values-based service brand and communica-
tion for values resonance and (5) Values-based service leadership for living the values. A
company built on an entrepreneurial business model often has the original entrepreneurs va-
lues and leadership style as a model for future generations of leaders. However, the challenge
for subsequent leaders is to develop these values and communicate what they mean today.

Orginality/ value We suggest a new framework for managing values-based service to create
a sustainable business based on values resonance.

Key Words: Values-based service, corporate values, foundation values, CSR, value-in-use,
values resonance, sustainable service business, service experience, service brand and commu-
nication, service leadership.

Introduction

The notion of customer value includes not only economic value but also value that is linked
to values. From the customers perspective, value is an overall personal assessment of the
quality attributes of the market offering in relation to the price and other sacrifices. It is a sub-
jective assessment of the positive and negative consequences associated with the purchase,
including values linked to the provider.

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Values can be understood as the principles, standards, ethics, and ideals that companies and
people live by. A distinction can be made between two main categories of values: (i) a com-
panys core values (which form the basis of the company culture); and (ii) foundation values
(which reflect the norms of society in general). Compliance with the later category constitutes
so-called corporate social responsibility (CSR), which refers to a companys social and envi-
ronmental responsibilities. A values-based business is thus based on a combination of core
company values and foundation values, which guide the company in creating customer value
and a sustainable service business. Such values are crucially important in creating customer
value and forming the basis for a sustainable service business.

Mainstream business is today product and production oriented and thus characterized by a
goods-dominant logic (GDL), which can be seen as the opposite of a service-dominant log-
ic (SDL) (Vargo and Lusch 2004, 2008). The main focus of the SDL paradigm is that value
is co-created with customers and assessed on the basis of value in use. Market offerings are
understood as being resources that produce effects. Despite the growing awareness of SDL,
the focus in service-management research has continued to be on the structural processes of
the service system.

The notion that a service culture, grounded in company core values and CSR, drives service
strategy has not been empirically examined in any great detail. This article is based on a three
years research journey resulting in the book Values-based service for sustainable business
lessons from IKEA (Edvardsson and Enquist, 2008) focuses on what might be called values-
based service, with particular emphasis on the role of such service in the furniture company,
IKEA. Values-based service is, in this article, defined as service that is firmly based on the
core company values as well as social and environmental responsibility. When the core com-
pany values, the social and environmental values are in accordance with the values of custom-
ers and other stakeholders, resonance (rather than dissonance) occurs. To be successful, a val-
ues-based service business must seek resonance with their customers and other stakeholders
in terms of values, and avoid any suggestion of dissonance. We use insights from IKEA, to-
gether with a conceptual analysis based on SDL to create a framework of values-based service
for sustainable business. The framework guide the empirical study in IKEA and the results are
compared with data from Starbucks, H&M and Body Shop.

This article is the first on the role of values in developing and managing a sustainable service
business. The focus is on the role of values in creating customer and stakeholder value and
thus co-creating a sustainable business. The two basic questions addressed are: (1) What is
values-based service? (2) How can values create value for customers and other stakehold-
ers?

The article is structured as follows: First, we present our theoretical framework for studying a
values-based sustainable service business. Second, research design followed by the lessons
from IKEA, a comparison with data from three other retailers and finally five principles and a
model for a successful values-based service business is presented.

A theoretical framework for studying a values-based sustainable service business

Figure 1 presents our theoretical framework for studying a sustainable service business. We
use a matrix of two value-creation logics (service-dominant logic and goods-dominant logic)
on the vertical axis and two business models (a control-based business model and a values-
based business model) on the horizontal axis. The term control-based business model refers
to a short-term focus on financial results, whereas the values-based business model shifts the

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focus from a short-term preoccupation with financial matters to incorporate long-term, values-
driven governance principles and key performance indicators. In such a values-based busi-
ness model, the core company values, foundation values (that is, the companys social and
environmental responsibilities), and customer values drive the financial and other business
goals (such as growth, customer satisfaction, and risk). By combining a service-dominant log-
ic with a values-based business model we position IKEA, our main case in this paper in the
upper-right section of the matrix shown in Figure1.

Long-term and
Service multi-perspective
dominant as in the IKEA
case

Value
creation
logic

Goods
dominant Short term and
financial value

Control-based Values-based

Business model

Figure 1. A framework for studying a values-based, sustainable service business.

To study values-based service for sustainable business in a practical business situation, it was
important to choose a service company that has been successful in terms of growth and profit-
ability. We selected IKEA. Some might argue that IKEA is a product retailer and not a service
company; however, IKEA views itself as a service providerbecause the companys focus is
not on the furniture itself but on solutions to real-life problems and making a contribution to
a better life for the majority of people. This is clearly a service concept in which the physi-
cal products are perceived as platforms for service experiences that create customer value.
Moreover, IKEA is a service-oriented company in the sense that the passion is on serving
people with well-designed, quality products at a price they can afford.

IKEA is a successful, profitable company and the global leader in its industry. The firm is
known for a strong service culture that emphasises company core values and a strong sense of
corporate and social responsibility. IKEA has demonstrated an ability to serve customers and

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renew its business at a time when many other companies have been more focused on narrow
conceptions of shareholder value and internal issues. Other companies and organisations can
learn from IKEA, and it is the aim of this paper to provide inspiration and practical guidance
in analysing an organisations values as a basis for a sustainable service business. In short,
this paper contributes to a better understanding of the strategic role of values in forming and
directing service strategy and value-in-use for customers. The values of a company guide the
attitudes and behaviours of the firms leaders, employees, and customers, as well as determin-
ing the business strategy and vision of the company. In the context of IKEA, such values (in
the sense of ideals) are crucial for understanding customer value and value-in-use.

According to Palmisano (2006), businesses are changing in fundamental waysstructurally,

operationally, and culturallyin response to globalization and new technology; as a result,
the larger companies are no longer multinational corporations (MNCs), but globally inte-
grated enterprises. He also suggests global collaboration, whereby various stakeholders
interact in development and learning processes. IKEA is an example of a globally integrated
enterprise in which economic, environmental, and social perspectives are integrated in sup-
port of one another. The supply chain of IKEA has its roots in the Swedish county of
Smland, which is a region of limited resources, and this represented a significant challenge
for the management of IKEA in its entrepreneurial efforts to create smart solutions (Ed-
vardsson and Enquist, 2002).

Research design
We have been studying the development of the Swedish furniture retailer, IKEA, for several
years. This has involved: (i) the extensive perusal of documents; (ii) multiple interviews with
IKEA managers; (iii) the collection of narratives about IKEA from the media, the Internet,
books and from internal material from IKEA; (iv) personal observations at IKEA stores and
service centers in Europe, Asia, and North America; and (v) supervision of 15 masters theses
and field reports on related subjects. Our research has resulted in a number of articles includ-
ing Edvardsson and Enquist (2002); Edvardsson, Enquist and Johnston (2005); Edvardsson,
Gustafsson and Enquist (2005); Edvardsson, Enquist and Hay (2006); Enquist, Edvardsson,
Petros Sebhatu (2007). The comparative study of Starbucks, H&M and Body Shop have been
done in parallel with the IKEA study during 2006 and 2007 and resulting in two written pa-
pers Enquist, B., Edvardsson, B. and Petros Sebhatu, S. (2007b) Enquist, B., Edvardsson, B.
and Petros Sebhatu, S. (2007c) and parallel with this process the book Edvardsson and En-
quist (2008) has been developed during 2007 and 2008.

Lessons from IKEA

The lessons to be learnt from the study of IKEA (Edvardsson and Enquist, 2008) can be
summarised in five areas as follows: (i) a new entrepreneurial business model; (ii) the logic of
values and the logic of value creation; (iii) service experience; (iv) service brand and market-
ing communication; and (v) service leadership.

A new entrepreneurial business model

IKEA began in a poor farm village in the southern Swedish county of Smland. The entrepre-
neur, Ingvar Kamprad, challenged established views from the beginning. For example, he
believed that an entrepreneur should first make money before spending or investing; he dis-
liked being dependent on loans from a bank.

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IKEAs original focus was on furniture that had function, quality, and low price, and
these attributes (together with the later addition of good design) remain the core components
of the business model that is firmly embedded in the IKEA culture. The original supply chain
and business model of IKEA had to cope with the limited resources that existed in the rela-
tively poor district of Smland, but this lack of resources had the virtue of stimulating the cre-
ation of smart solutions. In summing-up his entrepreneurial vision, Kamprad observed: The
question is whether, as an entrepreneur, I [could] combine the good in a profit-making busi-
ness with a lasting human social vision. I like to think that it must be possible.

In focusing on smart solutions, Kamprad created the concept of furniture that customers could
put together themselves. This resulted in lower warehouse and distribution costs, but it did
require new ways of producing the products and new packaging (with instructions to the cus-
tomers on how to assemble it). In effect, the customers became co-producers of the IKEA
solutions as some of the activities were transferred to the customers. This is the core of the
IKEA business model, which has been further developed by a sophisticated supply chain and
a systematic renewal of products and service offerings.

In addition, the marketing activities of IKEA, which used creative themes and emphasised the
development of the IKEA brand, challenged established views of marketing in the industry.
Moreover, the business model now also includes the establishment of new stores and the re-
quisite transfer of IKEA knowledge and values from established markets to new markets in a
variety of national cultures.

The culture in IKEA is based on shared values and meanings. The IKEA values are: (i) toge-
therness and enthusiasm; (ii) constant desire for renewal; (iii) cost consciousness; (iv) wil-
lingness to accept and delegate responsibility; (v) humbleness and willpower; (vi) simplicity;
(vii) leadership by example; (viii) daring to be different; (ix) striving to meet reality; (x) con-
stantly being on the way; and (xi) being unafraid of making mistakes (with the privilege of
making mistakes and putting them right afterwards). These values drive the companys strate-
gy and provide guidance to leaders and co-workers alike. The values thus provide motivation
to maximise the commercial potential of the company at all levels. The underlying theme is a
customer focus (as IKEA puts it, to stand by the many), combined with social and environ-
mental responsibility. The focus is on solutions to real-life problems at home for the majority
of people.

IKEA emphasises corporate social responsibility (CSR). IKEAs long-term strategy is to

create a better life for all stakeholders. In this regard, social and environmental responsibility
is a natural part of the IKEA business model. According to IKEA, social and environmental
responsibility is profitable in the long run and is in accordance with IKEAs commitment to
being cost-conscious.

Apart from the values held by its leaders and co-workers, the IKEA service strategy is driven
by external pressure from customers, non-government organisations (NGOs), and competi-
tors. The success of IKEA is based on the conviction that values and meanings are co-created
among all members of the IKEA stakeholder network in various market contexts.

The logic of values and the logic of value

According to the traditional view, value is defined and created in the value chain and incorpo-
rated into products during product development and production. In contrast, the emerging

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view, as adopted by IKEA, is that value is co-created with customers and assessed on the ba-
sis of value-in-use during consumption experiences. In adopting this view, IKEA promotes its
furniture and other products as enablers of smart solutions to real-life problems at home.
These solutions are co-created with the customer and their value is primarily assessed when
the products are used. Value is thus predominantly assessed in terms of value in use.

This conception of the logic of value (whereby customers assess quality in terms of how de-
sign and function provide solutions to problems) is combined at IKEA with logic of values
(whereby special attention is paid to the ethical, social, and environmental values that are in-
creasingly playing a prominent role in customers decisions to buy). Consumers have an in-
creasing awareness of environmental, social, and ethical issues, which has resulted in corpo-
rate social responsibility (CSR) becoming a driving force in business development. IKEAs
commitment to CSR is part of its wider commitment to its various stakeholders (including
customers. co-workers, and suppliers). The social and environmental policies of IKEA are
rooted in the core values of the company.

Service experience

Apart from value in use after the purchase, IKEA also creates value for its customers through
the co-creation of individualized solutions during pre-purchase service experiences. This si-
multaneously reduces risk for the customer and enhances customer imagination and interac-
tion with the organization.

So called hyperreality is also used to provide customers with a pre-purchase service expe-
riences. Just as product-based organizations have traditionally allowed their customers to test
drive their products, service organizations are increasingly utilizing simulated or hyperreal
experiences to enable customers to experience potential service solutions before purchase. In
the case of IKEA, the firm enables customers to experience a new kitchen in the store and/or
to use web-based experiences (such as the IKEA kitchen planner) to simulate or test-drive
various solutions.

An experience room can support customers in their role as co-creators of value (make the
solutions customized and tangible), as well as facilitating the companys communication of
its corporate values and. In this regard, the IKEA showrooms can be seen as experience
rooms, in which customers receive a real service experience before purchase.

Service brand and marketing communication

Three essential elementsvision, culture, and imagemust be aligned if a values-based

brand strategy is to be successful. In IKEAs marketing, value-in-use for customers is primari-
ly of an instrumental nature, as communicated through the catalogue, the website, and the
store showrooms. However, in IKEAs marketing strategy there is also communication
beyond the instrumental level, whereby IKEA narrates a sustainable corporate story in
which vision, culture, and image complement one another in a successful branding strategy.

Taken together, IKEAs vision, business idea, and market positioning provide a framework
for brand-building that is used in the entire firms marketing communication worldwide. The
brand embodies and expresses values that add value when customers experience solutions to
real-life problems at home.

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To ensure sustainable business success, a company needs to focus on a few basic values that
are attractive to customers, employees, and other stakeholders. In particular, it is essential that
the companys values and those of the customers achieve so-called values resonance. The
IKEA brand is built on associations with such values as cost-consciousness, design, uncon-
ventionality, and environmental awareness.

IKEA recognizes the importance of training, empowering, and rewarding leaders and co-
workers to live the brand in their interactions with one another, customers, suppliers, other
partners, the media, and owners. Living the IKEA brand is learnt by co-workers and leaders
in their day-to-day work, in on-the-job training, and through educational programs that ex-
plain the IKEA way.

Service leadership

IKEA has created a strong culture built on authentic leadership and knowledge sharing. Most
IKEA leaders are identified, developed, and promoted from within the organisation. Within
the IKEA network, the values and skills of the organisation are cultivated by shared know-
ledge and authentic leadership. Leaders are promoted on the basis of their personal values,
skills, potential, and what they have delivered so far. The sharing of IKEA values among
leaders and co-workers ensures that values resonance within the firm provides energy and
direction for sustainable business development.

IKEA trusts its leaders, co-workers, and customers, and emphasises the importance of their
involvement. Trust is a pre-requisite for openness, creativity, and involvement. It is built from
the top through authentic leadership, involvement, responsibility, and empowerment. In
IKEAs view, when co-workers and leaders grow, the business is growing. In the IKEA net-
work, reverse knowledge flows and lateral knowledge flows ensure that new smart solutions
become a reality and have an influence on the global concept.

Comparison of IKEA, Starbucks, H&M, and Body Shop

A new entrepreneurial business model

All four companies were founded by energetic entrepreneurs: Kamprad at IKEA; Schultz at
Starbucks; Persson at H&M, and Roddick at the Body Shop. All of these entrepreneurs have
been innovative in their various consumer industries. They have built distinctive business
models in their companies, and these have been retained and developed over decades through
the dissemination of the entrepreneurs values throughout their organisations.

All four companies also have a business model for future success based on: (i) various forms
of triple bottom line (TBL) thinking; (ii) attractive offerings in attractive stores; and (iii)
strong supplier chains governed by social and environmental responsibility and the require-
ments of good citizenship. In addition, they have growth strategies based on investment in
sustainable resourcesIKEA in energy conservation and managing social and environmental
responsibility; Starbucks in recycling and community development; H&M in environmentally
friendly products; and the Body Shop in sustainable products. All four companies have strong
corporate values and a clear focus on serving customers in a broad international target market.

The logic of values and the logic of value creation

In accordance with the logic of value creation, all four companies exert control over the de-
sign and development of the service offering and use suppliers in the value chain to control

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price, time, and quality. Moreover, in all four companies, the logic of value creation is driven
by the logic of values. All take a TBL perspective with respect to logistics, stores, and produc-
tion, and all have their own code of conduct to ensure that their social, environmental, and
quality standards are maintained. They also attempt to engage their suppliers in positive em-
powering relationships that create value for the suppliers themselves.

Service experience
The studied retailers have a focus on serving customers and have developed management pol-
icies and systems with regard to the co-creation of value with customers. The IKEA policy
promotes customer placement in store showrooms (experience rooms). For Starbucks, their
customer-oriented policy is described as promotion of the Starbucks experience. H&M pro-
motes shopping as an easy and pleasant experience. The Body Shop aims for an enjoyable
customer experience in their shops and at home. In all four cases, customer-oriented policies
aim to promote favorable service experiences.

Service brand and marketing communication

Our case companies have well-known values-based global service brands. However, they do
not explicitly use CSR in their market communication. All of these brands are positioned in
accordance with the firms views on environmental and social responsibility. The firms ensure
that their brands are supported by the communities with whom they do business, that their
suppliers are empowered, and that they engage with a range of environmental and social initi-
atives.

Service leadership
In all four companies, the knowledge and drive of employees are of fundamental importance
in developing a strong corporate culture with regard to living the brand and sharing corpo-
rate values. Within IKEA, employees are referred to as co-workers; Starbucks refers to
partners; H&M uses the term colleagues and the Body Shop talks about our people.
All service leaders are expected to act as role models. Leadership performance is judged in
terms of operational skills, cooperation with others, and sharing values and meanings. All four
companies focus on investing in leadership performance and focus on the development of
individual leaders and employees as a key strategy for company success. All firms are also
seeking leaders from diverse backgrounds to create a multicultural employment environment
reflecting the diversity among their present and potential customers. Gender equality in em-
ployment is also a goal of all companies.

Five principles for a sustainable values-based service business

From the comparative analysis presented above, five principles for a sustainable values-based
service business have been developed.

Principle 1: Strong values drive customer value

Strong values form the basis for a company culture. In tandem with customers values and the
values of the wider society, strong corporate values provide energy and direction to business
development. Innovative service businesses are often created by entrepreneurs who are im-
bued with a clear vision and a strong sense of mission. Such vision and mission are usually
based on a firm set of personal values.

A company with strong values does not necessarily have unchanging values. Rather, values
are dynamic, may be expressed in various ways over time and can become stronger in the
sense that they become clearer, more relevant, and better integrated in the business model.

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Such values are used by customers and other stakeholders when value is assessed. The values
create bonds with customers and thus represent a significant loyalty driver. In summary, in
developing a sustainable values-based company, values are pre-eminently important in the
companys relationships with its staff, partners, suppliers, shareholders, and the media but
most important its customers.
Principle 2: CSR as a strategy for sustainable service business
Sustainable values-based service businesses have a strong commitment to corporate social
responsibility (CSR), which leads to quality-assurance systems, appropriate performance indi-
cators, TBL thinking, and involvement with NGOs in control, assessments and improvement
efforts.
A sense of social and environmental responsibility stimulates lean production, lean consump-
tion, energy conservation, and the creative use of apparent waste. Social and environmental
responsibility thus contributes to profitability in a long-term perspective.

CSR is important for rethinking the role of any company in any industry. By using CSR in a
proactive way, companies think laterally in searching for smart solutions. The logic of
values thus drives the logic of value creation.
Principle 3: Values-based service experience for co-creating value
Many services are experience-based and companies should therefore create and offer test-
drives of services for customers to enable them to experience the service, before purchase
and consumption.

Customers experiences are formed during use or consumption of a service. When a custom-
ers basic requirements are met, other issues make a difference. These issues are often subtle,
affective, and values-based. A well-designed service concept should include an experience
room to make possible for customers to test-drive the service before purchase and use or con-
sumption.
Principle 4: Values-based service brand and communication for values resonance
Brands are living expressions of what a company stands for. They communicate what its
products or services can do for people. However, if a company overstates what its products
can do, and subsequently fails to deliver (as perceived by customers), this creates adverse
reactionsboth in the market and among the companys employees.
Successful brands are not created de novo; rather, they develop naturally within value-based
companies. These brands then enable values-based companies to reach out and connect with
customers, staff, and other stakeholders.

Successful companies often challenge established views in suggesting something new and
attractive in their marketing. These ideas can be provocative, but they must simultaneously
resonate with the values of customers in the market. Values-based brands must incorporate
values that are attractive to customers and avoid being associated with unfavourable values.
Values resonance (both within the organisation and outside it) is essential for a sustainable
values-based service company.

Using CSR to secure a values-based service brand is more than mere communication about
CSR with the customers; rather, it is about using CSR as basis for strategy and ensuring that
the service brand (and communication with all stakeholders) is in resonance with the compa-
nys values, the customers values, and the values of the wider society.
Principle 5: Values-based service leadership for living the values

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To secure sustainability, a values-based company needs a strong, values-based leadership. A
company built on an entrepreneurial business model often has the original entrepreneurs val-
ues and leadership style as a model for future generations of leaders. However, the challenge
for subsequent leaders is to develop these values and communicate what they mean today. To
communicate these values in contemporary terms, it is essential that leaders live the values.
Leadership is about walking the talk. Both the talk and the walk must make sense to em-
ployees and energise them to focus on serving customers, thus creating shareholder value.
Leaders communicate through their interactions with employees, partners, suppliers, and cus-
tomers. Authentic leaders therefore spend time with customers and employees and learn from
them. Great leaders are directed not only by the logic of value, but also by the logic of values.

A model for values-based service businesses

It will be recalled that Figure 1 presented a matrix of two value-creation logics (service-
dominant logic and goods-dominant logic) on the vertical axis and two business models (a
control-based business model and a values-based business model) on the horizontal axis. It
will be apparent that the four innovative service companies discussed above all base their val-
ue creation on the service-dominant logic and that their business models are values based. All
four companies are therefore firmly situated in the upper-right quadrant of Figure1.

Strong values drive

customer value

Values based ser- CSR as strategy

vice leadership
for living the values for sustainable
service business
Value
creation Service
logic dominant
Values based ser-
vice brand and Values based ser-
communication vice experience
for values resonance for co-creating value

Values

Business model

Figure 2. A model for values based service for sustainable business.

It is not suggested that these four companies are the only global businesses that would be situ-
ated in this quadrant. Many companies are now recognising the implications of sustainable

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development and the importance of values-based stances with respect to the environment and
social responsibility. As Hart (2007, p. 3) has noted:

Businessmore than either government or civil societyis uniquely equipped at this point
in history to lead us toward a sustainable world in the years ahead. I argue that corporations
are the only entities in the world today with the technology, resources, capacity, and global
reach required. Properly focused, the profit motive can accelerate (not inhibit) the transforma-
tion toward global sustainability, with nonprofits, governments, and multilateral agencies all
playing crucial roles as collaborators and watchdogs.

Gore (quoted in Hart, 2007, p. xxiv) has expressed a similar view: The interests of share-
holders, both public and private, over time, will be best served by companies that maximize
their financial performance by strategically managing their economic, social, environmental,
and ethical performance.

All of the studied companies have well-developed processes for renewal and reconfiguration
of their business models in the light of experience over time (Normann, 2001). Renewal is
essential for sustainable success. The overriding orientation of the studied companies is a ge-
nuine focus on the customer and how to create value for customers. Superior customer value
is based on favourable service experiences, a strong brand, and dynamic marketing communi-
cation. This requires staying close to the customers, understanding their requirements, and
providing solutions that are in accordance with their values and lifestyles. Learning from (and
with) customers in various ways is crucially important if a company wishes to remain cus-
tomer focused.

Corporate social and environmental responsibility has been demonstrated to be profitable

both in the short term and in the long term. Innovative service concepts that utilise physical
products as platforms for service and customer experiences can create value in use. The logic
of values and the logic of value creation are synergistic, profitable, and sustainable.

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Attaining Sustainability From Organizational Excellence to Sustainable
Excellence; 20-22 August; 2008 in Helsingborg; Sweden
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Excellence; 20-22 August; 2008 in Helsingborg; Sweden