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RESEARCH INSIGHT | How Failure-Tolerant Should Your Firm Be?

The Research

Does being overly tolerant of employee failure in a service encounter help or hurt the bottom line? It can do both. Firms need to keep in mind the ultimate end goal: creating an organizational environment that stimulates customer reacquisitions, rather than focusing on service failure. The authors find that in firms with failure-tolerant culture, having a formal customer policy for reacquisition attempts is key.

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What You Need to Know

  • Formal reacquisition policies do not conflict with failure-tolerant cultures; they enhance the beneficial effects of failure tolerance on reacquisition performance
  • Customer reacquisition performance is positively related to overall firm financial performance.
 

Abstract

Although reacquiring customers can lead to beneficial outcomes, reacquisition processes are often unpleasant for employees, who may be required to admit and address failures. Because many organizational environments reward success and punish failure, companies need to understand how to create an organizational environment that stimulates customer reacquisitions. This study investigates the impact of failure-tolerant cultures and formal reacquisition policies on successful customer reacquisition management. Drawing on organizational design theory and psychological ownership theory, the authors find that failure-tolerant cultures have an inverted U-shaped effect on reacquisition performance because moderate failure tolerance increases reacquisition attempts while not inducing more failures or increasing their severity. Formal reacquisition policies, in contrast, have a positive linear relationship. Notably, formal reacquisition policies do not conflict with failure-tolerant cultures but enhance the beneficial effects of failure tolerance on reacquisition performance; formal reacquisition policies provide guidance for reacquisition attempts that failure-tolerant cultures inspire. Finally, results show that customer reacquisition performance is positively related to overall firm financial performance, a finding that emphasizes the managerial and organizational-level importance of reacquisition management.

Arnd Vomberg, Christian Homburg, and Olivia Gwinner (2020), “Tolerating and Managing Failure: An Organizational Perspective on Customer Reacquisition Management,” Journal of Marketing, forthcoming in July 2020, https://doi.org/10.1177/0022242920916733