UNIVERSITY OF NORTHAMPTON Airbnb: Quality Management and the Sharing Economy Managing Operations and the Supply Chain MM 144XXXXX STRM046 Andrew Gough August 201X Word Count: 2749   Airbnb: Quality Management and the Sharing Economy Principles of the Sharing Economy The sharing economy is a market created through peer-to-peer transactions based on sharing rather than owning. Individuals can share what they may not be using at the time (e.g. cars, bikes, homes, couches, etc.) and make a profit, while those using the services pay less through sharing versus owning or contractual renting (‘All eyes on the sharing economy’, 2013). Although sharing is not a new concept, many argue that the present digital or information age initiated a new wave of thinking that disputes traditional consumer concepts of ownership, therefore challenging current models of sales and business (Belk, 2014). The major positive outcomes of the rapidly expanding sharing economy include earning and saving money by consuming various unused or underutilized services, reducing overconsumption that consequently reduces waste and ecological damage, improving efficiency, reversing economic inequality, and promoting trust in people and their contribution to building the economy (Mathews, 2014). However, many studies dispute the positive outcomes arguing that the increase in sharing reduces jobs in applicable areas, such as taxi drivers and hospitality workers, and increases political, legal, and insurance conflicts (Mathews, 2014). In addition, studies have indicated that overall waste, especially vehicle carbon emissions, are not as low as reported (‘Will the sharing economy fulfill its positive potential?’, 2014), and largely that the sharing economy will create a disaggregate indebt-based environment thereby reducing trust and favors between friends (Jacobs, 2014). Regardless, experts agree that the collaborative consumption of the sharing economy will likely continue to expand as individuals seek cheaper and easier ways of obtaining what they need. This has stimulated discussion on how conventional businesses will compete and how the international market structure will transform to meet the increasing demands of both consumer and provider (Bercovici, 2014). Organization Description Airbnb is an online platform designed to connect travellers looking for accommodation (guest) with individuals who have lodgings available (host). These lodgings include a wide variety of options where guests may contract couches, campsites, bedrooms, castles, etc. Customers tend to be travellers looking for inexpensive accommodation or a local experience that cannot be provided by hotels. Customers find lodgings through Airbnb, book and pay through Airbnb’s website, and upon leaving report their experience through the website’s review page (Airbnb, n.d.). As primarily a platform between users, operational licenses are the responsibility of the host and are subject to local business and tax regulations. However, because some of these regulations fall into a “grey-zone,” the question of whether hosts are obligated to disclose rental income and pay taxes similar to hotels and bread and breakfasts has been raised. Irrespective of taxes and licensing, most find it an easy way to make a profit or an easy way to save money, accounting for over 11 million Airbnb users and a net worth of over 10 billion USD (De La Merced, 2014). Main Operational Process Operational processes are defined by an organization’s input, operations, and output. These are represented as performance objectives that, in addition to customer expectations, influence overall operations (Slack, Brandon-Jones, & Johnston, 2013). Input resources are determined as either transformed, resources that cannot be reused, or transforming, resources that can be recycled after each process. Processes are designed to integrate resources to provide outputs such as products and services. The success of a process is evaluated based on quality, speed, dependability, flexibility, and cost (Slack, Brandon-Jones, & Johnston, 2013). The operational process of Airbnb, an online services platform, is also defined by inputs, processes, and outputs as seen in Figure 1, and designed to meet the performance objectives motivated by customer expectations. Airbnb’s performance objectives aim to provide customers with a wide variety of accommodation types, location options, and price points, in addition to allowing customers to “monetize their extra space and showcase it to an audience of millions” within a “trusted community marketplace” that can be easily accessed (Airbnb, n.d.). The main operational process that is needed to deliver service to customers is Airbnb’s online platform, ensuring that it is easy, efficient, and accurate, while including cost and time savings factors that are considered essential for successful online operations (Kohl, Devaraj, & Mahmood, 2004). Similar to other organizations within the sharing economy, Airbnb has a broad supply network with users acting as part of both supplier and consumer groups that are in constant competition with other group members (Slack, Brandon-Jones, & Johnston, 2013). Although both suppliers and consumers are considered input resources, they have differing roles within the operational process with guests acting as transformed resources and hosts who can offer the same lodgings continuously acting as transforming resources. The three primary input resources that are essential to Airbnb’s operations are hosts, guests, and the website platform. Interestingly, Airbnb’s operations include little to no contact (electronic or otherwise) between Airbnb staff and customers. All processes are auto generated through an online user interface, which is the basis of Airbnb’s operations. Correspondingly, Airbnb’s outputs are positioned on the service side of the products and services spectrum as they provide a service contract between guest and host rather than providing the actual accommodation (product) (Slack, Brandon-Jones, & Johnston, 2013). Figure 1: Airbnb Operational Process Literature Search Quality management (QM) is an “integrative management philosophy aimed at continuous improvement of performance” to deliver and exceed customer expectations (Ebrahimi & Sadeghi, 2013). It is an approach used to improve organizational performance (Longbottom, et al., 2000). Within the sharing economy, discerning customer expectations can be derived in a number of ways. Firstly, discovering the positive and negative aspects of a company’s marketing platform(s) and tools in order to understand consumer processes and align services to the customer. Secondly, researching customer expectations in relation to the industry at large as well as determining how other companies apply customer focused tactics, in order to develop competitive strategies. Thirdly, taking an innovative approach to learn about customer expectations, and finally, utilizing specific quality management strategies to bridge gaps between executives and employees, the organization and customers, and the organization and the public. Understanding QM strategies allows organizations to focus on meeting and exceeding customer expectations within business processes which is a fundamental objective in becoming a successful organization (Jamali, Ebrahimi, & Abbaszadeh, 2010). Companies in the sharing economy that use online platforms require a strong foundation of trust and satisfaction with customers to achieve long-term organizational success and performance (Kim, Ferrin, & Rao, 2009). Developing online platforms, such as the one used by Airbnb, is both an efficient and effective way to organize customer information in an easily accessible location making customer experience the organization’s primary goal. It not only provides information to make informed decision, but allows customers to provide their own feedback, connect and respond to other users, and review history, feedback, and recommendations from social media circles, such as Facebook. Embracing social media outlets can provide rich company feedback in tandem with traditional feedback methods, directing attention on QM strategies that focus on continual improvement and operational process (Barsky & Honeycutt, 2010). Although online reviews can provide quality information, research indicates that an overabundance of customer reviews can diminish the quality of online review systems as it can become difficult for customers to evaluate the integrity of reviews, especially for products that have inconsistent evaluations of quality (Zhen, Zhu, & Lin, 2013). Base rates can also be a significant factor leading to wide variability of customer reviews (Pennycook et al., 2014), for example, individuals who travel less and have fewer funds may find a middle-cost accommodation exceptional, while those who travel more extensively at mid to high quality establishments may find the same accommodation poor. Connecting users with social media and thus with individuals who have similar definitions of quality can help to increase the validity of customer reviews. Social media can also help organizations to appropriately benchmark for overall quality improvement. Benchmarking allows companies to accurately identify customer needs and carefully detect options for best practice. It is known to be a valuable and convenient method to understand consumer perceptions and create marketing systems that focus on using or altering perceptions as needed to gain organizational advantage (Noel, 2014). Although the significance of benchmarking is well known, studies do indicate that marketing specialists tend to underutilize benchmarking practices and if they are used, there are substantial practical difficulties and lack of integration that prevent benchmarking being a successful QM tool (Longbottom, et al., 2000). One of the main deciding factors customers use when choosing accommodation is cost. Studies have shown that approximately 70 percent of customers choose mid-priced accommodation over upscale hotels due to the high costs incurred at these hotels (‘Hotel Rates’, 2008). A second major factor in choosing accommodation is location (Berman, 2008). Companies that can provide a wide range of price and location options can meet the needs of a large customer base and therefore expand their business and community of Airbnb users. Using the sharing economy to connect accommodation options with customers allows customers variety, however, quality control is major issue when platform companies, such as Airbnb, contract services that are provided by a third party. It is imperative that platform companies not only provide customers the opportunity to provide feedback about third-party users, but utilize customer responses as a QM strategy to make changes and set appropriate expectations for incoming customers (Brooks, 2010). By providing opportunities for feedback and using this information to make appropriate changes trust is built between the organization and customers, which is one of the most vital factors when customers choose to use online services, followed closely by quality customer service (Piercy, 2014). A crucial element in building this trust between customers and online businesses is based on electronic communication between existing customers and potential customers (Ozturkcan & Gursoy, 2014), demonstrating the importance of companies capitalizing on social media and consumer reviews that indicate customer expectations are being met. The extent to which companies actually evaluate customer feedback to improve quality is indicative of the level of an organization’s customer focus (Mahour, Adams, & Jones, 2011). Research has shown that QM areas such as executive leadership and commitment supplier relationships have a significantly positive result on customer focus and ultimately meeting customer expectations (Ebrahimi & Sadeghi, 2013). Customer focus also has a direct impact on customer loyalty (Sadikoglu & Zehir, 2010). Creating reliable customer relationships in turn promotes a self-reinforcing cycle that combined with high quality of service, company interaction, and peer-to-peer interaction increases customer experience quality, and ultimately loyalty back to the company (Kim & Choi, 2013). An organization’s financial performance is also a considered a direct result of its customer focus (Lakhal, Pasin, & Limam, 2006). Customer focus is further extended into creating mutually beneficial supplier relationships. QM highlights the importance of these relationships which are enacted through trust, common ground, and shared responsibility, and how they can provide a competitive advantage within the supply chain (Lambrechts, Taillieu, & Sips, 2010). Research by Wiengarten et al. (2013), demonstrate that the success of QM practices includes a degree of innovative practices depending on contextual factors and that organizations characterized by a high level of originality have significantly greater operational performance. This can perhaps explain Airbnb’s initial success as it revolutionized current traveller accommodation business models and help supported the rise of a universal sharing economy. This success has then expanded as the company has capitalized on online resource sharing and access to customer feedback that has allowed entrepreneurs to market to customers faster and more effectively than traditional business models (Nelson, 2012). Because of this, top level organizations within multiple industries have reevaluated their operational designs to meet the continuing changes to customer expectations and services (Carr, 2012). While organizational creativity can become very rewarding, research by Bernardo (2014) indicates that organizations must assess innovative practices as repeatable processes and services rather than disassociated ideas to provide quality improvement and to prevent reinvention. If integrated appropriately, innovation at the management level can also improve efficiency and financial results (Bernardo, 2014). A general practice of QM is total quality management (TQM), a philosophy which includes all aspects and participants of an organization. TQM strategies generally include concepts such as customer focus and satisfaction, process management, benchmarking, mutually beneficial supplier relationships, quality analysis, strategic planning, and executive leadership (Ebrahimi & Sadeghi, 2013) and can be further organized into three main categories. First, social or soft practices which includes intra-organizational involvement such as employee fulfillment and internal cooperation. These practices have been found to motivate and encourage employees thereby allowing them to focus on meeting customer needs, therefore supporting operational performance (Huczynski & Buchanan, 2013). The second category includes technical or hard practices, namely process analysis and continuous improvement. And thirdly, optimal management where executives engage in TQM techniques and visionary leadership practices to positively influence organizational behaviour (Wiengarten et al., 2013). These TQM strategies allow organizations to focus on understanding and meeting customer expectations which is paramount to achieving organizational success. In addition, customer expectations differ greatly based on dynamic and cumulative factors including level of experience with the company (Trisca, 2013), reputation, size, media response (Kim, 2012), and belief in future performance (Nadiri & Hussain, 2005). Applying TQM strategies assist organizations to recognize, understand, shape, and meet customer expectations, and if successful, subsequently reinforce an organization’s success. Quality Strategy Quality strategies are used in order to monitor and maintain quality service operations. Although Airbnb has experienced significant success since its inception in 2008, the overarching goal of any company is to remain competitive throughout market fluctuations by meeting customer expectations. High-quality services are critical elements for companies to maintain competitiveness in global markets (Battani et al., 2012). Strategies Airbnb can implement in order to monitor quality services include collecting and reviewing consumer usage data to evaluate the quality of online processes, and evaluating customer feedback to ensure expectations are being appropriately interpreted. By continually evaluating customer habits, Airbnb can ensure quality service that is delivered based on the customer perspective. Large data analytics is known to be one of the most powerful tools for service centers to create a comprehensive understanding of customer needs, habits, and preferences ('The Cloud’, 2014). By analyzing online information including consumer keyword searches, accommodation search times, and error notifications, Airbnb can locate online processing areas that may be causing difficulties at the customer level, preventing the consumers from reaching the final stage in additional to lowering customers’ perception of Airbnb’s quality service. If consistent keywords are being searched by consumers, Airbnb can provide this information more readily, anticipating consumer needs when they reach the online platform and enhancing the quality experience for consumers. Monitoring accommodation search times to see whether customers are consistently searching for longer before making a decision can indicate that information customers are looking for may not be readily available consequently requiring continual searches. By evaluating these times, Airbnb can compensate as needed by providing additional search criteria as customer needs evolve. In addition, monitoring error notifications throughout the purchasing process is an excellent way to pinpoint regular issues consumers may face, and if becoming increasingly consistent for consumers, the online process or instructional materials can be altered to meet the changes and expectations of the customer. The second quality monitoring recommendation is to ensure cultural specific expectations for consumers are being continually monitored and understood at the operational level. According to Jawecki, Fuller, and Gebauer (2011), cultural differences significantly impact online communication styles and suggest that online platforms ensure they align interactions based on customer expectations and routines. Cultural communication differences can include formal versus informal word preferences to a company’s choice of published photography, which can influence the level of confidence and customer expectations with that company (Coleman, 2013). For individuals new to Airbnb online services, providing the opportunity for customers to connect with Airbnb employees or individuals of similar cultural, ethnic, and religious backgrounds who are providing accommodation can allow Airbnb to monitor ever-changing cultural expectations and make process changes accordingly. It can also provide a better customer experience by ensuring that customers feel comfortable in their surroundings, especially in locations that may have extreme cultural differences. 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