Legislation as a Tool for Reform: The Case of New ZealandMarch 1, 2013
Robert Davis, PhD (New Zealand)
In November 2009, The New Zealand Government introduced the Real Estate Agents Act 2008. This new act replaced the Real Estate Agents Act 1976. The main purpose of the new act "is to promote and protect the interests of consumers and promote public confidence in the performance of real estate agency work" (REAA 2010). In essence, the act seeks to radically transform, through legislation, the service process and culture of the industry. Change is given momentum by the acts' new regulations related to Audit, Complaints and Discipline, Duties of Licensees and Licensing.
According to REAA (2010), key changes introduced by the new act include; (1) the requirement for agents, branch managers and salespersons to be licensed individually, (2) creation of the Real Estate Agents Authority, (3) the introduction of a new complaints and disciplinary process, (4) the development of new responsibilities for real estate licensees and, (5) the abolition of compulsory membership of the Real Estate Institute of New Zealand (REINZ). The act creates a new service process that is inflexible, that is, it is enshrined in law (Edvardsson and Enquist, 2006). By going from a relatively flexible process that was industry led, the act imposes new structure and behavior.
Despite these aims, little is known about the impact of this type of legislative change on service industry transformation. In particular, there appears to be little understanding of the impact on service culture (Ostrom et al. 2010). As these authors argue, the approach applied with the new act may actually contradict with how to develop and maintain a service culture, that is; "(1) Recruiting, training, and rewarding associates for a sustained service culture, (2) Developing a service mind-set in product-focused organizations, (3) Creating a learning service organization by harnessing employee and customer knowledge and, (4) Keeping a service focus as an organization grows, matures, and changes." Therefore, the main aim of this paper is to explore and develop a greater understanding of how this industry change will develop its service culture (Lemon 2010).
The imposed legislation is designed to impose a new service culture on this industry as a whole. While some authors have explored the effect of laws on this industry (Trombetta 1980), little attention has been given to the fundamental nature of service and industry culture. As Johnson and Loucks (1986) argue, the consumer largely gains when regulations are introduced to raise the quality of service.
Exploring the impact of this change is important because service process design is imperative (Kupers 1998), particularly when changing a service culture radically from goods-based to genuinely service-based (Ostrom et al. 2010). As change begins to occur, providers start focusing on the influence of external pressures and subsequent required internal responses (Antonacopoulou and Kandampully 2000). Legislation has driven the external pressure in this context, and a dearth of evidence plots the recommended provider response in terms of service processes and culture. This is concerning because both employees and users/customers must understand the service process in order to practice it effectively, which often requires additional training (Edvardsson and Enquist 2006). External pressure, though, also helps customers to become service co-creators (Lusch, Vargo and O'Brien 2007).
When large shifts occur, organizations seek to ensure that they transform their own mission, who they serve and that they have a supportive internal culture (Edvardsson and Enquist 2006). These authors also argue that while external pressure drives continuous quality improvement, the "fear of change" can prevent service culture transformation. Kupers (1998) argues that such disruptive emotions will rupture the expression of the service and the service experience interactions between provider and customer. Such radical change may impinge on an organization's ability to develop and maintain a service culture (Ostrom et al. 2010) in terms of employee development, their service mindset, learning, and the service focus as an organization transforms.
Response to Legislation
Following the introduction of the new legislative structure, the real estate industry has started the journey toward the transformation of its service processes and culture: an industry seeking a greater level of cohesion, direction, and professionalism. Despite the best intentions of the major brands, there is a feeling that the real estate industry has languished - fallen behind and become complacent. Therefore, the disatsified customer has been driving this change. The real estate practitioners lament the high profile 'rogue seller' cases that have fuelled public distrust of the industry. Customers often refer to real estate agents in a derogatory way. It was argued that the recent changes are seen as long overdue, although for some, the changes are seen as a reinforcement of what was there already but not adhered to. It was also argued that the legislation may disrupt the emerging service culture as defined by existing employee knowledge.
"I hope that real estate is deemed by the public to be more professional, real estate agents have been thought very poorly of, we're down there with car salesmen. We are not well regarded and that's a shame because people like myself strive very hard. I have put a lot into my reputation and my community over the years and I think I have a good name but I am tarred by the same brush. You are only as good as the lowest common denominator, so my hope is that [legislation] lifts the bar." Manager
Many participants in our study argued that at an industry level, stakeholders support the view that it is time to create and maintain a service culture and improve the level of service customers receive. Participants argued that the real estate industry is a "profession" and needs to be seen as such. However, there is little sense of a clear industry direction, research and development or a shared learning culture that typically characterise a profession.
The commission-based, highly competitive and individualistic nature of the industry creates considerable resistance to change. To create momentum and change, the profession must become a respected career choice for younger people who see knowledge development and learning as a requisite. Hence, the application of new skills and knowledge is part of the service-dominant logic to foster a more sustained service culture by providing better processes for the recruitment and training of service employees.
"We've got to think differently and the training probably needs to be more upmarket rather than the old school. You know, we call ourselves professionals but 90% aren't ...we need to revamp the whole thing, and I think that ongoing education is absolutely paramount, for everybody." Franchisee
A key issue that evolved from the industry participants were the polarized attitudes towards change, the industry and the role of knowledge in the emerging service logic. Some visionary practitioners are leading the way forward in the creation of a redefined service culture. These polarized views may both promote and hinder the service focus as the industry transforms:
"You have got two groups - one that has taken it to the extreme, they have been really watching everything, they are asking their vendors to have moisture tests done in their houses, etc., and then the other group is basically 'who cares' or 'we've been doing it for so long, so why change?' It just hasn't bothered them." Salesperson
A key problem that would hinder the transformation of the service culture was the way in which the industry had been led. There appeared to be a call for the revision of the concept of leadership in the industry and the core skills and knowledge that enable management.
Transforming the industry culture was seen to relate to simple ethical principles and by knowledge and definitions of service outside the industry. Therefore, service culture transformation is being changed by external knowledge.
"I love the fact that the industry is going to be cleaned up as I potentially enter it, because it means that it will be an even playing field and I can use my non-real estate skills to hopefully gain advantage." Salesperson
Implications for Other Markets
As seen in the case of New Zealand, the real estate industry lacked effective industry-wide practices and required significant governmental intercession. Through legislation, New Zealand's government took control of the industry and mandated specific practices influence the service culture and processes. While the result may have been effective, the means ultimately took power from the hands of the practitioners and transferred it to the government.
Other markets (and even other industries) can look at this case as an opportunity to consider self-regulation before governmental regulation becomes a necessity. Some of the ways a market can encourage self-regulation include:
- Analyze current industry knowledge and practices by comparing/contrasting effectiveness based on industry experience (e.g., salespeople with 20+ years experience vs. salespeople with more than 5 years experience). Identify what works (should be retained), what is not working (should be discarded/rethought)
- Engage in cross-industry benchmarking processes to identify best practices and opportunities for process refinement (including benchmarking codes of ethics, service provider licensing/accountability practices, disciplinary procedures, etc.)
- Institute a country-wide consumer satisfaction index to drive the focus for the entire industry
- Implement a variety of consumer feedback mechanisms to collect and analyze customer feedback, increasing visability and accountability throughout the industry
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Antonacopoulou, E. and J. Kandampully (2000), "Alchemy: The Transformation to Service Excellence," The Learning Organisation, 7(1), 13-22.
Edvardsson, B. and B. Enquist (2006), "Quality Improvement in Governmental Services. The Role of Change Pressure Exerted by the Market," The TQM Magazine, 18(1), 7-21.
Johnson L.L. and C. Loucks (1986), "The Effect of State Licensing Regulations on the Real Estate Brokerage Industry," Real Estate Economics, 14(4), 567-82.
Kupers, W.K. (1998), "Phenomenology of Embodied Productivity in Services," International Journal of Service Industry Management, 9(4), 337-58.
Lemon, K.N. (2010), "Setting the Agenda for the Future of Service Research," Journal of Service Research, 13, 3.
Lusch, R.F., S.L. Vargo, and M.O. O'Brien (2007), "Competing Through Service: Insights from Service-Dominant Logic," Journal of Retailing, 83(1), 5-18.
Ostrom, A.L., M.J. Bitner, S.W. Brown, K.A. Burkhard, M. Goul, V. Smith-Daniels, H. Demirkan, and E. Rabinovich (2010), "Moving Forward and Making a Difference: Research Priorities for the Science of Service," Journal of Service Research, 13, 4 - 36.
REAA (2010), "The Real Estate Agents Authority," (accessed January 30, 2013), [available at: http://www.reaa.govt.nz/].
Trombetta, W. (1980), "Using Antitrust Law to Control Anticompetitive Real Estate Industry Practices," Journal of Consumer Affairs, 14(1), 142.
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About the Author
Robert Davis, PhD
Associate Professor of Marketing, Unitec Institute of Technology, New Zealand
Dr. Robert Davis is an Associate Professor at the Unitec Institute of Technology in New Zealand. Robert has worked for IBM, the University of Auckland Business School and Manukau Institute of Technology. He has published research on marketing and related disciplines in Marketing Science, Journal of Advertising Research, Journal of Service Research, Decision Sciences, Journal of Innovative Education, Communications of the ACM, Journal of Consumer and Retail Services, Contemporary Management Research, Entertainment Computing, International Journal of Consumer Research, International Journal of Entrepreneurship and Small Business, Global Entrepreneurship Monitor, International Journal of Mobile Marketing, International Journal of Mobile Communications, Journal of Information Technology, Strategic Direction, International Journal of Bank Marketing, Australasian Marketing Journal and the University of Auckland Business Review. Robert is on the editorial board of the journal Internet Research.