Service-Dominant Ethical Capability Scale (SDOET)

1. Abstract

The Service-Dominant Ethical Capability Scale (SDOET) is a psychometric instrument designed to assess a focal service provider's perceived ethical interaction capability from the perspective of the customer or client. Derived from the seminal service-dominant (S-D) orientation framework conceptualized and empirically validated by Karpen, Bove, Lukas, and Zyphur (2015), the SDOET operationalizes ethical capability as one of six fundamental strategic interaction capabilities necessary for establishing collaborative value co-creation. The instrument comprises four negatively phrased indicators measuring the absence of opportunism, deceptive communication, decision manipulation, and coercive pressure. Responses are gathered utilizing an authentic 7-point Likert scale ranging from 1 ("Strongly Disagree") to 7 ("Strongly Agree"), with all four indicators reverse-scored so that elevated aggregate values represent a superior standard of ethical interaction capability. Psychometric evaluations across multiple empirical field studies demonstrated robust construct validity, unidimensional factor integrity via confirmatory factor analysis, high internal consistency reliability (α > .85; composite reliability > .87), and pronounced discriminant validity against related constructs such as relational trust, relational commitment, and alternative S-D orientation dimensions. The scale functions as an essential diagnostic instrument for organizational researchers, behavioral economists, and marketing scholars investigating service interaction ethics, procedural fairness, opportunistic hazard mitigation, and collaborative value architecture.

2. Keywords

Service-Dominant Ethical Capability Scale, S-D Orientation, Ethical Capability, Value Co-Creation, Opportunism, Customer Trust, Relational Governance, Psychometrics, Service-Dominant Logic, Interaction Capabilities, Business Ethics

3. Authors

The scale was conceptualized, operationalized, and psychometrically validated by:

• Ingo Oswald Karpen — Professor of Business and Design, Adelaide Business School, The University of Adelaide, Australia; and CTF Service Research Center, Karlstad University, Sweden.
• Liliana L. Bove — Associate Professor of Marketing, Department of Management and Marketing, The University of Melbourne, Parkville, Victoria, Australia.
• Bryan A. Lukas — Professor of Marketing, Alliance Manchester Business School, The University of Manchester, Manchester, United Kingdom; and University of Melbourne, Australia.
• Mark J. Zyphur — Professor of Quantitative Methods and Organizational Behavior, Department of Management and Marketing, The University of Melbourne, Australia.

4. Purpose

The primary objective of the Service-Dominant Ethical Capability Scale is to provide an empirically rigorous, theoretically grounded measurement tool to capture the degree to which an enterprise or service professional interacts with stakeholders honestly, equitably, and without opportunism. Within modern service ecosystems, long-term organizational viability relies upon continuous value co-creation. When customers or collaborative partners perceive a service organization as manipulative, coercive, or deceptive, the psychological and structural prerequisites for shared resource integration disintegrate.

From a research perspective, the SDOET addresses a historical gap in the empirical operationalization of service-dominant logic (S-D logic). While foundational work in S-D logic (Vargo & Lusch, 2004, 2008) emphasized that relational exchanges and mutual value propositions supersede transactional product transfers, empirical literature long lacked standardized scales measuring the underlying organizational interaction capabilities required to operationalize this philosophy. The ethical capability subscale directly isolates the moral dimension of customer engagement, allowing researchers to examine how the active avoidance of opportunism shapes customer engagement, affective commitment, perceived risk, and relational capital.

In managerial and clinical organizational diagnostic settings, the instrument provides concrete diagnostic intelligence. Human resources, ethical compliance officers, and executive leadership teams can employ the SDOET to benchmark front-line service personnel, detect systemic vulnerabilities where high-pressure sales cultures compromise consumer welfare, and monitor organizational transformations toward authentic stakeholder stewardship. By focusing on non-opportunistic, non-manipulative behaviors, the scale reveals whether customers feel structurally secure during high-involvement service interactions such as retail banking, healthcare delivery, legal counsel, and wealth management.

5. Psychological Construct

The construct measured by the SDOET is Ethical Interaction Capability, defined as an organization's strategic and behavioral propensity to engage with actors transparently, honestly, and equitably by systematically refraining from manipulative, exploitative, misleading, or coercive practices. Within the overarching multidimensional framework of Service-Dominant Orientation (SDO), ethical capability represents the normative and moral infrastructure that underpins collaborative resource integration.

Rather than evaluating passive social responsibility or broad corporate philanthropic assertions, ethical interaction capability focuses directly on the dyadic, inter-subjective micro-encounters between the service agent and the customer. Psychologically, this construct operates through four behavioral dimensions:

• Non-Exploitative Stance (Absence of Opportunism): The perceived unwillingness of the service provider to take self-serving advantage of situational information asymmetries or customer vulnerabilities.
• Cognitive Autonomy Preservation (Absence of Manipulation): The conscious protection of the customer's independent decision-making capacity, ensuring that recommendations and interactive cues honor client self-determination.
• Informational Integrity (Absence of Deception): The complete transparency of communication, ensuring that ambiguous contractual clauses, omitted facts, or misrepresentations are not leveraged for firm gain.
• Volitional Decision-Making (Absence of Coercive Pressure): Freedom from psychological, time-sensitive, or institutional duress that forces customers into choices that disproportionately favor the provider.

Because cognitive bias frequently leads actors to understate subtle unethical maneuvers when asked broad positive questions (e.g., "Is this firm ethical?"), the SDOET construct is captured via negative behavioral manifestations of opportunism. When customers confirm that a firm does not deceive, exploit, pressure, or manipulate them, they attribute authentic ethical capability to the organization, cultivating psychological safety and relational benevolence.

6. Theoretical Framework

The Service-Dominant Ethical Capability Scale is conceptually embedded at the intersection of Service-Dominant Logic (Vargo & Lusch, 2004, 2008), Transaction Cost Economics (Williamson, 1985), and Psychological Contract Theory (Rousseau, 1995).

Service-Dominant Logic and Operant Capabilities

Service-Dominant Logic conceptualizes value creation as an ongoing collaborative process wherein operant resources—primarily dynamic human knowledge, competencies, and relational capabilities—are exchanged to create mutual benefit. Within this paradigm, Karpen et al. (2012, 2015) posited that organizations require specific strategic interaction capabilities: individuated, relational, communicative, developmental, empowered, and ethical. The ethical capability functions as the foundational governance mechanism; without established ethical integrity, customers perceive high psychological vulnerability, triggering relational defense mechanisms that inhibit transparent communication and cooperative problem-solving.

Transaction Cost Economics and Opportunism

Williamson (1985) articulated that economic transactions are fundamentally burdened by the hazard of opportunism, defined as "self-interest seeking with guile." When clients enter service exchanges characterized by information asymmetry (e.g., specialized medical, technical, or financial services), they run the risk of moral hazard and adverse selection. The SDOET assesses the degree to which an enterprise mitigates perceived opportunism through visible, repeated, and non-exploitative interactions, thereby structurally minimizing subjective transaction costs.

Psychological Contract and Reciprocal Altruism

Psychologically, the interaction between a customer and a service provider establishes an implicit psychological contract governing mutual expectations of fair play, respect, and non-maleficence. Drawing upon theories of reciprocal altruism and organizational justice, the SDOET operationalizes whether the firm honors this unwritten covenant. Preserving the client's agency and refraining from pressure signals benevolence and procedural justice, which in turn catalyzes reciprocal customer commitment and advocacy.

7. Validity

The construct, convergent, discriminant, and criterion-related predictive validities of the SDOET were rigorously examined across rigorous development phases and empirical cross-sectional field studies involving thousands of retail banking and specialized service consumers (Karpen et al., 2012, 2015).

Convergent Validity

Convergent validity was demonstrated using structural equation modeling. In confirmatory factor analytic (CFA) models, all four standardized factor loadings for the ethical capability indicators exceeded the stringent threshold of .70, demonstrating statistical significance at p < .001. The Average Variance Extracted (AVE) for the ethical capability dimension comfortably surpassed the established .50 benchmark (AVE > .60 across independent retail service samples), indicating that the latent construct accounts for the majority of the variance in its measured indicators.

Discriminant Validity

Discriminant validity was established through multiple rigorous statistical procedures:

• Fornell-Larcker Criterion: The square root of the AVE for ethical capability was substantially higher than its bivariate correlations with all other S-D orientation dimensions (individuated, relational, communicative, developmental, empowered capabilities), as well as related relational constructs such as general customer trust, affective commitment, and perceived service quality.
• Nested Model Chi-Square Difference Tests: Chi-square difference tests (Δχ²) comparing constrained models (factor correlation set to 1.0) against unconstrained models produced significant results across all paired comparisons (p < .001), corroborating that ethical capability is empirically distinct from general provider benevolence and overall customer satisfaction.

Predictive and Criterion-Related Validity

The scale exhibited substantial predictive utility for both psychological customer states and objective organizational performance metrics. Structural modeling showed that customer ratings of ethical capability directly and positively influenced customer affective commitment, active service collaboration, share-of-wallet, and positive word-of-mouth advocacy, while simultaneously diminishing switching intentions and dispute escalations.

8. Reliability

The reliability of the SDOET has been established through both classical test theory parameters and modern latent variable psychometrics across multi-wave empirical testing.

Internal Consistency

In the primary empirical validation studies reported by Karpen et al. (2015), the scale exhibited high internal consistency:

• Cronbach's Alpha (α): Reported coefficients consistently range between .86 and .91 across separate testing samples, exceeding standard psychometric reliability thresholds for research (≥ .70) and diagnostic profiling (≥ .80).
• Composite Reliability (CR): Structural latent variable composite reliability exceeded .88 across calibration and validation samples, confirming that the scale indicators consistently measure the shared underlying latent continuum.

Item-Total Correlations and Stability

Corrected item-total correlation coefficients for each of the four indicators exceed .68, well above the conventional cut-off of .30, indicating that no single item introduces disruptive measurement noise. Furthermore, the four items maintain strong inter-item correlations (ranging between .60 and .75). The scale displays temporal stability across repeated cross-sectional assessments in longitudinal banking sector evaluations, confirming robust test-retest reliability across routine service encounters.

9. Factor Analysis

The structural dimensionality of the SDOET was evaluated through both exploratory factor analysis (EFA) during instrument development and rigorous confirmatory factor analysis (CFA) during final validation (Karpen et al., 2012, 2015).

Confirmatory Factor Analysis Structure

Within a second-order service-dominant orientation construct (comprising six first-order dimensions) or as an independent first-order construct, the four items consistently load onto a single unified latent factor representing ethical capability.

Item Factor Loadings

Reported standardized factor loadings (λ) from maximum likelihood estimation CFA show strong factor saturation:

• Item 1 (Takes advantage of me if given the chance): Standardized λ ≈ .78 – .84 (p < .001)
• Item 2 (Tries to manipulate my decisions): Standardized λ ≈ .83 – .88 (p < .001)
• Item 3 (Misleads me to its advantage): Standardized λ ≈ .86 – .90 (p < .001)
• Item 4 (Pressures me into decisions that are favorable to them): Standardized λ ≈ .81 – .86 (p < .001)

Model Fit Indices

The measurement model incorporating ethical capability alongside the accompanying S-D orientation capabilities achieved excellent model fit across primary data sets. Exemplary indices from Karpen et al. (2015) include:

• Chi-Square / Degrees of Freedom (χ²/df): < 2.50
• Comparative Fit Index (CFI): > .95
• Tucker-Lewis Index (TLI): > .94
• Root Mean Square Error of Approximation (RMSEA): ≤ .055 (90% CI: .048 – .062)
• Standardized Root Mean Square Residual (SRMR): ≤ .042

Alternative models specifying common method variance or combining ethical capability with communicative or relational capabilities into a single undifferentiated factor produced significantly deteriorated model fit, verifying the empirical integrity of the distinct 4-item ethical capability dimension.

10. Instrument / Measurement Tool

• Test Type: Perceptual behavioral rating scale; self-administered customer/stakeholder questionnaire.
• Format: Quantitative self-report instrument; paper-and-pencil or digital web-based delivery.
• Number of Items: 4 items.
• Response Scale: Authentic 7-point Likert scale (1 = Strongly Disagree to 7 = Strongly Agree).
• Scoring Rules: All four items are negatively phrased to capture opportunistic and manipulative tendencies. Every item must be reverse-scored prior to computing aggregate metrics (i.e., 1 becomes 7, 2 becomes 6, 3 becomes 5, 4 remains 4, 5 becomes 3, 6 becomes 2, and 7 becomes 1).
• Score Interpretation: Following reverse scoring, item scores are averaged (or summed) to produce an overall Ethical Capability Index ranging from 1.0 to 7.0 (or a composite score from 4 to 28). Higher aggregate scores directly denote higher levels of perceived ethical interaction capability, transparency, and non-opportunistic orientation.
• Administration Time: Approximately 1 to 2 minutes when administered independently; negligible cognitive burden.

11. Permissions & Fee and Test Year

• Test Year: First comprehensively operationalized in exploratory work in 2012; officially published in definitive peer-reviewed validation form in 2015.
• Original Developers: Ingo Oswald Karpen, Liliana L. Bove, Bryan A. Lukas, and Mark J. Zyphur.
• Permissions & Academic Licensing: The scale was published in the Journal of Retailing (Elsevier). Academic, non-commercial researchers may reproduce and utilize the scale items for empirical investigations without direct royalties, provided standard academic attribution and citation are accorded to Karpen et al. (2015).
• Commercial / Consulting Applications: For-profit corporate assessments, commercial benchmarking platforms, or fee-generating enterprise consultancy deployments may necessitate permission clearance through the copyright holder (Elsevier / Journal of Retailing) or direct licensing arrangements with the authors.

12. References

• Karpen, I. O., Bove, L. L., & Lukas, B. A. (2012). Linking service-dominant logic and customer equity: Conceptualizing and measuring service-dominant orientation. Journal of Service Research, 15(1), 21–38. https://doi.org/10.1177/1094670511428317
• Karpen, I. O., Bove, L. L., Lukas, B. A., & Zyphur, M. J. (2015). Service-dominant orientation: Measurement and impact on performance outcomes. Journal of Retailing, 91(1), 89–108. https://doi.org/10.1016/j.jretai.2014.10.001
• Rousseau, D. M. (1995). Psychological contracts in organizations: Understanding written and unwritten agreements. SAGE Publications. https://doi.org/10.4135/9781452231594
• Vargo, S. L., & Lusch, R. F. (2004). Evolving to a new dominant logic for marketing. Journal of Marketing, 68(1), 1–17. https://doi.org/10.1509/jmkg.68.1.1.24036
• Vargo, S. L., & Lusch, R. F. (2008). Service-dominant logic: Continuing the evolution. Journal of the Academy of Marketing Science, 36(1), 1–10. https://doi.org/10.1007/s11747-007-0069-6
• Williamson, O. E. (1985). The economic institutions of capitalism: Firms, markets, relational contracting. Free Press.

13. Items of the Scale