service-dominant logic:an alternative mindset for innovation
TRANSCRIPT
S-D Logic
SERVICE-DOMINANT LOGIC: AN ALTERNATIVE MINDSET FOR INNOVATION
2009 Ministry of the Knowledge EconomyConference on Service Innovation through R&DSeoul, Korea
Nov 10, 2009
Stephen L. VargoShidler Distinguished Professor of MarketingUniversity of Hawai’i at Manoa
S-D Logic
Suddenly, Service(s) is Everywhere
Apparent transitions• From manufacturing economy to service
economy• From goods-oriented firms to services firms
Manifestations• Services marketing• Services operations • Service factories• Servitzation• Service Engineering
• Service-oriented architecture• Software-as-a-service• Service systems• Services science• Service Innovation
S-D Logic
The Message
The transitions are mythical
The apparent transitions are driven by an inadequate logic of the market• “arm-flapping” logic?
The real transition is in the basic logic of economic exchange markets• Emerging from diverse disciplines & sub-disciplines• Pointing to a more robust logic of economic exchange
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The Prelude: The Blasphemy of the Alternative Logic There is no new service economy There are no producers and consumers Goods are not “goods.” Firms do not create value There are no “services” There are no markets
And yet there are
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The meaning of “logic” The underlying philosophy for
organizing and understanding a phenomena Pre-theoretical Paradigm level of thought The lens that provides the perspective
Different from formal scientific and mathematical logic
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The Importance of the Right Logic
Without changing our pattern of thought, we will not be able to solve the problems we created with our current pattern of thought
Albert Einstein The greatest danger in times of turbulence is not the
turbulence: it is to act with yesterday’s logic. Peter F. Drucker
The main power base of paradigms may be in the fact that they are taken for granted and not explicitly questioned
Johan Arndt What is needed is not an interpretation of the utility
created by marketing, but a marketing interpretation of the whole process creating utility.
Wroe Alderson
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From Arm-Flapping to Airfoil Logic
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Goods-dominant (G-D) Logic Purpose of economic activity is to make and
distribute units of output, preferably tangible (i.e., goods)
Goods are embedded with utility (value) during manufacturing
Goal is to maximize profit through the efficient production and distribution of goods goods should be standardized, produced away
from the market, and inventoried till demanded
Firms exist to make and sellvalue-laden goods
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Value Production and Consumption
Producer ConsumerSupplier Supply/Value Chain
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Services: The G-D Logic Perspective
Value-enhancing add-ons for goods, or
A particular (somewhat inferior) type good, characterized by (IHIP Characteristics):• Intangibility• Heterogeneity (non-standardization)• Inseparability (of production and consumption)• Perishability
Services Economy = Post Industrial = Less-than-desirable economic activity
Services Innovation = using goods innovation principles adjusted for “services” (IHIP) deficiencies
S-D Logic
Problems with Goods Logic
Goods are not why we buy goods
• Service (benefits) they render• Intangibles (brand, self image, social connectedness, meaning)• Experiences
Goods are not what we fundamentally “own” to exchange with others• Applied knowledge and skills (our services)
Customer is secondary and seen as value receiver and destroyer• “Consumer orientation” is an add-on--does not help
IHIP characteristics do not distinguish services vs. goods
• But they do characterize value and value creation
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G-D Logic Background
Smith’s Bifurcation• Positive foundation of exchange:
• specialized knowledge, labor (service), Value-in-use
• Normative model of (national) wealth creation:• Value-in-exchange and “production”
• Creation of surplus, exportable tangible goods
Say’s Utility: • Usefulness (value-in-use)• Morphed into a property of products (value-in-
exchange)
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G-D Logic Background (2)
Bastiat (1848):
• “Services are exchange for services”
Development of Economic Science
• The “Producer” – “Consumer” distinction• Built on Newtonian Mechanics
• Matter, with properties• Deterministic relationships
• The science of exchange of things (products), embedded with properties (“utiles”)
Marketing (Business Disciplines) Built on G-D Logic Foundation of Economic Science
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What Has Changed?Nothing and Everything
Exchange is about the reciprocal application of knowledge skills (specialized information)
• Service for service
“Dematerialization” and “liquification” (IT and ICT)• The ability to separate and transport information apart
from and matter (and people) (Normann 2001) • Makes Service-logic compelling
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A Partial Pedigree Services and Relationship Marketing
e.g., Shostack (1977); Berry (1983); Gummesson (1994) ; Gronroos (1994); etc.
Theory of the firm Penrose (1959)
Core Competency Theory (Prahalad and Hamel (1990); Day 1994)
Resource-Advantage Theory and Resource-Management Strategies Hunt (2000; 2002); Constantine and Lusch (1994)
Network Theory (Hakansson and Snehota 1995)
Interpretive research and Consumer Culture theory (Arnould and Thompson 2005)
Experience marketing (Prahalad and Ramaswamy 2000)
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Key S-D Logic Publications
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Service-Dominant Logic BasicsService, rather than goods, is the basis of economic and social exchange• i.e., Service is exchanged for service
Essential Concepts and Components
• Service: the application of competences for the benefit of another entity• Service (singular) is a process—distinct from “services”— particular
types of goods • Shifts primary focus to “operant resources” from “operand resources”• See value as always co-created
• Firm makes value propositions• Sees goods as appliances for service deliver• Implies all economies are service economies
• All businesses are service businesses
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Foundational Premises (Revised)Premise Explanation/Justification
FP1 Service is the fundamental basis of exchange.
The application of operant resources (knowledge and skills), “service,” is the basis for all exchange. Service is exchanged for service.
FP2 Indirect exchange masks the fundamental basis of exchange.
Goods, money, and institutions mask the service-for-service nature of exchange.
FP3 Goods are distribution mechanisms for service provision.
Goods (both durable and non-durable) derive their value through use – the service they provide.
FP4 Operant resources are the fundamental source of competitive advantage
The comparative ability to cause desired change drives competition.
FP5 All economies are service economies.
Service (singular) is only now becoming more apparent with increased specialization and outsourcing.
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Foundational Premises (Revised)Premise Explanation/Justification
FP6 The customer is always a co-creator of value
Implies value creation is interactional.
FP7 The enterprise can not deliver value, but only offer value propositions
The firm can offer its applied resources and collaboratively (interactively) create value following acceptance, but can not create/deliver value alone.
FP8 A service-centered view is inherently customer oriented and relational.
Service is customer-determined and co-created; thus, it is inherently customer oriented and relational.
FP9 All economic and social actors are resource integrators
Implies the context of value creation is networks of networks (resource-integrators).
FP10 Value is always uniquely and phenomenological determined by the beneficiary
Value is idiosyncratic, experiential, contextual, and meaning laden.
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ProductsGoods
Services
Clarifications: Service vs. Services
Services = intangible products
Service =The processof using one’s competences for the benefit of some party The application of
knowledge and skills
Service transcends“goods and ‘services’”
•
ServiceDirect
IndirectGoods
Money
G-D Logic
S-D Logic
There are No “Services” in Service-Dominant Logic
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Service Beneficiary
Provider of Operand &
Operant Resources
Direct Service
Provision
Service Provision
via Goods
Value in Context
Cocreation of Value
Integration With Public-
Facing Resources
Integration With Private-
Facing Resources
Coproduction
Clarifications:Cocreation vs. Coproduction
Coproduction is relatively optional. Value is always cocreated
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What S-D Logic Might be
Foundation of a paradigm shift in marketing• Perspective for understanding role of markets in
society—Theory of market• Basis for general theory markets and marketing
More generally, basis/foundation for
• “Service science” • Theory of the firm• Reorientation for economic theory
S-D Logic
Service Exchange through Resource Integration and Value Co-creation
Resource Integrator/Beneficiary
(“Firm”)
Resource Integrator/Beneficiary(“Customer”)
= Resource Integrators
S-D Logic
Service Ecosystems An economic community supported by a
foundation of interacting organizations that co-create value through service exchange . It includes: “Suppliers” “ “Producers” Competitors Customers Customer’s network of resources Other social and economic stakeholders
S-D Logic
Markets: Shared, or Shaped and or (Co)Created
The MP3-Player MarketOr The customizable-entertainment- storage-organizer-and-personal-assistant-and-life-applications-with-a-WOW-factor-platform market
The mineral-oil marketOrThe baby-butt-rash-avoidance-mommy-guilt-reducing-body-massage-and-sexual-lubricant market
The sodium-bicarbonate market OrThe occasional-baking-But-primarily-refrigerator-freshening-teeth-cleaning-clothes-brightening market
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Korean Market Makers
The Thirsty Hippo
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The Messages of S-D Logic
• There is only service
There are no services
• All economies are service based
There is no new service economy
• All parties are resource integrators/enterprises (i.e., Bs)
There are no producers and consumers
S-D Logic
The Messages of S-D Logic (2)
• “Goods” are value propositions for service provision
Goods are not “goods.”
• Value is always co-created
Firms do not create value
• The are imagined and created by linking resources with peoples lives• And yet they do – because we act as if they do.
Markets do not exist
S-D Logic
Perspectives on Innovation• Making better output (goods)
• New technology• Efficient processes• Decreasing returns to scale
• Purpose: increase market share
Goods Innovation
• Making better output (“services”)• Apply goods innovation principles, adjusted
for “IHIP” deficiencies
“Services” Innovation
• Providing input into customers’ value-creation processes• Link firm-available resources to peoples purposes• Effective solutions• Increasing returns to scale
• Purpose: “Owning” the market -- market shaping
Service Innovation
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Innovation in Ecosystems Architecture
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Innovations in Social Connectivity
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Innovation in Outcome-Based Pricing/Performance Contracting: Service for Sale
PowerBy TheHour
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Innovation in Innovation (Cocreation)
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Innovation Meets Marketing
True innovation is not the making of novel units of output
but the designing and creating of new marketsthrough service provision
In S-D logic, these become intertwined, if not indistinguishable
Business has two basic functions: Innovation & Marketing
Peter Drucker
S-D Logic
For More Information on S-D Logic visit:
sdlogic.net
We encourage your comments and input. Will also post:• Working papers
• Teaching material• Related Links
Steve Vargo: [email protected] Bob Lusch: [email protected]
Thank You!
S-D Logic
Dynamics of the effectual network
Who I amWhat I knowWhom I know
What canI do?
Effectual stakeholder
commitments
Interactions with other
people
New means
New goals
NEW MARKETSAND NEW FIRMS
Expanding cycle of resources
Actual Means
Converging cycle of constraints
Actual courses ofAction possible
(Affordable loss)
Who We areWhat We knowWhom We know
What canWe do?
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The Source of the “New” Service(s) Economy
G-D logic classification
Increasing division of
laborOutsourcing
Apparent New
Service Economy
S-D Logic
Resource Integration
Market-facing Resource
Integrators
Private Resource
Integrators
Public Resource
Integrators
Resource Integrator (individual, family, firm,
etc.) Value
Economic Currency
Social Currency
PublicCurrency
NewResources