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Foundations of Service-Dominant Logic . Naples Forum on Service Capri, Italy June 17, 2009 Stephen L. Vargo University of Hawai’i at Manoa Robert F. Lusch University of Arizona . Suddenly , Service(s) is Everywhere. Service-oriented architecture Software-as-a-service

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foundations of service dominant logic

Foundations of Service-Dominant Logic

Naples Forum on Service

Capri, Italy

June 17, 2009

Stephen L. Vargo

University of Hawai’i at Manoa

Robert F. Lusch

University of Arizona

suddenly service s is everywhere
Suddenly, Service(s) is Everywhere
  • Service-oriented architecture
  • Software-as-a-service
  • Service systems
  • Services science
the prelude the blasphemy of the alternative logic
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 is no B2C
  • There are no services
  • There are no markets
    • And yet there are
the meaning of logic
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
the importance of the right logic
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
goods dominant g d logic
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 sell

value-laden goods

value production and consumption

Value Creation

Value Destruction

Goods/Money

Producer

Supplier

Value Production and Consumption

Product/Value Delivery

Consumer

Supply/Value Chain

a partial pedigree
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)
resource integration
Resource Integration

Economic

Currency

Market-facing Resource Integrators

New

Resources

Resource

Integrator (individual, family, firm, etc.)

Social

Currency

Private Resource

Integrators

Value

Public Resource Integrators

Public

Currency

clarifications service vs services
Clarifications: Service vs. Services
  • Services = intangible products
  • Service =The process of using one’s competences for the benefit of some party
    • The application of knowledge and skills
  • Service transcends “goods and ‘services’”

G-D Logic

S-D Logic

There are No “Services” in Service-Dominant Logic

slide21

Clarifications:

Cocreation vs. Coproduction

Integration

With Public-Facing Resources

Direct

Service Provision

Provider of Operand & Operant Resources

Service Beneficiary

Value in Context

Cocreation of Value

Coproduction

Service Provision via Goods

Integration

With Private-Facing Resources

Coproduction is relatively optional.

Value is always cocreated

service exchange through resource integration and value co creation
Service Exchange through Resource Integration and Value Co-creation

Market-facing and public and private resources

Market-facing and public and private resources

Resource Integrator/Beneficiary

Resource Integrator/Beneficiary

(“Firm”)

(“Customer”)

Service

Value Co-creation

Value Co-creation

$ (Service Rights)

= Resource Integrators

markets and market actors as service systems
Markets (and Market Actors) as Service Systems

Resource Integrator/Beneficiary

Resource Integrator/Beneficiary

(“Firm”)

(“Customer”)

Service Systems

an extended pedigree
An Extended Pedigree
  • Social Network Theory
    • e.g., Giddens (1984); Granovetter (1973)
  • New Institutional Economics
    • North (2005); Menard (1995)
  • Human Ecology
    • e.g., Hawley (1986);
  • Business Ecosystems
    • Insiti and Levien (2004)
  • Stakeholder Theory
    • Donaldson and Preston (1995)
  • Service Science
    • e.g., Spohrer and Maglio (2008)
  • Market Practices and Performances
    • Araujo (2008), Kjellberg and Helgesson (2008)
what is needed
What is needed
  • Foundations for Positive theory
    • Shift from products as unit of analysis to collaborative value creation and determination
      • B2B, service, and relationship
    • Refocus on operant resources as source of value
      • Resource-based theories of the firm; resource advantage theory
    • Elimination of producer/consumer distinction
      • B2B marketing/network theory
      • Inframarginal analysis
    • Models of emergent structure and processes
      • Complexity theory
      • Interpretive research
  • Theory of resource integration and exchange
    • Theory of the market to inform normative marketing theory
the market marketing and economics
The Market, Marketing, and Economics
  • Other disciplines have found it convenient to institutionalize the distinctions between applied and basic science... In marketing, the problem is rather one of spinning off a basic science from a problem solving discipline.
    • (Arndt 1985)
  • “Paradoxically, the term market is everywhere and nowhere in marketing.”
    • Venkatesh, Penaloza, and Firat (2006)
  • It is a peculiar fact that the literature on economics…contains so little discussion of the central institution that underlies neoclassical economics – the market
    • North (1977)
issues for a theory of the market
Issues for a Theory of the Market
  • The performative nature of markets
    • The market is a function of the marketing (and other business disciplines)
    • e.g., Araujo (2009)
  • Markets do not exist
    • They are images of service potential
    • Markets as practices
      • e.g., Kjellberg and Helgesson ( 2008)
  • …and yet they do
    • Intersubjective realities
    • Intuitions
markets shared or co created
Markets: Shared or (Co)Created

The MP3-Player Market

Or

The customizable-entertainment- storage-

organizer-and-personal- assistant-and-life-applications-with-a- WOW-factor-platform market

The sodium-

bicarbonate market

The mineral-oil market

Or

The baby-butt-rash-avoidance-

mommy-guilt-reducing-

body-massage-and-

sexual-lubricant market

Or

The occasional-baking-

But-primarily-refrigerator-

freshening-teeth-cleaning-

clothes-brightening market

frontiers in service conference
Frontiers in Service Conference
  • World’s leading annual conference on service research in its 18th year
  • Honolulu, Hawaii, Oct. 29 – Nov. 1, 2009
  • Hosted by the Shidler College of Business, University of Hawaii at Manoa
  • 304 abstracts submitted, 39 countries
  • Emphasis on Service Science trend
  • Brian Arthur and John Seely Brown confirmed plenary speakers

Center for Excellence in Service

slide34

Thank You!

  • 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: svargo@sdlogic.net Bob Lusch: rlusch@sdlogic.net
resource integration the practices perspective
Resource Integration: The Practices Perspective

Partially adapted from Kjellberg & Helgesson (20056

the new fractal geometry of the market

External Resources

RI

Resistance Reduction

Resource Integration

Needs

Needs

Needs

Resources

Resources

Resources

Exchange

Resistances

Resistances

Resistances

RI

RI

Customers

Stakeholders

The New Fractal Geometry of the Market

Value Co-creation

Value Co-creation

ValueCo-Creation

s d logic influence on service science
S-D Logic Influence on Service Science
  • B. Service Client
  • Individual
  • Organization
  • Public or Private
  • A. Service Provider
  • Individual
  • Organization
  • Public or Private

Forms of

Service Relationship

(A & B co-create value)

Value Configuration

Density

Forms of

Service Interventions

(A on C, B on C)

Forms of

Responsibility Relationship

(A on C)

Forms of

Ownership Relationship

(B on C)

Resource Integrator/Beneficiary

Resource Integrator/Beneficiary

  • C. Service Target: The reality to be
  • transformed or operated on by A,
  • for the sake of B
  • People, dimensions of
  • Business, dimensions of
  • Products, goods and material systems
  • Information, codified knowledge

(“Firm”)

(“Customer”)

Value Co-creation

  • Understanding service and service innovation requires new abstractions.
  • Service is the application of competence for the benefit of another.
  • Service involves at least two entities, one applying competence and another integrating the competences with other resources and determining benefit (value co-creation) – these interacting entities are service systems.
  • A service system is a dynamic value co-creation configuration of resources, including people, organizations, shared information, and technology connected to other service systems by value propositions.
  • A service interaction includes proposal, agreement, and realization.
  • An atomic service system has no service systems as operand resources.

Source: Maglio (2009)

s d logic influence on service science 2
S-D Logic Influence on Service Science (2)
  • Given our service system abstraction and the service-dominant logic on which it depends, we can define service science and its variations:
    • Service science is the study of the application of the resources of one or more systems for the benefit of another system in economic exchange.
    • Normative service science is the study of how one system can and should apply its resources for the mutual benefit of another system and of the system itself.
    • Service science, management, and engineering (SSME) is the application of normative service science.

Source: Maglio 2009

what is needed1
What is needed
  • Foundations for Positive theory
    • Shift from products as unit of analysis to collaborative value creation and determination
      • B2B, service, and relationship
    • Refocus on operant resources as source of value
      • Resource-based theories of the firm; resource advantage theory
    • Elimination of producer/consumer distinction
      • B2B marketing/network theory
      • Inframarginal analysis
    • Models of emergent structure and processes
      • Complexity theory
      • Interpretive research
  • Theory of resource integration and exchange
    • Theory of the market to inform normative marketing theory
service ecosystems
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
jones soda
Jones Soda
  • Relatively new brand, actively solicits and applies user input from the onset
  • Largely inorganic - corporately created brand community
  • Consumer packaged good
firefox
Firefox
  • Free open source platform
  • Cross-platform browser
  • Supports MS Windows, Linux, Mac OS X
  • As of September 2007
  • %15 of US users
  • %28 of European users
firefox1
Firefox

How is Firefox spreading?

  • Word of mouth- many
  • people are passionate about it
  • Company runs contests for consumer generated ads
  • http://www.spreadfirefox.com
  • Consumers run their own campaigns to spread Firefox
  • http://www.mouserunner.com
markets and market actors as service systems1
Markets (and Market Actors) as Service Systems

Resource Integrator/Beneficiary

Resource Integrator/Beneficiary

(“Firm”)

(“Customer”)

Service Systems

service ecosystems1
Service Ecosystems
  • An economic community supported by a foundation of interacting organizations that co-create and exchange service. It includes:
    • “Suppliers” “
    • “Producers”
    • Competitors
    • Customers
    • Other social and economic actors
an extended pedigree1
An Extended Pedigree
  • Social Network Theory
    • e.g., Giddens (1984); Granovetter (1973)
  • New Institutional Economics
    • North (2005); Menard (1995)
  • Human Ecology and Business Ecosystems
    • e.g., Hawley (1986); Insiti and Levien (2004)
  • Stakeholder Theory
  • Service Science
    • e.g., Spohrer and Maglio 2008
marketing and market science
Marketing and Market Science
  • Other disciplines have found it convenient to institutionalize the distinctions between applied and basic science... In marketing, the problem is rather one of spinning off a basic science from a problem solving discipline.
    • (Arndt 1985)
  • “Paradoxically, the term market is everywhere and nowhere in marketing.”
    • Venkatesh, Penaloza, and Firat (2006)
  • It is a peculiar fact that the literature on economics…contains so little discussion of the central institution that underlies neoclassical economics – the market
    • North (1977)
the value proposition
The Value Proposition:
  • There are alternative logics for understanding markets, marketing, and management
    • One is more robust and better suited to the long-term viability and application.
forum on markets and marketing extending s d logic dec 4 6
Forum on Markets and Marketing: Extending S-D Logic (Dec. 4-6)
  • Sponsor:
    • Australian School of Business, UNSW
  • Major Themes
    • Marketing Systems
    • Grand or General Theory of the Market & Marketing
    • Marketing and Value(s)
  • Joint, Special-Issue Journal Publication
    • Australasian Marketing Journal
    • European Journal of Marketing
    • Marketing Theory
    • Journal of Macromarketing
continuing misconceptions
Continuing Misconceptions
  • Reflection of the transition to a services era
    • In S-D logic, all economies are service economies
  • Replacing goods with services as the basis of exchange
    • S-D logic is grounded in “service” (a process) not “services” (intangible units of output)
  • The meaning of co-creation of value
    • Superordinate to co-production
  • A Theory
    • S-D logic is a logic, a mindset, a lens, but not a theory
slide64

Integration

With Public-Facing Resources

Direct

Service Provision

Provider of Operand & Operant Resources

Service Beneficiary

Value in Context

Cocreation

Coproduction

Service Provision via Goods

Integration

With Private-Facing Resources

a partial pedigree1
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
  • Experience marketing
    • (Prahalad and Ramaswamy 2000)
key related works
Key Related Works
  • Vargo, S. L. and R.F. Lusch (2004) “Evolving to a New Dominant Logic of Marketing,”Journal of Marketing
    • Harold H. Maynard Award for “significant contribution to marketing theory and thought.”
  • Vargo, S.L. and R. F. Lusch (2004)“The Four Service Myths: Remnants of a Manufacturing Model” Journal of Service Research
  • Lusch, R.F. and S.L. Vargo, editors (2006), The Service-Dominant Logic of Marketing: Dialog, Debate, and Directions, Armonk, NY: M.E. Sharpe
  • Vargo, S.L. and R.F. Lusch (2007) “Service-Dominant Logic: Continuing the evolution?, Journal of the Academy of Marketing Science
resource integration and value co creation opportunities
Resource Integration and Value Co-creationOpportunities

Resource Integrator/Beneficiary

Resource Integrator/Beneficiary

(“Firm”)

(“Customer”)

offerings as platforms

Recreation

Recreation

Recreation

Offerings as Platforms

Social identity

Inspiration

Self image

Social

connectedness

Stimulation

Ecosystem

Platform

Meaning

Facilitation

Access to resources

Recreation

Knowledge

Entertainment

g d logic a logic of separation
G-D Logic: A Logic of Separation

Producer

Consumer

Separation

s d logic a logic of cocreation
S-D Logic: A Logic of Cocreation

Cocreating

Firm

Customer

Cocreating

uneasiness with dominant model
Uneasiness with Dominant Model
  • “The historical marketing management function, based on the microeconomic maximization paradigm, must be critically examined for its relevance to marketing theory and practice.”
        • Webster (1992)
  • “The exchange paradigm serves the purpose of explaining value distribution (but) where consumers are involved in coproduction and have interdependent relationships, the concern for value creation is paramount…There is a need for an alternative paradigm of marketing.”
        • Sheth and Parvatiyar (2000)
  • “The very nature of network organization, the kinds of theories useful to its understanding, and the potential impact on the organization of consumption all suggest that a paradigm shift for marketing may not be far over the horizon.”
        • Achroland Kotler (1999)
value production and consumption1

Value Creation

Value Destruction

Producer

Supplier

Value Production and Consumption

Product/Value Delivery

Consumer

Supply/Value Chain

getting the logic right
Getting the Logic Right
  • 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

Value Proposition: There are alternative logics for understanding markets and marketing

    • One is more robust and better suited to the long-term viability of marketing
domestication and liquefication of resources drives mobility
Domestication and Liqueficationof Resources Drives Mobility

From Somatic Mobility to Extra-Somatic Mobility

From Lusch, R.F. (2008)

evolution of marketing web
Evolution of Marketing & Web

To

Market

Marketing To

Marketing With

Web

Plumbing

Web 1.0

Retrieve & Read

Web 2.0

Co-Create

service science is about building common language
An analogy can be made with Computer Science. The success of CS is not in the definition of a basic science (as in physics or chemistry for example) but more in its ability to bring together diverse disciplines, such as mathematics, electronics and psychology to solve problems that require they all be there and talk a language that demonstrates common purpose.

Service Science may be the same thing, only bigger: an interdisciplinary umbrella that enables economists, social scientists, mathematicians, computer scientists and legislators (to name a small subset of the necessary disciplines) to cooperate to achieve a larger goal - analysis, construction, management and evolution of the most complex systems we have ever attempted to construct.

Service Science is about building common language

Source: Maglio (2009)