Alternative Logics for Service Science and

1
Alternative Logics forService Science and
Service Systems

• Service Systems Workshop
• University of Cambridge
• March 20, 2009
• Stephen L. Vargo
• Shidler Distinguished Professor of Marketing
• University of Hawaii at Manoa

2
The Situation Service(s) is Suddenly 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-oriented architecture
• Software-as-a-service
• Service systems
• Services science

3
The Message

• The transitions are mythical
• The myths 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
• Reframes future research questions and approaches

4
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

5
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

6
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 yesterdays
  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

7
From Arm-Flapping to Airfoil Logic
8
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

9
Value Production and Consumption
Consumer
Supply/Value Chain
10
Services The G-D Logic Perspective
11
G-D Logic Background
12
G-D Logic Background (2)
13
What Has Changed?Nothing and Everything
14
Domestication and Liquefication of Resources
Drives Mobility
From Somatic Mobility to Extra-Somatic Mobility
From Lusch, R.F. (2008)
15
Evolution of Marketing Web
To Market
Marketing To
Marketing With
Web Plumbing
Web 1.0 Retrieve Read
Web 2.0 Co-Create
16
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)

17
Service-Dominant Logic Basics
18
Foundational Premises (Revised)
19
Foundational Premises (Revised)
20
Key S-D Logic Publications
21
Clarifications Service vs. Services

• Services intangible products
• Service The process of using ones 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
22
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
23
The Source of the New Service(s) Economy
24
What S-D Logic is Not
25
What S-D Logic Might be
26
Service Exchange through Resource Integration and
Value Co-creation
Service
(Service Rights)
27
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.

Source Maglio (2009)
28
S-D Logic Influence on Service Science

• 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)
29
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
30
Service Ecosystems

• An economic community supported by a foundation
  of interacting organizations that co-create and
  exchange service. It includes
• Suppliers
• Producers
• Competitors
• Customers
• Customers network of resources
• Other social and economic stakeholders

31
Markets (and Market Actors) as Service Systems
Service Systems
32
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

33
The New Fractal Geometry ofService-System
Exchange?
Value Co-creation
Value Co-creation
Value Co-Creation
34
The Message of the Myths
35
The Message of the Myths (2)
36
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_at_sdlogic.net Bob Lusch
  rlusch_at_sdlogic.net

37
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
  economicscontains so little discussion of the
  central institution that underlies neoclassical
  economics the market
• North (1977)

38
Sub-disciplinary Divergences and Convergences
39
Some Services-Research Issues

• What are the essential differences between goods
  and services?
• How to measure quality given the heterogeneity of
  services
• How can we measure services productivity, given
  intangibility of output
• How to increase productivity (efficency) given
  limitations of inseparability
• What are the limitations on branding given
  intangibility

40
Some Service-Research Questions

• What is a useful measure of firm effectiveness?
• What is the relationship between effectiveness
  and efficiency?
• How to measure value-in-context?
• What is (should be) the relationship between
  value-in-context and price

41
Intersections
42
(No Transcript)
43
Paradigms and Logics

• 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 yesterdays
  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

44
G-D Logic Background
45
G-D Logic Background (2)
46
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 (production)
• 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
• The market is a venue for exchanging (selling)
  value-laden goods

47
Services The G-D Logic Perspective
48
What Has Changed? IT ICT
49
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)

50
Service-Dominant Logic Basics
51
Foundational Premises (Revised)
52
Foundational Premises (Revised)
53
Service Exchange through Resource Integration and
Value Co-creation
Service
(Service Rights)
54
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

55
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

56
Markets (and Market Actors) as Service Systems
Service Systems
57
The New Fractal Geometry ofService-System
Exchange?
Value Co-creation
Value Co-creation
Value Co-Creation
58
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_at_sdlogic.net Bob Lusch
  rlusch_at_sdlogic.net

59
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
  economicscontains so little discussion of the
  central institution that underlies neoclassical
  economics the market
• North (1977)

60
Marketings Inverted Foundation
61
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.

62
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

63
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

64
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
65
Sub-disciplinary Divergences and Convergences
66
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)

67
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

68
Resource Integration and Value Co-creation
Opportunities
69
Offerings as Platforms
Recreation
Recreation
Recreation
Social identity
Inspiration
Self image
Social connectedness
Stimulation
Ecosystem Platform
Meaning
Facilitation
Access to resources
Recreation
Knowledge
Entertainment
70
What S-D Logic Might be
71
G-D Logic A Logic of Separation
Producer
Consumer
Separation
72
S-D Logic A Logic of Cocreation

Cocreating
Firm
Customer

Cocreating
73
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 paramountThere 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.
• Achrol and Kotler (1999)

74
Problems with Goods Logic
75
Value Production and Consumption
Product/Value Delivery
Consumer
Supply/Value Chain
76
Reflections of the G-D Logic
77
What S-D Logic is Not
78
Getting the Logic Right

• The greatest danger in times of turbulence is not
  the turbulence it is to act with yesterdays
  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