Part of a series on making service-dominant logic approachable
Final Editing
actors approachable basis beneficiary economies exchange foundational premises innovation institutions logic premises resources service service-dominant value

The Big Picture…

At first glance, service-dominant logic challenges over 300-year old goods-dominant view of the world. But it is a natural evolution when you allow yourself to take a step back. And we need it to fix our growth (innovation) problem. (Logic is shorthand for ways of thinking, acting and behaving).

However, challenges appear in gaining broader understanding and adoption outside of academia.

We can remove those by doing two things. Firstly, grouping the foundational premises in a more useful order (as the what, who and how). And secondly, by addressing obscure word choices (such as phenomenological and operand resources) or the different than usual meanings (such as the academic use of institutions).

Briefly, what is service-dominant logic?

Service-dominant logic is an evolved way of looking at marketing/economy. It emerges when you consider the flaws in our current goods vs services logic. At heart are the 11 foundational principles in Figure 1.

The 11 foundational premises of service-dominant logic
Figure 1: Foundational Premises of Service-Dominant Logic

These 11 foundational principles are academically robust and useful. However, I can not imagine them setting a management conference or a board meeting alight if presented as in Figure 1.

Why? Well, we are competing against goods-dominant logic that has been around, and sufficient, for 300+ years. And that is a way of thinking and acting we have ingrained in our everyday view of the world. It focuses on manufacturing embedding value. And that the critical moment is exchanging that value at the point of sale. We base our standard marketing and economy views on this logic. And life experience, grade school economics and MBA teaching reinforce it.

The need to change to a logic that better explains our world is, to me, glaring and urgent. Growth is hard to find. We have an innovation problem, our economies are stagnating, and we are questioning capitalism pure focus on profit.

Why is service-dominant logic not getting the traction it needs?

But why are we finding many academic articles on service-dominant logic, but little real-world traction? We can take a look at goods/service-dominant positioning as we should with any innovation.

Organisations are seeking growth – that’s the progress they want to make. And what of the push and pull powers? Well, the push-power – dissatisfaction with existing ways (goods-dominant logic, in this case) – is not yet sufficient. Organisations are still focussing on driving operating efficiencies to make today’s growth and participating in innovation theatre to pretend about tomorrow’s growth.

Meanwhile, the pull-power – the attractiveness of innovation – is hampered, in my view, by a couple of things:

  • Firstly, Vargo & Lush explored and discovered the underlying foundational premises over 12+ years. And the order of presentation always follows that voyage of discovery. The result is a less than optimal ordering.
  • Secondly, , the word choices are not always that accessible. Academically they make a lot of sense. But we need simple, dare I say catchy, terms to get traction. Words and phrases such as phenomenological or operand resources are a turn-off. So is using words differently to our shared understandings, such as institutional..

And at the same time business degrees and books are still churning out resources fully-equipped and starry-eyed with goods-dominant logic thinking. Service-dominant logic challenges the institutions we have in place. So we should expect innovation resistance (postponement, rejection, objection).

The resistance we can minimise by showing it is an evolution, rather than a revolution. And we can fix the pull-power challenges. Let’s group the foundational premises into three pots that explain the what, who, and how. And explore better definitions of them. Let’s look first at the grouping.

Grouping foundational premises more logically

Vargo & Lush identified and evolved the 11 foundational premises of service-dominant logic in three papers (2004, 2008 and 2016). And the ordering you see in Figure 1 reflects that timeline of discovery.

Unfortunately, this ordering makes the vision a little hard to see/follow. I believe we can find a better ordering/grouping.

One option is to group under axioms (statements given as unchallengeable truths). Vargo & Lush gave five of these foundational premises axiomatic status, FPs: 1, 6, 9,10 and 11. And from these axioms, we can derive the other premises.

But, we can do better. We can group the foundational premises into the “what“, “who” and “how” of service-dominant logic.

Regrouping the foundational premises of service-dominant logic into more approachable groups
Figure 2: Regrouping the foundational premises of service-dominant logic

First, let’s look at the what of service-dominant logic.

The Whats of service-dominant logic

First, we know that service, rather than value, is the fundamental basis of exchange in an economy (FP1). This is axiomatic, i.e. held to be a truth. So, for example, I exchange the service I can provide (the application of my skills for your benefit), for your service (your skills applied for my benefit).

The "what's" of service dominant logic
Figure 3: The “whats” of service-dominant logic

Often though, we find in our modern world, service exchange is indirect (FP2). And that masks that we exchange for service and not for value. I’ll come back to this shortly. What we can say is that all economies – agricultural, manufacturing, service – are service economies (FP5).
And our final “what” is that this service-centred view is inherently beneficiary-oriented and relational.

And our final “what” is that this service-centred view is inherently beneficiary-oriented and relational.

But what does this really mean? Let’s see.

The managerial implications

Virgo & Lush spent a lot of time getting their wordings right. But in doing so, they make some of the service-dominant logic, less approachable. In this article, let’s be a little looser to focus on the main takeaways.

Managerial thoughts behind the "what's" of service-dominant logic
Figure 4: The key managerial point of the service-dominant logic whats

First, FP1 tells us we need to think, act and behave in a way that reflects that we exchange service. The old goods-dominant logic of thinking in terms of embedding value and the implication of a one-time value-exchange/sale are gone. Service itself implies a relational approach with the beneficiary and that we orientate towards their needs (FP8). That is to say:

  • The “big” hire – before the beneficiary “hires” our value proposition for the first time we need to know what is required to help them make progress in their life. We also need to be customisable and agile to explore that value proposition and co-create value.
  • The “little” hires – each time the beneficiary uses us again, we have adapted to their changing expectations – we still need to be customisable and agile. We don’t want to be fired.
  • We need to help the beneficiary through the life of the service – which is longer than making the “big” hire. And this naturally opens us up to servitisation and leveraging the circular economy.

The indirect exchange premise helps us reconcile that nowadays, it is rare to observe the direct exchange of service. But we must not fall into the trap of thinking exchanging cash is a proxy of value – that is old school thinking. We’ll explore this more in a separate article.

And finally, understanding that all economies are service economies helps us understand we focus on the skills used to deliver service, rather than the output. The manufacturing economy, for example, is the service economy where the skills of mass production are prevalent.

So if we know the what of service-dominant logic, what about the who?

The Whos of service-dominant logic

When we look at who is involved in service-dominant logic, we hit several new terms. First, we find actors that can be social and economic. And that they are all resource integrators (FP9).

Figure 5: The Whos of service-dominant logic

Actors are the entities that are involved in the delivery of the service. Vargo & Lush chose this word carefully. You will find, in other definitions of service, the likes of provider/consumer or supplier/customer, etc. That promotes a goods-dominant view where one entity creates, and another consumes value. In our service-dominant logic, we co-create value (FP6). “Actor” is a helpful abstraction implying action by every entity. It also helps us talk about business-business (B2B) and consumer-consumer (C2C) service as well as business-consumer (B2C) without needing additional terminology.

Additionally, we find the source of strategic benefit are operant resources (FP4). We distinguish between operand and operant resources. Operand resources have actions performed on them and are the focus of goods-dominant logic – producing ever better goods (a new shaver with 25 instead of 24 blades). On the other hand, operant resources have skills and knowledge. Here we clearly say that skills and expertise are the critical aspects.

Finally, we have FP3 that states goods are distribution mechanisms for service provision. From FP1 we say there are only services, and now we position goods in our new logic. There is no debate on goods vs services, as in goods-dominant logic. Here, goods are used in service provision. They allow us to transport service from one place to another.

The managerial implications

Service is the “….application of skills and resources to benefit another entity or the entity itself”. And so it’s natural that everyone involved in delivering the service is a resource integrator. Some actors might be integrating the skills of employees and machinery they have. The beneficiary is also integrating resources. They may need to bring skills to use the service. The phrasing covers both for-profit and non-profit organisations.

Figure 5: The who of service-dominant logic – managerial implications

Looking now at FP4, we saw earlier that we distinguish between operand and operant resources. Operant resources, on the other hand, have skills and knowledge. And they perform actions on operand resources. What we’re saying is that your people are the source of strategic benefit. Now we can understand, or at least contextualise the quotes below:

Clients do not come first, employees come first. If you take care of employees, they will take care of the clients

Richard Branson

We built Starbucks brand first with our people, not with consumers. Because we believed the best way to meet and exceed the expectations of our customers was to hire and train great people, we invested in our employees

Howard Schultz

But it is a little wider. Other service that you integrate to provide your service are operant resources. And so are sources of strategic benefit. For example, delivery partners (of physical objects). Partnering with a delivery partner that the beneficiary determines is more valuable, increases the beneficiaries determination of value for your service. You might even decide to start a delivery service yourself, as in the case of Amazon.

And, in the world of AI and machine learning, should we class those algorithms as operant resources? Probably.

Last but not least, I have included goods as a who of service-dominant logic. And you might find that a little strange. Here’s why.

Goods are a Who?

Unlike in goods-dominant logic, where we define services as poor relations to goods and see them as problematic, we take a different approach. For service-dominant logic, we only have service. What then are goods? Well, they act as a distribution mechanism for service provision.

What does that mean? To me, it covers two cases.

First, we can think of goods as freezing a service. And simplistically, think of a CD. It freezes a band’s performance given in a recording studio. You then unfreeze that performance every time you play the CD. The CD has transported the music band from the studio to my living room.

Secondly, we can think of goods as capturing skills and resource needed to perform a service. Let’s say I want to cut a piece of wood into two. I would use a saw to do that. Really I’m performing a self-service (non-self-service options would be hiring someone, or getting the wood divided when I buy at the store, etc.). To achieve self-service, I need a saw. And that saw captures the skills and resources of the manufacturer’s resources. As well as the accumulated skills and knowledge of what a saw has to do.

Now let’s move from the whats and whos to the hows.

The Hows of service-dominant logic

We can group the remaining foundational premises as the “hows” of service-dominant logic.

Figure 6: The Hows of service-dominant logic

First, we note that actors cannot deliver value. Instead, they can only participate in creating and offering value propositions (FP7). In goods-dominant logic, the manufacturer believes they create value and exchange it at the point of sale. Value in service-dominant logic is only created in-use (or in-context). And it is the actors that co-create the value during use, always including the beneficiary.

However, it is only the beneficiary that determines the value. Again this is opposite to goods-dominate logic where the manufacturer attempts to determine the value. But, it gets a little more complicated. The beneficiary can value a service differently on separate occasions, for a whole host of different reasons. Vargo & Lush use the word phenomenologically to describe this.

Finally, everyone involved in service provision has generated institutional rules and behaviours (perhaps not consciously). And those steer how value is coordinated.

The managerial implications

Figure 7: The managerial implications of the hows of Service-dominant logic.

Take the self-service checkouts at supermarkets – the ones where you scan your shopping items yourself. On a Thursday lunch-time when you are buying only two things, and the shop is bustling, you might determine using the self-checkout valuable. But your colleague might never find them useful. And you might not see them as valuable in your weekly shop, whereas others do. Also, there might be one Thursday where you’re feeling down and prefer the human contact of a serviced-checkout. Vargo & Lush use the phrase phenomenological to describe this. We could use the more useful phrase: past and current lived experience.

These checkouts are also an excellent example of actor-generated institutions and institutional arrangements. Most of us have grown up with serviced checkouts. And around that the rules of how to act and behave in a shop. Now confronted with a new way, we get innovation resistance. Some people don’t want to use them for technical reasons; or for the reduction in staff they allow. Others fear accidental shop-lifting. And the stores themselves introduce exit barriers, cameras, and voices saying “unexpected item in the bagging area”. They are treating you as a de-facto shop-lifter. The failure here is in not addressing the change in institutional arrangements.

Now we have grouped them in what I believe is a useful manner, let’s look at each principle in turn.

Making the foundational premises more approachable

Let’s explore each premise, in turn, and explore how we can make them more approachable:

  1. The What
  2. The Who
  3. The How
    • FP6 / Axiom 2: Value is co-created by multiple actors, always including the beneficiary
    • FP10 / Axiom 4: Value is always uniquely and phenomenologically determined by the beneficiary
    • FP11 / Axiom 5: Value co-creation is coordinated through actor-generated institutions and institutional arrangements
    • FP7: Actors cannot deliver value but can participate in the creation and offering of value propositions

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