The Big Picture…
At first glance Service-dominant logic challenges our 300+ year old goods-dominant view of the world. But it is a natural evolution when you allow yourself to take a step back.
However there are hinders to understanding and adoption outside of academia.
We can remove those by doing two things. Firstly, grouping the foundational premises in a more logical order (the what, who and how). And secondly, by addressing obscure word choices (such as phenomenological and operand resources) or different than normal meanings (such as the academic use of institutions)
Why is service-dominant logic not getting the traction it needs?
At the heart of service-dominant logic are 11 foundational principles in Figure 1.
These 11 foundational principles are academically solid and useful. However, I would not try to present them, as shown in Figure 1, to a business group and expect to get a conversion.
The reason is, we are competing against goods-dominant logic that has been around, and sufficient, for 300+ years. As such, it is a logic we have ingrained in our everyday way of thinking and viewing the world. And it focuses on embedding and exchanging value.
To enact a change in our thinking, we need at least a sense of urgency and a vision that is clear, understandable and actionable.
The urgency to change is here – our innovation problem and stagnant economic growth. But just reading through the 11 foundational principles leaves many questions.
In my view, the vision is not so clear for two main reasons. Firstly, Vargo & Lush built up the foundational premises over 12+ years. This has lead to a less than optimal ordering. I believe we can fix that by grouping the premises into the who, what and how of service-dominant logic.
Academically the foundational premises make a lot of sense. But, our audience is not always academic. And we (can) turn them away by using words/terms that are not immediately accessible – phenomenological or operand resources – or unusual uses of terms – institutional. But we can give more approachable definitions, such as phenomenological being about the lived experience).
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 main papers (2004, 2008 and 2016). And the ordering you see in Figure 2, from the 2016 paper, reflects that natural timeline of discovery.
Unfortunately this ordering makes the vision a little hard to see/follow. I believe we can find a better ordering/grouping.
Vargo & Lush have given axiom status to five of these foundational premises (FPs: 1, 6, 9,10 and 11). And we can derive the other premises from those axioms. So we could group around those.
But, we can do better. We can group the foundational premises into the “what“, “who” and “how” of service-dominant logic.
First let’s look at the what of service-dominant logic.
The What of service-dominant logic
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).
From this perspective, we can say all economies are actually service economies (FP5).
Often though, this service exchange is indirect (FP2). For example, I might get a service credit from the finance company that just benefited from my IT skills. I could use that credit with the finance company later to benefit from their service. But I could also use that credit to benefit from a barber applying their skills to cut my hair. This is an indirect exchange. I’m benefiting from the barber because the finance company has benefited from me. And those service credits is usually in the form of cash that is equally useful to all parties.
Above all, we see that a service-centred view is relational (FP8). That is to say, we see beyond the point of sale. Doing so we can think not just of the “big hire” at purchase, but of the “little hire”s of why the customer is “employing” your service again. Additionally we can frame servitization of goods (wrapping goods in additional service – such as Rolls Royce moving from selling an airplane engine to selling time in the air). And not least, we can leverage the circular economy.
Finally, a service-centred view is orientated towards the beneficiary (FP8). That is to say you need to help a beneficiary make progress (get a job done).
So if we know the what of service-dominant logic, what about the who?
The Who of service-dominant logic
When we look at who is involved in service-dominant logic we hit several new terms. First we find there are social and economic actors. And that they are all resource integrators (FP9) .
Additionally, we find the source of strategic benefit are operant resources (FP4). When we look into this more separately we will 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….). 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. This also means your processes as they are capturing best practice.
Actors are the entities that deliver the service. Now, since we talk about co-value generation in service-dominant logic then actors includes both producers and consumers.
Now we can understand, or at least contextualise, the perks offered by Google and the quotes below:
Clients do not come first, employees come first. If you take care of employees, they will take care of the clientsRichard 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 employeesHoward Schultz
Customer first, employee second, shareholder third.Jack Ma
Service vs Goods
I’ve included in the who FP3. The one that states that goods are a distribution mechanism for service provision. We create a goods vs services mentality in goods-dominant logic. And with further observations leads to the goods-service continuum. We see goods as a distribution mechanism for service in service-dominant logic.
Now let’s move from the whats and whos to the hows.
The How of service-dominant logic
We can group the remaining foundational premises as the “hows” of service-dominant logic.
First we note that actors cannot deliver value. Rather, they can only participate in creating and offering value propositions. In the goods-dominant logic the manufacturer embeds value during the manufacturing process. This is not the case in service-dominant logic. Value can only be created in-use (or in-context). And it is the actors that co-create the value. And the actors always includes the beneficiary of the service.
However the value is always determined by the beneficiary. Again this is opposite to goods-dominate logic where the manufacturer attempts to determine the value. And 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. We could use the more usable phrase: lived experience.
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
There are academic justifications for the word choices in the foundation premises. But I feel they don’t help us get the traction service-dominant logic deserves. Phenomenological, operant resources, institutions etc all can be a source of turn-off, or confusion.
Let’s explore each premise, in turn, and explore how we can make them more approachable:
- The What
- The Who
- FP9 / Axiom 3: All social and economic actors are resource integrators
- FP4: Operant resources are the fundamental source of strategic benefit
- FP3: Goods are a distribution mechanism for service provision
- 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