The Big Picture…
Applying service-dominant logic is the future of unlocking growth and innovation. It helps us truly understand the world – explaining jobs to be done theory, where blue ocean strategy fits, minimising marketing myopia, enabling the circular economy (sharing, recycling etc), and much more.
It’s a world that sees an end to the goods vs service constraint. And where value is co-created. Meaning our growth limiting obsession on exchanging value is removed.
But if it such a useful way of thinking, why is this not setting the world on fire? Well, there is the deeply ingrained goods-dominant logic to ovecome. And the way service-dominant logic is presented, whilst academically solid, can make it less than accessible.
We can fix that by doing three things:
- group the foundational premises of service-dominant logic in a more intuitive order (the whats, whos and hows).
- address some of the word choices (such as phenomenological and operand resources) and the different than usual meanings (such as the academic use of institutions)
- explain why this is such a valuable way of looking at the world (the subject of other articles on this site)
Welcome to service-dominant logic
Service-dominant logic is an evolution in the way of looking at and explaining actions and behaviours in marketing/economy (what we would call a logic). It emerges when we challenge how well our current logic – which we call goods-dominant logic – reflects the world.
When we notice two things, we begin to question if goods-dominant logic is sufficient for the future. First, services are eating the world, so does a logic based on goods-dominance continue to be best? And secondly, growth and innovation has stagnated, with 94% of executives are unhappy with their innovation initiatives. Does the myopic and lack of looking past point of sale from goods-dominant logic lead to this?
Service-dominant logic helps, and it is captured as 11 foundational principles.
The 11 Foundational Principles of Service-Dominant Logic.
And of these, 5 are axiomatic. That is to say, statements given as unchallengeable truths, from which the other principles can be derived.
The 5 Axioms
These foundational principles (FPs) that are axioms are:
- FP1: Service is the fundamental basis of exchange
- FP6: Value is co-created by multiple actors, always including the beneficiary
- FP9: All social and economic actors are resource integrators
- FP10: Value is always uniquely and phenomenologically determined by the beneficiary
- FP11: Value creation is coordinated through actor-generated institutions and institutional arrangements
We find increasing numbers of academic articles on service-dominant logic, but little real-world traction. Let’s explore why that might be.
Why is service-dominant logic not getting the traction it needs?
Well, let’s take a look at service-dominant logic as we should any innovation.
First, 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 in thinking. And that there are plenty of examples of companies taking a service-dominant logic approach that are leaping over goods-dominant laggards: Spotify, Uber, Rolls Royce Aeroengines etc.
Let’s assume that the progress an organisation wants to make is to grow (whether that is financially, or number of users/people helped etc). And see what are the pushes and pulls in play.
The push from goods-dominant logic
A push is a dissatisfaction with the existing way(s) of doing things. It would appear that there is not sufficient dissatisfaction at present with goods-dominant logic.
Many organisations are still focussing on driving operating efficiencies to make today’s growth. And participating in innovation theatre to pretend about tomorrow’s growth.
Organisations clearly know there is an innovation problem. But goods-dominant logic is so ingrained in our way of thinking that there is still some time to go before we all realise it is not sufficient for the future. And at the same time business degrees and books are still churning out resources fully-equipped and starry-eyed with goods-dominant logic thinking.
The pull to service-dominant logic
The pull-power – the attractiveness of innovation – is hampered, in my view, by a couple of things:
- The order foundational principles are presented could be improved.
- The word choices, whilst academicallsound, are not always that accessible (phenomenologically, institutions, operant resources…)
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
One option is to group the foundational principles under the axioms. 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 Whats of service-dominant logic
The first “what” is that service is the fundamental basis of exchange in an economy (FP1). Value-in-exchange belong to the old school goods-dominant thinking.
However, in our modern world we don’t often observe such a direct exchange. Our service exchanges are indirect (FP2). And this masks that we exchange for service.
Given the above, we see all economies – agricultural, manufacturing, service (or your favourite way of naming economies) – as service economies (FP5).
And our final “what” is that this service-centred view is inherently beneficiary-oriented and relational (FP8).
But what does this really mean? Let’s see.
The managerial implications
FP1 tells us we need to think, act and behave in a way that reflects we exchange service. The old goods-dominant logic of a one-time value-exchange/sale evolves to a relational approach (FP8).
And within that relational approach we need to orientate towards the beneficiaries needs (FP8). We can borrow from Christensen’s job to be done theory here to understand this a bit better. We need to:
- meet the “big” hire
- meet the “little” hires
- help the beneficiary through the life of the relationship
To do these we need to understand the progress the beneficiary is wanting to make; continually tune/customise our value proposition and look beyond the “sale”. Servitisation and leveraging the circular economy are two examples.
And finally, seeing 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 find there are actors, operant resources and goods.
Actors are the entities that are involved in the delivery of the service. We don’t talk about providers, suppliers, 3rd parties, B2B, B2C, C2C etc. All actors a resource co-ordinators in the delivery of the service.
Where we do get a little more specific is with operant resources. These are resources that have skills and knowledge – actors that can perform actions. And they are the source of strategic benefit.
The opposite of operant resources is operand resources, things that are acted upon – typically goods. And in service-dominant logic we see goods as a distribution mechanism for service.
The managerial implications
Goods-dominant logic focuses on the end product. Whereas service is the “….application of skills and resources to benefit another entity or the entity itself”.
The “application” implies there is integration of resources (operant and operand) This, then, implies that resource that have skills are going to be the source of your fundamental strategic benefit (FP4). Seeing the operant resources (typically your people) as the fundamental source of strategic benefit makes sense (FP4).
In our evolved approach is to focus on the resources involved in helping the beneficiary make progress. And every actor involved is really integrating resources to enable progress. The beneficiary themselves can be involved in this integration, particularly in a self-service situation.
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”?
Goods, under service-dominant logic, are a distribution mechanism for service. Unlike in goods-dominant logic there is no goods vs service, and no service are good, goods bad debates. But what does it mean to be a distribution mechansim? Well, we can think of goods as either a frozen service or as a means of enabling self service.
Goods are a frozen service
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.
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
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:
- The What
- The Who
- The How
- FP6: Value is co-created by multiple actors, always including the beneficiary (Axiom 2)
- FP10: Value is always uniquely and phenomenologically determined by the beneficiary (Axiom 4)
- FP11: Value co-creation is coordinated through actor-generated institutions and institutional arrangements (Axiom 5)
- FP7: Actors cannot deliver value but can participate in the creation and offering of value propositions