Part of a series on making service-dominant logic approachable
advantage benefit basic composite hierarchy interconnected cultural human informational operand resource operant resource organisational relational physical social

The Big Picture…

Are you familiar with the following Steve Jobs’ quote?

It doesn’t make sense to hire smart people and tell them what to do; we hire smart people so they can tell us what to do.

It fits well with service-dominant logic. Where we make a distinction between resources involved in service provision into operand and operant resources:

  • operand (with a “d”) resources need to be acted upon to get value – these are fairly static and usually tangible (such as goods)
  • operant (with a “t”) resources act or apply knowledge and skills on other resources to lead to value (for example your people)

And we state that operant resources are the fundamental source of strategic advantage. This is because we see service as the application of skills and competence (and that goods are frozen service).

Also, we consider processes (practices) as operant resources. Since they are codifications of skills and competence. And, similarly, technology is an operant resource.

What we find is that there is a hierarch of operant resources.

There are basic operant resources (BOR) – such as our people (and also AI). Then there are composite (COR) and interconnected (IOR) operant resources. Going up the hierarchy is harder to develop but gives greater strategic benefit.

Finally, don’t forget that the beneficiary has operant resources too. Those can be important in the co-creation of value. And as such, training them in necessary skill/competencies can increase value co-creation.

The Idea

Does your strategic advantage come from the products you produce or the people that produce them? Traditional thinking would say it is the products. Better products (goods/service) – the output – give the advantage.

However, leaders of service-oriented organisations, are often quoted as saying their people are their advantage.

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 is it true for goods-oriented companies? Well, Steve Jobs was very clear:

It doesn’t make sense to hire smart people and tell them what to do; we hire smart people so they can tell us what to do

Steve Jobs

Apple’s people created iPad, iPhone, Apple Watch, iTunes etc. As well as more service-oriented offerings such as iCloud, Apple Music, Apple Fitness etc.

Apple’s view is not surprising. Recall that, in service-dominant logic, we see goods as simply freezing a service (the application of skills and competence).

What we find is there are two types of resources. And one leads to strategic benefit. Let’s look at these resource types

Two types of Resources

We see two types of resources: operand and operant. And it was Constantin & Lush who introduced these terms in their 1994 book “Understanding Resource Management: How to Deploy Your People, Products and Processes for Maximum Productivity“.

We’ll come to the definitions shortly. But first, look at this simple maths equation:

1+2=3

Here, the numbers – 1,2 and 3 – don’t do much on their own. It’s not that they have no value. They represent some notion of size and have a meaning. But what offers the real value are the operators, the addition (+) and the equals (=). They act on the numbers to do something.

And that’s really the difference between operand and operant resources. So now we can look at these in a little more detail.

Operand resources

The Tesla Model 3 is TopGear‘s number 1 electric car. And, Apple’s MacBook Pro 13 inch is PC Mag‘s editor’s choice in the ultra-portable category. Whereas The Ski Girl touts Rossignol as having the best cross country skis for 2020 across several categories.

In goods-dominant thinking all these examples have embedded value. Whereas in service-dominant thinking these examples offer value, but the value is only created when we use them. They are similar to our numbers above. And we call them operand resources.

We need to perform an action on operand resources in order to lead to value.

operand resources – resources that require an action to be performed on them to lead to value co-creation

As such, these operand resources are usually static and tangible. That really means we are thinking of goods, natural resources, those outputs of production, etc.

But there is the second type of resources: operant.

Operant Resources

As well as access to static, tangible, resources (operand) we have access to resources that act upon other resources. These are operant resources.

operant resources – resources that act upon other (operant and/or operand) resources to lead to value co-creation

These operand resources have skills and competences. And they apply those skills and resources to other operand and/or operant resources to deliver the service.

I think the most obvious type of operant resources are your organisation’s people. But there is a wider set of such resources. Operant resources are typically (Hunt 2004):

  • “human (e.g. the skills and knowledge of individual employees)
  • organizational (e.g. controls, routines, cultures, and competences)
  • informational (e.g. knowledge about market segments, competitors, and technology)
  • relational (e.g. relationships with competitors, suppliers, and customers)”

Processes as Operant resources?

Hunt already mentions that controls and routines are operant resources. Why is this so?

Well, we can say that controls and routines (and practices) are codifications of beneficial skills and competencies. That is to say, the organisation saw it survived better when applying a particular individual’s skills and competences. And so it acted to capture what that person was doing, in order to socialise them across the organisation.

By socialising those codified skills and competences, the organisation enables a minimum level to be achieved. It is though, still reliant upon operant resources. And, paraphrasing Steve Jobs: those operant resources bringing and applying new thinking.

When we look deeper, there starts to form a hierarchy of operant resources.

A Hierarchy of Operant Resources

Madhavaram and Hunt (2008) identified the hierarchy of operant resources you can see in Figure 1 – basic, composite and interconnected.

Hierarchy of operant resources inside an organisation
Figure 1: Hierarchy of operant resources, according to Madhavaram and Hunt (2008)

Starting with basic operant resources (BOR) a firm could get its hands on – such as human resources, and I would add deep learning/expert systems from artificial intelligence. Higher up they identified composite operant resources (COR) and above them, interconnected operant resources (IOR).

As you go up the hierarchy it becomes harder to acquire and develop the operant resource. But you also gain increasing levels of sustainability and strategic benefit.

Operant resources are the fundamental source of strategic benefit

So if service is the application of skills and competencies (for the benefit of a party), then we can conclude that operant resource must be the fundamental source of strategic benefit.

Even in a company that sees itself as a pure goods-company (operand resources), their operant resources are the strategic benefit. Poor workmen (poor skills and competencies) with poor process/controls etc (codified skills and competencies) produce poor outputs (frozen service).

Why strategic benefit not strategic advantage?

Vargo & Lush (2016) made the choice to use the phrase “strategic benefit” rather than “advantage”. They did so to emphasise the service-service nature of our world. And to move competitiveness to a secondary motivator, in favour of the co-creation of value is primary. As they say:

…the realization that there is competition in the process of one actor benefiting itself through service provision to other actors, while critical, is not primary. It also points the service provider in the wrong direction, toward the competitor and thus away from the potential service beneficiary.

There’s one last thing not to forget – the beneficiary also has operant resources.

The Beneficiary has Operant Resources too

Let’s not forget that we talk about co-creation of value. Resources from the value proposer and the beneficiary interact to co-create value during the service provision.

For example, in an Agile software development service, the IT team is providing development skills and competencies. And the business is providing product owner skills (to prioritise which functionality is most important to develop). If the beneficiary operant resources are poor, then value co-creation will be difficult to achieve.

Alves, Ferriera and Fernandes (2016) highlight previous studies that identify “Operant resources held by each individual may be:

  • physical – include sensory-motor endowment, energy, emotions and strength.
  • social – made up of both personal and cultural relationships
  • cultural – include specialised knowledge and skills, life expectancy and historic imagination.”

Beneficiary operant resources and value co-creation

Interestingly, Alves, Ferriera and Fernandes (2016) also looked at customer operant resources in the context of the perceived benefit of co-creation. Figure 2 shows the set up they considered.

And the found high correlations in all of their study’s hypotheses:

  • H1 – The higher the customer self-efficacy levels the higher the level of his co-creation activities
  • H2 – Customers’ levels of bridging social capital positively enhance customer’s self-efficacy levels and therefore indirectly customer’s levels of co-creation activities.
  • H3 – The greater the company effort in educating the customer, the greater the co-creation of value undertaken by the customer.
  • H4 – The greater the company effort in educating the customer, the greater the customer expertise.
  • H5 – The greater the level of customer expertise, the greater the co-creation of value undertaken.
  • H6 – The greater the level of customer expertise, the greater the co-creation of value undertaken through self-efficacy perception enhancement
  • H7 – The greater the level of customer co-creation activities, the greater the level of customer perceived benefits

One thing we can take away from their results is that educating the customer’s operant resources increases the potential for co-creation of value.

Relevance to Innovation

[Under dev

  • Beneficiary operant resources need to have skills & competencies to apply innovation
  • What new skills & competencies have beneficiary operant resources gained in other markets/industries that could inspire innovation?
  • Developing the higher level operant resources in the hierarchy should lead to increased innovative abilities

]

Wrapping Up

Of the two types of resources – operand and operant – it is clear from a service-dominant logic lens that operand resources are source of strategic benefit. These resources apply skills and competencies to other operand and operant resources in the co-creation of value.

Typically operand resources are goods. And operant resources are thought of as people. Though they can be codifications of skills and competencies. For example in controls, routines and processes. These operant resources are also wider, such as market orientation, alliance competence, entrepreneurial proclivity and more. And they exist in a hierarchy of basic, composite and interconnected resources. Where going up the hierarchy is harder to develop. Yet gives a better strategic benefit.

Finally, it is important to realise that, as service is the integration of resources, we need to pay attention to the beneficiaries operant resources. Sometimes, training the beneficiaries operant resources can improve the potential for co-creation of value.

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