A “logic” is a set of thinking, behaviours and actions. And I believe today’s goods-dominant logic constrains innovation. We are stuck using only the 1st gear of a top performance car. How do we access the additional gears and get the performance we need? We need to shift to a service-dominant logic. This article looks at the practical implications of such a shift.
The Big Picture…
The practical implications of applying service-dominant logic (rather than traditional good-dominant logic) are shifts in thinking, behaviours and actions.
Most important is this following shift in thinking:
- Making something => Assisting beneficiaries in their value creation process
From that shift, these following shifts naturally flow:
- Value created by the firm => Value is co-created
- Beneficiaries as targets => Beneficiaries as resources
- Beneficiaries as isolated entities => Benefiiaries in contect of their own networks
- Firm resources as primarily operand (do stuff upon) => Firm resources as primarly operant (can do things)
- Primacy of efficiency => Efficiency through effectiveness
If you wonder why Job to be done theory, Agile, Market orientation, Customer orientation, etc, make sense; then it is because they help support these shifts.
[Figure 1: Bild av huvudpunker
- stop making things; start assisting beneficiaries
- value is now co-created
- use beneficiaries as resources (don’t see them as targets)
With that in mind, let’s take a look at the first shift that observes we should stop thinking that our sole focus is making things.
Stop making things; start “assisting beneficiaries
The shift is this: in a goods-dominant logic we believe the firm is making things. In service-dominant logic, we see the firm as assisting beneficiaries to
This first shift is, to me, the fundamental one. And the other shifts naturally follow.
What do we mean by beneficiaries? Typically it would be a customer. But that is a little restrictive as we mean any of the actors involved. It could be another business in a B2B arrangement. Or it could be your employees or even the firm/organisation itself. It is not unusual for there to be several beneficiaries.
Vargo & Lush’ original text is “assisting beneficiaries in their value creation process”. Which I change to “assisting beneficiaries
Our normal view of a firm is that it makes something. And that the output from a firm has value baked into it; which the firm tries to exchange at the point of sale. This view is a the goods-centric view of life. One that we even tend to apply to services.
However, customers don’t set out to buy goods. They want to achieve something (i.e. make progress). In our goods-centric world, we
Now, you might not initially agree with that statement. Let me start with a classic, tangible, example Levitt captured back in the 1960s:
Customers don’t want a 1/4 inch drill, they want a 1/4 inch hole.
It is hard to disagree with that. The progress a customer wants to make is to get a 1/4 inch hole. In the goods-dominant logic, that is achieved by a firm making and selling a 1/4 inch drill. End of story. But in the service-dominant world, we think how can we assist the customer to
- make and sell a drill, or
- create a sharing platform where drills are shared, or
- a platform where skilled workers offer to create the hole, or
- offer to create the hole ourselves
- [ersätt övan med bild]
I’m not going to claim a firm can’t think of the above from a goods-dominant logic world. But it is more natural to do so when your
But I can also imagine you are thinking this is not always true. Is buying fashion, or music, or the latest Nike training shoe clearly a case of buying goods, right? Well, I would argue Nike, for example, is assisting progress in two ways. First, the shoe could help the beneficiary in whatever sports they are performing. But, secondly, the purchase of the shoe is helping the beneficiary elevate themselves in the eyes of their peers. Making progress doesn’t have to be tangible.
Alignment with modern theories
We find this idea as the basis of Christensen’s “Jobs to be done” theory (from 2016). Here, customers hire solutions to make progress in their lives. A (thick) milkshake is hired for the morning commute as it relieves the boredom. But progress being sought may be different depending on circumstances – the same thick milkshake may not fulfil the job-to-be-done of a child being picked up by parent after school.
The book “Brand Admiration: Building a Business that People Love” nicely addresses the softer aspects of making progress. It captures the concept that a brand needs to Entice, Enable and Enrich a customer.
And I would also bring in Blue Ocean strategy to this discussion. Where we look to create markets (blue ocean) rather than compete in existing ones (red ocean). At the heart is helping beneficiaries make progress.
Allows you to think wider
Flowing from this shift are the others, which we look at next.
Value is co-created during use
[Image showing where value is seen as being created in the two differing logics]
Background & Benefit
then In our old way of thinking, value is baked into goods by the manufacturer. Selling a product that a firm has embedded value in – the goods-dominant logic perspective – implies that the value is created by the firm. We may have used focus groups along the way. But we are still determining the value. And that value is pretty inflexible.
How does this look if we take the view we are assisting beneficiaries make progress? Well, the very word “assisting” creates implications.
If we are instead assisting beneficiaries
First, it implies we are embarking on a journey together. Secondly, it implies a level of flexibility is required. Thirdly, we are not offering something that already has value, rather it is going to be created (or not) as we go on that journey. And fourthly, it is the beneficiary that is going to decide if enough value is being created to carry on the journey.
No longer are we, the firm, deciding the value and trying to sell for a price that reflects that.
We must be relational with the beneficiary so as to build value propositions they see potentially helping them make progress. And we must keep that relationship going during service provision for two reasons. First, to maximise the co-creation of value for the beneficiary. And secondly to identify when co-creation is stalling or can be further increased and flexibly alter our proposition.
Use beneficiaries as resources (rather than see them as targets).
How do you see your customers today? I bet you segment them. I bet you market at them, and sell to them. That’s not unusual, we generally see customers as targets.
But, service-dominant logic, with its focus on assisting beneficiaries make progress as well as co-creation of value, means we have to think and act differently. Beneficiaries are resources to be used in service provision.
This we can demonstrate through a very simplified example: you want someone to paint a wall. Rarely do you get a decorator trying to sell you a red wall. Normally you decide what colour you want. And it could be that the decorator advises a change, perhaps in their experience your choice would make the room seem dark. You are being used as a resource in the service provision.
Service: Inconsistent vs Customisable
In the old way of thinking, we see services as inconsistent, a bad attribute We need to think of service as customisable, a good attribute. This implies a certain agility is involved for all parties involved. an agility that in IT could be translated to Agile methods – where
beneficiareis in context of their own networks and not as isolated entities
Your advantage is your resources that have skills and knowledge; not your output.
All too often we focus on the tangible output of a firm. The manufactured good that is output or the end result of a service provided. Such items are referred to as operand reources. Somthing that we do something to. Doing so has a natural affect of making us only try and improve outputs – an innovative 15th blade on a razor, for example.
Instead, under service-dominant logic, we focus on the firm’s operant resources (which generally operate on operand resources). These resources are usually intanglible, such as knowledge and skills. And whilst typically relating to people, nowadays we need to include RPA, bots, AI, machine learning etc.
Why is this useful? First, we can make an organisation more innovative through increasing market, learning and entrepreneurial orientation. All of which are attributes of operant resources. Secondly, you’ve surely heard comments such as “treat the employees right, they will treat the customer right” from the likes of Richard Branson and his service empire.
From “Primacy of efficiency” to “Efficiency through effectiveness”