Indirect Exchange Masks the Fundamental Basis of Exchange

The Big Picture…

In a simplistic world, we exchange services directly. I do something for you as you do something for me.

However, we complicate things by providing service “through complex combinations of goods, money, and institutions”. That means that the service basis of exchange is often hidden. Our exchange may be:

  • deferred – I do something for you now, and you’ll do something for me later.
  • unequal – what I do for you is 10 times what you’ll do for me.
  • might not even be a direct exchange. I do something for you, but I don’t need anything from you – I do however need a third person to do something for me.

Yet in all the cases the foundational principles of service-dominant logic apply. There is an integration of resources; value is co-created by all involved and is determined (uniquely and phenomenologically) by the beneficiary; and so on.

This also applies inside of firms, for example, I might need service from accounting and marketing, but give them no direct service myself (although the service I give a client benefits accounting and marketing indirectly)

The Perfect World

Remember Foundational premise #1 of service-dominant logic?

Service is the fundamental basis of exchange

Vargo & Lush (2016) – Foundational Premise #1

Well, it turns out in today’s complicated world it’s not so easy to observe such a direct exchange happening. There are a limited number of times where you do something for me as I do something for you. Vargo & Lush (2004) noted

Over time exchange moved from one-to-one trading of specializedskills to the indirect exchange of skills in vertical marketing systems and increasingly large, bureaucratic hierarchical organizations

And in Vargo & Lush (2008), they put it:

Because service is provided through complex combinations of goods, money, and institutions, the service basis of exchange is not always apparent

This led them to define Foundational Premise #2 of service-dominant logic as follows:

Indirect exchange masks the fundamental basis of exchange

Vargo & Lush (2016) – Foundational Premise #2

So, what happens in the real world?

The Real World – where Indirect Exchange Masks The Fundamental Basis Of Exchange

The real world is a little more messy. I could imagine you would be hard to think of a direct exchange situation. One where you did something for someone and they did something for you either at the same time or directly afterwards. It’s not impossible, but rarely happens.

What we more often observe is a deferred or indirect exchange (including inside a firm). Or perhaps that the exchange is unequal. Let’s look at these in turn.

A Deferred Exchange

Sometimes we can perform a service for someone and they perform a service back, but at a later time. As a very simple example, consider helping a friend move house. There’s often an implicit agreement that the friend will help you when you move house. Or that they’ll offer to do something else, just give them a call when needed.

There’s clearly been a service performed here. And the owed service will be remembered somehow and called in at a later date. But this indirect exchange masks the fundamental basis of exchange. We could consider that you have a service credit to use in the future.

An Indirect Exchange

Now it gets interesting. In the previous example you and your friend are in a group. And unless the group breaks, there is likely to be an exchange, eventually.

But sometimes it doesn’t make sense for there to be an exchange between two parties. This is most obvious in a B2C situation. Say you are employed and want a haircut.

Here we see an example of indirect exchange masks that service is the fundamental basis of exchange
Figure 1: How “service credit” helps us visualise that whilst service is exchanged, it may be indirectly

On the one hand, you are performing a service to your employer – they benefit from your competence. But, you don’t benefit from their competence (let’s keep this simple…). On the other hand, you want to benefit from the barber/hairdresser. Although, they have no desire to benefit from your main competencies (again, keeping things simple here, you of course bring some competences to the service to co-create value, such as your time and wishes).

In a sense, your employer is giving you a service credit. And then you’re using that service credit with the barber/hairdresser. But again, this indirect exchange masks the fundamental basis of exchange

The same happens if you, say, buy a bottle of water. You are transferring a service credit to shop (which itself is a service) for the service of thirst-quenching (where the bottling firm has frozen-in-time that service). See Foundational Premise #3 – goods are a distribution mechanism for service for more on that.

Intra-Firm Services

A firm is also a service economy in itself, and indirect exchange occurs between departments and the firm. For example, as a delivery manager (a service to a client) you might use the services of the marketing department to win business and the accounting department services for cash management (invoicing, payment follow-up, accounting etc).

There’s unlikely to be direct service exchange between you, marketing and accounting. But you are bringing in “service credits” from the client to the firm, and the firm is distributing those to the marketing and accounting services. Another case where indirect exchange masks the fundamental basis of exchange

An Unequal Exchange

Finally, not all services are equal in terms of exchange. The thirst-quenching service frozen in a bottle of water is hopefully not the same size as the service you provide your employer. And again that can be conveyed in the notion of service credit.

But, and this is important, even if the service exchange basis can be hidden in our complex world, we can observe that the aspects of service exchange are still all there.

But The Exchange Is Still Of Service

Despite that the exchange might be deferred, indirect or unequal, it still fulfils all the aspects of service-dominant logic. Let’s just quickly remind ourselves of the foundational premises (see Figure X)

The Whats

FP1, 2 and 5 are given here, so let’s start with FP8. All the above are definitely with a service-centred view. Which means they are inherently beneficiary oriented and relational. The “provider” of the service – you (as the employee)/the barber/the finance team – certainly should try and be beneficiary oriented and relational (they are not just trying to sell you a one-of transaction)

The Whos

FP9 also holds since all the actors involved – you (as the employee)/the barber/the finance team – are integrating resources to perform the service. And it is absolutely true that operant resources (essentially the people involved) are the fundamental source of strategic benefit:

  • You are for your employer
  • The barber/hairdresser is for the salon.
  • The financial accountants and marketing people are for the firm (and you)

And if goods are involved, then they are still seen as distributing a service (either frozen-in-time or embedding the knowledge to enable service at a different location/time).

The Hows

It is still the case that only a value proposition can be offered (FP7). You can only offer your employer value; the salon and finance team can only offer you a value proposition.

And value is still co-created by all involved including the beneficiary (FP6). As well as the beneficiary is the only one who can determine the value, doing so phenomenologically (10). Finally, the value is created through those actor-generated institutions and arrangements.

Wrapping Up

So, whilst we might not find direct exchange of service happening in our messy real life, we find that service is still the fundamental basis of exchange, it might just be masked by indirect exchange.

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