The Big Picture…
I see Service-dominant logic as an underlying solution to the innovation problem. It’s a perspective where everything is a service; value is co-created; and only the beneficiary determines that value.
The alternative is today’s growth limiting goods-dominant logic. Where we find a goods vs service mentality; that services are poor relatives to goods; and that value is in exchange.
But if service-dominant logic is such an exciting way of thinking, why is it not setting the world on fire? Well, firstly there is the deeply ingrained goods-dominant logic to overcome. That is the basic teaching in sales, marketing and business schools.
And secondly, service-dominant logic is presented in an academically solid way. But that can make it less than accessible.
We can, I believe, make it more approachable by doing three things:
- grouping the foundational premises in a more intuitive order – the whats, whos and hows:
- simplifying some of the word choices (such as phenomenological and operand resources) and the different than casual use meanings (such as the academic use of institutions) for a set of managerial implications:
- giving real-world examples of each foundational premises (see other articles)
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 and where blue ocean strategy fits
- minimising marketing myopia
- enabling the circular economy (sharing, recycling etc)
- giving a basis to agile and lean approahes
- and much more.
Making the definitions more approachable will help us on our journey.
Service-dominant logic is an evolution in the way of looking at and explaining actions and behaviours in marketing/economy (a logic, in other words). It emerges when we challenge how well our current logic – which we call goods-dominant logic – reflects how the world acts and behaves.
Goods-dominant logic is a logic where goods – mostly intangible items – are at the top of our thoughts. So services become poorer relations. And we see when looking at how services are defined against goods. They are intangible, inseparable and inconsistent. We cannot create an inventory and they require involvement. Additionally, we have to extend our marketing mix to cope with these troublesome services.
But does the goods-dominant logic really help us going fowards? Firstly, growth and innovation has stagnated, with 94% of executives are unhappy with their innovation initiatives. Does the myopic and lack of looking past the point of sale from goods-dominant logic lead to this? And where we do see growth, it is because services are eating the world.
What if we took the alternative view and observed a logic where service was dominant. What would that look like? Where would goods fit in?
Welcome to Service-dominant logic. And researchers Vargo & Lush have observed 11 foundational principles.
The 11 Foundational Premises of Service-Dominant Logic.
Over years of research (2004, 2008 and 2016) Vargo & Lush have uncovered 11 foundational premises of service-dominant logic (Figure 1). Which start with saying that we fundamentally exchange service (rather than value and cash).
And from there flow the other foundational premises. Such as all economies are service economies. Or value is always uniquely and phenomenologically determined by the beneficiary. And we find that goods are distribution mechanisms for service provision. Even potential contradictions to are covered. Such as indirect exchange masking that service is the fundamental basis of exchange (i.e. we see cash exchanged, but really that is acting as service credits enabling service exchange between 3 or more parties).
Five of these are axiomatic. That is to say, statements given as unchallengeable truths, from which the other principles can be derived.
The 5 Axioms
These foundational premises (FPs) have been identified as axioms:
- 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?
You may already have got an idea from reading so far. Firstly, in my view, the definitions are a little academic. And cloaked in terms and language that may not be immediately obvious. I’m looking at you here “phenomenologically”. But also some terms are not used in the way of casual English, such as “institutions”.
Secondly, there is limited guiding structure in the order the premises are presented. This is because they are listed in the order in which the Vargo & Lush observed them.
And finally, change is always tough. Goods-dominant logic remains the de facto taught view in business courses and schools. It remains sufficient enough to explain the last few centuries of growth. But goods-related growth is stagnating. And we have an innovation problem.
Let’s look first at the grouping.
Grouping foundational premises more logically
As I’ve mentioned, the premises are broadly listed in the order in which they were discovered. Or more strictly, where they are described in the three key papers:
- Evolving to a New Dominant Logic (2004)
- Service-Dominant Logic: Continuing the Evolution (2008)
- Institutions and axioms: an extension and update of service-dominant logic (2016)
That is not the best ordering from a logical perspective.
We could group the principles under the five axioms. But, I think we can do better. We can group them into the “what“, “who” and “how“s.
First, let’s look at the whats.
The Whats of service-dominant logic
What is service-dominant logic? That. to me, feels should be the first grouping. And here we do have to start with service is the fundamental basis of exchange (FP1). With this, we are boldly stating that the goods-dominant view of value-in-exchange needs to evolve. Instead, “I do something for you, and in return, you do something for me” is how the world works.
However, you and I both see an immediate potential contradiction here. In olden times this was probably true. But we readily observe that people pay cash for things that are seen as having value baked in by manufacturers. So surely value-in-exchange is how the world works.
Well, this is where principle FP2 comes in. Mostly, in our modern world, our service exchanges are indirect. I do something for you. But rather than you do something for me in return, you give me a service credit (usually cash). I then use that service credit to get someone else to do something for me. And so this indirect exchange masks that we exchange for service.
So, if we agree that service is the basis for exchange, then we have to 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 these practically mean?
The managerial implications
FP1 tells us we need to think, act and behave in a way that reflects we exchange service. When we think in the old goods-dominant logic we focus on maximising the return to us in the exchange.
Whereas, if we see exchange as one of service, then we naturally arrive at FP8. We focus on the beneficiary. And we start to act relationally. Understanding what the beneficiary is trying to do. And following up if they are getting what they are after. Rolls Royce, for example, doesn’t sell aircraft engines. They sell capability – hours in the air.
It leads us to reduce Levitt’s marketing myopia. We’re no longer a railroad trying to sell space on a railroad. Rather, we’re selling a transportation service. And that could use a railroad, airplanes (which the railroad companies missed), hire out vans for self-service, or future molecular transportation devices.
Understanding everything is a service unlocks the right view of value. Value is not something that is embedded into a goods by the manufacturing process. Rather, it comprises of proposed and achieved value. Both measured through the ability to help a beneficiary make functional and/or non-functional progress with some aspect of their life.
Now we also involve the masking of service by indirect exchange. In realised value, the beneficiary is not really thinking how much do I need to pay for this service. Rather they are deeper thinking how much service do I need to provide to someone in order to engage in a service I want.
These whats underpin Christensen’s job to be done theory. Where beneficiaries repeatedly evaluate value propositions in their big hire – the first time use – and subsequent little hires. Each time a service is being hired. And the more relational we are, the better we understand how to help them make progress (increased co-creation of value).
Looking beyond the value-in-exchange means we unlock servitisation and leveraging the circular economy.
The Whos of service-dominant logic
When we look at who is involved in service-dominant logic, we see actors (including a beneficiary), 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 are resource integrators in the delivery of the service.
FP4 is a shift in thinking. We’re saying that your people (operant resources) rather than your products (operand) are your strategic benefit. These are your resources that have skills and knowledge – actors that can perform actions.
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.
Goods are a “Who”?
Goods, in service-dominant logic, are seen a distribution mechanism for service. There’s no equivalent of goods-dominant logic’s goods vs service, or needing to fix things because of service. There is simply service, some of which is distributed via a goods.
This is not as strange as it might at first seem. You can go, for example, to a concert, which is clearly a service (in this case a performance, using the skills and competence of the musicians). Or you could buy the band’s latest CD (goods) or stream it (digital goods). The recording stored on the goods is a frozen version of the performance. That has been distributed to where you are now playing it, and you have unfrozen it.
Similarly, that nice refreshing can of drink you’ve just pulled out of the fridge? That’s a goods. It’s filling a service of refreshing you. As such, captured in the can is the skills and competence of the manufacturer’s people. You are unfreezing that in the comfort of your apartment.
With that in mind, I group goods under the whos.
The managerial implications
We can define service in a variety of ways. Service is the “….application of skills and competencies to benefit another entity or the entity itself”, for example. But the definition I like comes from Grönroos and talks about a service:
- being a solution to a problem
- carried out as processes that consist of activities
- those activities normally take place in interactions with some combination of service provider elements
- and those elements are employees, physical resources, systems or goods
We can look at this a little more formally, as I do in “Describing a servicee – to help discover innovations“, as a set of integrated characteristics (see Figure X).
And here we are saying that a service outcome (final characteristics on the right) occur due to some combination of beneficiary and co-beneficiary (most likely service provider) competencies together with technical characteristics. Where those technical characteristics are systems, processes, goods.
From this, we can start to understand the who premises of service-dominant logic.
Everybody involved is integrating the resources. And really it starts with the beneficiary who is seeking to make progress. They are looking for value propositions to help them. And those value propositions are made up of skills and competencies that complement the beneficiaries own skills and competencies. And we know that those are either the other actor(s) directly, or frozen into goods of the other actor(s). When the beneficiary has decided on a value proposition to try, they integrate their resources to try and make progress.
This directly leads to FP4 which identifies that people (or rather operant resources) are your best asset. You’ve surely seen many comments similar to Howard Schultz’s below:
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
And, in the world of Artificial Intelligence and machine learning, perhaps we should class those algorithms as operant resources.
Now let’s move from the whats and whos to the hows.
The Hows of service-dominant logic
We can now 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). This maps back to the view of value, specifically proposed value, shown back in Figure X.
And it goes hand in hand with FP6 which points out that value creation is a joint effort. It is co-created during use (or in-context). And not, as goods-dominant logic sees it as being embedded by manufacturers to be exchanged at a point of sale. And more specifically, that co-creation always has to include the beneficiary.
However, it is only the beneficiary that determines the value. And they do that twice per use. First when they chose to hire the value proposition. They have determined that that proposition gives them the best chance to make progress. And secondly, whilst they are making progress they re-evaluate the value, i.e. how much progress they are making. The other actors cannot determine the value, either before being hired or during.
It is important to realise that the beneficiary is fickle. What they might find beneficial today, might not be so beneficial tomorrow. Or where one beneficiary finds value, another may not. Vargo & Lush use the word phenomenologically to describe this. And they wrap that up in FP10.
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
So, value can only be proposed, it is co-created during use, and amount is decided only by the beneficiary. That is very different to the goods-dominant view where the manufacturer decides the value, sets a price and at sales time transfers that value to the beneficiary for cash.
Now we have to be more relational (remember FP8?) in order to understand what we should be offering. And remember that we are proposing to help a beneficiary make functional and/or non-functional progress with some aspect of their life. We need to find out what that progress is. How else could they make that progress? How do we persuade them that do-nothing is not the best option? We have to create the value proposition with the best proposed value. And then we have find out how much achieved value the beneficiary has got, i.e. how well did we help them make progress.
Whilst we cannot determine value, we can help alter it. Customisation of the value proposition could help the beneficiary make better progress. So could altering the proposition during use when understanding better what the beneficiary is really trying to achieve.
We should also note that value can be co-destructed. And we should aim to minimise that.
The phenomenological nature of value determination is challenging. We’ll look at that in a specific article. But think of supermarkets and the upsurge of self-service checkouts. Some people will never use them as they see it is taking away jobs. Others might find it useful on a rushed rainy Tuesday lunchtime, but less valuable on Saturday’s weekly shop. More still are put off by being treated as a de-facto shoplifter with machines screaming out “unexpected item in the bagging area” – which we know is code for “you scanned an apple, but the weight says it’s a large melon”. And camera overwatch, barriers to leave the checkout area etc. The failure here is in not addressing the change in institutional arrangements (and minimising innovation resistance).
Now we have grouped them in what I believe is a useful manner, let’s look at each principle in turn.
Exploring the foundational premises in detail
Let’s explore each premise individually and see 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
To me, adopting service-dominant logic is part of the way to solve the innovation problem. But we do need to make it a little more approachable to get the needed traction. And that is what I have done in this article by proposing a new order to the foundational premises. As well as looking at the managerial implications. Additionally,I link to a series of articles looking at individual foundational premises.