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The Emerging Service Logic Mindset
 

The Emerging Service Logic Mindset

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The Emerging Service Logic Mindset The Emerging Service Logic Mindset Presentation Transcript

  • The Emerging Service-Logic Mindset: An Introduction and Global Implications Presentation for the Pacific Asian Management Institute PALS Lecture Series July 11, 2006 Stephen L. Vargo, University of Hawaii at Manoa
  • The Backdrop
    • Globalization concerns
      • Outsourcing
        • Especially valued manufacturing jobs.
      • Unfair trade concerns
      • Violation of intellectual property rights
    • Environmental concerns
      • Competition for and deletion of scarce natural resources
      • Concerns about Environmental irresponsibility
    • Negative attitudes toward business—especially marketing
      • Seen as primary villain in creating the above
        • greed driven
        • Frequent instances of corporate corruption
        • Environmental destruction
      • Perceptions of economic colonialism
    • Declining service in a “service economy”
    • Complaints by business about relevance of business-school education
  • The Value Proposition in Brief
    • The mindset or logic we use for understanding business and globalization is flawed and restricting
    • We are (slowly) evolving from a logic of exchange based on stuff (goods) to a logic of exchange based on service (applied knowledge and skills)
      • This transition should be encouraged and amplified
    • This service logic has implications for rethinking firm and societal well-being and national wealth
  • Related Work
    • Vargo, S. L. and R.F. Lusch (2004) “ Evolving to a New Dominant Logic of Marketing, ” Journal of Marketing , 68 (1),
      • Harold H. Maynard Award for “significant contribution to marketing theory and thought.”
    • Vargo, S.L. and R. F. Lusch (2004) “The Four Service Myths: Remnants of a Manufacturing Model” Journal of Service Research
    • Vargo, S.L. and F.W. Morgan (2005) “An Historical Reexamination of the Nature of Exchange: The Service Perspective,” Journal of Macromarketing
    • Lusch, R.F. and S.L. Vargo, editors (2006), The Service-Dominant Logic of Marketing: Dialog, Debate, and Directions, Armonk , NY: M.E. Sharpe
    • Lusch, R.F., S.L. Vargo (2006), “The Service-Dominant Logic of Marketing: Reactions, Reflections, and Refinements, Marketing Theory
    • Lusch, R.F., S.L. Vargo, and M. O’Brien (2006), “ Competing Through Service: Insights from Service-Dominant Logic,” Journal of Retailing , (forthcoming)
    • Lusch, R.F., S.L. Vargo, and A. Malter (2006), Marketing as Service-Exchange: Taking a Leadership Role in Global Marketing Management, Organizational Dynamics , (forthcoming)
    • Lush, R. F. and S. L. Vargo, editors (2007) “Evolving to a New Dominant Logic for Marketing: Continuing the Debate and Dialog, Special Issue of the Journal of the Academy of Marketing Science, (forthcoming)
  • Restricted Exchange Fisherman Farmer Fishing Farming Fish Wheat
  • Complex Exchange Fisherman Farmer Fishing Plow Making Tool Maker Baker Baking Farming Hook Making Fishing Farming Baking Bread, Fish, etc Bread, Fish, etc Bread, Fish, etc Bread, Fish, etc
  • Monetized Exchange Fisherman Farmer $ $ Tool Maker Baker Baking Plow Making Fishing Wheat Farming $ $
  • Monetized & Assisted Exchange Fisherman Farmer $ Tool Maker Baker Baking Plow Making Fishing Wheat Farming Other Service/Goods $ $ $’s Other Service/Goods Merchant Marketing, Inc Fisherman, Inc Baker, Inc Toolmaker, Inc Farmer, Inc
  • Intermediaries Mask the Service-for-Service Nature of Exchange Fisherman Farmer Fishing Farming GOODS MONEY OGANIZATIONS
  • Precursors
    • Historical treatment of services
      • Smith’s (1776) bifurcation
      • Bastiat’s (1848) reconsideration
        • “ Services are exchanged for services…it is the beginning, the middle, and the end of economic science”
    • Industrial revolution
    • Economic science modeled after Newtonian mechanics
      • Microeconomic model based on perfect competition
    • Other disciplines (marketing, HR, etc,) inherited
      • As did society as a whole, including government
  • Goods-dominant (G-D) Logic
    • Purpose of economic activity is to make and distribute units of output, preferably tangible (i.e., goods)
    • Goods are embedded with utility (value) during manufacturing
    • Goal is to maximize profit by decreasing cost and increasing number of units of output sold
      • For efficiency, goods should be standardized, produced away from the market, and inventoried till demanded
  • Dissention and Shifts
    • Calls for a paradigm shift in marketing (other disciplines)
    • Shift away from goods focus in marketing
      • Relationship marketing, experiences, value-constellations, co-production, interactivity, solutions, resource advantage, etc
    • Breakout of service marketing, management, operations
    • “ Service’ approaches to manufacturing
      • Dell, Nike, etc.
    • Business initiatives to shift from “goods” companies to “services” companies
      • GE
      • IBM—”Computing on demand,” “Service Science”
      • “ Software as a Service” (SaaS) movement
      • etc.
    • Apparent shift from manufacturing to service economy
  • Service-Dominant Logic Basics
    • A logic that views service, rather than goods, as the focus of economic and social exchange
      • i.e., Service is exchanged for service
    • Essential Concepts and Components
      • Service: the application of competences for the benefit of another entity
        • Service (singular) is a process—distinct from “services”— particular types of goods
      • Shifts primary focus to “ operant resources ” from “ operand resources ”
      • Sees goods as appliances for service deliver
      • Implies all economies are service economies
        • All businesses are service businesses
  • Evolving To a New Frame of Reference To Market (matter in motion) Market To (management of customers & markets) Market With (collaborate with customers & partners to produce & sustain value) Through 1950 1950-2005 Future
  • Service-Dominant (S-D) Logic
    • Identify core competences, knowledge and skills that represent a potential competitive advantage
    • Cultivate relationships with potential customers
      • develop customized, compelling value propositions
      • Co-create value with customer
    • Use financial performance as an instrument of learning for improving the level of service for customers and markets
  • Foundational Premises
    • FP1. The application of specialized skill(s) and knowledge is the fundamental focus of exchange.
      • Service (application of skills and knowledge) is exchanged for service
    • FP2. Indirect exchange masks the fundamental process of exchange.
      • Goods, organizations, intermediaries, and money obscure the service-for-service nature of exchange
    • FP3. Goods are distribution mechanisms for service provision.
      • “ Activities render service; things render service” (Gummesson 1995) : goods are appliances
  • Foundational Premises (2)
    • FP4. Knowledge is the fundamental source of competitive advantage
      • Operant resources, especially “know-how,” are the essential component of differentiation
    • FP5. All economies are service economies.
      • Service only now becoming more apparent with increased specialization and outsourcing
    • FP6. The customer is always a co-creator of value.
      • There is no value until offering is used—experience and perception are essential to value determination
  • Foundational Premises (3)
    • FP7. The enterprise can only make value propositions.
      • Since value is always determined by the customer (value-in-use)—it can not be embedded through manufacturing (value-in-exchange)
    • FP8. A service-centered view is inherently customer oriented and relational
      • Resources being used for the benefit of, and in interaction with, the customer, places the customer at the center of value creation and implies relationship.
    • FP 9. Organizations exist to combine specialized competences into complex service that is demanded in the marketplace.
      • The firm is an integrator of macro and micro-specializations
  • Goods vs. Service-Dominant: Where do the logics point us?
    • Goods-Dominant
    • Make stuff
    • Sell to Mass market
    • Produce product
    • Promote product
    • Charge for product (price)
    • Distribute product (value)
    • Create transaction
    • Money as goal
    • Service-Dominant
    • Serve and satisfy
    • Respond to markets of one--customization
    • Find solutions, co-create value
    • Conversation & dialog
    • Offer value proposition
    • Integrate value network & processes
    • Build relationships
    • Profit as feedback (learning)
  • Difficult Conceptual Transitions Product orientation To Market Promotion Supply Chain Equilibrium systems Price Profit maximization Value-added Feature/attribute Products Goods Goods-Dominant Concepts Market Orientation Market to Integrated Marketing Communications Value-Chain Dynamic systems Value delivery Financial Engineering Co-production Benefit Offerings Services Transitional Concepts Service-Dominant Logic (Consumer and relational) Market with Dialog Value-creation network/constellation Complex adaptive systems Value proposition Financial feedback/learning Co-creation of value Solution Experiences Service Service-Dominant Concepts
  • Goods Logic Goods Tangibles Operand Resources Asymmetric Propaganda Value Added Transactional Maximize Profits Service Dominant Service Intangibles Operant Resources Symmetric Conversation Value Propositions Relational Financial Feedback Global Sustainability Customer Alienation Respect for Marketing In Firm Less More Less More Less More The Emerging Reorientation of Business
  • General Implications for the Firm
    • Co-create solutions
      • Customers, employees, value-chain partner, stakeholders
    • Making services more “goods-like” (tangible, separable, etc.) may not be correct normative marketing goal
      • Make goods-more service-like.
    • Consider becoming more pure marketing-services firms
      • Outsource manufacturing (as well as other non-core competences)
    • Consider selling service flows rather than ownership, even when goods are involved
    • Treat employees and customers as operant resources
      • Essential parties to value creation
  • Implications for Public Policy and Society
    • Rethink “industrial” and employment classifications
    • Develop better metrics for tracking none-goods exchange
    • Encourage retention of tangible goods and sale of service flows?
    • Encourage operant resource creation through education and research
    • Enforce protection of intellectual property rights
  • Global Implications: The Traditional (G-D) “Wealth of Nations”
    • Historical View of National Wealth (G-D)
      • Operand-resource driven
      • Use labor and capital to create surplus goods (operand resources) for export
        • Import desired operand resources = wealth
  • Global Implications: Toward a New (S-D) “Wealth of Nations”
    • National wealth is based primarily on operant resources (skills and knowledge), rather than operand resources (stuff)
      • Focus on creation of higher-level knowledge and skills
    • Most important imports and exports are operant resources
    • Operant resources become commoditized and must be replaced, replenished, and newly created
      • Outsourcing allows resource development (relieves and enables)
      • Points toward:
        • Education
        • Immigration
        • Competition
    • International trade creates international trade
      • (e.g., Boeing)
      • Reduce barriers to trade
  • Thank You! For More Information on S-D Logic visit: sdlogic.org We encourage your comments and input. If you would like your working papers or teaching material and/or links to your research displayed on the website, please e-mail us Steve Vargo: svargo@sdlogic.net Bob Lusch: rlusch@sdlogic.net