"Reciprocal Value Creation through Service,"  Christian GrönroosV
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"Reciprocal Value Creation through Service," Christian GrönroosV

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"Reciprocal Value Creation through Service,"
Christian Grönroos, Professor of Service and Relationship Marketing, Hanken School of Economics, Finland

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  • 1. Simplification & Reconciliation S-D Logic Comments on “Reciprocal Value Creation Through Service From an Inside-Out To an Outside-In Approach” by Christian Grönroos Frontiers in Service Conference Karlstad, Sweden June 10, 2010 Stephen L. Vargo University of Hawai’i at Manoa
  • 2. The Gronroos Position, “Simply” Stated S-D Logic Value is not co-created, except “under certain circumstances” When provided through service, thus involving interaction (otherwise), the customer creates the value, through use (value-in-use) The firm facilitates value creation Value creation is the ultimate basis of business Service is the “logic of business”
  • 3. But… S-D Logic “Facilitates” implies co (-creation) through resource integration “Use” implies (service) interaction In S-D logic, “service” is transcending Using ones resources for another’s benefit. Provided direct (“services”) or through a good
  • 4. S-D Logic Position S-D Logic Service is exchanged for service Thus, service (doing) is the basis of exchange Value is always co-created Value (co-)creation (outcome/benefit) is the purpose
  • 5. Perspectives S-D Logic Resource Resource Integrator/ Resource transaction Resource transaction Integrator/ Beneficiary Firm Customer Beneficiary Integrator Integrator (“Firm”) transaction (“Customer”) transaction = Resource Integrators
  • 6. The Challenge S-D Logic Let’s move on!
  • 7. S-D Logic Thank You! For More Information on S-D Logic visit: sdlogic.net We encourage your comments and input. Will also post: • Working papers • Teaching material • Related Links Steve Vargo: svargo@sdlogic.net Bob Lusch: rlusch@sdlogic.net
  • 8. Key S-D Logic Publications S-D Logic
  • 9. The Growing Pedigree of S-D Logic S-D Logic S-D LogicLogic S-D S-D Logic of Marketing
  • 10. Service-Dominant Logic Basics S-D Logic Service, rather than goods, is the basis 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” • See value as always co-created • Sees goods as appliances for service deliver • Implies all economies are service economies • All businesses are service businesses
  • 11. Goods-dominant (G-D) Logic S-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 through the efficient production and distribution of goods goods should be standardized, produced away from the market, and inventoried till demanded Firms exist to make and sell value-laden goods
  • 12. Foundational Premises (Revised) S-D Logic Premise Explanation/Justification FP1 Service is the fundamental The application of operant resources basis of exchange. (knowledge and skills), “service,” is the basis for all exchange. Service is exchanged for service. FP2 Indirect exchange masks Goods, money, and institutions mask the the fundamental basis of service-for-service nature of exchange. exchange. FP3 Goods are distribution Goods (both durable and non-durable) mechanisms for service derive their value through use – the provision. service they provide. FP4 Operant resources are the The comparative ability to cause desired fundamental source of change drives competition. competitive advantage FP5 All economies are service Service (singular) is only now becoming economies. more apparent with increased specialization and outsourcing.
  • 13. Foundational Premises (Revised) S-D Premise Explanation/Justification Logic FP6 The customer is always a Implies value creation is interactional. co-creator of value FP7 The enterprise can not The firm can offer its applied resources deliver value, but only offer and collaboratively (interactively) create value propositions value following acceptance, but can not create/deliver value alone. FP8 A service-centered view is Service is customer-determined and co- inherently customer created; thus, it is inherently customer oriented and relational. oriented and relational. FP9 All economic and social Implies the context of value creation is actors are resource networks of networks (resource- integrators integrators). FP10 Value is always uniquely Value is idiosyncratic, experiential, and phenomenological contextual, and meaning laden. determined by the beneficiary
  • 14. The Messages of S-D Logic S-D Logic There are no services • There is only service There is no new service economy • All economies are service based There are no producers and consumers • All parties are resource integrators (i.e., Bs)
  • 15. The Messages of S-D Logic (2) S-D Logic Goods are not “goods.” • “Goods” are value propositions for service provision Firms do not create value • Value is always co-created Markets do not exist • The are imagined and created by linking resources with peoples lives • And yet they do – because we act as if they do.
  • 16. Clarifications: Service vs. Services S-D Logic G-D Logic Services = intangible Goods products Products Service =The process Services of using one’s competences for the S-D Logic benefit of some party Direct The application of Service Goods knowledge and skills Indirect Service transcends Money “goods and ‘services’” There are No “Services” in Service-Dominant Logic •
  • 17. The Source of the “New” Service(s) Economy S-D Logic Apparent Increasing G-D logic division of Outsourcing New classification labor Service Economy
  • 18. Clarifications: Cocreation vs. Coproduction S-D Logic Integration  Direct  With Public‐ Service  Facing  Provision  Resources  Provider of  Operand &  Service  Cocreation  Value in  Coproduction Operant  Beneficiary of Value Context  Resources  Service  Integration  Provision  With Private‐ via  Facing  Goods Resources Coproduction is relatively optional. Value is always cocreated
  • 19. Resource Integration S-D Logic Economic Currency Market-facing Resource Integrators New Resources Resource Private Social Integrator Resource Currency (individual, Integrators family, firm, Value etc.) Public Resource Integrators Public Currency
  • 20. Service Exchange through Resource Integration and Value Co-creation S-D Logic Resource Resource Integrator/ Integrator/ Beneficiary Beneficiary (“Firm”) (“Customer”) = Resource Integrators
  • 21. Service Exchange through Resource Integration and Value Co-creation S-D Logic Resource Resource Integrator/ Integrator/ Beneficiary Beneficiary (“Firm”) (“Customer”) = Resource Integrators
  • 22. Key Related Works S-D Logic Vargo, S. L. and R.F. Lusch (2004) “Evolving to a New Dominant Logic of Marketing,” Journal of Marketing 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 Lusch, R.F. and S.L. Vargo, editors (2006), The Service-Dominant Logic of Marketing: Dialog, Debate, and Directions, Armonk, NY: M.E. Sharpe Vargo, S.L. and R.F. Lusch (2007) “Service-Dominant Logic: Continuing the evolution?, Journal of the Academy of Marketing Science 22
  • 23. Resource Integration and Value Co- creation Opportunities S-D Logic Resource Resource Integrator/ Integrator/ Beneficiary Beneficiary (“Firm”) (“Customer”)
  • 24. Effectuation-Process Paths S-D Logic Source: Sarvasarthy and Drew 2005
  • 25. The Prelude: The Blasphemy of the Alternative Logic S-D Logic There is no new service economy There are no producers and consumers Goods are not “goods.” Firms do not create value There is no B2C There are no services There are no markets And yet there are
  • 26. Recreation Offerings as Platforms S-D Logic Social identity Inspiration Self image Social Stimulation connectedness Ecosystem Platform Meaning Facilitation Recreation Access to resources Knowledge Entertainment
  • 27. What S-D Logic Might be S-D Logic Foundation for a paradigm shift in marketing Perspective for understanding role of markets in society—Theory of Markets • Basis for general theory markets and marketing • Basis for “service science” • Foundation for theory of the firm • Reorientation for economic theory
  • 28. G-D Logic: A Logic of Separation S-D Logic Producer  Consumer Experienced Inexperienced Separation Knowledgeable Unknowledgeable  Innovative and Creative Passive/Dull  Produces /Creates Value  Consumes/Destroys Value 
  • 29. S-D Logic: A Logic of Cocreation S-D Logic Firm  Cocreating Customer Sensing & Experiencing  Sensing & Experiencing Creating Creating  Integrating Resources  Integrating Resources  Learning  Learning  Cocreating
  • 30. Uneasiness with Dominant Model S-D Logic “The historical marketing management function, based on the microeconomic maximization paradigm, must be critically examined for its relevance to marketing theory and practice.” Webster (1992) “The exchange paradigm serves the purpose of explaining value distribution (but) where consumers are involved in coproduction and have interdependent relationships, the concern for value creation is paramount…There is a need for an alternative paradigm of marketing.” Sheth and Parvatiyar (2000) “The very nature of network organization, the kinds of theories useful to its understanding, and the potential impact on the organization of consumption all suggest that a paradigm shift for marketing may not be far over the horizon.” Achrol and Kotler (1999)
  • 31. Problems with Goods Logic S-D Logic Goods are not why we buy goods • Service (benefits) they render • Intangibles (brand, self image, social connectedness, meaning) • Experiences Goods are not what we fundamentally “own” to exchange with others • Applied knowledge and skills (our services) Customer is secondary and seen as value receiver and destroyer • “Consumer orientation” is an add-on--does not help IHIP characteristics do not distinguish services vs. goods • But they do characterize value and value creation
  • 32. Value Production and Consumption S-D Logic Supplier Supply/Value Chain Producer Consumer
  • 33. Reflections of the G-D Logic S-D Logic Marketing is: • The “creation of utilities” (Weld) • Time, place, and possession • “production function” • Concerned with value distribution Orientations • Production and Product • distribution vs. value-added • Consumer Orientation • Evidence of problem vs. correction • Marketing management and Consumer Behavior Disconnect between marketing theory and marketing practice Sub-disciplinary divisions
  • 34. What S-D Logic is Not S-D Logic Reflection of the transition to a services era • In S-D logic, all economies are service economies A Theory • S-D logic is a logic, a mindset, a lens, but not a theory (at least yet) Restatement Of The Consumer Orientation • Consumer orientation is evidence of G-D logic, not a fix to it • Joint, firm/customer orientation is implied by S-D logic
  • 35. Getting the Logic Right S-D Logic The greatest danger in times of turbulence is not the turbulence: it is to act with yesterday’s logic. Peter F. Drucker The main power base of paradigms may be in the fact that they are taken for granted and not explicitly questioned Johan Arndt Value Proposition: There are alternative logics for understanding markets and marketing One is more robust and better suited to the long- term viability of marketing
  • 36. Domestication and Liquefication of Resources Drives Mobility S-D Logic From Somatic Mobility to Extra-Somatic Mobility Domesticate Domesticate Silicon & Carbon: Spectrum: Domesticate Extra-Somatic Wind: Petro Powered Mobility Sailing Ships Transportation Domesticate Animals: Horse & Somatic Buggy Mobility: Walking & Running From Lusch, R.F. (2008)
  • 37. The meaning of logic S-D Logic The underlying philosophy for organizing and understanding a phenomena Pre-theoretical Paradigm level of thought The lens that provides the perspective Different from formal scientific and mathematical logic
  • 38. What S-D Logic Might be S-D Logic Foundation of a paradigm shift in marketing • Perspective for understanding role of markets in society—Theory of market • Basis for general theory markets and marketing More generally, basis/foundation for • “Service science” • Theory of the firm • Reorientation for economic theory
  • 39. The Importance of the Right Logic S-D Logic Without changing our pattern of thought, we will not be able to solve the problems we created with our current pattern of thought Albert Einstein The greatest danger in times of turbulence is not the turbulence: it is to act with yesterday’s logic. Peter F. Drucker The main power base of paradigms may be in the fact that they are taken for granted and not explicitly questioned Johan Arndt What is needed is not an interpretation of the utility created by marketing, but a marketing interpretation of the whole process creating utility. Wroe Alderson
  • 40. From Arm-Flapping to Airfoil Logic S-D Logic
  • 41. Effectuation Theory S-D Logic Source: Sarvasvarthy et al. 2007
  • 42. Services: The G-D Logic Perspective S-D Logic Value-enhancing add-ons for goods, or A particular (somewhat inferior) type good, characterized by (IHIP): • Intangibility • Heterogeneity (non-standardization) • Inseparability (of production and consumption) • Perishability Services Economy = Post Industrial = Less- than-desirable economic activity
  • 43. G-D Logic Background S-D Logic Smith’s Bifurcation • Positive foundation of exchange: • specialized knowledge, labor (service), Value-in- use • Normative model of (national) wealth creation: • Value-in-exchange and “production” • Creation of surplus, exportable tangible goods Say’s Utility: • Usefulness (value-in-use) • Morphed into a property of products (value-in- exchange)
  • 44. G-D Logic Background (2) S-D Logic Bastiat (1848): • “Services are exchange for services” Development of Economic Science • The “Producer” – “Consumer” distinction • Built on Newtonian Mechanics • Matter, with properties • Deterministic relationships • The science of exchange of things (products), embedded with properties (“utiles”) Marketing (Business Disciplines) Built on G-D Logic Foundation of Economic Science
  • 45. What Has Changed? Nothing and Everything S-D Logic Exchange is about the reciprocal application of knowledge skills (specialized information) • Service for service “Dematerialization” and “liquification” (IT and ICT) • The ability to separate and transport information apart from and matter (and people) (Normann 2001) • Makes Service-logic compelling
  • 46. A Partial Pedigree S-D Logic Services and Relationship Marketing e.g., Shostack (1977); Berry (1983); Gummesson (1994) ; Gronroos (1994); etc. Theory of the firm Penrose (1959) Core Competency Theory (Prahalad and Hamel (1990); Day 1994) Resource-Advantage Theory and Resource- Management Strategies Hunt (2000; 2002); Constantine and Lusch (1994) Network Theory (Hakansson and Snehota 1995) Interpretive research and Consumer Culture theory (Arnould and Thompson 2005) Experience marketing (Prahalad and Ramaswamy 2000)
  • 47. There was no need: Why would anyone want… S-D Logic A horseless carriage (Model T) Talking movies Television Personal computer Microwave iPod