Discontinuous Innovations (July 2014 updated)

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Discontinuous Innovations (July 2014 updated)

  1. 1. Prepared by Michael Ling Page 1 LITERATURE REVIEW SAMPLE SERIES NO. 6 “Michel, S., S. W. Brown, and A. S.. Gallan (2008), “An Expanded and Strategic View of Discontinuous Innovations: Deploying a Service-dominant Logic,” Journal of the Academy of Marketing Science, 36, 54-66” Michael Ling July 2014 updated
  2. 2. Prepared by Michael Ling Page 2 Definition of discontinuous innovation Michel et al. define an innovation as discontinuous, from a SDL perspective, if it “(1) significantly changes how customers co-create value (value-in-use criterion) and (2) significantly affects market size, prices, revenues, or market shares (value-in-exchange criterion).” Though the authors support the overall argument of SDL that customer is a co- creator of value in innovation where “it is the customer who perceives and defines value based on “value-in-use””(p. 55), they acknowledge the equal importance of ‘value-in-exchange’ in their definition of discontinuous innovation. They claim that ‘value-in-exchange’ owes its existence to ‘value-in-use’ which “exists only if and when value-in-use occurs for the customer” (p. 55), but have not elaborated nor provided support of their claim. For example, it is not clear how and to what extent ‘value-in-use’ will lead to ‘value-in-exchange’. Is it a one-to-one or one- to-many relationship? As ‘value-in-use’ is based on operant resources such as knowledge, ability and competences of consumers, it is a quality that is hard to define and measure. As ‘value-in-exchange’, according to the authors, is defined in terms of its effects on market such as market shares or sizes, it is vaguely defined and impossible to measure its value consistently and reliably. As a result, I would argue that the definition of discontinuous innovation is flawed because it depends on variables that are hard to define and measure. Customer’s value creation Michel et al. state that “the creation of value requires that customers perform three different roles: users, buyers, and payers”, where “the user’s role refers to value-in-use, the payer’s to value-in-exchange, and the buyer’s role bridges value-in-use and value-in-exchange.”
  3. 3. Prepared by Michael Ling Page 3 They claim that “any innovation always changes both the firm’s value creation and at least one of the customer’s roles...or some combination thereof (p.61)”, and illustrate it by examples such as IKEA and Wikipedia. I would argue that the specification of customer roles against the ‘value-in-use’ and ‘value-in-exchange’ types is too rigid and, to an extent, not entirely correct. For example, value can be created by the payer if the value induces improvements in flexibility, efficiency or convenience; hence, ‘value-in-use’ is created for the payer. The same argument applies to a buyer. For example, value can be created by the buyer if the value enhances the procurement process; hence, ‘value-in-use’ is created for the payer. Firm’s value creation The authors claim that a firm changes its value creation by “embedding operant resources into objects”, “changing the integrators of resources”, and “reconfiguring value constellations”. As customer value co-creation through “embedding operant resources into objects” is merely a re-statement of the first foundational premises (FP1) of SDL (Vargo & Lusch, 2004), which postulates that products are “not the end product of the process of production” and can be viewed as “distribution mechanisms for service provision”, the authors have not added any new thoughts into their claim. Michel et al. continue to claim the innovation category of “changing the integrators of resources” is a fundamental cause of market exchange, a premise that is in FP1 of SDL (Vargo & Lusch, 2004). The authors compare McDonald’s to a dining restaurant as an example to support their claim that “less integrated offerings are less costly for the provider” and “more affordable for consumers.” However, I would argue that the operation of McDonald’s is, in contrast, the
  4. 4. Prepared by Michael Ling Page 4 result of a special and complex integration of specialized knowledge across large number of employees (Grant, 1996), where employees are “empowered in their value-creation role and considered the primal source of innovation, organizational knowledge, and firm value.” (Vargo and Lusch, 2008). As a result, their argument does not lead to the affordability in McDonald’s. Regarding the innovation category of “reconfiguring value constellations”, Michel et al. claim that customer value co-creation can draw from a network of “operant resources from multiple sources” where “market exchange is not restricted to two parties but is open to many actors.” This view has been raised by Vargo and Lusch (2008a) as “a close link between specialization and the exchange of service for service and networks and interaction.” I agree that the network-centric approach is important to customer value co-creation, and the growth in social networking media such as online communities will influence the growth and diversity of value constellations. References: Grant R. M. (1996), “Prospering in Dynamically-Competitive Environments: Organizational Capability as Knowledge Integration,” Organization Science, 7 (4), 375-387. Vargo S. L. And R. F. Lusch (2004), “Evolving to a New Dominant Logic for Marketing,” Journal of Marketing, 68 (January), 1-17. Vargo S. L. And R. F. Lusch (2008), “Why “Service”?” Journal of the Academy of Marketing Science, 36, 25-38. Vargo S. L. And R. F. Lusch (2008a), “Service-dominant Logic: Continuing the Evolution” Journal of the Academy of Marketing Science, 36, 1-10.

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