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S-D Logi c 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
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S-D Logic The Emerging Service-Logic Mindset: An Introduction and Global Implications Presentation for the Pacific Asian Management Institute PALS Lecture.

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Page 1: S-D Logic The Emerging Service-Logic Mindset: An Introduction and Global Implications Presentation for the Pacific Asian Management Institute PALS Lecture.

S-D Logic

The Emerging Service-Logic Mindset:An Introduction and Global Implications

Presentation for the

Pacific Asian Management InstitutePALS Lecture Series

July 11, 2006

Stephen L. Vargo, University of Hawaii at Manoa

Page 2: S-D Logic The Emerging Service-Logic Mindset: An Introduction and Global Implications Presentation for the Pacific Asian Management Institute PALS Lecture.

S-D Logic Overview 2

S-D Logic

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

Page 3: S-D Logic The Emerging Service-Logic Mindset: An Introduction and Global Implications Presentation for the Pacific Asian Management Institute PALS Lecture.

S-D Logic Overview 3

S-D Logic

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

Page 4: S-D Logic The Emerging Service-Logic Mindset: An Introduction and Global Implications Presentation for the Pacific Asian Management Institute PALS Lecture.

4

S-D Logic

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)

Page 5: S-D Logic The Emerging Service-Logic Mindset: An Introduction and Global Implications Presentation for the Pacific Asian Management Institute PALS Lecture.

S-D Logic Overview 5

S-D Logic

Restricted Exchange

Fisherman FarmerFish

Wheat

Fishing

Farming

Page 6: S-D Logic The Emerging Service-Logic Mindset: An Introduction and Global Implications Presentation for the Pacific Asian Management Institute PALS Lecture.

S-D Logic Overview 6

S-D Logic

Complex Exchange

Fisherman

Farmer

Fishing

Plow MakingTool Maker

BakerBaking

Farming

Hook Making

Fishing FarmingBaking

Bread, Fish, etc

Bread, Fish, etc

Bread, Fish, etc

Bread, Fish, etc

Page 7: S-D Logic The Emerging Service-Logic Mindset: An Introduction and Global Implications Presentation for the Pacific Asian Management Institute PALS Lecture.

S-D Logic Overview 7

S-D Logic

Monetized Exchange

Fisherman

Farmer

$

$

Tool Maker

Baker

Baking

Plow Making

Fishing Wheat Farming

$$

Page 8: S-D Logic The Emerging Service-Logic Mindset: An Introduction and Global Implications Presentation for the Pacific Asian Management Institute PALS Lecture.

S-D Logic Overview 8

S-D Logic

Monetized & Assisted Exchange

Fisherman

Farmer

$

Tool Maker

Baker

Baking

Plow Making

Fishing

Wheat Farming

Other Service/Goods

$

$ $’s

Other Service/Goods

MerchantMarketing, Inc

Fisherman, Inc

Baker, Inc

Toolmaker, Inc

Farmer, Inc

Page 9: S-D Logic The Emerging Service-Logic Mindset: An Introduction and Global Implications Presentation for the Pacific Asian Management Institute PALS Lecture.

S-D Logic Overview 9

S-D Logic

Intermediaries Mask the Service-for-Service Nature of Exchange

Fisherman FarmerFishing

Farming

GOODS

MONEY

OGANIZATIONS

Page 10: S-D Logic The Emerging Service-Logic Mindset: An Introduction and Global Implications Presentation for the Pacific Asian Management Institute PALS Lecture.

S-D Logic Overview 10

S-D Logic

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

Page 11: S-D Logic The Emerging Service-Logic Mindset: An Introduction and Global Implications Presentation for the Pacific Asian Management Institute PALS Lecture.

S-D Logic Overview 11

S-D Logic

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

Page 12: S-D Logic The Emerging Service-Logic Mindset: An Introduction and Global Implications Presentation for the Pacific Asian Management Institute PALS Lecture.

S-D Logic Overview 12

S-D Logic

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

Page 13: S-D Logic The Emerging Service-Logic Mindset: An Introduction and Global Implications Presentation for the Pacific Asian Management Institute PALS Lecture.

S-D Logic Overview 13

S-D Logic

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

Page 14: S-D Logic The Emerging Service-Logic Mindset: An Introduction and Global Implications Presentation for the Pacific Asian Management Institute PALS Lecture.

S-D Logic Overview 14

S-D Logic

Evolving To a New Frame of Reference

To Market(matter in motion)

Market To(management of

customers &markets)

Market With(collaborate with

customers & partnersto produce & sustain value)

Through 1950 1950-2005 Future

Page 15: S-D Logic The Emerging Service-Logic Mindset: An Introduction and Global Implications Presentation for the Pacific Asian Management Institute PALS Lecture.

S-D Logic Overview 15

S-D Logic

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

Page 16: S-D Logic The Emerging Service-Logic Mindset: An Introduction and Global Implications Presentation for the Pacific Asian Management Institute PALS Lecture.

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S-D Logic

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

Page 17: S-D Logic The Emerging Service-Logic Mindset: An Introduction and Global Implications Presentation for the Pacific Asian Management Institute PALS Lecture.

S-D Logic Overview 17

S-D Logic

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

Page 18: S-D Logic The Emerging Service-Logic Mindset: An Introduction and Global Implications Presentation for the Pacific Asian Management Institute PALS Lecture.

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S-D Logic

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

Page 19: S-D Logic The Emerging Service-Logic Mindset: An Introduction and Global Implications Presentation for the Pacific Asian Management Institute PALS Lecture.

S-D Logic Overview 19

S-D Logic

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)

Page 20: S-D Logic The Emerging Service-Logic Mindset: An Introduction and Global Implications Presentation for the Pacific Asian Management Institute PALS Lecture.

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S-D Logic

Difficult Conceptual Transitions

Goods-Dominant ConceptsGoods

Products

Feature/attribute

Value-added

Profit maximization

Price

Equilibrium systems

Supply Chain

Promotion

To Market

Product orientation

Transitional Concepts

Services

Offerings

Benefit

Co-production

Financial Engineering

Value delivery

Dynamic systems

Value-Chain

Integrated Marketing Communications

Market to

Market Orientation

Service-Dominant ConceptsService

Experiences

Solution

Co-creation of value

Financial feedback/learning

Value proposition

Complex adaptive systems

Value-creation network/constellation

Dialog

Market with

Service-Dominant Logic(Consumer and relational)

Page 21: S-D Logic The Emerging Service-Logic Mindset: An Introduction and Global Implications Presentation for the Pacific Asian Management Institute PALS Lecture.

21

S-D Logic

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

GlobalSustainability

CustomerAlienation

Respect forMarketingIn Firm

Less

More

Less

More

Less

More

The Emerging Reorientation of Business

Page 22: S-D Logic The Emerging Service-Logic Mindset: An Introduction and Global Implications Presentation for the Pacific Asian Management Institute PALS Lecture.

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S-D Logic

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

Page 23: S-D Logic The Emerging Service-Logic Mindset: An Introduction and Global Implications Presentation for the Pacific Asian Management Institute PALS Lecture.

S-D Logic Overview 23

S-D Logic

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

Page 24: S-D Logic The Emerging Service-Logic Mindset: An Introduction and Global Implications Presentation for the Pacific Asian Management Institute PALS Lecture.

S-D Logic Overview 24

S-D Logic

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

Page 25: S-D Logic The Emerging Service-Logic Mindset: An Introduction and Global Implications Presentation for the Pacific Asian Management Institute PALS Lecture.

S-D Logic Overview 25

S-D Logic

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

Page 26: S-D Logic The Emerging Service-Logic Mindset: An Introduction and Global Implications Presentation for the Pacific Asian Management Institute PALS Lecture.

S-D Logic Overview 26

S-D Logic

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: [email protected] Bob Lusch: [email protected]