The Emerging Service Logic Mindset

• 1. 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

2. 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 businessespecially 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

3. 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

4. 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 Awardfor significant contribution to marketing theory and thought.

• Vargo, S.L. and R. F. Lusch (2004) The Four Service Myths: Remnants of a Manufacturing ModelJournal 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. OBrien (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 theJournal of the Academy of Marketing Science,(forthcoming)

5. Restricted Exchange Fisherman Farmer Fishing Farming Fish Wheat 6. 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 7. Monetized Exchange Fisherman Farmer $ $ Tool Maker Baker Baking Plow Making Fishing Wheat Farming $ $ 8. 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 9. Intermediaries Mask the Service-for-Service Nature of Exchange Fisherman Farmer FishingFarming GOODS MONEY OGANIZATIONS 10. Precursors

• Historical treatment of services

• • Smiths (1776) bifurcation

• • Bastiats (1848) reconsideration

• • • Services are exchanged for servicesit 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

11. 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

12. 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

• • IBMComputing on demand, Service Science

• • Software as a Service (SaaS) movement

• • etc.

• Apparent shift from manufacturing to service economy

13. 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 processdistinct from services particular types of goods

• • Shifts primary focus to operant resources from operand resources

• • Sees goods as appliances for service deliver

• • Impliesalleconomies are service economies

• • • Allbusinesses are service businesses

14. Evolving To a New Frame of Reference To Market (matter in motion) Market To (management ofcustomers & markets) Market With (collaborate withcustomers & partners to produce &sustain value) Through 1950 1950-2005 Future 15. 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

16. 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

17. 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 usedexperience and perception are essential to value determination

18. 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 ser