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S-D Logic Foundations of Resource-Integration Theory: Toward an S-D Logic Informed Theory of the Market Presentation to Frontiers in Service Conference.

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Presentation on theme: "S-D Logic Foundations of Resource-Integration Theory: Toward an S-D Logic Informed Theory of the Market Presentation to Frontiers in Service Conference."— Presentation transcript:

1 S-D Logic Foundations of Resource-Integration Theory: Toward an S-D Logic Informed Theory of the Market Presentation to Frontiers in Service Conference October 6, 2006 Stephen L. Vargo, Shidler College of Business, University of Hawaii at Manoa

2 S-D Logic Marketing's inverted scientific process Other disciplines have found it convenient to institutionalize the distinctions between applied and basic science. In marketing, the problem is rather one of spinning off a basic science from a problem solving discipline. Arndt 1985 Paradoxically, the term market is everywhere and nowhere in our literature. Venkatesh, Penalosa, and Firat 2006 Good normative theory is based on good positive theory. Hunt 2002

3 S-D Logic Marketings Theoretical Foundations Smiths 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 Says Utility: Usefulness (value-in-use) Morphed into a property of products (value-in-exchange) Development of Economic Science Built on Newtonian Mechanics Matter, with properties Deterministic relationships The science of exchange of things (products), embedded with properties (utiles)

4 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 through the efficient production and distribution of goods goods should be standardized, produced away from the market, and inventoried till demanded To increase wealth, firms should efficiently make and sell goods

5 S-D Logic Reflections of the G-D Logic Model 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 Aldersons admonition: What is needed is not an interpretation of the utility created by marketing, but a marketing interpretation of the whole process creating utility. Disconnect between marketing theory and marketing practice Sub-disciplinary division

6 S-D Logic Sub-disciplinary Divergences and Convergences Business-to-Business Marketing From differences Derived demand, professional buyers, flocculating demand, etc To emerging new principles Interactivity, relationship, network theory, etc Service(s) Marketing From differences: Inseparability, heterogeneity, etc. To emerging new principles: Relationship, perceived quality, customer equity, etc. Other Sub-disciplines Other Intra-marketing initiatives e.g., interpretive research, Consumer culture theory, etc. From deterministic models to emergent properties From products to experiences From embedded value to individual meanings and life theme

7 S-D Logic Evolving…Service-Dominant Logic 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 Implies all economies are service economies All businesses are service businesses An orientation (mindset) rather than a theory

8 S-D Logic Foundational Premises (Revised) FP1Service is the fundamental basis of exchange. FP2Indirect exchange masks the fundamental basis of exchange. FP3Goods are distribution mechanisms for service provision. FP4Operant resources are the fundamental source of competitive advantage FP5All economies are service economies. FP6The customer is always a co-creator of value FP7The enterprise can not deliver value, but only offer value propositions FP8A service-centered view is inherently customer oriented and relational. FP9All economic and social actors are resource integrators FP10Value is always uniquely and phenomenological determined by the beneficiary

9 S-D Logic What is needed Positive Theory Market are everywhere and nowhere... (Venkatesh, Penalosa, and Firat 2006) Foundations for Positive theory Reorientation to marketing and marketing S-D Logic Shift from products as unit of analysis to collaborative value creation and determination B2B, service, and relationship Refocus on operant resources as source of value Resource-based theories of the firm; resource advantage theory Elimination of producer/consumer distinction B2B marketing/network theory Inframarginal analysis Models of emergent structure and processes Complexity theory Interpretive research Theory of resource integration and exchange Theory of markets to inform normative marketing theory

10 S-D Logic Service Exchange through Resource Integration and Value Co-creation Resource Integrator/ Beneficiary (Firm) Resource Integrator/ Beneficiary (Customer) Value Co-creation Market-facing and public and private resources Service Market-facing and public and private resources $ (Service Rights)

11 S-D Logic Provider of Operand & Operant Resources Direct Service Provision Service Beneficiary Service Provision via Goods Value in Context Cocreation Integration With Public- Facing Resources Integration With Public- Facing Resources Integration With Private- Facing Resources Integration With Private- Facing Resources Coproduction

12 S-D Logic The New Geometry of Marketing? Value Co-creation Value Co-Creation Resource Integrator Needs Exchange Customers Resources Needs Exchange RI Stakeholders Needs Resources Exchange RI External Resources Needs Resources Exchange RI Resources RI

13 S-D Logic Service Provider Indirect Service Provision via money Service Beneficiary Service Provision via work Value in Context Cocreation Integration With Public- Facing Resources Integration With Public- Facing Resources Integration With Private- Facing Resources Integration With Private- Facing Resources Cocreation Integration With Public- Facing Resources Integration With Public- Facing Resources Integration With Private- Facing Resources Integration With Private- Facing Resources

14 S-D Logic R-I Theory Foundations Economic and social (S&E) systems (individuals, families, organizations, nations, markets, etc.) are complex adaptive systems All, S&E systems are heterogeneous, requiring unique combinations of resources (operant and operand) for well-being S&E systems are resource integrators S&E systems survival requires external resources (operand and operant) Operant resources are primary in human systems A market is a network of S&E systems that facilitates reciprocal resource exchange In voluntary markets, exchange is most likely when value is increased for each party to exchange

15 S-D Logic 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: Bob Lusch: Thank You!

16 S-D Logic Getting the Logic Right The greatest danger in times of turbulence is not the turbulence: it is to act with yesterdays logic. Peter F. Drucker What is needed is…a marketing interpretation of the whole process of creating utility Wroe Alderson The main power base of paradigms may be in the fact that they are taken for granted and not explicitly questioned Johan Arndt …the current situation [in marketing] is to a great extent due to an overreliance on what is called the microeconomic/marketing management paradigm as a largely unchallenged key foundation for theory building. Johan Arndt 1983

17 S-D Logic Concluding Observations Pluralism and Duality? Approaches Acceptance (Pluralism) Goods and services (what marketing has been doing) Confrontation Goods vs services (what some are hearing) Transcendence Service as generalizable Goods as a service-provision vehicle (what we are sayingservice dominant)

18 S-D Logic Evolution of Marketing Thought To Market (Matter in Motion) Market To (Management of Customers & Markets ) Market With (Collaborate with Customers & Partners to Create & Sustain Value) Through

19 S-D Logic Foundational Premises (Revised) PremiseExplanation/Justification FP1Service is the fundamental basis of exchange. The application of operant resources (knowledge and skills), service, is the basis for all exchange. Service is exchanged for service. FP2Indirect exchange masks the fundamental basis of exchange. Goods, money, and institutions mask the service-for-service nature of exchange. FP3Goods are distribution mechanisms for service provision. Goods (both durable and non-durable) derive their value through use – the service they provide. FP4Operant resources are the fundamental source of competitive advantage The comparative ability to cause desired change drives competition. FP5All economies are service economies. Service (singular) is only now becoming more apparent with increased specialization and outsourcing.

20 S-D Logic Foundational Premises (Revised) PremiseExplanation/Justification FP6The customer is always a co-creator of value Implies value creation is interactional. FP7The enterprise can not deliver value, but only offer value propositions The firm can offer its applied resources and collaboratively (interactively) create value following acceptance, but can not create/deliver value alone. FP8A service-centered view is inherently customer oriented and relational. Service is customer-determined and co- created; thus, it is inherently customer oriented and relational. FP9All economic and social actors are resource integrators Implies the context of value creation is networks of networks (resource- integrators). FP10Value is always uniquely and phenomenological determined by the beneficiary Value is idiosyncratic, experiential, contextual, and meaning laden.

21 S-D Logic 21 Difficult Conceptual Transitions Goods-Dominant Concepts Goods 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 Concepts Service 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)

22 S-D Logic Whats Next End of producer/consumer distinction All economic actors as resource integrators, service providers and service beneficiaries Theory of the market network integration Superordination of logic of discovery to logic of justification Adoption of dynamic, non-linear, and longitudinal research methods

23 S-D Logic Services: The G-D Logic Perspective Services are: Value-enhancing add-ons for goods, or A particular (somewhat inferior) type good, characterized by: Intangibility Heterogeneity (non-standardization) Inseparability (of production and consumption) Perishability Service innovation is the application of G-D logic principles of innovation (e.g., efficiency and design), adjusted for the characteristics of services

24 S-D Logic Marketings Missions (something Like) Applied/Managerial: Enhance organizational wealth and wellbeing through the facilitation of exchange i.e., apply normative marketing theory Academic/Educational: Disseminate scientific knowledge that informs applied marketing i.e., teach normative marketing theory Academic/Scholarly: Develop theory and knowledge that can inform marketing practice i.e., develop positive marketing theory

25 S-D Logic Service-Dominant Logic Basics Service, rather than goods, is 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 fromoperand resources Sees value as always co-created Sees goods as appliances for service delivery Implies all economies are service economies All businesses are service businesses

26 S-D Logic The Problem: Shaky Foundations Normative marketing theory is (should be) built on positive market/marketing theory Positive marketing theory built on positive economic theory Positive economic theory built on a normative theory wealth creation


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