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Conceptual Foundations for a Science of Service

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1 Conceptual Foundations for a Science of Service
Presentation for the Conference on the Art and Science of Services Madrid, Spain May 24, 2006 Robert F. Lusch, University of Arizona Stephen L. Vargo, University of Hawaii at Manoa

2 The Service Science Imperative
The meek shall inherit the earth but not the mineral rights. – J. Paul Getty Gentlemen, examine this ground carefully it is going to be the battlefield. –Napolean, eleven hours before the battle of Austerlitz For years we have thought of the intangible in terms of the tangible: wireless, post-industrial, goods vs. services, the world is flat. We have a tangibility fixation. I find the great thing in this world is not so much where we stand, as in the direction we are moving. –O.W. Holmes S-D Logic Overview

3 Service The application of specialized competences (knowledge and skills) through deeds, processes, and performances for the benefit of another entity or the entity itself (self-service). Intermediaries are involved such as goods, money, organizations and networks. However, the real work of economies is mutual service provision. Compatible with other contemporary definitions Without being residual definition What goods are not… S-D Logic Overview

4 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 Uneasiness with the dominate logic—goods-centered Perhaps model was wrong, or at least good/service relationship inverted Goods-dominant logic is: Note manufacturing (rather than marketing) orientation Marketing added “time,” “place,” and “possession” to utilities S-D Logic Overview

5 Uneasiness with Dominant Model
What is needed is not an interpretation of utility created by marketing, but a marketing interpretation of the whole process of creating utility” (Alderson, 1957) “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) In addition to our original uneasiness with the dominant logic, found others had similar difficulties Also Day and Montgomery (1999), Shostack, and Others S-D Logic Overview

6 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 S-D Logic Overview

7 Language as Co-Creation: The Emergence of S-D Lexicon
Language and norms are co-created. The goods-dominant language and norms evolved via co-creation over hundreds of years. However, there are signs it is decaying and/or morphing into what we refer to as a service-dominant lexicon. S-D Logic Overview

8 Shift in Focus from Operand to Operant Resources
Operand Resources Resources upon which an operation or act is performed to produce an effect primarily physical resources, goods, etc. Operant Resources Resources that produce effects e.g., primarily knowledge and skills—competences Away from units of output To activities “Everything is nothing until you know what to do with it.” S-D Logic Overview

9 Evolving To a New Frame of Reference
To Market (matter in motion) Market To (management of customers & markets) Market With (collaborate with customers & partners to produce & sustain value) Through Future S-D Logic Overview

10 Evolving Toward a Service-Dominant Logic
G-D Focus S-D Focus Operand Resources Tangible Value Added Goods Products Transactional Units of Output Promotion Brand Equity Profit Maximization Operant Resources Intangible Co-creation of value Service Experiences Relational Processes Conversation/Dialog Customer Equity Financial Feedback S-D Logic Overview

11 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)

12 Marketing Redefined Marketing is the process in society and organizations that facilitate voluntary exchange through collaborative relationships that create reciprocal value through the application of complementary resources. Therefore marketing can be viewed as the means by which societies are able to create value through the voluntary exchange of knowledge and skills. S-D Logic Overview

13 Using S-D Logic to Improve Firm and Societal Well-Being
Co-Creation of Solutions Customers, Employees, Supply & Value Chain Partners, Stakeholders Focus on Service Flows Differentiating the Service vs. Differentiating with Service Focus on Off-Balance Resources Customer, Channel and Societal Equity Transform External Environments Into Resources Turn Resistances into Resources via Collaboration S-D Logic Overview

14 For More Information on S-D Logic visit:
Thank You! For More Information on S-D Logic visit: 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 us Steve Vargo: Bob Lusch: S-D Logic Overview

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