Simplification & Reconciliation

1. Simplification & Reconciliation Comments on “Reciprocal Value Creation Through Service From an Inside-Out To an Outside-In Approach” by Christian Gronroos Frontiers in Service Conference Karlstad, Sweden June 10, 2010 Stephen L. Vargo University of Hawai’i at Manoa

2. The Gronroos Position, “Simply” Stated • Value is not co-created, except “under certain circumstances” • When provided through service, thus involving interaction • (otherwise), the customer creates the value, through use (value-in-use) • The firm facilitates value creation • Value creationis the ultimate basis of business • Service is the “logic of business”

3. But… • “Facilitates” implies co (-creation) through resource integration • “Use” implies (service) interaction • In S-D logic, “service” is transcending • Using ones resources for another’s benefit. • Provided direct (“services”) or through a good

4. S-D Logic Position • Service is exchanged for service • Thus, service (doing) is the basis of exchange • Value is always co-created • Value (co-)creation (outcome/benefit) is the purpose

5. Market-facing and public and private resources Market-facing and public and private resources Resource Integrator/Beneficiary Resource Integrator/Beneficiary (“Firm”) (“Customer”) Perspectives Service Resource Integrator transaction transaction Resource Integrator Customer Firm transaction transaction Value Co-creation $ (Service Rights) = Resource Integrators

6. The Challenge Let’s move on!

7. Thank You! • 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: svargo@sdlogic.net Bob Lusch: rlusch@sdlogic.net

8. Key S-D Logic Publications

9. The Growing Pedigree of S-D Logic S-D Logic SSME Soc of Mkt Practices NI Econ S-D Logic Network Theory CCT B2B Marketing S-D Logic of Marketing Experience Mktg R-A theory Theory of Firm Relationship Service Mkt

10. Service-Dominant Logic Basics

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 through the efficient production and distribution of goods • goods should be standardized, produced away from the market, and inventoried till demanded Firms exist to make and sell value-laden goods

12. Foundational Premises (Revised)

13. Foundational Premises (Revised)

14. The Messages of S-D Logic

15. The Messages of S-D Logic (2)

16. Clarifications: Service vs. Services • Services = intangible products • Service =The process of using one’s competences for the benefit of some party • The application of knowledge and skills • Service transcends “goods and ‘services’” G-D Logic S-D Logic There are No “Services” in Service-Dominant Logic

17. The Source of the “New” Service(s) Economy

18. Clarifications: Cocreation vs. Coproduction Integration With Public-Facing Resources Direct Service Provision Provider of Operand & Operant Resources Service Beneficiary Value in Context Cocreation of Value Coproduction Service Provision via Goods Integration With Private-Facing Resources Coproduction is relatively optional. Value is always cocreated

19. Resource Integration Economic Currency Market-facing Resource Integrators New Resources Resource Integrator (individual, family, firm, etc.) Social Currency Private Resource Integrators Value Public Resource Integrators Public Currency

20. Service Exchange through Resource Integration and Value Co-creation Market-facing and public and private resources Market-facing and public and private resources Resource Integrator/Beneficiary Resource Integrator/Beneficiary (“Firm”) (“Customer”) Service Value Co-creation Value Co-creation $ (Service Rights) = Resource Integrators

21. Service Exchange through Resource Integration and Value Co-creation Market-facing and public and private resources Market-facing and public and private resources Resource Integrator/Beneficiary Resource Integrator/Beneficiary (“Firm”) (“Customer”) Service Value Co-creation $ (Service Rights) = Resource Integrators

22. Key Related Works • Vargo, S. L. and R.F. Lusch (2004) “Evolving to a New Dominant Logic of Marketing,”Journal of Marketing • 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 • Lusch, R.F. and S.L. Vargo, editors (2006), The Service-Dominant Logic of Marketing: Dialog, Debate, and Directions, Armonk, NY: M.E. Sharpe • Vargo, S.L. and R.F. Lusch (2007) “Service-Dominant Logic: Continuing the evolution?, Journal of the Academy of Marketing Science

23. Resource Integration and Value Co-creation Opportunities Resource Integrator/Beneficiary Resource Integrator/Beneficiary (“Firm”) (“Customer”)

24. Effectuation-Process Paths Source: Sarvasarthy and Drew 2005

25. The Prelude: The Blasphemy of the Alternative Logic • There is no new service economy • There are no producers and consumers • Goods are not “goods.” • Firms do not create value • There is no B2C • There are no services • There are no markets • And yet there are

26. Recreation Recreation Recreation Offerings as Platforms Social identity Inspiration Self image Social connectedness Stimulation Ecosystem Platform Meaning Facilitation Access to resources Recreation Knowledge Entertainment

27. What S-D Logic Might be

28. G-D Logic: A Logic of Separation Producer Consumer Separation

29. S-D Logic: A Logic of Cocreation Cocreating Firm Customer Cocreating

30. Uneasiness with Dominant Model • “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)

31. Problems with Goods Logic

32. Value Creation Value Destruction Producer Supplier Value Production and Consumption Product/Value Delivery Consumer Supply/Value Chain

33. Reflections of the G-D Logic

34. What S-D Logic is Not

35. Getting the Logic Right • The greatest danger in times of turbulence is not the turbulence: it is to act with yesterday’s logic. • Peter F. Drucker • The main power base of paradigms may be in the fact that they are taken for granted and not explicitly questioned • Johan Arndt Value Proposition: There are alternative logics for understanding markets and marketing • One is more robust and better suited to the long-term viability of marketing

36. Domestication and Liqueficationof Resources Drives Mobility From Somatic Mobility to Extra-Somatic Mobility From Lusch, R.F. (2008)

37. The meaning of logic • The underlying philosophy for organizing and understanding a phenomena • Pre-theoretical • Paradigm level of thought • The lens that provides the perspective • Different from formal scientific and mathematical logic

38. What S-D Logic Might be

39. The Importance of the Right Logic • Without changing our pattern of thought, we will not be able to solve the problems we created with our current pattern of thought • Albert Einstein • The greatest danger in times of turbulence is not the turbulence: it is to act with yesterday’s logic. • Peter F. Drucker • The main power base of paradigms may be in the fact that they are taken for granted and not explicitly questioned • Johan Arndt • What is needed is not an interpretation of the utility created by marketing, but a marketing interpretation of the whole process creating utility. • Wroe Alderson

40. From Arm-Flapping to Airfoil Logic

41. Effectuation Theory Source: Sarvasvarthy et al. 2007

42. Services: The G-D Logic Perspective

43. G-D Logic Background

44. G-D Logic Background (2)

45. What Has Changed?Nothing and Everything

46. A Partial Pedigree • Services and Relationship Marketing • e.g., Shostack (1977); Berry (1983); Gummesson (1994) ; Gronroos (1994); etc. • Theory of the firm • Penrose (1959) • Core Competency Theory • (Prahalad and Hamel (1990); Day 1994) • Resource-Advantage Theory and Resource-Management Strategies • Hunt (2000; 2002); Constantine and Lusch (1994) • Network Theory • (Hakansson and Snehota 1995) • Interpretive research and Consumer Culture theory • (Arnould and Thompson 2005) • Experience marketing • (Prahalad and Ramaswamy 2000)

47. There was no need:Why would anyone want… • A horseless carriage (Model T) • Talking movies • Television • Personal computer • Microwave • iPod