Many people who read my blog for a while now, know I have a particular interest in Service Dominant Logic. And whenever I get to teach or talk about my profession (marketing & service) I take the opportunity to explain why I think Service Dominant Logic provides an excellent perspective on the challenges the profession, the brands and the companies we represent, face.
In general most people I discuss this with largely (seem to?) agree with what I’m saying when I explain that we need to move from a Goods Logic into a Service Dominant Logic world. A world where value is not something that is embedded into the products or services that companies design or offer, but value is created by Customers when using them. Yet, when I continue that, in accordance with the same logic, value is always co-created in use, the discussion starts.
I’ve had this discussion several times over the past three years. The most recent event was in a class of senior professionals and experienced managers of a Post-MSc course Customer Management of the AOG School of Management. This course resides under the supervision of Prof. dr. P.C. Verhoef, who also attended (part of) my guest-lecture last week. It was such a fun and lively discussion that I decided to write down my point of view here, sharing my views and hoping to spark thinking (and debate!).
Off to a false start
I always ‘blamed’ the debate, the misunderstanding, the disbelief, the confusion, on the use of the word ‘co-created’, for that (co-creation) word is mostly used in a pre-use context, i.e. in a context of new product development. And thus it might confuse people, was my reasoning. And so I countered that with the explanation of how there are different styles of co-creation. But I was wrong, dead wrong!
So, what is the case, you might ask (or already know, and are now waiting to see if I get it right or not ;)?
Stuck in Goods-logic paradigms
The true reason people object, disagree or are confused lies in the Goods Dominant logic that is deeply rooted in our thinking patterns.
We have been ‘programmed’ to link value to products and money (‘worth’ as Irene Ng puts it). Ask Customers why they rated a product or service high, it is likely you get an answer like: “it’s good value for money”. We just are not ‘programmed’ to think of value as separate from the good that we buy, rent or use. Hence the trend to productize services, or servitize products. And as a consequence it is difficult to think of value as ALWAYS being co-created IN USE.
For in a goods-dominant-logic world we think of “in-use” as something that happens after value-exchange. It is next phase in a chain of value adding events, the value-chain. Following sd-logic, with a goods logic mindset, it would be impossible to create value prior to ‘goods-logic-value-exchange’ or even at the moment of exchange, because ‘value is always created in-use’. And since that is not true (because in a goods-logic world value is added in each step of the value-creation process, up to the moment of exchange, when value is handed over), the premise that ‘value is always co-created in-use’ cannot be true, according to goods-logic thinking that is.
It’s not the product that is co-created in-use, but value!
Yet, if we detach value from product and recognize that value is something that can only be defined by its beneficiary and (thus) that value is experiential and effectively an emotional state of mind, it is clear that
value is something that can be co-created before, during or after something else (mostly a good, a right or a service) has been exchanged (for money). Value can even be co-created without any exchange of money or goods ever taking place,
it probably is more often so anyway.
So yes, value is co-created in use when someone (e.g. employee, Customer or partner) is using her competencies to help a company develop a new product, or to put it in other words: when people are co-creating new products or services. It makes them feel valued, useful, happy, proud etc etc..
Also value (to me!) is co-created in use with my competencies, the platform WordPress provides, the MacBook I use to access the KPN-provided Internet and the couch I’m sitting on, to write this post (at least to me that is ;) using my Iittala glass to drink a new Spanish wine, that I first tasted together last week with a good friend on a wine-tasting event at my favorite winery, on a Saturday evening that my wife is enjoying a concert with one of her best friends.
This last example shows that, like Irene Ng makes perfectly clear in her book Value and Worth,
value creation is not only a ‘product’ of resource integration, but also, and maybe even more so, of the context in which this is executed. And to any extent it is experiential, it requires doing, verbs, not nouns.
You can try selling all the products you want and servitize them, or sell services you productize. If you cannot see value as separate from your products or services, if you cannot shake of the goods-logic thinking patterns, you will continue to focus your efforts on designing products and experiences that serve you, not your Customers. And with such a small focus you will fail to see (Customers’) opportunity in contextual variation when it is being created, for what it is really worth. And trust me, there are plenty who will.
The good thing is that logic is not a fact. It is a way of thinking or a lens through which one can see the world or explain how things work. And much like value, you decide what logic is yours.
I’m inspired by the logic of Service and I hope you are too. I’m inspired by the people who introduced it: Steve Vargo and Robert Lusch. And I’m inspired by the people who are turning it into a practice, like Irene Ng.
I hope that you are co-creating value when reading this post. If not, if you disagree, agree or have something to add, please share your views in the comments. I value that :)
p.s. I had this post sitting on my blog as a concept for some days, and then Irene Ng published this post: “From Service Systems to Digital Lives“. It touches upon this topic as well. A must read!
p.s. 2: I have updated my Value Co-Creation Canvas to make it easier to use. Still work in progress, so please feel free to comment on that too. [click on the image to enlarge]
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I am not going to weigh in on the subject of women and garments (for many good reasons). And while I am not as erudite as Graham, I do agree with him. SD-Logic is a useful perspective that allows us to focus in on the reality of experiential value, the comprehension of which has been crowded out by the domination of “goods (product/production) logic.” But “value in use,” I think, is only one (very important) way of looking at and defining value (others, with their own rationales, have chosen to define economic value differently). My view is: yes, let’s make sure this (V(n)) is a variable in our economic theoretical model (which must apply to everything from “goods/products” to intangible services, including the foregoing in a modern digital/virtual context). As I see it, economics is “the science of value.”
As far as definitions of “service” go, there are indeed many (as their should be). For very thoughtful analysis/ discussion of such definitions/concepts, Steven Alter http://www.stevenalter.com/service-system-basics-2/ is a good place to visit. Alter is interested in a “science of service,” and therefore concerns himself with how “service” should be defined as an object of study. He considers various kinds of phenomena which may be regarded as services, including… traditional ones, self-service concepts, M2M (machine-to machine) services, such as found in SOA (service-oriented-architecture). In a recent article, published in Service Science (“Metamodel for Service Analysis and Design Based on an Operational View of Service and Service Systems”), Alter questioned whether SD-Logic was really the proper foundation for a “science of service:”
“At this early stage in the development of service science, leading proponents have concluded that “Service Science is built on top of the Service DominantLogic (SDL) worldview (Spohrer and Maglio 2009, Vargo and Lusch 2004[a])” (Spohrer et al. 2010, p. 4), whereby the essence of service systems involves arrangements, negotiations, and competition in the context of economic exchange. The SDL worldview deals with many fundamental topics, but its focus and level of analysis are distant from everyday operational issues that are
intertwined with service system analysis, design, and innovation. For example, Grönroos (2011) dissects the concepts of value creation and value cocreation in depth and proposes significant revisions to some of the foundational premises of SDL. Regarding one central idea, he concludes that foundational premise #6—“the customer is always a co-creator of value”—is misleading even though it is “repeated over and over again in the literature” (p. 292). Searching for synergies between SDL and the operational view of service systems emphasized in this paper, Alter (2010c) concludes that those two views seem like second cousins, with some commonalities but little familiarity. Overall, it is possible that premature closure regarding the centrality of SDL as the foundation of service science might delay the development of service science by taking for granted a highly abstract approach that is difficult to use in real-world situations.”
That said… Is “value in use” real? Is “value co-creation” real? Yes, definitely. But should these concepts be linked kinked logically and decisively to an object of study, “service,” within the overarching “science of value” (aka economics)? I am not so sure. I understand why there can be an SDL and a GDL, I am just not sure of how to roll them up into a unified theory under the “science of value.”
I was born into and lived my life to date in an era dominated by production and consumption of “goods” (and by the way, “consumption” can be defined as use and value realization, not simply as “destruction/depreciation”). In addition, I was born into and lived my life to date in an era dominated by CIT (communications and information technology) and digitization. My immigrant grandparents worked in the manufacturing sector, contributing their competencies and labor services to the production of goods (and sometimes consuming/using goods they could obtain/access/acquire). My parents worked in the services sector–they never produced any goods for commercial exchange/use–but their labor services contributed to valuable services. As for myself, I have never worked in manufacturing (unless we consider software as a “digital good” that is manufactured), though I have worked in businesses that developed software for enabling and managing the manufacturing and distributions of all kinds of goods/products (also services). In any event, over the past 30+ years, I have only worked at the intersection of service and CIT businesses, and in the context of the world we live in today, I ask myself: “What is service? What is economic value?” The answer does not seem that straightforward. Efficiencies in product manufacturing and the saturation of CIT and digitization have been changing the “frame of reference” from one that is mainly focused on producing goods to one that is focused on design and new concepts of service, new ways of realizing value, new mechanisms/methods of economic exchange.
So I think the increased awareness and recognition of SDL and concepts of “value in use” and “value co-creation” are important, essential to our being able to progress with a “science of value” (aka economics). But they are just one set of components in something much larger (in which value is not always “value in use” and value may or may not be something “co-created,” depending on how we define co-created).
In closing, I want to point how how fascinated I am that so little of what is talked about in service science is about or related to labor or labor economics (presumptively, the source and basis of all service and value).
Another post; another long comment.
My thoughts on why SDLOgic’s emphasis on value-in-use is fundamentally flawed, a range of alternatives value models in widespread use and what we must do to make SDLogic a better operating model for companies than GDLogic.
When I read V&L’s 2004 paper on Evolving to a New Logic for Marketing it was like a little light coming on in a darkened room that I had been stumbling around in and knocking things over. The more I read of their and others’ work on SDLogic, the brighter the light got. But as the light got brighter I started to see that SDLogic asks as many questions as it provides answers. Here are a couple of them.
IS ALL VALUE CREATED IN-USE?
One of the foundations of SDLOgic is that value is created in-use. This is a philosophical position based on Husserl’s phenomenology, not an empirical one. But is all value created in-use? Or can value also be created outside of the usage context. (As an aside, all value-in-use is by definition created in the context of the recipient, the construct of value-in-context thus being rendered superfluous). GDLogic is based on value-in-exchange.
Contemporary companies make products, lets say a woman’s silk blouse, put them on shelves in a shop and sell them to female customers. At the point of sale value is exchanged; the company gets the female customer’s money and she gets the silk blouse. Logically speaking she must value the silk blouse, even though she hasn’t used it yet, otherwise why did she buy it? And what if she never use the silk blouse? What if it hangs on a hanger in her wardrobe along with a dozen other silk blouses? Does the silk blouse have no value? It must have otherwise why did the female customer buy it. Clearly, even in the case of silk blouses, there is more to value than just value-in-use. And let’s not even start to think about the different types of value inherent in complex products like luxury cars, services like life insurance and pensions, and experiences like packaged cruise holidays.
What if the product is a 1kg gold ingot? Does gold as a precious metal not have value outside of usage situations? Sure, you can use the gold in your home satellite project, in your home chip fabrication plant and even to treat your rheumatoid arthritis at home. Good luck with that one. Gold, through its scarcity, has value as a proxy for money. Your 1 kg ingot is currently worth USD 51,528. Lucky you. Other than for home satellite projects, chip fabrication and treating creaky joints, gold is an exchange medium. It has value because it is, not because of what you can use it for.
OTHER PERSPECTIVES ON VALUE
If you look at other disciplines that also work with value you will see that they have a more sophisticated view of different types of value. For example, a recent UK Govt note on Ecosystem Service Valuation ecosystem valuation recognises two different types of value: Use Value, both Direct e.g. as a food source and Indirect, e.g. for flood control; and Non-use Value through Altruistic e.g. knowing others can use it, Bequest e.g. knowing it can be passed on to future generations, Existence e.g. knowing that it exists and Option e.g. knowing that it still exists should other uses be found for it in the future.
The public sector is different again. For example a recent UK Govt Cabinet Office paper on Creating Public Value recognises a number of different types of value including providing services, fairness in service provision, delivering good outcomes and trust/legitimacy. The paper goes on to show how the different types of value are inter-related both with each other and with the complex service system through which they are created.
SDLOGIC’S ADOPTION CHALLENGES
Schumpeter’s view of competitive markets suggests that newer, better models eventually drive out older, worser ones. Kuhn’s view of paradigm shifts shows this often takes time until a majority of people accept the new logic and the old one comes crashing down. If the new SDLogic is a better model than the old GDLogic then it will replace it… eventually. But is it a better model? I am not sure that it is. There is practically no empirical evidence to show it is. And the challenges of implementing SDLogic through value co-creation are monumental when compared to implementing a new product, service or experience through GDLogic.
GDLogic has been the dominant logic for over 300 years. It has seen us through the rise and fall of empires, industrial and technological revolutions and quite a lot more. It is the worse logic we have available; except for all the other ones we have tried do far! If SDLogic is to replace GDLogic, it will have to demonstrate how it creates superior value, superior profitability and superior growth for companies. Otherwise why would they bother? So far, it has failed to do this. It is a very attractive model in theory, but as the old saying goes, in theory there is no difference between theory and practice, in practice there is. Somewhat paradoxically, SDLogic has to prove its own meta value-in-use.
A WAY FORWARD FOR SDLOGIC
Just from looking at precious metals, ecosystems and public services it is self-evident that value, whether in a GDLogic or an SDLogic world, is much more complicated than the philosophically simplistic notion of phenomenological value-in-use. It is time to pull out Occam’s Razor and create a more sophisticated model for value that incorporates different types of usage, non-usage and option value, (and that encompasses outputs, outcomes and market impact too).
Until we can show that we have a viable, implementable operating model for SDLogic that produces superior value, profitability and growth for companies, SDLogic will remain just an interesting theory. Solving the value problem is a part of that. But there is a much bigger challenge around building an operating model for SDLogic that switched-on people like Irene Ng have only just started to work on. Until we have solved these and SDLogic’s many other challenges it will not be ready for prime time.
Thx! And surely your comments are not just ‘another’ comment ;) Here’s my reply:
From your comment:
“Contemporary companies make products, lets say a woman’s silk blouse, put them on shelves in a shop and sell them to female customers. At the point of sale value is exchanged; the company gets the female customer’s money and she gets the silk blouse. Logically speaking she must value the silk blouse, even though she hasn’t used it yet, otherwise why did she buy it? And what if she never use the silk blouse? What if it hangs on a hanger in her wardrobe along with a dozen other silk blouses? Does the silk blouse have no value? It must have otherwise why did the female customer buy it. Clearly, even in the case of silk blouses, there is more to value than just value-in-use.”
What you are doing is putting the value the product is offering central to your evaluation of “value in use”. In SDL this is fundamentally flawed thinking. This shows how GDL is rooted in our thinking patterns. If you attach value to the product or service a company makes/offers/delivers, you are right. The essence of SDL though (in my humble opinion), is that we should think of value as something NOT attached to these products or service(s) as I did write down in my post. Value, in a certain context, is co-created by a user/consumer through the integration (= use) of different/multiple resources. Your product, service, information, knowledge etc etc might be one of those resources..
So yes, the blouse has no value. Her ‘feeling pretty/self-confident/comfortable/warm’ does, and the blouse might be one (tiny) resource to obtain that value with, even when trying it on in the shop or by knowing it’s hanging in the closet.. So the blouse is there as a resource to co-create value with and will play center stage when she’s wearing it, and back-stage when not (yet).
oh.. and by the way, I probably should not go any deeper into a women’s logic with regard to her wardrobe and to what extent she values it, for it will get me into trouble at home ;)
Thx again :)
Wim, great post, and I really like the Canvas (very helpful). Adopting “the logic” that value is experiential and co-created vs. somehow progressively built-up across (for example) a supply chain or value system helps us to see new possibilities in how to conduct business, “making manifest” new products or services to co-create value with our customers (not simply deliver products and services). A “logic” is basically a perspective or lens vs. a “theory.” So I guess with SD Logic and GD Logic, we have two alternate perspectives, not necessarily two competing unified theories of “economic value and exchange practices.” By posing SD Logic, I think Vargo and Lusch opened this whole perspective and–by linking it to a concept of “service” (definition still being debated and grappled with today)–a bit of a pandora’s box. A science whose object of analysis is a something “service” is still in a very fledgling state. In an event, I like where Ng is heading these days, basically taking a turn into applied science and invention (letting theory take care of itself down the road, once we have more phenomena to theorize about).
I’m totally with you on the perspective vs theory part, although I’m not sure SD- & GD-logic can live together in the same person.. It does make sense to understand both though if you want to understand perspectives of different stakeholders in context of innovating… well… anything.
I dug into the definition of service myself once, only to find out that I like the “application of competence for the benefit of another” definition that V&L use, best. Are there any others you like better, or that hold elements you think are useful? Please share..
Thx for the read, shout-out and comment. Glad we are connected.
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Thank you Wim. A very thorough analysis. But could you provide an analogy, perhaps comparing two different products, to make this concept easier to explain to people?
I think that in this article also you still have a lot of GDL thinking. The “use” value is still the GDL and Value Co creation Canvas are the same canvas from GDL ( Business Model Generation) but you just changed the description. If one needs to change the Reasoning about the Value Creation ( and evaluation), then probably will have to change also the vocabulary and specially in this case the CANVAS. If Value is (Co)created Pre, during and after the use , then is created in social practices but is determined phenomenologicaly by beneficiary , which means we have two ways of looking at it, namely Socially and Experientially ( individually) and the word ‘USE” can not encompass all of the creation and evaluation of value involved by actors. Also Vargo is lately avoiding that word, but one will probably never get rid of it…and it is long way until the Reasoning changes…and you are definitely contributing to it..
I do not see why changing the Canvas lay-out would be necessary for it to be possible to depict value co-creation. Albeit that I agree with you that in the way I filled the Canvas there’s still quite some GDlogic in there (the left bottom side comes to mind).
And I’m aware of the debate wrt the vocabulary. I think we are on the same page, when it comes to the word “USE” and its limitations. I stick to it for now to ease the landing when people get warped from GDL-world into SDL-world ;)
I would appreciate if you could let me know a little more about you than your first (or last?) name (a twitter handle or linkedIn profile would be great) so I can follow what you share or care about.
Thx for the read & your time to make an educated, much appreciated comment.
interesting post. Just a thought, but, from a consumer point of view, isn’t it that I need to trade in a lot of value (=money) before I can start getting the value in use and putting the items into different contexts? Look into the bottle of wine and the glass, the sofa. So, I’d argue that goods dominant logic is not only ingrained into our thinking but also into societies (deliberate plural).
I’d fully agree that from a consumer point of view the value creation happens only after the transaction (hopefully) – for most companies it is unluckily a done deal by then because they have already retrieved their value. The challenge is that, as long as an exchange of something is involved in a transaction of sorts, one party (the customer) has to have a lot of trust into the other one (the vendor, service provider, …) that the good that I get to create value is worth the expense that I already needed to face – and often it is not.
There is a disparity in this.
One could argue that most value is created without products, but with friends etc.. And of course you are right that even in those cases ‘stuff’ that we paid for is enabling, or somehow part of the context of these interactions.. (like the sofa, glass etc)
We should also acknowledge that value can be created prior to exchange, think of the shopping experience without buying any stuff.
To your last point: there is enough in your statement to justify an entire new post. I might just get to that sometime. In short: trust is an outcome people desire. If it’s violated no (or less) value will be co-created (depending on how important this is to the beneficiary), although money and goods might have changed hands..
Companies that are stuck in GDLogic cannot make the kind of moves that the likes of giffgaff makes, or Build A Bear makes, or Threadless makes. If we stick to company makes product and customer buys and consumes products then it is almost impossible to reinvent roles, communications, relationships. And so impossible to come up with new ways of co-creating value.
And as systems thinking has found, it is hard, really hard to get people to shift mindsets. Why? Because the situation is opposite to what we think it is. We think it is that people have mindsets. Not the best picture of what is so. What is so is that mindsets have us. Even this is not precise enough. Mindsets are us. So what SDLogic and systems thinking is asking people to do is the analogous to asking a Mac to run a UNIX based program. Not likely.
It is especially difficult to get enough people to make the shift because the individual like you and me, finds himself embedded in an ocean of people, practices, institutions that show up from radically different paradigm. Akin to walking into to large company that has standardised on Windows. And you/I come along with a Mac.
Thx again for your insightful comment, that I have nothing to add to :)
unless, of course, one day you wake up and then realise that revenues have halved, shares have plunged, customers have gone. welcome to dell ;p