S-D Logic

A Service Perspective on Innovation and Markets

EPISIS Conference on Positive impacts of Service Innovation Helsinki, Finland

June 4, 2012 Stephen L. Vargo, Shidler Distinguished Professor University of Hawai’i at Manoa Visiting Research Fellow, University of Cambridge Visiting Professor, VTT Technical Research Center of Finland

S-D Logic

Supply Chain

Goods-Dominant Logic Model: Value Production and Consumption

Producer Consumer Supplier

S-D Logic

FOUNDATIONS: THE S-D LOGIC CORE

S-D Logic

A Partial Pedigree For S-D Logic

Service-Dominant

Logic

Services Marketing

Relationship Marketing

Theory of the firm

Core Competency

Theory

Resource-Advantage

Theory

Network Theory

Consumer Culture theory

Experience marketing

S-D Logic

An Extended Pedigree for S-D Logic

Service-Dominant

Logic

Social Network Theory

New Institutional Economics

Human Ecology

Business Ecosystems

Stakeholder Theory

Service Science

Market Practices and Performances

S-D Logic

Core Foundational Premises of Service-Dominant Logic

Premise Explanation/Justification

FP1 Service 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.

FP6 The customer is always a co-creator of value

Implies value creation is interactional.

FP9 All economic and social actors are resource integrators

Implies the context of value creation is networks of networks (resource-integrators).

FP10 Value is always uniquely and phenomenological determined by the beneficiary

Value is idiosyncratic, experiential, contextual, and meaning laden.

S-D Logic

Value Co-creation through Resource Integration & Service Exchange

Market-facing Resource

Integrators

Private Resource

Integrators

Public Resource

Integrators

Resource Integrator (individual, family, firm,

etc.) Value

Economic Currency

Social Currency

Public Currency

New Resources

S-D Logic

Micro Exchange Embedded in Complex (Eco)Systems of Exchange

Resource Integrator/Beneficiary

(“Firm”)

Resource Integrator/Beneficiary

(“Customer”)

Supply/Value Chain Producer Consumer Supplier

S-D Logic

Resource Integration & Service-for-service Exchange within the Market System

Resource Integrator/Beneficiary

(“Firm”)

Resource Integrator/Beneficiary

(“Customer”)

Resource Integrators Institutions

S-D Logic

The Structure and Venue of Value Creation: Institutions & Service Ecosystems

Institution

• “any structure or mechanism of social order and cooperation governing the behavior of a set of individuals within a given human community.

• (Stanford Encyclopedia of Social Institutions)

Service Ecosystem (S-D logic)

• relatively self-contained, self-adjusting systems of resource-integrating actors connected by shared institutional logics and mutual value creation through service exchange.

S-D Logic

Resource Integration & and the Structuration of Service Ecosystems

Resource Integrators Institutions

Micro

Meso

Macro

S-D Logic

Co-creation Through Social Connectivity: Facilitation of Resource Integration

S-D Logic

Outcome-Based Pricing/Performance Contracting: Service for Sale

Power By The Hour

S-D Logic

“Fabless” (Contract Manufacturing) Firms

TOP 10 FABLESS SEMICONDUCTOR FIRMS: $27.3 (2008) Qualcomm (QCT Division): $1.8B Broadcom: $1.2B NVIDIA: $892.7M Marvell Technology Group: $842.6M SanDisk: $816.0M LSI: $692.1M MediaTek: $543.6M Xilinx: $488.2M Avago Technologies: $439.0M Altera: $359.9M

S-D Logic

Ecosystems Architecture

S-D Logic

REORIENTATIONS

S-D Logic

Rethinking. Reframing, and Reconciling from an S-D Logic Perspective

Markets From a priori to imagined, created, and institutionalized

Market-ing From functional area to essential function of the firm

Value From a property of output to a co-created outcome

Innovation From invention to designing systems for value co-creation

Strategy From prediction and control to effectuation

Technology From exogenous variable to service-provision mechanism

Role of Information Technology From tool to a transformation in value creation processes

S-D Logic

MARKETS: FROM A PRIORI TO INSTITUTIONALIZED SOLUTIONS

Reorientations

S-D Logic

Issues for a Theory of the Market

There are no (a priori) markets There are just micro-level, service exchanges

gifts, generalized reciprocity, service-for-service

There is a Market (Market System): transitory, linked, contextual configurations of

resources and exchanges

…and yet markets can “exist” They can:

Be envisioned --images of service potential become institutionalized -- Intersubjective realities

Thus, markets become performed within the Market They exist because we act like they do “Markets are functions of marketing” (and other business

practices)

S-D Logic

A Market as an Institutionalized Solutions

Resource

Application

(service)

Inter-

subjective

Agreement

Human Problem

Institutionalized Solution

=

A Market

Market performativity

Quasi-predictability

De-institutionalization

Re-institutionalization

S-D Logic

MASSIVELY COOPERATIVE VALUE CREATION

Directions

S-D Logic

Building on the S-D Logic Platform

Service-Dominant

Logic Platform

Technology

Innovation

Value-proposition

s

Co-Creation of Value

Institutions

Service ecosystems

Context

S-D Logic

From the Individual to Market-Based Co-Creation

Source: Ridley 2010

S-D Logic

Cost of Light in Hours Worked

S-D Logic

S-D Logic

S-D Logic

S-D Logic

Value Co-creation: Growth in Prosperity through Collaboration

S-D Logic

Property rights

Scientific rationalism

Capital markets

Fast/efficient communications

Competition

Consumer society

Work ethic

Health, medicine

Large-scale production

The Drivers of Increasing Returns to Scale

Specialization and

exchange

Rules and Laws

Science and Language

S-D Logic

Meso

Macro

Micro

Rules and Laws

Specialization and exchange

Science and Language

Integrating

Representing Normalizing

Adapted from Kjellberg and Helgesson 2007

Value co-creation Practices/systems

S-D Logic

Some Implications for Innovation and Growth

Understand service Innovation is not about “services”

• It is about all innovation

Understanding that government is a very small part of governance

• Allow and support organic institutionalization, de-institutionalization

Think systemically

• All actions have unintended consequences

Maintain diversity, even at the expense of efficiency

• Complete efficiency is inherently inefficient

• Innovation always comes from “mistakes”

Maintain agile-institutionalism

• Progress is driven both by de-institutionalization and re-institutionalization

Support value co-creation & service/social (eco)systems research

• They represent the purpose, process, and venue for innovation

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: svargo@sdlogic.net Bob Lusch: rlusch@sdlogic.net

Thank You!