Discovery of Service-Dominant Logic

I was at Cambridge to participate in FMM 2010 (the Forum on Market and Marketing). Of course, I am not a marketing person and I never thought about being a marketing person. When I was asked to come to the workshop about a year ago, I did not think much of it. I just thought that this would be another venue where I can ramble about the importance of digital innovation and how we should think differently about products and organizations. I thought I would tweak my standard talk on digital innovation to link to the idea of “market convergence.”

Boy, was I wrong and what a difference a couple days of intense intellectual discussions can make! Right from the beginning, I was completely surprised by the broad introduction of Service-Dominant Logic (SDL) by Steve Vargo. There were so many interesting and deeply thoughtful ideas that I cannot do justice by summarizing on this blog. But I saw so many connections between SDL and many threads of ideas that I have been struggling with, particularly the idea of design and increasingly problematic nature of products. SD logic can be best explained against Good-Dominant Logic (GDL). In GDL, goods are the central output of the firm’s activities and they are put together and then thrown over the wall so to speak to be consumed by consumers. To the contrary, in SDL, goods are conduits of services that are sold, integrated and appropriated by customers. Therefore, unlike GDL that assumes the value is inherently embedded in physical goods, SDL sees that value is co-created at the moment when the service is appropriated by the customer. GDL is noun-centric where as SDL is verb-centric. GDL focuses on the foreground, while SDL sees the value in the background or the contexts.

An important point that connects SDL, design and digital innovation is the fluidity of the meanings of products. Design as an inquiry method provides many practical and theoretical tools to deal with the fluidity of meanings. Digital innovation provides a theoretical basis why the separation of service and products take place. In fact, in my digital innovation paper, I argue that one of the key consequences of digital innovation is the separation of physical device and service layers. I am glad that we used the term service (as we could have used other terms like applications). SDL on the other provides a broader view that connects different activities that takes place throughout the value network.

What is most interesting is that in a larger historical context, service exchange was a more natural and dominant form of economic activities before the industrialization. This idea of mass producing and distributing physical products was an outcome of industrialization, and GDL was a key logic that enabled much of economic activities during that era. What is becoming increasingly clear to me is that the era of single GDL logic is coming to an end, if it has not yet ended. We will look back the last 120 years of modern industrialization as a historical hiccup as we as a society continues to struggle to free ourselves from the tyranny of things. Of course, industrialization as I understand it came in a wave of decoupling of economic and social activities, which Giddens would might call time-space distanciation. First, we saw the separation of production and consumption (which Adam Smith observed). Next came the separation of labor and production (through automation, as Karl Marx observed). Then came the separation of management and production (this is by and large what Alexander Chandler observed). Most recently, we saw the separation of finance from production. Each process of separation was deliberately pursued to bring new leverage as a way of maximizing the utilization of given resources. Yet at the same time, they brought increasing complexity, uneven distributions of return and risks, separation of knowledge and materiality and inability to handle unexpected changes. What design, digital innovation, and SDL collectively represent is an intellectual efforts to recognize and respond to the unsustainable trend that was caused by these series of separations, without completely distancing ourselves from the unprecedented benefits that these separations brought to our society. This perhaps is the next grand challenge in social science.

Professor | Writer | Teacher Digital Innovation, Design, Organizational Genetics Case Western Reserve University

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