The paper I'm going to be talking about is titled Evolving to a New Dominant Logic for Marketing by Steve Vargo and Robert Lush. It was published in the Journal of Marketing in 2004. Now this paper is, I believe, a seminal work in that it first challenged the way marketing in particular was considering products, services, and the way these are sold. What it does is suggest a new dominant logic moving away from products and services.
to this new service and I'll explain exactly what they mean. Now for me this paper is beyond marketing and it's really had an impact in the way we think in operations management, in strategy, and in a number of other areas. I'll try and explain the paper to you and leave you to interpret and read it yourself and how that might fit into your world. So a dominant logic or business schema is an established way of thinking.
Now When we work for a firm, often we say somebody's gone native if they've worked there for a number of years. And what we mean by that is they've established in their own minds or they've accepted certain patterns, certain ways of thinking and understanding something. Now, this is a dominant logic, the dominant way that your mind understands or solves a problem. So in the paper, Varga and Lash are saying there is a dominant logic in marketing for understanding how we talk about products and services.
Now this paper seeks to challenge the established goods dominant logic and move us on to a new dominant logic of service. So in the paper they started off trying to explain goods dominant logic and they quote Gamerson. I'm going to read this.
Customers do not buy goods or services, they buy offerings which render services which create value. A nice quote I heard was goods are platforms for services. services are platforms for experience. Because really, if you think about what we buy, we don't really want to buy a product or a service. What we want is a solution to achieve something.
And really, that's what the heart of this paper is trying to move us towards, a service-dominant logic that helps deliver experience. Usefully in this paper, they actually define service. Now, what they define service as is the application of service.
specialized competences, knowledge and skills, through deeds, processes, and performances for the benefit of another entity or the entity itself. So they've actually defined what services are. And a lot of people never do that.
You'll realize that when we're talking about goods and products, products and services, these are terms that aren't well defined. And we actually have a definition here of services. Now, this paper is rooted in the in a number of different disciplines, but it really is supportive of core competence, of resource-based view of the firm, of knowledge and dynamic capabilities-based views. If you read into it, this might be a useful paper if you're working with any of those sort of big conversations, large discourses that we find in marketing, management, and strategy literatures. The paper quotes Zimmerman.
in his famous, resources are not, they become. What that means is, say an umbrella isn't really a resource. It is only useful when you use it, when it's raining.
The rest of the time, it's not really a resource. It's more of a liability, having to carry this thing around. So it starts to look at different use value of things. And this is really sensible to why I think this is a very interesting paper.
One of the useful parts of the paper is its separation of operant and operand resources. Operand resources are resources upon which work is done, so static resources like machines or cars. Operant resources are the things that do the doing, typically people. If we look at most economics thinking or even strategy thinking, most people focus on the operand resource, the thing, and They often ascribe value to the thing. The camera, the video recorder, the car.
These things are said to be inherently valuable. That's focusing on the value of the thing. And people say, oh, I added value to the product. But really, are things inherently valuable?
These are the sort of philosophical questions that this paper starts to raise. when we start examining our goods dominant logic, the way we normally think about things. And it starts to suggest that maybe we need to think differently.
There's a quote from Edith Penrose, who says, it's never the resources themselves that are inputs to the production process, only the services that the resources can render. So it's actually what does that resource do? What is the service? What is the value it creates? It doesn't add necessarily.
So there's a really interesting way of thinking, can we add value or can we just create more? It's very subtle, but it's important, particularly as academics or even when we're making strategy, to think about what we mean. So Varga, when he was writing this paper, was really coming from a marketing perspective. And one of the questions raised was in marketing, can we really add value to a product? Because if value is inherent, within the product?
How do we add to that if we're a service? How does a service add value to a product? That seems problematic. One of the things Varga and Lash come across in this paper is that the idea of marketing is part of a continuous process of value creation, where if we take a service-centered view, where we're trying to move towards provision of a service, then enhancing that process through explaining clearly what what it is the offer does, then you're creating greater value in the offer, but you're not necessarily adding value. So it's part of a continuous process, constantly striving to make a better value proposition.
Now, if we imagine the creation of value, the firm is creating something, but actually it's part of a process that ultimately involves the customer. So through that, the customer is part, always must be part of the strategy. value creation process.
This view is consistent with the sort of resource advantage theory, the core competence of the corporation, core competencies theory, because what we're talking about is these dynamic competencies that grow and help deliver the value proposition. So when we move into this service dominant logic, really what we're saying is that the service itself is co-created with the customer. That's not a product or a good, but the service, the offering.
So when we sell something, they must use it and co-create it and shape it to create value from the offering with the other people's resources. So value is always co-created. This is really at the heart of service dominant logic, or in this paper they were still talking about service-centered dominant logic.
Within the paper, Varga and Lush create a number of foundational premises, so I'll briefly talk through each one and give you my understanding of them. The first foundational premise within the paper is the application of specialized skills and knowledge being the fundamental unit of exchange. Now, there's reference in the paper made to Adam Smith. Adam Smith was really focused in his book The Wealth of the Nations. on the idea that value is embedded in products and goods and you make a surplus of them.
And because you've embedded your knowledge within this good or product, you can then put it on a boat, send it overseas and bring wealth back to the nation. I mean, this was his idea for the wealth of the nation. So it's really focused on this value is embedded, value is added to a good, because that made sense in this export-focused world. So Adam Smith, when he wrote Wealth of the Nations in 1776. In his world, he was really looking at how do we make our country wealthier?
And we do that by embedding our skills and our knowledge in goods, making a surplus of them, putting them on boats, sending them overseas, selling them there, putting more valuable goods or gold or money, however that might be, on our ships, bringing them back. That makes our nation wealthier. And we do it through export. That really was his focus. Therefore, for Smith, the idea of being productive and productive activity was in the creation of tangible goods.
And that was what exchange value was all about. So this thinking has really pervaded up till today, where there's a great focus on the idea that value is embedded in an object and you can add value to something and then you send it out as though it was inherently valuable. Now, if we consider that, well, surely it's not possible to embed value in something because, going back to our umbrella example, if we have an umbrella, the umbrella isn't inherently valuable. It's only valuable if it's raining. It's very difficult to sell an umbrella if it's not raining.
Varga and Lush quote Bastiat, who says that people have wants and they seek satisfactions. But they do that through service for service exchange. So it's exchanging knowledge and skills with knowledge and skills and together creating the satisfactions that they need. In Foundational Premise 2, Vargo and Lush describe how over the years and with the changes in operations management practice and process, that indirect exchange is masking the fundamental unit of exchange. So what they're challenging here is the idea that we exchange products for value.
And as we've had the division of labor and as we've. broken manufacturing down to lots of different steps, somebody in a manufacturing process could have no interaction with the final customer at all. We see that across global supply chains.
Somebody making something has no idea what it's for. So the skills for skills, service for service exchange starts to become hidden within this big industrial process. This also has allowed quality to be ignored because Maybe somebody manufacturing a step has no idea about the end user's use of that product, so they skip things.
They may have no connection, there may be multiple steps between them and the final user. This has created issues in quality and actually led to total quality management starting to be developed as an area. Something I studied in the early 90s, 94, 95, TQM became a big issue.
Because These large production processes allow people to ignore the quality aspects of the final customer. And therefore, it was necessary to bring this new quality regime back to say, look, you know, what does the final customer want? And how do we embed quality and think about that throughout the production process?
We also see that people are compensated indirectly. So you may be paid for something and you have no idea or no appreciation of the final use for your thing because... it is passed down multiple parts of the supply chain.
So we lose or it's hidden the service for service exchange. We're compensated through money, which is just masking what's happening to the knowledge and skills and services that we've put forward to embed in our offer. The third foundational premise is that goods are distribution mechanisms for service provision.
This goes back to the idea that the... The product is a platform for a service and the service is a platform for an experience. One carries the other and ultimately what people want is those satisfactions.
That's what people buy. The fourth foundational premise is that knowledge is the fundamental source of competitive advantage. This is really a focus on operant resources because a particular focus on process management we all know.
If we focus on the people, on the knowledge, on the skills, that's where we create greatest value. Through working together and maximizing what we know, we use the correct resources to deliver the greatest impact. The fifth foundational premise states that all economies are service economies. We have heard, and you will have heard, that we're a service economy.
We've moved to a service economy. A shift is occurring into a service economy. But if we think about it, and Vargo and Lash go into this, the idea, well, the hunter-gatherer was a service economy. Everybody's always been engaged in service provision one way or another.
So it's always been a service economy. It just depends on how we think about it. The sixth foundational premise says that the customer is always the co-producer of value. Value is always co-created with the customer.
And if we think about what that means, we must... always engage the customer before any value can be created. If we accept that value is not an inherent property of an object, then it's only the use of that object for the final reason it was made, maybe. That value is realized, value is created, and therefore the customer must be involved in the production of value. Traditionally, the customer was separated because we broke the value-producing steps down to, you know, in our...
in our production process. And in doing that, we enable maximization of value perhaps in the manufacturing process in efficiency, but we're not talking about maximizing value for the customer at that point. The seventh foundational premise is that the enterprise can only make value propositions. And what that means is the object doesn't necessarily embed value. We can only offer something that is potentially of value to the customer.
The value is only realized when they use it. So any firm can only offer a value proposition. We can't add value.
We can add to the proposition of value. It's quite subtle, but to me, this is... hugely important in the way we think about strategy and operations management.
Everything we're doing is just building a proposition. If we engage the customer and really understand use, then we can maximize the proposition. And it is only in use when the customer's had understanding and knows what they're doing with our offer, then value can be maximized.
They might pay more, they might realize more, they might achieve more. There's a lovely quote from Gummerson who says, an unsold good has no value. And this really helps underpin what this foundational premise is about.
So foundational premise eight states that a service-centered view is a customer-oriented and relational view. Because when we start to accept the customer as part of the value creation process, then it's all about that relationship. It's customer-focused, customer-oriented.
And to me, that really helps you think about your business and and makes you realize I've really got to engage my customers and understand what do they do in their context with my offer. And context is hugely important because there might be multiple different contexts of use and therefore you might be able to tweak your offer so that it better matches different customers contexts. So for me the paper is a starting point for the whole of service dominant logic.
And you'll see how some of the thinking has evolved over time. The foundational premises have changed a little bit, but really it challenges the established thinking. I know I'm fortunately enough to be on friendly terms with Steve Vargo. I knew Bob, who sadly passed away. I was lucky enough to sit on a panel at a conference with Professor Irene Ng, Steve Vargo and Bob Lush.
And we talked about the different ways that this thinking can be applied. For me, from somebody from sort of a strategy and operations management view, it really changes the way that I think about process because I'm very much more thinking about use and context. It makes me think a lot more about value.
The objects are not inherently valuable. It is their use. And therefore, we must broaden the enterprise boundary that we think about. We need to think about our supply chain and how do we make sure that every element of that...
is helping move towards ultimately creating the experience, the satisfactions for the customers. I think the paper offers a lot and that's why I'm putting it forward as a seminal paper, really worth the read. And it opens up a body of literature. The paper opens a body of literature that you can dive into and you can see how the conversation around service-dominant logic has evolved over the years.