When we start thinking of value in the Service Dominant Logic (SD-Logic) mindset, it is much easier to understand how successful products and services are now being developed. They are developed in a mindset of an ecosystem. Apple’s demand has not increased because of more features and benefits. It has increased because of more ways to use the product, apps for example. Amazon has not grown and prospered because of more features and benefits but through customer use of their core services. 37 signals did not grow and prosper because of Ruby on the Rails rather through the proliferation of simple highly focused cloud products that facilitated at first only software developers. Most successful recording artist now make their money, not from record sales but tours and other appearances and even starring roles as judges in reality TV.
An ecosystem begs us to take a deeper dive into the customer experience. The beauty of it is that by engaging and understanding how users will interact from the functional, emotional, and social points of view, other sources of income could potentially be driven to the organization. This comes as a direct result of interacting with the company’s value proposition.
Demonstrating a shared outcome with your customers should be the ultimate strategy of your organization and your improvement cycles. Many people are still touting improvement capabilities of internal processes. Except for growing industries, such as healthcare, many companies are seeing little return in their investment in process methodologies. It is not enough to improve internally anymore. We no longer live in a world of excess demand. The strategies that we need for improvement must be demand driven.
Our planning cannot be isolated. In fact, we no longer own our standards. They are only validated through customer interaction. The customer cannot be introduced at the end of the cycle; he must be at the beginning, middle and part of the entire cycle.
The tools that are being developed to serve this purpose are not really new. Previous tools and processes allowed us to exist and improve in a goods dominated world. It was driven by process methodologies and thinking that better, faster, cheaper wins in the market place. Goods Dominant Thinking (GD-Logic) will limit our growth in the future, and cause a downward spiral as product commoditization occurs. Even as we develop new products, we only stay ahead of the curve for a very short time, and most of our developments and innovation become copied, replicated, and mass produced. What we seem to forget is that a significant advantage is not in the product’s features, it is in the use of the product.
Many organizations justify improvements by using the terms value and internal or external customers. If we’re not careful, the process of improvement can become more important than what the customer really values. If our efforts are not tied to the marketplace then we need to begin questioning why not? Sometimes “savings” (Cycle Time, Space, etc.) are trumpeted at internal meetings when, in fact, the improvements were really cost avoidance or nothing of any real consequence. This is similar to politicians who slow down the growth of government spending and then proclaim it as a cut in spending.
Opportunities for creating value with customers and stakeholders is limited if we take a “Goods Dominant” approach.. Similarly, a transactional approach to marketing ignores customer loyalty entirely by putting emphasis on developing the lifetime value of a customer to the organization. Eco-systems are not built through product features. They are built from a SD-Logic perspective.
The foundational principles of Service Dominant Logic has developed into 10 principles (Vargo and Lusch, 2008a). The authors are publishing a new book, Service-Dominant Logic: Premises, Perspectives, Possibilities, that is due out the winter of 2014. However, to begin understanding SD-Logic, the authors recommend focusing on four basic principles:
- 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.
- The customer is always a co-creator of value: Implies value creation is interactional.
- All economic and social actors are resource integrators: Implies the context of value creation is networks of networks (resource-integrators).
- Value is always uniquely, and phenomenological determined by the beneficiary: Value is idiosyncratic, experiential, contextual, and meaning laden.
When starting to explore SD-Logic thinking, I recommend understanding and using these four principles in action. An example of these principles are in this blog post, Increase your Innovation Capacity: Manage your Sphere of Influence.