Competing through service: Insights from service-dominant logic
Introduction
Business scholars and practitioners are aware that competitive advantage can be enhanced through service (Karmarkar 2004). It is also clear that there is a link between competitive advantage and superior performance (Barney, 1991, Coyne, 1985, Day and Wensley, 1988, Hunt and Morgan, 1995, Porter, 1985). Yet, by almost any definition or measure, there is little evidence of significantly increasing service. In fact, it is often argued that service is actually on decline (Oliva and Sterman 2001), at least in the U.S. marketplace. Paradoxically, managers, though motivated to perform and aware of the links among service, competitive advantage, and firm performance, often fail to execute on that knowledge (cf. Bharadwaj et al. 1993). Additionally, academics, though aware of these links, have not sufficiently informed normative theory to adequately assist in that execution.
We submit the problem is that there is not a full and adequate understanding of the concept of “service” and its role in exchange and competition. Accordingly, our purpose is to advance this understanding by exploring a relatively new conceptual lens (service-dominant logic) through which we can view exchange, markets, enterprises – including, but not limited to retailers – and competing through service.
We argue that competing through service is about more than adding value to products. Importantly, it is also more than the collective roles of marketing, strategic business, human resource, information-systems, financial, and operations management to produce and distribute better products. We argue that effective competing through service has to do with the entire organization viewing and approaching both itself and the market with a service-dominant (S-D) logic (Vargo and Lusch 2004).
S-D logic is based on an understanding of the interwoven fabric of individuals and organizations, brought together into networks and societies, specializing in and exchanging the application of their competences for the applied competences they need for their own well being. It is a logic that is philosophically grounded in a commitment to collaborative processes with customers, partners, and employees; a logic that challenges management at all levels to be of service to all the stakeholders; a logic or perspective that recognizes the firm and its exchange partners who are engaged in the co-creation of value through reciprocal service provision. It is about understanding, internalizing, and acting on this logic better rather than the competition.
Clearly the preceding statement is highly compact and laden with meaning that requires elaboration. Consequently, the purpose of this article is to demonstrate how S-D logic can better inform competing through service, the major theme of this special issue of the Journal of Retailing, than traditional “goods-dominant” (G-D) logic. We approach this purpose, primarily, by contrasting S-D logic with G-D logic. In doing so, we explicitly rely upon the nine foundational premises of S-D logic (Vargo and Lusch, 2004, Vargo and Lusch, 2006) to develop nine derivative propositions that inform marketers on how to compete through service.
Section snippets
A brief review of G-D and S-D logic
Goods-dominant logic views units of output as the central components of exchange. It developed from both a combination of Smith's (1776) normative work on how to create national wealth through the “production” and export of surplus tangible commodities and the economic philosophers’ desire to make economics a true science at a time when Newtonian Mechanics served as the model for the mastery of nature (Vargo and Morgan 2005). Accordingly, modern economic thought embraced objects (matter or
Service is the basis for competition
The G-D logic of marketing proposes that the tactical manipulation of the 4P's, associated with a (mostly) tangible good, provides the dimensions through which to compete. foundational premise 1 (FP1) of S-D logic counters that it is not products that are the aim of the customer's acquisition, but rather the benefit available through the service of the provider—similarly, Sawhney (2006), in developing a complementary logic, suggests that customers purchase solutions.
It is important to note that
Who should be the prime integrator?
S-D logic points toward collaboration and coordination as essential approaches to innovation and competition. They represent means for integrating activities and resources. Vargo and Lusch (2006), in the ninth foundational premise (FP9) identify resource integration as the essential role of the firm. Christensen et al. (2001) identify it as the most critical aspect of innovation. At one end of a coordination/integration continuum are transactional markets where the “invisible-hand” of the
Leveraging employees
One of the hallmarks of S-D logic is the superordination of operant resources in relation to operand resources in their relative roles in competitive strategy. That is, as discussed, it is knowledge and skills, including in some cases a firm's knowledge used in designing and/or making appliances, which drives its success (Vargo and Lusch, 2004, Lusch and Vargo, 2006). This, of course, implies that the competitive advantage of the firm is more of a direct function of the comparative advantage of
Managerial directions
Each of the nine propositions that we have presented points directly to one or more managerial implications. However, none of these propositions will result in the achievement of competitive advantage unless the management adopts a service orientation. S-D logic is more than a series of premises and propositions; it is a revised logic of market exchange that informs a revised logic of competing through service. At the core of S-D logic (see Fig. 2) is the requirement that management should
Conclusion
Since the concomitant times of Smith (1776) and the beginning of the Industrial Revolution, we have been taught that exchange is about things, which can be exchanged for other things. Manufacturing was considered a process that embedded value in tangible raw materials. From this perspective, services were, at best, seen as add-ons to the product—providers of special types of value associated with goods (e.g., time, and place utility) and, at worst, as destroyers of value. Given this
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