1. Foundations of Resource-Integration Theory: Toward an S-D Logic Informed Theory of the Market
Presentation to
Frontiers in Service Conference
October 6, 2006
Stephen L. Vargo, Shidler College of Business,
University of Hawai’i at Manoa

2. Marketing's inverted scientific process
“Other disciplines have found it convenient to institutionalize the distinctions between applied and basic science. In marketing, the problem is rather one of spinning off a basic science from a problem solving discipline.”
Arndt 1985
“Paradoxically, the term market is everywhere and nowhere in our literature.”
Venkatesh, Penalosa, and Firat 2006
“Good normative theory is based on good positive theory.”
Hunt 2002

3. Marketing’s Theoretical Foundations
Smith’s Bifurcation
Positive foundation of exchange:
specialized knowledge, labor (service), Value-in-use
Normative model of (national) wealth creation:
Value-in-exchange and “production”
Creation of surplus, exportable tangible goods
Say’s Utility:
Usefulness (value-in-use)
Morphed into a property of products (value-in-exchange)
Development of Economic Science
Built on Newtonian Mechanics
Matter, with properties
Deterministic relationships
The science of exchange of things (products), embedded with properties (“utiles”)

4. Goods-dominant (G-D) Logic
Purpose of economic activity is to make and distribute units of output, preferably tangible (i.e., goods)
Goods are embedded with utility (value) during manufacturing
Goal is to maximize profit through the efficient production and distribution of goods
goods should be standardized, produced away from the market, and inventoried till demanded
To increase wealth, firms should efficiently make and sell goods
Uneasiness with the dominate logic—goods-centered
Perhaps model was wrong, or at least good/service relationship inverted
Goods-dominant logic is:
Note manufacturing (rather than marketing) orientation
Marketing added “time,” “place,” and “possession” to utilities 4

5. Reflections of the G-D Logic Model
Marketing is:
The “creation of utilities” (Weld)
Time, place, and possession
“production function”
Concerned with value distribution
Orientations
Production and Product
distribution vs. value-added
Consumer Orientation
Evidence of problem vs. correction
Marketing management and Consumer Behavior
Alderson’s admonition:
“What is needed is not an interpretation of the utility created by marketing, but a marketing interpretation of the whole process creating utility.”
Disconnect between marketing theory and marketing practice
Sub-disciplinary division

6. Sub-disciplinary Divergences and Convergences
Business-to-Business Marketing
From differences
Derived demand, professional buyers, flocculating demand, etc
To emerging new principles
Interactivity, relationship, network theory, etc
Service(s) Marketing
From differences:
Inseparability, heterogeneity, etc.
To emerging new principles:
Relationship, perceived quality, customer equity, etc.
Other Sub-disciplines
Other Intra-marketing initiatives
e.g., interpretive research, Consumer culture theory, etc.
From deterministic models to emergent properties
From products to experiences
From embedded value to individual meanings and life theme

7. Evolving…Service-Dominant Logic
A logic that views service, rather than goods, as the focus of economic and social exchange
i.e., Service is exchanged for service
Essential Concepts and Components
Service: the application of competences for the benefit of another entity
Service (singular) is a process—distinct from “services”— particular types of goods
Shifts primary focus to “operant resources” from “operand resources”
Sees goods as appliances for service deliver
Implies all economies are service economies
All businesses are service businesses
An orientation (mindset) rather than a theory

8. Foundational Premises (Revised)
FP1
Service is the fundamental basis of exchange.
FP2
Indirect exchange masks the fundamental basis of exchange.
FP3
Goods are distribution mechanisms for service provision.
FP4
Operant resources are the fundamental source of competitive advantage
FP5
All economies are service economies.
FP6
The customer is always a co-creator of value
FP7
The enterprise can not deliver value, but only offer value propositions
FP8
A service-centered view is inherently customer oriented and relational.
FP9
All economic and social actors are resource integrators
FP10
Value is always uniquely and phenomenological determined by the beneficiary

9. What is needed Positive Theory Foundations for Positive theory
“Market are everywhere and nowhere...”
(Venkatesh, Penalosa, and Firat 2006)
Foundations for Positive theory
Reorientation to marketing and marketing
S-D Logic
Shift from products as unit of analysis to collaborative value creation and determination
B2B, service, and relationship
Refocus on operant resources as source of value
Resource-based theories of the firm; resource advantage theory
Elimination of producer/consumer distinction
B2B marketing/network theory
Inframarginal analysis
Models of emergent structure and processes
Complexity theory
Interpretive research
Theory of resource integration and exchange
Theory of markets to inform normative marketing theory

10. Service Exchange through Resource Integration and Value Co-creation
Market-facing and public and private resources
Service
Market-facing and public and private resources
Resource Integrator/Beneficiary
(“Firm”)
Resource Integrator/Beneficiary
(“Customer”)
Value Co-creation
$ (Service Rights)

11. With Public-Facing Resources Direct Service Provision
Integration
With Public-Facing Resources
Direct
Service Provision
Provider of Operand & Operant Resources
Service Beneficiary
Value in Context
Coproduction
Cocreation
Service Provision via Goods
Integration
With Private-Facing Resources

12. The New Geometry of Marketing?
External Resources
Needs
Resources
Exchange RI RI RI
Value Co-creation
Value Co-creation
Needs
Stakeholders
Needs
Resources
Exchange RI RI
Resource Integrator
Exchange
Resources
Resources
Needs RI
Exchange
Customers
Value Co-Creation

13. Service Provision via money Integration With Public-Facing Resources
Cocreation
Indirect
Service Provision via money
Integration
With Public-Facing Resources
Integration
With Public-Facing Resources
Service Provider
Value in Context
Service Beneficiary
Cocreation
Service Provision via work
Integration
With Private-Facing Resources
Integration
With Private-Facing Resources

14. R-I Theory Foundations
Economic and social (S&E) systems (individuals, families, organizations, nations, markets, etc.) are complex adaptive systems
All, S&E systems are heterogeneous, requiring unique combinations of resources (operant and operand) for well-being
S&E systems are resource integrators
S&E systems survival requires external resources (operand and operant)
Operant resources are primary in human systems
A market is a network of S&E systems that facilitates reciprocal resource exchange
In voluntary markets, exchange is most likely when value is increased for each party to exchange

15. For More Information on S-D Logic visit:
Thank You!
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: Bob Lusch:

16. Getting the Logic Right
The greatest danger in times of turbulence is not the turbulence: it is to act with yesterday’s logic.
Peter F. Drucker
What is needed is…a marketing interpretation of the whole process of creating utility
Wroe Alderson
The main power base of paradigms may be in the fact that they are taken for granted and not explicitly questioned
Johan Arndt
…the current situation [in marketing] is to a great extent due to an overreliance on what is called the microeconomic/marketing management paradigm as a largely unchallenged key foundation for theory building.
Johan Arndt 1983

17. Concluding Observations
Pluralism and Duality?
Approaches
Acceptance (Pluralism)
Goods and services
(what marketing has been doing)
Confrontation
Goods vs services
(what some are hearing)
Transcendence
Service as generalizable
Goods as a service-provision vehicle
(what we are saying—”service dominant”)

18. Evolution of Marketing Thought
Market With
(Collaborate with
Customers & Partners
to Create & Sustain
Value)
To Market
(Matter in Motion)
Market To
(Management of
Customers
& Markets )
Through

19. Foundational Premises (Revised)
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.
FP2
Indirect exchange masks the fundamental basis of exchange.
Goods, money, and institutions mask the service-for-service nature of exchange.
FP3
Goods are distribution mechanisms for service provision.
Goods (both durable and non-durable) derive their value through use – the service they provide.
FP4
Operant resources are the fundamental source of competitive advantage
The comparative ability to cause desired change drives competition.
FP5
All economies are service economies.
Service (singular) is only now becoming more apparent with increased specialization and outsourcing.

20. Foundational Premises (Revised)
Explanation/Justification
FP6
The customer is always a co-creator of value
Implies value creation is interactional.
FP7
The enterprise can not deliver value, but only offer value propositions
The firm can offer its applied resources and collaboratively (interactively) create value following acceptance, but can not create/deliver value alone.
FP8
A service-centered view is inherently customer oriented and relational.
Service is customer-determined and co-created; thus, it is inherently customer oriented and relational.
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.

21. Difficult Conceptual Transitions
Goods-Dominant Concepts
Goods
Products
Feature/attribute
Value-added
Profit maximization
Price
Equilibrium systems
Supply Chain
Promotion
To Market
Product orientation
Transitional Concepts
Services
Offerings
Benefit
Co-production
Financial Engineering
Value delivery
Dynamic systems
Value-Chain
Integrated Marketing Communications
Market to
Market Orientation
Service-Dominant Concepts
Service
Experiences
Solution
Co-creation of value
Financial feedback/learning
Value proposition
Complex adaptive systems
Value-creation network/constellation
Dialog
Market with
Service-Dominant Logic
(Consumer and relational)

22. What’s Next End of “producer”/”consumer” distinction
All economic actors as resource integrators, service providers and service beneficiaries
Theory of the market
network integration
Superordination of logic of discovery to logic of justification
Adoption of dynamic, non-linear, and longitudinal research methods

23. Services: The G-D Logic Perspective
Services are:
Value-enhancing add-ons for goods, or
A particular (somewhat inferior) type good, characterized by:
Intangibility
Heterogeneity (non-standardization)
Inseparability (of production and consumption)
Perishability
Service innovation is the application of G-D logic principles of innovation (e.g., efficiency and design), adjusted for the characteristics of services

24. Marketing’s Missions (something Like)
Applied/Managerial:
Enhance organizational wealth and wellbeing through the facilitation of exchange
i.e., apply normative marketing theory
Academic/Educational:
Disseminate scientific knowledge that informs applied marketing
i.e., teach normative marketing theory
Academic/Scholarly:
Develop theory and knowledge that can inform marketing practice
i.e., develop positive marketing theory

25. Service-Dominant Logic Basics
Service, rather than goods, is the focus of economic and social exchange
i.e., Service is exchanged for service
Essential Concepts and Components
Service: the application of competences for the benefit of another entity
Service (singular) is a process—distinct from “services”— particular types of goods
Shifts primary focus to “operant resources” from “operand resources”
Sees value as always co-created
Sees goods as appliances for service delivery
Implies all economies are service economies
All businesses are service businesses 25

26. The Problem: Shaky Foundations
Normative marketing theory
is (should be) built on positive market/marketing theory
Positive marketing theory
built on positive economic theory
Positive economic theory
built on a normative theory wealth creation