1. Conceptual Foundations for a Science of Service
Presentation for the Conference on the Art and Science of Services
Madrid, Spain
May 24, 2006
Robert F. Lusch, University of Arizona
Stephen L. Vargo, University of Hawaii at Manoa

2. The Service Science Imperative
The meek shall inherit the earth but not the mineral rights. – J. Paul Getty
Gentlemen, examine this ground carefully it is going to be the battlefield. –Napolean, eleven hours before the battle of Austerlitz
For years we have thought of the intangible in terms of the tangible: wireless, post-industrial, goods vs. services, the world is flat. We have a tangibility fixation.
I find the great thing in this world is not so much where we stand, as in the direction we are moving. –O.W. Holmes
S-D Logic Overview

3. Service
The application of specialized competences (knowledge and skills) through deeds, processes, and performances for the benefit of another entity or the entity itself (self-service).
Intermediaries are involved such as goods, money, organizations and networks. However, the real work of economies is mutual service provision.
Compatible with other contemporary definitions
Without being residual definition
What goods are not…
S-D Logic Overview

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 by decreasing cost and increasing number of units of output sold
For efficiency, goods should be standardized, produced away from the market, and inventoried till demanded
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
S-D Logic Overview

5. Uneasiness with Dominant Model
What is needed is not an interpretation of utility created by marketing, but a marketing interpretation of the whole process of creating utility” (Alderson, 1957)
“The historical marketing management function, based on the microeconomic maximization paradigm, must be critically examined for its relevance to marketing theory and practice.” Webster (1992)
“The exchange paradigm serves the purpose of explaining value distribution (but) where consumers are involved in coproduction and have interdependent relationships, the concern for value creation is paramount…There is a need for an alternative paradigm of marketing.” Sheth and Parvatiyar (2000)
“The very nature of network organization, the kinds of theories useful to its understanding, and the potential impact on the organization of consumption all suggest that a paradigm shift for marketing may not be far over the horizon.” Achrol and Kotler (1999)
In addition to our original uneasiness with the dominant logic, found others had similar difficulties
Also Day and Montgomery (1999), Shostack, and Others
S-D Logic Overview

6. Service-Dominant (S-D) Logic
Identify core competences, knowledge and skills that represent a potential competitive advantage
Cultivate relationships with potential customers
develop customized, compelling value propositions
Co-create value with customer
Use financial performance as an instrument of learning for improving the level of service for customers and markets
S-D Logic Overview

7. Language as Co-Creation: The Emergence of S-D Lexicon
Language and norms are co-created.
The goods-dominant language and norms evolved via co-creation over hundreds of years.
However, there are signs it is decaying and/or morphing into what we refer to as a service-dominant lexicon.
S-D Logic Overview

8. Shift in Focus from Operand to Operant Resources
Operand Resources
Resources upon which an operation or act is performed to produce an effect
primarily physical resources, goods, etc.
Operant Resources
Resources that produce effects
e.g., primarily knowledge and skills—competences
Away from units of output
To activities
“Everything is nothing until you know what to do with it.”
S-D Logic Overview

9. Evolving To a New Frame of Reference
To Market
(matter in motion)
Market To
(management of
customers &
markets)
Market With
(collaborate with
customers & partners
to produce &
sustain value)
Through Future
S-D Logic Overview

10. Evolving Toward a Service-Dominant Logic
G-D Focus S-D Focus
Operand Resources
Tangible
Value Added
Goods
Products
Transactional
Units of Output
Promotion
Brand Equity
Profit Maximization
Operant Resources
Intangible
Co-creation of value
Service
Experiences
Relational
Processes
Conversation/Dialog
Customer Equity
Financial Feedback
S-D Logic Overview

11. 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)

12. Marketing Redefined
Marketing is the process in society and organizations that facilitate voluntary exchange through collaborative relationships that create reciprocal value through the application of complementary resources.
Therefore marketing can be viewed as the means by which societies are able to create value through the voluntary exchange of knowledge and skills.
S-D Logic Overview

13. Using S-D Logic to Improve Firm and Societal Well-Being
Co-Creation of Solutions
Customers, Employees, Supply & Value Chain Partners, Stakeholders
Focus on Service Flows
Differentiating the Service vs. Differentiating with Service
Focus on Off-Balance Resources
Customer, Channel and Societal Equity
Transform External Environments Into Resources
Turn Resistances into Resources via Collaboration
S-D Logic Overview

14. For More Information on S-D Logic visit:
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For More Information on S-D Logic visit:
sdlogic.org
We encourage your comments and input. If you would like your working papers or teaching material and/or links to your research displayed on the website, please us
Steve Vargo: Bob Lusch:
S-D Logic Overview