Service innovation: From product to service logic – crossing the chasm

18 December 2015 14:10

(updated: 18 December 2016 14:24)

Service innovation: From product to service logic – crossing the chasm

Professor Stephen Vargo recently visited Norway and the Center for Service Innovation and I had the honor to share the stage with him, talking about how to cross the “chasm” from Goods Dominant Logic to Service Dominant Logic. The setting was a Round Table with selected Managers of successful Norwegian companies connected to CSI.

Around the table we all agreed that the necessity of managing this logic shift is clear and present and that it mainly is a case of shifting the mindset of managers. From Stephen we learn that the narrative of SDL is one of value creation:

  •  ‘Service’ is using resources for someone else’s benefit
  • Value is always co-created in networks of actors exchanging service

At a theoretical level there are no service providers and customers, just actors exchanging service in an eco-system. At a more practical level a key, and perhaps painful, insight for managers is that their companies do not deliver value to customers but provide input to value creation by the customer – in their network. We also have to acknowledge that goods (products) and services (intangible goods) are bought for the service they render, i.e. the value creation they enable, and not for the good in itself.

Strategy becomes coordination of value co-creation by orchestrating interactions and resource integration in networks. Sounds complicated? Perhaps, but companies starting out with this strategy tend to excel – think Über, AirBnB, Car2Go, etc. Also well-established companies that dare to disrupt themselves succeed. Look at Apple for example – masters of integrating resources from app developers, telecom companies, designers and even artists to orchestrate interactions between individuals – you and me – and learning a lot about us while doing it. It has not always been this way (I worked with them in the early 90’s so I know…) but today, Apple products are “service delivery mechanisms” – peripherals to the App Store and iTunes platforms for value creation if you wish.

The concept of ‘service’ is not new but technology adoption, connectivity and digitization is empowering customers, accelerating the pace of change and challenging business models in industry after industry – increasing the relevance of a Service Dominant Logic for business.

Building on research from the CSI spin off project Customer Care 2015 we see that the route to co-creative service logic for companies firmly rooted in production or product based Goods Dominant Logic require a holistic view of transformation along four axis of change:

  • Culture: Increasing risk willingness and adaptability and changing how customers are viewed – from receivers of output, via users of products and services to co-creators of value
  • Governance: Incentivizing capabilities not only connected to efficiency and relationship management but also to exploration and (external) resource integration
  • Value proposition: Changing the constitution of the offering from items and features, via usage to value created
  • Digitization: From digitization of processes and touch points via ‘add-on’ services to creation of platforms for service – erasing marginal cost on the way

A difficult journey for many but as one of the insightful managers at the round table said:

“It is better to start early, when you can afford it, rather than waiting until your back is against the wall.”

There are many hurdles to overcome when crossing the chasm from GDL to SDL but at the round table we listed:

  • Getting top management attention. Someone at the round table said “top managers tend to be tone deaf to these thoughts”, and yes, it is difficult – but not impossible – to challenge assumptions and beliefs.
  • Managing “cannibalization” of own cash cows. Disrupting cash flows require risk willingness, trust and genuine customer insight.
  • Getting “allowed” by the customer to capture value creation. Tapping into the value co-created with customers requires careful design to succeed.

*Principal, Bekk Management Consulting,
Senior Advisor, Center for Service Innovation