Changing the dominant logic

Dominant logic is a mind set or a world view or conceptualization of the business and the administrative tools to accomplish goals and make decisions in that business. It is stored as a shared cognitive map among the dominant coalition. It is expressed as a learned, problem solving behavior. The dominant logic can be considered as both a knowledge structure and set of management process. Dominant logic is defined as the way in which managers conceptualize the business and make critical resource allocation decisions. The dominant logic of an organization filters and interprets information from environment, attenuates complexity and guides strategies, systems and behavior of the organization .

The dominant logic that a enterprise utilize is difficult to change, like the shift from the Ptolemaic view of the universe (earth-centered) to the Copernican view of the universe (sun-centered). As we mentioned in our previous post, the economy is shifting from goods to service. We are used to have a goods view of the economy, looking from the glass of a Goods-Dominant (G-D) logic. Now a service mindset called Service-Dominant (S-D) logic is available to serve as a foundation in Service Science.

The G-D logic, establishes that the goal of the economic activity is to make and distribute units of output, preferably tangible (goods). Where the goal is to maximize profit through the efficient production and distribution of goods, which are embedded with utility (value) during manufacturing. In G-D Logic, services are just value-enhancing add-ons for goods or just a particular (somewhat inferior) type good, characterized by: Intangibility, Heterogeneity (non-standardization), Inseparability (of production and consumption) and Perishability. This kind of thinking points service scientists toward a primary concern with efficient production of intangible goods, rather than the effective creation of value trough service.

In Service-Dominant (S-D) Logic, service has a process orientation. Service is defined as the application of competences (knowledge and skills) for the benefit of another entity, rather than the production of units of output. These benefits are always manifested in the context of the customer, rather than in the production of its offering by the provider. The contextual perspective suggests that what firms provide should not be understood in terms of outputs with value, but rather as resource inputs for a continuing value-creation process.

Goods remain important in S-D logic, as vehicles for resource transmission (tools and appliances), rather than containers of value. We can see this logic working in Software-as-a-service (SaaS) and Software Oriented Architecture, where the value is not in the software, but in the service that they offer.

In G-D logic, value creation happens with resource acquisition. The firm specializes in the production of a type of good, the household specializes in a type of labor, and the money the household obtains from its labor is exchanged for the goods produced by organizations. In this case, one acquires the resource of the other: the firm seeks the labor from the household and the household seeks the goods the firm possesses.

In the Service era we shift the focus from “Producing” (in G-D logic) of goods that are value enhancing add-ons, where the value creation happens with resource acquisition, to “Resourcing” (in S-D logic), where value creation that happens when a potential resource is turned into a specific benefit. Resourcing allows value creation through collaborative value co-creation, not only involving the provider and the beneficiary but all parties in a value-creation network (suppliers, competitors and customers working together).

The G-D logic views the firm as the production of tangible (goods) and intangible (services) outputs to be sold to customers, where the service firms are “service factories” that tried to standardize services with manufacturing concepts. Instead of assembly lines, there were lines or stations that customers visited to receive services. Because production efficiencies could be obtained from employee specialization, even customer service became specialized.

In S-D logic, the focus is in the interaction between the firm and the customer. The significance of that interaction is found not in the transfer of ownership of output (as in G-D logic), but in the interaction itself, in servicing the needs of the customer, as experienced by the customer. S-D mind set would focus on understanding the customer’s experience of waiting in line and moving from station to station, on the experience of waiting on a call line and then being transferred multiple times, on the experience of talking to an employee who is not empowered to provide service. It would focus on the effectiveness of responding to the customer’s purpose for contacting the firm, rather than the efficiency of producing the services. In other words, efficiency should follow effectiveness. This perspective prompts the organization to consider not only its employees’ productivity but also the ‘‘productivity’’ and experience of the customer.

Fig1. Diamond Rio delivered value through the acquisition of the product.

The change of mindset from product to service can drive the Service Innovation . For example : the iPod wasn’t the first mp3 player in the market, the Diamond Rio came first. Diamond focused in the product (G-D logic), where the value is generated through it’s acquisition (Fig.1). Many years later Steve Jobs, the CEO of Apple, had the vision to create compelling experiences for the customer through the use of technology, integrating the software and the hardware into a seamlessly customer experience. The focus on a simple user interface based on a click-wheel in a sleek device made the iPod famous. The user experience was not only present on the device itself, but in the whole process of listening music, including the purchasing and loading of songs to the device through the iTunes store, delivering a true integrated experience provided by iPod+iTunes (Fig.2). In S-D logic the customer is always a co-creator of value. when you purchase an iPod, you don’t purchase a good. You purchase the experience that the iPod delivers. So, the iPod by itself do not have value, you co-created it when you experience it. The value is in the experience, that means the sum of all interactions.

Fig2. iPod+iTunes delivers a complete experience to the customer, where the value is co-produced.

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