Service-Dominant Logic and How It Reframes Our Business Operations

The Open Group just published their white paper on “A Framework for Digital Customer Experience” (https://www2.opengroup.org/ogsys/catalog/W165) which proposes the following.

A consequence of this is that companies, organizations, and governments need to better understand the ecosystems that their customers and users inhabit and engage with. Traditional “customer journey mapping” alone is not sufficient to capture all the necessary considerations and dimensions of a digital customer journey, especially if that journey traverses a multi-supplier ecosystem. Instead, the authors recommend modeling the journey from the customer’s perspective, taking an “outside-in” as well as an “outside-out” or “ecosystem” view rather than an “inside-out” and “service provisioning” view.
• Outside-in: Identifying customer segments based upon their needs and behaviors, designing the experience around the customer persona based upon data and insight.
• Outside-out: Understanding the ecosystem in which a customer exists, the social networks, third-party sites, physical environments, and devices the customer uses and is influenced by.

The publication of this is a great opportunity to publish this post about the Vargo & Lusch’s theory behind the rise of customer experience and ecosystems.

Our model of production is transitioning from and a business-centric product-based model to a customer-centric ecosystem model. Marketing professors Steven Vargo and Robert Lusch call this the transition from goods-dominant logic to service-dominant logic. Whereas goods-dominant logic focuses on production which ends in sales, service-dominant logic looks beyond the moment of sales: this gives rise to concepts such as customer lifetime value and generating customer experiences which customers want to share with their friends on social media.

The key fundamental premises of service-dominant logic and their descriptions by Vargo and Lusch. (http://www.slideshare.net/fred.zimny/tekes-serve20122short)

I admit the concept of “service” is very difficult as it is not established and thus can be understood in many ways. Services have always been present. A guy filling your tank at the gas station is no new invention yet it is our understanding of the context of service that has changed. Rather than thinking of the helpful guy or another customer service representative being the focal point of the service, we are now starting to combine the service concept with building the brand by using all customer-business interactions in generating pleasurable holistic customer experiences.

The customer lifecycle begins when a consumer starts considering a solution to some problem he or she is having in life. The consumers might consider a strong brand they associate with their problem or then start researching solutions, possibly using a combination of technical product/service information and customer reviews. The value of building a strong brand pays back when new customers choose your business or customers who have previously left your business for a competitor choose to return.

A high level view of a customer journey by Marc Stickdorn (http://www.slideshare.net/MarcStickdorn1/nuremberg-service-design-drinks-1)

Vargo and Lusch thus talk about the shift in understanding value from goods-dominant logic’s value-in-exchange (sales) to service-dominant logic’s value-in-use and value-in-context. They refer to their ideas as logic because service-dominant logic requires new fundamental premises which Vargo and Lusch use to create understanding of the new mode of production which combines marketing perspectives to operations.

As we are working in diverse networks of resource integrators or “business ecosystems” to create phenomenologically perceived value to beneficiaries or “customer experiences”, these perspectives should be integrated into how we manage business ICT-development at its different levels. Enabling omni-channel, holistic customer experiences should inform portfolio management and our enterprise investment decisions yet enterprise architecture and the ArchiMate notation used for modelling it require development to fully support the new production paradigm described in the ideas of service-dominant logic.

Relationships between firms and customers are not void of context but happen in ecosystems of exchange according to Vargo and Lusch. (http://www.slideshare.net/fred.zimny/tekes-serve20122short)

Though we rarely take note of it, service designers also participate in the business process modelling area with the unique value proposition of creating alignment around a desired customer experience. We call these models customer journey maps and service blueprints. I will go into a more detailed composition of these at a later time. Customer experiences therefore consist of behavioral elements such as activities in processes and interactions with services or, as Vargo and Lusch put it, value is always co-created by the customer.

If you’re interested in modelling a customer view to support customer-driven enterprise architecture initiatives, please do visit my web page at http://fitforpurpo.se to get in touch with me.