Managerial directions

Derivative Proposition 9

Firms that treat their employees as operant resources will be able to develop more innovative knowledge and skills and thus gain competitive advantage.

Each of the nine propositions that wehave presented points directly to one or more managerial implications. However, none of these propositions will result in the achievement of competitive advantage unless the management adopts a service orientation. S-D logic is more than a series of premises and propositions; it is a revised logic of market exchange that informs a revised logic of competing through service. At the core of S-D logic (see Fig. 2) is the requirement that management should understand that value-creation for both the customer and the firm requires collaborating with customers (and other value-network partners). In turn, this requires recognizing that they are operant, rather than operand, resources. It also requires that management should understand that what it primarily brings to the market is its ability to serve some other party through the application of its own resources, primarily operant—that is through a collaborative effort with its own employees. In brief, the most fundamental implication is that firms gain competitive advantage by adopting a business philosophy based on the recognition that all entities collaboratively create value by serving each other.

Some look for boundary conditions that apply to this philosophy. For example, it has been argued that S-D logic is not applicable to a pure commodity type of business. But S-D logic also applies to commodity industries. Competitive advantage is not based on the commodities themselves, but rather on collaborative ability of the firm to allow the commodities to provide service for some other party. That is, competitive advantage is firm-based rather than product-based and thus, while the goods provided might be commodities, the firm can be highly differentiated. In fact, it could be argued that S-D logic is especially critical in commodity industries.

As Vargo and Lusch (2004) have indicated, many companies that are selling tangible output have found competitive advantage through the adoption of a service logic. Conversely, many firms typically characterized (i.e., by G-D logic classification schemas) as service organizations, such as the airlines, internal revenue service, health care providers, and so forth, have found themselves at a competitive disadvantage by adopting a G-D logic and focusing on output management versus process management. Stated alternatively, any organization can gain competitive advantage by adopting a service-dominant orientation.

Although we think of commodities in terms of goods (especially foodstuffs), S-D logic suggests that virtually all firms that focus on units of output will likely become commodity businesses. Likewise, all firms, including “goods” firms can transform themselves competitively by better understanding how they can serve. For example, retailers can focus on selling merchandise and enticing patronage by constantly cutting prices – that is, treating their business as a commodity – or they can focus on co-creating new kinds of value and service experiences with customers and, in all likelihood, sell at prices considerably in excess of their competitors that, on the surface, might appear to operate in the same business or market.

There is another, very central, managerial direction that S-D logic provides, as implied by the outer circle of Fig. 2. It is tied to understanding the nature and scope of available resources (internal and external), including those that might appear to be resistances until they are overcome by and integrated with the organizations’ other resources. We discussed some of this in conjunction with the idea of viewing the ecosystem as something to collaborate with in the co-creation of service and also in conjunction with the idea integrating firm, individual, and public resources – for example, to increase the value-in-use of an automobile. Unfortunately, most businesses (including retailers) tend to view external environments as resistances, if not countervailing forces rather than resources. For example, “big box” retailers are facing increased opposition as they enter communities for a variety of reasons, such as posing potential harm to small retailers, the social fabric of the community, land-use through construction, under provision of employee benefits, and so forth. It is possible to view these externalities as uncontrollable constraints. But it is also possible to view them as potential resources for the collaborative creation of a better value proposition for both the community and the firm. Consider a big box mass merchandiser on 20 acres that: (1) plants trees near the store and in the parking lot to better protect structures from heat; (2) opens its parking lot to a local farmer’s market for fresh produce; (3) sublets interior store space, not only to Bank of America and McDonald’s, but to small enterprising local entrepreneurs; (4) provides a room for community meetings; (5) provides part time work to community members that are disabled mentally or physically. A truly S-D retailer would view the entire community as a storehouse of resources to collaborate with to not only help the community but to provide the retailer with relative competitive advantage.

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