by Jenni Aranko and Ainokaisa Kostamo
This blog post examines the evolution of Service Science which aims to be a new, interdisciplinary approach to study and innovate in service. First we’ll examine what is actually meant when discussed about service and provide a definition of service as a framework for further reading. We’ll continue with arguing why there is a need for generally approved Service Science.
Then we’ll introduce the foundations of Service Science through a selection of chapters from articles and books that were published in the late 1970s. The writers have brought the key elements from their previous studies and reflected those to today’s world.
Lastly we’ll take a look at the modern Service Science which has its foundation in the Service-Dominant logic (introduced by Vargo & Lusch in 2004) and present the most essential concepts related to it. The distinction between services and goods as one of the key questions and sources of misinterpretations in the field of Service Science is also discussed.
The following review is based on the Handbook of Service Science which is a collection of important papers and books in service that have been edited for the book by their original authors. This blog post is produced as a learning assignment for the study unit New Service Development and Innovative Service Systems.
WHAT IS SERVICE?
Before going any further let us first examine what is actually meant with the term “service”. The undevelopment and incoherence of the Service Science results also in numerous definitions for the fundamental term of Service Science, namely “service”;
Vargo & Lusch (2004):…a type of process, specifically the process of one or more entities applying competences (knowledge, resources) for the benefit of another…(Maglio et al., 2010. 165)
Edvardsson, Gustafsson and Roos (2005):…service is best conceptualized as a perspective on value creation through the lens of the customer. (Maglio et al., 2010. 165)
Spohrer & Maglio (2010): Service phenomena occur when entities interact according to agreed to mechanism that result in value co-creation outcomes (win-win or benefit-benefit interactions). (Maglio et al., 2010. 158)
The definitions above have few congruities; value (co-creation), process, interaction (of service system entities) and customer-centricity. Even though the definition of service still evolves we’ll use the definition by Vargo & Lusch, which is also the basis of Service-Dominant logic, as the basis of this blog post.
WHAT IS SERVICE SCIENCE AND WHY IS IT NEEDED?
By the traditional method of economic segmentation, in which service sector is defined to include e.g. education, medical and healthcare, banking and insurance, business consulting, tourism and hospitality and transportation, the service sector accounts for most of the world´s economic activity, but is the least studied and least understood part of the economy. However, it can be argued, that there is not so much of a service revolution as there is a service realization or a revelation in service-centered thinking. (Maglio et al., 2010. 138, 142 & 158)
Officially the development of Service Science was launched in 2004 when IBM, one of the global forerunners in service business, proclaimed the endeavor to building a science of modern service. It was also recognized that the foundations of the science had been put in place by pioneers from multiple academic disciplines. However, the disciplinary approaches to service can also be pointed out as the sources of conceptual confusions and misinterpretations concerning service. (Maglio et al., 2010. 173) There’s an indisputable need for a unified Service Science to refute them.
Despite the low number of studies, there are few definitions of Service Science that provide the basis for further reading. The following definitions were used in the Handbook of Service Science and they are the framework of our blog post.
Spohrer & Maglio (2010) define Service Science as an interdisciplinary approach to study, improve, create, and innovate in service and as the systematic search for principles and approaches that can help understand and improve all kinds of value co-creation. (Maglio et al., 2010. 1)
Vargo & Lusch (2004) on the other hand state that Service Science combines organization and human understanding with business and technological understanding to categorize and explain the many types of service systems that exist as well as how service systems interact and evolve to co-create value. (Maglio et al., 2010. 135)
The challenge with developing Service Science is the lack of cohesiveness in research related to service. The study of service has largely been conducted within individual business-related disciplines, such as management, operations, marketing, IT, engineering and computer science schools, with little integration or cross fertilization of ideas. Moreover, the concept of service has been studied using different meanings and, thus, has been operationalized in different ways. Service Science aims to integrate these seemingly disparate areas of research by focusing on service as the central phenomena of interest. (Maglio et al., 2010. 136)
ORIGINS OF SERVICE SCIENCE
Let us next examine some earlier assumptions of service systems. Service systems are usually classified based on the service they provide. When compared to the traditional manufacturing systems they are described as more difficult to control and rationalize. According to Richard B. Chase there was one crucial piece required in the process of improving the service systems and that was the extent of customer contact in the creation of the service.
In 1978 he developed a classification system suggesting that “the less direct contact the customer has with the service system, the greater the potential of the system to operate at peak efficiency. And where the direct customer contact is high, the less potential exists to achieve high levels of efficiency”. (Maglio et al., 2010. 11) Even though this theory remains influential, it is important to point out it´s clear relation to Goods-Dominant logic and has little relevance when developing the modern Service Science further.
Development of service measures and frameworks
Prior to the early 1970s only a little research had been practiced to investigate the properties of service activities. As soon as a thorough research took place, it became undeniable that an integrative, cross-functional approach was needed. It was out of that need that the framework of service profit chain and its “sister” the strategic service vision arouse. (Maglio et al., 2010. 19)
The service profit chain represents a causal chain of relationships: Profit and growth are results from customer loyalty generated by customer satisfaction (value delivered to customers). Value for customers in turn results from employee loyalty and productivity that are directly related to internal quality. These relationships were first portrayed as a “self-reinforcing service cycle”. Recently the self-reinforcing nature of service as win-win or value co-creation interactions among service system entities has been highlighted. (Maglio et al., 2010. 20)
The strategic service vision represents a systematic way of thinking about strategy in a service firm. It consists of a target market, a service concept, an operating strategy and support systems. This concept posits that service management lies at the intersection of these business functions and disciplines. (Maglio et al., 2010. 21)
Lastly, as a result of insecurity on measuring attitudes versus behaviors, an exploration of “ownership” behaviors among customers and employees has taken place. Ownership measures seem to have more direct relationships to financial outcomes than those related to attitude or intent. On the other hand they require the measurement of customer and employee behaviors, partially based on what customers and employees themselves claim they have done in the recent time period. The accuracy of these kinds of measures requires further examination and the recent studies suggest that there is much more work to be done in examining the service profit chain relationships. (Maglio et al., 2010. 25)
The human factor of services
People are a big part of consumer service delivery and people played a large role in Schneider & Bowen’s book, Winning the Service Game (1995), which is featured in the Handbook of Service Science. But as the new field of service science proceeds, the emphasis appears to be on winning via linear programming, operations management, engineering solutions, information technology, economies scale and mathematical formulae. These features provide a lot of relevant information but they tend to ignore the social psychology of consumer service delivery contexts and the relationships between the people involved. (Maglio et al., 2010. 32)
Services operations management together with services marketing and services human resource management are essential to service management effectiveness. That has been the fundamental conclusion of the field of services management that long-preceded service science. In their book, Schneider & Bowen developed “53 rules of the service game”. These rules were created largely with the b-to-c sector in mind. However, they have considerable relevance for many b-to-b service relationships as well. Service effectiveness in both cases requires knowing the rules by which to attract and retain the right mix of customers, employees and managers with the aim to offer a value proposition to all three stakeholders. (Maglio et al., 2010. 35)
Focusing on customers
While the fact that customers are important has been in existence for the better part of the century, thinking related to the value of a customer to a company is of more recent vintage. In this chapter of the book, the main focus is on “how to increase revenues by providing better service to customers?” Better service to customers results in greater revenues, higher profit and a higher customer lifetime value. (Maglio et al., 2010. 61)
Customer equity is the sum of the lifetime values of the firm’s current and future customers. It is the best measure of the value of the firm’s customers and a good proxy for the total value of the firm. Customer equity provides firms a way to increase the value of the firm by addressing customer-facing issues. The drivers behind customer equity can be divided into three main drivers: Value Equity, Brand Equity and Relationship Equity. (Maglio et al., 2010. 61)
Companies are being urged to think about customers as a potential source of enduring relationships that can help create long term value for them. However, before the company can adopt Customer Equity as a performance metric and a strategic tool, it needs to make significant and fundamental changes in its organization structure. That is to achieve a complete and holistic understanding of the value of individual customers or market segments. (Maglio et al., 2010. 75)
MODERN SERVICE SCIENCE
Year 2004 marked a turning point in service research and theory as Vargo & Lusch published their award-winning article about Service-Dominant logic (entitled Evolving to a New Dominant Logic for Marketing). Service-Dominant (S-D) logic underlined service-for-service exchange as the fundamental nature of exchange and challenged the traditional definition of service presented by the Goods-Dominant (G-D) logic. During the following years S-D logic gained ground as the foundation of the modern Service Science. (Maglio et al., 2010. 165) Next we’ll take a closer look at the key concepts and theories of the modern Service Science.
SERVICE-DOMINANT LOGIC AS THE FOUNDATION OF SERVICE SCIENCE
The traditional, Goods-Dominant logic view of economic exchange, discusses goods and services as alternative types of products. Furthermore services are considered somewhat inferior units of output because of qualities that make it difficult to standardize (heterogeneity), produce away from customers (inseparability), and store or inventory (perishability). (Maglio et al., 2010. 136)
The Service-Dominant logic questions this traditional logic. The foundational argument of S-D logic is that service is central to value creation and economic exchange. The S-D logic describes service as a process of applying resources for the benefit of another. Thus, all the economic activity can be seen as service. Goods are considered merely as vehicles for (indirect) service provision. (Maglio et al., 2010. 136)
Vargo & Lusch noted that “things” (including goods) result from applying knowledge (in manufacturing) and argued that “service” is more fundamental than things. However, the objective of S-D logic is not to replace G-D logic with S-D logic. The S-D logic makes service and S-D logic superordinate to goods and G-D logic in terms of classification as well as function. The Service-Dominant logic argues that the theoretical and conceptual components of G-D logic are not as deep or broad in scope as those of S-D logic. (Maglio et al., 2010. 141)
Furthermore, the S-D logic point out the term “services” (in plural) used in G-D logic as inaccurate since everything can be seen as service (in singular)! (Maglio et al., 2010. 141)
CONCEPT OF VALUE
One of the main differentiators of G-D logic and S-D logic is the concept of value. Whereas in G-D logic value is seen in goods, created by firms and consumed by customers, the S-D logic emphasizes operant resources, e.g. knowledge and skills, as the underlying source of value and drivers of value creation. (Maglio et al., 2010. 139) The S-D logic highlights that goods can only be manufactured through the application of competence which is the true source of value. In addition, S-D logic argues that value-creating resources are not limited to firms; customers, suppliers, and other stakeholders also constitute operant resources and contribute to value creation. (Maglio et al., 2010. 136, 139 & 173)
Value is always determined by the beneficiary!
Service-Dominant logic abandons the value-in exchange and embedded-value concepts by Goods-Dominant logic, and embraces concepts of the value-in-use and the co-creation of value. S-D logic argues that value is fundamentally derived and determined in use – the integration and application of resources in a specific context – rather than in exchange – embedded in firm output and captured by price. (Maglio et al., 2010. 143, 175)
S-D logic emphasize that value co-creation is not optional! Value is always being co-created with and determined by customers. Value co-creation process requires the active participation of the firm, its customers and other stakeholders. More specifically, S-D logic argues that firms cannot create and deliver value; they can only propose value and provide service as an input to the realization of value by the service beneficiary, usually the customer. In other words, value is not created until the beneficiary of a service (customer) integrates and applies the resources of a particular service provider (e.g. firm) with other resources. (Maglio et al., 2010. 139 & 143)
The concept of value co-creation has been marked as one of the most fundamental concepts and topics of study of Service Science along with service system entities which will be briefly examined next. (Maglio et al., 2010. 158)
Concept of Service System (Entity)
Spohrer & Maglio define service system entity as a system that includes one or more people and any number of technologies that adaptively computes and adjusts to the changing value of knowledge. An entity capable of intentional value co-creation interactions can be viewed as service system entity. Service systems are continuously interconnected with other service systems and range in size from an individual person to a world-wide exchange system (e.g. global economy). (Maglio et al., 2010. 135, 158 & 174)
Service system entities can be conceptualized as “open system(s) (1) capable of improving the state of another system through sharing and applying its resources…and (2) capable of improving its own state by acquiring external resources”. Service system entities that, as a whole, are better off working together than working alone, constitute a service ecology. (Maglio et al., 2010. 135)
Maglio & Spohrer point toward a Science of Service Systems. They propose that the object of the science is value co-creation mechanisms, the basic abstraction is the service system entity and the ultimate objective is to develop methods and theories to enhance service innovation. They discuss many interesting concepts such as service system design and service system learning. (Maglio et al., 2010. 174) Based on our evaluation, the paradigm of Service Systems will definitely provide some interesting input to the Evolution of Service Science.
Services vs. Goods
As demonstrated in the text above, one of the “hot topics” in the field is service vs. goods. But as Service-Dominant logic points out there is no need for such a division – both have an important role in value (co-)creation.
However, the paradigmatic power of G-D logic can still be found in today´s commonly used concepts such as value-added, profit maximization, transactions and even services (in plural). This goods-centered language establishes a lexicon that has led to misinterpretations and can even result in making transition from Goods- to Service-dominant logic difficult. (Maglio et al., 2010. 134-135)
In addition, as Vargo & Lusch point out, some of the service related research and theories hinder the conceptual shift from Goods- to Service-Dominant logic when they focus on units of output (tangible and intangible) and divide between consumers and producers. (Maglio et al., 2010. 134-135)
One such theory is the Unified Service Theory (UST) by S.E. Sampson which aims to provide a distinction between services and non-services (in plurar). The Unified Service Theory is based on the central principle of the operations management discipline namely the Inputs/Outputs model. Basic principle of the model is that inputs are transformed into outputs through production processes. The UST determines the involvement of customers in production processes (by involving process inputs that are controlled and supplied by customers) as the universally distinguishing feature of services in comparison to non-services. (Maglio et al., 2010. 111-112)
Even though the UST must be given credit for the managerial insights it provides we don’t perceive it entirely beneficial for the evolution of the Service Science (and transition towards S-D logic) and won’t therefore examine it more deeply. The argument is simple, the UST’s terminology and approach contradicts with the S-D logic’s definition of service. Having said that, we hope to see academics approving the S-D logic as the common foundation and research framework of Service Science.
We acknowledge that we provided only a scratch on the topic of the evolution of Service Science considering the various aspects the Handbook of Service Science provides. However, since the content of the book is so comprehensive and in some aspects contradicting, understanding will take some time and possibly require several readings. Therefore, it might be a good idea to study this book one piece at a time. Additionally, as the field of Service Science is relatively new and still developing, it would be beneficial to maintain a critical mindset while studying the book.
Service-Dominant logic discussed above establishes an alternative perspective for the economic exchange. However, public discussion is (still) today dominated by the concepts and approaches of the traditional Goods-Dominant logic which is grounded in the work of Adam Smith. Interestingly, Smith´s work initially acknowledged labor as the source of “real value”, emphasized the importance of division of labor in creating value in society and pointed out value-in-use. Hence, the service-centered view of S-D logic is consistent with Smith´s initial discussion. (Maglio et al., 2010. 136-137) Shouldn’t service be given (back) it´s rightful place as the basis of economic exchange – service as the central process for value creation and goods as vehicle for service provision?
USEFUL TIP: Visit the website of Service-Dominant logic to gain more insight on the topic.