Service-dominant logic in business models – a workshop with Professor Vargo

Written by Katri Ojasalo

The two trending phrases in academic and business conversations are “service-dominant logic” (SDL) and “business model canvas” (BMC). Is there a connection between them? Or are they just two extremes: the first one an academic theory and the latter one a business tool?

In fact, they are quite far from each other. We can see that the BMC is clearly based on goods-dominant logic. This comes up for example in the use of terms, such as customer segments, channels etc. So, does this tool guide businesses to focus on more irrelevant issues and neglect the guiding principles of SDL: customer value and value co-creation? This was the notion that brought a group of Finnish service researchers together.

Professor Vargo commenting on our working version of a SDL-based Business Model Canvas

Professor Vargo commenting on our working version of a SDL-based Business Model Canvas

In fall 2012, service researchers from various Finnish universities were gathered to discuss the future of service research and service competences. During the discussion, we realized a common interest in further developing the BMC, which we all had been using in different contexts in teaching, research, consulting, etc. We saw that the BMC needs adjustments to be in line with SDL. Applying SDL in practice and truly understanding value co-creation can offer a very important competitive advantage for any organization. The BMC seems to be missing this understanding of the relevance of SDL.

To discuss and further develop this issue, we first formed an informal group that was soon changed into a Special Interest Group of the Finnish Service Alliance (FSAan association of more than 100 Finnish service researchers and companies interested in service research). The Special Interest Groups (SIGs) are forums for discussing and developing specific service-related themes and they are founded by the members of FSA.

The aim of this SIG is to adapt the BMC to service-dominant logic. The group consists of 15 service researchers and developers from VTT Technical Research Centre of Finland, Hanken School of Economics, Laurea University of Applied Sciences, University of Tampere, University of Vaasa, Aalto University, and Tekes Finnish Funding Agency for Technology and Innovation.

So far, our SIG has had three half-day brainstorming workshops: in January, March and April 2013. The new Canvas has been developed step by step. On 29 April, our group had a privilege to have a three-hour workshop with the founding father of SDL, Professor Stephen L. Vargo. Prof. Vargo gave very positive feedback on our work so far. But it became evident that we have only started our journey towards a SDL-based business model canvas – a lot of reframing is still needed. Most importantly, revising the terms used in the business model could help businesses think differently. For example, the term “segmentation” automatically results in taking a very provider-centric view.  Prof. Vargo threw us two main issues to discuss in the next phase: 1) Do we want to reframe the existing BMC, or should we put together a novel business model format based on the theoretical view on SDL, and 2) Should we first focus on developing the theory on SDL-based business models and only after that develop a tool. He highlighted that creating the theory first would help make better applications.

Workshop in January 2013Workshop in March 2013

There is evidently a need of understanding the managerial implications of SDL and value co-creation. Professor Vargo stressed that this is even more important in traditional goods businesses and industrial contexts. Novel thinking of value creation is needed in businesses – not necessarily changes in the actual business. Thus, we are obviously working with a very relevant issue.

You may ask for more information on the SIG focusing on service logic in business models from Katri Ojasalo

Related exercises:

Value Co-creation Canvas

Service Model Generation

Start-up Canvas

Social Business Model Canvas

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