Service-dominant logic
Service-dominant 'logic', in behavioral economics, is an alternative theoretical framework for explaining value creation, through exchange, among configurations of actors. It is a dominant logic. The underlying idea of S-D logic is that humans apply their competences to benefit others and reciprocally benefit from others' applied competences through service-for-service exchange.
Service-dominant logic has been developed by Stephen Vargo and Robert Lusch. The goal of developing S-D logic is to contribute to the understanding of human value co-creation, by developing an alternative to traditional logics of exchange.
Since Vargo and Lush published the first S-D logic article, "Evolving to a New Dominant Logic for Marketing", in 2004, S-D logic has become a collaborative effort of numerous scholars across disciplines and it has been continually extended and elaborated. Among the most important extensions have been the development of service ecosystems perspective that allows a more holistic, dynamic, and systemic perspective of value creation and the emphasis of institutions and institutional arrangements as coordination mechanisms in such systems.
The core
At the core of S-D logic is the idea all exchanges can be viewed in terms of service-for-service exchange, the reciprocal application of resources for others' benefit. Focus on service steers attention to the process, patterns, and benefits of exchange, rather than the units of output that are exchanged. S-D logic argues that in order to create value, that is to maintain and increase wellbeing and viability, actors engage in interdependent and reciprocally beneficial service exchange. Hence, value creation occurs in networks in which resources are exchanged among multiple actors and is therefore more accurately conceptualized as value cocreation. Recently, S-D logic has moved toward a dynamic, systems orientation in which value cocreation is coordinated through shared institutions, often massive-scale resource integration and service exchange processes.Axioms and foundational premises
The core ideas of S-D logic are formulated into foundational premises. Vargo and Lusch put forth the original eight foundational premises of S-D logic in the seminal, 2004 article. Since then, the foundational premises have gone through modifications and additional premises have been added as S-D logic has been extended and elaborated. Currently, S-D logic has eleven foundational premises. Five of these have been identified the axioms of S-D logic, from which the other FPs could be derived.| S-D logic axioms and foundational premises | |
| Axiom 1/FP1 | Service is the fundamental basis of exchange. |
| FP2 | Indirect exchange masks the fundamental basis of exchange. |
| FP3 | Goods are a distribution mechanism for service provision. |
| FP4 | Operant resources are the fundamental source of strategic benefit. |
| FP5 | All economies are service economies. |
| Axiom 2/FP6 | Value is cocreated by multiple actors, always including the beneficiary. |
| FP7 | Actors cannot deliver value but can participate in the creation and offering of value propositions. |
| FP8 | A service-centered view is inherently customer oriented and relational. |
| Axiom 3/FP9 | All social and economic actors are resource integrators. |
| Axiom 4/FP10 | Value is always uniquely and phenomenologically determined by the beneficiary. |
| Axiom 5/FP11 | Value cocreation is coordinated through actor-generated institutions and institutional arrangements. |
The first axiom Service is the fundamental basis of exchange is based on the previously introduced definition of service as the application of operant resources for the benefit of another actor. S-D logic argues that it is always fundamentally service, rather than goods, per se, that actors exchange as they strive to become better off. This 'service', a process, should not be confused with 'services',, usually intended to denote a unit of output, which is associated with goods dominant logic. The first axiom is at the heart of S-D logic, and thus foundational to the other FPs. For example, it implies that goods are distribution mechanisms for service provision and all economies are service economies. It also follows that money, when it is involved in exchanges, represents rights to future service. In other words, money can be viewed as a placeholder for future service and can be understood as a form of indirect service exchange that often masks the fundamental basis of exchange.
The second axiom, Value is cocreated by multiple actors, always including the beneficiary, contradicts the traditional worldview, in which firms are seen as the sole creator of value. Rather, it suggests that value is something that is always cocreated through the interaction of actors, either directly or indirectly. This axiom also enables one to see more clearly that the service-oriented view is inherently relational, because value does not arise prior to exchange transaction, but rather following it, in the use of the exchanged resources, in a particular context and in conjunction with resources provided by other service providers. This value creation is seen as unfolding, over time, with a consequence of continuing social and economic exchange, implicit contracts, and relational norms.
The original scope for this axiom was intended to shift the primary locus of value creation from the firm's sphere to the customer's and from the primacy of value-in-exchange, toward the primacy of value-in-use. More recently, S-D logic has begun to use to term value-in-context to capture the notion that value must be understood in the context of the beneficiary's world and the associated resources and other actors. This collaborative nature of value creation is best viewed from a higher level of aggregation than the dyad . That is, value co-creation through service-for-service exchange is at the very heart of society. It is also important to distinguish between co-production and the co-creation of value. Co-production refers to the customer's participation in the creation of the value-proposition, such as through co-design, customer-assembly, self-service, etc. Co-production is thus relatively optional and its advisability depends on a host of firm and customer conditions. This is different from co-creation of value, which is intended to capture the essential nature of value creation: it always involves the beneficiary's participation in some manner.
The third axiom All social and economic actors are resource integrators highlights that all actors are, fundamentally, not only providing service but also integrating resources, from various resources. Thus, the concept of resource-integrator does not just apply to the actor typically referred to as a "producer", but also, to a whole range of other actors, including what is usually referred to as the "consumer" or the "customer". It sets the stage for thinking about the mechanics and the networked nature of value co-creation, as well as the process through which the resources for service provision are created or emerge, the patterns of resource integration and the availability of resources from various market-facing, public, and private sources. It is through the resource integration and its many possible explicit and implicit combinations, facets, and intricacies that value is cocreated.
In the fourth axiom of S-D logic, Value is always uniquely and phenomenologically determined by the beneficiary, the term 'beneficiary' reflects the generic nature of actors. In reciprocal service exchange all actors are both providers and beneficiaries. This axiom reinforces that value is experiential. The key message of this axiom is that all value propositions are perceived and integrated differently by each actor and thus, value is also uniquely experienced and determined. That is, value must be understood in terms of the holistic combination of resources that lead to it, in the context of other resources. It is thus always unique to a single actor and, it follows, can only be determined by that actor, or at least with the actor as the central referent.
The fifth axiom Value cocreation is coordinated through actor-generated institutions and institutional arrangements draws attention to the role of institutions and the process of institutionalization in value cocreation. It is important to note that here the term institution does not refer to an organization. Instead, institutions are humanly devised rules, norms, and beliefs that enable and constrain action and make social life predictable and meaningful. Institutions and institutional arrangements—higher-order sets of interrelated institutions—enable actors to accomplish an ever-increasing level of service exchange and value cocreation under time and cognitive constraints in service ecosystems. This benefit, however, comes at a potential expense, as institutionalization can also lead to lock-in.
Service ecosystems perspective
To fully unlock the complex nature of value cocreation within the society, S-D logic has recently introduced the concept of a service ecosystem. As actors specialize in providing ever more sophisticated configurations of applied resources for each other, the systemic dependencies and interdependencies among them result as the emergence of complex exchange systems. S-D logic uses the term 'ecosystems' to identify these systems because it denotes actor–environmental interaction and energy flow. More specifically, the term 'service ecosystem' is used to identify the particular kind of critical flow—mutual service provision. Service ecosystems are defined in S-D logic as "relatively self-contained, self-adjusting systems of resource-integrating actors connected by shared institutional arrangements and mutual value creation through service exchange.".The service ecosystems concept is similar to the service systems concept of service science, defined as "a configuration of people, technologies, and other resources that interact with other service systems to create mutual value". However, the service ecosystem definition in S-D logic emphasizes the more general role of institutions, rather than technology. Likewise, the service ecosystems conceptualization is somewhat similar to Layton's conceptualization of a marketing system. However, he sees both knowledge and institutions as environmental, or exogenous, to marketing systems, whereas in S-D logic they are seen actor-generated and endogenous to service ecosystems.