Service-logic innovations: How to innovate customers, not products

California Management Review

Volumn 50, Issue 3, 2008, Pages 49-65

  Michel, Stefan ^a   Brown, Stephen W ^b   Gallan, Andrew S ^c,d  

^a School of Global Management ^*

^b ARIZONA STATE UNIVERSITY   (United States)

^c ARIZONA STATE UNIVERSITY   (United States)

^d CASE WESTERN RESERVE UNIVERSITY   (United States)

Author keywords

[No Author keywords available]

Indexed keywords

EID: 46049089415     PISSN: 00081256     EISSN: None     Source Type: Journal    
DOI: 10.2307/41166445     Document Type: Review

References (41)

1. D. Tapscott and A.D. Williams, Wikinomics: How Mass Collaboration Changes Everything (New York, NY: Portfolio Hardcover, 2006).
2. H.W. Chesbrough, "Why Companies Should Have Open Business Models," MIT Sloan Management Review, 48/2 (Winter 2007): 22-28.
3. Stephen L. Vargo and Robert F. Lusch. "Evolving to a New Dominant Logic for Marketing," Journal of Marketing, 68/1 (January 2004): 1-17;
4. S. Michel, S.W. Brown, and A.S. Gallan, "An Expanded and Strategic View of Discontinuous Innovations: Deploying a Service-Dominant Logic," Journal of the Academy of Marketing Science, 36/1 (2008): 54-66.
5. C.M. Christensen, S. Cook, and T. Hall, "Marketing Malpractice: The Cause and the Cure," Harvard Business Review, 83/12 (December 2005): 76.
6. The term "frozen activities" comes from R. Normann and R. Ramirez, "From Value Chain to Value Constellation: Designing Interactive Strategy," Harvard Business Review, 71/4 (July/August 1993): 65-77.
7. This distinction is made by C.M. Christensen and M.E. Raynor, The Innovator's Solution (Boston, MA: Harvard Business School Press, 2003).
8. Kim and Mauborgne have written extensively about "blue oceans," or "all the industries not in existence today . . . unknown market space." They contrast these with red oceans, or all industries in existence today. See W.C. Kim and R. Mauborgne, "Blue Ocean Strategy: From Theory to Practice," California Management Review, 47/3 (Spring 2005): 105. Christensen has written extensively about new growth markets, which are "created when innovating companies design a product and position its brand on a job for which no optimal product yet exists." See Christensen, Cook, and Hall, op. cit.
9. Normann and Ramirez, op. cit. p. 68
10. Chesbrough and Rosenbloom approach this contention by stating: "There is no single inherent value for the technology: if it subsequently were to be developed in different ways, it would likely accrue different value to its developer." The key point of difference between this assertion and ours is the inclusion of customer co-production, that is, the element of value that we attempt to illuminate more clearly in this work. We contend that customers take charge of value definition and extraction through their level of participation and control of consumption. See H. Chesbrough and R.S. Rosenbloom, "The Role of the Business Model in Capturing Value from Innovation: Evidence from Xerox Corporation's Technology Spin-Off Companies," Industrial and Corporate Change, 11/3 (June 2002): 529-555.
11. See H. W. Chesbrough, Open Innovation: The New Imperative for Creating and Profiting from Technology (Boston, MA: Harvard Business School Press, 2003): 51.
12. Open innovation is how "firms commercialize external (as well as internal) ideas by deploying outside (as well as in-house) pathways to the market. Specifically, companies can commercialize internal ideas through channels outside of the current businesses in order to generate value for the organization....At its root, open innovation is based on a landscape of abundant knowledge, which must be used readily if it is to provide value for the company that created it." H.W. Chesbrough, "The Era of Open Innovation," MIT Sloan Management Review, 44/3 (Spring 2003): 35-41.
13. This research design leads to a "winner's bias," because we do not study failed innovations. Furthermore, our research cannot explain how firms create and manage such innovations. Yet we contribute to managers' understanding of innovation through a new view of customer-focused and resource-integrated innovation.
14. Robert K. Yin, Application of Case Study Research, 2nd edition (Beverly Hills, CA: Sage, 2003), p. 7. Our work differs from the process suggested by Eisenhardt in our single-source approach, which precludes triangulation.
15. See Kathleen M. Eisenhardt, "Building Theories from Case Study Research," Academy of Management Review, 14/4 (October 1989): 532-619.
16. R.J. Glushko and C. Sims, "Service Innovation Using Design Patterns," paper presented at the Berkeley-TEKES Service Innovation Conference, Berkeley, CA, 2007, p. 18.
17. Ibid.
18. J.N. Sheth and B. Mittal, Customer Behavior: A Managerial Perspective (Mason, OH: Southwestern, Thomson, 2004).
19. Vargo and Lusch argue that the application of specialized skills and knowledge is a fundamental unit of exchange. Knowledge and skills can be transferred directly, through education and training, or indirectly through embedding into objects. Vargo and Lusch, op. cit., p. 6.
20. Normann and Ramirez, op. cit. See also Robert F. Lusch and Steven L. Vargo, "Service-Dominant Logic: Reactions, Reflections, and Refinements," Marketing Theory, 6/3 (September 2006): 281-288.
21. C.M. Christensen, S.D. Anthony, and E.A. Roth, Seeing What's Next. Using the Theories of Innovation to Predict Industry Change (Boston, MA: Harvard Business School Press, 2004).
22. Ibid.
23. S. Zuboff, In the Age of the Smart Machine (New York, NY: Basic Books, 1988).
24. R. Normann, Reframing Business: When the Map Changes the Landscape (Chichester: Wiley, 2001), p. 115.
25. Consequently, frozen knowledge can lessen the requirements of customers' skills and knowledge and thereby create a "substitution effect." As Christensen, Anthony, and Roth note, "companies make it easier for customers to accomplish important unfulfilled (and often overlooked) outcomes - jobs people need to get done but can't." Christensen, Anthony, and Roth, op. cit., p. 7. In addition, frozen knowledge can create a "complement effect," whereby the new combination of the customers' knowledge with the offerings' frozen knowledge create new solutions.
26. Lusch and Vargo, contend that "organizations exist to integrate and transform micro specialized competencies into complex services that are demanded in the marketplace." Lusch and Vargo, op. cit., p. 53.
27. Christensen, Anthony, and Roth, op. cit., p. 19.
28. This point is made clear by Normann and Ramirez, op. cit. It also matches the thinking of Lusch and Vargo, op. cit.
29. The linear value chain was introduced by Michael E. Porter, Competitive Advantage (New York, NY: The Free Press, 1985). The counterconcept of "value stars" was proposed by Normann, op. cit., p. 72.
30. Chesbrough, Open Innovation, p. 51.
31. Tapscott and Williams, op. cit.
32. George S. Day and Paul J.H. Schoemaker, Peripheral Vision. Detecting the Weak Signals that Will Make or Break Your Company (Boston, MA: Harvard Business School Press, 2006): 2.
33. For more, see Vargo and Lusch, op. cit. Chesbrough also has stated: "The inherent value of a technology remains latent until it is commercialized in some way." Chesbrough and Rosenbloom, op. cit., p. 530. For us, this claim supports the view that value is not produced and then transferred to the customer but rather that value is co-created by a customer, who has recognized some potential value in actualizing the service that an offering provides him.
34. Consumer studies using observation remain rare. Examples include Jonathan Boote and Ann Mathews, "'Saying Is One Thing; Doing Is Another': The Role of Observation in Marketing Research," Qualitative Market Research, 2/1 (1999): 15-21;
35. Eric J. Arnould and Linda L. Price, "River Magic: Extraordinary Experience and the Extended Service Encounter," Journal of Consumer Research, 20/1 (June 1993): 24-45.
36. Christensen, Anthony, and Roth, op. cit., p. 6. These authors highlight two reasons non-customers stay away: they cannot afford the product or service; or they lack the skills to co-create value. These explanations thus refer to the roles of users and payers.
37. Thomas T. Nagle and Reed K. Holden, The Strategy and Tactics of Pricing, 3rd edition (Upper Saddle River, NJ: Prentice Hall, 2002): 153
38. C.K. Prahalad and A. Hammond, "Serving the World's Poor, Profitably," Harvard Business Review, 80/9 (September 2002): 48-57.
39. J.P. Womack and D.T. Jones, "Lean Consumption," Harvard Business Review, 83/3 (March 2005): 58-68.
40. Normann, op. cit.; C.K. Prahalad and Venkatram Ramaswamy, "Co-Opting Customer Competence," Harvard Business Review, 78/1 (January/February 2000): 79-87.
41. One of the earliest remote surgeries was conducted on September 7, 2001 across the Atlantic Ocean, with a surgeon in New York performing a gallbladder operation on a patient 6,230 km away in Strasbourg, France. See 〈http://en.wikipedia.org/wiki/Remote_surgery〉, accessed March 2, 2007.