9789144125084 by Smakprov Media AB

Service logic

Per Skålén

Original title: Tjänstelogik © Studentlitteratur 2016

Copying prohibited This book is protected by the Swedish Copyright Act. Apart from the restricted rights for teachers and students to copy material for educational purposes, as regulated by the Bonus Copyright Access agreement, any copying is prohibited. For information about this agreement, please contact your course coordinator or Bonus Copyright Access. Should this book be published as an e-book, the e-book is protected against copying. Anyone who violates the Copyright Act may be prosecuted by a public prosecutor and sentenced either to a fine or to imprisonment for up to 2 years and may be liable to pay compensation to the author or to the rightsholder. Studentlitteratur publishes digitally as well as in print formats. Studentlitteratur’s printed matter is sustainably produced, both as regards paper and the printing process.

Art. No 39867 ISBN 978-91-44-12508-4 First edition 1:1 © Studentlitteratur 2018 studentlitteratur.se Studentlitteratur AB, Lund Translation: Rikard Ehnsiö Cover layout: Francisco Ortega Cover illustration: Shutterstock.com Figure 1.1, 1.2, 2.2, 3.2, 3.4, 4.5 and 5.1: Shutterstock.com Printed by Interak, Poland 2018

CONTENTS

Preface 5

1 Introduction: Goods Logic and Service Logic 9 Goods logic 10 Service logic 11 Comprehensive customer orientation 16 Service logic for service companies, industrial companies and the public sector 20 Service logic – a new research paradigm 23 The remaining outline of the book 26 Reference literature 28 Topics for discussion 28 2 The Core of Service Logic 31 Resource integration 33 The value facilitation of organizations 37 The value creation of customers 45 The value co-creation of customers and organizations 48 Summary 52 Reference literature 54 Topics for discussion 55 © S t u d entlitterat u r

Contents

3 Service Ecosystems and Social Systems 57 Service ecosystems 58 Social systems 79 Value co-creation in the public sector 88 Summary 90 Reference literature 90 Topics for discussion 92 4 Service Innovation 93 The core of service innovation 94 Methods for service innovation 99 Different types of service innovation 102 Service ecosystem innovation 110 Summary 115 Reference literature 116 Topics for discussion 117 5 Critical Reflections 119 Value co-destruction 120 Working consumers 128 Conflicts and service logic 132 Transformative service research 134 Critical service research 138 Summary 142 Reference literature 143 Topics for discussion 145 Index 147

PREFACE

When lecturing, I sometimes jokingly point out that what has been achieved in service research in a little more than ten years is to remove an “s.” With the introduction of service logic, service research has gone from focusing on “services” with an “s” at the end to focusing on service without an “s” at the end (i.e., the service performed/obtained). Nevertheless, according to many observers, this seemingly minor change constitutes a revolution, a “paradigm shift” with regard to how value is created, as it represents a shift from a goods logic to a service logic. This “paradigm shift” is the focus of this book. Many people perceive research on service logic as both abstract and theoretical. Hence, the ambition of this book is to introduce service logic to a wider audience in an easily accessible format. For those looking for more in-depth information, I recommended the research literature. A good point of departure in this regard is the reference literature presented at the end of each chapter. In order to render the relatively abstract presentation of service logic in research literature more concrete, I use a number of examples and illustrative cases from real life. The bulk of these examples and cases are not based on systematic research and do not serve to prove or disprove service logic as such. Instead, they are meant to illustrate concepts and key arguments in the field of service logic. Here it should also be pointed out that this book does not present my own views regarding service logic. As shown in Chapter 5, the research I have carried out has to some extent involved criticism of service logic. The objective of this book is to explain service logic, not to discuss whether or not I like it. © S t u d entlitterat u r

Preface

There are three target groups for this book. One includes managers and other practitioners in both the private and the public sector. Throughout this book, they get guidance on how their organizations may transform from being based on a goods logic – with a focus on the internal value creation entailed by this type of logic – to be based on a service logic – with a focus on customers and other users’ value creation. The book also offers guidance in terms of service innovation and other areas relevant in relation to service logic. Topics for discussion are found at the end of each chapter, aimed at making the reader reflect upon and alter his or her own activities on the basis of service logic. The second target group includes university and college students. This book serves as a complement to the more traditional description of the relationship between companies and customers, based on a goods logic, which tends to constitute the foundation of most introductory books in marketing and management. Students also find topics for discussion at the end of each chapter, aiming to increase their understanding of service logic and place it in relation to real-life situations. The third group that may benefit from reading this book consists of researchers and PhD students. While the book aims to present service logic in an easily accessible format, it may still serve as a first introduction to service logic for researchers; especially considering the fact that many researchers and PhD students have told me that they find service logic somewhat hard to understand and come to grips with. My own research environment – the Service Research Center (CTF) at Karlstad University – has had a great deal of impact on me writing this book. Many of my colleagues at CTF both teach and study service logic and have their own views, both positive and negative, regarding this topic. My own thinking and understanding concerning service logic have developed as a result of discussions with my colleagues at CTF. At the risk of leaving someone out, I would in particular like to thank the following colleagues at CTF: Kotaiba Abdul Aal, Carolina Camén, Bo Edvardsson, Bo Enquist, Markus Fellesson, Martin Fransson, Anna Fyrberg-Yngfalk, Anders Gustafsson, Henrietta Huzell, Jenny Karlsson, Johan Kaluza, Pelle Kristensson, Kaisa Koskela-Huotari, Peter Magnusson, Johan Quist, Lasse Witell, Maria Åkesson and Henrik Öhlin. I would also like to thank my colleagues at CIS – Centre for Innovation 6

Preface

in Services, Inland Norway University of Applied Sciences – where I have served as a visiting professor since 2013. I especially want to thank Randi Bredvold, Marit Engen, Lars Fuglsang, Ulla Higdem, Sveinung Jørgensen, Maria Røhnebæk, Rolf Rønning, Martin Rønningen and Gunhild Wedum. I furthermore want to thank Bernard Cova and Stefano Pace at the Kedge Business School in Marseille, Martin Fougère, Johanna Gummerus, Catharina von Koskull and Tore Strandvik at the Hanken School of Economics in Helsinki, Rohit Varman at Indian Institute of Management in Calcutta and Mikko Laamanen at the Royal Holloway University of London, all of with whom I have engaged in productive collaborations, which in turn contributed to the creation of this book. I would also like to thank my editor at Studentlitteratur, Ola Håkansson, for his input and support. My colleague Peter Magnusson deserves special thanks for showing me how the development of Camelbak (see Chapter 4) represents an example of userdriven innovation. In the last phase of writing this book, Carolina Camén, Martin Fransson, Rolf Rønning, Maria Åkesson and Henrik Öhlin read all or some parts of the manuscript. Thank you for this. Nevertheless, even if I am indebted to my many outstanding colleagues and friends, I am solely responsible for the contents of this text. Karlstad, Sweden January 12, 2018 Per Skålén

CHAPTER 3

Service Ecosystems and Social Systems

Value co-creation tends to be complex in practice. Frequently, it involves more actors than just customers and organizations. In order to realize the value creation represented by a Manchester United game, you not only need the soccer club Manchester United Football Club and supporters buying tickets. You also need an opponent like Manchester City, the English Football Association (FA) organizing a league, police keeping supporters who have had one beer too many in line, medical personnel to take care of injured supporters, a public transportation system to get fans to and from the stadium, hotels for accommodating supporters from out of town and a plethora of additional actors and resources. Likewise, the service of using a cellphone, in addition to customers and operators providing the service, also depends on governmental agencies giving out frequencies and permits, owners providing capital, as well as companies, such as Ericsson, manufacturing telecom equipment, which in turn are part of a network of suppliers, competitors and governmental agencies. In practice, value creation occurs in so-called service ecosystems consisting of different actors, which together integrate their different resources and co-create value. This chapter sets out to explain what service ecosystems are and how value is co-created in these systems. In addition to service ecosystems, in this chapter we also discuss the social systems in which service ecosystems are embedded. Social systems are social structures consisting of values, norms, cognitive frameworks and power structures that govern resource integration in service ecosystems. There are, for instance, laws, an example of a power structure, regulating the activities of a telecom operator with regard to the requirements it needs to fulfil in ÂŠ â&#x20AC;&#x2030; S t u d entlitterat u r

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order to obtain a frequency. Values and norms also affect the activities of companies. Different national cultures are, for instance, characterized by different perceptions regarding how people should interact, which in turn has an effect on how telecom operators sell their plans. The sales process in Italy is probably characterized by a more intense form of body language, whereas Swedish salespeople are more unobtrusive. On the basis of this description of service ecosystems and how they are embedded in social systems, in this chapter we also discuss service logic in the public sector. What distinguishes value co-creation in public service ecosystems from value creation in private service ecosystems? To answer this question, the concept of collective value becomes key. Collective value means that public organizations are not only responsible for satisfying and creating conditions for the subjective value creation of customers, but also for the collective value creation of citizens. Collective value may end up in conflict with the value creation of a specific individual. A collective desire among the citizenry for law and order may, for instance, result in certain individuals ending up in prison, which constitutes an example of value creation for the collective but not for the individual – even though the individual may like law and order as long as it does not affect him or her. In this chapter, we also discuss how service ecosystems change and how such changes may manifest themselves. Here, we adopt a particular focus on how service ecosystems may be altered from being an ecosystem dominated by a goods logic into becoming a system dominated by a service logic, as well as the role of social systems in such processes of change.

Service ecosystems Service ecosystems are formally defined as configurations of actors that integrate resources and co-create mutual value in relation to a set of common objectives. As explained in the previous chapter, resources may be tangible or intangible or may take the form of money. Actors are those operating in service ecosystems and may involve people, groups (such as a company or a sports club) or larger communities (e.g., an ethnic or religious group). Service ecosystems are made up of interlinked actors and resources co-creating value. Some scholars believe that all forms of value co-creation take place within the framework of a service ecosystem, or in other words: all forms 58

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of value co-creation should be understood, analyzed and studied based on an ecosystems perspective. Based on such a perspective, the configuration of resources and actors constituting the service ecosystem may look vastly different. It could range from a customer and an employee at an organization creating value together to complex industrial networks consisting of a large number of organizations, customers, suppliers, public regulatory agencies, states, non-profit organizations, trade unions and so on; all of which contribute with specific resources in order to co-create value. However, between these two extremes, a service ecosystem may also consist of many types of configurations of actors that integrate resources; for example, a family, an association, a company, a governmental agency, two governmental agencies creating value together with citizens. It may involve a country, several countries collaborating in entities such as the EU, or a non-governmental organization such as the Red Cross, which receives donations from private individuals and companies and which carries out its activities in cooperation with a number of different states. Actors forming service ecosystems contribute with their respective resources in order to co-create value. These contributions of resources may take the form of knowledge, experience, tools, IT systems, buildings and money, or they may be financial guarantees in order to ensure the economic survival of an organization. Some resources do not belong to any particular actor in the service ecosystem, but are owned jointly or take the form of common public goods, such as air and water. Nevertheless, they may serve as a prerequisite for value co-creation. In short, a service ecosystem may be a relatively simple configuration of actors and resources working toward common objectives – but it may also take the form of a highly complex configuration.

B2C, B2B, A2A – or? It is also important to point out that the value co-creation taking place in service ecosystems is interdependent in nature. As a result, several service scholars have argued that one should not talk about exchange and value co-creation from companies to consumers the way we did in the previous chapter, in the form of business-to-consumer (B2C) or business-to-business (B2B), but instead look upon all actors involved in a service ecosystem as © S t u d entlitterat u r

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actors without any fixed and pre-defined roles. These scholars thus argue that service logic should focus on relationships, exchange and value co-creation in the form of an actor-to-actor (A2A) conceptualization. The logic behind this line of reasoning is based on the fact that all actors in a service ecosystem create value for each other. In a strict sense, according to the A2A perspective, there are no customers or organizations, as what we refer to as the end customer not only creates value in use for him- or herself, but also contributes to creating value in use for a company by paying for value propositions or by assisting with the development and marketing of value propositions – a phenomenon referred to in the previous chapter as co-production. In addition, companies are also customers of other companies, just as governmental agencies, nonprofit organizations and even states are also customers. In short, actors in service ecosystems do not have any fixed roles; they may take on different roles at different times or take on different roles within the framework of the same service ecosystem. According to the A2A perspective, looking upon value co-creation as an interaction between an organization and a customer, as we did in Chapter 2, is a simplification that results in an inaccurate depiction of the world. Hence, the A2A perspective contradicts our discussion in Chapter 2. However, it is possible to offer a number of arguments against this A2A perspective. First, from a legal perspective, some actors are in fact required to carry out particular functions. There are, for instance, detailed laws and rules governing the activities of companies and public organizations. These laws and rules, however, do not apply to customers contributing to the value creation of companies and public organizations by means of co-production. Unlike companies, customers in most countries enjoy consumer protection and customers cannot be punished for malfeasance, even if they have participated in the value creation process of the Swedish Social Insurance Agency. Second, actors are quite different in nature. Public agencies and companies possess collective resources unavailable to a private individual, which may put the latter at a disadvantage in case of disputes. In addition, states and international organizations, such as the EU, enjoy powers unavailable to companies and public agencies. A state may, for instance, pass laws that companies and public agencies need to comply with. 60

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A third argument against the A2A perspective is that it is based on the assumption that customers actually want and are able to create value for other actors. Research shows that there are many people who are unable to do so or are simply not interested. There is, for example, research showing that young bank customers are not interested in taking responsibility for and getting involved in their retirement savings in the rational way banks want them to – which would then create value for the bank. Research and initiatives such as #metoo also show that a fair number of customers in many ways impede value co-creation by being rude, violent or sexually harassing employees. There are also customers who are unable to contribute to the value creation of other actors due to mental or physical disabilities. Senile individuals find it difficult to create value for care companies by, for example, contributing to the innovation processes of such companies. In short, the A2A perspective assumes that the customer is more active, interested, responsible and prepared to make sacrifices than is the case according to some empirical research and examples from real life. One last objection, more related to an educational context, is that writing a textbook (like this one) might be difficult without using established concepts such as customers, companies, governmental agencies and states when using examples in order to clarify discussions. Many academic articles on service logic based on an ecosystems perspective and an A2A perspective have rightly been criticized for being quite abstract. Against this background, this book will continue to talk about customers, companies, governmental agencies, states and the like, and not about undefined actors. At the same time, the reader may sometimes be reminded of the fact that actors may adopt different roles – sometimes several roles simultaneously – when value is being co-created in service ecosystems. This is not least important to understand for leaders, as leadership – according to a service ecosystem perspective – is based on understanding the relationships between the organization and various actors and how these may change over time in order to influence and take advantage of actors in the service ecosystem.

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Different types of value Now that we have discussed value being co-created through resource integration in service ecosystems and that the actors in service ecosystems may take on different roles, which types of value are co-created by these actors in service ecosystems? As mentioned above, service logic not only focuses on economic value but also on other types of value, in particular social – in the form of family relations and relationships between people in networks – and cultural – in the form of values and norms. In other words, there is more to value than money. Sure, the value co-created in a service ecosystem may involve the efforts of a large corporation to generate as much profit as possible for its owners or an individual’s desire to maximize his or her salary. But co-creation may also occur in social networks like Facebook, where people are able to maintain existing relationships, forge new relationships and re-establish relationships with old friends. Another example of a service ecosystem involves municipal music education, within the framework of which music teachers co-create value with teens interested in music in facilities and on instruments provided by the municipality. The value co-created within the framework of a municipal music school may be referred to as cultural; both in the sense that this activity is cultural in nature, but also in a wider sense, as this activity creates and reproduces particular values and norms. In practice, different types of value and value co-creation in service ecosystems are interwoven with one another. Social networks create social value for their users by creating and maintaining ties between these users, but also economic value for companies – such as Facebook (see Figure 3.1) – making money on ads and other forms of advertising precisely due to the fact that they link people together and have access to data on social relations from a large number of users. Furthermore, the social ties between people in social networks are frequently based on cultural values. The people linked to each other in different Facebook groups frequently share particular interests, values and norms. By having knowledge of these, Facebook is able to offer its advertisers targeted marketing aimed at a specific customer group these advertisers want to focus on. In order to generate profit, all companies need to ensure that their employees to some extent enjoy their work socially, which is why they also 62

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Figure 3.1 In social networks such as Facebook, economic, social and cultural value creation are interwoven.

need to relate their activities to cultural values. Furthermore, the public activities at the municipal music school not only constitute a cultural activity, but also a social activity, as these youths become friends and enjoy the company of each other. The municipal music school also has financial implications, as it entails fees. On the other hand, these fees are subsidized, which is based on a notion of publically funding some collective activities – something that may be said to represent a feature of Swedish culture. The fact of the matter is that the different types of value are frequently interchangeable. Facebook is a good example in this regard. The social value created for users by Facebook through its platform and the values and norms expressed by users in their interactions are transformed into economic value through the advertising revenues Facebook receives by knowing and taking advantage of the social ties and cultural leanings of its users. That is why scholars talk about the different types of value in terms of capital – economic capital, social capital and cultural capital.

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Healthcare as a service ecosystem Analyzing and understanding different activities and organizations as service ecosystems enables us to understand these from the perspective of service logic. This may in turn create conditions for changing these service ecosystems. The Swedish healthcare system represents a highly complex service ecosystem. It includes a large number of different types of actors – staff, patients, politicians, administrators, pharmaceutical companies, overseeing entities (e.g., the National Board of Health and Welfare) and so on – all of which provide different types of resources and co-create different types of value (economic, social and cultural) by integrating these. Heterogeneous actors focusing on different things Furthermore, several of the groups of actors constituting the Swedish healthcare system are also heterogeneous internally. Patients may be divided into chronic and non-chronic patients, and there are many types of chronic patients (e.g., cardiac and diabetic patients). The staff consists of doctors, nurses, supply staff, secretaries, etc. Politicians are divided into a number of different parties and also into different levels – municipality, county and the state as a whole. The actors involved in the system are also embedded in different social systems involving different logics in terms of function, as well as different priorities with regard to economic, cultural and social value co-creation. One might for instance argue that patient associations have focused on social value co-creation by creating a community for people suffering from the same chronic disease and by representing their interests. Pharmaceutical companies have naturally focused on generating profit, even though they naturally also want to cure and alleviate the diseases their customers suffer from. This complexity has resulted in problems in terms of co-creating value within the Swedish healthcare system, something we discuss below. Before this discussion, however, it should be pointed out that healthcare not only represents a complex service ecosystem, but also a service ecosystem characterized by conflict and power struggles between various interests and stakeholders. However, power and conflicts have not received all that much focus in research on service logic and this is something we discuss in Chapter 5. Goods logic within healthcare Healthcare has traditionally been organized based on the needs of the organizations involved – based on a goods logic rather than a service

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logic. Hospitals have been organized according to the specialties of the doctors. Patients have been divided up according to heart, lungs, blood, etc. Pharmaceutical companies have focused on creating new drugs that may contribute to continued profits, not on developing drugs for diseases mainly afflicting poorer groups, such as malaria. Politicians have frequently focused on maintaining or reaching a position of power. The fact that every actor has focused on its own interests and production process, rather than on the joint value co-creation of the service ecosystem, has resulted in less than optimal collaborations between various actors. Transferring patients between municipal- and county-level facilities has frequently involved a rather complicated and time-consuming process. As a result of political resistance, pharmaceutical companies have not always been granted access to healthcare so that they may test new value propositions. The collaboration between doctors and the Social Insurance Agency has sometimes been less than satisfying. Certificates and documents have been lost or arrived too late, resulting in people on sick leave not receiving their sick pay on time. As a result, the co-creation of value and the integration of resources for joint value creation has not always been optimal. Not least the value creation of patients has been adversely affected. From time to time, the media has reported on patients suffering from serious illness who have met a plethora of healthcare providers, but where no one has taken any overall responsibility. As a service ecosystem, the healthcare sector has worked according to a goods logic. The majority of actors involved have focused on their own internal efficiency, without taking joint resource integration and value co-creation into account. The point of departure when designing this system has not been the patient’s value in use. Even though many of these actors have had good intentions and done their best on the basis of their own perspective, the resource integration has not been optimal in this ecosystem. Service logic within healthcare today If healthcare instead were to be designed along the lines of a service logic and organized around the value creation in use of patients, then the actors involved would focus more on building joint value co-creation processes and designing the healthcare system based on these. Some might think that the healthcare service ecosystem is already designed according to a service logic, and there is in fact some truth to this claim. Healthcare generates a lot of data about patients. Patient habits are studied in research, frequently funded by county councils and serving as

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the basis for political decisions. Patients may report malpractice and other forms of complaints to patient councils. Quality as perceived by patients is measured and these measurements have an impact on resource allocation: good quality leads to additional funds for healthcare providers, whereas poor quality leads to sanctions. Despite these and other initiatives, however, healthcare does not work in accordance with a service logic. Instead, healthcare may be described as a customer-oriented service ecosystem based on a goods logic and a customer-oriented bureaucracy (cf. the discussion on customer orientation in Chapter 1). The service ecosystem is focused on what the patient wants (i.e., make him or her well, relieve pain, etc.), but is not geared toward helping the patient create value in use in his or her resource integration processes. Attempts to implement a service logic – home care for the elderly Nevertheless, there is hope even for healthcare as a service ecosystem. There are several experimental activities taking place in Sweden that are consciously or unconsciously based on a service logic. One example of healthcare organized around the patient’s value creation in use, and where the staff see their role as supporting the resource integration of patients by means of value co-creation, is the primary care system in the county of Skaraborg, which received some attention in the radio program Studio Ett on November 13, 2014. Instead of senior citizens having to go to the health center, they are visited and examined in their homes by doctors; in other words, in the context where senior citizens – who frequently suffer from a number of health issues – create value in use. According to the doctor interviewed in the radio program, this includes a number of benefits. Patients feel safer in their homes, it is possible to avoid problems associated with them having forgotten to bring documents, they get less tired and stressed and it is easier to examine the patients in their home environment, where healthcare professionals are able to observe how they function in everyday life. When older people receive care in health centers, they sometimes forget what the doctor said and they are more likely to follow the advice if they receive it at home. This means that not only do the staff help these senior citizens create better value at home, but as a matter of fact senior citizens also turn out to be better co-creators of value, as they have their documents available and feel calmer at home. Primary healthcare, and in particular geriatric care, has been criticized for not working all that well in Sweden. One reason for this is a reform related

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to the care of senior citizens that was launched at the beginning of the 1990s, which meant that municipalities were made responsible for providing care for the elderly and county councils were made responsible for providing healthcare for the elderly. As a result, the cooperation, or the joint integration of resources for the value creation of patients, was poor. Simply put, patients found themselves trapped in-between two bureaucracies. What has been illustrated by the example of home care in Skaraborg is that the care process has been organized around the patient’s value creation in use and also that service ecosystems do not necessarily have to be blindly organized according to formal organizational boundaries, but that these may be crossed if necessary to create value in use for the people the service ecosystem is meant to serve. As the doctor says in the radio program – he is a municipal doctor paid by the county council. This arrangement is based on trust between the two parties instead of power and conflict, but it is also based on the common objective of the actors in the service ecosystem to create value in use for the patient. Organizing care around the value creation of senior citizens has also had positive effects for municipalities and county councils, as it turns out that the costs for the elderly patients in Skaraborg decreased substantially. Even if each individual visit takes more time when doctors leave a goods logic at the health center and enter a service logic at the homes of the patients, they still create much more value – patients need less care.

Figure 3.2 Experimental projects where the patient’s value creation in use takes center stage are carried out in the area of geriatric care.

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Per Skålén is a professor of business administration based at the Service Research Center, Karlstad University, Sweden, while also serving as a guest professor at the Centre for Innovation in Services, Inland Norway University of Applied Sciences. In his research and teaching, Skålén focuses on service logic, service innovation and service ecosystems.

Service logic What is service logic? What does it mean to manage and analyze organizations based on a perspective of service logic? Service logic may be contrasted with a goods logic, which used to maintain a dominant position not only in the private and public sector, but also in research in relation to marketing and organizations. According to a goods logic, value is created internally in organizations, whereas a service logic suggests that value is created by customers when using goods or services. Service logic not only alters the ways in which service innovation occurs, but also the ways in which organizations, customers and other actors collaborate. In this book, key concepts related to service logic are explained, such as value co-creation and resource integration. It also brings up how service innovation is carried out from the perspective of a service logic and how actors co-create value in service ecosystems. Furthermore, the book also presents a large number of examples involving online companies such as Spotify, traditional service firms such as Ikea, industrial companies such as Volvo and public organizations such as the Swedish Tax Authority. Service logic is targeted toward students, scholars and leaders and practitioners in the private and public sector. Art.nr 39867