What we’re thinking
Now we’re delving into a key shift in thinking. Instead of seeing a world where we exchanges for value, we see one where we exchange service. Though let’s be clear on our definition of service: it is applying skills and knowledge for your own or, usually, another’s benefit.
Some exchanges are direct between two parties. Though most appear to be indirect – typically frozen in goods* or transitive** in nature.
Additionally, our exchanges are often separated in time and of differing size (effort involved). Meaning in a non-simple world we need a way to keep track of service owed, transferred, and a concept of faireness. The solution is the separate topics of service credits and equitable exchange.
The use of money as an implementation of service credits and its broader properties is one leader to us into thinking in terms of exchanging for value rather than service.
What are the benefits of seeing a workd that exchanges applications of skills and competence for other’s benefit? It allows us to remove the constraining goods vs service debate, moving us instead to a flexible resource mix. It opens our mind to business model innovations. And informs us flexibility is necessary by focussing on creating progress rather than outputs.
But to get there, we need to see why we exchange service not value.
* we see goods as freezing skills and competence allowing to be distributed in time and location and unfrozen during acts of resource integration.
** an example of transitive exchanges is where you perform a service for an actor and get service credits for a future exchange; and it is accepted by a society/network that you can use those fredits to obtain a service from another actor rather than performing a service for them
***tokens representing future call on service, with no intrinsic value. Money has been a successful long time service credit; although in a goods-dominant logic world we imbue it with value.
Rather than see the world as a place that engages in value-exchange of outputs, we are better off seeing it as one where we exchange service(the means of reaching an outcome – or in the progress economy terminology: helping make progress).
Traditionally we see a world that exchanges for value. We pay cash to own products or get an outcome from services (outputs). We get cash in exchange for our 40 hours a week labour. We’re exchanging value.
Back in 1776, Adam Smith told us in “Wealth of nations” that goods, and by that, value in exchange, was the key to economic growth. It’s from this point that we start defining service in terms of goods; casting them as poor relatives.
Multitudes of business are built on this premise, as is the curriculum of countless business schools, and economics classes at all levels. And I dare say your own perspective of your experiences.
And it is clearly not incorrect to think that way; GDP has grown since 1776. However, I believe we’ve reached the limits of its usefulness as a model.
This is not unfamiliar to science. The atom as an indivisible unit helps explain and teach physics and chemistry to a certain level. But at some, now relatively early, point the model is limited and a new one is needed to explain and keep scientific discovery growing. X’s electron orbit model came next and allowed us to understand and explain more, moving science on. However, we needed to discover and explore quantum physics, where the model shifts away from electrons orbiting a nucleus like planets to their position being given probabilistically. Allowing us to understand electron tunnelling, and thus transistors and how catalysts in reactions work.
The point is, a model works well, until it no longer helps push boundaries, and then a different model is needed. The old model may still be useful to help get students to a certain level of knowledge; or may need to be thrown away to avoid confusion.
This is where we are with economics/marketing. I believe we’ve now reached the limits of the value-in-exchange model in hunting for growth.
A model that views service as the basis of exchange appears most useful. Such as the service-dominant logic of Vargo & Lush. Although we have to carefully define service; and furthermore why people seek to exchange it – to make progress we lack the resource to do so ourselves. Indeed Adam Smith didn’t totally dismiss service initially. But in his time, service was servants and shop keepers.
There’s a lot to unpack here.
Let’s explore our common perception first and the restrictions it brings to growth. Then we can jump into the evolved view of service exchange.
Understanding Value Exchange
Today’s prevailing view of how the world works can be called goods-dominant logic (Vargo & Lush). It revolves around successive manufacturers embedding value in tangible through manufacturing processes; with exchanges for that value, eventually with a final moment where that embedded value is exchanged with an end customer (usually for cash).
Services (plural) fit in the same model with service providers embedding value in their service which a consumer exchanges cash for the output of the service.
This build up of embedded value is visualised in the diagram below.
An example would be a car. It starts life as a bunch of raw materials sitting in the earth. A miner comes along and extracts these materials. The market sees the extracted material as more valuable than when it sat in the ground and market actors are prepared to swap cash, or similar, with the minor for their output. The next market actor might take the extracted material and form it into sheet metal; thereby embedding more value. Another actor may then manipulate those sheets into body panels. Eventually a car manufacturer puts the panels together with other parts to build the object contain8ng the value the end customer wants: a car.
What happens to that value when the manufacturer (or dealer) sells it to a customer? Well, some is destroyed immediately the car is driven of the dealers parking lot. The remainder is used up as the customer drives the car around and time passes.
What’s the issue?
Firstly it focusses us on to a single point of exchange, often blinding us to growth/innovation opportunities in the wider context. Including missing out on the circular economy. A case in point is how relatively simple it is to map the linear economy’s “take-make-waste” model to the goods-dominant logic view of value.
Secondly it drives a division between goods and services. Services are seen as the awkward, poor, relatives of goods (also plural). They are outputs. And seen as intangible, inconsistent, inseparable, require involvement and you cannot create an inventory. The desire should be to produce standard units of outputs whilst minimising customer changes/inputs. Additionally they require us to extend McCarthy’s familiar 4Ps of the marketing mix – product, price, place, promotion – to be 7Ps, or 8Ps, or maybe 4Cs, or…
We can look back to Adam Smith’s “Wealth of nations” in 1776 for the seeds of this division between goods and services and ultimately focussing economics (and subsequently marketing) on a logic of growth revolving around tangible outputs: goods.
Goods-dominant logic is also the view we tend to observe in life (if we know no different); and is extensively taught in marketing and economics classes as well as at business schools today; often without any alternative view.
It’s been useful since the time of Adam Smith. But, I believe we are now reaching the limits of usefulness in hunting new growth. For example, it leaves us struggling to explain the ongoing shift to a service economy.