The Progress Economy

What if, instead of being embedded in products and exchanged, value is really created only as products are used?

key concept: value is created when products are used

Value-in-use comes from observing that value emerges as products are used, rather than being embedded in those products. Grönroos captured this shift succinctly:

It is of course only logical to assume that the value really emerges for customers when goods and services do something for them. Before this happens, only potential value exists

Grönroos (2004) “Adopting a service logic for marketing”

We concern ourselves with outcomes rather than outputs.

The significance of this observation becomes apparent when we consider a simple example. A power drill sitting on a shelf creates no value for its owner. It may be well designed, manufactured to a high standard, and packed with useful features, but until it is used it has not improved anyone’s circumstances. The drill possesses the potential to create value, but that potential remains unrealised. Value only emerges when the drill is used to accomplish something meaningful, whether that is hanging a picture, building a bookcase, or renovating a house.

The same logic applies to services. A call centre staffed with highly trained agents does not create value simply because it exists. When no customers are calling, no value is being created. The organisation possesses the capability to help customers, but the value associated with that capability emerges only when it is applied to address a customer’s situation.

value-in-use: a view of value creation that sees value being co-created as competences are applied to improve a beneficiary’s well-being.

Defining value: Improvement in well-being

Value, under this model, is not the most a user is prepared to pay (like with value-in-exchange), rather it is an outcome of using a product. Researcher’s in this area use different language, but tend to converge on an underlying idea: value is experienced as an improvement in an actor’s situation.

Grönroos, writing from a Service Logic perspective, describes value as becoming “better off”:

Value for customers means that after they have been assisted by a self-service process (cooking a meal or withdrawing cash from an ATM) or a full-service process (eating out at a restaurant or withdrawing cash over the counter in a bank) they are or feel better off than before.

Grönroos, C. (2008) ”Service logic revisited: who creates value? And who co-creates?”;
European Business Review 20(4):298-314

Service-Dominant Logic arrives at a closely related position. Vargo and colleagues define value as an emergent change in an actor’s well-being or viability:

value – an emergent change in the well-being or viability of a particular system/ actor, which can be positively or negatively valanced

Vargo, Peters, Kjellberg, Koskela-Huotari (2022) ”Emergence in marketing: an institutional and ecosystem framework”; Journal of the Academy of Marketing Science 51(4)

Taken together, these perspectives suggest that value is not something contained within a product, waiting to be exchanged with a customer. Nor is it something that exists independently of use. The common thread is improvement. Whether described as becoming better off, increasing viability, or improving well-being, value represents a difference between an actor’s situation before and after a service has been performed.

We can express this formally as:

or:

The change in well-being does not occur spontaneously. It is the consequence of a service being performed, whether through self-service, full-service, or somewhere on a continuum between the two. We can therefore express value as the outcome of service acting upon an actor’s existing state:

Creating value

If value is an improvement in well-being, the next question is obvious: how does that improvement occur?

Both Service Logic and Service-Dominant Logic arrive at a similar answer.

Grönroos describes service as a process consisting of a series of activities (Grönroos, C. (2000) Service Management and Marketing: A Customer Relationship Management Approach). Vargo and Lusch describe service as the application of competences – skills and knowledge – for the benefit of another actor (). 

Value emerges through action. We can therefore think of service as a sequence of activities:

Value is therefore seen as being created as competences (skills and knowledge) are applied to improve an actor’s well-being. These applications happens through a number of activities:

and value as the change in well-being that results from performing those activities:

The exact activities involved vary enormously. Cooking a meal, learning a language, receiving medical treatment, operating machinery, managing investments, or planning a holiday all involve different activities. What they share is that well-being changes through what actors do rather than through what they possess.

Self-Service, Full-Service, and Shared Service

The activities that create value may be performed by the beneficiary themselves, by another actor, or by some combination of the two.

When a person prepares their own meal, learns from a book, or assembles furniture, value emerges primarily through self-service activities. When a chef prepares a meal or a consultant performs analysis on behalf of a client, value emerges primarily through provider-led activities.

Most situations lie somewhere between these extremes.

Consider a haircut. The customer explains what they want, responds to questions, evaluates progress, and provides feedback. The hairdresser contributes expertise, tools, and labour. The outcome emerges from the combined activities of both parties.

This shared participation explains why value is frequently described as co-created. Vargo and Lusch argue that value is always co-created because the beneficiary must ultimately integrate resources into their own context before value can emerge. Grönroos takes a narrower position, arguing that co-creation occurs only when providers actively participate in interactive processes with customers (Grönroos (2008) “Service Logic Revisited: Who Creates Value? And Who Co-creates?”).

Either way, we can reflect this in our definition of value as follows (we make.a notation shortcut by grouping actions together by actor, in reality it is not often so clean):

Multiple providers and service systems

Value creation often involves many actors working together.

An online purchase illustrates this well. The customer’s experience depends not only on the retailer but also on payment providers, logistics firms, warehouse operators, software platforms, customer service teams, telecommunications infrastructure, and many other participants.

No single actor creates the outcome independently. Instead, value emerges from the coordinated activities of an interconnected service system.

Maglio, Vargo, Caswell, and Spohrer define a service system as:

service system, a configuration of people, technologies, and other resources that interact with other service systems to create mutual value.

Maglio, Vargo, Caswell, Spohrer (2009) ”The Service System Is the Basic Abstraction of Service Science”; Inf Syst E-Bus Managent 7:395–406

This is represented in our notation as follows (with the same caveat of notation simplification):

Multiple value creation

Traditional value-in-exchange thinking tends to focus on customer value. Service-Dominant Logic broadens the perspective by recognising that all actors seek improvements in their own well-being. Customers seek outcomes. Providers seek revenue, learning, reputation, data, capabilities, or access to future opportunities. Regulators, partners, and platform operators may each pursue different improvements in their own situations. As a result, value creation within a service system is rarely unidirectional. Multiple actors simultaneously attempt to improve their own well-being through participation in the same set of activities.

Value creation can be sought by multiple actors in the service system. A provider may be looking to gain consolidated data on its customers, for example. The view of value for $actor_k$ , where there are n actors in the service system, can therefore be represented as:

The insight we gain from understanding this is that innovation can be about reconfiguring the service system as well as the activities involved.

Destroying value

Destroying value happens when one or more of the actors involved in improving wellbeing hinder one or more of the wellbeing improvement activities. Plé and Cácares encapsulate that concept as follows:

value co-destruction…interactions between actors result in a decline in at least one of the actors’ well-being.

Plé and Cácares (2010) “Not always co-creation: introducing interactional co-destruction of value in service-dominant logic”

There are numerous instances and ways this may occur.

For example, imagine you are trying to create a hole in your concrete wall to hang a picture but don’t realise you need a drill with hammer action. Your well-being does not increase (value is destroyed), and you might blame the drill manufacturer. Or if you hire a handyman to hang the picture and it goes in the “wrong” place. Was the handyman poor; were you unable to explain where you wanted the picture?

Your disappointment might see you writing a scathing online review in an attempt to recover some value. Now you might be destroying value for the manufacturer/handyman if your review dissuades others from using their product.

Lintula, Tuunanen, and Salo provide a useful framework for understanding the causes of what they call value co-destruction (“Conceptualizing the Value Co-Destruction Process for Service Systems: Literature Review and Synthesis”).

Their framework examines where value co-destruction can occur: before, during, and after service. It also considers what may be involved: orientations, resources, and perceptions.

However, looking at their framework we can reason that it doesn’t take more than one party to destroy value. And so the “co” prefix is unnecessary. Something that Alexander & Vallström express in more detail in their 2023 paper “Value co-destruction: Problems and solution”.

Measuring value

One challenge with the value-in-use perspective is measurement.

Grönroos defines value in terms of becoming or feeling “better off”. Service-Dominant Logic similarly frames value as an improvement in well-being and argues that value is “uniquely and phenomenologically determined by the beneficiary”. These definitions shift attention towards outcomes rather than exchanges, but they leave an important question unresolved: how should improvements in well-being actually be measured?

The literature offers no universally accepted answer. Instead, researchers typically borrow measures from adjacent disciplines, selecting indicators that appear relevant to the context under study. 

The result is that value-in-use offers a compelling explanation of where value emerges, but provides no common mechanism for measuring it. Well-being becomes a multidimensional construct whose meaning varies according to context, actor, and purpose.

This creates a practical challenge for managers. If value is an improvement in well-being, but well-being itself must be measured differently in every situation, then innovation, strategy, and performance measurement risk becoming fragmented across multiple competing definitions. Organisations may agree that improving well-being is the objective, while still struggling to determine precisely what should be measured, how it should be measured, and whether improvement has actually occurred.

Implications of value in use

Editing below here

The critical questions are no longer:

• What value is contained within the offering?
• How much value can be exchanged?

Instead they become:

• Which activities improve well-being?
• Who performs those activities?
• How are activities coordinated?
• Which resources and competences are required?
• How might those activities be redesigned to create better outcomes?

What are service-forward logics?

As we’ve explored, traditionally we view the world as one where goods are paramount, services are secondary, and value is seen primarily through value-in-exchange – the greatest amount you can get for your product. Vargo and Lusch term this goods-dominant logic due to the dominant role of goods in the thinking.

Wouldn’t it be interesting to instead explore a world where service is the dominant concept and see the implications? Now we would start with defining service and position goods in terms of that. We‘ll find value gets reframed as being (co-)created through the use of competence provided in a service (propositions).

Two main service-forward logics have emerged from following that simple thought: Grönroos’s service logic and Vargo and Lusch’s service-dominant logic.

Both logics start with service and define value as created in use. The primary distinction between them is that service logic is more micro-focused, while service-dominant logic takes a macro perspective (Saarijärvi, et al (2017) “Service-Dominant Logic and Service Logic – Contradictory and/or Complementary?”). Luckily, at our level of exploration, this distinction need not concern us.

The progress economy is built on Vargo and Lusch’s service-dominant logic, with inspiration from Grönroos as necessary. This choice is driven by practicality and circumstance – service-dominant logic was the first non-goods-dominant logic I encountered, it answered my initial questions, and it is neatly explained through 11 foundational premises.

It’s worth noting that both logics come from the marketing field and we’re now looking to leverage them to improve innovation. We should therefore expect some “deficiencies”. Those we will address with value-in-progress.

Before exploring service-dominant logic further, we should first look at what we mean by service.

introducing service-dominant logic

Here are those 11 foundational premises previously mentioned. Five of which are considered axiomatic (in bold) i.e. the others can be derived from them (see papers from 2004, 2008 and 2016). I’ve also grouped them into three blocks: the what, the who, and the how.

Let’s quickly touch on the first four axioms (you can dig deeper into service-dominant logic here if you wish).

Firstly, service is the fundamental basis of exchange (FP1). This immediately distinguishes us from the traditional value-in-exchange model where that basis is value (leading to price as a measure of value). Essentially, I apply my competence (skills and knowledge) to benefit you, and you apply yours to benefit me.

This doesn’t imply two-party bartering for outputs in a fictional medieval fashion.

You may already be thinking that you are rarely involved in such exchange just described. The logic recognises that service exchanges are often indirect, masking them as the basis of exchange (FP2). Examples of indirect exchange are transitive, intra-organisational, or through goods.

The most obvious is transitive indirect exchange. For instance, when you work for an employer you are providing service, applying your skills and knowledge. But you most likely engage service from elsewhere such as watching a film, enjoying a meal etc. this is transitive exchange in action.

Service-dominant logic is unfortunately silent on the mechanisms enabling indirect exchange; in the progress economy we will see this as mediated by service credits (of which money has been a very successful implementation).

Another observation about service exchange is its relational nature (FP8). It is the dialog during exchange rather than transaction of outputs that is of importance in increasing value – as exemplified in the difference between getting a bespoke suit versus an off-the-shelf one.

Resource integration is another key concept that “all social and economic actors are resource integrators” (FP9). Looping back to our making a hole example; that is achieved by you (a resource) correctly integrating with the drill (another resource). It could equally be you integrating with a handyman (a different type of resource) explaining where you want a hole, and the handyman making the hole.

It is natural, then, to see value as being co-created by multiple actors. And that one of those actors is always the beneficiary (FP6). Although it might be one of the actors provides their competence frozen in the form of a goods (a hint here of the role of goods we will shortly look at).

Grönroos would argue that Vargo & Lusch have stepped too far here with a philosophical debate on value co-creation requiring multiple actors; a beneficiary can create value on their own – you might transport fruit in a wicker basket you made from reed you collected.

Finally, value is uniquely and phenomenologically determined by the beneficiary (FP10). This means beneficiaries alone determine value (not manufacturers), and each beneficiary’s determination may be different. It is their past and current experiences (phenomenon) that drive their judgements.

This is behind why you might find a supermarket self-checkout useful at a rushed lunchtime with just two items but not during your weekly shop (or why your friend might enjoy using them with her children during the weekly shop as the children enjoy helping; while another friend avoids them due to the risk of accidental theft being pushed on to them). I have more on what phenomenological means here, we’ll use it a lot in the progress economy.

I’ll draw inspiration from both service-dominant logic and service-logic as we explore value-in-use.

One thing we should loop back to is how we will look at goods.

exploring the “new” role of goods

Now we get to an interesting view. Here’s how we look on goods in a service-forward way of thinking:

Goods are distribution mechanisms for service provision

#3

They allow us to distribute service provision in time and space. Conceptually, they freeze service provision which is then unfrozen, when and where needed, through acts of resource integration.

At first this probably sounds odd! Think of it this way: you want to listen to some music, how could you do that?. You could attend a live concert by your favourite band. Alternatively, you could listen to the same band on vinyl, CD, or via a digital stream.

The first alternative clearly meets our definition of a service – the band are using their skills and competence to entertain (benefit) you. In the second alternative, the band’s service provision has been frozen into a recording and is unfrozen when you press play on your device. It has also been distributed to when and where you hit that play button (physically through a supply chain and by yourself in case of vinyl/CD and digitally over the air in the case of a stream).

The choice between live or recorded music becomes a matter of beneficiary preference – what is valuable to them (in the context they are in).

With this positioning of goods we remove the constraining goods vs. services debate; the conversation shifts to how the beneficiary prefers to engage a service. This thinking can be hard to do in a value-in-exchange model. Just recall the struggle the music industry had with streaming services.

This shift has several implications. Service frozen into goods tend to be:

• found more in enabling propositions – those where the beneficiary performs a lot of the service activities – and less in relieving propositions
• quite specific in scope, potentially requiring beneficiaries to chain multiple goods together to get what they want
• not always a one-one replacement for a more direct service (see above)
• dependent on greater beneficiary competence (understanding how to use them, etc.)

This way of thinking opens the door to a reduction in Levitt’s “Marketing Myopia”.

The great Harvard marketing professor Theodore Levitt used to tell his students, “People don’t want to buy a quarter-inch drill. They want a quarter-inch hole!”

Christensen, C. M., Cook, S., Hall, T. (2005) “Marketing Malpractice” Harvard Business Review 

Ok, with this background in our bag, let’s turn our attention to the value-in-use value model.

measuring value

value is always uniquely and phenomenologically determined by the beneficiary

#10

value-in-context – context is important

An important aspect we haven’t discussed yet is context – the circumstances under which a beneficiary seeks to increase their well-being and which other actors provide resources to help. Context significantly influences a beneficiary’s decisions.

Are they pressed for time? A relieving proposition may be more appealing. Are they traveling? Different options will be attractive depending on whether they are traveling during rush hour or off-peak hours, or whether they possess a driver’s license.

For this reason, value-in-use is sometimes defined and used in relation to context. In these cases it is referred to as value-in-context.

So, we’ve now defined, measured, (co-)created, and considered the destruction of value within the value-in-use model. It signifies an increase in well-being for the beneficiary and ideally for the entire system. Now, let’s explore the model’s advantages over value-in-exchange and its limitations.

seeing more opportunities by removing point of exchange

Removing the point of exchange means, as Ballantyne & Varney put it, “the time logic of marketing exchange becomes open-ended”.

the time logic of marketing exchange becomes open-ended, from pre-sale service interaction to post-sale value-in-use, with the prospect of continuing further, as relationships evolve

Ballantyne and Varey (2006) “Creating Value-in-use Through Marketing Interaction: The Exchange Logic of Relating, Communicating and Knowing”, Marketing Theory Vol. 6, No. 3(3)

There is opportunity for interaction before the service, during the service, and after the service. The levels of interaction vary and may be distributed across several actors and propositions.

While I’m not suggesting a revolution in the process of selling a nail, we should aim to customise our offerings and involve the beneficiary as much as makes sense from their perspective. Vargo & Lusch advocate for this in “The Four Service Marketing Myths“:

the normative marketing goal should be:

• customisation rather than standardisation
• to maximise customer involvement in the creation of value

Vargo, S., Lush, R. (2004) “The Four Service Marketing Myths”; Journal of Service Research; Vol 6; Issue 4; pp 324-335

The more we can customise and involve the customer before and during service, the greater the chance we help them achieve exactly what they uniquely and phenomenologically seek.

Once the service provision is over, it is beneficial to follow up with the beneficiary to continue finding ways of co-creating more value.

Finally, remember Lintula’s framework for value co-destruction from earlier? It provides the rails for value proposition providers to minimise value co-destruction before, during, and after service provision.

leveraging the sharing economy

When we recognise that propositions only create value when being used, we notice a lot of inefficient resource usage. That drill you use for making holes is not used that often. That is a lot of potential value just sitting there.

How can we unlock that potential value sitting on our shelves? We can leverage the sharing economy.

Sharing economy: focus on the sharing of underutilised assets, monetised or not, in ways that improve efficiency, sustainability and community

Rinne, A. (2017) “What exactly is the sharing economy?” World Economic Forum

And there are many platforms to share resources. Here’s a few examples from a World Economic Forum White Paper entitled “Collaboration in Cities: From Sharing to ‘Sharing Economy’”.

There’s nothing spectacularly new about today’s sharing economy, except perhaps the ease of access and variety of resources available. Businesses have been doing this, in waves, for years.

Back in the day housewives used to cook in the residual heat of the local bakers ovens. Computing in the ‘60s used to be loaned out, before prices dropped sufficiently and demand increased to have your own hardware. A trend that is now in the cycle of companies leveraging cloud computing.

What drives this wider variety is a growing appreciation of increasing efficiency of resources (made more obvious by value-in-use thinking).

Organising the firm

measure sd orientation

Prahalad, C.K. & Ramaswamy, V. (2004). The future of competition: Co-creating value with customers. Boston: Harvard Business School Press.