S-D Logic Thinking Small and Long Robert F. Lusch Lisle & Roslyn Payne Professor of Marketing...
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Transcript of S-D Logic Thinking Small and Long Robert F. Lusch Lisle & Roslyn Payne Professor of Marketing...
S-D Logic
Thinking Small and Long
Robert F. LuschLisle & Roslyn Payne Professor of Marketing
University of Arizona
Ohio State UniversityMay 19, 2006
S-D Logic
What I Want to Accomplish
Discuss Small and Long Thinking
Share an Experience
Illustrate a Method for Small & Long Thinking
S-D Logic
Small and Long Thinking
S-D Logic Agent Based
Modeling
Thinking Small
All agents exchange service or competences.
Agent microscopic actions and interactions.
Thinking Long
All economies are service economies.
Emergence and evolution of macroscopic features (CAS).
S-D Logic
All Exchange is Service Centered
“the great economic law is this: Services are exchanged for services…. It is trivial, very commonplace; it is, nonetheless, the beginning, the middle, and the end of economic science….”
- Frederic Bastiat 1860
“services are the application of specialized competences (knowledge and skills) through deeds, processes, and performances for the benefit of another entity or the entity itself.”
- (Vargo and Lusch 2004)
S-D Logic
Growth of Markets & Marketing
G oo ds M o n ey O rg an iza tio ns
M a rke ts
D iv is ion o f L a b or
C o m m e rc ia l o rC iv il S o c ie ty
Institutions Institutions
Institutions Institutions
Institutions Institutions
Service for Service Goods, Money, Organizations, Networks
are Intermediaries
S-D Logic
Evolving To a New Frame of Reference
To Market(matter in motion)
Market To(management of
customers &markets)
Market With(collaborate with
customers & partnersto produce & sustain value)
Through 1950 1950-2010 Future
S-D Logic
Goods vs. Service-Dominant
Marketing To: Mass market Produce product Promote product Price product Distribute product One-sided Transaction oriented Maximize profit
Marketing With: Markets of one Service(s) Conversation & dialog Value Proposition Supply & Value
Networks Multi-Sided Relational oriented Financial performance
as feedback (learning)
S-D Logic
CollaborateWith
Customers &Partners
Collaborate:Customers &
Partners
Overcome
Resistances
Co-CreateServiceOffering
Co-CreateValue
Proposition
Co-CreateConversation& Dialogue
Co-CreateValue
Processes &Network
Draw UponResources (internal & external)
S-D Logic as a
Theory of Marketing
S-D Logic
Advancing Theory: The Role of the Funeral
Scientific theories, however, are fundamentally different. They are constructed to be blown apart if proved wrong, and if so destined, the sooner the better. “Make your mistakes quickly” is a rule in the practice of science. I grant that scientists often fall in love with their own constructions. I know; I have. They may spend a lifetime vainly trying to shore them up. A few squander their prestige and academic capital in the effort. In that case – as economist Paul Samuelson once quipped – funeral by funeral, theory advances.”
(Edward O. Wilson. Consilience: the Unity of Knowledge. 1998; p. 52).
S-D Logic
Timeline of SD-Logic
Initial Draft 1995 Refinement 1996-1999 Summer 1999 Submission Summer 2000 Submission Summer 2001 Submission Summer 2002 Submission Winter 2003 Submission Spring 2003 Paper
Accepted Published January 2004
Four major revisions Two editors Six reviewers One strong reviewer
advocated from beginning
Sixth reviewer became advocate for publishing with commentaries
Editor Ruth Bolton coached and guided along the way
S-D Logic
Is It All About Services: A Paradigm Inversion
(1999)
“While your manuscript has interesting ideas, the current positioning of the paper leaves one feeling that there is not much new in the paper.”
- JM Editor David Stewart (November 1999)
“The author(s) are to be applauded for taking on such an extremely ambitious essay. To propose a true Khunian paradigm shift in marketing and to succeed is to try to do something that no theoretical paper has achieved that I am aware of—although historians of science will ultimately be the judges of such matters.”
- JM Reviewer (November 1999)
"Every once in a while a paper comes along that is truly exciting--that has the ability to change the way people think. This is one of those papers. If this paper is published in JM, then it has the opportunity to be a classic in our field. I wish that I had written it.”
- JM Reviewer (November 1999)
S-D Logic
Is It All About Services: A Paradigm Inversion
(2000)
“The primary concern of the reviewers remains focused on the incremental contribution of the paper.”
“…it is probably too strong to conclude that all goods represent services in disguise.”
“…identify the boundary conditions of your premises.” -Editor David Stewart
S-D Logic
Is It All About Service (2001)
Revision of this manuscript has taken longer than intended. However, we should mention that one of the reasons it has taken ten months to complete this revision is that we kept trying to revise based on the individual comments of the reviewers and finally decided to start anew. Importantly the suggestion of reviewer #5 to organize the manuscript around a set of propositions (and your mentioning of this suggestion in your letter of September 19, 2000) while simultaneously encouraging us to significantly reduce the length of the manuscript led us in this direction. For your information the manuscript has been reduced by approximately 30%. Consequently, this manuscript is almost a total rewrite and is now organized around eight key propositions from which we derive thirteen managerial and societal implications.
Steven L. Vargo & Robert F. Lusch
Resubmission Letter to Editor Stewart
S-D Logic
Transition & Convergence: From an Output to a Process Centered View of Marketing
(2002)
“All three reviewers praise you for undertaking the challenging task of writing a paper that synthesizes a diverse marketing literature (over a substantial period of time)—and attempts to crystallize the debate about the meaning and direction of marketing.”
“As you may recall, I invited a new reviewer (Reviewer 6)…He/she found the paper “interesting and provocative” and rightly observes that it is unlikely (and perhaps undesirable) for the reviewers to converge in their opinions.”
“I ask you to create a shorter and more focused paper (that retains your key arguments). Then, if your paper is accepted for publication, it can provide the basis for invited commentaries by distinguished scholars.”
- Editor, Ruth Bolton
S-D Logic
Evolving to a New Dominant Logic for Marketing (2004)
Marketing inherited a model of exchange from economics, which had a dominant logic based on the exchange of “goods,” which usually are manufactured output. The dominant logic focused on tangible resources, embedded value, and transactions. Over the past several decades, new perspectives have emerged that have a revised logic focused on intangible resources, the co-creation of value, and relationships. The authors believe that the new perspectives are converging to form a new dominant logic for marketing, one in which service provision rather than goods is fundamental to economic exchange.
Abstract, Journal of Marketing (January 2004), p.1
S-D Logic
Invited Commentaries: Day, Deighton, Narayadas,
Gummesson, Hunt, Prahalad, Rust,
Shugan
Vargo & Lusch (2004) observe that an evolution is underway toward a new dominant logic for marketing. The new dominant logic has important implications for marketing theory, practice, and pedagogy, as well as for general management and public policy. … The ideas expressed in the article and the commentaries will undoubtedly provoke a variety of reactions from readers of the Journal of Marketing.
- Ruth Bolton, Editor, Journal of Marketing (2004)
S-D Logic
The Service-Dominant Logic: Dialog, Debate and
Directions M.E. Sharpe (2006) Distinguished Group of Scholars Identify areas
of Consensus, Dissent, and Future Directions. Essays contributed by Achrol, Arnould, Brodie,
Day, Gronroos, Gummesson, Holbrook, Hunt, Jaworski, Kohli, Kotler, Lambert, Levy, Penazola, Price, Oliver, Rust, Sawhney, Wilkie, Woodruff, and others
Lusch & Vargo contribute integrative essays dealing with economic and marketing history, public policy, marketing management, and toward a general theory of marketing.
S-D Logic
S-D Logic & ABM as a Paradigm Shift:From Constructs to Actors
Virtually all social science theory models relations between constructs.
S-D logic views marketing as interactions between entities and ABM provides the method to model and research these interactions.
What emerges from interactions? Macro structures Relations between variables Rules (institutions and norms) Co-creation
S-D Logic
Building Societies from Ground Up
Digital Organisms Genetic algorithms
Fuzzy Logic Data Capturing & Aggregation
ObjectOriented
Programming
S-D Logic
Object Oriented Programming
OOP Integrates Data and Functions.
Every digital organism is an object with its own information and functions it uses to operate.
Every digital organism has receptors, memory, decision system, and effectors.
S-D Logic
Creation of Digital Life
Environment
Environment
Sensory Capability
Memory Capability
Learning & Decision Capability
Effector Capability
Object Oriented Software Program
S-D Logic
Genetic Algorithms & Digital Learning
Learning Mode Genetic Mechanism
Imitation Reproduction
Communication Crossover
Experimentation Mutation
S-D Logic
Decision-Making: From Substantive Rationality to Procedural Rationality
Simon (1978) argues the concept of rationality is “economics” main export to other social sciences.
In complex environments actors evolve and their actions and anticipations are unknown from each other; the relevant rationality is procedural rationality.
These environments are the “permanent and ineradicable scandal of economic theory” (Simon 1976).
Mind is the scarce resource; how the actor finds efficient and effective search algorithms is the key.
S-D Logic
Procedural Rationality: How do Individuals Reason & Learn?
Inductive reasoning—ampliative method of reasoning (gap filling)
Extinguish rules or actions that are unsuccessful and adopt rules or actions that are successful—market hypotheses
Information processing and actions not fine-grained but are fuzzy
Memory lingers; little is completely forgotten
S-D Logic
Fuzzy Logic
Lack of crisp, well-defined boundaries
Membership in two or more sets
Imprecise linguistic concepts
Everything a matter of degree
Speed of perception and information processing
Weekend Days
Saturday
SundayFriday
S-D Logic
The Ambidextrous Organization & Evolutionary Biology
When the environment changes slowly then mechanisms of exploitation that work on variation, selection and retention work well. We learn by communicating and do this primarily by crossover.
When there is dramatic shift in the environment or a punctuated equilibria then relying purely on exploitation will not allow the organism to survive. It must explore to innovate or face extinction. We do this primarily via mutation.
S-D Logic
The Ambidextrous Organization: Modeling Exploitation with Crossover
Moderate Crossover (moderate exploitation) is represented by 50% probability of crossover every 30 periods.
High Crossover (high exploitation) is represented by 100% probability of crossover every 30 periods. In this situation the seller takes advantage of every opportunity to investigate the space for a good solution.
S-D Logic
The Ambidextrous Organization: Modeling Exploration with Mutation
High Mutation (high exploration) is represented by 50% probability of mutation every 30 periods.
Moderate Mutation (moderate exploration) is represented by 25% probability of mutation every 30 periods.
Low Mutation (low exploration) is represented by 5% probability of mutation every 30 periods.
S-D Logic
Simple Setting: Complex Market
Buyers are homogeneous. Buyers in market-A are stable and do not change their preferences but in market-B change their preferences randomly every 1500 periods.
Sellers have cost functions and decision alternatives. Decisions include price, product attribute, production level.
Buyer preference is a function of price and product offering.
Sellers have four fuzzy states for each of three decisions. Each market hypothesis has 64 rules. Sellers vary in their exploration & exploitation.
S-D Logic
Organizational Learning Strategies
Low Exploration
ModerateExploration
High Exploration
ModerateExploitatio
n
Seller-Two Crossover = .5Mutation = .25
Seller-OneCrossover = .5Mutation = .5
High Exploitatio
n
Seller-Four Crossover = 1.0Mutation = .05
Seller-ThreeCrossover = 1.0Mutation = .25
S-D Logic
Market-A: Stable World Buyer preferences are fixed or
unchanging. In this situation we would expect
the organization that focuses heavily on exploitation as a learning mechanism and seldom uses exploration to learn to perform best (seller four). On the other hand an organization with high exploration would do poorly (seller one).
S-D Logic
S-D Logic
S-D Logic
Stable World
S-D Logic
Market B: Turbulent World Buyer preferences are randomly
changed every 1500 periods (50*crossover frequency).
In this situation we would expect ambidextrous organizations to do best. The organizations that both, to a good degree, exploit and explore. This would be sellers 2 or 3. Seller four who hardly ever explores should perform the poorest.
S-D Logic
Seller #4: Rulebase #10, Time = 25,000, Turbulent Environment
S-D Logic
Turbulent World
S-D Logic
Profit Payoffs
Stable Environmen
t
Turbulent Environme
nt
Seller-1 (low exploit; high explore)
($256,372) $185,182
Seller-2 (low exploit; mod explore)
($247,593) $105,849
Seller-3 (high exploit; mod explore)
($ 52,813) $307,339
Seller-4 (high exploit; low explore)
$417,781 ($46,703)
TOTAL MARKET ($138,997) $551,667
S-D Logic
Moderating Effect:Market Environment (average profit)
($200,000)
($100,000)
$0
$100,000
$200,000
$300,000
$400,000
$500,000
Stable Turbo
AmbidextrousNon-Ambidextrous
S-D Logic
Concluding Observations