Service-Oriented Entrepreneurship: Service-Dominant Logic in

Callaway and Dobrzykowski: Service-Oriented Entrepreneurship: Service-Dominant Logic in green design and healthcare Service Science 1(4), pp. 225-240, © 2009 SSG

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Service-Oriented Entrepreneurship: Service-Dominant Logic in Green Design and Healthcare

Stephen K. Callaway, David D. Dobrzykowski

College of Business Administration University of Toledo

2801 W. Bancroft, Toledo, Ohio, 43606 [email protected], [email protected]

he shift in many industrial economies from manufacturing to service may have implications for the extant understanding of value creation. Service-dominant logic (SDL) poses a new paradigm for

understanding the basis of economic exchange and argues that service is a true basis for understanding value creation. This service-centered perspective, as opposed to a goods-centered perspective, argues that market exchange actually is the process of parties using their specialized operant knowledge for mutual benefit, and focuses on how providers and customers interact, in order to co-create value. Using the SDL paradigm, this paper examines service-oriented entrepreneurship, where new business opportunities can be identified from the value co-creation perspective that may have been otherwise unnoticed by the goods-centered view. Propositions are developed using literature on SDL and entrepreneurship. Next, secondary cases from four companies are offered which support linkages between SDL and: (1) the identification of entrepreneurial opportunities, (2) a lifetime view of products/services, (3) redefining the role of the customer, (4) the alignment of information and goals between firms and their customers, and (5) the dynamic recombination of actors in the value creation system. Finally, the paper includes discussion and conclusion sections.

Key words: service dominant logic; entrepreneurship; green design; healthcare History: Received Sept. 14, 2009; Received in revised form Dec. 14, 2009; Accepted Dec. 22, 2009; Online

first publication Dec. 28, 2009 1. Introduction A transition has occurred in industrialized countries as they have shifted away from manufacturing in favor of service-based economies (Metters and Marucheck 2007). Some consider such a movement to be an indication of weakening, as service-oriented economies are generally considered to be less sustainable, and show reduced productivity and economic job growth (see Dupuy and Schweitzer 1994). However, service-dominant logic (SDL) poses an alternative paradigm for understanding value creation and basis for economic exchange, and argues that service is not inferior, but rather the true basis for understanding customer value co-creation (Vargo and Lusch 2004; 2008; Vargo and Akaka 2009). In this way, SDL provides an alternative view to value creation (Vargo and Akaka 2009), one which suggests that value is not created in discrete, linear value chain stages (Porter 1985), but rather co-created during networked interactions among customers, suppliers, and employees of the focal firm (Normann and Ramirez 1993).

Value creation has been at the heart of entrepreneurship since the days of French Economist, J.B. Say, circa 1800 (Drucker 1985). From its humble beginnings, entrepreneurship has fundamentally been about shifting economic resources from lower to higher productivity areas in search of improved yield. Drucker (1985) points out that these activities need not be focused on tangible ‘things’ such as considered in the goods-dominant logic (GDL). In fact, few entrepreneurial innovations of the technical variety “can compete in terms of impact with such social innovations such as the newspaper or insurance,” (Drucker 1985, p. 31.) Still, much of the focus in the entrepreneurship literature has centered on the development and commercialization of ‘goods’ such as new technologies (see Lin et al. 2006).

At the intersection of service science and entrepreneurship exists the possibility that SDL may help would-be entrepreneurs to recognize opportunities that may not have been apparent otherwise. That is, thinking in terms of SDL may present new opportunities for value creation. As such, this paper addresses service-oriented entrepreneurship where would-be entrepreneurs view the world through the SDL lens, and look downstream at the customer-provider interaction, to redefine this interaction and find new opportunities for value co-creation (Case

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2004); as opposed to a goods-centered entrepreneurship, where entrepreneurs look upstream at the value embedded in products, for the purpose of developing new products. Finally, researchers can use this SDL lens, and service-oriented entrepreneurship, to better understand the source and nature of much of the increased entrepreneurial activity in certain sectors in recent years.

This paper is organized as follows. First, we discuss the synergistic intersection linking SDL and entrepreneurship with regard to value creation. Second, based on the literature, we develop propositions describing the nature of service-oriented entrepreneurship. Next, we describe green design and healthcare as emerging areas of service-oriented entrepreneurship, presenting case literature on four companies to offer supporting evidence from industry practices, in order to illuminate the link between SDL and entrepreneurship. Finally, a discussion concludes the paper. The purpose of this paper is theory-building. The case examples serve only to illustrate the propositions based on secondary case study data. 2. SDL and Value Co-creation Service activities have increased largely from increased outsourcing, which is derived from the continued refinement in specialization and market access, both of which are attributable to advances in information and communications technology (Normann 2001; Vargo and Akaka 2009). Specialization (i.e., division of labor) leads to greater outsourcing (markets), which then leads to greater specialization, etc. (Vargo and Akaka 2009). This has in large part led to the notion that competition has been elevated from the level of firm versus firm to that of supply chain versus supply chain (Vonderembse et al. 2006). In this more networked reality, successful firms focus efforts “not [on] the company or even the industry but the value-creating system itself, within which different economic actors – suppliers, business partners, allies, customers – work together to co-produce value,” (Normann and Ramirez 1993, p. 66).

SDL posits that all economies are service economies and are now becoming more apparent with increased specialization and outsourcing (Vargo and Akaka 2009). This service-centered perspective argues that market exchange actually is the process of parties using their specialized knowledge for mutual benefit (Vargo and Akaka 2009; Vargo and Lusch 2008). Furthermore, firms cannot actually create value; they can only propose value. Value is always co-created (such as with customers and/or others). Therefore, goods, if involved, serve only as a conduit of service provision (Vargo and Akaka 2009). SDL, then, has been posed as the theoretical foundation for the study of service systems (Maglio and Spohrer 2008; Lusch, Vargo and Wessels 2008; Vargo and Akaka 2009). Service systems are “value co-creation configurations of people, technology, value propositions connecting internal and external service systems, and shared information,” (Maglio and Spohrer 2008, p. 18).

The goal of service systems is service provision, the application of resources to contribute to other service systems, that is, to rebundle resources and reconfigure them for other service systems (Normann 2001). These resources consist of the tangible outputs of manufacturers, or goods, which are bundled and utilized with services in the production of customer value (Hill et al. 2002). SDL distinguishes among the resources which comprise these bundles, viewing them as operant and operand resources (Vargo and Akaka 2009). Operant resources are those capable of acting upon other resources to create value (e.g., knowledge and skills), while operand resources must be acted on to derive benefit (e.g., goods, natural resources, and money) (Constantin and Lusch 1994; Vargo and Lusch 2004; Vargo and Akaka 2009). Technology has helped to reconfigure the market and to create new market offerings, that is, to find new avenues for creating value with these resources (Normann 2001; Vargo and Akaka 2009). One such avenue, referred to as value co-creation, places the customer inside the value creation network as a co-producer of value as opposed to their more conventional role as a consumer or destroyer of value (see Normann and Ramirez 1993; and Vargo and Akaka 2009).

In view of value co-creation, firms are shifting their focus from internal efficiency and are increasing efforts to leverage external resources, particularly the customer, in order to create value and gain competitive advantage (Lovelock and Young 1979; Prahalad and Ramaswamy 2004; Zhang and Chen 2006; Prahalad and Krishnan 2008; Zhang and Chen 2008). This requires that they develop a value dense environment for customers and other value co-creating actors characterized by high amounts of the information, knowledge, and resources necessary for value creation (Normann and Ramirez 1993). Value density thus enables these actors to contribute and leverage their individual value creation by exploiting the extant operant and operand resources provided in the environment (Vargo and Akaka 2009). This lies at the heart of “what is so different about this new kind of value,” (Normann and Ramirez 1993, p. 69).


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3. Entrepreneurship This new kind of value influences the focus of the firm and can lead it to identify new opportunities. Vargo and Akaka (2009) argue that management and engineering may tend to be focused primarily internally, toward upstream design specifications and efficiencies in creating output, rather than toward the concept of value co-creation with the customer. Such a perspective derives from the goods-centered paradigm of mass production of units of output providing the basis of value. The goods-centered paradigm traditionally has viewed value as something “added to” products by the firm and suppliers, according to the “value in exchange” conceptualization, with the customer actually destroying (consuming) this value (Vargo and Akaka 2009). To better understand value creation, however, one must also look downstream, to the activities of customers, acknowledging their participatory role (Normann and Ramirez 1993). Entrepreneurs add value to scarce resources (Mariotti and Glackin 2007); so entrepreneurship tries to find new sources of value. That is, entrepreneurship, a field of management, has the goal of finding new ways of creating value for customers (Drucker 1985).

Overall, entrepreneurship is critical for economic growth nowadays. The number of small businesses in the US has soared to over 26 million, with more than 600,000 new business incorporations annually during the past ten years (SBA June 2005). While large, established corporations have been downsizing, new ventures have picked up the slack in job creation. Today small businesses in the US employ around half of the private workforce, and create 60-80% of net new jobs annually (SBA December 2007). Furthermore, technological innovation associated with entrepreneurship is important for productivity gains that drive economic growth.

There has been much discussion about the movement toward vertical disintegration and greater firm specialization around the globe (Hayes et al. 2005). This shift indicates reduced firm scope, and hence, the existence of a larger number of smaller firms, often operating in a network (see, for example, Porter 1998; Storper 1997; Williamson 1985). Similarly, much research has addressed an increasing reliance by established firms on outsourcing, as more activities are performed outside traditional firm boundaries (see, for example, Argyres 1996; Quinn 1999; Quinn and Hilmen 1994), which of course, would indicate smaller firms acting more independently. Therefore, greater specialization and outsourcing means a greater number of smaller and independent firms. Clearly the trend toward specialization and outsourcing has sparked much entrepreneurial activity. Unfortunately, the extant understanding of entrepreneurship is largely centered on a goods dominant paradigm, examining a firm’s commercialization orientation from the perspective of bringing technological and other R&D outputs to the customer (see Lin et al. 2006). This again places the customer on the outside of the value creation system, and represents a differing perspective from that of value co-creation with the customer. Fundamentally, however, both service science (see Maglio and Spohrer 2008; Spohrer et al. 2008; Vargo and Akaka 2009) and entrepreneurship (see Drucker 1985) examine the nature of value creation for customers, and both are important nowadays as sources for such value creation. Indeed, increasing specialization seems to be driving not only the move toward a more service-based economy, but also a move toward independent entrepreneurship. Therefore, the development of an SDL centered view of entrepreneurship, referred to herein as service-oriented entrepreneurship, may be useful in unlocking new opportunities previously unnoticed through the conventional goods dominant lens.

Indeed, SDL contributes substantially toward entrepreneurship. According to Vargo and Lusch (2006), entrepreneurs are able to envision the service that people want, and then integrate together microspecialists to deliver this service. Therefore, one of the most critical operant resources in the economy is the entrepreneurial spirit and mental skills of individual entrepreneurs (Vargo and Lusch 2006, p. 53). Read, et al. (2009) and Sarasvathy (2008) further integrate the concepts of entrepreneurship and SDL by describing the cognitive science-based logic of entrepreneurial expertise termed “effectuation”. Effectuation describes nonpredictive control, meaning that if entrepreneurs can influence the future, they do not need to predict it. That is, because the market is uncertain and nebulous, and cannot be effectively predicted, effectual entrepreneurs attempt to co-create this market through commitments with a network of stakeholders, including customers, suppliers, partners, and investors (Sarasvathy 2008). Therefore, the environment is endogenous to the actions of effectuators (Read, et al. 2009).

Effectual entrepreneurs focus on intangible resources, the co-creation of value, and building stakeholder relationships (Read, et al., 2009; Vargo and Lusch 2004). That is, new market creation is a process of building a new network of stakeholders, requiring that entrepreneurs focus on the long term and think holistically about the business (Read, et al. 2009; Sarasvathy and Dew 2005). Ultimately, entrepreneurial effectuation reflects the logic of SDL in that it is human centered and operant resource based (Vargo and Lusch 2004), co-creational (Jaworski and Kohli 2006), and network oriented (Anchrol and Kotler 1999). The purpose of the entrepreneur is to visualize building the whole business by constructing a complex web of stakeholder relationships, whereas these stakeholders bring resources and ideas to the new venture (Read, et al. 2009; Sarasvathy 2001). Specifically, entrepreneurs frequently use waste or slack resources and key operant resources as a way to develop new business models (such as adding or


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changing roles for customers, utilizing environmental waste, etc.) That is, entrepreneurial effectuation focuses on what the effectuator does with the combination of resources at that particular time, rather than any value embodied in the operant or operand resources themselves (Read, et al. 2009; Sarasvathy 2008). 4. Development of Propositions Clearly, a dominant logic influences the world view of an entrepreneur. It has the ability to influence not only the way the effectuator uses available resources, but also his/her ability to recognize available resources. As such, we posit that SDL influences the entrepreneurial recognition of new opportunities as well as the way in which the effectuator interacts with value creation actors to use resources in pursuit of value creation. Specifically, SDL will 1) enable the entrepreneur to see opportunities (Normann and Ramirez 1993; Sawhney 2006), 2) embrace a lifetime view of products/services (Sawhney 2006), 3) interact in new ways with customers (Normann and Ramirez 1993; Zhang and Chen 2008), 4) align information and goals between firms and their customers (Prahalad and Ramawamy 2004), and 5) lead to dynamic recombination of actors in the value creation system (Normann and Ramirez 1993). See Figure 1. Figure 1 The implications of Service-Dominant Logic (SDL)

4.1 New Opportunities Dominant logics emerge from the convergence of new technologies, concepts, methods, and theories. “Many tributaries are feeding the ‘new’ [service] dominant logic, including services marketing, market orientation, customer relationship management, networked markets, mass customization, and interactivity,” (Day 2006, p. 85). While individually these are not nascent concepts, the advancements realized in information technologies (IT) serve as a common denominator for each, creating a link to knowledge that was previously dispersed and difficult to reach (Day 2006). IT now connects, enables, and even motivates customers to participate in value creation (Prahalad and Ramaswamy 2004). “This connected knowledge system enables the real-time coordination of dispersed organizational activities and groups, the management of cross-functional processes, and the synchronization of the myriad points of customer contact that are integral to the new dominant logic,” (Day 2006, p. 85). As these conditions expand, the usefulness of SDL will increase in understanding the value creation phenomenon, and thus increase our ability to identify entrepreneurial opportunities.

Actor Re-

combinations

Information & Goal

Alignment

Role of the Customer

Lifetime Use

New Opportunities

SDL


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Owing to the notion that value creation is at the heart of entrepreneurship, understanding the SDL paradigm is critical for understanding the nature of much entrepreneurial activity nowadays. Similarly, recognizing the true value of products and services, and the downstream role of the customer in value co-creation, will help would-be entrepreneurs to find ways to rebundle resources and propose new ways to create value. That is, the value propositions address what the products do or their value-in-use as customer solutions, not what the products are (Sawhney 2006). This is a key and unique element of SDL. More and more entrepreneurs today are addressing and redefining the services provided by such products, by recognizing that even when customers do buy and own a product, what they really want is the value derived in the use of the product (Normann and Ramirez 1993). Over time, an increasing number of new venture start-ups are expected to reflect this service orientation. Thus, we posit:

Proposition 1: The identification of new opportunities for value creation will increasingly reflect service-oriented entrepreneurship.

4.2 Lifetime Use The resources used in value creation are rarely manifested in the form of pure goods or pure services, rather they are combined to form a bundle (Ayers 1998; Hill et al. 2002; Mont 2002; Gunasekaran 2005; Dobrzykowski et al. in press). These bundles are often marketed to customers as ‘solutions’ (Hill et al., 2002). Sawhney (2006, p. 365) suggests that “the movement toward solutions is grounded in the insight that customers have no interest in products and services per se – what they really want are solutions to problems they face in their lives and businesses.” Value, then, is created from the interaction or integration of operand and operant resources in bundles (Arnould et al. 2006). It follows that solutions are not merely blind bundles of products and services, but instead must be integrated in ways that indeed add customer value (Sawhney 2006). In other words, integrated products and services need to work ‘better together’ in terms of technical and operational performance. Integration is thus an important characteristic not only at the point of sale, but throughout customer use during “buying, installing, using, servicing and maintaining a system of products,” (Sawhney 2006, p. 369.)

Further, much of the value of a product comprises its lifetime use (including the aforementioned installation, use, service, and maintenance), more than the original cost of acquisition. Specifically, SDL redirects the focus of value creation away from the concept of producing output (value-in-exchange), and towards the value derived by the service system (value-in-use) (Vargo et al. 2008; Vargo and Akaka 2009). As such, value is co-created by the provider and customer, and their interaction (Normann and Ramirez 1993). The true value was not added sequentially, imbedded in the product itself, but rather in how the consumer experiences or uses the product over its useful life. Redefining (improving) that use of a product is a promising area of entrepreneurship currently. Considering SDL, customers certainly possess the ability to gauge the performance of the system over time and share this operant resource with the service providers. In short, considering and reevaluating the lifetime use of a product offers greater opportunities for new value creation. Thus, we posit:

Proposition 2: Service-oriented entrepreneurship will increasingly identify new opportunities for value creation by addressing the lifetime use of a product.

4.3 Role of the Customer and Information and Goal Alignment Ultimately, the interaction between provider and customer will be redefined largely because of the asymmetry of information as well as their conflicting goals. It is critical to look downstream at the nature of customers themselves, and the ways they use products/services to find new ways to create value, or co-create value with customers and others (Brown 2008). The would-be entrepreneur must ascertain what it is the customer really values? Understanding emerging customer segments and what drives them is critical for launching new ventures (Christensen 2007). A firm generally develops very specific capabilities over time as it focuses on its current customers (Levinthal and Myatt 1994), which can be problematic in the long term. Therefore, Slater and Narver have argued the importance of being market oriented, that is, demonstrating a long term commitment to understanding both expressed and latent customers’ needs, rather than only focusing on the current expressed needs of existing customers (Slater and Narver 1998; 1999). In other words, the key is to understand, and perhaps even redefine, the role of the customer in value co-creation.

Vargo and Akaka (2009) explore the idea of how SDL adopts the “value-in-use” conceptualization (Vargo et al. 2008) as opposed to the traditional goods-centered “value-in-exchange” view. That is, co-creation of value reflects the customer’s collaborative role in value creation (value-in-use). Many operand and operant resources have to be integrated to create value, by both providers and customers, including market-facing resources (all related and complimentary products that can be purchased), as well as non-market-facing, personal resources, including


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knowledge by the consumer about the care and use of the product/service. As such, customer participation in the value creation process reflects a greater venue for value creation than simply the initial firm-customer interaction, and instead demonstrates a network-within-network conceptualization of relationships that converge on value creation through a web of resource integration (Vargo and Akaka 2009).

According to Vargo et al. (2008) and Vargo and Akaka (2009), the focus of value creation is not on a firm’s output, but rather on value derived and uniquely determined by the individual service system of that customer and that service at that particular time. The time and place dimensions and network relationships therefore are critical to understanding value creation, a concept termed value-in-context (Vargo et al. 2008). As such, value is co-created downstream with the customer, not only upstream with the production of the product.

However, this role by the customer sometimes has not been considered, with the focus instead having been on changing the upstream specifications of the product. Helping customers with their side of this equation, as well as redefining and reconfiguring this firm-customer interaction, can be a promising area of entrepreneurship. The provider does not know the latent needs of customers (operant resources); while the customer does not know the operational aspects of the product (operand resources). Entrepreneurs, then, should look for ways to address the asymmetry of information, and goal incongruence, to create opportunities for changing the customer-provider interaction. Prahalad and Ramaswamy (2004) present the ‘DART’ framework, in support of this argument. The authors suggest that “dialog, access, risk-benefits, and transparency (DART) are emerging as the basis for interaction [value co-creation] between the consumer and the firm,” (Prahalad and Ramaswamy 2004, p. 9). See Figure 2. Figure 2 Building blocks of interactions for co-creation of value

Dialog centers on the deep engagement, ability, interaction, and willingness of the focal firm and the customer

to engage in conversation. “Dialog must center around issues of interest to both—the consumer and the firm and must have clearly defined rules of engagement,” (Prahalad and Ramaswamy 2004, p. 9). Access refers to the notion that the effectiveness of the value creation system is contingent upon the firm availing the customer to as much information as necessary from the firm as well as the other actors in the system such as suppliers. Together, transparency and access are fundamental requirements for dialog. Finally, the risk-benefits dimension of ‘DART’ describes the ability of the customer to accurately assess the advantages and disadvantages associated with his/her decisions in the value creation system. In summary, ‘DART’ involves both the firm and the customer acting in joint problem solving roles (Prahalad and Ramaswamy 2004). This infers the alignment of information and goals among customers and the focal firm which leads to the development of a value dense environment (Normann and Ramirez 1993). Thus, we posit:

Proposition 3: Service-oriented entrepreneurship will increasingly focus on and redefine the role of the customer in creating value. Proposition 4: Service-oriented entrepreneurship will increasingly address and improve the asymmetry of information and misalignment of goals between provider and customer.

VALUE CO-CREATION

Stakeholder Dialogue

Access to Information

Transparency of Information

Risk-benefit Analysis

Adapted from Prahalad and Ramaswamy 2004, p. 9.


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4.4 Actor Re-combinations As new services (new value propositions) replace the older ones, new customers enter the picture. Bower and Christensen (1995) propose that firms with a solitary focus on their current customer base may be oblivious to potential emerging market segments. Similarly, Hamel and Prahalad (1994) addressed the “tyranny of the served market” where managers perceive the world only by their current customers and current products/services, failing to recognize latent needs or unserved markets (Hamel and Prahalad 1994; Slater and Narver 1998). An uncertain environment can create new customer niches and changing demographics, where their needs often are rather latent and ambiguous (Callaway and Hamilton 2006). New services can bring in new customer segments as well as better serve existing ones. Rebundling resources means bringing in new customer segments and/or recombining old ones. In short, would-be entrepreneurs must recognize not only the latent needs of existing customers, but those of emerging customer segments as well.

Such a competence may be better developed considering the roles of operand and operant resources. The new cluster of providers will offer a new combination of operand and operant resources that will reflect new and different value propositions, while these new value propositions then will likely attract new and different customer segments. Given this, Normann and Ramirez (1993: p. 66) suggest that “the key strategic task [for value co-creation] is the reconfiguration of roles and relationships among the constellation of actors in order to mobilize the creation of value in new forms and by new players.”

Sarasvathy and Dew (2005) present the effectual model of entrepreneurship, whereas a chain of interactive commitments of participating stakeholders result in two cycles, one that increases the size of the network and therefore resources available to it, and one that constrains the possible goals of the stakeholders; this expansion of means and convergence of goals coalesces into a new market. Indeed entrepreneurial effectuation is a case where goals emerge as a consequence of stakeholder acquisition (Sarasvathy 2001). That is, important decisions regarding products, markets, value propositions, etc., will be made as more stakeholders commit. As such, service-oriented entrepreneurship is likely to reflect a greater number of diverse providers and customers. Thus we posit:

Proposition 5: Service-oriented entrepreneurship will increasingly combine multiple, new and diverse providers and customers, in order to co-create value.

5. Cases Illustrating Service-oriented Entrepreneurship Case literature is offered to provide necessary supporting evidence from industry practices in order to illustrate the propositions. We selected this method because such exemplars allow us to investigate the phenomenon under study in a real-life context (Yin 1981). Firms were selected as literal replications of representative or typical cases engaged in entrepreneurial activity (Yin 2009). Case study method requires that a sufficient number of such cases be selected to cover the domain of the study, in other words, providing literal replications to illustrate each theorized proposition. Four cases were selected: (1) heating and cooling service providers, (2) the Better Place electric car service, (3) IKEA Furniture, and (4) the Danish Pharmaceutical Association. Each case was selected because it represents an example of service-oriented entrepreneurship and therefore satisfies the criterion for theoretical replication (Yin 2003; Eisenhardt 1989). 5.1 Entrepreneurial Trends in Green Design and Healthcare The current paper illustrates the topic of service-oriented entrepreneurship by examining some emerging businesses in green design and healthcare. To begin, environmental technologies have received much attention lately. With increasing environmental consciousness, such as concerns about pollution, global warming, and dependence on foreign oil, the concept of green design is receiving much attention (see Chung and Tsai 2007). Further, the US federal government now provides many of these businesses with financial incentives such as tax-credits, grants, and loans to assist them with development and operations (Funding Opportunities 2009). As such, more and more entrepreneurial activity reflects businesses in green design.

Healthcare has also received a great deal of attention recently, owing to noticeable changes in key actor roles – specifically those of patients (or consumers) and physicians. The notion of consumer engagement, in other words patients playing an active value co-creation role in determining their health status and healthcare experiences, has driven healthcare firms to invest billions of dollars in infrastructure to support and interface with consumers (Goldsmith 2007). In this environment, Fottler et al. (2000) suggest that consumer expectations are evolving beyond the traditional patient/provider transaction (e.g., receipt of diagnosis and treatment instructions) to now include desires for convenience, safety, comfort, entertainment, and actionable information. As such, “the service setting


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represents a major part of what the customer is paying for and seeking from the healthcare experience,” (Fottler et al. 2000, p. 92). Consequently, entrepreneurial opportunities to enhance the service setting have become apparent to many physicians and other healthcare professionals causing them to combine “…their traditional roles as providers of care while at the same time becoming business entrepreneurs,” (McCleary et al. 2006, p. 551). In short, both healthcare and green design afford important sectors in which finding entrepreneurial approaches leading to the transformation of existing business processes are considered indispensable for creating social and customer value in the future. Thus, four specific exemplars are presented in the current paper to illustrate service-oriented entrepreneurship: ‘environmental comfort’ service providers, the Better Place venture founded by Shai Agassi, IKEA Furniture, and the Danish Pharmaceutical Association. 5.1.1 ‘Environmental Comfort’ Service Providers Some new ventures are in the business of heating and cooling your home or office. Hawkins, Lovins and Lovins, in the book Natural Capitalism, describe this new service orientation. Rather than selling the customer actual products, such as oil, gas, or HVAC (heating, ventilation, air-conditioning) products, the service providers offer what the customer really wants, warmth and cooling, that is, environmental comfort. These firms deliver the ‘what’; how it is delivered is up to the service provider. The ‘how’ may be new windows, better insulation, a new or different HVAC system, more efficient appliances, etc. They are paid for the results, not for the inputs they use to achieve it. For example, Carrier, a provider of air-conditioning equipment, realized that customers are not interested in what an air-conditioner is; they want what it does. Thus, Carrier is teaming up with other providers, such as lighting retrofitters, or other infrastructure contractors, to deliver this service (Hawkins, Lovins and Lovins 1999, pp. 135-136). In doing so, Carrier has focused efforts not on their firm or products per se, but on the development of a value-creation system comprised of economic actors that bring forth the necessary operand and operant resources to maximize value with the customer (Normann and Ramirez 1993). In short, these service providers offer continuous, customized, lower cost solutions to the specific customer’s unique situation. Customers provide constant input regarding their needs and the performance of the system, a form of operant resource. Meanwhile, contractors maintain the system, and when needed, replace various equipment (operand resources), and have the best knowledge and incentives (operant resources) to make the right decisions accordingly. Thus, rather than the output existing in the form of a product or service, Carrier’s efforts lead to a value dense environment characterized by high amounts of information, knowledge, and resources which can be exploited by the actors in the system to co-create value (Normann and Ramirez 1993). Consequently, value density fuels a more efficient system that translates directly to greater profits for the contractor while the provider and customer make money together by increasing resource productivity and yield (Hawkins, Lovins and Lovins 1999, pp. 135-136). A superior product by Carrier now truly results in greater profits; whereas previously with traditional market inefficiencies a superior product may not have lead to greater sales or profits. As it is, resources are being combined in new ways to provide new services.

Regarding Proposition 1, the environmental comfort provider does illustrate service-oriented entrepreneurship. The service provider owns the physical assets (the operand resources or products) and is responsible for their quality and performance, and focus on what the products deliver – the service. The critical value proposition is a value in use, not the product. Carrier simply delivers heating and cooling services. Regarding Proposition 2, the providers of heating and cooling services are responsible for all maintenance, recharging, replacement, etc., for the products. They have the best operant resources in the form of knowledge and experience to know when and how to maintain operand resources or the equipment, and when to replace it. As such, the environmental comfort provider is a good illustration of the importance of the lifetime use of a product.

Regarding Proposition 3, the environmental comfort provider does illustrate the importance of the role of the customer, and redefines it. Carrier helps customize an ‘environmental comfort’ solution based on the unique context of each particular customer. This context is communicated to Carrier through customer feedback on the system’s performance, an operant resource. Key decisions regarding the maintenance and replacement of HVAC equipment has been moved from the customer. Similarly, regarding Proposition 4, a key driver of the value proposition of the environmental comfort provider is indeed the ambiguity and goal incongruence previously apparent between providers and customers. Carrier customers may not have understood the technical aspects of HVAC equipment. Therefore, in recognizing this disparity of information, Carrier has accepted responsibility for all maintenance and replacement services. Moreover, the incentives for both the providers and consumers are now aligned, so that resource productivity is maximized. Under the goods-centered paradigm, providers had an incentive to sell more product than needed and to replace sooner than needed, while customers may not know best how to maintain the products. Finally, regarding Proposition 5, the environmental comfort provider does create new value by combining new and diverse stakeholders (Read, et al. 2009; Sarasvathy 2008). Carrier, when focusing on its service to customers, realized that in order to develop the best service for customers, needed to team up with other disparate


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providers (windows, insulation, etc.). In this case, the value is not in the air conditioners themselves, but the new value dense environments created by the disparate providers of building material, insulation, windows, HVAC equipment, etc. 5.1.2 Better Place Shai Agassi has founded the venture Better Place, along with Renault/Nissan, and financial backers. The former software engineer has a plan to replace the internal combustion engine (ICE) with electric cars, but the key is not to build and sell superior cars; rather to create a green infrastructure largely modeled after the cell phone industry. That is, the car is like the cell phone (which is a commodity today); the true value lies in its use which is largely influenced by the size and strength of the network. The driver of the car is a subscriber (customer), and Better Place will be the service provider, operating a smart power grid to guarantee batteries are charged or replaced on demand, at work, in transit, or in various car parks (The Sydney Morning Herald 2009). That is, the provider will recharge or replace batteries (operand resources) as needed, removing that risk from the customer. The key is that the venture is developing exchangeable batteries (to swap the battery in minutes rather than recharge in hours). Rather than investing in developing batteries that can compete with the ICE, Better Place will strategically position battery charging and battery-swap stations (a type of operant resource) at locations convenient for customers. Customers pay a flat monthly fee and derive value from the use of the cars and network (operand resources). Better Place will have the knowledge and the incentive (operant resources) to decide when to recharge and when to replace, to extend battery life. Besides Renault and Nissan, other car brands such as Tesla and the Chevy Volt may also utilize this network. Agassi is counting on the batteries taking 1500 charges (equivalent to 150,000 miles driven) to turn a profit, but developers are expecting 7000 charges per battery (Erlanger 2008). As a pioneer, Better Place can establish the standard; such as parameters for the battery swap stations. Customers may not buy electric cars unless Better Place guarantees them. As such, car manufacturers would have to adopt those ‘swap standards’ and offer the Better Place service, so the network is reinforced. Further, given that vehicle maintenance should be dramatically less for electric cars than ICEs (outside of the battery); Better Place could even guarantee all car maintenance, a great incentive for customers over ICEs but at little cost for Better Place. The key issue, though, is that Agassi was able to think beyond building a better product, to identify the right operand and operant resources and visualized how best to combine them to create a value dense environment and ultimately better service.

Regarding Proposition 1, Better Place does illustrate service-oriented entrepreneurship. Better Place is responsible for the quality and performance of the operand resources, and focuses on what the product delivers – the service. Better Place simply delivers personal mobility services powered by batteries. Regarding Proposition 2, the key value proposition driving the Better Place business involves redefining the lifetime use of the product. Better Place has the best operant resources in the form of knowledge and experience to know when and how to maintain operand resources. Also, the incentives for both the providers and consumers are now properly aligned, maximizing resource productivity. Similarly, the role of the customer has been redefined in this model, illustrating Proposition 3. Responsibility for maintenance and battery replacement has been moved from the customer.

Better Place also illustrates Proposition 4. The goal incongruence and information asymmetry between customers and providers is important for Better Place, given the newness of electric cars and the associated uncertainty about their performance. Many manufacturers argue that electric cars will perform better than customers believe, and invest substantially in building a better car, and “marketing” it to the customer. Agassi realized a better approach, and may well profit from the disparity between actual product performance and customer expectations. Customers may be willing to pay quite a premium for the peace of mind, regarding future fuel prices, future maintenance on the car, and battery performance. Finally, illustrating Proposition 5, Better Place will be teaming up with Nissan/Renault, as well as several national and local governments and various utility providers, to develop a new network for electric cars and helping to create a new smart electric grid. In this case, the value is not in the electric car batteries themselves, but the new value dense environments created by these disparate providers. 5.1.3 IKEA Furniture Since it introduced furniture into its product offering in 1948, IKEA has focused its value proposition on providing a wide variety of well-designed and functional home furnishing products at prices affordable to as many customers as possible (IKEA Vision 2009). Delivering on this concept requires the provision of products in the form of furniture items and home accessories as well as services such as logistics and assembly. In executing on both, the product and service elements of this value proposition, IKEA engages its customers and suppliers in work-sharing and co-production arrangements, placing each constituent in a position to “…think about value in a new way – one in which customers are also suppliers (of time, labor, information, and transportation), suppliers are also customers (of IKEA’s business and technical services), and IKEA itself is not so much a retailer as the central star in a


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constellation of services, goods, design, management, support, and even entertainment,” (Normann and Ramirez 1993, p. 68). Under this approach, customers can access all of the information they may need to research a product on IKEA’s website or through a comprehensive catalogue. Customers can then submit order information online or visit an IKEA store where they will be in little need of assistance from sales representatives given their well informed position, thus reducing labor costs for IKEA. Customers can help to keep prices low by selecting and picking up products themselves and then transporting them home and assembling them, again themselves (IKEA Range 2009). This self-service approach involves the customer in value creation, therefore enabling IKEA to keep its prices anywhere between 25% to 50% lower than its competitors (Normann and Ramirez 1993). The result has been that IKEA has emerged as the leading global home furnishing brand with more than 235 stores in over 30 countries, employing more than 110,000 co-workers (IKEA Concept 2009).

Today however, IKEA realizes that while “keeping prices low is cornerstone of the IKEA business idea … [their] low prices must not be at the expense of people or the environment,” (IKEA Group 2008, p. 7). As such, IKEA employs a green design approach endeavoring to use the least amount of resources necessary to produce the best possible products. One manifestation of their green focus was the development of hollow legs and the use of chipboard as filling instead of solid wood for their furniture products (IKEA Group 2008). These developments have not only reduced resource consumption, but also make products lighter and easier to manage as customers co-create value by transporting them home from the store. IKEA’s KASSETT magazine files represent another successful green initiative. These magazine files are produced using 80% recycled paper, and are delivered to customers flat folded. This results in more files per truck, reduced environmental impact and a better price for customers. Not only have customers’ co-creation of value in folding/assembling these racks produced better pricing, but CO2 emissions from transportation have decreased 75% (The never ending 2009).

While the majority of customers transport their products home, some do choose IKEA’s delivery service. This represents another revenue stream for the firm. In this regard, IKEA’s green focus offers some synergy in that reduced pricing is offered for home delivery service for customers who ride public transportation to the store (IKEA Group 2008). This requires that the customer put forth effort in using public transportation, results in improved emissions, and incentivizes customers to use IKEA’s home delivery service thus generating revenue for the firm. Finally, IKEA also provides consumers with education about green products which derive value in use, such as Compact Fluorescent light bulbs (CFL) (IKEA Group 2008). CFL bulbs extend product life more than 10 times that of traditional bulbs, while using 80% less energy. However, CFL bulbs house a small amount of mercury which creates unique demands from a recycling perspective. Given this, IKEA allows customers to return their CFL bulbs for proper disposal. As such, IKEA creates a value dense environment for its customers (the necessary information, knowledge, and resources) to create value in the purchase and use of CFL bulbs. Another similar IKEA program incentivizes customers to return their used Christmas trees for recycling in exchange for a store gift certificate.

Finally, IKEA’s green focus also includes programming designed to produce social value. During each autumn, IKEA stores around the globe run the IKEA soft toys campaign (IKEA Group 2008). The soft toys campaign is a social initiative whereby IKEA donates one euro for each soft toy sold during the period to Save the Children and UNICEF. The funds are ultimately donated via the purchases of millions of customers and used to improve children’s education. The result is obvious value for the beneficiary children, as well as intrinsic value for IKEA’s customers who in making their purchases act in a quasi-supplier role to the social program.

Regarding Proposition 1, IKEA does reflect service and value-in-use as a critical part of their business. Specifically, while IKEA does not own the CFL light bulbs once sold to customers, their focus on the value created during service (e.g. their educational classes and in their acceptance of used bulbs for disposal) is apparent. Also, the key value proposition is not the final product – assembled furniture, but rather the service that furniture provides, and training customers is a critical way that IKEA demonstrates that service. Regarding Proposition 2, IKEA’s provision of recycling services for CFLs as well as Christmas trees reflects value co-creation for the customer both during and following use. Recycling in general reflects the importance of the life of a product. Therefore, this case somewhat illustrates the importance of the lifetime use of IKEA’s products.

IKEA also illustrates Propositions 3 and 4. That is, the role of the customer is a critical part of IKEA’s business model and has been redefined. The company specifically addresses and invests in the skills and knowledge of customers (by offering price incentives and training). IKEA customers may not have understood the operational aspects of CFLs or of furniture delivery and assembly, but through price incentives and training, their ‘use’ role changes. With IKEA’s new business model, many customers accepted greater responsibility for furniture delivery and assembly, once they had been trained and equipped by the respective providers. Finally, IKEA illustrates Proposition 5, as a key part of the company’s business is to combine new and diverse stakeholders (Read, et al. 2009; Sarasvathy 2008). IKEA engages customers and suppliers in work-sharing and co-production arrangements, and is central to redefining these actors and their relationships (Normann and Ramirez 1993).


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5.1.4 Danish Pharmaceutical Association Danish pharmacies are privately owned, but do have a close relationship with the State who sets pharmaceutical prices (Normann and Ramirez 1993). In an effort to facilitate the annual negotiation of prices, pharmacists in Denmark established the Danish Pharmaceutical Association (DPA) to represent their interests with the State. Over time, the relationship between DPA and the Danish State had resulted in a reasonably predictable remuneration environment, offering the pharmacists a high degree of security and deemphasizing innovation, efficiency or productivity gains (Normann and Ramirez 1993). In this environment, the pharmacists enjoyed a virtual monopoly and were content to focus on selling their over-the-counter and prescription medications, in other words focusing on sales transactions. However, pressure began to increase with discussions of deregulation, causing the DPA and the pharmacist constituents to investigate new perspectives on their business.

The DPA observed two strengths: (1) a well educated group of pharmaceutical healthcare professionals, and (2) a distribution network with strong access to the Danish population. This made for a potentially effective combination of resources given that the public was beginning to see that health depends on personal choices and behavior and so was eager for advice and information about healthier lifestyles (Normann and Ramirez 1993). The DPA responded with a broadening of the pharmacists’ conventional role (centered on selling drugs) in developing a concept referred to as ‘Pharmaceutical Care’ which positioned the pharmacy as a healthcare resource or one stop shop for consumers. They now provided customers with expanded resources to support their health such as herbal medicines, skin care items, and health and diet foods. Further, they worked with suppliers to simplify medication and other health product labels to make it easier for customers to locate and understand medical information. A customer information system was also installed, enabling computer access for health information, preventive care literature, and self-help books. In using such IT resources, customers can interact with other patients in online support groups (Zrebiec and Jacobson 2001) and engage in computer use for communication with physicians (Wilson 2003).

An electronic pharmaceutical ordering system was also installed. This enhanced service to the customer by automatically checking for side effects and laid the foundation for a home delivery service provided by the pharmacists. In partnering with an ambulance operator, a customer could now place an order online and receive their medications without leaving the comfort of their own home. This marriage of alliances and technology provided elderly and recently discharged patients with dependable medication delivery, support, and security. Finally, an antismoking program which involved pharmacy testing was launched in a joint venture with the World Health Organization (WHO) and Europharm Forum. These partnerships generated physician support for the program which was very successful, one which the WHO desired to implement in other countries. “In the end, new offerings have gradually allowed the pharmacies to get a far higher return on their knowledge base and their customer base than they ever enjoyed in the past,” (Normann and Ramirez 1993, pp. 73-74).

DPA does indeed illustrate service-oriented entrepreneurship - Proposition 1. DPA’s use of computer kiosks at the pharmacies enables customers to access online support groups, other physician/provider communications, and health information. Furthermore, the value in use concept is depicted in the DPA’s provision of kiosks for their customers as well as the antismoking program. That is, DPA’s business model does emphasize some overall lifetime health issues for customers, going beyond the simple ‘fee for service’ approach. As such, this case somewhat illustrates Proposition 2.

DPA also illustrates Proposition 3, the importance and redefinition of the role of the customer. DPA demonstrates a paradigm shift from dispensing medications (value in exchange) to counseling patients to better health (value in use) paid big dividends. Providers offered information and resources such as health tips tailored to individual patients, as well as information about the benefits and risks of their products, while patients recognized that their health depends on personal choices and behavior. Similarly, DPA illustrates Proposition 4, as the disparate goals, knowledge and experiences of customers and providers offer critical issues addressed by DPA. DPA customers may not have understood the technical aspects of pharmaceuticals prior to counseling. Further, pharmaceutical companies previously had no control over customers’ personal health choices, however important those choices may be. As a result, DPA has offered new services to reflect this disparity of information, and has trained customers for a new, expanded role. DPA customers now accept greater responsibility for personal health choices. Finally, regarding Proposition 5, the case offers some support for the importance of combining new and diverse stakeholders for entrepreneurship (Read, et al. 2009; Sarasvathy 2008). Specifically, an arrangement of customer and supplier co-production was observed in the DPA case, where the addition of a new actor (the ambulance operator) in the value co-creation system led to the development of a new home delivery service offering.

Refer to Table 1 for a summary of how the exemplars illustrate the aforementioned five propositions.


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Table 1 Summary of Illustrations of Propositions Environmental

Comfort Better Place IKEA

Danish Pharmacies

P1: The identification of new opportunities for value creation will increasingly reflect service-oriented entrepreneurship.

Supported Supported Supported Supported

P2: Service-oriented entrepreneurship will increasingly identify new opportunities for value creation by addressing the lifetime use of a product.

Supported Supported

P3: Service-oriented entrepreneurship will increasingly focus on and redefine the role of the customer in creating value.


P4: Service-oriented entrepreneurship will increasingly address and improve the asymmetry of information and misalignment of goals between provider and customer.


P5: Service-oriented entrepreneurship will increasingly combine multiple, new and diverse providers and customers, in order to co-create value.

Supported Supported Supported

6. Discussion Service-oriented entrepreneurship indeed presents a good application of the SDL paradigm, both for researchers and practitioners (entrepreneurs). Researchers will find that the SDL theoretical lens will shed some light on the nature of more recent entrepreneurial activity. Would-be entrepreneurs, by considering the propositions posed in this paper, may begin to see opportunities for value creation that would not have otherwise been apparent. Focusing downstream, on the customer-provider interaction, over the long term, and considering the total customer experience with the products/services, may reveal new value propositions, beyond simply addressing upstream issues such as the value embedded in products. Redefining this interaction and associated value propositions may be the best way for firms to grow their businesses and expand into new and different customer segments.

It is interesting that while customer and supplier arrangements have been redefined for each of these four cases, whether they have been expanded or reduced depends upon the unique characteristics of the case. For example, Environmental Comfort and Better Place customers seem to have a somewhat reduced role in that they do not have to worry about some of the maintenance costs associated with ownership, while IKEA customers clearly are given an expanded role including furniture delivery and assembly. However, in all cases increased customer interaction are observed, as provider and customers work together sharing information and resources in order to achieve dialogue, transparency, access, and risk-benefits (Prahalad and Ramaswamy 2004), and increase the value density of the environment (Normann and Ramirez 1993). The increase in customer interaction offers greater opportunities for value creation, which is also consistent with the service process matrix (Chase 1978; Chase and Tansik 1983; Schmenner 1986). Ultimately, whichever actors possess underutilized information or resources should have their roles expanded, and/or combined with other actors’ information and resources, in order to fully exploit their respective resources until maximum value is co-created. 7. Conclusions, Limitations, and Future Research Overall, this paper has examined the important intersection of service science and entrepreneurship for understanding value creation. Entrepreneurship is clearly an important application of SDL because of its importance for society overall as well as its emphasis on finding new ways of creating value for customers with available


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resources (Drucker 1985). Both fields illustrate the importance of creating value dense environments by accumulating stakeholders as a way to find new combinations of resources, or more fully utilize otherwise slack resources (Read, et al. 2009), in order to propose new value for customers. The chain of interactive commitments of participating stakeholders is central to theories about effectual entrepreneurship (Sarasvathy and Dew 2005) as well as service-dominant logic (Vargo and Lusch 2004; 2008). Given this, our work has successfully linked SDL to the identification of entrepreneurial opportunities, a lifetime view of products/services, redefining the role of the customer, the alignment of information and goals between firms and their customers, and the dynamic recombination of actors in the value creation system.

While this study contributes a theoretical framework for future investigation, it is not without limitations. First with regard to our data collection method, the four case exemplars employed here are based on secondary data, and offer supporting evidence from industry practices. Such an approach helps illustrate the propositions developed in the paper. However, carrying out real field case studies, in order to create primary data using structured and semi-structured interviews of field experts (Yin 1981), would truly be needed to better illustrate and even test these propositions. Moreover, research drawing from other theoretical perspectives than those described here, perhaps service process matrix theory or behavioral theories of the entrepreneurial firm (for example, see Dew, et al. 2008), is needed to further refine these propositions and to create new ones, leading to a more comprehensive model that more fully describes the people and firms behind service-oriented entrepreneurship. Integrating these service system theories will help to more fully develop the model and propositions posed in this paper.

Additionally, instruments need to be designed in order to empirically test these models that illustrate service-oriented entrepreneurship. Zhang and Chen (2008) have also pointed to an overall lack of construct development and empirical testing of value co-creation phenomena. Finally, while entrepreneurship provides a key venue to apply SDL, it is by no means the only application, as SDL can contribute significantly to various other fields. It is the hope of the authors that the relevance and importance of SDL will be further addressed and expanded across many different disciplines. References

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Dr. Stephen K. Callaway is an Assistant Professor in the Department of Management at the University of Toledo, where he teaches courses in entrepreneurship and strategic management. His research interests include international entrepreneurship and technology management. He has various publications including journals such as the New England Journal of Entrepreneurship and The Journal of High Technology Management Research. Email: [email protected]. David D. Dobrzykowski is a Ph.D. Candidate in the College of Business Administration at the University of Toledo in Toledo, Ohio, USA. He received a BBA in Marketing in 1995 and an MBA in Executive Management in 1999, both from UT. Before returning for his Ph.D., he enjoyed a 12½ year career as a healthcare executive, 8 years of which included service on UT’s Adjunct Faculty, teaching management strategy. His articles have been published in conference proceedings including Decision Sciences Institute, and Production and Operations Management Society (POMS), as well as in academic and professional journals such as Benchmarking: An International Journal (accepted), International Journal of Information Security and Privacy, International Journal of Services and Operations Management (accepted) and Business Advantage. His research interests include supply chain management and information technology, specifically related to the application of supply chain concepts for value co-creation (service-dominant logic) in healthcare. Email: [email protected].

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