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Journal of Service Research Ingo O. Karpen, Liliana L. Bove and Bryan A. Lukas

Service-Dominant Orientation

Linking Service-Dominant Logic and Strategic Business Practice: A Conceptual Model of a

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and Strategic Business Practice:

A Conceptual Model of a

Service-Dominant Orientation

Ingo O.Karpen1,Liliana L.Bove2,and Bryan A.Lukas2

Abstract

Service-dominant(S-D)logic can function as a strategic business logic that portrays creating superior value in conjunction with—rather than for—customers as a source of competitive advantage for organizations.From this perspective,strategy is about making choices in terms of how to best facilitate and enhance value cocreation for mutual and long-term betterment.While the literature has pointed out the managerial merits of cocreating value,less is known about the organizational capabilities necessary to execute S-D logic in practice.This article devises an S-D orientation,specified as a portfolio of six strategic capabilities,namely individuated,relational,ethical,empowered,developmental,and concerted interaction capability.In combination,these six strategic capabilities constitute a cocreation capability.The authors develop the conceptual model of S-D orientation through (a)an in-depth literature review and(b)input from21expert academics.Conceptualizing S-D orientation provides a foundation for bridging S-D logic and strategy research with a more general framework,and for guiding much-needed empirical research that will inform managers.From a managerial point of view,S-D orientation provides a holistic approach to align the organization with its value network partners.The article also sets out an agenda for future research.

Keywords

service-dominant orientation,service-dominant logic,value cocreation,cocreation capability,interaction capabilities

Introduction

Service-dominant(S-D)logic(Vargo and Lusch2004,2006, 2008b)describes service as the core purpose of exchange and provides a theoretical understanding of how firms,customers, and other market actors cocreate value through their service interactions with each other.A central implication of S-D logic is that the notion of superior value cocreation replaces the more prevalent one of superior value provision as the cornerstone of business strategy.Therefore,from an S-D logic perspective,the capabilities that facilitate and enhance value cocreation pro-cesses are strategic capabilities central to an organization’s competitive advantage.

Although the managerial merits of different notions of value cocreation have been discussed in the literature(e.g.,Day and Moorman2010;Madhavaram and Hunt2008;Payne,Stor-backa,and Frow2008;Porter and Kramer2011;Prahalad and Ramaswamy2004;Ramaswamy and Gouillart2010;Ramı´rez 1999;Womack and Jones2005b),less research attention has been paid to the actual portfolio of capabilities required to enact S-D logic.Consequently,managers only have limited guidance in the literature for implementing S-D practices.The purpose of this article is to devise a conceptual framework, which we call S-D orientation,to bridge S-D logic and S-D practice.

An S-D orientation represents a set of strategic capabilities that enable an organization to cocreate value in service exchanges with what the S-D logic literature calls‘‘value net-work partners,’’such as customers,intermediaries,suppliers,or employees.While we consider our conceptualization to be rel-evant with respect to these different value network partners,in this article we concentrate on a firm’s interactions with busi-ness customers(B2B)and private customers(B2C),hereafter referred to simply as customers.Our focus on customers echoes their importance for a firm’s success from a strategy perspec-tive(Priem2007)and their value contribution role from an S-D logic perspective(Vargo and Lusch2008b).

We interpret an S-D orientation as a cocreation capability, resulting from a firm’s individuated,relational,ethical, empowered,developmental,and concerted interaction capabil-ities.Our conceptual model is informed by(a)an in-depth 1RMIT University,Melbourne,Victoria,Australia

2The University of Melbourne,Melbourne,Victoria,Australia Corresponding Author:

Ingo O.Karpen,RMIT University,School of Economics,Finance and Marketing, Building108,Level12,239Bourke Street,Melbourne3000,Victoria,Australia Email:ingo.karpen@rmit.edu.au

Journal of Service Research

15(1)21-38

ªThe Author(s)2012

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jsr.sagepub.com Downloaded fromreview of S-D logic research and underlying literature streams and(b)S-D logic evaluations solicited from expert academics. Because we specify S-D orientation as a higher order concept, we also consider the independent and combinatory nature of the construct’s components and the implications for future modeling and measurement.Our research responds to the call for conceptualizing a cocreation capability(Madhavaram and Hunt2008)and contributes toward the development of middle range level theory in the context of S-D logic that can facilitate subsequent empirical investigations(Brodie,Saren, and Pels2011b).

We discuss the theoretical foundation of S-D logic first,and demonstrate the connection between S-D logic and service-based business strategy.Then,we conceptualize an S-D orien-tation,discuss the concept’s research implications,and suggest future research directions.

Fundamentals of S-D Logic

S-D logic is a thinking framework at a pretheoretic stage that conceptualizes business exchanges from a service-based per-spective(Vargo2011;Winklhofer,Palmer,and Brodie 2007).To date,10foundational S-D logic premises(FPs)have been established in the literature(Vargo and Lusch2008b)with further premises evolving(see Williams and Aitken2011). These premises form the building blocks of an emerging school of thought or research paradigm(Brodie,Saren,and Pels 2011b).

The first premise is that market actors interact and collabo-rate for the capabilities of the other party that renders service, thereby making a distinction between goods and services redundant(FP1).The actual service can be rendered either directly through a firm’s relieving activities or indirectly through enabling service platforms(FP3)such as goods or Internet websites(e.g.,Gummesson1993).According to these premises,a firm’s goods are valuable and relevant resources to the degree that they can be used as inputs to lever the custom-er’s own value creation processes and experiences(Gro¨nroos 2006a;Normann and Ramı´rez1993).Ultimately,service defines all economies(FP5)but this view might be masked by service intermediaries such as goods,money,or institutions (FP2;Vargo and Lusch2008b).

Service-based logic further highlights that value is not what is inherent in or added to a product,but what customers get out of a product(Gro¨nroos2006b).Accordingly,value cannot be distributed or delivered by firms(FP7).Rather,firms facilitate the actualization and determination of value that network part-ners derive from their experiences(Vargo and Lusch2008b); this is also referred to as value-in-context(FP10).Value cocreation requires all network partners to interact with,and integrate,resources(FP9)to achieve mutual betterment(Gro¨n-roos2008;Vargo,Maglio,and Akaka2008).As S-D logic has been characterized as an open and evolving process(Vargo and Lusch2008b),Williams and Aitken(2011)propose a new pre-mise for consideration in this context that highlights the impor-tance of personal and societal values in determining desired value and value cocreation priorities(FP11).Vargo and Lusch (2008b)further indicate that creating value in concert with—rather than for—customers within a relational context(FP8), indicates the operant and cocreative nature of network partners (FP6)as active resources in value creation processes.Finally,a firm’s own and accessible operant resources(e.g.,employee competencies,network service capabilities),rather than oper-and resources(e.g.,goods,materials),play a central role for competitive success(FP4).As organizations specialize in exchanging service,superior operant resources such as strategic capabilities become important levers for actualizing value-in-context with network partners.These operant resources can be a source of competitive advantage(Madhavaram and Hunt 2008;Vargo and Lusch2008b).

From S-D Logic Toward an S-D

Orientation

Strategic Considerations

The notion of cocreating value refers to assisting customers in co-constructing and engaging in superior experiences.Each value network partner brings their own unique resource access and accommodation into that process(see Vargo and Lusch 2008a).As we illustrate below,this conceptualization has crit-ical implications for the role of the firm and subsequent inter-actions with customers as central value network partners.

When customers are viewed as an integral part of value cre-ation,the role of the firm becomes that of a facilitator,sup-porter,and co-constructor of value rather than a supplier of value(Firat and Dholakia2006;Gro¨nroos2008;Michel, Vargo,and Lusch2008;Normann2001;Payne,Storbacka,and Frow2008;Ramı´rez1999;Vargo and Lusch2008b).In turn, the strategic focus of the firm shifts toward understanding how it can better assist individual customers to get more out of its direct service activities and/or service platforms so that their daily routines,processes,and experiences are improved in a meaningful way(see Payne,Storbacka,and Frow2008;Praha-lad and Ramaswamy2004).Communication is therefore dialo-gical between value network partners,which enriches the process of learning together(Ballantyne and Varey2006). Overall,firms prioritize valuable interaction experiences and outcomes of reciprocal resource integration efforts,rather than focusing on products per se,thereby forming the basis for suc-cessful future strategies.

The strategy literature,in particular the resource-based view (RBV)stream,has been pointing toward the value potential of resources and customer value creation processes as a main driver of organizational performance(e.g.,Bowman and Ambrosini2000;Mol and Wijnberg2010;Priem2007).From an S-D logic perspective,strategy is about making choices about how best to facilitate and enhance value cocreation with network partners such as customers for mutual and long-term betterment.That is,optimizing interdependent resource inte-gration processes to capitalize on superior value propositions and value potential realizations.This collaborative and

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interconnected nature of value creation highlights the need for a more network-oriented strategic approach (Gummesson 2006),seeking benefits for all value network partners,which Gummesson (2008a)calls ‘‘balanced centricity.’’

Conceptual Foundations of an S-D Orientation

To become actionable,S-D logic requires specific strategic behaviors that are enabled by underlying capabilities.Strategic behaviors have been examined through the concept of a firm’s orientation,while the literature provides different views regarding the notion of ‘‘orientation.’’In line with previous suggestions (e.g.,Day 1994;Foley and Fahy 2009;Kandemir,Yaprak,and Cavusgil 2006;Ramani and Kumar 2008),the position taken in this article is that a firm’s strategic orientation refers to a capability or skill portfolio that enables,and mani-fests in,organizational behaviors.For example,Kandemir,Yaprak,and Cavusgil (2006,p.325)‘‘[...]conceptualized [what they call]alliance orientation as a firm’s skill portfolio of superior capabilities that help it scan its environment for partnering opportunities,coordinate its alliance strategies,and learn from its alliance experiences.’’Such a capabilities per-spective offers the opportunity to direct managerial attention to the development of actual skills that foster service-driving behaviors and support the development of prescriptive approaches to business strategy (Foley and Fahy 2009).

Figure 1illustrates the conceptual relationships between S-D logic and S-D orientation proposed in this article.S-D logic provides service-driven premises that are reflected in S-D thinking.In contrast,S-D orientation directs firms’attention to strategic capabilities that are service-driving and manifested in organizational actions.We now turn to identifying these strategic capabilities that correspond to the premises of S-D logic,and the associated strategic themes specified in the following.

Strategic Themes Associated With S-D Logic

Vargo and Lusch (2004,p.11)emphasize that ‘‘[i]nteractivity,integration,customization,and coproduction are the hallmarks of a service-centered view and its inherent focus on the cus-tomer and the relationship.’’S-D logic ‘‘points almost directly

to normative notions of investment in people (operant resources),long-term relationships,quality service flows,and only somewhat less directly toward notions of symmetric rela-tions,transparency,ethical approaches to exchange,and sus-tainability’’(Lusch and Vargo 2006b,p.283).Others have highlighted an S-D logic focus on ‘‘communicative interaction,reciprocal servicing,resource sharing,solution orientation,and the co-creation of value’’(Ballantyne and Aitken 2007,p.368).Overall,S-D logic accentuates ‘‘a commitment to collaborative processes with customers,partners,and employees’’(Lusch,Vargo,and O’Brien 2007,p.5).

Based on these illustrative characteristics of S-D logic and an in-depth literature review,Table 1presents the six resulting S-D themes with normative strategic relevance.The table also relates the identified themes to respective S-D logic premises,strategic implications,and potential customer consequences.The six strategic themes reflect the understanding that mean-ingful interaction and reciprocal resource integration with cus-tomers as value network partners requires:(a)value-in-context focus—understanding value as a contextual and phenomenolo-gical outcome determined by the individual customer;(b)rela-tion focus—understanding customers as social relationship partners,not isolated targets,with whom collaborative rela-tions are favorable;(c)values 1focus—understanding customer interaction and resource integration to benefit from ethical considerations for the long-term,joint betterment;(d)copro-duction focus—understanding customers as effect-capable resources able to contribute to service processes for enhanced outcomes;(e)operant resource focus—understanding custom-ers’accessible operant resources as the basis for effective resource integration and value realization;and (f)process flow focus—understanding service as interlinked processes of resource integration within and among value networks of which customers are a part.Each theme is strategically relevant in that it deals with the conditions for meaningful and mutually beneficial resource integration;from value propositions to value actualizations in reference to the premises of S-D logic.

Conceptualization of an S-D Orientation

In conceptualizing service as a value cocreating process (Vargo and Lusch 2008b),interaction becomes the defining aspect of resource integration efforts and subsequent value-driving experiences (Prahalad and Ramaswamy 2004).That is,value is jointly realized in interaction experiences through a rela-tional process (Berthon and John 2006;Gummesson 2008b;Kowalkowski 2011;Schembri 2006).The importance of inter-action requires ‘‘that all co-creative management processes be enabled and supported by interaction-centric capabilities’’(Ramaswamy 2009,p.37).

The strategically relevant themes linked to the premises of S-D logic,as outlined in Figure 2,help us understand the type of interaction capabilities that facilitate and enhance value cocreation with customers.Our analysis of the literature in association with two rounds of review by academic experts in S-D logic 2led to the identification of the following

interaction

Figure 1.Conceptual relationships between S-D logic and S-D orientation.

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T a b l e 1.L i n k i n g S -D L o g i c P r e m i s e s ,S t r a t e g i c T h e m e s ,I m p l i c a t i o n s ,a n d O u t c o m e s

S t r a t e g i c T h e m e s

I l l u s t r a t e d F o u n d a t i o n a l P r e m i s e s (F P )

S t r a t e g i c I m p l i c a t i o n s C u s t o m e r C o n s e q u e n c e s

V a l u e -i n -c o n t e x t (G r o¨n r o o s 2006b ;V a r g o a n d L u s c h 2004,2008b ;W i k s t r o ¨m 1996)V a l u e i s u n i q u e l y a n d p h e n o m e n o l o g i c a l l y d e t e r m i n e d b y t h e i n d i v i d u a l c u s t o m e r (s e e F P 7,10)U n d e r s t a n d i n g i n d i v i d u a l c u s t o m e r s ’r e s o u r c e i n t e g r a t i o n p r o c e s s e s ,c o n t e x t s ,a n d d e s i r e s I n d i v i d u a l c i r c u m s t a n c e s c a n b e b e t t e r a n t i c i p a t e d ,u n d e r s t o o d ,a n d d e s i r e d e x p e r i e n c e s b e t t e r s e r v e d R e l a t i o n s (B a l l a n t y n e a n d V a r e y 2006;G r o¨n r o o s 2007;G u m m e s s o n 2008b ;L u s c h ,V a r g o ,a n d M a l t e r 2006;T u l i ,K o h l i ,a n d B h a r a d w a j 2007)C u s t o m e r s a r e s o c i a l r e l a t i o n s h i p p a r t n e r s n o t i s o l a t e d t a r g e t s ,w i t h w h o m c o l l a b o r a t i v e r e l a t i o n s a r e f a v o r a b l e (s e e F P 6,7,8)

C o m m u n i c a t i n g w i t h a n d r e l a t i n g t o i n d i v i d u a l c u s t o m e r s f a c i l i t a t i n g s o c i o e m o t i o n a l c o m f o r t

D i a l o g u e a n d s o c i a l i n t e r a c t i o n h e l p c u s t o m e r s t o b o n d a n d i d e n t i f y w i t h t h e f i r m

V a l u e s (A b e l a a n d M u r p h y 2008;L u s c h a n d V a r g o 2006a ;W i l l i a m s a n d A i t -k e n 2011)

E t h i c a l s t a n d a r d s o f i n t e r a c t i o n s u p p o r t s u s t a i n a b l e a n d t r a n s p a r e n t e x c h a n g e w i t h c u s t o m e r s f o r t h e l o n g -t e r m b e n e f i t (s e e

F P 1,10,11)E n g a g i n g w i t h i n d i v i d u a l c u s t o m e r s i n f a i r a n d n o n o p p o r t u n i s t i c w a y s

I n d i v i d u a l c u s t o m e r s c a n d e v e l o p g r e a t e r t r u s t a n d e n g a g e m e n t t o t h e f i r m

C o p r o d u c t i o n (C o v a a n d S a l l e 2007,2008;L u s c h ,V a r g o ,a n d O ’B r i e n 2007;P r a h a l a d a n d R a m a s w a m y 2004)C u s t o m e r s a r e o p e r a n t r e s o u r c e s t h a t a r e a b l e t o c o n t r i b u t e t o t h e i m p r o v e m e n t o f r e s o u r c e s a n d d e s i r e d s o l u t i o n s (s e e F P 6,9)

E m p o w e r i n g i n d i v i d u a l c u s t o m e r s t o i n f l u e n c e t h e s e r v i c e p r o c e s s e s a n d o u t c o m e s

T h e p o t e n t i a l f o r c o p r o d u c t i o n e n h a n c e s t h e a c h i e v e m e n t o f d e s i r e d f u n c t i o n s ,g o a l s ,a n d m e a n i n g s

O p e r a n t R e s o u r c e s (M o¨l l e r 2006;N o r m a n n a n d R a m ı´r e z 1993;V a r g o a n d L u s c h 2008b )

C u s t o m e r s ’a b i l i t y t o c o c r e a t e v a l u e d e p e n d s o n t h e i r o w n a c c e s s t o k n o w l e d g e a n d s k i l l s (s e e F P 4,6,9)

H e l p i n g i n d i v i d u a l c u s t o m e r s t o d e v e l o p t h e i r o w n c a p a b i l i t i e s a n d k n o w l e d g e

I n d i v i d u a l c u s t o m e r s c a n g e t m o r e o u t o f t h e i r u s a g e /i n t e r a c t i o n e x p e r i e n c e a s t h e y b e t t e r k n o w h o w /w h a t t o d o w i t h t h e o f f e r i n g P r o c e s s f l o w s (F l i n t a n d M e n t z e r 2006;L a m b e r t a n d G a r c ı´a -D a s t u g u e 2006;V a r g o a n d L u s c h 2004,2008b )

S e r v i c e m a n i f e s t s i t s e l f i n i n t e r l i n k e d v a l u e c o c r e a t i o n p r o c e s s e s w i t h i n a n d a m o n g n e t w o r k s t h a t c u s t o m e r s a r e p a r t o f (s e e F P 1,6,9)C o o r d i n a t i n g a n d i n t e g r a t i n g t h e s e r v i c e f l o w s t o w a r d i n d i v i d u a l c u s t o m e r s

I n d i v i d u a l c u s t o m e r s e x p e r i e n c e l e s s v a l u e d r a i n s a s v a l u e c o c r e a t i o n c o n s t e l l a t i o n s o p e r a t e s m o o t h l y

O v e r a l l f o c u s :s e r v i c i n g e x p e r i e n c e s (F l i n t 2006;P r a h a l a d a n d R a m a s w a m y 2004;V a r g o a n d L u s c h 2008b )

S e r v i c e m e a n s a s s i s t i n g p a r t n e r s i n a c h i e v i n g m u t u a l b e t t e r m e n t (s e e F P 1–11)

F a c i l i t a t e a n d e n h a n c e t h e d i r e c t /i n d i r e c t i n t e r a c t i o n p r o c e s s e s f o r m i n g t h e b a s i s f o r e f f e c t i v e a n d e f f i c i e n t r e s o u r c e i n t e g r a t i o n

I n d i v i d u a l c u s t o m e r s c a n r e a l i z e t h e f u l l v a l u e p o t e n t i a l a s s o c i a t e d w i t h r e s o u r c e s a n d i n t e r a c t i o n e x p e r i e n c e s

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capabilities:(a)individuated interaction capability—under-standing individual customers’service processes,contexts,and desired outcomes;(b)relational interaction capability—enhan-cing the connection of social and emotional links with custom-ers in service processes;(c)ethical interaction capability—supporting fair and nonopportunistic customer service pro-cesses;(d)empowered interaction capability—enabling cus-tomers to shape the nature and content of service processes;(e)developmental interaction capability—assisting customers’own knowledge and competence development in service pro-cesses;and (f)concerted interaction capability—facilitating coordinated and integrated service processes that include cus-tomers.The six capabilities are discussed and justified in greater detail below.

‘‘In S-D logic,service is defined as the application of spe-cialized competences (operant resources—knowledge and skills),through deeds,processes,and performances for the ben-efit of another entity or the entity itself’’(Vargo and Lusch 2008c,p.26).An S-D orientation,in turn,specifies capabil-ities 3that organizations may prioritize to achieve a competitive advantage through superior service and mutual betterment.Based on the preceding analysis,we define an S-D orientation as a portfolio of organizational capabilities that facilitate and enhance the reciprocal integration of resources through indi-viduated,relational,ethical,developmental,empowered,and concerted interaction.Essentially,an S-D orientation repre-sents a set of operant resources that help customers and other value network partners achieve greater value-in-context through the resulting interaction and resource integration pro-cesses.We interpret S-D orientation as a higher-order cocrea-tion capability,constituted by the following six lower-order interaction capabilities.

Capability 1:Individuated interaction capability.Individu-ated interaction capability is defined as an organization’s ability to understand the resource integration processes,contexts,and desired outcomes of individual customers and other value network partners.S-D logic shifts the focus from value-in-exchange to value-in-context (Vargo and Lusch 2008b);that is,from embedded and distributable value to potential value that is actualized in a col-laborative effort between value network partners.In order to better support and assist customers with their own value fulfill-ment,firms need to understand what it is that customers want to get out of these processes.Gro ¨nroos (2008,p.307),in line with Sheth,Sisodia,and Sharma (2000),adds that a thorough under-standing of customers’everyday practices ‘‘has to be the starting-point for developing a customer-centric offering based on a service logic.’’The more that firms are aware of their cus-tomers’resource integration goals,preferences,requirements,desired experiences,usage situations,and experience environ-ments,the better value propositions and outcomes can be cocreated.As value is a subjectively perceived phenomenon and individually determined (Holbrook 2006),it is considered phenomenological and context-dependent in S-D logic (Vargo and Lusch 2008b).Accordingly,customers must be examined at the individual level (Hoekstra,Leeflang,and Wittink 1999)in addition to the aggregate level.The need to move away from mass and segment-based marketing toward individuals (e.g.,Ramani and Kumar 2008;Sheth,Sisodia,and Sharma 2000;Tuli,Kohli,and Bharadwaj 2007;Womack and Jones 2005b)and an ‘‘experience of one’’(Prahalad 2004,p.175)has been highlighted with respect to business practice.In this context,Table 2provides:(a)a selection of associated S-D

logic

Figure 2.Aligning S-D logic and S-D orientation.

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literature suggesting an individuated interaction capability;(b) illustrative organizational behaviors;and(c)examples of firms with this capability.

Capability2:Relational interaction capability.Relational interaction capability is defined as an organization’s abil-ity to enhance the connection of social and emotional links with customers and other value network partners. According to S-D logic,exchange is by its very nature rela-tional(Vargo and Lusch2004).However,the quality and inten-sity of the relationship will vary depending on the interpersonal connections and efforts between the value network partners. Treating customers as commodities,or forcing customers into a relationship that they do not want,or may not even perceive to exist is inconsistent with S-D logic.Taking an S-D logic per-spective,the traditional notion of firm-controlled customer relationship management(CRM),moves toward a more service-driven notion of dealing with value creation partners. The relationship must be seen and approached from the customer’s point of view,and the firm’s role lies in facilitating an environment conducive to social interaction at the customer’s desired frequency and intensity.

The concept of customers involves human beings,even if it is organizations that are dealing with each other.Human beings are social interactors(Varey2008)whose emotions contribute to the perceived value of an interaction.Hence,firms with an S-D orientation will support the social and emotional links between interacting partners as these shape the cocreated expe-rience.In turn,‘‘[...]aspects of interpersonal communication must be taken into consideration in researching exchange pro-cesses from an interaction/network perspective[...as]rela-tional issues cannot be separated from communicational occurrences’’(Olkkonen,Tikkanen,and Alajoutsija¨rvi2000, pp.404-405).In particular,two-way communication and meaningful dialogue are key manifestations of social encoun-ters and relational interaction(Ballantyne and Varey2006; Varey2002).As Varey(2002,p.54)states:‘‘Communicating people are relating people.’’S-D logic literature has consis-tently pointed toward dialogue as a desired marketing practice

S-D logic-associated references‘‘Understanding how the customer uniquely integrates and experiences service-related

resources(both private and public)is a source of competitive advantage through innova-

tion’’(Lusch,Vargo,and O’Brien2007,p.8)

‘‘The service-centered view of marketing[...]means more than simply being consumer

oriented;it means collaborating with and learning from customers and being adaptive to

their individual and dynamic needs’’(Vargo and Lusch2004,p.6).

‘‘The premise of this model is that experience is the basis of value,experience is co-created,

and exchange[or interaction]represents the locus of value creation.The end point is not a

‘segment of one’but rather an‘experience of one’’’(Prahalad2004,p.175).

‘‘[...]the organization needs to use the experience of individuals as the starting point,rather

than its own products and services.In addition,the development of compelling experiences

with individuals requires that they be allowed to engage in interactions of their own

choosing’’(Ramaswamy and Gouillart2010,p.7)

‘‘S-D logic identifies that an enterprise can only offer VPs[value propositions],but value itself

is created during in-use experience.The implication within the context of stakeholder

markets is the requirement for understanding and managing the in-use experience[...]’’

(Frow and Payne2011,p.235)

Illustrative organizational behaviors To learn how value network partners intend to integrate offered resources and how they may fit into their processes and lives

To provide a value proposition that responds to value network partners’desired and prioritized experiences

To grasp the environmental influences and contextual factors that impact individual value network partners’resource integration processes

Example organizations The Australian Red Cross Blood Service(www.redcross.org.au)has introduced a‘‘Reengi-

neering Our Supply and Service’’(RoSS)program to better meet the needs and contexts of

individual Approved Health Providers(AHPs),for example,blood bank scientists,pathol-

ogy laboratory scientists,and general practitioners.This program involves understanding

how each AHP defines service and how value can be best realized in their own processes

and usage patterns

Amazon(www.amazon.com)analyzes search and purchase patterns in order to better

understand an individual’s interest portfolio.Based on this knowledge as well as reference

group or reference item comparisons,Amazon is then able to make meaningful recom-

mendations or provide notifications responding to an individual customer’s context and

preferences.Similarly,supermarkets like Woolworths in Australia(www.woolworths.co-

m.au)are able to filter individual customer information based on their purchase history to

better understand their unique consumption habits and contextsreplacing the traditional one-way communication approach to the market(Lusch,Vargo,and Malter2006).Making custom-ers feel at ease during dealings and building rapport further contributes to relational interaction at an emotional level.Thus, S-D-oriented firms learn how to relate to their customers as ser-vice partners,facilitate conversation,and support a comforta-ble psychosocial context for the ongoing improvement of the cocreation of value(Schneider and Bowen2010).

Considering this relational context,customers will have higher and lower degrees of engagement with the firm;that is,differing psychological states and motivational levels for cognitive,emotional,and behavioral efforts(see Brodie et al. 2011;Hollebeek2011;van Doorn et al.2010).Taking a customer engagement value(CEV)perspective(Kumar et al. 2010),some customers are accordingly more valuable to the firm than others due to transactional(e.g.,purchase frequency or average quantity)and nontransactional(e.g.,word of mouth or knowledge sharing)engagement behaviors.However,inde-pendent of the nature and intensity of engagement,social and emotional links remain relevant in customers’value creation processes as long as interactions—irrespective of the mode and worth of a customer—take place.Hence,although the alloca-tion of resources in proportion to the CEV can be strategically meaningful,it should not purely determine or negatively influence the interpersonal connections and settings that provide meaning to customers.Service-driven firms enhance an interaction behavior that consistently fosters well-functioning relationships in view of the structural embeddedness and interde-pendence of value network members.As firms are actors,or even nodes,in networks(Gummesson2006),relationships and their potential psychosocial proximity help structure and facilitate the operation of resource integration networks.Table3provides (a)a selection of associated S-D logic literature suggesting a relational interaction capability;(b)illustrative organizational behaviors;and(c)examples of firms with this capability.

Capability3:Ethical interaction capability.Ethical interac-tion capability is defined as an organization’s ability to act in a fair and nonopportunistic way toward its custom-ers and other value network partners.

S-D logic-associated references‘‘[...]relationship marketing is a necessary but not sufficient condition for S-D marketing’’

(Winklhofer,Palmer,and Brodie2007,p.11)

‘‘S-D logic supports the notion of relationship development,through which all kinds of

communicative interaction and co-created value might emerge over time’’(Ballantyne and

Aitken2007,p.3).

An‘‘S-D orientation’’focuses on‘‘[...]a shift to conversation and dialog as opposed to

propaganda’’[...and]a shift in focus to relational rather than transactional exchange’’

(Lusch,Vargo,and Tanniru2010,p.22).

‘‘[...]co-creation is most likely to effectively occur when an appropriate psycho-social

context is created for people as they produce,deliver and experience a service process’’

(Schneider and Bowen2010,p.31).

An implication of‘‘S-D marketing’’is that‘‘in relational exchange,[...]managers in organi-

zations will have to become skilled at managing all value aspects of relationships[such as

supportive dispositions,feelings of closeness],not just the economic ones’’(Woodruff and

Flint2006,p.194).

‘‘In conceptualizing a firm’s co-creation capability,Day’s(1994)customer-linking capability that

refers to creating and managing close customer relationships that are important for firms,

can be an important component.Such a customer linking capability involves(1)close

communication and joint problem solving and(2)coordinating activities’’(Madhavaram and

Hunt2008,p.79,italics added)

Illustrative organizational behaviors To avoid one-way communication and seek to stimulate ongoing dialogue with value network

partners

To show a genuine effort to improve social interaction without overwhelming or annoying

value network partners with‘‘relationship’’tactics

To build rapport with value network partners to enhance feelings of closeness and affection,

going beyond purely rational interaction

To facilitate social links by providing access to like-minded value network partners Example organizations Machinery specialist Kugler-Womako’s(www.kw.kpl.net/en/)dialogue driven and dialogue

driving interaction approach with value creation partners across channels

Old Spice’s channel(www..com/user/OldSpice)with interactive video and

message responses to individual users and integrated Twitter communication,continuously

connects and engages with(potential)customers.Dialogue is facilitated with the brand and

even among viewers themselves

A leading German newspaper,Frankfurter Allgemeine Zeitung(www.faz.net),has created and

actively promoted a profile which provides interactive media,and fosters

dialogue with and among its‘fans’S-D logic suggests that customers are considered equitable part-ners in value cocreation processes(Lusch,Vargo,and Malter 2006).Taking a normative perspective,S-D logic‘‘[...]can point managers toward practical action and organizations to standards for ethical action and social well-being’’(Lusch and Vargo2006a,p.407).In particular,Abela and Murphy(2008) connect S-D logic with ethical firm conduct.As S-D logic inte-grates ethical accountability into marketing decision making, this automatically addresses and unfolds into strategic market-ing behaviors.In fact,normative implications of S-D logic underline‘‘good’’practices while disapproving the manipula-tion or exploitation of customers(Abela and Murphy2008).

Williams and Aitken(2011)explicitly link the cocreation of value and values-based conduct under the realm of S-D logic, emphasizing the important role of ethical decision making and respective business behaviors in a value-laden societal context. Several authors have criticized unethical marketing practices such as misleading and misinforming customers,intruding upon customers’privacy,high pressure sales tactics,opportunistic pricing,or otherwise taking unfair advantage of customers (e.g.,Heath and Heath2008;Kotler2006).As Sheth and Sisodia (2006,p.6)state:‘‘In these cases,marketers seek to benefit at the expense of customers rather than with them.’’Clearly,such conduct does not comply with the implications of S-D logic and an S-D orientation where cocreation of value with customers is central.Fair and nonopportunistic interaction in line with socie-tal or contextual values is more consistent with service logic and mutually beneficial resource integration efforts.

In the interests of long-term partnerships and the betterment of society,many firms volunteer and actively engage in ethical conduct.The importance of trust as a cornerstone for partner-like,long-term,and knowledge-sharing interactions has frequently been highlighted(e.g.,Geyskens,Steenkamp,and Kumar1998;Gounaris2005).Ethical interaction is seen as a rel-evant contributor to trust-based partnerships as customers are not intentionally misled,manipulated,or exploited.The risks and costs associated with unfairness(e.g.,Kumar,Scheer,and Steenkamp1995;Samaha,Palmatier,and Dant2011)promote responsible practices,particularly in an environment where there is increasing interdependence of value network partners. The more interlinked interaction takes place in a competitive environment,the more relevant ethical standards become in counteracting opportunistic behavior.Notwithstanding volun-teered acts that support long-term relationships,conducting unethical business practices has become more difficult in many national markets.With often high government interest in socially responsible behavior,service providers are increasingly under pressure to comply with ethical codes of conducts.At the same time,it is getting easier for market actors to detect unfair or opportunistic interactions.The ubiquitous availability of infor-mation creates more transparency in markets from which cus-tomers,and the society as a whole,benefit.In this context, Table4provides(a)a selection of associated S-D logic literature suggesting an ethical interaction capability;(b)illustrative orga-nizational behaviors;and(c)examples of firms with this capability.

Capability4:Empowered interaction capability.Empow-ered interaction capability is defined as an organization’s ability to enable its customers and other value network partners to shape the nature and content of exchange. Viewing customers as operant resources has further implica-tions for marketing practice because,this way,customers are conceptualized as effect-driving within a service system,rather than as passive recipients of an output at the end of a linear value chain(Vargo and Lusch2008b).Customers command and/or possess a certain degree of knowledge and skills for an effective and efficient integration of resources as well as contribution to the service process(Gro¨nroos2008).Indeed, customers have more to offer than just financial resources. They have,for example,ideas,competencies,and labor, enabling them to act on other resources and provide benefits to the cocreation partner.From a strategy perspective,the key is to unlock these resources by finding ways to engage and acti-vate customers in light of reciprocal benefit(Normann and Ramı´rez1993).Coproduction becomes an attractive option if firms can capitalize on customer-provided resources(such as their ideas and efforts)to strengthen their competitive position. However,as Lusch,Vargo,and O’Brien(2007,p.8)point out, such coproduction opportunities should be‘‘consistent with customer’s desired level of involvement.’’

Coproduction is related to notions of customer integration and participation in the actual construction and/or delivery of the core offering,as well as organizational work processes (Auh et al.2007;Dabholkar1990;Fang2008;Lengnick-Hall 1996;Lusch,Vargo,and O’Brien2007).Accordingly,firms implementing an S-D orientation strive to empower customers by letting them have a say about the content and nature of the exchange.Levels of voluntary participation might span,for instance,from soliciting customer opinions and suggestions, to giving them control over the interaction process,to letting them shape the final outcome.The idea is that through copro-duction(which is optional in S-D logic),the mutual service provision and service innovation is improved(see Ordanini and Parasuraman2011),and the superordinate concept of cocreat-ing value(which is not optional in S-D logic)is enhanced. Through customer input before or during the finalization of the core offering,firms can provide improved platforms for cus-tomers’own value actualizations and better meet preferences or requirements(Kalaignanam and Varadarajan2006).Equally important is customer feedback during or after the interactions so firms can learn from prior engagements and redeploy knowl-edge(Ballantyne and Varey2006),as well as internalize new competencies(Kalaignanam and Varadarajan2006).In this sense,the empowered interaction capability relates to outside-in processes fostering a collaboration competence, which‘‘will aid a firm in absorbing new information and knowledge from partners or improve its absorptive compe-tence’’(Lusch,Vargo,and O’Brien2007,p.9),thus better adapting to its environment.

The movement toward solutions(Davies,Brady,and Hob-day2007;Sawhney2006;Tuli,Kohli,and Bharadwaj2007),with a high degree of value network partner integration in decision-making processes illustrates the evolving empower-ment of customers.Solutions have been characterized as inter-active processes whereby customers are involved in designing or modifying integrated offerings to better fit their context (Tuli,Kohli,and Bharadwaj2007).An empowered interaction capability accommodates exactly this customer input-driven configuration of value propositions and resource bundles that characterize solutions and open service processes.Meanwhile, customers’increasing desire for individualism and control gen-erates increasing demand for the co-construction of own experiences(Firat and Dholakia2006;Prahalad and Ramas-wamy2004).In this context,Table5provides(a)a selection of associated S-D logic literature suggesting an empowered interaction capability;(b)illustrative organizational actions; and(c)examples of firms with this capability.

Capability5:Developmental interaction capability.Devel-opmental interaction capability is defined as an organiza-tion’s ability to assist customers and other value network partners’knowledge and competence development.In S-D logic,a firm’s operant resources are the basis for com-petitive advantage(Vargo and Lusch2008b).Knowledge and competencies enable firms to make value propositions and play a significant role in customers’value fulfillment.The same logic can be applied to customers.Their knowledge and skill portfolio determines the effectiveness and efficiency of resource integration and value actualization.That is,with higher operant resource density(e.g.,more accumulated knowledge)and the ability to make use thereof,customers have increased potential to achieve desired outcomes(Bell and Eisingerich2007;Mo¨ller2006).Norman and Ramı´rez(1993) highlight the supportive role that firms play and note that these enhance value creation‘‘[...]when they make not only their offerings more intelligent but their customers(and suppliers) more intelligent as well’’(p.69).Hence,S-D firms share their own expertise and knowledge resources for the enhancement of their cocreation partners’skills.While empowered interaction capability is about being able to absorb and adapt to input from outside,developmental interaction capability is about being open to sharing expertise and knowledge inside-out with exter-nal partners.

Table4.Ethical Interaction Capability

S-D logic-associated references‘‘The S-D logic approach implies certain social and ethical dimensions about the marketing

process[...]’’(Laczniak2006,p.279)and‘‘[...]I raise the issue of how the marketing

system is helping co-create economic exchange,with an eye to fairness and justice for all’’

(Laczniak2006,p.281)

‘‘In privileging the co-creation of value and the reconciliation of values,in such a customer

centric and relational context,S-D logic provides the exhortation for people to be treated

fairly and equitably[...].(Williams and Aitken2011,p.14)

‘‘the S-D approach of viewing marketing in terms of social and economic processes[...]

permits this ethical,alignment-oriented approach to be applied to multi-stakeholder issues’’

(Abela and Murphy2008,p.45).

‘‘Transparency facilitates collaborative dialogue with consumers.Constant experimentation,

coupled with access and risk assessment on both sides,can lead to new business models

and functionalities designed to enable compelling co-creation experiences’’(Prahalad and

Ramaswamy2004,p.31).

‘‘Service-dominant logic suggests that all exchanges should be symmetric.A focus on

symmetric information and treatment implies:(1)one does not mislead customers,

employees for partners by not sharing relevant information that could enable them to make

better and more informed choices and(2)all exchange or trading partners are treated

equitably’’,as these‘‘turn away[for example]from communications that appear to be

inaccurate,abusive,intrusive or overly one-sided’’(Lusch and Vargo2008,p.92)

Illustrative organization behaviors To be transparent in dealings with your value network partners,even about potentially incalculable risks and disadvantages of your offerings

To not mislead,manipulate,deceive,or pressure your value network partners and to reduce any potential to harm them

To not abuse potential power or information imbalances over your value network partners and to protect their rights and privacy

Example organizations Thales(www.thalesgroup.com)has implemented a proactive ethics and corporate responsi-

bility strategy,including supplier agreements and employee training for good interaction

practices for instance with customers.Luc Vigneron,Chairman and CEO of Thales,even

considers it‘‘a top priority for Thales to act with integrity and to demonstrate the strictest

standards of ethical conduct in every aspect of its business activities’’(Thales2008,p.3)

Germany’s‘‘Most Sustainable Brand’’award winner(2008)Henkel(www.henkel.com/sus-

tainability)emphasizes corporate social responsibility and governance.Associated sus-

tainable business practices toward customers have been embraced throughout its

worldwide officesThe concept of customer competence development to improve resource integration,application and,hence,value cocreation has also been addressed from a practitioner’s per-spective.Sheth and Sharma(2008,p.263),for example,state that‘‘[...]salespeople will become education agents where they once were persuasion agents.’’Salespeople accordingly adopt education-oriented sales approaches,similar to notions of relationship selling(e.g.,Beverland2001;Weitz and Brad-ford1999).In this context,Table6provides(a)a selection of associated S-D logic literature suggesting a developmental interaction capability;(b)illustrative organizational actions; and(c)examples of firms with this capability.

Capability6:Concerted interaction capability.Concerted interaction capability is defined as an organization’s abil-ity to facilitate coordinated and integrated service pro-cesses with customers and value network partners.

S-D logic highlights the importance of effective and efficient service processes within and among value networks,as value creation partners deploy their capabilities independently and in conjunction with each other(Vargo and Lusch2008b).From an S-D orientation perspective,to achieve this effectiveness and efficiency,firms need to be capable of coordinating inter-actions and resulting service flows among value network mem-bers(Flint and Mentzer2006).Also,firms need to be capable of designing and synchronizing service platforms,such as goods or webpages,in a way that customers can interact with and integrate resources with a minimal effort.In doing so,firms better fit into and align with customers’value creating activi-ties.The importance of such concerted interaction increases, for example,with(a)a greater number of value network part-ners or service platforms involved;and(b)a higher interaction intensity among these entities—because there is a higher risk of service process failure.

The notion of concerted interaction also resonates with man-agers.The concept of lean consumption introduced by Womack and Jones(2005a)—characterized as actualizing the full value that customers want from their exchanges as effi-ciently as possible—parallels the perspective of S-D logic.

S-D logic-associated references‘‘Firms gain competitive advantage by engaging customers and value network partners in

co-creation and co-production activities’’(Lusch,Vargo,and O’Brien2007,p.8)

‘‘Providing service co-production opportunities and resources consistent with the customer’s

desired level of involvement leads to improved competitive advantage through enhanced

customer experience’’(Lusch,Vargo,and O’Brien2007,p.8)

‘‘To provide personalized experiences,companies must create opportunities for customers

to experiment with and then decide the level of involvement they want in creating a given

experience with a company.Since the level of customer engagement cannot be prede-

termined,companies will have to give consumers as much choice and flexibility as possible

[...]’’(Prahalad and Ramaswamy2000,p.84)

‘‘Companies can no longer act autonomously,designing products,developing production

processes,crafting marketing messages,and controlling sales channels with little or no

interference from consumers[or business customers].[...]The use of interaction as a basis

for co-creation is at the crux of our emerging reality’’(Prahalad and Ramaswamy2004,p.5)

‘‘In co-creative enterprises,individuals participate in the design of value through their own

experiences,which leads to recasting the conventional role of strategy,innovation,

marketing,supply chain management,human resources management,and information

technology’’(Ramaswamy and Gouillart2010,p.7)

Illustrative organization behaviors To allow value network partners to co-construct the experience to suit the individual

context:letting them interact with you on their own terms

To not treat value network partners as passive recipients of finished output but involve them

in actively co-producing the experience

To co-opt value network partners’knowledge and ideas to learn and improve future

experiences

Example organizations iOS and Android smart phone operating systems empower customers to design and

download specific applications that enable the transformation and integration of resources

along their desired experiences

The EndressþHauser product configurator offers business customers an opportunity to

configure products in accordance with business processes and applications and simply

connect it with the online shop

Starbuck’s Twitter communication and MyStarbucksIdea.com collect and respond to ideas,

suggestions,and votings from(potential)customers regarding any aspect that affects their

in-store experience

Amazon gives customers control over their experience by offering them the opportunity to

preview and search book pages before placing an order through its‘‘Look Inside the Book’’

and‘‘Search Inside the Book’’featuresAs Womack and Jones(2005a,p.60)observe,‘‘[...]develop-ing lean consumption processes requires determining how to configure linked business activities,especially across firms, to meet customer needs without squandering their own—or the consumer’s—time,effort,and resources.’’Bolton(2006)and Lambert and Garcı´a-Dastugue(2006)refer to the managerial belief that connecting and leveraging cross-organizational business processes toward customers increase a firm’s compe-titiveness.In this context,Table7provides(a)a selection of S-D logic associated literature suggesting a concerted inter-action capability;(b)illustrative organizational actions;and (c)examples of firms with this capability.

Discussion and Future Research

When superior value cocreation becomes the cornerstone of strategy,organizations need a constellation of strategic capabil-ities that foster service-driving interactions.A strategic orienta-tion can be understood as a firm’s capability portfolio(e.g., Kandemir,Yaprak,and Cavusgil2006)that,when nurtured effectively,enables an organization to outperform its rivals in cocreating value.As Day and Moorman(2010,p.233)state ‘‘No firm can consistently drive superior value without invest-ing in and managing the capabilities to do so.’’Specifically with reference to S-D logic,researchers(see Vargo2011)have recently questioned the strategic importance of value cocrea-tion capabilities shaping market configurations and have called for respective investigations.Brodie,Saren,and Pels(2011b) further emphasize the need for research to advance middle range theory in the context of S-D logic as a valuable bridge between the broader and abstract S-D premises and empirical evidence of S-D manifestations.

With this in mind,the current article specifies the nature of an S-D orientation comprising six strategic capabilities.Adopt-ing an exploratory perspective,this article advances the transi-tion from S-D logic to S-D practices and thereby contributes to the development of middle range theory.Conceptualizing S-D orientation provides a foundation for(a)bridging S-D logic and strategy research with S-D logic as a more general framework (toward positive level theory);and(b)guiding much-needed empirical research that will inform managers(toward norma-tive level theory).At this point,our research suggests that man-agers who adopt S-D logic as their thinking framework,and seek to enact such a strategic business logic throughout an

S-D logic-associated references ‘‘Companies create value when they make not only their offerings more intelligent but their customers(and suppliers)more intelligent as well’’so that customers are able and mobi-lized‘‘to take advantage of proffered density[of knowledge and other resources]and create value for themselves’’(Normann and Ramı´rez1993,p.69)

‘‘Full and balanced knowledge sharing and information exchange is critical for a healthy mar-keting system.S-D logic supports this view,emphasizing knowledge sharing as an essential process in value co-creation’’(Frow and Payne2011,p.234)

‘‘S-D logic also emphasises the potential for co-creation of value and sharing of competencies and other knowledge resources between customers,suppliers,and other market actors’’(Ballantyne and Aitken2007,p.3)

‘‘If a supplier wants to improve its competitiveness,it has to develop its capacity to either add to the customer’s total pool of resources in terms of competence and capabilities(relevant to the customer’s mission and values),or to influence the customer’s process in such a way that the customer is able to utilize available resources more efficiently and effectively’’(Payne,Storbacka,and Frow2008,p.86,emphasis added)

Illustrative organization behaviors To provide opportunities to train value network partners to make better use of provided

resources and engage in more stimulating experiences

To help value network partners to make smarter decisions by sharing relevant information

and providing complimentary knowledge sources

To ensure that employees,websites,or any other interaction point have the valuable built-in

competence to advise or direct partners adequately

Example organizations The online training series and live events of the Epson Print Academy are set up to provide

knowledge and training to users so as to improve their skills.Users are further supported

by the Epson channel which hosts a multitude of informational videos and the

Epson website‘‘Tips For You,’’both designed to help customers learn more about relevant

offerings for better resource integration

Siemens’comprehensive information channel(www..com/user/Siemens)

provides a host of topics relevant to business customer interests and societal betterment

Di Bella Coffee(www.dibellacoffee.com.au)follows an active customer upskilling strategy

through the availability of readily accessible online information,professionally organized

coffee appreciation courses and highly trained employees who provide in-store advice.By

educating coffee drinkers Di Bella Coffee develops their coffee making and appreciation

skills to enhance their coffee enjoyment

organization,should consider mastering the following capabil-ities:(a)understanding individual customers’resource integra-tion processes,contexts,and desires;(b)communicating with and relating to customers through social interaction processes;

(c)engaging with customers in fair and nonopportunistic inter-actions;(d)empowering customers to influence the service processes and/or outcomes;(e)helping customers develop their own operant resources;and(f)coordinating and integrating service flows toward customers.In combination,these capabil-ities provide the basis for competing on service.

Researchers(e.g.,Madhavaram and Hunt2008)have sug-gested that the marketing discipline would benefit from the devel-opment of a cocreation capability.Such a capability advances,for example,market-oriented thinking(cf.Kohli and Jaworski1990; Narver and Slater1990)by seeing customers as cocreators of value(Madhavaram and Hunt2008)and,thereby,capitalizing on as well as augmenting their critical role as operant resources. For instance,individual customers contribute to value actualiza-tion and determination and can even serve as potential sources of resource innovation from the firm’s perspective.Through the sharing of information and dialogical interaction customers can also learn from firms and improve their own resource deployments.A cocreation perspective accordingly prioritizes boundary-spanning collaboration among individual value net-work members(see Hunt and Lambe2000),emphasizes the importance of capability-enabled outside-in processes with value actualization as a central element(see Day and Moorman2010), and makes the betterment of the value network a central goal (Gummesson2006).With this in mind,interpreting the S-D orien-tation as a cocreation capability is(a)entirely consistent with S-D logic and the underlying nature,purpose,and process of value creation;and(b)represents a comprehensive strategic approach to meaningful interaction and resource integration.

From a managerial point of view,S-D orientation provides a holistic avenue to align the organization with value network partners.However,as the six capabilities may not share the same antecedents and consequences,it will be challenging to optimize them simultaneously.For example,a doctor may place importance on understanding an individual patient’s medical condition and life context(individuated interaction),

Table7.Concerted Interaction Capability

S-D logic-associated references‘‘S-D logic requires a managerial focus on the customer interaction process,and attention to

monitoring the productivity and value potential of the continuous activity flows’’(Ballantyne

and Aitken2007,p.3)

‘‘The successful implementation of cross-functional,cross-firm business processes is required

for the adoption of S-D logic,which is relational and customer oriented[...]’’(Lambert

and Garcı´a-Dastugue2006,p.160)

‘‘In conceptualizing a firm’s co-creation capability,Day’s(1994)customer-linking capability that

refers to creating and managing close customer relationships that are important for firms,

can be an important component.Such a customer linking capability involves(a)close

communication and joint problem solving[see relational and empowered interaction

capability]and(b)coordinating activities’’(Madhavaram and Hunt2008,p.79,emphasis

added)

‘‘[...]notice how the infrastructure for personalized interactions requires a nodal firm to

orchestrate a large number of suppliers,partners,consumer communities as an‘experience

network’’’(Prahalad and Ramaswamy2004,p.85)

‘‘[...]configure linked business activities,especially across firms,to meet customer needs

without squandering their own—or the consumer’s—time,effort,and resources.The way

to do this is to tightly integrate and streamline the processes of provision and consumption.

[...]Customers and providers must start collaborating to minimize total cost and wasted

time and to[co-]create new value’’(Womack and Jones2005a,p.2)

Illustrative organization behaviors To analyze and understand your value network partners’own value creation activities and

how you can best fit and integrate into these

To synchronize the interconnected internal and boundary spanning processes to guarantee

smooth interaction and activity flows

To not burden the value network partners with overly complex,hassling,time-consuming or

time-wasting interfaces and interactions

Example organizations The Subaru Interactive dealership in Melbourne(http://www.melbourne.subaru.com.au/)

Australia has structured its own and customers’value creation processes so that

automobile repair and service interactions are setup for the benefit of all value network

partners.This is achieved through web-managed service appointments and SMS reminders,

effective work schedules as well as work flow predictions

Coplaning S.a`r.l.(www.coplaning.lu)places a high priority on linking its internal sales,

installation,and service center with more than15external partner organizations to offer

orchestrated and comprehensive service.A holistic quality management approach is

implemented that extends to suppliers and partners in order to eliminate service failures

and close service gaps within the networkfacilitating emotional support and psychological comfort (relational interaction),as well as spending a considerable amount of time on clarifying potential risks associated with certain treatments(ethical interaction).The doctor may also solicit patient suggestions and feedback regarding preferred treatment options(empowered interaction).Finally,the doctor may discuss the treatment plan in detail,explain how the patient can best assist the healing process,and share additional health information resources(developmental interaction). In cocreating such a process,however,work flow predictions and time management become more difficult for the doctor, potentially leading to longer waiting times for other patients and subsequent service flow interferences(diminishing concerted interaction for other patients).Firms may,therefore, choose to prioritize investments in a few capabilities,while achieving minimum capability levels for the others.Accord-ingly,firms need to configure their organizational setup so that effective and efficient resource integration is enabled while strategically considering potential trade-offs.

Turning to the potential measurement of an S-D orientation, in line with the decision criteria by Jarvis,MacKenzie,and Pod-sakoff(2003),our higher-order S-D orientation model lends itself to a formative measurement specification.The six indepen-dent and combinatory S-D capabilities are causal as opposed to effect indicators.As such,each capability contributes to,and is capable of,changing the magnitude of the higher order S-D con-struct independently.Further,each of the six S-D capabilities addresses unique content that cannot be substituted or compen-sated by others.The deletion of one capability would alter the domain of the S-D concept.Also,the six capabilities are not likely to share the same antecedents and consequences within a nomological network.Finally,the six capabilities do not neces-sarily correlate;for example,if some capabilities are emphasized due to investment priorities,others will not necessarily benefit.

Empirical research is now needed to validate the proposed capabilities,their cross-context relevance,and their relation-ships in a measurement model,as well as to understand the S-D orientation construct’s nomological network.Beyond demonstrating in this article that S-D orientation applies to B2B and B2C customer contexts,we believe that an S-D orien-tation is applicable to other value network partners.Service-driven principles,capabilities,and actions are meaningful for any organization facilitating and enhancing value cocreation. Further research is required to confirm this view and investi-gate the implications of an S-D orientation from a network per-spective.The S-D orientation model and subsequent value perceptions could be examined simultaneously from multiple stakeholder perspectives.

Other research directions include the potential implementation challenges and contingencies related to an S-D orientation.The strategic change literature(e.g.,Cameron and Quinn2006; Ginsberg1988;Kraatz and Zajac2001;Rajagopalan and Spreitzer1997;Zajac,Kraatz,and Bresser2000)is a useful starting point for researchers in terms of identifying organiza-tional conditions that facilitate or hinder the execution of an S-D orientation.Unlearning old behaviors or routines and adopting new interaction approaches take time;meanwhile, investments and incentives are necessary to cultivate underlying competencies,motivations,and systems,in order to overcome change barriers(Mezias,Grinyer,and Guth2001).

Understanding which service-driven cultural values and lead-ership styles are needed to support a value cocreation approach is also important(see Chakravorti2011).This is because social systems shape the execution of value cocreation with network partners(see Giddens1984).Value cocreation occurs within social environments,is formed by social forces,and reproduced in social structures of the value network(Edvardsson,Tronvoll, and Gruber2011).Researchers could study the importance of the position of managers and the role of leadership in clearly communicating the organization’s value cocreation purpose, defining clear value cocreation roles and interaction styles,and establishing moral guidelines for value cocreation.Both employ-ees and customers will influence,and be influenced,during the service processes by these social and structural factors.

Further research is required into the role of different tech-nologies and media that facilitate the implementation of an S-D orientation(see Hennig-Thurau et al.2010).Technology seems to take a prominent role in facilitating cocreative service design and resource configurations(Rust and Espinoza2006; Rust and Thompson2006).For instance,the interactive web platform offered by the automobile manufacturer Audi enables customers to simulate,configure,and track their desired auto-mobile online.Customers derive value from aspects including reducing purchase uncertainties by being able to experiment with different automobile configurations;being more closely connected to their automobile brand;obtaining updated and interactive product information;high process transparency and not being exposed to potential sales tactics of salespeople; and integrated online and off-line experiences with the brand. Similarly,Audi derives value through learning which automo-bile features individual customers prefer while identifying any preference patterns exhibited;having multiple interactions with customers that offer the opportunity for engagement;and retranslating former customer interactions into innovative value propositions for repatronage.Considering this example, an interesting research question relates to which technology and media types(e.g.,web and mobile technology,self-serving tech-nology,social media)are particularly conducive to facilitating an S-D orientation with regard to specific contexts.

An S-D orientation offers firms scope to achieve competi-tive advantage through enhanced value cocreation with net-work partners such as customers.In this article,we propose six distinct capabilities that constitute an S-D orientation and offer guidance to the concept’s subsequent operationalization and empirical investigation.

Executive Summary

Service-dominant(S-D)logic,interpreted as strategic business logic,portrays creating value in conjunction with—rather than for—customers as a source of competitive advantage for orga-nizations.While the managerial merits of cocreating valuehave been discussed in the literature,less is known about the organizational capabilities necessary to execute S-D logic in practice.Focusing on business customers(B2B)and private customers(B2C),the authors identify six strategic capabilities that enable the translation of S-D logic into S-D practices. These six strategic capabilities constitute what the authors call an S-D orientation and are derived from an in-depth review of the S-D logic and associated literature and input from21aca-demics who have published on S-D logic or related topics.

The proposed portfolio of capabilities facilitating and enhan-cing interaction and resource integration experiences include(a) individuated interaction capability—understanding individual customers’service contexts,service processes,and expected service outcomes;(b)relational interaction capability—enhan-cing the connection of social and emotional links with customers in service processes;(c)ethical interaction capability—support-ing fair and nonopportunistic customer service processes;(d) empowered interaction capability—enabling customers to shape the nature and content of service processes;(e)develop-mental interaction capability—assisting customers’own knowl-edge and competence development in service processes;and(f) concerted interaction capability—facilitating coordinated and integrated service processes that include customers.

Examples of these capabilities developed by firms include (a)for individuated interaction—Amazon’s analysis of search and purchase patterns on its website in order to better under-stand a website visitor’s individual interests;(b)for relational interaction—Old Spice’s channel which facilitates dialogue with the brand and among viewers;(c)for ethical interaction—Thales’ethics and corporate responsibility strat-egy which mandates supplier agreements and employee train-ing for good interaction practices with customers;(d)for empowered interaction—EndressþHauser’s product config-urator which enables business customers to shape products in accordance with their business needs;(e)for developmental interaction—Epson’s channel and website‘‘Tips For You’’which provide printing knowledge and training for users of Epson printers;and(f)for concerted interaction—Coplaning S.a`r.l.’s linking of internal sales,installation,and service cen-ter with more than15external partner organizations to offer orchestrated and comprehensive service.

Organizations need to configure their S-D orientation and organizational setup so that effective and efficient resource integration is enabled.The authors emphasize that it may be difficult for managers to optimize the six capabilities all at once,given that the capabilities are likely to have different organizational antecedents.Therefore,managers should consider prioritizing investments in a few capabilities,while achieving a minimum capability level for the others.Which capabilities deserve to be prioritized under which circum-stances requires future research to clarify this important managerial issue.More research is also needed to better under-stand the organizational antecedents and outcomes of the S-D orientation capabilities so that managers know what is required from them and their organization to implement an S-D orienta-tion and to better understand potential benefits.Acknowledgments

The authors thank Blake Ashforth,Rod Brodie,Richard Brookes, Evert Gummesson,Jan Heide,Christian Homburg,Bob Lusch,Steve Vargo,Katherine Lemon—the current Editor of JSR—and three anon-ymous reviewers for their valuable comments on previous versions of this manuscript as well as a panel of academic experts for their contri-bution to the conceptual development.

Declaration of Conflicting Interests

The author(s)declared no potential conflicts of interest with respect to the research,authorship,and/or publication of this article.

Funding

The author(s)received no financial support for the research,author-ship,and/or publication of this article.

Notes

1.Here values refer to ethical values in terms of things believed‘‘worth

doing’’or the‘‘right’’things to do as these are desired or preferred standards,thereby providing an organization with guidelines for beha-vior(see Hunt,Wood,and Chonko19;Jansen and Glinow1985) 2.In Round1,which took place in2008,the definition,scope,and

content of the theoretical model were discussed in personal inter-views with10S-D logic/service academic experts originating from the United States,New Zealand,and Australia.These experts were mainly selected on the basis that they had participated in a special issue on S-D logic in Marketing Theory(2006,Volume6,Issue3).

The interview guide included prompting experts to identify poten-tially missing content or components relevant for an S-D orienta-tion.These interviews resulted in definition and label changes for some of the S-D orientation components as well as the inclusion of a new dimension:ethical interaction.

3.In Round2,which also took place in2008,online survey responses

were gathered from11academics(mainly from Australia and New Zealand)who had published on S-D logic or a related service topic.

Here experts were asked to evaluate the refined components and rate their level of importance in relation to the S-D orientation con-struct(where1¼not at all important to5¼extremely important).

Experts were further asked to comment on the scope of the S-D orientation concept and highlight potentially missing content or unclear aspects.These experts helped to clarify the concept and confirmed the importance of the components.

4.The terms competences and capabilities are used here interchange-

ably(see Madhavaram and Hunt2008)

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Ingo O.Karpen is a lecturer in marketing in the School of Econom-ics,Finance and Marketing at RMIT University,Australia.His current research focuses on linking business strategy,service marketing,and experience management,with an emphasis on service-dominant logic and its implications for value cocreation concepts and value network performance.Prior to recently completing his PhD at The University of Melbourne,he worked as a business strategy consultant in Europe.

Liliana L.Bove is an associate professor in marketing at the Univer-sity of Melbourne,Australia.Her research interests are in the areas of service marketing,customer loyalty,and citizenship behavior.She has published in journals such as International Journal of Research in Marketing,Journal of Business Research,Industrial Marketing Man-agement,and Transfusion Medicine Reviews among others.Prior to commencing her academic career,she had held various scientific, marketing,and management roles over a10-year period in the chem-ical,airline,and health industries.In2009,she took leave and worked for a year at the Australian Red Cross Blood Service as a major pro-gram leader for donor research.

Bryan A.Lukas is a professor of marketing in the Faculty of Business and Economics at the University of Melbourne,Australia.His main research interests are in the areas of product and brand management. Bryan’s research has appeared in journals such as the Journal of Man-agement,Journal of the Academy of Marketing Science,Journal of Business Research,and European Journal of Marketing.

38Journal of Service Research15(1)

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