Shifting (Successfully) to a Knowledge-based Economy
The fundamental basis of the knowledge-based economy has shifted from manufacturing (product-based) economies to production based on services and service management. The advanced economies of the US, Europe and Japan have already shifted largely to service provision. As this period has overlapped with the offloading of mass manufacturing to developing economies, the attendant disruption of skills, work, educational models, and management has been seen in fits and starts. Unlike the huge shift from the industrial age to the information age (that disrupted the 1970’s and led to the boom in the 1980’s), the service economy shift is highly configurable, and the disruption is not so obvious. Our companies and suppliers are now producing mixes of products, managed services, information technology, media, and self-service systems, a mix of offers and value that constantly changes.
We in the advanced economies are also leading and producing a cross-sectoral shift from producing products (the embodiment of industrialization) to co-creating services (the embodiment of information as promised in the knowledge economy).
However, we have not yet perfected our processes, methods, and most importantly our mindsets for designing and producing values as sustainable services. We work in sophisticated organizations , in multidisciplinary teams, and with high-value added knowledge resources; yet; we continue to conceive of, frame, make, market, and sell our offers as products. We haven’t completely made the shift to a service mindset, or a service-dominant logic.
By having one foot in the product world and one foot in the services arena, we are likely not benefiting from the sustainable economic and customer value that comes from organizing and offering a clear service value proposition. Our product portfolios and product profits could be vulnerable the longer we wait to make this shift.
Moving to Service Logic and Service Systems
Service marketing and service design have been in development for decades. Since we hold a conventional mindset about the difference between products and services, we have tended to design services with an outdated business logic. We generally believe products to be a tangible goods that customers can take possession of and services to be an intangible offering that delivers value without the customer taking possession. Services are perishable and temporary – a customer cannot “own” an airline trip much less even the ticket for its exchange. Services are defined as “a means of delivering value to customers by facilitating outcomes customers want to achieve, but without the ownership of specific costs and risks.” (ITIL v3, 2011)
Steven Vargo and Bob Lusch heralded the shift to service logic in their 2004 article “Evolving to a New Dominant Logic for Marketing.” The bias toward tangible goods is deeply embedded in historical culture, from the value of operating and becoming expressed (and thereby continually reinforced) in language and metaphors, such as “market penetration”, “capture”, “segmentation.” The language of service logic is still being formulated and suffers somewhat from the limitations of the few English words relating to services rooted in the verb “to serve.” One role of the service innovator will be reframing the language presenting services to embody a new series of roles for engagement with customers and suppliers that is based on co-creating value and not on products or transactions.
Service-dominant logic is based on eight foundational premises, which, if applied to knowledge-based products and services, help us reframe the location and the meaning of value. These premises are:
- The application of specialized skills and knowledge is the fundamental unit of exchange.
- Indirect exchange masks this exchange process – so we are out of touch with the customer.
- Goods are distribution mechanisms for service provision – everything is a service.
- Knowledge is the fundamental source of competitive advantage – knowledge is a renewable resource.
- All economies are services economies. The implication being that any product can be part of a service system.
- The customer is always a coproducer – value is co-created and realized by the customer in their application of value.
- The enterprise can only make value propositions – Value is not added, it is determined by the customer in the application to their needs.
- A service-centered view is customer oriented and relational – interactivity, customization, integration of the provider with the customer.
Our businesses and organizations, marketing strategies, accounting systems, and value propositions have not yet been able to capitalize on this shift in mindset and approach. In fact, only very few companies have made this shift and made it well, as the habits of manufacturing, product and resource economies are centuries old and deeply embedded in language and customer habits as well.
The new customer-centered service logic requires a different approach to competing on innovation and functions of design. The brand does not refer to a product relationship in the customer’s mental model. It now refers to a service resource that can fulfill value propositions for completion of services necessary for the customer’s business. The service offering now becomes positioned as configurable value in the center of a value constellation (Normann and Ramirez, 1993). The mobility of content and ubiquity of interactive interfaces enable infinite configurability of a value constellation among multiple providers and touchpoints in a service system or network of offerings.
Reframing and Redesigning Products as Services
The guidance from service management and service design strongly suggests that product lines are not merely positioned as services (which then become services sold as products with product margins). Products are instead reframed as service offerings, changing the logic, the value proposition, the design of the offer, and the design of the interactive experience. This co-produced service entails the customer, as in a conversation, in a dance of value co-creation.
Richard Normann (2001) calls this process “servicification”, one of several configurations of value for reframing products and reframing the business itself. This unwieldy term refers to the position of meaning and function in the customer and user’s world. Normann named three reframing concepts:
- Servicification – Offerings are changed from outputs of a production process to inputs of customer value creation.
- E-ification – Offerings are provided in formats that can be unbundled and rebundled into new configurations uniquely meaningful to customers. (E-ificiation is not only e-business but is also indicative of dematerialization of functions, enabling a transparent experience for customers.)
- Experiencification – Offerings are linked to the symbolic and mental processes of customers and users. (They experience an interactive relationship with a service system that connects to their work, the customer’s production of meaning and purpose.)
There are others we might add to Normann’s, expanding beyond his model of enhancing the density and value of the customer relationship. While gamification was developed later than Normann’s model, the provision of game logic in most offers is a form of experiencification and adopts a related design process to create experiences based on game journeys, quick wins, intermittent reinforcement, and so on.
Consider a model of financial services having moved from a direct service model to an online product presenting itself as a service. Financial services changed immensely as brokerage services moved online. They essentially moved services to efficient and profitable products, much like the travel industry. While presented as self-service, the offering feels to the customer as being received as a productization strategy, not a true service with the customer.
Many of the service channels of a financial investment site—trading, tools, retirement, client services—behave more like product features. There is little sense of co-creation of value, where their functions serve as inputs to the customer’s financial strategy. The message received is “I’m a user, I take all the risk, and manage the whole experience.”
Some of the qualities of this mixed-model approach are effective service experiences:
- Human-staffed customer service is usually available and supportive.
- The online experience can be highly interactive. It involves both Push content and a Pull service.
- The brand is usually trusted and well-understood.
But many qualities are not conducive to building long-term value with customers:
- Sites are designed as a collection of features, not rebundled for the customer needs.
- The self-service model is transactional and not co-created value.
- Customers select the platform provider based on fees and product usability, not total value. (It’s difficult to assess total value from a financial services site.)
- The customer conforms to a specific business model and cognitive style.
- The service is not expected to be a long-term value proposition. Switching costs are low.
How would customers assess our products and services? Do we know how customers really work with our services as inputs to their knowledge creation processes? Could we produce interactive experiences that are more “densely bundled” for their value?
A service is fulfilled when a change in condition is registered by the person receiving the output of an economic activity—that is, from a supplier. In designing for health, facilitating the effective change of a health condition is the primary goal; yet, no single design approach will serve and satisfy every service requirement. Not only are different methods necessary for the different types of healthcare modes and types of patients, different philosophies, schools of methods, and consultation approaches are necessary for different service problems.
The Service Design Path to Innovation
The defined practices of service design offer a framework of methods for reframing products as services, although admittedly still seek the perfect fit. According to Birgit Mager, founder of the Service Design Network, service design “addresses the functionality and form of services from the perspective of clients. It aims to ensure that service interfaces are useful, usable, and desirable from the client’s point of view, and effective, efficient, and distinctive from the supplier’s point of view.”
Service design has developed well beyond the baseline of user experience (UX) methods to multipoint service offerings and the creation of intangible value, such as a positive emotional experience. Published service methodologies lead with a wide array of UX and adapted design methods; yet, little consensus is found across design disciplines with respect to service models in our fields. We might see one goal in moving to a new service usability.
We in the advanced economies have made our products usable to general user audiences and for specific workflows, and have some of the best user interfaces for any content platforms in the world. And, changing the logic to one of service innovation might require very different types of interactions and interfaces from the traditional product strategies. Some of these options might be designed as:
- Designing search, displays, and content streams tightly coupled to high-value customer’s specific intellectual workflows (which some products are already attempting)
- Creating a true brand experience for customer relationships, independent of product identity
- Creating a tighter coupling of trusted human interfaces (customer support) with online interfaces (content and search features)
- Providing multiple configurations of offerings that appear customized to the customer’s value creation process
- Unbundling content streams from interfaces and features so that new multi-licensee /vendor constellations can be formed for the ultimate customer’s process
- Designing interfaces that enable customers to exchange and co-create value with the company. For example, providing terabytes of cloud storage with backup in exchange for summary or meta-data analysis that would enable us to define better analyses services; or, providing analytical insight as a high-end form of customer service for special contracts.
Our customers have extremely sophisticated knowledge-based work practices and may come to take content services as online commodities if our service value offering is not demonstrably meeting their knowledge input needs. As a result, we may start to rethink experience and product design, product and content management and system development to gain this new ground.
- Crown Cabinet Office. (2011). ITIL Best Practices. London.
- Vargo, SL and Lusch, RF. (2004). Evolving to a new dominant logic for marketing. Journal of Marketing, 68, 1–17.
- Normann, R and Ramirez, R. (1993). Designing interactive strategy: From value chain to value constellation. Harvard Business Review (July-August).
- Normann, R. (2001). Reframing business: When the map changes the territory. New York: John Wiley and Sons.
- Mager, B. (2007). Service design. In M. Erlhoff & T. Marshalle (Eds.), Design dictionary: Perspectives on design terminology. Basel: Birkhäuser.
From talk given at World Usability Day 2012, LexisNexis, Dayton USA