Not so long ago, businesses were defined by whether they offered a product or a service. Sneakers, TVs, burgers and houseplants were all neatly categorised as products, while businesses that offered haircuts tax returns and laptop repairs were easily identified as services. Now, businesses that exclusively align themselves with one or the other risk falling behind.
Associate Professor Tim Kastelle, an innovation expert at The University of Queensland (UQ) Business School, says all businesses must think of themselves as delivering a service to thrive, regardless of their product offerings.
"There's a well-known saying, that if a customer buys a power drill, it's not because they need a quarter-inch drill bit. It's because they need a quarter-inch hole."
"There is no such thing as a product-only business anymore," Tim continues. "Every product delivers a service or meets a need, and when a business starts assessing what they offer through that lens, they get a better understanding of the people they are trying to appeal to."
The service-first approach – known as Service-Dominant Logic (SDL) – gives companies in any sector a fresh perspective on their business operations and stimulates innovation at a time when their traditional markets are increasingly being disrupted.
“Customers ultimately assign value to a product by the service it offers them, the need or want it fills in their lives,” Tim explains.
“Innovation is about executing an idea to create value, so understanding the true value being created is vitally important.”
The SDL approach views every transaction as service-based. It encourages businesses to focus on the process and benefits involved, rather than the goods or money, which can mask the true value of the exchange.
SDL also sees value as being co-created by customers and others, rather than just by the company itself. That value may be different for each customer, depending on the way they use or perceive the product.
“For example, a TV isn’t just a household appliance. It delivers cheap entertainment, provides education and information, it can be a welcome distraction, a familiar and consistent companion or add to a home’s ambience.”
Image: Getty images / Brian Waak / EyeEm
Consumer behaviour has shifted suddenly and significantly since the beginning of the pandemic in 2020, mirroring the seismic economic and lifestyle shifts experienced globally.
“It is more important than ever for businesses to assess what service their product provides, what need it fulfils and take a Service-Dominant Logic approach to its entire operation,” Tim recommends.
Tim outlines four key ways organisations across all sectors and industries can apply Service-Dominant Logic:
1. Get closer to your customers
Understand the people you are creating value for with your product or service. What are they trying to achieve and where do they want to be? What obstacles or challenges do they face? What do they value and what does success look like for them? Gather and analyse customer data to drive deeper insights.
2. Remember that value is co-created
What customers bring to your output and offerings is just as important as your contribution. Consider how users can participate at different stages in your processes. User-driven design allows customers to be engaged right from the start, from specifying their requirements to evaluating prototypes. Other opportunities for value co-creation include self-service and self-assembly.
One example of a product co-designed by users – albeit not through a formal process – is mountain bikes. In the early 1970s, there was a craze among Californian youths for freewheeling down mountain trails. They rode so fast that the grease inside their brakes would burn, so they had to repack the bearings. Bicycle manufacturers soon caught on and started producing commercial off-road ranges.
3. Take a systems view of your business operation
Think about your business model. How do you create and deliver value for people? What type of institutional arrangements come into play? Consider how you could change your system and business model. Although, Tim warns that in complex systems or supply chains, it may be more realistic to try to shape the system rather than control it completely.
4. Try out new things
The way to shape the system is through continuous experimentation. The goal is to find the fastest, cheapest way to test whether you’re on the right track. If it doesn’t work, drop it but learn from it. Experimentation is really important. By testing early, you can greatly reduce the cost of ideas that don’t work.
Images: Getty images / courtneyk / Monty Rakusen
Tim has used this approach with scientists through work on the CSIRO-backed ON Prime national science and technology accelerator program. During that time nearly 1000 teams have completed the program and more than 50 new science-based start-ups emerged.
“Scientists are very object-oriented in terms of the way they think about their research but the SDL approach encourages them to focus on the value it creates for people,” Tim explains.
"Participants in these programs are about 10 times more likely to see their research in use – a huge increase in reach and impact."
He has also used this approach with corporate partners, and in teaching the UQ MBA capstone program.
"If we combine co-creating experimentation with our stakeholders, we can be more confident that any new product or service we launch will create value for people and be a success.”
Image: Getty images / Yuichiro Chino