It is not a simple task to understand "Dominant Logic." Dominant logic is pertinent to how an organization works to earn profit.
The article "Evolving to a new dominant logic of marketing" (Vargo & Lusch, 2004) explains how the employees develop their thinking ability and try to adjust to the latest dominant logic of their organization. This indicates that now-a-days organizations are adopting diversified and divergent outlook to the marketing function of their company.
Operand resources and Operant resources
The understanding of the difference between the operant and operand resources is very important in order to completely understand the concept of Dominant Logic.
The factors of production are a clear example of the Operand resources. Operand resources are the resources on which operation is conducted with the intention to produce a desired result. Operand resources are invisible and intangible. They are dynamic and infinite. Skills and knowledge are examples of Operand resources.
The Operant Resources are used to be applied on various Operand resources or fellow Operant resources. Technology is a clear example of such a resource. These resources are visible and tangible. They are static and finite. Examples of such resources are Land, Inventory, Stock, Goods.
The article goes on to discuss that during the journey of the progression of mankind, humans have concentrated on using the stringent supple of resources. Land, minerals and plant life are example of these resources. The resources are not plenty. Hence anyone who possessed these resources is regarded as being very rich.
Hence now there is a shift from a model based on goods to a model based on services. A good-based model hence includes tangibles, statics, discrete transactions and operand resources. The purpose of an organization following this model was to generate goods that are tangible and can be sold. These products must not only hold value but also differentiate themselves from other products. Decision variables must be clearly outlined by the organization to set goals and aims. Goods must only be brought to the market when there is demand. This will enable companies to gain maximum profit.
Intangibles, competencies, Operant resources and relationships are examples of a service-based model. In this model, core competencies and competitive advantages need to be evolved in order to provide superior services. It is also essential to outline a target audience to act as potential customers for providing these services. Services are also generated in a customized manner to target specific needs and wants. It also involves the analysis of financial implications to fully understand how to produce and generate more profit.
So it is indeed the intriguing to realize the source of this shirt. Also to realize how exactly did the shift evolve. What then was the shift and how did it happen?
In the initial marketing schools of thought, it was assumed that manufacturing process is a great provider of value. Another emerging school then came forward that stated that function of marketing merely infuses the amount of time and usefulness to the final product .After 1950, it was stressed that the value that is associated with a product is in actuality decided in the market place on the foundation of its usefulness.
From 1980 and onwards a dormant logic began to evolve.
Many researchers and marketing experts like P. Kotler and R.S. Achrol have pointed out in their studies that we are not very clear about nature of value creation and exchange. It is very interactive and networked than it is mostly considered. Service-dominant logic shows ignorance towards value and network and deals with it tacitly (Lusch & Stephen, 2006). S-D Logic is based on 10 "Foundational Premises." The interaction orientation is shown in FP6; as restated in (): "The customer is always a co-creator of value." The customer is also involves in the creation of value of service as much as the company itself. The service centered is more customer based and interactive; as stated in FP8. However, as the service is provided through a mixed combination product, price and place, the service basis of exchange is not always distinguishable. The network orientation on the other hand is rather more oblique, it is implied in FP2, and it indicated that indirect exchange implies networks.
As it was originally stated; as the time passed, exchange has shifted from one-to-one trading of specific skills to the indirect exchange in large, administrative hierarchy of marketing systems of organization. Thus, value networks will continue to cover the fundamental nature of exchange. In addition, networks are implied in FP9 which states that organizations integrate the resources into complex services which are required or in-demand in the market. All economic actors i.e. individuals working in the organizations, household, firms and nations are related to resource incorporation (Lusch & Stephen, 2006) .
Today however the function of marketing is seen to be a social process full of interaction. It also has an economic outlook where it is a function used to generate money.
The role of operant resources began to change in the late 21st century, as human beings realized that skill and knowledge of individuals are the most important kind of resource,
Similar to the above mentioned discussion, a service is based dominant logic shows that the value is determined and initiated by the customer himself and its less dependent on the output. The criterions for success in today's market are sense requirement of the customer and then respond rather than "make and sell." Service oriented companies are continuously testing and generating. The value of service is determined by the financial results of the service.
Six attributes coupled with FPs form the basis of emerging dominant logic. They also assist in differentiating between the service based and goods-based dominant logic by using Operand and Operant resources as foundation for the analysis of their variance.
The attribute of primary unit is used to make the first distinction. Traditional Goods-Centered dominant logic uses "people" as the unit of exchange. This used the Operand resources. Emerging service centered dominant logic uses people to own the benefit of value generation through core competencies. This uses the operant resources.
In traditional foods centered dominant logic the role of goods is that of marketers who take any matter and assign it with a designated place time and form of distribution. The good are the end products. These goods are actually the Operand resources. The role of goods in emerging service centered dominant logic is that of being the generators of value. Goods in this approach have knowledge in them.
In traditional goods centered dominant logic applies and the role of customers is that of being an operand resource. The marketer is responsible for segmenting and distributing them. In the emerging service centered dominant logic, customer too is responsible for producing service. Marketing is responsible for doing things while interacting with the customer. In virtual terms the customer is an operant resource.
In the traditional goods-centered dominant logic determination and meaning of value is done by the producer. This value is found in the goods. In the developing service centered dominant logic, value is determined by the consumer on the basis of "value in use." Operant resources result in the production of value.
In traditional goods centered dominant logic firm-Customer interaction make customers the operand resources. The customers are people where the firms act. In the emerging service centered dominant logic, customers are the operant resources. Customers take active part in producing the service.
In traditional goods centered dominant logic source of Economic Growth is the wealth. This money is gained from the tangible goods and services. Operand resources are responsible for the generation of this wealth. . In the emerging service centered dominant logic, the exchange of skills and knowledge is responsible for the generation of wealth.
The author (Lusch & Stephen, 2006) then goes on to elaborate the foundational premises.
Foundation principle 1: "The Application of Specialized Skills and Knowledge is the Fundamental Unit of Exchange." (Vargo & Lusch, 2004)
Explanation: Various skills particularly that of the physical and mental are not the same in the whole population. It's not mandatory that the knowledge and each person's skills are enough for the survival of a human being. Efficiency hence results when one excels in their skills. Society benefits from this efficiency. Tangible goods are produced from this exchange of specialization.
Foundation principle 2: "Indirect Exchange Masks the Fundamental Unit of Exchange"[footnoteRef:1] [1: Ibid]
Explanation: In a large organization many functions are performing side by side. One employee or worker may receive a product that is made by another employee. On many circumstances there may be no interaction between a customer and an employee. Hence this creates an exchange of skills for skills. This was aided by monetization.
Foundation principle 3: "Goods are Distribution Mechanisms for Service Provision"[footnoteRef:2] [2: Ibid]
Explanation: There are three ways through which knowledge and skills may be transported from one place to another. A way to through which knowledge…