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LITERATURE REVIEW SAMPLE SERIES

NO. 6

“Michel, S., S. W. Brown, and A. S.. Gallan (2008), “An Expanded and Strategic View of

Discontinuous Innovations: Deploying a Service-dominant Logic,” Journal of the Academy of

Marketing Science, 36, 54-66”

Michael Ling

July 2014 updated

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Definition of discontinuous innovation

Michel et al. define an innovation as discontinuous, from a SDL perspective, if it “(1)

significantly changes how customers co-create value (value-in-use criterion) and (2)

significantly affects market size, prices, revenues, or market shares (value-in-exchange

criterion).” Though the authors support the overall argument of SDL that customer is a co-

creator of value in innovation where “it is the customer who perceives and defines value based

on “value-in-use””(p. 55), they acknowledge the equal importance of ‘value-in-exchange’ in

their definition of discontinuous innovation. They claim that ‘value-in-exchange’ owes its

existence to ‘value-in-use’ which “exists only if and when value-in-use occurs for the customer”

(p. 55), but have not elaborated nor provided support of their claim. For example, it is not clear

how and to what extent ‘value-in-use’ will lead to ‘value-in-exchange’. Is it a one-to-one or one-

to-many relationship? As ‘value-in-use’ is based on operant resources such as knowledge,

ability and competences of consumers, it is a quality that is hard to define and measure. As

‘value-in-exchange’, according to the authors, is defined in terms of its effects on market such as

market shares or sizes, it is vaguely defined and impossible to measure its value consistently and

reliably. As a result, I would argue that the definition of discontinuous innovation is flawed

because it depends on variables that are hard to define and measure.

Customer’s value creation

Michel et al. state that “the creation of value requires that customers perform three

different roles: users, buyers, and payers”, where “the user’s role refers to value-in-use, the

payer’s to value-in-exchange, and the buyer’s role bridges value-in-use and value-in-exchange.”

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They claim that “any innovation always changes both the firm’s value creation and at least one

of the customer’s roles...or some combination thereof (p.61)”, and illustrate it by examples such

as IKEA and Wikipedia. I would argue that the specification of customer roles against the

‘value-in-use’ and ‘value-in-exchange’ types is too rigid and, to an extent, not entirely correct.

For example, value can be created by the payer if the value induces improvements in flexibility,

efficiency or convenience; hence, ‘value-in-use’ is created for the payer. The same argument

applies to a buyer. For example, value can be created by the buyer if the value enhances the

procurement process; hence, ‘value-in-use’ is created for the payer.

Firm’s value creation

The authors claim that a firm changes its value creation by “embedding operant

resources into objects”, “changing the integrators of resources”, and “reconfiguring value

constellations”.

As customer value co-creation through “embedding operant resources into objects” is

merely a re-statement of the first foundational premises (FP1) of SDL (Vargo & Lusch, 2004),

which postulates that products are “not the end product of the process of production” and can be

viewed as “distribution mechanisms for service provision”, the authors have not added any new

thoughts into their claim.

Michel et al. continue to claim the innovation category of “changing the integrators of

resources” is a fundamental cause of market exchange, a premise that is in FP1 of SDL (Vargo &

Lusch, 2004). The authors compare McDonald’s to a dining restaurant as an example to support

their claim that “less integrated offerings are less costly for the provider” and “more affordable

for consumers.” However, I would argue that the operation of McDonald’s is, in contrast, the

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result of a special and complex integration of specialized knowledge across large number of

employees (Grant, 1996), where employees are “empowered in their value-creation role and

considered the primal source of innovation, organizational knowledge, and firm value.” (Vargo

and Lusch, 2008). As a result, their argument does not lead to the affordability in McDonald’s.

Regarding the innovation category of “reconfiguring value constellations”, Michel et al.

claim that customer value co-creation can draw from a network of “operant resources from

multiple sources” where “market exchange is not restricted to two parties but is open to many

actors.” This view has been raised by Vargo and Lusch (2008a) as “a close link between

specialization and the exchange of service for service and networks and interaction.” I agree

that the network-centric approach is important to customer value co-creation, and the growth in

social networking media such as online communities will influence the growth and diversity of

value constellations.

References:

Grant R. M. (1996), “Prospering in Dynamically-Competitive Environments: Organizational Capability as

Knowledge Integration,” Organization Science, 7 (4), 375-387.

Vargo S. L. And R. F. Lusch (2004), “Evolving to a New Dominant Logic for Marketing,” Journal of Marketing, 68

(January), 1-17.

Vargo S. L. And R. F. Lusch (2008), “Why “Service”?” Journal of the Academy of Marketing Science, 36, 25-38.

Vargo S. L. And R. F. Lusch (2008a), “Service-dominant Logic: Continuing the Evolution” Journal of the Academy

of Marketing Science, 36, 1-10.