Value chain logic and service logic

The economic actor who offers a product for sale must translate customer goals into operational activities needed to produce a product that satisfies those goals. These activities have the logic of Porter’s value chain (Porter, 1985). We call this value chain logic, the logical structure of the process by which resources are transformed into products. For example, if you want to sell vacuum cleaners, you must identify the resources needed and define the activities that transform this into a product, sell this to customers, and offer services to customers.

In the following Porter value chain diagram, each primary activity adds value to the activities on its left. In addition, there are some supporting activities required by the organization as a whole.

The economic actor who offers a service must translate the goal of its customer into activities to perform as a service for the customer. For example, a taxi driver must translate the goal of a passenger, to get to a destination, into a route to drive. Where a product company produces the product by which customers can achieve their goals, a service company performs activities that help customers achieve their goals. This follows the logic of services.

In service logic, the service provider follows the design cycle (problem investigation – solution design – solution validation) and continues with the engineering cycle (solution implementation – solution evaluation) (Wieringa, 2014). We provide some more information on this in Appendix A on Design thinking.

The primary activities in service logic are cyclic and may be iterated over several times for one customer. The problem may be standard, such as getting a passenger to a destination. Or it may be unique, such as getting a patient to deal with their psychological problems. Support activities for service logic are the same as for value chain logic. The service provider needs an infrastructure, HRM, technology and procurement.

(Stabell & Fjeldstad, 1988) provide an early insightful discussion of the distinction between value chain logic and service logic, where they call service providers “shops”.  In a series of papers, Vargo & Lusch have tried to give a detailed analysis of the difference between products and services (Vargo & Lusch, 2008). We take the view that service logic is design logic: solving a problem for the customer.