Understanding value creation in service

In my article ‘Mastering service design’, I used my career path to explain why someone would (like to) study service design. As a service design tutor, I’d like to continue by highlighting why it is important for advanced training in service design not to focus on tools and methods but on mindset, vision and strategic thinking. One of the fundamental frameworks is service-dominant logic (S-D Logic). In the past decade, I have discovered that many senior service design practitioners, as well as recently graduated designers, lack relevant and fundamental knowledge. Many courses and short-running training programs focus on the ‘how to’ or ‘doing’ part of service design, such as facilitating, researching, mapping and prototyping. However, I believe for a senior designer, it starts with developing a deep understanding of S-D Logic to effectively navigate the complexities of modern service systems and lead impactful service innovations and transformations.

I don’t need to mention that the field of service design is undergoing significant evolution. Although still relevant, it is no longer just about designing individual touchpoints; it also involves understanding how services function as interconnected systems where multiple stakeholders co-create value. The concept of S-D Logic, introduced by Vargo and Lusch (2004), provides a theoretical foundation for understanding value co-creation, while the service ecosystem perspective underscores the complexity and interdependency of modern services. Kimbell and Blomberg (2017) introduced three lenses—service encounters, service ecosystems, and socio-material configurations—that help service design practitioners frame their work within this broader context (have a read here).

Service as value co-creation: a service-dominant logic perspective

Service-dominant logic fundamentally redefines how we understand value creation in services. Instead of viewing value as something embedded in goods, S-D Logic asserts that value is co-created through interactions between all parties involved in the service, such as service providers and consumers/users. "Service is the fundamental basis of exchange," argues Vargo and Lusch (2004), emphasising that all economic activity can be understood as a form of service.

S-D Logic provides a lens through which senior service design practitioners can view the creation and delivery of value within service systems. It shifts the focus from delivering predefined value to co-creating value through interactions and relationships. Later, in 2016, Vargo and Lusch expanded on this by stating, “all social and economic actors are resource integrators”, meaning that both organisations and users continuously integrate resources within dynamic networks.?

This perspective is particularly relevant for designers and design teams who are responsible for orchestrating complex service systems where multiple actors play interdependent roles in value creation.

Service as an ecosystem: a systemic perspective

The service ecosystems perspective offers a processual understanding of service that suggests that value is co-created within multi-actor exchange systems that are guided by social structures – shared and enduring norms, rules, roles and beliefs (Vargo & Lusch, 2016). Recognising services as ecosystems is increasingly important nowadays in service design, management and delivery. This perspective reflects the interconnected nature of modern services, where multiple actors, including third-party partners/providers, interact dynamically to co-create value. Service ecosystems are not static; they are constantly evolving as new actors and technologies emerge and as user needs change.

The core purpose of service ecosystem design is to facilitate the emergence of value-in-context. The design materials are the social structures — enduring rules, norms, roles, values and beliefs — and their physical enactments — symbols, artefacts, interactions and practices (Vink and Koskela-Huotari, 2020). But how many UX, CX/EX design or service design practitioners understand and know the difference between value-in-context or value-in-use and value-in-exchange??

According to Vink and Koskela-Huotari, service ecosystem design is grounded on 4 core propositions that extend the understanding of the purpose, materials, processes and actors of service design:

1. The purpose of service ecosystem design is to facilitate the emergence of desired forms of value co-creation. As such, this understanding highlights the emergent, unpredictable nature of service design outcomes.

2. Service ecosystem design considers institutional arrangements—assemblages of enduring rules, norms, and beliefs—and their physical enactments, as the central materials of service design. In other words, service ecosystem design occurs through the shaping of not only the physical enactments but also the inseparable, invisible institutional arrangements enabling and constraining value co-creation.

3. Service ecosystem design identifies two core design processes—reflexivity, an awareness of existing institutional arrangements, and reformation, intentionally shaping institutional arrangements—which are embedded within the ongoing reproduction of service ecosystems. This means that service ecosystem design acknowledges that all service design activities are always influenced by the very same institutional arrangements that actors try to shape.

4. Service ecosystem design recognises the agency of all actors in an ongoing process of collective designing and highlights that the focal design efforts are always influenced by multiple aligned and conflicting design and non-design processes.

For strategic designers, adopting an ecosystem perspective means shifting from designing isolated touchpoints to designing for entire systems of interactions as one organisation. But also within the larger context of social, economic, ecological, and technological systems; spanning multiple domains, industries, and scales, including everything from local communities to global ecological and economic systems.?

This requires an understanding of systems thinking and an ability to map out the complex interdependencies within the broader system. By designing for service ecosystems, designers can create more resilient and adaptable services that can thrive in a rapidly changing environment. This is something we teach in the ‘Mastering service design’ course.

Service as a collaborative network: an actor-centred perspective

S-D Logic challenges traditional product-based views of manufacturing and offers a service view that is built upon the notion of collaboration. As I previously mentioned, no single organisation or actor in the value network can develop an optimal solution for customers without collaborating and sharing resources, knowledge, and skills with other actors (Ranjan & Read, 2016). “Service [...] is synonymous with value. A supplier has a value proposition, but value actualisation takes place during the customer's usage and consumption process" (Gummesson, 2008). Also, Kaplan’s ideas around the co-creation of value emphasise the importance of collaboration between organisations and customers in jointly developing value propositions, reflecting a broader trend toward customer involvement in the design of products and services (2010).

In other words, “co-creation is the transparent process of value creation in ongoing, productive collaboration with, and supported by all relevant parties, with end-users playing a central role.” (Jansen & Pieters, 2016). Three bodies of knowledge provide insight: service, strategy, and systems theory. These complementary theories inform the design of structured collaboration. Co-creation (service) is enabled by open innovation (strategy) and operationalised by networks (systems).?

In my previous article, I already mentioned Gr?nroos. In 2013, together with Voima he noted the shift to customer focus, the demonstrable power of applying user insights, and interestingly, that the quality of co-creation improves if service users volunteer or are invited by an organisation to participate. Collaboration doesn’t just happen. Change also takes time; over the past decade, organisations have begun to adapt their views of customers as consumers to that of creators of value as they inform the design, manufacture, and use of services through their increased role in the organisation (Petri & Jacob, 2016).

Service ecosystems are dynamic entities that are capable of adapting to changing conditions through transformation. This service system transformation process is commonly understood as the reconfiguring of actors, resources, and their integration practices within the service systems (Koskela-Huotari et al., 2016). But, to make it even more complex, as service systems are interlinked, a transformation in one service system may spark a transformation in another service system. Anyone involved in service design, delivery or management, should have this holistic, systemic understanding. As I mentioned at the beginning, it is no longer just about designing individual touchpoints; service design also involves understanding how services function as interconnected systems where multiple stakeholders co-create value.?

The following image delineates three analytical dimensions through which these transformations can unfold within and across service systems: scope, endurance, and paradigmatic radicalness (Koskela-Huotari et al. 2021). ‘Scope’ captures how widespread and comprehensive the reconfiguration is within and across a service system. ‘Endurance’ describes how persistent and legitimate the reconfiguration is within and across a service system. ‘Paradigmatic radicalness’ refers to how disruptive the reconfiguration is in relation to the existing paradigmatic beliefs of the focal service system.

Learning S-D Logic and more

The practice of service design, when informed by service-dominant logic and an understanding of value co-creation within complex service ecosystems, is essential for any designer aiming to navigate the complexities of modern service systems where value is co-created across networks of actors, resources, and technologies, with a focus on the dynamics, feedback loops, and interdependencies that exist across broader systems. The three lenses proposed by Kimbell and Blomberg - service encounters, service ecosystems, and socio-material configurations - offer a framework for understanding and addressing this complexity.

Service design practitioners (on strategy teams or in-house innovation hubs) must be equipped to think beyond individual service encounters and consider the entire service system within a socio-material configuration. This holistic view is essential for designing services that are not only sustainable, adaptable and resilient in the face of ongoing change, but also capable of co-creating value across dynamic networks. By mastering these perspectives, designers can lead service innovations that are grounded in a deep understanding of how value is co-created within complex service ecosystems. Designers who integrate these perspectives into their practice will be well-positioned to lead impactful service design initiatives in an increasingly interconnected and evolving world.

Would you like to truly master service design? On 30 September, a new edition of the advanced course ‘Mastering service design’ will be organised by the Service Design College. A semi-self-paced, fully online course in which you work both individually and with other strategic designers on a real-life case presented by Polestar. You will be guided by a team of senior experts from different fields through live coaching sessions. Would you like to know more about service design, in a thorough, profound way? Then join this unique course that focuses on mindset, vision and strategic thinking, instead of tooling. Register now, individually or as a team, and meet me in one of the live sessions!