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Journal of Business Logistics, 2012, 33(3): 173180

Council of Supply Chain Management Professionals

Editorial
Mitigating the Myopia of Dominant Logics: On Differential
Performance and Strategic Supply Chain Research
Stanley E. Fawcett1 and Matthew A. Waller2
1
2

Air Force Institute of Technology


University of Arkansas

he primary question of management scholarship is, What leads some rms to be successful even as others fail? Over the years, a variety
of dominant logics have emerged to inform this question. Synthesized, these logics make it clear that companies win when they create customer value better than the competition and efciently enough to be protable. That is, rms that design distinctive and dynamic value-added
systems win competitive battles. This observation is salient to the Journal of Business Logistics community as systems design and value
creation are focal decision areas of supply chain management. With this in mind, we briey discuss two of many areas for which strategic
supply chain research can inform differential performance.

Keywords: dominant logic; differential rm performance; value co-creation

INTRODUCTION
To be interesting and inuential, logistics and supply chain
research must address importantthat is, substantive and relevantquestions (Fawcett and Waller 2011a,b; Fawcett et al.
2011). Two questions that are central to competitive strategy and
supply chain design are as follows:

Why do companies exist?


What leads to differential rm performance (Porter 1991; Dyer
and Singh 1998)?

Over the years, various dominant logics have emerged to


inform these questions and guide managerial decision making
(e.g., Ohmae 1988; Drucker 2001; Vargo and Lusch 2004).
Table 1 reviews ve such logics. Each offers a compelling argument and provides valuable managerial insights. However,
applied rigidly, each can jeopardize organizational success and
survivability.
For instance, at the end of the 1980s, Kenichi Ohmae (1988)
warned against a prevailing competitor-dominant logic, arguing,
No matter what it takes, the goal of strategy is to beat the competition. As a guide to action, it is clear and compelling. As
a metric of performance, it is unambiguous. It is also wrong
(p. 149). Ohmae (1988) explained, When the focus of attention
is on ways to beat the competition, it is inevitable that strategy
gets dened primarily in terms of the competition. Of course,
it is important to take the competition into account, but in making strategy that should not come rst. It cannot come rst. First
comes painstaking attention to the needs of customers (p. 149).
A decade later, A.G. Lafey, former CEO at Procter & Gamble, cautioned against a ubiquitous prot-dominant logic, saying,
Over the last half of the 1990s, we were all a little bit too
shareholder focused, too growth-at-any-cost focused. I tried to
get people to ip that around. If we create brands that make a
difference to our customers and focus on the fundamentals, ultimately shareholder growth will take care of itself (Stein 2003,

88). Companies seduced by competitor- or prot-dominant logics


lose sight of customer needs, pursue myopic goals, succumb to
me-too thinking, and become vulnerable to competitive disruptions (Christensen 1997).
Despite the centrality of customers, inappropriate pursuit of a
customer-dominant logic can also undermine competitiveness.
Research has shown that efforts to meet the demands of a companys most-valued customers can diminish long-term viability
(Stock and Lambert 1992). Specically, only after implementing
activity-based costing have some rms discovered that they were
losing money on their A customerseven as they were rationalizing their protable C customers (Fawcett and Magnan
2001). Similarly, relentless focus on the needs of existing customers can devalue breakthrough innovation. Desi DeSimone,
one-time CEO at 3M, advised, The most interesting products
are the ones that people need but cant articulate that they need
(Loeb 1995, 135). Finally, SKU proliferationa common result
of a customer-dominant logiccan create excessive complexity,
reducing efciency, raising costs, and ultimately hurting service
levels (Vachon and Klassen 2002; Bozarth et al. 2009).
More recently, the dominant-logic discussion has shifted from
strategic-objective logics to value-creation logics. In 2004, Vargo
and Lusch introduced the service-dominant logic, arguing that
the fundamental propositions of a neoclassical, goods-dominant
logic distort managers ability to create differential advantage.
They contend that: (1) service is the fundamental basis of
exchange (Vargo and Lusch 2008b, 35), (2) value is not embedded in products, which are merely appliances used to deliver service, but is always co-created by customers during
consumption (Vargo and Lusch 2008a), and (3) a service-dominant logic liberates managers to redene innovation in terms of
how rms can better serve rather than what a rm produces
(2008a, 5). The service-dominant logic calls out limitations of a
goods-dominant logic run amok. Namely, an excessive pursuit of
efciency can muddle a rms understanding of customer needs,
drive inappropriate measures and resource allocation, and create
value gaps (Goldratt and Cox 2004).

Observing customer
behavior helps to dene
customers real needs and
helps to delineate what
products really are and
do for the customer
A customer logic can
devalue breakthrough
innovation
diminish viability via
prot-losing decisions
create excessive
complexity and chaos

It keeps decision makers


focused on the source
of revenues

Customers are the only


ones who put money
into a supply chain
everyone else simply
recycles it

Customer

A prot logic can


diminish customer focus
lead to short-term
decision making
produce unethical
behavior

Pursuing prot develops


the discipline needed
to organize and
operate efciently

Owners (shareholders)
take risks, providing
the capital to create
the company and
therefore deserve
to be rewarded
Highly motivational,
it is easy to evaluate
status & success

Prot*

Note: *We refer to short-term accounting prot. By contrast, economic prot takes into account long-run outcomes.

Potential
limitations

A competitor logic can


diminish customer focus
promote me-too thinking
and products/services
make a company
vulnerable to disruptions

It is easy to evaluate
competitive status
& success; that is,
we see who is
winning
Tracking competitor
actions informs best
practice and helps
avoid competitor-initiated
surprises

Rational

Vital insights

Companies compete
for market share
and for resources

Argument

Competitor

Strategic-objective logics
Why do companies exist?

Table 1: Strategic-objective and value-creation-dominant logics

A service focus claries


what customers perceive
they are obtaining via
purchases

A service logic can


confuse understanding
of customer satisfaction
devalue upstream
value creation potential
promote system design
inefciencies

A product logic can


confuse understanding
of customer motivations
drive inappropriate
measures and
resource allocation
lead to value gaps

Service is the basis


of exchange.
Value is only
created when
customers use a
product or service
Customers buy service.
Products are appliances
used to deliver service

Service

A product focus
claries operating
realities and the
need to utilize
resources efciently

Products are tangible


and can be managed
objectively

Value is created as
resources are
converted to
possess a more
desirable form

Product

Value-creation logics
What drives differential performance?

174
S. E. Fawcett and M. A. Waller

Editorial

Even so, the service-dominant logic also possesses potential


limitations. Indeed, its evolution illustrates the dangers inherent
in advocacy-based research. That is, overly zealous promotion of
dominant logics may do the following:

Blind Adherents to a Need to Think Differently. Prahalad


and Bettis (1986) coined the term dominant logic as an interpretation of a companys source of differential advantage; that
is, its primary means to make a prot. Dominant logics tend
to become rigid ideologies, reducing strategic adaptability and
locking rms in existing business modelsa risky status in
todays turbulent world (Drucker 1994). Prahalad (2010)
warned, Companies should stop looking at threats and opportunities through the lens of the dominant logic. Instead, the
moment they spot signs of change, executives must decide
what they can preserveand what they must discardin the
dominant logic as they prepare to transform the organization
(p. 36).
Perpetuate False Dichotomies. Rather than recognizing the
merits of other logics, dominant-logic treatises tend to argue
the superiority of one logic over another. Vargo and Lusch
(2008a) note that it was the goods-dominant logic that established the dichotomy by making a distinction between goods
and services; yet, they often compare the two in ways that
make a caricature of the value foundations of a goods-dominant logic (e.g., Vargo et al. 2008). Exaggerated dichotomies
distract decision makers from what really matters: delivering
the satisfaction, solution, or value customers demand. Winning
companies realize that enduring success emerges as they meet
customer needs not just efciently but also better than the
competition.
Exacerbate Tension Among Co-Creators of Value. Successful
companies have one strategycorporate strategywhich all
functions support. When any function views itself as rst
among equals, tension results and value is dissipated in the
ensuing tussle. Still, from its inception, Vargo and Lusch
(2004) have argued that a service-dominant logic inherently
places marketing at the center of the integration of business
functions and disciplines (p. 5). They noted that Marketing
should lead the effort of designing and building cross-functional business processes, and that Marketing should be
positioned at the core of the rms strategic planning (Vargo
and Lusch 2004, 14). Although they later argue that a servicedominant logic motivates cross-functional integration, their
claim that marketing must be at the heart of value creation
weakens the collaborative foundation (Vargo and Lusch
2008b, 31).
Motivate Fad Management. The nature of dominant logics
requires strong advocacy as adherents defend and promote
their worldview. Such advocacy often drives fad management.
For example, the service-dominant logics argumentthat we
need to rethink what customers are really buying and therefore
reconsider value-creationresonated well and rightly pointed
out deciencies in other logics. However, service has since
been described as the essence of all things management,
including core competencies, process integration, supply chain
management, organizational design, employee empowerment,
and sustainability. Is it possible that a service-dominant logic
becomes too broad to convey real theoretical meaning and

175

managerial insight when value is dened as an improvement


in system well-being (Vargo et al. 2008) and a service system comprises the global economy (Vargo and Lusch 2008a,
5)?
To summarize, dominant logics can provide real and meaningful insight into why companies exist and what leads to differential performance. Companies win when they create customer
value better than the competition and efciently enough to be
protable. Furthermore, value is created in both product/service
design and development, but satisfaction is determined only in
consumption. Recognizing this, A.G. Lafey, former CEO of
Procter and Gamble, emphasized winning the two moments of
truth: (1) the purchase decision and (2) the use of the product/
service. Pursued too far, however, dominant logics present a risk
to high-quality scholarship. When advocacy overrides objective
inquiry, complementary insights are diminished in dogmatic
arguments and the academys role as steward of knowledge discovery and dissemination is endangered.

STRATEGIC SUPPLY CHAIN RESEARCH AND THE


QUEST FOR DIFFERENTIAL PERFORMANCE
Considering the nature of dominant logics summarized in
Table 1, we nd that a rms ability to distinctively meet customers real needs and achieve differential advantage hinges on
the interplay between systems design and value creation. Specically, a rms ability to efciently deliver customer value and
drive customer satisfaction and loyalty depends on the rms
internal and interorganizational routines/systems. Firms that
design distinctive and dynamic value-added systems win competitive battles. This observation is salient to the Journal of Business Logistics community as systems design and value creation
are focal decision areas of supply chain management. Indeed,
issues related to designing systems, building the supportive, networked infrastructure, and managing processes and relationships
for value creation are what we research and teach. Inquiring
more deeply into these issues should inspire our quest for meaningful strategic supply chain research for years to come. In the
paragraphs below, we briey discuss two of many areas for
which systems design and value-creation capabilities inform decision-makers quest for differential performance.
Global supply chain design
Success in todays global market requires decision makers to
understand how to design and manage value-added networks
capable of using worldwide resources to meet global consumers
needs. Even companies located in an economy the size of Americas are dependent on global resource and consumer markets for
long-term growth and protability. Consider, for example, the
fact that U.S. gross domestic product (GDP)by far the largest
in the worldrepresents only 20% of the worlds GDP. Perhaps
more intriguing is the fact that the U.S. population is <5% of the
worlds total. That means that 95% of the potential consumers
for any companys products and services live outside the United
States. Although the individual buying power of many of these
global consumers may be limited, their combined buying power

176

S. E. Fawcett and M. A. Waller

is immense. For example, examining the demographics reveals


that the middle class in India is numerically as large as the middle class in the United States. This fact is truly meaningful when
one considers how dependent companies are on global markets
to generate the cash ows needed to fund the research and development inherent in todays technologically sophisticated products
like Gillettes billion-dollar Mach 3 Razor and Apples iPad.
Global product launches are increasingly important as most new
products enjoy well under a year of rst-mover advantage before
new-and-improved competitors products reach the market,
eroding market share and cash ow.
The statistics in Table 2, which compare the worlds four
largest economies, intimate a more detailed and compelling
story regarding the dependence of corporate America on global
resource and consumer markets. Of course, the statistics tell
distinctive, but equally persuasive stories for companies headquartered in the other three largest economies of China,
Germany, and Japan. They are indeed emblematic of todays
corporate competitive challengeregardless of country of origin. Specically,

Merchandise exports account for 10% of total U.S. GDP. Add


in services and total exports account for 14% of economic
activity. Of note, it is estimated that for every $1 billion in
exports, 7,000 American jobs are created (Chu 2012). Thus,
for 2010, goods and services exports created nearly 15 million
jobs.
Merchandise imports totaled $2.3 trillion, about 15% of U.S.
GDP. Economists estimate that import competition over the
past 20 years has reduced ination by approximately 40%,
giving consumers more disposable income (Auer and Fischer
2010). This increase in spending power has inuenced the
emergence of todays service economy as well as the type of
high-technology products that pervade the marketplace.
Cumulative foreign direct investment (FDI) in the United
States reached $2.9 trillion in 2011. No other country in the
world has attracted more FDI. This foreign investment in plant
and equipment has increased the U.S.s productive capacity,
innovation capability, and employment.
Cumulative U.S. FDI in global markets totaled $4.1 trillion in
2011. As a result, afliate sales of U.S. companies reached
$5.2 trillion in 2010. These sales represent 53% of total multi-

national enterprise sales (in 2009, they were 62%). When


combined, afliate sales and goods and services exports represent about half of U.S. GDP. In other words, U.S. companies
sales to global consumers are greater than Chinas GDP.
Clearly, these realities call for a variety of in-depth, multidimensional research studies related to global supply chain design.
Although much research has been done on global operations, we
need to understand more fully the total cost and service tradeoffs inherent in global, lean, agile strategies. Studies are also
needed to shed light on how companies can more effectively
develop the information, people, and technology systems needed
to identify, integrate, and rapidly recongure resources across
geographic and cultural borders. Given companies continue to
struggle with the chaotic, fragile, and interdependent nature of
operations, more and better research on global supply chain risk
management is also merited. We might also benet from understanding why many companies forego the development of risk
management strategies. Furthermore, as we comprehend the symbiotic nature of our global environment, the connection between
corporate social responsibility topics (e.g., codes of conduct,
humanitarian assistance and disaster relief, and sustainability)
and organizational performance takes on greater urgency. Ultimately, research in these and other areas is vital to not just company success but also to raising living standards for the people
of the world.
Value co-creation
The emergence of information-empowered customers coupled
with the advent of erce global rivals has raised the competitive
bar. Few, if any, companies can compete on the strength of their
own internal competencies. Kenichi Ohmae (1989) captured this
sentiment, noting, Companies are just beginning to learn what
nations have always known: in a complex, uncertain world lled
with dangerous opponents, it is best not to go it alone (p. 153).
As a result, the co-creation of value across organizational boundaries has become vital to competitive success. Yet, extant
research shows that few rms have learned how to compete via
a value co-creation capability (Park and Ungson 2001; Sabath
and Fontanella 2002; Barratt 2003; Cousins and Menguc 2006;
Daugherty et al. 2006; Fawcett et al. 2007; Enz and Lambert

Table 2: Demographic and economic statistics of worlds leading economies

Area (km2)
Population
GDP (billion)
GDP/capita
Exports (billion)
Imports (billion)
FDI home (billion)
FDI abroad (billion)

China

Germany

Japan

USA

9,596,961
1,343,239,923
$6,989
$5,203
$1,898
$1,743
$776
$322

357,022
81,305,856
$3,629
$44,633
$1,408
$1,198
$998
$1,486

377,915
127,368,088
$5,855
$45,969
$801
$795
$147
$880

9,826,675
313,847,465
$15,060
$47,985
$1,511
$2,314
$2,874
$4,051

Source: CIA World Factbook(https://www.cia.gov/library/publications/the-world-factbook/).


Notes: GDP, gross domestic product; FDI, foreign direct investment.

Editorial

177

2011; Kotzab et al. 2011; Jin et al. forthcoming). Decision makers have not yet gured out what a successful relational architecture looks like or how to build it. One point we have learned,
however, is that what actually happens in most value co-creation
relationships is different from what managers desired to achieve
(Park and Ungson 2001). The time has come to answer the question, What determines whether or not value co-creation pays off
for a rm?
To provide in-depth insight into this question, it may be useful
to target research to the three core supply chain processes where
value co-creation typically takes place: new product development, order fulllment, and customer experience.
New product development
Figure 1 illustrates the typical new product development process, identifying key steps in the process, essential decisionmaking entities, and vital roles and responsibilities. It also
breaks the process down into information, nancial, and physical ows. Much valuable research has been dedicated to these
issues. Yet, we do not fully understand the governance mechanisms, innovation architectures, and relational routines needed
to incent the right partners to generate better ideas, dedicate

scarce resources, and share innovation rents. For instance, partners seldom experience symmetrical cost and benet curves for
any given new product development project. This asymmetry
can lead to friction and possible withholding of vital resources.
The question is thus, How can decision makers structure an
innovation relationship to motivate the ideation, development,
and launch capabilities needed for innovation success? The
need to answer such questions increases in importance as the
development space becomes more crowded and innovation
cycles continue to compress.
Order fulllment
Figure 2 depicts the Supply Chain Councils well-known SCOR
model, which denotes the essence of order fulllment. Much traditional logistics research has focused on different aspects of the
SCOR model. Even so, the supply chain glitch literature suggests
that we need to better understand how to manage the value cocreation process to minimize the number of dropped batons
during the numerous handoffs inherent in the source-makedeliver-return process. Specically, Hendricks and Singhal
conducted a series of event studies to quantify the costs of dropping the supply chain baton. Upon announcing they had dropped

Figure 1: The new product development process.

Figure 2: Order fulllment as depicted by the SCOR model.


Plan

Deliver

Source

Make

Deliver
Return

Suppliers
Supplier

Supplier

Source

Make

Deliver
Return

Focal Company

Source

Make

Deliver

Source

Return

Customer

Customers
Customer

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S. E. Fawcett and M. A. Waller

the baton, rms experience on average 6.92% lower sales


growth, 10.66% higher growth in cost, and 13.88% higher
growth in inventories (Hendricks and Singhal 2005a). Poor handoffs are also associated with a 40% decrease in stock returns,
which can persist for over a year (Hendricks and Singhal
2005b). On the basis of their ndings, Hendricks and Singhal
(2008, 787) call for greater focus on value co-creation in the
order fulllment process.
The fact that disruptions caused by external sources (supplier
and customers) experienced a higher penalty suggests that these
problems can be more expensive and time consuming for the
rm to x. This may be due to the rms limited power to
change their external partners operations to solve the problems.
This further underscores the need to form close and collaborative
relationships with the various links in the supply chain. A rm
must make sure that its supply chain partners see the value of
working together.

Panel B suggests that distinctive customer experience engenders loyalty and leads to a lifetime stream of prots (Blackwell
1997). Moreover, loyal customers often build closer, deeper relationships with supply partners (Rust and Oliver 2000). These
relationships are characterized by larger, more frequent purchases
as well as by a higher incidence of shared resources (Gulati and
Singh 1998). Loyal customers may also become evangelists
becoming part of these companies marketing apparatus (Godin
2003; McMullan and Gilmore 2008). These benets, however,
only accrue if the customer-experience system is robust and
adaptable enough to deliver distinctive experiences repeatedly
over time. Strong relational capabilities are required as is the
ability to re-congure network resources to meet evolving expectations (Barreto 2010). If outstanding experiences are not reproducible, satisfaction will turn to disappointment as future
experiences disconrm elevated expectations (Berman 2005).

Customer experience
Peter Drucker (2001) noted, There is only one valid denition
of business purpose: to create a customer. What the customer
buys and considers value is never just a product. It is always a
utility, that is, what a product or service does for him (p. 15).
Although Drucker (2001) points to the need to cultivate an ability to deliver inimitable customer experience to achieve differential performance, little supply chain research has focused on
designing customer-experience systems.
As Figure 3, Panel A shows, customer-experience systems
must be designed to: (1) enable rms to promise unique value
propositions and (2) ensure that the experience delivers to promise.
Except in the most basic service scenarios, customer-experience
systems rely on the resources of a network of suppliers, service
providers, and customers to co-create the promised value. For
example, a partner may possess unique information regarding
market demand leading to a collaborative planning relationship
(Smith et al. 2011).

CONCLUSIONS AND ACTION OPPORTUNITIES


Although a tendency to advocate for a dominant logic can induce
managerial myopia and impede the journey to differential performance, taking a composite view of dominant logics can inform
our quest for high-quality, impactful research. The ve dominant
logics we briey consideredcompetitor, prot, customer, product, and serviceall allude to a need to design outstanding
systems capable of delivering distinctive value. That is, how managers design value-added systems determines whether or not their
rms, in conjunction with supply chain partners, can consistently
recongure resources and build the capabilities to meet customers
needs better than competing supply chains. Our opportunity as
logistics and supply chain scholars is to apply our expertise and
experience in systems design and value creation to help decision
makers solve persistent and pressing problems such as those found
in global network design and value co-creation. As our research
leads to the design and management of better value creation sys-

Figure 3: Customer-experience systems and differential performance.


Panel A: The Role of Systems Design
Company Designs
Customer-Experience
System

Experience is
distinctive,
exceeding
expectations

Customer
Initial
Expectations

Customer
Expectations

High

Actual
Customer
Experience

Loyalty

Company Offers
Value Proposition

Panel B: The Link to Differential Performance

Zone of Indifference

Zone of
Differential
Performance

Experience is
inferior, below
expectations

If: Experience Expectation,


Satisfaction Emerges:
More likely to Return
May Compliment
If: Experience < Expectation,
Dissatisfaction Results:
Less likely to Return
May Complain

Experience is competitive,
meeting expectations

Zone of Defection
Low
Dissatisfaction

Satisfaction

Experience Continuum

Delight/Success

Editorial

tems, everyonecompanies, customers, employees, shareholders,


and societywill reap the benets.

ACKNOWLEDGMENTS
We thank Sebastian Brockhaus, Michael Knemeyer, and Daniel
Mattioda for their thoughtful feedback and constructive criticism,
much of which we incorporated and some of which will be
addressed in future editorials.

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