Service System Basics

Service System Basics


Definition of service. As discussed in Challenges for Service Science, there is little agreement among researchers about the definition of service.

We adopt a simple, dictionary-like definition of service based on the assumption that every purposeful action performed for the benefit of someone else is a service independent of whether the result is customized, intangible, or consumed as produced (characteristics often associated with services).

Services are acts performed for someone else, including providing resources that someone else will use.

This definition encompasses a wide range of services:

  • services for external customers and for internal customers,
  • automated, IT-reliant, and non-automated services,
  • customized, semi-customized, and non-customized services,
  • personal and impersonal services,
  • repetitive and non-repetitive services,
  • long-term and short-term services,
  • services with varying degrees of self-service responsibilities.

With this definition, just about everything that happens in business is a service because it involves purposeful action performed for the benefit of someone else. This interpretation is consistent with discussions that have gone on in marketing for over 50 years. For example, in the Harvard Business Review article “Marketing Myopia,” Leavitt (1960) noted, “People don’t buy a quarter-inch drill. They buy a quarter-inch hole. You’ve got to study the hole, not the drill. The drill is just a solution for it.”  More recently, Vargo and Lusch (2004) extended that train of thought in their widely discussed “service-dominant logic”, which they compare to goods-dominant logic which they view as the basis of traditional economic thought. One of eight foundational premises in their 2004 summary of service-dominant logic is that “goods are distribution mechanisms for service provision.”

Definition of service system. A service system is a work system that produces services for customers. (Work system is defined in Work System Basics.)  Almost every system in an organization is a service system, and the ideas about work systems in general apply to those systems. The following table is a representative list of the service systems chosen for analysis by advanced MBA students in response to an assignment to analyze a work system in their own organization.  The work systems they chose were all service systems by the above definition:

  • Determining salary increases
  • Operating an engineering call center
  • Collection and reporting of sales data for a wholesaler
  • Determining government incentives for providing employee training
  • Invoicing for construction work
  • Performing financial planning for wealthy individuals
  • Approving real estate loan applications
  • Determining insurance premiums for policy renewals
  • Receiving materials at a large warehouse
  • Performing pre-employment background checks
  • Purchasing advertising services through an advertising agency
  • Planning and dispatching trucking services
  • Scheduling and tracking health service appointments

The work system framework (see Work System Basics) expresses a number of service related ideas, starting with the definition of work system, which says that work systems exist to produce products/services for customers.  For that reason, customers appear at the top of the framework. Also, the framework permits customers to be participants, which is important for many service systems. Going beyond those initial service-related ideas calls for incorporating generic activities and responsibilities of service providers and service customers.

Service value chain framework. As introduced in Service System Fundamentals: Work System, Value Chain, and Life Cycle and revised in Viewing Systems as Services: A Fresh View in the IS Field, the service value chain framework augments the work system framework by introducing activities and responsibilities associated with services. Each element of this framework is important for many, but not all service systems. The entire service value chain for a service can be viewed and analyzed as a single work system. Alternatively, different subsystems in the figure below (such as provider preparation or negotiation of commitments) might be analyzed as separate work systems. (This framework is explained in more detail in the two articles mentioned above and in Service System Innovation) The bilateral form of the service value chain framework is based on the frequently mentioned assumption that value from services is co-created by service providers and service consumers.

The service value chain framework’s form and content encapsulate a series of assumptions related to service. Several of these assumptions differ somewhat from assumptions by other authors.

  • Importance of activities and responsibilities. Understanding services requires attention to activities and responsibilities of both service providers and service customers.
  • Value. This is a property of a service or thing summarizing its usefulness and importance to a particular person. In relation to service systems, value is experienced by customers. This view of value is quite different from  economic and marketing definitions related to actual or estimated exchange value, and definitions from accounting and operations management related to “value added” and “value streams.”
  • Co-production of services. Services are usually co-produced to at least some extent because, at minimum, a customer’s service request is part of most service systems. Co-production is central to interactive services such as medical exams.
  • Co-creation of value.  The value that customers experience results at least partially from activities of service providers. Authors such as Vargo and Lusch (2008) say that value is always co-created by providers and customers. Other authors say that value co-creation is optional, and depends on whether the provider “has an opportunity to directly and actively influence its customers’ value creation.” Grönroos (2011)  With both views, customers are at least partially responsible for creating the value that they experience. That value involves more than just receiving and using whatever the service system happens to produce.
  • Internal and external customers. Basic ideas about services are largely the same regardless of whether services are directed at external customers, internal customers, or both.
  • Customer experience. The entire experience that typical customers associate with acquiring, receiving, and benefiting from a particular service affects customer satisfaction.
  • Service encounters. The quality of service encounters between service providers and customers is often a key determinant of customer satisfaction.
  • Beyond fulfilling a request. Although the fulfillment of a service request is typically viewed as the core of the service, activities related to awareness, negotiation, set-up, handling of the request, and follow-up have important impacts on service quality and satisfaction.
  • Negotiated commitments. Many service situations involve delivery of services based on negotiated commitments under which the service may be requested and delivered repeatedly. For example, the outsourcing literature often notes that the quality and thoroughness of negotiated mutual commitments is a key determinant of whether long term services will meet needs and will be cost effective.
  • Preparation. Preparation by providers and/or customers prior to each instance of service delivery is often essential for service efficiency and effectiveness.
  • Service request. For many services, each instance of service delivery includes an explicit or implicit service request. The handling of the service request is an important part of service delivery and often affects customer satisfaction.
  • Front-stage and back-stage. Services often involve front-stage and back-stage activities by both service providers and customers.
  • Follow-up. Some services require follow-up by providers and/or customers. Follow-up may be related to a single service instance (Was the installation OK?) or to multiple service instances (How responsive is your account manager?).
  • Value capture. Customers may experience value as the service is produced and/or may experience value later. Value capture, represented by the leftmost and rightmost portions of the service value chain framework, includes the customer’s experience of attaining value from the service and the provider’s experience of attaining value in exchange for the customer’s value.

The service value chain framework is a useful lens for viewing systems as services. Just as the work system framework helps a user focus attention on the generic elements of a work system, the service value chain framework helps in focusing attention on the generic elements of services.


Grönroos, C. (2011) “Value creation in service logic: A critical analysis,” Marketing Theory, 11(3), pp. 279-301.

Leavitt, T. (1960).  Marketing Myopia, Harvard Business Review, 38(4), pp. 45-56.

Vargo, S.L., and Lusch, R.F. (2004). Evolving to a New Dominant Logic for Marketing,Journal of Marketing, 68, pp. 1-17.

Vargo, S.L. and Lusch, R.F. (2008) “Service-dominant logic: continuing the evolution,” Journal of the Academy of Marketing Science, 36, pp. 1-10.

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