smart service systems and viable service systems: applying systems theory to service science

Barile and Polese: Smart Service Systems and Viable Service Systems Service Science 2 (1/2), pp. 21 – 40, © 2010 SSG

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Smart Service Systems and Viable Service Systems: Applying Systems Theory to Service Science

Sergio Barile

“La Sapienza” University of Rome – Dept. of Business Studies Via Del Castro Laurenziano, 9 – 00196 - Roma, Italy

[email protected]

Francesco Polese University of Cassino – Dept. of Enterprise, Environment and Management

Via Sant’Angelo, Località Folcara – 03043 - Cassino, Italy [email protected]

he objective of this paper is to review recent developments in service theory and systems theory with a view to identifying common features between the two. In particular, the study explores the issue of

whether so-called ‘smart service systems’ can be understood in terms of the ‘viable systems approach’ of systems theory. The paper begins with a review of recent developments in service theory by examining the fundamental principles of service-dominant logic (S-D logic) and service science (SS). The similarities and differences of the two are explored, with particular emphasis on the common feature of the service system. The study then moves to the realm of systems theory by exploring the main proposals of the viable systems approach (VSA), which is an interdisciplinary systems theory that includes elements derived from resource-based theory, biology, sociology, and mechanics. The paper then draws together service theory and systems theory by examining whether ‘smart service systems’ can be best understood in terms of ‘viable service systems’. The most important finding of the study is that the VSA provides valuable insights into the design and management of smart service systems, especially with regard to harmonisation, systems governance, and successful value co-creation processes.

Key words: Service science; service-dominant logic; service systems; viable systems approach; smart

service systems History: Received Oct. 1, 2009; Received in revised form Jan. 10, 2010; Accepted Feb. 15, 2010; Online

first publication Apr. 10, 2010 1. Introduction

With the growing emphasis on services in all business activities (including businesses that are predominantly based on manufacturing), firms are increasingly directing their core business functions to a competitive model based on service quality and service innovations. Moreover, as globalisation has connected the world economically, technically, and socially, increasing emphasis has been placed on aggregating products and services into customer solutions offered by globally integrated enterprises (Qiu, 2009). As all economies increasingly depend on human knowledge and the application of information to create benefits (Spohrer, Anderson, Pass, Ager, 2008), the concept of ‘service’ has come to dominate theoretical models, enterprise strategies, corporate governance, decision-making processes, and virtually all business and social relationships. In the past decade, these developments have been accompanied by an evolution in the notion of ‘service’ itself—from earlier (basic) historical interpretations of services as an ‘intangible goods’ to encompass significant multi-dimensional conceptualisations, such as ‘service-dominant logic’ (S-D logic) and ‘service science, management, engineering and design’ (SSMED), or, simply, ‘service science’ (SS).

According to S-D logic, service is the application (through deeds, processes, and performances) of specialised operant resources (knowledge and skills) for the benefit of another entity or the entity itself. The emphasis is thus on the process of doing something for and with another entity in order to create value. According to S-D logic, service thus represents the common denominator of all exchange processes, and goods become mere vehicles for the application of service provision; service is what is always exchanged (Vargo and Lusch, 2004; 2006; 2008).

T


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According to ‘service science’ (SS), service is a system of interacting and interdependent parts (people, technologies and business activities) that is externally oriented to achieve and maintain a sustainable competitive advantage (Maglio et al., 2006; Maglio and Spohrer, 2008a, 2008b). Service is thus viewed as the performance of acts for others, including the provision of resources that others will use (Alter, 2008).

According to both S-D logic and SS, the concept of the service system is central. A service system was defined by Maglio and Spohrer (2008a) as “a configuration of people, technologies, organizations and shared information, able to create and deliver value to providers, users and other interested entities, through service”. Both S-D logic and SS hold that this integration of needs, resources, information, and objectives among providers and users stimulates co-creation processes that have now come to dominate the developed economies of the world (Qiu, 2009).

The common feature of the service system in both S-D logic and SS raises the question of whether certain elements of systems theory might be usefully applied to service theory. Although this has been explored in the literature to some extent, the present study contends that this is worthy of further investigation. In particular, the present study suggests that the viable systems approach (VSA)—which is an interdisciplinary systems theory that includes elements derived from resource-based theory, biology, sociology, and mechanics—might provide valuable insights into the design and management of so-called ‘smart service systems’. Such IT-based ‘smart service systems’ can be understood as service systems that are specifically designed for the prudent management of their assets and goals while being capable of self-reconfiguration to ensure that they continue to have the capacity to satisfy all the relevant participants over time. The present study contends that these ‘smart service systems’ have many elements in common with the VSA notion of a ‘viable service system’.

The remainder of this paper is organised as follows. The next section provides a brief review of contemporary service theory—including recent developments in the general concept of service, the principles of S-D logic, and the principles of SS. The paper then explores the relationship between systems theory and service theory, with particular emphasis on the VSA and the concept of a ‘viable service system’. This is followed by an exploration of the common features of a ‘smart service system’ and a ‘viable service system’. The paper concludes with a summary of the major findings and implications, and suggestions for future research. 2. A Brief Review of Contemporary Service Theory 2.1. Recent Concepts of Service A service can be regarded as the provision of assistance and expertise through a provider–client interaction to create and capture value in business, education, government, and personal endeavours (Katzan, 2008). In terms of resources, services can also be understood as a series of activities in which resources of various types (employees, physical resources, goods, systems of service providers) are used in interaction with the customer to find a solution to a problem or need (Grönroos, 2006). From this perspective, a service system is not simply the sum of its parts; rather, the interactions form a higher-order construct. As Polese (2010) observed, service can thus be understood as an “… interaction between entities in a reticular system … to improve value co-creation outcomes under a win–win logic inside interrelated processes”. Table 1 summarises some of the more recent developments in the conceptualisation of ‘service’.

Table 1 Summary of Recent Concepts of Service

Source: Authors’ presentation


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2.2. Principles of Service-dominant Logic Vargo and Lusch (2004, 2006, 2008) proposed ten foundational premises upon which their new paradigm of service-dominant logic (S-D logic) was based in the contemporary service economy:

* service is the fundamental basis of exchange; * indirect exchange masks the fundamental basis of exchange; * goods are distribution mechanisms for service provision; * operant resources are the fundamental source of competitive advantage; * all economies are service economies; * the customer is always a co-creator of value; * the enterprise cannot deliver value, but only offer value propositions; * a service-centred view is inherently customer-oriented and relational; * all economic and social actors are resource integrators; and * value is always uniquely and phenomenologically determined by the beneficiary. Each of these fundamental premises is discussed in more detail below.

2.2.1. Service is the fundamental basis of exchange Having defined service as the application through deeds, processes, and performances of specialised competencies (operand resources, knowledge, and skills) for the benefit of another entity or the entity itself, S-D logic holds that service is the fundamental basis of exchange in the interactions among economic, social, and system entities. 2.2.2. Indirect exchange masks the fundamental basis of exchange Exchange of money and goods has long been recognised as the essential interaction between socio-economic actors. However, according to S-D logic, the fundamental exchange upon which the traditional exchange of goods and money is based is actually the exchange of service for service. This involves direct contact between the actors who undertake mutual adaptation to maximise the service exchange that covertly underlies the overt exchange of goods and money. 2.2.3. Goods are distribution mechanisms for service provision Goods are considered by S-D logic as vehicles for service provision. Goods are thus a type of resource for service-provision systems (along with technologies, knowledge, information, etc.). As such, goods provide a mechanism for service delivery by acting as a physical representation of service exchange and efficient knowledge transfer. 2.2.4. Operant resources are the fundamental source of competitive advantage Resources that can be easily transferred or replicated cannot be the source of competitive advantage. Distinctive operant resources (such as human experience, relational trust, uncodified knowledge, strategic reserved information, and synergistic networked embeddedness) are the only foundational basis upon which the competitive advantages of businesses can be based. 2.2.5. All economies are service economies Although the ‘service idea’ is not new (Borgonovi, 1996; Rullani, 1997; Baccarani, 1997), the rapidly increasing preponderance of services in all offerings within what is now called the ‘service economy’ (Levitt, 1981) has rendered the classical dichotomy between goods and services increasingly irrelevant (Kotler, 1977; Normann and Ramirez, 1994; Rispoli and Tamma, 1992). For example, even industrial manufacturing companies now actively consider how they might enrich their goods offerings through the addition of services, thus seeking opportunities for interaction with customers and the engendering of trust and loyalty in relationships; this service-oriented approach represents a new attitude to the market that has not been traditionally associated with manufacturers of physical goods (Grönroos, 2006). The traditional goods-dominant logic, which was based on clear distinctions between producers and consumers, and between goods and services, has been described the “logic of the past” (Drucker, 1993). In contrast to this outmoded approach, the contemporary service economy is based on networked relationships, continuing interactions, and value co-creation (Grönroos, 2008; Rust, 2004). 2.2.6 The customer is always a co-creator of value According to the traditional view of value-in-exchange, value was created within the production process and was subsequently reflected in the market price of manufactured goods. In contrast, according to S-D logic, firms make a value proposition regarding market value, and the consumer becomes an active participant in the co-creation of


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value. In doing so, the consumer does not draw value directly from the product itself; rather, by using, transforming, and consuming it, value in use is realised. According to this understanding of the value-creation process, the customer represents a ‘resource’ that has an active role in service provision and the value co-creation processes. 2.2.7 The enterprise cannot deliver value, but only offer value propositions It follows from what has been stated above that providers cannot deliver value; rather they can only offer value propositions of ‘potential’ value. It is through interactions with other system entities using shared resources that co-created value can emerge from the consumption process as perceived value. 2.2.8 A service-centred view is inherently customer oriented and relational Because service systems are inherently networks, the value of solutions produced by such systems is always generated through interaction. A firm’s ability to communicate effectively with its customers and obtain advantages from them is ultimately based upon a succession of iterative interactions. The actors in service ecosystems are ‘conditioned’ (or positively influenced) by a variety of technological, economic, political, and social influences that determine that relationships that develop among them. All business processes are thus relational service activities—characterised by dialogue, ongoing interactions, and continuous updating. 2.2.9 All economic and social actors are resource integrators According to S-D logic, customers and providers both become resource integrators in the value-generation process. Within the multi-faceted processes of value creation, providers and customers use their knowledge and skills to integrate a range of resources—including market-facing resources (available for outright purchase or for lease), private resources (with privileged access only), and public resources (with shared access). 2.2.10 Value is always uniquely and phenomenologically determined by the beneficiary Although planning for value creation is both internal (through strategies for quality improvement, efficacy, and efficiency) and external (through collaborative relationships with other actors involving particular capacities, knowledge, and technical expertise), value is ultimately determined as a unique phenomenon by the beneficiary of the particular service at a particular time; perfect prediction and meticulous control of perceived value is simply not possible (Spohrer et al., 2008).

Table 2 Summary of the Principles of S-D Logic



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2.3. Principles of Service Science Service science (SS) is based on ten principles (Spohrer et al., 2008; Spohrer and Kwan, 2009):

* resources; * entities; * access rights; * value co-creation interactions; * governance interactions; * outcomes; * stakeholders; * measures; * networks; and * ecology. Each of these is discussed in more detail below.

2.3.1. Resources According to SS, everything that has a name and is useful can be viewed as a resource. SS systems are essentially dynamic configurations of resources (people, technology, organisations, and shared information) that create and deliver value between the provider and the customer through service (Spohrer et al., 2007). All actors are thus considered to be resources, and all service tools are considered useful instruments for business activities (Mele and Polese, 2010). 2.3.2. Entities Complex resource configurations that can initiate service actions are called ‘service system entities’ (or just ‘entities’). Such an entity improves its own state and/or that of another entity by acquiring, sharing, or applying resources with the aim of creating a basis for innovative service provision. Service entities thus act as resource integrators of various resources (such as knowledge, skills, know-how, competencies, material resources, money, and so on) as a working unit within a larger organisation and/or through a wider network. (Spohrer et al., 2008).

The smallest service system is a single person, whereas the largest is the total global economy. Such a service system is essentially a social–technical system for delivering services using all available means to realise value for both provider and consumer (Qiu, 2009). It can also be a composition of numerous collaboratively connected service systems within and/or across organisations (Qiu et al., 2007). 2.3.3. Access rights The term ‘access rights’ refers to the social norms and legal regulations that determine access and use of resources. These norms and regulations, which depend on relevant stakeholders, differentiate resources into several categories (Spohrer, Anderson, Pass, Ager, 2008): (i) owned outright; (ii) leased/contracted; (iii) shared access; and (iv) privileged access. 2.3.4. Value co-creation interactions The interactions and ties among actors represent an important aspect of any service system. Service systems are socially constructed collections of service events in which participants exchange beneficial actions through a knowledge-based strategy that captures value from a provider–client relationship. In doing so, the service system is not simply the sum of its parts; rather, the interactions of the relationship form a higher-order construct that becomes the driver of value (Lusch et al., 2010). 2.3.5. Governance interactions The governance of the system directs the system towards a final goal by transforming static structural relationships into dynamic interactions with other systems. Governance mechanisms reduce the uncertainty in these situations by prescribing, in advance, a mutually agreed process for resolving any disputes that might arise (Spohrer, Anderson, Pass, Ager, 2008). The ability to organise relationships determines the efficiency and viability of the system. It also determines the equilibrium of the system from the internal perspective, and the satisfaction of other systems from the external perspective.


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2.3.6. Outcomes Business development entails reconfiguring roles, actions, interactions, and relationships among economic actors. The key characteristic that differentiates a ‘service system model’ from the traditional ‘economic transaction model’ is the interaction with the clients as participants in the service process (Sampson, 2001; Fitzsimmons and Fitzsimmons, 2006). Because a large number of stakeholders are interested in the value created by a firm, there is a need to consider value as multidimensional and dynamic, and for it to be analysed in terms of the consonant processes among participating actors (Barile and Gatti, 2007). 2.3.7. Stakeholders The four primary types of stakeholders are customer, provider, authority, and competitor. A service system consists of various elements, interconnections, attributes, and stakeholders—which can include employees, partners, entrepreneurs, citizens, managers, and many others (Spohrer, Anderson, Pass, Ager, 2008). These stakeholders interact in a co-productive relationship that creates value, with the principal interactions take place at the interface between the provider and the customer (Spohrer et al., 2008). 2.3.8. Measures The four primary types of measures of service systems are quality, productivity, compliance, and sustainable innovation. These measures enable designers and managers to identify specific elements that require upgrading. In relational systems, qualitative evaluations, oriented to relationship implementation and relationships viability, need to be measured. Table 3 Summary of Principles of Service Science



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2.3.9. Networks One of the interesting features of systems, which can be defined as an “entity which is a coherent whole” is the analysis of internal and external entities enlightened by the emergence of a system’s boundary, with its selective mechanism that through control filters external complexity. This last trait enables the evaluation of inputs/outputs, supports the qualification of a system identity, organized beyond that of a random and weakly related gathering and underlining the fact that every system comprises sub-systems, and in parallel is part of a wider whole (Checkland, 1981) in relation with supra-systems populating its context (Parsons, 1971). Service system entities interact with other service system entities via networks, which are determined by resource allocation and distribution, collaborative advantages, and cooperative strategies (Allee, 2000). In such networks, entities combine their strengths through direct and indirect connections to ensure enduring competitiveness (Polese et al., 2009). Granovetter (1985) referred to the ‘embeddedness’ of entities in networks, and Barabási (2002) observed: “Nothing happens in isolation”. 2.3.10. Ecology In the same way that biological science seeks to explain the interactions between living organisms in nature, the life of a service system can be understood in terms of how actors in ‘service ecosystems’ are conditioned by various technological, economic, political, and social influences. 3. Systems Theory and Service Theory Within service research, we note that both SS and S-D logic highlight the centrality of a continuous interactions among actors, to the concepts of reticular relationships, to value co-creation and, finally, to the comprehension and functioning of service systems. Indeed service, and service systems, may be the focus and the common element of both introduced theories, and around its crucial aspects this paper will continue its development. These systems may well be analyzed not only according to S-D logic and SS, but also according to the methodological lens represented by the Viable systems approach.

The Viable systems approach (VSA) is a systems theory highly diffused in Italian cultural community in last decade. It is a theory rooted in system thinking, or rather it may well be intended as an interpretation key useful for the observation of complex phenomena, based upon system theory, focused to the analysis of relationships among socio-economic entities, in search for viable interacting conditions (Golinelli, 2000; Barile, 2000; Golinelli et al., 2001). Among the pillars of system theories are the concept of open and closed systems (von Bertalanffy, 1972), as well as socio-technical systems (Emery and Trist, 1960), the law of requisite variety (Ashby, 1958), viable systems model (Beer, 1984) and systems dynamics (Forrester, 2003).

3.1. Background to Viable Systems Approach It is apparent from the above review of the principles of S-D logic and SS that both emphasise the themes of: (i) the centrality of continuous interactions among actors; (ii) networked relationships; (iii) value co-creation; and (iv) the notion of a service system. However, in pursuing these common themes, the two approaches have somewhat different emphases. S-D logic places particular emphasis on service exchange among various complementary and differentiated actors, whereas SS places more explicit emphasis on understanding complex service systems and the promotion of service innovation.

Apart from analysis according to S-D logic and/or SS, the present study contends that service systems can also be analysed according to the methodological lens represented by the so-called ‘viable systems approach’ (VSA). The VSA, which has become increasingly prominent in Italian academic thought in the past decade, is a useful means of interpreting complex phenomena. Based upon system theory, VSA focuses on the analysis of relationships among socio-economic entities in search of viable interacting conditions (Golinelli, 2000; Barile, 2000; Golinelli et al., 2001).

In general, system theory replaces a teleological perspective with the notion of “goal seeking and self controlling behavior [through a] complex of interacting components” (von Bertalanffy, 1962). This ‘general system theory’ (GST) later developed into: (i) ‘open system theory’ (OST), which focused on the dichotomy between the system and its environment; and (ii) the ‘viable systems approach’ (VSA), which adopts a behavioural approach to business and its interactions with its environment (Beer, 1975).


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The ‘viable system model’ (VSM), from which the VSA is derived, has been used extensively as a conceptual tool for understanding system organisations, redesigning them (where appropriate), and supporting the management of change considering its essential function of Implementation, Coordination, Control, Intelligence and Policy (Beer, 1972; Espejo and Harnden, 1989; Espejo, 1999; Christopher, 2007). VSA is thus a methodological framework that is capable of analysing a system’s development, adjustment, transformation, restructuring, and redefinition (Golinelli et al., 2001).

3.2. Principles of the Viable Systems Approach The VSA is based upon several key principles that are drawn from other disciplines:

* a multidisciplinary interpretative approach (between holism and reductionism); * open systems (from system thinking); * system boundaries (from system thinking); * autopoiesis and common finality (from chemistry and biology); * homeostasis and self-regulation (from natural and ecological sciences); * structures, systems, and equifinality (from natural and ecological sciences); * consonance and resonance (from sociology and psychology); * system viability (from system thinking); * adaptation and relationship development (from natural and ecological sciences); and * complexity and decision making (from sociology and psychology). Each of these is discussed in more detail below.

3.2.1. Multidisciplinary interpretative approach The VSA developed as an interdisciplinary theory between holism and reductionism (von Bertalanffy, 1956). It aims to interpret system construction, behaviour, evolution, interactions, and relationships (Golinelli et al., 2002). In doing so, there is a shift in attention from the parts to the whole—with the observed reality being perceived as an integrated and interacting unity of phenomena and the properties of the individual parts becoming less distinct. However, the relationships between the parts and the events they produce assume greater significance (Luhmann, 1990). 3.2.2. Open systems According to the VSA, an open system exchanges information, energy, and matter with the environment in pursuing the system’s goal (Barile, 2008a), a closed system exchanges only energy (with no exchanges of information and matter), and an isolated system does not exchange any of these elements. However, it is difficult to identify an isolated system, or even a closed one. Most systems (firms, individuals, districts, nations, customers, markets, communities) are open systems because they are related to many other systems with which resources (energy, matter, and information) are exchanged. 3.2.3. System boundaries

The concept of a ‘system boundary’ is derived from the observation that every object has boundaries, even though the definition and interpretation of a given boundary varies according to circumstances. Drawing on considerations of legal property, it is possible to identify the boundaries of a system in terms of subjective perceptions of: (i) its range of activities (core and peripheral); (ii) the ‘distance’ of its direct relationships (within a network); (iii) changes in its behaviour and policies; and (iv) its dependence on external resources and the influence of contingences (Golinelli, 2000). 3.2.4. Autopoiesis and common finality In the field of biology, system research has developed the notion of ‘system biology’ (Naylor and Cavanagh 2004), which holds that every biological system has the ability to generate equilibrated conditions with respect to internal possibilities and external constraints. The underlying assumption is that every system struggles in search of a sustainable behaviour that is capable of satisfying its operating context. In a complex environment, each system is stimulated to become an ‘autopoietic’ self-organising system (Maturana and Varela, 1975). Thus, according to the VSA, organisations are managed to reach a ‘common finality’ that is necessary in terms of its environmental interactions.


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3.2.5. Homeostasis and self-regulation A system is able to maintain a state of internal equilibrium through its ability to adapt within the limits determined by the tolerance of its own structure (Hannan and Freeman, 1977). Living organisms are typically able to preserve their characteristics of vitality and stability by creating an internal environment that is able to respond effectively to exogenous stimuli. In accordance with this principle of self-regulation in living beings, the notion of system ‘homeostasis’ has been developed (Beer, 1975). According to this principle, a system maintains its own specific identity by not modifying its internal features excessively in an attempt to achieve internal and eternal equilibrium. According to VSA, the homeostasis of a system is determined by both the external normative regulatory environment (such as statutory legal requirements) that every system has to respect, and the internal self-regulatory environment (such as a business code of behaviour). In other words, every system possesses an adaptive mechanism that keeps the system in an equilibrated condition within the limits of its structure and the constraints of the outside world (Beer, 1975). 3.2.6. Structures, systems and equifinality Every organisation is characterised by a structure constituted by a set of individual elements with assigned roles, activities, and tasks that are performed in compliance with rules and constraints. From any such structure, a system can emerge by the activation of relationships into dynamic interactions with external supra-systems and internal sub-systems (Golinelli et al., 2002). The passage from structure to system thus involves a passage from the static to the dynamic as the focus moves from individual components and relationships to an holistic view of the observed reality.

There are diverse ways in which a system can develop and emerge. Any attempt to construct a system is different from previous attempts, and from the same structure a variety of systems can emerge. In this regard, the principle of ‘equifinality’ refers to various systems reaching the same end state from different starting conditions (that is, from different structures) by taking different evolutionary paths. In other words, various systems can emerge from one structure, and one system can be based on different structures. 3.2.7. Consonance and resonance According to VSA, the term ‘consonance’ refers to the potential compatibility between systems elements; it thus refers to a static vision of a potential harmonious relationship. For system survival, real systems harmony needs to be achieved as ‘resonance’, which refers to elements operating in a distinctive fashion for a single purpose (Nigro and Bassano, 2003). Drawing again on the dichotomy between ‘structure’ and ‘system’, resonance is thus effective systems harmonic interaction, whereas consonance is structural and relational (Barile, 2006; Quattrociocchi and Vagnani, 2004). 3.2.8. System viability According to VSA, a system’s ability to survive is determined by its capacity, over time, to demonstrate consonant and resonant behaviour (Piciocchi and Bassano, 2009). A viable system can dynamically adjust its structure and behaviour to achieve consonance with its context and thus preserve its stability. This concept relates to competitiveness, which is the capacity to accomplish satisfactory value experiences and exchanges among systems actors in a changing environment (Flint and Mentzer, 2006). 3.2.9. Adaptation and relationship development To ensure viability, systems have to analyse external changes in demand and their competitors’ behaviour. They then have to adapt in a manner analogous to Darwin’s theory of the adaptive capacity of organisms for survival. According to VSA, firms are able to compete and survive in a particular context if they engage in continuous dynamic processes of adaptation, transformation, restructuring, and business ‘re-thinking’ (Golinelli, 2000, 2010; Barile, 2008a; Saviano et al., 2009).

Given that the emerging paradigm of value co-creation represents an evolution of business strategy and management to foster competitiveness (Payne et al., 2008), VSA would appear to be coherent with a complex value-creation process in which viability and competitive firm behaviour are closely linked with the ability to identify and manage functions and relationships, establish communication channels, organise information flow, and rationalise and harmonise firm development with the environment (Barile and Gatti, 2007; Christopher, 2007). The adoption of such a systems approach implies redefining the concept of environment. As Hall and Fagen (1956) observed: “For a given system, the environment is the set of all objects a change in whose attributes affect the system and also those objects whose attributes are changed by the behaviour of the system”.


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3.2.10. Complexity and decision-making Identifiable as a core topic to discuss about in scientific and epistemological debate today, pervading all disciplines for its cross-cutting content, complexity reflects, on the one hand, the attention that researchers of different disciplines give to this issue and, on the other, it underlies the contradictions and incongruities related to methodological approaches and studies of disciplines (Barile, 2009). Systems have to align external observed complexity to internal possessed complexity if they are to manage the tumultuous developments that threaten viability (Piciocchi et al., 2009). Complexity is a relative concept that is never absolute. It can only be assessed in terms of specific contexts of reference, where it refers to a particular combination of multiplicities and autonomies that defy explanation. In the systems approach, the decision-maker needs to distinguish between: (i) ‘variety’ (which refers to possible variants that a phenomenon might present to the observer at a given time); (ii) ‘variability’ (which refers to observed changes in variety over time); and (iii) ‘indeterminacy’ (which refers to whether it is possible to fully understand a given phenomenon) (Barile 2008b; Golinelli, 2010). By applying such a personal interpretive scheme, the decision-maker can begin to achieve a better understanding of the observed complexity and achieve viability. Table 4 Summary of most relevant Foundations of VSA

Source: Authors’ presentation 4. Smart Service Systems and Viable Service Systems Developments in global economic trends, such as demographic shift, self-service and web-based technologies, outsourcing and off-shoring, are transforming the ways of doing things (Maglio and Spohrer, 2008b), leading us to understand and manage the advances of our ability to design, improve and scale service systems for business and societal purposes (e.g., efficiency, effectiveness, and sustainability).

Indeed, today services creation processes are knowledge-intensive and customized, based on client participation and input. Following this logic, we can define service systems as value-co-creation configurations of people, technology, value propositions connecting internal and external service systems, and shared information (e.g., language, laws, measures, and methods; Spohrer et al., 2007) like an assemblage of united entities by some form of


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regular interaction or interdependence. The inherent service strategy is a dynamic process that orchestrates (or coordinates) infrastructure, employees, partners, and clients in the co-production of value. Every service system is both a provider and client of service that is connected by value propositions in value chains, value networks, or value-creating systems. Firms and customers are then complex service systems, performing actions in the market with the aim of reaching desired outcomes such as solutions and experiences (Mele and Polese, 2010).

A service system primarily relates to customer-provider interactions as well as an open system (Golinelli, 2008), with it being capable of improving its own state and the one of another system through acquiring, sharing or applying resources, with the aim of creating a basis for systematic service innovation. Service systems therefore act as resources integrators, understandable in terms of elements of a work system (Spohrer, Anderson, Pass, and Ager, 2008), within the organization and through the network enduring resource specialization, those operand and operant (Vargo and Lusch, 2004), such as knowledge, skills, know-how relationship, competences, people, products, material money, etc. Service systems are capable of enabling connections and interaction among all involved parties within service exchange, attending technology infrastructure upon which they rely smoothens the communication channel between B2B, B2C/C2B, C2C, B2S/S2B C2S/S2C (where B stands for business, C for Customer, S for Stakeholder and the first letter is the actor activating the interaction) (Gummesson and Polese, 2009).

In sum, interaction becomes the driver of value, the way through which service systems develop a joint process of value creation; service systems can create competitive advantage by improving the reticular relationships. This as above mentioned highlights the importance of co-creating value with customers; indeed many attempt have been made to underline this concept, in several discipline such as engineering, operations, ICT and management, but none of these has accomplished the positive results realized by service science, defined as “an integrative discipline of engineering, technological and, social sciences for the purpose of value co-creation with customers” (Ng and Maull, 2009).

The following table (see Tab.5) represents a synthesis of several service systems’ definitions, displayed by various networks.

4.1. Smart Service Systems Service Science research, originally promoted and developed by IBM Almaden Research Centre, in USA, is now recently proposing advances focused upon smart service systems, also stimulated by maintenance technological advances and IT systems’ latest proposals. The origin of the idea is based upon IBM proposal of IT advances for a smarter planet, implying that information communication technologies have to address the problems of the world today in a smarter and more reactive way, with a deep implication consisting in the dynamism and fast changes characterizing the world today. So ICT for a smarter planet is a project proposing expert and intelligent technologies able to reconfigure their structure, assets and goals in order to maintain and equilibrated state according to external changes in time. The concept of smarter planet, hence, is related to an instrumented, interconnected, intelligent planet in which there is growing data measurement attention, more networks, more learning and adaptation processes.

Basically a smarter planet is about maintaining and improving our quality of life in a sustainable manner – meeting our short-term needs without jeopardizing future generations; it is a complex system capable of serving customers better (this could be applied to water consumption and use, electricity distribution and management, public transportation, education, healthcare, etc.). In smart service systems ICT plays the big role (www.thesrii.org). Smart service systems may be intended as service systems designed for a wise and interacting management of their assets and goals, capable of self-reconfiguration (or at least of easy inducted re-configuration) in order to perform enduring behaviour capable of satisfying all the involved participants in time.

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Smart service systems are then based upon interactions, and may be represented by any of these: Intelligent Utility Network and Metering, Intelligent Transportation, Consumer Driven Supply Chains, Intelligent Oilfields, Manufacturing Productivity, etc. In this light interactions, ties and experiences among actors represent an important part of smart service systems. Of course among these actors, customers play a key role, since they demand a personalised product/service, high-speed reactions, and high levels of service quality; despite customer relevance, indirectly affecting every participating actor, smart service systems have to deal to every other actor’s behaviour, who’s expectations, needs and actions directly affect system’s development and future configurations.

Besides considering the classic dyadic links known to every observer today, in network activities there is also a need to consider the less visible relationships among all of involved entities (suppliers, enterprises, individuals, clients, stakeholders), which really contributes to the competitiveness of the whole system (Polese, 2009). Each node that acts as a part of service business processes represents a foundational partner and supports the whole system in its enjoyment of network advantages (resource-sharing, synergic interactions, common purpose, group power) enabling competitive advantage through improving the management of value co-creation processes (Payne, Storbacka and Frow, 2008).

As anticipated, firms and customers are included in complex service systems, performing actions in the market with the aim of reaching desired outcomes such as solutions and experiences. This is a strong call for smart service systems, principally (but not only) based upon ICT as enabler of reconfiguration and intelligent behavior in time with the aim of creating a basis for systematic service innovation (IfM, IBM, 2008) in complex environments (Basole and Rouse, 2008; Demirkan et al., 2008).

In the end we observe that service systems can be divided into ‘front stage’ and ‘back stage’ (the ‘front stage’ is about provider customer interactions, while the ‘back stage’ is about operational efficiency). Service performance relies on both front-stage and back-stage components and the “smart” characteristic of service systems, indeed, affect both stages, since front stage is the input ground that the systems needs to monitor in order to detect key elements for self-adjustment and reconfiguration, whereas the back stage ought to be based upon models and tools capable of enabling operational changes and efficiency in timeResearch into service science, which was originally developed by the IBM Almaden Research Centre in the USA, has recently been stimulated by technological advances in IT systems to move towards so-called ‘smart systems’. This development runs parallel to IBM’s desire to utilise the significant information technology (IT) advances of recent years in the interests of a ‘smarter planet’. The concept of a ‘smarter planet’ refers to an interconnected globe in which there is growing attention to data measurement, the development of networks, enhanced learning, and responsive adaptation processes (www.ibm.com/think). The overall aim is to improve the world-wide quality of life in a sustainable manner through complex service systems that are capable of serving people better in a wide range of endeavours, including water supplies, electricity distribution, public transport, education, and health care.

In the ‘smart service systems’ required to achieve these objectives, IT obviously plays the major role (www.thesrii.org). Such IT-based ‘smart service systems’ can be understood as service systems that are specifically designed for the prudent management of their assets and goals while being capable of self-reconfiguration to ensure that they continue to have the capacity to satisfy all the relevant participants over time. Examples include: ‘Intelligent Utility Network and Metering’, ‘Intelligent Transportation’, ‘Consumer Driven Supply Chains’, ‘Intelligent Oilfields’, and ‘Manufacturing Productivity’.

Because smart service systems inevitably involve multiple actors, the organisational configurations need to take account of network theory—especially the networking forces and enablers required to keep the system tight and focused towards its goals. In contemporary research into ‘smart service systems’, network studies are playing an increasingly important role—including studies of resource allocation (Frels et al., 2003) and the advantages of collaboration, alliances and cooperative strategies (Castells, 1996; Gulati, 1998; Capra, 2002). According to network theory, functional interdependencies exist within service systems as every participating entity adapts in order to face environmental complexity (Richardson, 1972; Hakansson and Ostberg, 1975; Polese, 2010; Mele and Polese, 2010). Each node that acts as a part of service business processes represents a foundational partner and supports the whole system in its enjoyment of network advantages (resource-sharing, synergistic interactions, common purpose, group power), thus enabling competitive advantages to be achieved through improved management of the value co-creation processes (Payne et al., 2008).

In short, there is an increasing demand for ‘smart service systems’, principally (but not only) based upon ICT, to create a basis for systematic and sustainable service innovation in complex environments (IfM, IBM, 2008; Basole and Rouse, 2008; Demirkan et al., 2008).


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4.2. Viable Service Systems The contribute of the VSA to smart service understanding is, indeed, strong, since many, in not all, of its principles and theoretical foundations are related to complexity theory and system theory, both particularly suitable to smart system interpretation (Barile and Polese, 2009). Therefore the concept of viable systems and open systems, in constant alignment between internal components and external constraints and opportunities, in search of ever changing equilibrating conditions seem really in line with smart service system’s tasks. In other words smart service systems are principally smart since they react, through technology, and look for the wise and intelligent use of involved resources; not a big difference from the VSA search for consonant and resonant behaviour in the attempt of satisfying relevant supra-systems’ needs and expectations for lasting and enduring viability. About this last concept, moreover, the VSA proposal may be really intriguing when applied to smart service systems, since the search for reactive, dynamic and intelligent IT based service systems may really well be included within a viable behaviour capable of promoting long lasting competitiveness and performance of the system itself.

Viable systems are systems in which the composing sub-systems share a common goal and the system, as a whole, has a determined finality. This is a key point since every system is based upon components related in order to perform a task, directed towards a scope. We believe that smart service systems are oriented towards long lasting performance, long lasting satisfaction of all the involved entities. Probably not in all complex service system the finality is clear to all involved actors, but this is principally the reason for which smart service system may be considered an ideal-type, a model to which every service system should go for.

Many disciplines today address complexity trying to deal with its issues and constraints. The VSA comfortably addresses complexity stimulating system behaviour and decision making that not only manages this complexity, but also accomplish its valorisation throughout learning and selective processes capable of aligning internal complexity to the external and contextual complexity. Smart service system may benefit by VSA interpretation of complexity, by enhancing IT models and tools fostering complexity management.

The governance of the viable service system has to address and direct the system towards a final goal by transforming static structural relationships into dynamic interactions with other entities (Gatti and Dezi, 2000). The ability to organize relationships delineates the efficiency of government action, which is a main characteristic of viable systems, contributing to the equilibrium of the system (internal viewpoint), from one side, and to the satisfaction of supra-systems, from the other (external viewpoint). In service system’s interactions there is also a need to consider the less visible relationships among all of involved entities (suppliers, enterprises, individuals, clients, stakeholders), which strongly contribute to the competitiveness of the whole system (Polese, 2009). Each node that acts as a part of service business processes represents a foundational partner and supports the whole system in its enjoyment of network advantages (resource-sharing, synergic interactions, common purpose, group power) for global value creation.

According to a relational optic (Prahalad, Ramanswamy, 2004), the S-D logic and service science suggest that all actors in the process of value creation are considered as dynamic, operant and active resources, enabling reticular/networked interactions (Lovelock and Gummesson, 2004; Achrol and Kotler, 2006), oriented to balanced customer centricity (Gummesson, 2008b); therefore, activities and entities are not associate to dyadic relations, but always close to many to many relationships (Gummesson, 2008a) that seldom can be limited to relationships among business actors, and have to be considered within a wider set of actors which include many more involved parts, thus starting from B2B relation and comprising B2C, C2B and C2C (Gummesson and Polese, 2009). These relations are then consciously determined and finalized to a necessary mutual satisfaction (Womack and Jones, 2005; Lusch et al., 2007) in function of a systems consonance and competitiveness (Golinelli, 2009). The shift toward a network approach to the smart services ecosystem also changes the concept of value creation. While early research focused on value created at the relational level, value for consumers is now created at the network level, in which each actor contributes incremental value to the overall offering of smart service systems.

We can now attempt in describing the essential features of viable service systems, which represent smart service systems interpreted through the VSA methodological framework. Basically viable service systems ought to be centered, meaning that there should be a directing and top managing body (or entity), capable of coordinating the whole system towards the accomplishment of common and shared finalities. Without a service system virtual center all involved actors may behave loosely, and the system may appear as a collection of entities not related and finalized. Of course the aggregating centripetal forces may vary, resulting in property service systems, in public service systems and in all possible effective configurations that we may detect today. However viable service systems show a certain degree of representativeness of a central directing entity, capable of organizing service system’s complexity and strong potential towards its end goal. With regards to operational properties, the balance between different dimensions and components of the same properties (languages, objectives, values) is important in


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every viable service system just as much as development and control systems, innovation and planning systems, etc. must be just balanced among the system’s participants. This balance seems a key factor enabling the system’s governance looking for enduring competitiveness and performance of the service systems. This could be accomplished, indeed, by continuously improving service management (in the global sense) in order to keep the system competitive. Strategic planning, in this sense, appears to be fundamental in achieving this goal, developing policies that are consistent with service system’s priorities both from an internal point of view (system’s actors, services, processes, products, employees, organizations, etc.) and from an external one (markets, users, clients, interested external parties, or more generally, the relative supra-systems).

Viable service systems, moreover, are characterized by strong competitive and value creation capacity. These two elements require careful and distinct evaluations, but both call for key knowledge about each entity that makes up the system, the same as with the synergic integration of the different elements. The competitive vision, as with the maximization of value creation capacities, needs key knowledge about internal factors (distinctive elements, know-how, skills, expertise, capacity, technology, etc.) and threats and opportunities found within the context in which the service systems operates and develops.

The composition of internal and external needs on behalf of the service systems entities (single firms, the work force, social parties, socio-economic communities, institutions, customers, communities, etc.) can, in some cases, significantly limit the decision-making independence and operational flexibility of the system, making the benefits from the creation of an articulated and interconnected relational system pointless, or secondary. Furthermore, the composition of the needs of an articulated set of external interested parties, in the reticular aggregation process between distinct modules in the service system, makes the harmonization of the systems entities that populate the area quite complex.

Considering the endogenous difficulties, the coordination of the service system’s entities is complicated due to the intrinsic independence of each entity’s top management in determining and pursuing its own mission as a result of specific policies and interests. Service system top management should hence try to strengthen the convergence of interests and direct the policies of each entity towards joint activities which seems easier than having the entire system supported by sets of joint value, management and operational support (i.e. technological infrastructures and in general IT communicating tools).

When balancing exogenous needs, it is difficult to identify an adequate relational asset between a group of aggregative elements which are not very homogeneous and demanding external stakeholders. Thus, effective governance is fundamental in order to establish and strengthen relationships that are increasingly more resonant with the supra-systems and sub-systems of the service system.

These conditions suggest how difficult and challenging is the identification of effectively viable service systems. Nevertheless this brief analysis has undoubtedly show how interesting and challenging is the interpretation of service system through the VSA lenses, in search of viable service systems. It is apparent from this brief review of ‘smart service systems’ that many (if not all) of the principles of ‘viable service systems’ (as shown in Table 4) are particularly apposite to smart system theory (Barile and Polese, 2009). For instance, the concept of viable systems being in constant search of equilibration between internal components and external constraints and opportunities would seem to be in accordance with the objectives of smart service systems. In other words, smart service systems are ‘smart’ principally because they react to circumstances and seek the prudent use of resources, which is not all that different from the VSA emphasis on consonant and resonant behaviour in a search for enduring viability. Moreover, the constituent sub-systems of a viable system share a common goal, and the whole system has a determined finality. This is similar to the way in which smart service systems are oriented towards enduring performance and the ongoing satisfaction of all the involved entities.

The issue of complexity and its attendant constraints is another area in which VSA can make a contribution to smart system research. The VSA addresses complexity and decision-making through learning and selective processes capable of aligning internal complexity to the external and contextual complexity. Smart service systems could benefit by adopting the VSA interpretation of complexity, thus enhancing IT models and tools designed for complexity management. 5. Conclusions and Implications

This study has examined the basic principles of service-dominant logic (S-D logic), service science (SS), and a viable systems approach (VSA) to systems analysis, with particular emphasis on the role of the service system in all three. The study has also examined the emerging notion of the ‘smart service system’. Having examined these concepts, it is the contention of this study that the underlying principles of the VSA and ‘smart service systems’ are


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essentially convergent. The two theoretical concepts share many features in common, including an emphasis on: (i) system theory; (ii) resource integration; (iii) system dynamics; (iv) interaction; and (v) systems goals.

In the case of smart service systems, these elements are gradually emerging in the form of the relatively recent SS proposal of intelligent and pro-active systems that ensure enduring positive interactions among the participating actors with a strong emphasis on technological (especially IT) assets. In the case of the VSA, the features noted above have been prominent for a longer period of time; however, more recently, the principles of VSA have begun to be applied to service theory in general (Barile and Polese, 2009; Mele and Polese, 2010) and SS issues in particular (Polese, 2008; Polese and Carrubbo, 2008).

The links that this study has established between VSA and smart service systems give rise to the following question: ‘Are service systems viable because they are smart, or are service systems smart because they are viable?’ In other words, is being a smart service system a necessary and sufficient condition for a service system to be viable? It is difficult to answer these (related) questions with any degree of certainty because the conceptual nature of a smart service system has not yet been sufficiently defined. Although the notion of a smart service system was initiated with the application of sophisticated ICT systems to service science, there has been, as yet, little progress in enunciating all aspects of the architecture and logic of such ‘smart service systems’. This makes it difficult to position smart service systems with reference to viable service systems.

Despite these difficulties, it is likely that viable service systems might include smart service systems—given that the attribute of being ‘smart’ does not, conceptually, include all the characteristics of viability considered in this paper. In particular, the long-range evaluation of viability—which refers to the enduring characteristics that enable a service system to survive over time through consonance and resonance—presents difficulties when forced upon the more transient notion of being ‘smart’. Nevertheless, it seems intuitively reasonable to suppose that a pro-active, intelligent, ICT-based, ‘smart’ service system will have a high likelihood of demonstrating good performance over time.

In accordance with this reasoning, the present study proposes that a viable service system has to be, at the least, a smart service system.

The implications of the study are both theoretical and practical. From a theoretical perspective, the study contributes to the scholarly understanding of complex service systems. In doing so, it suggests theoretical approaches that are likely to prove useful in their evaluation and study. From a practical perspective, the study suggests certain elements that are likely to be useful in designing and managing the complex service systems that are so widely diffused in the modern world.

With regard to further research in this area, the following suggestions are made for possible examination by future studies:

* the relationship between the presence of a clear systems goal for complex service systems and their capability to render satisfactory services for the involved actors;

* the relationship between strong and formal service systems and their governance effectiveness; and * the relationship between innovation and change management in viable service systems.

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Sergio Barile is Professor of Economics and Business Management at the faculty of Economics, “La Sapienza” University of Rome, Professor of Corporate Strategy at the LUISS (Free University of Social Studies) in Rome, Scientific Director of SDOA (master in business management), Member of Advisory Committee for Research Ministry for Southern Italy, Member of the Board of Directors of Centre for Research in Pure and Applied Mathematics, Member of the Scientific Committee of the Journal “Esperienze d’Impresa” and of the GAIA Research Group. In 2007 he has been coordinator of the “information society” to Council for Scientific Research of the Campania region; in 2006 Member of the Board of the So.Re.Sa (Campania Region Company for Health management), in the 2005 Scientific Responsible of a research project based on the VSA logic and financed by the Italian Research Ministry. In 1989 he was also elected President of Confcommercio of the Avellino

province. He can be contacted at: [email protected]

Francesco Polese is Associate Professor of Business Management at Cassino University, Italy. Originally an electrotechnical engineer and after more than ten years as a consultant he is now pursuing his academic interests by participating in the international debate and conferences, trying to bridge the gap between practice and theories in management, promoting service research, sustainable tourism, viable networks, and the impact of social relations on business performance. His research interests cover the management of networks and relationships, service, service science, tourism, and R&D management. Within most recent articles (2009) are “B2B is not an island” (with Evert Gummesson) in the Journal of Business & Industrial Marketing and “Linking the viable system and many-to-many network approaches to service-dominant logic and service science” (with Sergio Barile) in International Journal of Quality and Service Science. He is Director of MADILab (University Lab for Innovation Management and Diffusion). He was one of the co-chairs (with Evert Gummesson and Cristina Mele) of “The 2009 Naples Forum on Service: Service-Dominant Logic,

Service Science and Network Theory”, see www.naplesforumonservice.it and consequentially he was guest editor of the special issues the International Journal of Quality and Service Science, Vol.2, N.1 and the Journal of Service Science, Vol.2, N.1/2, that have collected some of the most interesting papers discussed within the Naples Forum. [email: [email protected] ].

smart service systems and viable service systems: applying systems theory to service science

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