Editorial

Mitigating the Myopia of Dominant Logics: On DifferentialPerformance and Strategic Supply Chain ResearchStanley E. Fawcett1 and Matthew A. Waller2

1Air Force Institute of Technology2University of Arkansas

T he primary question of management scholarship is, “What leads some firms to be successful even as others fail?” Over the years, a varietyof dominant logics have emerged to inform this question. Synthesized, these logics make it clear that companies win when they create cus-

tomer value better than the competition and efficiently enough to be profitable. That is, firms that design distinctive and dynamic value-addedsystems win competitive battles. This observation is salient to the Journal of Business Logistics community as systems design and valuecreation are focal decision areas of supply chain management. With this in mind, we briefly discuss two of many areas for which strategicsupply chain research can inform differential performance.

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

INTRODUCTION

To be interesting and influential, logistics and supply chainresearch must address important—that is, substantive and rele-vant—questions (Fawcett and Waller 2011a,b; Fawcett et al.2011). Two questions that are central to competitive strategy andsupply chain design are as follows:

• Why do companies exist?• What leads to differential firm performance (Porter 1991; Dyer

and Singh 1998)?

Over the years, various dominant logics have emerged toinform these questions and guide managerial decision making(e.g., Ohmae 1988; Drucker 2001; Vargo and Lusch 2004).Table 1 reviews five such logics. Each offers a compelling argu-ment and provides valuable managerial insights. However,applied rigidly, each can jeopardize organizational success andsurvivability.

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 com-petition…. As a guide to action, it is clear and compelling. Asa metric of performance, it is unambiguous. It is also wrong”(p. 149). Ohmae (1988) explained, “When the focus of attentionis on ways to beat the competition, it is inevitable that strategygets defined primarily in terms of the competition…. Of course,it is important to take the competition into account, but in mak-ing strategy that should not come first. It cannot come first. Firstcomes painstaking attention to the needs of customers” (p. 149).

A decade later, A.G. Laffley, former CEO at Procter & Gam-ble, cautioned against a ubiquitous profit-dominant logic, saying,“Over the last half of the 1990s, we were all a little bit tooshareholder focused, too growth-at-any-cost focused. I tried toget people to flip that around. If we create brands that make adifference to our customers and focus on the fundamentals, ulti-mately shareholder growth will take care of itself” (Stein 2003,

88). Companies seduced by competitor- or profit-dominant logicslose sight of customer needs, pursue myopic goals, succumb tome-too thinking, and become vulnerable to competitive disrup-tions (Christensen 1997).

Despite the centrality of customers, inappropriate pursuit of acustomer-dominant logic can also undermine competitiveness.Research has shown that efforts to meet the demands of a com-pany’s most-valued customers can diminish long-term viability(Stock and Lambert 1992). Specifically, only after implementingactivity-based costing have some firms discovered that they werelosing money on their “A” customers—even as they were ratio-nalizing their profitable “C” customers (Fawcett and Magnan2001). Similarly, relentless focus on the needs of existing cus-tomers can devalue breakthrough innovation. Desi DeSimone,one-time CEO at 3M, advised, “The most interesting productsare the ones that people need but can’t articulate that they need”(Loeb 1995, 135). Finally, SKU proliferation—a common resultof a customer-dominant logic—can create excessive complexity,reducing efficiency, raising costs, and ultimately hurting servicelevels (Vachon and Klassen 2002; Bozarth et al. 2009).

More recently, the dominant-logic discussion has shifted fromstrategic-objective logics to value-creation logics. In 2004, Vargoand Lusch introduced the service-dominant logic, arguing thatthe fundamental propositions of a neoclassical, goods-dominantlogic distort managers’ ability to create differential advantage.They contend that: (1) “service is the fundamental basis ofexchange” (Vargo and Lusch 2008b, 35), (2) value is not embed-ded in products, which are merely appliances used to deliver ser-vice, but is “always” co-created by customers duringconsumption (Vargo and Lusch 2008a), and (3) a service-domi-nant logic liberates managers to redefine innovation in terms of“how firms can better serve” rather than what a firm produces(2008a, 5). The service-dominant logic calls out limitations of agoods-dominant logic run amok. Namely, an excessive pursuit ofefficiency can muddle a firm’s understanding of customer needs,drive inappropriate measures and resource allocation, and createvalue gaps (Goldratt and Cox 2004).

Journal of Business Logistics, 2012, 33(3): 173–180© Council of Supply Chain Management Professionals

Tab

le1:

Strategic-objectiveandvalue-creatio

n-dominantlogics

Strategic-ob

jectivelogics

Why

docompanies

exist?

Value-creationlogics

Wha

tdrives

differentia

lperforman

ce?

Com

petitor

Customer

Profit*

Produ

ctService

Argum

ent

Com

panies

compete

formarketshare

andforresources

Customersaretheonly

ones

who

putmoney

into

asupply

chain—

everyone

else

simply

recycles

it

Owners

(shareholders)

take

risks,providing

thecapitalto

create

thecompany

and

thereforedeserve

tobe

rewarded

Value

iscreatedas

resourcesare

convertedto

possessamore

desirableform

Serviceisthebasis

ofexchange.

Value

isonly

createdwhen

custom

ersusea

productor

service

Rational

Itiseasy

toevaluate

competitivestatus

&success;that

is,

weseewho

iswinning

Itkeepsdecision

makers

focusedon

thesource

ofrevenues

Highlymotivational,

itiseasy

toevaluate

status

&success

Productsaretangible

andcanbe

managed

objectively

Customersbuyservice.

Productsareappliances

used

todeliv

erservice

Vitalinsights

Trackingcompetitor

actio

nsinform

sbest

practiceandhelps

avoidcompetitor-initiated

surprises

Observing

custom

erbehavior

helpsto

define

custom

ers’

real

needsand

helpsto

delin

eate

what

productsreally

areand

doforthecustom

er

Pursuing

profi

tdevelops

thedisciplin

eneeded

toorganize

and

operateefficiently

Aproductfocus

clarifies

operating

realities

andthe

need

toutilize

resourcesefficiently

Aservicefocusclarifies

whatcustom

ersperceive

they

areobtainingvia

purchases

Potential

limitatio

nsA

competitor

logiccan

•diminishcustom

erfocus

•prom

oteme-toothinking

andproducts/services

•makeacompany

vulnerable

todisruptio

ns

Acustom

erlogiccan

•devaluebreakthrough

innovatio

n•diminishviability

via

profi

t-losing

decisions

•create

excessive

complexity

andchaos

Aprofi

tlogiccan

•diminishcustom

erfocus

•lead

toshort-term

decision

making

•produceunethical

behavior

Aproductlogiccan

•confuseunderstanding

ofcustom

ermotivations

•driveinappropriate

measuresand

resource

allocatio

n•lead

tovaluegaps

Aservicelogiccan

•confuseunderstanding

ofcustom

ersatisfaction

•devalueupstream

valuecreatio

npotential

•prom

otesystem

design

inefficiencies

Note:

*Wereferto

short-term

accoun

tingprofi

t.Bycontrast,econ

omic

profi

ttakesinto

accoun

tlong

-run

outcom

es.

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

Even so, the service-dominant logic also possesses potentiallimitations. Indeed, its evolution illustrates the dangers inherentin advocacy-based research. That is, overly zealous promotion ofdominant logics may do the following:

• Blind Adherents to a Need to Think Differently. Prahaladand Bettis (1986) coined the term dominant logic as an inter-pretation of a company’s source of differential advantage; thatis, its primary means to make a profit. Dominant logics tendto become rigid ideologies, reducing strategic adaptability andlocking firms in existing business models—a risky status intoday’s turbulent world (Drucker 1994). Prahalad (2010)warned, “Companies should stop looking at threats and oppor-tunities through the lens of the dominant logic. Instead, themoment they spot signs of change, executives must decidewhat they can preserve—and what they must discard—in thedominant logic as they prepare to transform the organization”(p. 36).

• Perpetuate False Dichotomies. Rather than recognizing themerits of other logics, dominant-logic treatises tend to arguethe superiority of one logic over another. Vargo and Lusch(2008a) note that it was the goods-dominant logic that estab-lished the dichotomy by making a distinction between goodsand services; yet, they often compare the two in ways thatmake a caricature of the value foundations of a goods-domi-nant logic (e.g., Vargo et al. 2008). Exaggerated dichotomiesdistract decision makers from what really matters: deliveringthe satisfaction, solution, or value customers demand. Winningcompanies realize that enduring success emerges as they meetcustomer needs not just efficiently but also better than thecompetition.

• Exacerbate Tension Among Co-Creators of Value. Successfulcompanies have one strategy—corporate strategy—which allfunctions support. When any function views itself as firstamong equals, tension results and value is dissipated in theensuing tussle. Still, from its inception, Vargo and Lusch(2004) have argued that a service-dominant logic “inherentlyplaces marketing at the center of the integration of businessfunctions and disciplines” (p. 5). They noted that “Marketingshould lead the effort of designing and building cross-func-tional business processes,” and that “Marketing should bepositioned at the core of the firm’s strategic planning” (Vargoand Lusch 2004, 14). Although they later argue that a service-dominant logic motivates cross-functional integration, theirclaim that marketing must be “at the heart of value creation”weakens the collaborative foundation (Vargo and Lusch2008b, 31).

• Motivate Fad Management. The nature of dominant logicsrequires strong advocacy as adherents defend and promotetheir worldview. Such advocacy often drives fad management.For example, the service-dominant logic’s argument—that weneed to rethink what customers are really buying and thereforereconsider value-creation—resonated well and rightly pointedout deficiencies in other logics. However, “service” has sincebeen described as the essence of all things management,including core competencies, process integration, supply chainmanagement, organizational design, employee empowerment,and sustainability. Is it possible that a service-dominant logicbecomes too broad to convey real theoretical meaning and

managerial insight when value is defined as an improvementin system well-being (Vargo et al. 2008) and a “service sys-tem comprises the global economy” (Vargo and Lusch 2008a,5)?

To summarize, dominant logics can provide real and meaning-ful insight into why companies exist and what leads to differen-tial performance. Companies win when they create customervalue better than the competition and efficiently enough to beprofitable. Furthermore, value is created in both product/servicedesign and development, but satisfaction is determined only inconsumption. Recognizing this, A.G. Laffley, former CEO ofProcter and Gamble, emphasized winning the two moments oftruth: (1) the purchase decision and (2) the use of the product/service. Pursued too far, however, dominant logics present a riskto high-quality scholarship. When advocacy overrides objectiveinquiry, complementary insights are diminished in dogmaticarguments and the academy’s role as steward of knowledge dis-covery and dissemination is endangered.

STRATEGIC SUPPLY CHAIN RESEARCH AND THEQUEST FOR DIFFERENTIAL PERFORMANCE

Considering the nature of dominant logics summarized inTable 1, we find that a firm’s ability to distinctively meet cus-tomers’ real needs and achieve differential advantage hinges onthe interplay between systems design and value creation. Specifi-cally, a firm’s ability to efficiently deliver customer value anddrive customer satisfaction and loyalty depends on the firm’sinternal and interorganizational routines/systems. Firms thatdesign distinctive and dynamic value-added systems win compet-itive battles. This observation is salient to the Journal of Busi-ness Logistics community as systems design and value creationare focal decision areas of supply chain management. Indeed,issues related to designing systems, building the supportive, net-worked infrastructure, and managing processes and relationshipsfor value creation are what we research and teach. Inquiringmore deeply into these issues should inspire our quest for mean-ingful strategic supply chain research for years to come. In theparagraphs below, we briefly discuss two of many areas forwhich systems design and value-creation capabilities inform deci-sion-makers’ quest for differential performance.

Global supply chain design

Success in today’s global market requires decision makers tounderstand how to design and manage value-added networkscapable of using worldwide resources to meet global consumers’needs. Even companies located in an economy the size of Amer-ica’s are dependent on global resource and consumer markets forlong-term growth and profitability. Consider, for example, thefact that U.S. gross domestic product (GDP)—by far the largestin the world—represents only 20% of the world’s GDP. Perhapsmore intriguing is the fact that the U.S. population is <5% of theworld’s total. That means that 95% of the potential consumersfor any company’s products and services live outside the UnitedStates. Although the individual buying power of many of theseglobal consumers may be limited, their combined buying power

Editorial 175

is immense. For example, examining the demographics revealsthat the middle class in India is numerically as large as the mid-dle class in the United States. This fact is truly meaningful whenone considers how dependent companies are on global marketsto generate the cash flows needed to fund the research and devel-opment inherent in today’s technologically sophisticated productslike Gillette’s billion-dollar Mach 3 Razor and Apple’s iPad.Global product launches are increasingly important as most newproducts enjoy well under a year of first-mover advantage before“new-and-improved” competitors’ products reach the market,eroding market share and cash flow.

The statistics in Table 2, which compare the world’s fourlargest economies, intimate a more detailed and compellingstory regarding the dependence of corporate America on globalresource and consumer markets. Of course, the statistics telldistinctive, but equally persuasive stories for companies head-quartered in the other three largest economies of China,Germany, and Japan. They are indeed emblematic of today’scorporate competitive challenge—regardless of country of ori-gin. Specifically,

• Merchandise exports account for 10% of total U.S. GDP. Addin services and total exports account for 14% of economicactivity. Of note, it is estimated that for every $1 billion inexports, 7,000 American jobs are created (Chu 2012). Thus,for 2010, goods and services exports created nearly 15 millionjobs.

• Merchandise imports totaled $2.3 trillion, about 15% of U.S.GDP. Economists estimate that import competition over thepast 20 years has reduced inflation by approximately 40%,giving consumers more disposable income (Auer and Fischer2010). This increase in spending power has influenced theemergence of today’s service economy as well as the type ofhigh-technology products that pervade the marketplace.

• Cumulative foreign direct investment (FDI) in the UnitedStates reached $2.9 trillion in 2011. No other country in theworld has attracted more FDI. This foreign investment in plantand equipment has increased the U.S.’s productive capacity,innovation capability, and employment.

• Cumulative U.S. FDI in global markets totaled $4.1 trillion in2011. As a result, affiliate 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%). Whencombined, affiliate sales and goods and services exports repre-sent about half of U.S. GDP. In other words, U.S. companies’sales to global consumers are greater than China’s GDP.

Clearly, these realities call for a variety of in-depth, multidi-mensional research studies related to global supply chain design.Although much research has been done on global operations, weneed to understand more fully the total cost and service trade-offs inherent in global, lean, agile strategies. Studies are alsoneeded to shed light on how companies can more effectivelydevelop the information, people, and technology systems neededto identify, integrate, and rapidly reconfigure resources acrossgeographic and cultural borders. Given companies continue tostruggle with the chaotic, fragile, and interdependent nature ofoperations, more and better research on global supply chain riskmanagement is also merited. We might also benefit from under-standing why many companies forego the development of riskmanagement strategies. Furthermore, as we comprehend the sym-biotic nature of our global environment, the connection betweencorporate social responsibility topics (e.g., codes of conduct,humanitarian assistance and disaster relief, and sustainability)and organizational performance takes on greater urgency. Ulti-mately, research in these and other areas is vital to not just com-pany success but also to raising living standards for the peopleof the world.

Value co-creation

The emergence of information-empowered customers coupledwith the advent of fierce global rivals has raised the competitivebar. Few, if any, companies can compete on the strength of theirown internal competencies. Kenichi Ohmae (1989) captured thissentiment, noting, “Companies are just beginning to learn whatnations have always known: in a complex, uncertain world filledwith dangerous opponents, it is best not to go it alone” (p. 153).As a result, the co-creation of value across organizational bound-aries has become vital to competitive success. Yet, extantresearch shows that few firms have learned how to compete viaa value co-creation capability (Park and Ungson 2001; Sabathand 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 world’s leading economies

China Germany Japan USA

Area (km2) 9,596,961 357,022 377,915 9,826,675Population 1,343,239,923 81,305,856 127,368,088 313,847,465GDP (billion) $6,989 $3,629 $5,855 $15,060GDP/capita $5,203 $44,633 $45,969 $47,985Exports (billion) $1,898 $1,408 $801 $1,511Imports (billion) $1,743 $1,198 $795 $2,314FDI home (billion) $776 $998 $147 $2,874FDI abroad (billion) $322 $1,486 $880 $4,051

Source: CIA World Factbook(https://www.cia.gov/library/publications/the-world-factbook/).Notes: GDP, gross domestic product; FDI, foreign direct investment.

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

2011; Kotzab et al. 2011; Jin et al. forthcoming). Decision mak-ers have not yet figured out what a successful relational architec-ture looks like or how to build it. One point we have learned,however, is that what actually happens in most value co-creationrelationships is different from what managers desired to achieve(Park and Ungson 2001). The time has come to answer the ques-tion, “What determines whether or not value co-creation pays offfor a firm?”

To provide in-depth insight into this question, it may be usefulto target research to the three core supply chain processes wherevalue co-creation typically takes place: new product develop-ment, order fulfillment, and customer experience.

New product developmentFigure 1 illustrates the typical new product development pro-cess, identifying key steps in the process, essential decision-making entities, and vital roles and responsibilities. It alsobreaks the process down into information, financial, and physi-cal flows. Much valuable research has been dedicated to theseissues. Yet, we do not fully understand the governance mecha-nisms, innovation architectures, and relational routines neededto incent the right partners to generate better ideas, dedicate

scarce resources, and share innovation rents. For instance, part-ners seldom experience symmetrical cost and benefit curves forany given new product development project. This asymmetrycan lead to friction and possible withholding of vital resources.The question is thus, “How can decision makers structure aninnovation relationship to motivate the ideation, development,and launch capabilities needed for innovation success?” Theneed to answer such questions increases in importance as thedevelopment space becomes more crowded and innovationcycles continue to compress.

Order fulfillmentFigure 2 depicts the Supply Chain Council’s well-known SCORmodel, which denotes the essence of order fulfillment. Much tra-ditional logistics research has focused on different aspects of theSCOR model. Even so, the supply chain glitch literature suggeststhat we need to better understand how to manage the value co-creation process to minimize the number of “dropped batons”during the numerous “handoffs” inherent in the source-make-deliver-return process. Specifically, Hendricks and Singhalconducted a series of event studies to quantify the costs of drop-ping the supply chain baton. Upon announcing they had dropped

Deliver Source DeliverMake

Return

Suppliers’Supplier Supplier Focal Company Customer Customers’

Customer

Source DeliverMake

Return

Source DeliverMake

Return

Source

Plan

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

Figure 1: The new product development process.

Editorial 177

the baton, firms experience on average 6.92% lower salesgrowth, 10.66% higher growth in cost, and 13.88% highergrowth in inventories (Hendricks and Singhal 2005a). Poor hand-offs are also associated with a 40% decrease in stock returns,which can persist for over a year (Hendricks and Singhal2005b). On the basis of their findings, Hendricks and Singhal(2008, 787) call for greater focus on value co-creation in theorder fulfillment process.

The fact that disruptions caused by external sources (supplierand customers) experienced a higher penalty suggests that theseproblems can be more expensive and time consuming for thefirm to fix. This may be due to the firm’s limited power tochange their external partners’ operations to solve the problems.This further underscores the need to form close and collaborativerelationships with the various links in the supply chain. A firmmust make sure that its supply chain partners see the value ofworking together.

Customer experiencePeter Drucker (2001) noted, “There is only one valid definitionof business purpose: to create a customer. What the customerbuys and considers value is never just a product. It is always autility, that is, what a product or service does for him” (p. 15).Although Drucker (2001) points to the need to cultivate an abil-ity to deliver inimitable customer experience to achieve differen-tial performance, little supply chain research has focused ondesigning customer-experience systems.

As Figure 3, Panel A shows, customer-experience systemsmust be designed to: (1) enable firms to promise unique valuepropositions and (2) ensure that the experience delivers to promise.Except in the most basic service scenarios, customer-experiencesystems rely on the resources of a network of suppliers, serviceproviders, and customers to co-create the promised value. Forexample, a partner may possess unique information regardingmarket demand leading to a collaborative planning relationship(Smith et al. 2011).

Panel B suggests that distinctive customer experience engen-ders loyalty and leads to a lifetime stream of profits (Blackwell1997). Moreover, loyal customers often build closer, deeper rela-tionships with supply partners (Rust and Oliver 2000). Theserelationships are characterized by larger, more frequent purchasesas well as by a higher incidence of shared resources (Gulati andSingh 1998). Loyal customers may also become evangelists—becoming part of these companies’ marketing apparatus (Godin2003; McMullan and Gilmore 2008). These benefits, however,only accrue if the customer-experience system is robust andadaptable enough to deliver distinctive experiences repeatedlyover time. Strong relational capabilities are required as is theability to re-configure network resources to meet evolving expec-tations (Barreto 2010). If outstanding experiences are not repro-ducible, satisfaction will turn to disappointment as futureexperiences disconfirm elevated expectations (Berman 2005).

CONCLUSIONS AND ACTION OPPORTUNITIES

Although a tendency to advocate for a dominant logic can inducemanagerial myopia and impede the journey to differential perfor-mance, taking a composite view of dominant logics can informour quest for high-quality, impactful research. The five dominantlogics we briefly considered—competitor, profit, customer, prod-uct, and service—all allude to a need to design outstandingsystems capable of delivering distinctive value. That is, how man-agers design value-added systems determines whether or not theirfirms, in conjunction with supply chain partners, can consistentlyreconfigure resources and build the capabilities to meet customers’needs better than competing supply chains. Our opportunity aslogistics and supply chain scholars is to apply our expertise andexperience in systems design and value creation to help decisionmakers solve persistent and pressing problems such as those foundin global network design and value co-creation. As our researchleads to the design and management of better value creation sys-

If: Experience ≥ Expectation, Satisfaction Emerges:

More likely to Return May Compliment

If: Experience < Expectation, Dissatisfaction Results: Less likely to Return May Complain

Customer Expectations

Actual Customer

Experience

Customer Initial

Expectations

Company Offers Value Proposition

Company Designs Customer-Experience

System

Experience Continuum

Loya

lty

High

Low

Experience is inferior, below expectations

Zone of Defection

Experience is competitive, meeting expectations

Zone of Indifference

Experience is distinctive, exceeding

expectations

Zone of Differential Performance

Dissatisfaction Satisfaction Delight/Success

Panel A: The Role of Systems Design Panel B: The Link to Differential Performance

Figure 3: Customer-experience systems and differential performance.

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

tems, everyone—companies, customers, employees, shareholders,and society—will reap the benefits.

ACKNOWLEDGMENTS

We thank Sebastian Brockhaus, Michael Knemeyer, and DanielMattioda for their thoughtful feedback and constructive criticism,much of which we incorporated and some of which will beaddressed in future editorials.

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