Co-creation Theory
Brainstorm, innovate and create the ultimate customer experience.
By Carolyn Tang
Co-creation means sharing innovation and product development with partners outside the corporate boundary, whether customers, suppliers or contractors. It means reducing costs and bringing new products to market faster. In essence, it means removing all the bottlenecks.
The co-creation concept came to light in 2000, when C.K. Prahalad and Venkat Ramaswamy published a Harvard Business Review article that explained how the Internet altered the relationship between individuals and institutions.
Later, they expanded on the topic in their book The Future of Competition (Harvard Business School Press, 2004). “No longer is the institution the center of gravity,” Ramaswamy explained. “The center is now the point of intersection between companies and individuals. Interaction is becoming the heart of value creation.”
The Internet essentially functioned as a platform for consumers to be heard. New communication channels, such as online forums, blogs and even audio or video podcasts, enabled anyone to broadcast their thoughts and ideas to a wide audience.
At first, consumers aired their grievances. “Companies became disconnected from customers,” Ramaswamy explains. “And customers were now empowered to tell them that, regardless of whether (the company) wanted to hear it.”
So companies started to listen. Not just acknowledge, but actually listen.
Do you remember blogger Jeff Jarvis and his single-handed takedown of Dell computer back in 2005? After a series of disappointing customer service incidents, Jarvis wrote an open letter to CEO Michael Dell, chastising the company for its lack of attention to detail. The letter was picked up by other online bloggers, and instantly became a full-blown virtual hurricane of discontent. Since then, Dell actively reaches out to its customers to get feedback on products and customer service.
In the last three years, this interaction has become even more intimate. Consumers are wielding greater influence earlier on in the product development process, and are now contributing their ideas even before a product hits the market.
Levenger, a manufacturer and retailer of productivity tools, often turns to its consumers for new ideas. The company originally hired Ryan Rasmussen as a salesperson with a desire to experiment online as an extension of his duties. The process of engagement and collaboration within online communities, however, developed into an entirely new position for Levenger, that of an Emerging Media Specialist.
With activities that blur the silos of online marketing, customer service and public relations, Rasmussen’s interactions now hinge on seeding community brainstorms and prototyping new product ideas with online collaborators in forums, blogs and persistent virtual environments like Second Life.
“A lot of our online customers are eager to share their opinions, not just on new products, but also on how to improve existing products,” says Rasmussen. “Participation in these conversations provides customers with a genuine connection to a brand they care about, and a voice in the direction that brand takes.” 8
Levenger’s Circa PDA, for example, was the brainchild of an online community. The idea was to create a mini-notebook for on-the-go notetaking. After gathering input from users of a popular online productivity forum, D*I*Y Planner, Rasmussen created a prototype. “It’s a process of hacking and cracking,” says Rasmussen. “I fast-prototype with the same kind of tools that the community would use—an Exacto knife, a Dremel tool–—and I take (existing) products apart and try to do different things with them.”
After creating the prototype, Rasmussen took a picture and posted it online to generate even more input. The Circa PDA is now one of Levenger’s standard product offerings. “A lot of these communities really offer the best new ideas for products,” Rasmussen explains. “Engaging this talent requires nothing more than a willingness to participate and recognize each community member’s value through open conversation.”
Stephen Smith is the editor and publisher of the online magazine Productivity in Context. “Digital communication and the ubiquity of free tools for collaboration and teamwork allow for rapid changes to be made during the creation process,” he says. “This allows various participants to make suggestions and
recommendations, and to learn from each other’s mistakes. All this occurs at what many traditional companies would call a breathtaking pace.”
One of the benefits of co-creation is that it speeds up the entire product development process. The need for focus groups is certainly reduced and, as Ramaswamy explains, the overall cost of product development decreases as well. “Once you start co-creating, your investment risks go down. You create brand stickiness faster, you create relationships, you deal with people in a more authentic way. This reduces your cost of ongoing interaction,” he says. “And it definitely beats conventional market research and having all these intermediaries between you and the customer. It’s much more direct.”
Another way co-creation oils the wheels of product development is by reducing redundancies. “If something is already built, we don’t need to build it again,” says Scott Aikin, founder of Hawkee.com, a technology social network. Aikin is an advocate of open source, which is essentially a public domain software platform that allows anyone to adapt or modify source code.
“The concept behind open source is to share what you’ve built so others can build on top of it,” Aikin explains. “Developers usually team up on a project that they freely distribute to users and other developers. Other developers work together to build new features that the original developers didn’t even conceive of, and sometimes a project can evolve much further beyond the original developer.”
Mozilla Firefox is a widely adopted example of open source software. Users download the Internet browser for free, and are able to customize the functionality with a variety of free add-ons created by third-party developers. As of December 2007, Mozilla estimated that more than 125 million people use Firefox.
Ramaswamy believes that co-creation also fosters a new type of competitive advantage. “In general, products and services are becoming increasingly commoditized, so there’s not much left in being able to differentiate, and competitive advantage gets eroded,” he explains.
So how can a firm differentiate itself from its competitors now? The answer is through interaction.
“The advantage comes from learning faster what customers and stakeholders value. This capability allows you to innovate faster,” Ramaswamy explains. As a significant side benefit, this increased interaction builds trust and fosters customer loyalty and even brand advocacy. “If customers like the experience they have, they are going to share it much more rapidly. It’s word of mouth, it’s viral, and it reduces your marketing costs,” he says.
There are challenges to implementing co-creation, however. For one, there really is no limit to the number of ideas spawned by external stakeholders. The trick is separating the wheat from the chaff, and getting the good ideas funneled to the appropriate internal resources.
Another obstacle is ego. “It’s human nature,” says Jay Mages, a partner with R&M Consulting. “You think that once you create something, it’s a masterpiece. But in today’s environment, that’s never going to happen. Product development is a process that continually moves forward. There will always be new ideas.”
He adds that, “When people are genuinely and truly passionate about what they are trying to evolve, then co-creation happens very naturally.”
Along the same lines, it may be more difficult for more mature companies to incorporate co-creation into their product development process. “Overcoming traditional organizational structures and hierarchies is one of the greatest challenges,” says Smith. “Older companies tend to have more policies and structures in place that are designed to maintain certain balances of power.” Younger companies tend to have less capital invested in older infrastructures, which means they can respond faster to changes.
Co-creation, however, is “agnostic to industry,” says Ramaswamy, which means that regardless of the obstacles, it’s possible for any firm, be it manufacturing or financial services, to benefit from the process.
“Co-creation…affects everything the company does, from product development to marketing, even to billing,” says Ramaswamy. “Co-creation is going to become like oxygen.”
3 Steps to Co-creation Success
- Corporate Transparency. “You must give customers access to information and knowledge expertise within the company,” says Ramaswamy. When Levenger tapped Rasmussen to function as an online liaison, for example, it essentially signaled that it was ready and willing to work with its consumer base. Rasmussen was sent to engage the masses.
- Engage in Dialogue. Active participation is especially critical for older companies that are used to pipeline product creation. “You have to shift your thinking from, ‘I am creating a product,’ to ‘I am creating a platform,’” Ramaswamy explains. “Successful companies are building platforms so people can engage on those platforms and create value. The design of the platform may not be open, per se, but on the platform, people can create what they want. Allow people to mess with it; allow them to be more involved.”
- Follow Through. Once the ideas are gathered, you have to have capabilities in place to actualize those ideas into products and evolve the design of the engagement platform itself.
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