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How Customer Co-Creation is the Future of Business

By on Jul 28, 2009 Editor's Pick 10 Comments

Take a look at the Wikipedia definition of customer co-creation and it will tell you that:

“Co-creation is the practice of product or service development that is collaboratively executed by developers and stakeholders together”.

The Wikipedia definition, whilst not wrong, isn’t right either. Let’s just call it a fluffy ‘co-creation lite’ rather than the real McCoy. Strictly speaking, co-creation as designing products or services together with customers hardly counts as co-creation at all. Why, because it still tacitly assumes that value will primarily be created at the point of exchange (“great looking new camera, here’s my credit card”) rather than in a lifetime of camera usage (“stop the car! I must take at picture of that fantastic sunset over Point Lobos”). That doesn’t mean that we shouldn’t design products (services and experiences) together with customers, far from it, just that it doesn’t count as co-creation.

If you read some of the growing number of papers on service-dominant logic, service science and even design thinking, you will see co-creation set out as a series of principles that guide our thinking about what co-creation is, how to do it and the benefits of adopting customer co-creation:

  1. Competitive advantage comes from applying knowledge, skills & resources
  2. – Competitive advantage is a result of how well a company uses its knowledge, skills and resources to help customers get important jobs done. Jobs-to-be-done is currently the best way we have to understand what customers really value. It is the foundation for customer co-creation, social CRM and so much more.

  3. Bring together an ecosystem of co-creation partners – A company may need to bring together a variety of additional partners to provide the right knowledge, skills and resources to help customers get the most important jobs done really well. The more customers focus on getting jobs done well, the greater the advantage in bringing together an ecosystem of partners to help them get them done.
  4. Use just enough collaborative social technologies – Technologies, particularly those that support ‘social networks’, provide the backbone for collaboration between a companies and increasingly, with customers. This doesn’t mean a technology-first approach. But it does mean selecting the right technologies (and only the right ones) to enable effortless collaboration.
  5. Co-create value together with customers – A company creates the most advantage by bringing itself, the right partners and customers together in the co-creation of value. Enough value must be co-created to satisfy all involved. Customer co-creation should not be played out as a zero-sum game. That was yesterday’s CRM and today’s branded CEM game.
  6. Understand what jobs customers are trying to do? – Understanding how customers combine knowledge, skills and resources to deliver the outcomes they want (from the jobs they do) is critical if companies are to co-create value with customers. The most value for customers is created over the lifetime of product usage. This is where co-creation needs to concentrate, not just on the traditional marketing, sales and post-purchase touchpoints.
  7. Create a co-creation platform for customers – By providing a ‘platform’ with the right knowledge, skills and resources on which customers can co-create value, the company provides customers with a superior experience that improves their satisfaction, loyalty and profitability. Most companies are only focused on the sale. Co-creation companies focus on the sale AND the many subsequent value creating opportunities that the sale creates.
  8. Bring knowledge, skills and resources to where co-creation takes place – If applying knowledge, skills and resources is the key to succesful co-creation, it makes sense to bring them to where co-creation actually takes place. This means embedding them in the design of products so that more value can be co-created at critical touchpoints. Design thinking provides a powerful toolset to do this already. It also means educating customers and other co-creation partners so that they can co-create more value together.
  9. Earn profits over a lifetime of product usage – If customers co-create value over the lifetime of product usage, companies can earn more value for themselves by adopting a collaborative, shared-risk based approach to pricing, as customers create value during usage. That doesn’t mean they don’t earn value from the initial sale, but it does mean they don’t have to resort to ineffective up-sell and cross-sell tricks to continue to earn value. Just think what that means for how you should manage customer service!
  10. Integrate partners from the centre – The best position for a company to be in is the central integrator of partners’ knowledge, skills and resources that enable the co-creation of value with customers. Particularly the company that sells, services and supports the customers throughout their lifecycle of usage. The companies that prosper from co-creation are those that are at the centre of it.
  11. Invest in customer-facing staff – Staff are a critical source of knowledge, skills and resources for companies, particularly front-line staff. They know customers and what jobs they are trying to do much better than anyone else. Along with customers, they are a great source of innovation through new combinations of knowledge, skills & resources that provide more value to customers. Particularly if you continually invest in their development.
  12. The customer ultimately decides what creates value and what doesn’t – Period.

This is quite an agenda for companies to think about. But the best already are: Companies like Rolls Royce, BAE Systems and Vodafone. As you can see, this a lot more than just designing new products together with customers. Real co-creation is all about what happens AFTER the product has been designed, sold and is in everyday use.

Oh, and maybe somebody will apply their own knowledge, skills and resources to help Wikipedia get the important job of providing encyclopaedic knowledge to the world done better.

Tip of the hat to @ariegoldshlager for starting me thinking.

Graham Hill
Customer-centric Innovator
Follow me on Twitter

Interested in Customer Driven Innovation? Join the Customer Driven Innovation groups on LinkedIn or Facebook to learn more.

Further Reading:

Lusch et al, Competing through service: Insights from service-dominant logic

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10 Responses to How Customer Co-Creation is the Future of Business

  1. Greg Y July 28, 2009 at 4:54 pm #

    This a very thoughtful definition of strategy, but as we learned from the history of the CRM, as the most popular shelfware product of the 1990′s, most companies are more interested in “silver bullet” approach. Hopefully current explosion of Social Media use would allow many “little” voices of the customers to be heard over a wale of the advertising sirens, and make companies focus on the core problems in their approach to co-creation of value.

  2. Graham Hill July 29, 2009 at 1:47 am #

    Hi Gregory

    Thanks for commenting. It is much appreciated.

    I agree with you 100%. Businesses want a silver bullet to solve all their problems with a single shot. We saw it with TQM, with ERP, with BPR, with CRM and currently, with CEM. All have anecdotal 75% failure rates. Sadly, that is not how business works. Businesses need to undersand what customers realy want, to build the capabilities to deliver that at lowest cost and to know how doing so creates economic value.

    Customer co-creation isn’t new. The best companies have been doing it all the time. They just didn’t have a name for it before. Innovative thinkers like Tony Ulwick at Strategyn, Clay Christensen, Vargo & Lusch and many others have helped provide important parts of a bigger co-creation jigsaw puzzle. It is up to practitioners like ourselves to provide the business board on which they all fit together.

    My hope is that the best companies, who intuitively use customer co-creation with great success, will be looked at in enough detail that we really understand how co-creation drives business results. So that we can all share in their ‘secret sauce’.

    Graham Hill
    Customer-centric Innovator
    Follow me on Twitter

    Interested in Customer Driven Innovation? Join the Customer Driven Innovation groups on LinkedIn or Facebook to learn more.

  3. Maxim Schram July 30, 2009 at 3:00 am #

    Great article.

    > Create a co-creation platform for customers

    This can be a daunting task for a lot of companies. Let alone doing community management so the platform becomes a real success. I’m glad we can help a bit with that.

    Cheers,
    Maxim Schram
    CEO RedesignMe.com

  4. Graham Hill July 30, 2009 at 1:12 pm #

    Gruss Maxim

    I had a quick look around your co-creation website RedesignMe and your blog. Great idea. Great implementation.

    Creating a platform for co-creation isn’t as difficult as it may sound. Reality is, we are creating platforms all the time, just not purposefully for co-creation. Whenever we provide anything that helps customers get jobs done, we are by definition providing them with a platform. Perhaps the most important platform of all is the product (or service) itself. Particularly when you think that it is the product that the customer uses to co-create value over the product’s lifecycle. That might be as much as eight or more years for an automobile in Germany!

    MfG Graham

    Graham Hill
    Customer-centric Innovator
    Follow me on Twitter

    Interested in Customer Driven Innovation? Join the Customer Driven Innovation groups on LinkedIn or Facebook to learn more.

  5. Mickey Lonchar August 3, 2009 at 4:19 pm #

    One of the traps of adopting a co-creation platform is that it assumes the customer knows what she wants and what would entice her to buy. Most customer research is conducted along these lines. The problem with this is almost always you will get “incremental co-creation,” in other words, taking what you have and making it just a little more useful (or a little cheaper) from the standpoint of your sample. Often times this will have you playing a game of “whack-a-mole” addressing touch points to the point where you lose focus on what your audience is really trying to accomplish. One example: airlines. If you asked most business travelers what they would like to see in an airline, inevitably it will come down to things like high-quality food, more legroom, expanded entertainment options, comfy airport lounges, etc. Yet Southwest Airlines continually ranks as business travelers’ favorite airline and it offers none of this stuff.

    The high-bar in co-creation is really to think in terms of “revolution” not “evolution.” Intuit what your customers are trying to get done, and find the greater role your product/company can play in that process. Only then will you find the next curve.

  6. Graham Hill August 4, 2009 at 5:18 am #

    Mickey

    Thanks for the comment. It is much appreciated

    Innovation is all about creating new products, services and experiences that deliver value for customers and for companies. Most companies need a balance between BIG I step-change innovation and small i incremental innovation. As you point out, small i is easier and less risky to implement. That doesn’t make it any less valuable. Toyota has made over 20 million small i incremental innovations over the past 40 years. And it is one of the most innovatve companies in the world according to all the big-name surveys. And one of the most valuable.

    The key to both types of innovation is to really understand what customers want. It is simply not true to say that customers don’t know what they want. They might not know what the best solutions is, but they certainly do know what jobs they are trying to do and what outcomes they want to achieve. It is understanding, prioritising and acting upon insights about customer jobs & outcomes that provides the foundation for innovation, and through service-dominant logic and design thinking, the means to create experience platforms that enable customers to co-create more value.

    As Bruce Temkin points out in a recent post on Ryanair’s absolutely no-frills airline service (Southwest is like flying First in comparison), if the job customers are trying to do is to get from A to B, as reliably as possible, with absolute minimum costs, then Ryanair provides the best service. If you want to be pampered with flexible flight times, to wait in a comfortable departure lounge and to have nice food on-board, then Lufthansa provides the best service. Understanding customers jobs & outcomes provides the best way we currently have to differentiate between these very different customer segments. And to innovate around giving them exactly what they want at the right price.

    At the end of the day, companies have to decide where their best options lie. They may lie in a step-change innovation. But they may equally lie in incremental innovation. Either way, co-creation is the best way to deliver value to all concerned.

    Graham Hill
    Customer-centric Innovator
    Follow me on Twitter

    Interested in Customer Driven Innovation? Join the Customer Driven Innovation groups on LinkedIn or Facebook to learn more.

  7. Mark Parker August 5, 2009 at 6:32 am #

    Graham,
    Mickey touched on a really interesting point about customers and what they know versus what they don’t know (which in the big scheme of things is actually what they know, what they know they don’t know, and what they don’t know they don’t know).

    This is a difficult conundrum to overcome and when I think about it I’m puzzled that more companies don’t embrace some of the underlying principles of Blue Ocean Strategy.

    When I think of customer co-creation I’m drawn to Blue Ocean Strategy and the premise that the first and second tier of non-customers hold significant value if we’re game enough to go looking and ask the right questions. Blue Ocean Strategy led to the development of the Nintendo Wii for example.

    So when I consider your comment – It is understanding, prioritising and acting upon insights about customer jobs & outcomes that provides the foundation for innovation – I stop there and want to take that ideal and apply it to non-customers – those potential customers who we put barriers in front of which prevent them from being true customers. And having said that, I don’t think a service-dominant logic would achieve this in isolation of a concerted effort to engage the non-customers.

    So is the real challenge that community co-creation is the future of business?

  8. Lior Arussy August 6, 2009 at 4:10 pm #

    Graham,

    Nice way to bring the co-creation concept to life. It is applied today already in some self service models. Many vendors in the shoe industry adopted it and allow their customers to design their own shoes. So even though I partially agree that order of magnitude innovation might not be the customer’s domain, small steps co-creaion such as create your own shoe are great examples of achieving this goal.
    Lior Arussy
    http://www.Strativity.com

  9. Graham Hill August 7, 2009 at 6:59 am #

    Mark

    Thanks for your comment. Like all the others, it is greatly appreciated.

    Your mention of the award winning Rumsfeld comment on the different types of knowledge is very apt. Customers are not very good at explaining what they need. Don’t misunderstand me, they are great about talking about what they need, but they are not so good at explaining whether they are needs, wants, expectations, benefits or solutions. The difficulty in untangling this ‘needs spaghetti’ is why many companies have abandoned traditional Voice of the Customer programmes in favour of a triangulation between jobs eliciting interviews, observational ethnography and quantitative validation. Looking at the jobs customers are trying to do using the triangulation approach is the best way we currently have to identify what customers really need, the relative priority of those needs and how to explicitly innovate around providing customers with more value by design.

    And of course, it almost goes without saying that by customers, I mean current customers, potential customers and ex-customers.

    Graham Hill
    Customer-centric Innovator
    Follow me on Twitter

    Interested in Customer Driven Innovation? Join the Customer Driven Innovation groups on LinkedIn or Facebook to learn more.

  10. Graham Hill August 7, 2009 at 12:16 pm #

    Hi Lior

    Great to hear from you again.

    Customer co-creation is about providing value througout the end-to-end CEX. Clearly, pre-sale touchopints are an important part of the CEX, particularly, when customers smart-customise their own products. Many companies are getting in on the act like banks, clothing and watchmakers, in addition to the shoemakers you identified.

    We should however be careful in too closely aligning co-creation simply with smart-customisation. Smart-customising a pair of shoes does allow customers to co-create value, but it is the long-period of using the product where the real value is created. As it is applied in many cases today, smart-customisation is just an addition to goods-dominant logic thinking. The customer smart-customises (and thus co-creates) the product and pays for it. Value is created during the exchange and that is it. No further value is co-created as the product is used over its lifecycle. We have to adopt service-dominant logic thinking if we are to see the myriad of opportunities to co-create value together with customers over the entire end-to-end CEX. Smart-customisation is a great step forward, bit it is still ‘co-creation lite’.

    Graham Hill
    Customer-centric Innovator
    Follow me on Twitter

    Interested in Customer Driven Innovation? Join the Customer Driven Innovation groups on LinkedIn or Facebook to learn more.

    Further Reading:

    For everything you could ever want to know about smart-customisation, see Frank Piller’s blog Mass Customisation & Open Innovation News. All the smart-customisation examples are courtesy of Frank.

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