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Capstone Assignment:
Customer Co-creation of Innovation
Maastricht University
School of Business and Economics
Maastricht, Februar 21, 2011
Schneider, Philip
I576638
International Business
Mayor: Marketing
Capstone Assignment
Topic 2
Table of Contents
1. Introduction
2. The Internet as an Enabler and Catalyst of Change
3. A Fundamental Relationship Shift: from Exploitation to Involvement
4. Migrating customers from passive recipients to active co-creators
4.1 Traditional Tools
4.2 Emerging Tools
5. The Impact of Co-Creation on Firm Competitiveness
6. Implementing and Managing Co-Creation Processes
7. Limitations
8. Conclusion
Bibliography
Appendix
Abstract The openness of the Internet facilitates the evolution of virtual collaboration and has the
potential to accelerate the rate of innovation. Virtual environments enable companies to
continuously interact with customers and develop valuable relationships with many customers
at low costs. But companies need to understand the implications and limitations of virtual
tools for co-creating innovation with customers in order to develop a coherent strategy and
implement web-based environments, which mutual value for companies and customers.
1. Introduction
The emergence and widespread adoption of the Internet has enabled companies to establish
virtual and ubiquitous collaborations with their stakeholders. Many companies have
strengthened their innovative capacities and capabilities in this way. Recently, online
collaborations have eroded traditional corporate boundaries. Technologies and markets keep
evolving at an unprecedented pace. Yet, modern information technology is not only
transforming back-end but also to front-end corporate processes such as marketing.
Today, IT revolutionizes traditional company customer relations and the way of the marking
function to reach out to customers in order to create, communicate and deliver value.
Historically, the customer’s consumption and value creation has been a black box for
marketing departments because the goods themselves are rather a distribution mechanism for
a customer’s job-to-be-done (Vargo and Lusch, 2006). Customers create value themselves by
using products (Grönroos, 2010). The Internet offers the marketing function new means to
improve upon the creation, communication and delivery of value. Customers can be actively
involved in the value creation process and become co-creation partners. Therefore, virtual
collaboration can dramatically alter traditional company-customer relations. Virtual
environments involving customers to crowd source innovation, offer substantial opportunities,
but they also conceive new challenges.
The purpose of this paper is to discuss recent academic findings on virtual customer co-
creation. It investigates the question, whether companies can and should employ virtual co-
creation environments to develop a sustained competitive advantage.
Firstly, the paper looks at the impact of virtual environments on customer-company
relationship. Then, it turns to examining traditional and emerging tools to involve and interact
with customers to co-create innovation. It considers the benefits and drawbacks of the most
prominent tools and discusses the potential of virtual environments to create a sustained
competitive advantage. Lastly, it points out influential limitations and implications for the
application of virtual environments in an organizational context.
2. The Internet as an Enabler and Catalyst of Change
In today’s increasingly diverse and dynamic market place, companies need to respond quickly
to market changes. In order to cope with market changes as well as rising technology
demands, many companies reach out to external sources outside the firm’s borders because
company resources are scarce (Nambisan, 2002). Increasingly, web-based and distributed
innovation models are used to collaborate with stakeholders, such as competitors and
customers, in pursuit of accelerating learning curves (2002). The Internet has increased the
resolution rate of previously unsolved R&D problems of many big and small corporations
(Appendix A). Virtual co-creation platform Innocentive has helped to increase the resolution
rate of its clients by up to 29,5% (Lakhani et al, 2007). The Internet has played a vital role in
this respect because of its ability to connect widely dispersed stakeholders at low incremental
costs. As a consequence, the Internet has transformed company-stakeholder relationships in
many ways. It has change the direction, richness and intensity of customer interaction as well
as the scale and scope of the audience by providing cost effective, interactive, real time means
to connect with customers (Sawhney et al, 2005).
Until the beginning of the21st century, the Internet had been a static collection of data sets
located on servers around the world. With the advent of Web 2.0, interactive features were
introduced, web pages became user centric and interactive features liberated users to generate
content on virtual platforms and actively participate in social networking. Nowadays,
companies are starting to take advantage of virtual platforms to center their attention on
customers. Thanks to the wide spread adoption of the Internet, it is now possible to establish
ongoing dialogs with many customers at low incremental costs (Nambisan, 2002). According
to the International Telecommunications Union, the number of Internet users has reached
more than 2 billion at the end of 2010, and the number of users is expected to continue rising
(ITU, 2010). The widespread adoption around the globe has drastically increased the
importance and diversity of Internet users (Appendix A). Since consumers are now able to
share their opinions and knowledge freely and conveniently on a 24/7 basis, they influence
and shape other consumer’s perceptions about products and brands. As the Internet connects
and affects potentially one third of the global population, it promises a lot of prospects to
develop valuable customer-company relationships, but it also conceives many risks.
3. A Fundamental Relationship Shift: from Exploitation to Involvement
Customers are not only rich sources for knowledge; participants of virtual environments are
also value co-creators through interaction and active engagement (Sawhney et al, 2005).
Hippel and Katz (2002) note, that virtual customer co-creation abandons the attempt to
understand customers. Instead customers become a valuable partner in the product design
process. Web-based co-creation transfers and effectively outsources the need-related product
development task to customers. Therefore, companies can tap into social and experimental
knowledge dimensions of the diverse customer base by employing virtual environments
(2005). The challenge is to define and allocate and manage the new roles taken on by
customers to harness the collective co-creation of value. If no clear structures and roles are in
place, companies risk becoming distracted and overwhelmed trying to integrate the virtual
community into their existing processes.
Prahalad and Ramaswamy (2004) point out, however, that virtual co-creation goes further
than just outsourcing new product developments. They emphasize, that “the role of the
consumer in the industrial system has changed from isolated to connected, from unaware to
informed, from passive to active. The impact of the connected informed and active consumer
is manifest in many ways.”(2004). Virtual co-creation personalizes company-customer
interactions by letting the customer choose the communication scheme and interaction
involvement and frequency (Prahalad and Ramaswamy, 2004). Thus, co-creation
environments are more suitable to meet the customer on their own terms, than traditional
methods involving the customer. This represents a fundamental change in the company-
customer relationship and the value-creation locus.
Traditional marketing approaches have focused on gaining and exploiting customer
knowledge. Market research has widely been bound to physical interactions limiting its scale
and scope due to its high costs (Nambisan, 2002). Whereas traditional approaches are more
concerned with directly interacting
with current individual customers one-
on-one, online approaches initiate one-
to-many interactions. They broaden the
interaction focus to not only reach out
to existing but also potential customers
(Sawhney et al, 2005). User
interactions on product and company
related sites, such as comments and
questions on blogs and social networks
are monitored and followed up by
employees. Today, conversations are
initiated by the firm as well as by the
customers themselves. Thus, rich and
continuous two-way communications
evolve online reaching out to many
customers.
So far, we have discussed the main changes underlying the shift towards the virtual world.
We have pointed out “what” relationship features need to be altered for successful virtual co-
creation. Now we will address “how” virtual environments can facilitate customer-company
relationship changes by comparing traditional and emerging tools to involve customers in the
innovation processes. Can companies merge traditional and emerging tools into an integrated
co-creation strategy? Then we will discuss if and how an integrated co-creation strategy can
provide a sustainable competitive advantage.
Traditional,
Physical
Environment
Emerging,
Virtual
Environment
Innovation
perspective
Firm centric Customer centric
Customer role Passive,
Recipient of endresult
Active,
Partner in the process
Direction of
interaction
One way
Firm to customer
Two way
Dialogue
Intensity of
interaction
Spot Continuous
Richness of
interaction
Individual knowledge Social and
experimental
knowledge
Size and scope Direct with current
customers
Direct+mediated with
current and prospect
customers
Figure 1: Customer-Company Relationship Changes. Sawhney et al. (2005)
4. Migrating customers from passive recipients to active co-‐creators
4.1 Traditional Tools
The traditional and emerging tools diverge in terms of usage possibility and function. Each
tool has its own benefits and drawbacks due to its idiosyncratic features. Traditionally, firms
have employed various offline mechanisms to engage customers, such as mass customization,
conjoint analysis, and lead users involvement.
Mass customization enables customers to choose from a list of options to customize the
product according to their preferences. By offering mass customization options firms are more
capable to meet customer needs, while ensuring to be able to produce without major
adjustments to their production facilities (Hippel and Katz, 2002). Pre-specified degrees of
customization keep the production costs down to a reasonable level, but do not necessarily
meet customer needs sufficiently (2002). Today, many cars, like the BMW Mini, are made to
order. “Only two out of every 100 Mini cars are the same” (Payne, 2008). Mass customization
certainly offers advantages for customers as well as manufacturers, but it is static in itself
because it is set up to fit the company’s supply chain, rather than the customers unique needs
(Prahalad and Ramaswamy, 2004). The customer has limited influence on what and how he
wants the product to be customized. Therefore, firms have historically been rather reactive to
shifts in customer needs and reliant on forecasting through market research. Commonly
employed research approaches are conjoint analysis and lead user involvement.
Conjoint analysis and lead user involvement gathers and analyses customer preferences in
order to improve products. Manufacturers incorporate the gained customer insights into
standardized products (Hippel and Katz, 2002). However, customer research is a mixed
blessing. On the positive side, it connects firms to the market and enhances its ability to sense
and respond to trends. On the negative side, it has traditionally been very costly. A further
drawback is its focus is on current customers. Market research such as conjoint analysis is
one-sided firm-centric undertaking and restricts itself to reacting, instead of facilitating
changes in customer preferences. Similar to mass customization, lead users involvement’s
focal point is the current customer. Current customers, however, are often biased towards
what they already familiar with. In summary, traditional market research tools are an unlikely
source of true innovation, which would allow companies to develop a continuous competitive
advantage for the increasingly complex and dynamic markets of the 21st century.
4.1 Emerging Tools
Because of ubiquitousness and accessibility of the virtual environments, emerging tools offer
various new functionalities and value to the customers and companies -depending on the
nature of collaboration efforts (Sawhney et al, 2005). Since a virtual environment offers
numerous points of interaction with the customer, the individual tools have to be integrated to
form a coherent, robust experience environment (Prahalad and Ramaswamy, 2003). Many
traditional and emerging tools complement each other’s functionality. Sawhney et al. (2005)
note, “the synergistic usage of different tools supporting different phases of the new product
development is an important factor in enabling successful Internet-based collaborative
innovation with customers” (p. 15).
Sawhney et al. (2005) has developed a two
dimensional framework to systematically
map virtual collaboration tools according
to their usefulness at different stages of
new product development. The framework
addresses two distinct collaboration
dimensions, the nature of collaboration
and the co-creation applicability to the
stage of the product development process.
The first dimension, the nature of
collaboration, distinguishes between broad
customer reach and high information
richness. The second dimension, applicability to each stage of new product development
process, differentiates between front-end and back-end processes, from ideation to product
testing (Sawhney et al, 2005). The underlying methodology gives a general overview as well
as useful insights into the complementary design of virtual environments. Thanks to the
different nature of information gained from the emerging tools, it is beneficial for firms to
employ tools from every quadrant in their virtual environments. The complementary use of
tools will yield the greatest market insights for product development, while giving the
customer the freedom to choose their level of involvement and time invested each session
(2005). In the following, we will focus our analysis on listening in, virtual communities and
toolkits for user innovation. The tools will be briefly explained and their advantages and
disadvantages discussed.
Figure 2: Mapping Internet-Based Collaboration Mechanism Based on Nature of Collaboration and Stage of NPD Process. Sawhney et al. (2005)
The listening in technique is positioned at the front-end development process with the
potential to reach many, diverse customers. Listening in uses customer input to create value
for the company in terms of accurate, up to date market information for product ideation and
conceptualization.
Listening in permits companies to discover new customer segments and need combinations,
which are currently unaddressed by the market. General Motors built a virtual advisor for car
buyers and successfully identified a new customer segment of car buyers (Urban et al, 2004).
On the advisor website, potential car buyers can find their most suitable car based on their
specific preferences and desires. Following a series of questions about the car requirements
and typical usage situation, the virtual advisor recommends a list of the most appropriate cars
models. During the process, the customer needs are recorded and consolidated into a large
database. The aggregated customer needs data is subsequently analyzed by applying
mathematical algorithms called „Monte Carlo Simulations“. The software algorithm activates
an opportunity trigger, if current products on the market do not meet a sizable needs
combination. Once an opportunity is identified, Urban et al. point out that it is beneficial to
verify and complement the result with traditional tools such as conjoint analysis and focus
groups (2004).
Tracking down new opportunities and adapting them to new market trends is crucial for
companies’ long-term survival (Urban et al, 2004). In this respect listening in offers several
advantages over traditional market. First and foremost, customers are incentivized to reveal
their true, unbiased needs because they want to get the most suitable advice. Secondly, instead
of telling the customer what the want to choose, as it is the case for mass customization
options, firms yield accurate customer needs information by listening to what customers
actually want to choose. Thirdly, due to its web-based design extensive customer data can be
obtained at low incremental costs (2004). The Internet enables firms to scale their efforts and
reach potentially millions of people. However, an important limitation of Listening in is, that
in order for the virtual advisor to identify market opportunities, a large amount of users have
to participate. Scale is not an option, but an imperative for the advisor to be effective.
An ongoing dialog between a large and diverse customer base and virtual advisors give
customers valuable product advice, while permitting the firm’s access to the latest information
on consumer needs and market trends. Companies can subsequently modify and tailor their
products more effectively to customer needs. By employing listening in techniques companies
and customers can cooperate to mutually create value for each other anywhere, anytime.
Instead of exploiting customer knowledge, value is created two-directionally. Listening in
results in a win-win situation for both parties -the customer and the company.
Virtual communities enable customers to communicate directly with the company and become
deeply involved in the product ideation process. Depending on its design, virtual communities
can either have a broad reach or rich collaboration.
If communities are open, all customers have the opportunity to communicate with the firm as
well as with other customers. The firm has to monitor and moderate customer communities in
order to ensure coherent, high quality content. Otherwise communities run the risk to become
inconsistent and confusing for customers. In virtual communities firms as well as customers
themselves can provide information and support to each other. Virtual communities can create
means for far-reaching, two-way dialogs, but they also provide means for deep customer-
company collaboration.
Through the use of virtual communities many potential value contributors, not only lead
customers, have the chance to make their voices heard in the product ideation process.
Historically, lead customers were hand-selected for product innovation initiatives by the firm,
based on long standing exchange relations. By using virtual communities, important value
contributing customers do not need to be individually selected by the firm anymore. Rather,
important contributors evolve and reveal themselves through their online interactions and
engagement (Sawhney et al, 2005).
Ducati and Eli Lilly successfully established
a virtual collaboration environment to
innovate and co-create with their customers.
As part of its initiative, Ducati uses several
virtual community designs. By featuring a
photo competition on its website, Ducati
was able to identify and bring together
highly technical experienced fans. The
winners were rewarded with an invitation to
join a gated online expert community
(2005). Thereby, the cost of identifying
important value contributors for firms diminishes, while its reach and accuracy increases.
Hence, the customer experience as well as the value potential of virtual environments can be
enhanced by gate keeping mechanisms for such specialist communities. If virtual
communities are designed in such a way, they can create win-win situations for companies
Figure 3: Ducati’s Internet-Based Innovation Collaboration Initiatives. Sawhney et al. (2005)
and customers. By monitoring customers´ virtual engagement virtual communities identify
possible high value contributors in a very effective and efficient manner. In addition, virtual
communities can be used as a first step for intimate, longstanding customer-company
relations. Valuable online contributors can be invite to more traditional, physical approaches
such as focus groups, or customer community events as in the case of Ducati, which invited
its most valuable online contributors to follow up offline events (2005). This illustrates again
the complementary usage possibilities of traditional and emerging methods for customer
involvement.
By integrating toolkits for user innovation virtual environments also offer users the possibility
to innovate and create value for themselves. User-friendly toolkits, designed for specific
design challenges, shift the product prototyping task to the customer (Hippel and Katz, 2002).
Toolkits´ computer simulations enable customers to design, prototype, evaluate and improve
upon their product concepts (2002). Well-designed toolkits translate the functionality
requirements of the user into the production design language of the manufacturer without
need for further adjustment for actual production. Toolkits for user innovation are particularly
useful and valuable, when user demands are heterogeneous (2002). Hippel and Katz (2002)
emphasize however, that applicability of toolkits require some important prerequisites.
The effectiveness of toolkits depends on its ability to separate the overall product
development task into smaller subtasks (Hippel and Katz, 2002). Specific subtasks can then
be allocated to, and executed by, either the user or the manufacturer. Reallocating subtasks
can be difficult for example due to missing complementary information or the way the
information is encoded. The ability to transfer tasks depends on the stickiness of the required
information (2002). Information is sticky, if acquiring the information involves high costs.
Therefore, the partitioned subtasks need to be standardized in order to reduce the stickiness of
the information required for problem solving. This can be done by making tacit knowledge
explicit in the form of design rules for the virtual solution space. However, toolkits work best
if the common user design language is adopted (2002). The focus of the toolkit’s design
language should thus be on the functionality of the customer product since the user is very
familiar with the intended functional performance of the to be designed product. The
employment of toolkits implies ex-antes that the customer has the necessary minimal product
design knowledge and design language. On the down side, the cost of acquiring the
knowledge needed to use a toolkit represents a significant barrier. On the upside, the design
language imposes switching costs on the user and strengthens customer loyalty.
The more heterogeneous the product performance demands of the customer, the more
valuable is the employment of user toolkits for firms because do not need to acquire the
customer information on the different product usage settings (2002). Transferring the design
task to the customer is beneficial for the firm because the customer exactly knows the
functional needs of the product, as well as the usage setting of the product (2002). Toolkits
decrease company-customer miscommunication about product specifications, empower
customers to add value to company processes and reduces the firm’s cost and risks to meet
customer needs exactly.
Toolkits are advantageous, compared to mass customization, because it allows customers to
combine and manipulate general-purpose building blocks to fit their needs (Hippel and Katz,
2002). Instead of offering predetermined options to choose from, toolkits offer a larger degree
of freedom for the customer to create novel solutions for himself. Providing already created
modules can further facilitate the customer’s creative process. Module libraries effectively
empower the customer to focus on his creative new elements of his product (2002).
Simplifying the creation process, by letting the customer add and subtract elements from
existing modules, enhances the customer’s creative design experience.
In summary, emerging co-creation tools create mutual value for firms and customers. They
can be used as stand alone initiatives or complements to offline as well as other online tools.
However, web-based tools are best used in an integrated co-creation environment to allow
customers to choose their level of involvement. Virtual tools are advantageous compared to
offline tools due to their scalability, low cost, 24/7 availability and their potential to reach
many, dispersed and diverse customers.
5. The Impact of Co-‐Creation on Firm Competitiveness In the ubiquitously connected competitive environment of today, product lifecycles become
shorter, and it gets harder to differentiate products from low cost competitors. Thus,
innovative firms have to develop a sustainable competitive advantage in order to stay ahead of
competition. The determinants of a sustainable competitive advantage are valuable, rare,
immobile and non-substitutable assets. How can co-creation tools help to develop a sustained
competitive advantage?
The employment of customer co-creation toolkits allows the first movers to attract more
customers and engage in a new, deeper of relation with them (Hippel and Katz, 2002).
Toolkits are valuable for customer and companies. However, in the semiconductor industry,
which was one of the first to introduce toolkits, competition can quickly imitate and
developed its own toolkits (2002). Toolkits not only transfer the design task to customers, but
also sticky and valuable firm knowledge. Thereby, valuable firm knowledge becomes expose
potentially threatening the firm’s traditional sources of competitiveness. Because toolkits are
developed to fit the company specific production facilities toolkit designs are rather
immobile, however; conversion kits can erode this immobility of firm specific designs.
Conversion kits allow customers to convert designs easily to fit toolkits of competitors.
Hence, conversion kits reduce the possibility of value extraction for firms and decay their
competitiveness. Thus, the question arises, weather firms are well advised to follow or lead
the introduction of co-creation tools?
The usefulness and application possibility of co-creation tools is industry-dependent. Toolkits
are not germane for design processes that require a great deal of tacit knowledge or learning
on the customers’ side. However, if toolkits can be employed, it is beneficial for firms to be
among the first movers because they will set an industry standard. Because the customer
community needs to learn the design language of the first movers, at least a temporal
competitive advantage can be established. If toolkit designs are inconvertible to other
platforms, a lasting competitive advantage can be developed. By setting design standards
competitive barriers arise because a new competing standard of rivals has to attract a large
user and customer base.
The competitive importance of co-creation toolkits has become especially apparent in the
consumer electronics and software industry. Manufacturing devices with the best or most
features is no guarantee for a competitive advantage anymore. The Nokia CEO Stephen Elop
point out, that “the game has changed from a battle of devices to a war of ecosystems”
(Dignan, 2011). Customers are able to personalize the experience of their device and
customize its functionality by downloading and/or creating application. They create their own
mobile experiences and thereby add value the manufactures devices. Ecosystems for co-
creation have become an important market force. Today, toolkits have an important role in the
dynamic telecommunication industry and a substantial impact on firms’ competitiveness.
Promoting and empowering customers to become developers to actively co-create a thriving
eco-system commands the development of effective toolkits as well as mechanisms to share
economic rents. Developer toolkits as well as learning resources are openly available to
everyone with Internet access. The availability of an easy and comprehensive distribution
mechanism, such as the app store, has, in combination with SDK developer kits, created a
gold rush among developers. The toolkits have created an open and lucrative market for co-
creation and turned many customers into developers. Within four years over 350,000
applications have been created just for
the Mac’s iOS mobile platform and the
number of applications keeps growing
on a daily basis (Bilton, 2011). By 2015
the revenue from application is expected
to rise to $38 Billion (2011). The SDK
toolkits are an important factor in the
recent revolution and transformation of
the telecommunications industry. The
win-win-win-win situation for
customers, developers, mobile operators and device manufactures shows the humongous
potential of toolkits to enhance products and services.
In comparison, listening in tools and customer communities might be valuable and rare at
first, but they are neither immobile, nor non-substitutable. Still, the use of the tools can enable
companies to gain superior customer knowledge and subsequently better product offerings.
For these tools to be advantages, special attention has to be paid to their implementation and
integration into existing marketing processes. Customer communities have to be monitored
and moderated on an ongoing basis in order to ensure valuable customer service and good
experiences. The algorithms underlying listening in tools and their proper calibration for
opportunity triggers are very important for successful use.
The complementary use of tools allows customers to have a unique and personalized co-
creation experience. The combination of co-creation tool can lead to distinguished customer
relations, which are valuable, rare, immobile and non-substitutable, and thus create a
competitive advantage. In summary, deciding on a suitable degree of customer involvement –
hinging on the nature of collaboration; choosing the appropriate tools -depending on the
industry applicability; integrating the tools into a personal experience environment -based
upon customer’s own terms; and then managing the virtual environment makes a good virtual
co-creation environments. Producing great customer experience during the virtual encounters
enables companies develop intimate customer relationships over time.
The capability to set up, manage and integrate co-creation is of utter importance for successful
co-creation and a lasting competitive advantage. Due to the customer-company relationship
change organizational transformation is needed. In the next section, we will discuss the
Figure 4: Global Smartphone and Table App Shipments in US$. Bilton (2011)
managerial implications for successful implementation and management of co-creation
environments.
6. Implementing and Managing Co-‐Creation Processes The framework of customer co-creation tools for NPD by Sawhney et al. (2005) is helpful to
demonstrate the application possibilities of virtual tools. It is capable to provide a useful
overview, but falls short on addressing the customer’s perspective. The framework lacks a
customer perspective on the co-creation experience because its dimensions concentrate on
organizational processes and information types. It is set up from a business, inside-out
perspective. It does not give guidance on which tools are appropriate for the individual
customer interaction points, that make up the overall customer experience. In order to derive
managerial implications for a successful, customer focused implementation, an outside-in
perspective has to be taken.
In contrast to Sawhney, Payne et al. (2008), examines co-creation encounters from a customer
perspective. Mapping the different stages of the customer-firm encounter is advantageous to
understand where customer co-creation opportunities exist (Appendix C). Firms have to be
aware that multiple value creation opportunities may exist during the customer-company
encounter, but this also implies that multiple opportunities for failure exist (2008). After
identifying co-creation opportunities, firms can choose which customer processes it wants to
support. Because the overall customer experience is made up by multiple offline and online
encounters, it is important that firms create a coherent appearance across media (2008).
Therefore, companies need to manage each stage, identify critical processes and ensure, that
the promises made at each stage are delivered upon in following stages.
From the business perspective, the integration of virtual co-creation initiatives into existing
organizational processes is vital, in order to leverage the customer insights across the
organization. But the implementation and integration of co-creation processes challenge the
traditional firm structures and departmental roles (Payne, 2008). By implementing co-creation
initiatives, the marketing department has to take on a new role of facilitating, managing and
integrating the co-creation processes into existing firm processes (2008). On the one hand,
customers become part-time product developer and marketer. The marketing function, on the
other hand, can focus on developing relationships, supporting customer encounters and
facilitating interactions. Successful co-creation efforts require the firm to actively manage
knowledge flows, and selectively direct appropriate knowledge across the organization
(2008). “It is not the resource per se, but the ability to access, deploy, exchange, and combine
them that lies at the heart of value creation” (Moran et al, 1999). Thus, the adaption of
organizational structures and knowledge management systems is as important as the setup of
a virtual co-creation environment. Its is not sufficient to set up an customer co-creation
environment, but it is necessary to also reconfigure the organizational support processes in
order to leverage and integrate the gained knowledge (Nambisan, 2002). By developing co-
creation relations with customers, companies change their traditional direction of marketing
communication (Payne, 2008). Instead of hunting the customer’s attention, marketing can
focus its attention on deepening its relationships with customers in support of their product
experience.
7. Limitations
Although organizations have already used virtual co-creation environments successfully,
many questions remain unanswered and uncertainties endure. Firstly, the effect of
mismanaged customer expectations during the co-creation process on customer trust and
loyalty remains unclear. Secondly, what is the best way to re-distribute economic rents from
joint developments, in order to ensure motivation for participation? Thirdly, how can
customer co-creation efforts be aligned with the overall long-term company strategy? What is
the right balance between co-creating with customers and blindly following customer
demands? In addition, although metrics exist to measure customer-company interaction, what
determines the success of co-creation? How can monetary values be assigned to firm’s co-
creation efforts?
Further, co-creation tools widely vary in their applicability and usefulness. Thus, virtual
environments are not equally suitable and desirable for all industries. Collaboration requires
to share and exchange knowledge, which might be proprietary or essential for sustaining the
company’s current competitive advantage. Once toolkits became industry standard in the
semiconductor industry, for example, competition became as fierce as ever. But after a
widespread adoption of toolkits across industry is not possible for firms to stop using them
due to competitive pressures. After the control over sticky knowledge is lost, it is hard to undo
changes. Companies interested in developing virtual co-creation environments have to
carefully consider the implications and possible future consequences before adopting co-
creation tools. Great uncertainties still surround virtual co-creation and pose constraints on the
adoption and spread of co-creation environments.
8. Conclusion Virtual collaborations offer enormous benefits for companies and customers. Until recently
market and customer research was very costly and hence limited in scale and scope. But
information technology has transformed traditional one-sided firm-customer relations into
two-directional customer-company interactions. The Internet has empowered customers to not
only consume, but also (co-)create the value of products and services. It has allowed
companies to engage in a continuous dialog and interaction with current and potential
customers, which enables firms to increase the reach, richness, flexibility, speed and
persistence of their market sensoring at low incremental costs. In sum, marketing
communication is not a one-sided firm undertaking anymore, but reciprocal in nature. Instead
of trying to understand the consumer, companies should recognize the value of customers as a
partner to create, deliver, and communicate value. Instead of seeking customers’ attention,
marketing based on co-creation creates valuable customer relations in support of customer
experiences.
In today’s knowledge and network economy, it is crucial to actively manage co-creation
interaction and knowledge flows between companies and its external environment in order to
capture the full value potential of customer collaboration. Therefore, carefully designed,
complementary systems and processes need to be in place. Companies need to take the
functionality and limits of traditional and emerging tools into account, in order to accomplish
effective and efficient customer involvement. Firms have to redesign and adapt their
organizational structure and processes in order to take advantage of co-creation initiatives and
leverage its benefits across the organization.
Companies’ long-term survival depends on the ability to change and adapt to market changes.
In the long run, competitive environments are likely to become even more complex, dynamic
and fierce. Because problem resolution rates increase significantly with a more diverse solver
base, customer co-creation works at its best, when tools, such as toolkits, empower and
reward customers to become their own problem solvers and influence product changes
themselves. With the right tools and incentive systems in place, customer co-creation can
unleash and orchestrate the power of the collective for the benefit of companies and
customers; therefore implementing and experimenting with virtual co-creation initiatives is
not a question of following or leading, but of long-term company survival.
Today, virtual collaboration and co-creation becomes important for the broader context of
mankind. Whether it is improving upon purifying water with solar, or helping oil companies
to find substitutes for petroleum, virtual collaboration platforms such as Eli Lilly´s
Innocentive or Amazon´s Mechanical turks, they all have the potential to create real impact on
the world by facilitating and increasing the speed of technological advancements. The
connectedness and linkages of the 21st century will continue to lift the speed of innovation to
unimaginable heights. Maybe, technology by itself is not the answer to mankind’s current,
most pressing issues and threats, but virtual coordination mechanisms facilitating collective
collaboration and co-creation for innovation.
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Appendix
Appendix A
Lakhani, K.R., Jeppesen, L.B., Lohse, P.A., Panetta, J.A. (2007) “The Value of Openness in
Scientific Problem Solving.” HBS Working Paper Collection, Retrieved from
http://www.hbs.edu/research/pdf/07-050.pdf
Appendix B
International Telecommunication Union (ITU). (2010). “The World in 2010, ICT Facts and
Figures”. Retrieved from http://www.itu.int/ITU-D/ict/material/FactsFigures2010.pdf
Appendix C
Payne, A.F., Storbacka, K., Frow, P. (2008), “Managing the co-creation of value.”, Journal of
the Academic Marketing Science, 36, 83-96