November 2009

".. [B]ecoming a co-creative organization is about changing the very nature of engagement and relationship between the institution of management and its employees, and between them and co-creators of value - customers, stakeholders, partners or other employees."

Venkat Ramaswamy

Co-creation refers to the practices a company uses to collaborate with its stakeholders during the design, development and deployment of its products and services. It replaces the hierarchical approach to management and the linear approach to innovation, affording all stakeholders the possibility to influence and bring forth meaningful and relevant solutions in a collaborative environment. Co-creation results in the development of goods, services and experiences that are uniquely designed to meet people's particular needs, values, meaning and context. The purpose of this article is to share some experience driven insights on how co-creation could help businesses to live in an age of uncertainty.

A New Age of Uncertainty and Chaos

We are now in an age where the fundamental trend is not just about surviving the crisis and determining when it is over. During the old economy of the Industrial Revolution it made sense to lay off employees in times of crisis and to cut costs to a bare minimum because we knew things would take time before they would get better. But we live in the Age of Turbulence, where everything moves much faster. Characteristic of this age is more frequent up and down swings, meaning the models of the Industrial Revolution are no longer effective in solving our challenges. We can no longer go in hibernation to await an upswing or to take action. The time for action is now. Some of the features of the crisis are here to stay and we're going to have to change and adapt in real time by learning to live with them.

Two things that are not taught in business schools are flexibility and adaptability to change. Schools continue to teach the same models that perhaps never really worked to begin with. It is clear that they certainly are not working now. Instead of engaging in massive layoffs during quiet times, companies need to reconsolidate, innovate, train, reorganize, and build new strategies and scenarios. Perhaps most important of all, they need to empower their employees to solve the challenges that impact short term and long term plans. This implies a critical need for new models within employee and employer organizations.

Our current struggle of living through crisis times should be transformed into embracing and defining the rules of the game and new models of doing business. The current situation provides a unique opportunity to identify early on some of the emerging features of the new era. These include:

  • shrinking time horizons

  • the democratization of business innovation

  • putting people ahead of serial entrepreneurs' visions

  • the importance of trust, humility and transparency between the multiple actors in any given value chain

  • the co-existence of contribution, competition and cooperation

  • the shift from products, services and solutions to participation platforms and experience networks

  • the emergence of new values

  • the changing meaning of the value creation paradigm into a new one based on value co-creation

The Implications of Shrinking Time Horizons

One of the issues companies face is that the global economy is moving very fast and it is linked together. Formerly, upswings and downswings could last three to five years. In the new era, upswings and downswings are going to look more like a series of fluctuations, resulting in much shorter business plans in terms of six months instead of five years. The squeezing of time horizons is key to understanding the necessity of new innovation and business paradigms. There seems to be nothing new, but some of the things we already know are going to be different and more important than before. The time scale makes it impossible for firms and organizations to attempt to do everything alone. It requires new organizational designs, new types of strategic partnerships and cooperation, and not just more outsourcing.

To deal with shrinking time horizons, companies need to transform into living, sensing organisms. There is no time to learn what customers or end users want in order to retreat back into the company silo to develop it. We need to go beyond this fragmented value creation model by making sure that all the relevant people are involved by providing the proper mechanisms for them to become co-owners of assets, masters of processes, and co-creators of value rather than just a target market and final destination of the value creation process. This process goes beyond the market segmentation paradigm, enabling individuals to personalize their products, services and experiences. It's about making stronger, richer, symmetrical and meaningful the fragile uni-dimensional links between employees, the communities of people using the products and services, vendors, and subcontractors. Within a value co-creation environment, all those links are affected and actively involved.

Start by Involving Your own Employees

The biggest mistake companies make is to not involve their own employees in innovation. The innovation game has become so fashionable that it is tempting to keep other people out. Such an attitude is an abuse of the true social meaning of innovation. It's important to involve employees, to be transparent, and to empower them by giving them accountability and responsibility in making the company successful. It is about ownership, and ownership is not just about possession. It is about access to the proper assets and tools and to the best possible processes, within the proper context at the proper time. It is about finding meaning in what people want, in serving them through providing products and services created together in a way that meets their needs. The power of modern firms and organizations is not about providing more value to customers. It is both built and born in the process of sharing and committing to common values. When everybody is involved, and when there are clear articulated common values, you start seeing the world in a new light.

According to The Danish Secret, recently published in Monday Morning, Danish companies are good at involving their employees, resulting in increased efficiency. The advantages are loyalty, savings, learning, innovation and less vulnerability. Instead of firing people when a crisis comes along, we can challenge employees to find solutions that turn company challenges into future assets. Through this challenge you will find who is capable of flexibility and adaptability to change and who can solve the challenges of today. At the end you may need to fire some people, but you won't fire them because there's a financial crisis. You will fire them because they are unable to take responsibility and hold themselves accountable to the people they serve: internally to the organization and externally to customers.

The New Innovation Game

Innovation is mandatory now. If you go back in history, the best innovations came in times of crisis. In the words of Clayton Christensen, "in an environment where you've got to push innovations out the door fast and keep the cost of innovation low, the probability that you'll be successful is actually much higher...Breakthrough innovations come when the tension is greatest and the resources are most limited. That's when people are actually a lot more open to rethinking the fundamental way they do business". Innovation should become daily practice for everybody in the company. Unfortunately, in many companies some of the people with the best ideas are the ones who are never asked, like the janitor, or the receptionist, or someone with a teenager who happens to know what's really going on in the teenage world. We don't ask those people because they aren't the innovation director or the expert. Innovation is about empowering every single person to come up with ideas that are meaningful and relevant to any given need and challenge. Admittedly, not everyone is good at this, but we were all born creative. Many have not been given the chance to voice their ideas in the current structure of a company or organization due to the politics within. These politics are often found within middle management and anecdotal evidence suggests that middle management is often the biggest barrier to innovation.

In Need of a New Leadership

Many leaders are trained in a way that no longer fits the world we live in. Industrial Revolution models don't work in today's information and communication age. Leaders have to stop thinking of their organization as a top-down structure and must acknowledge that organizations can no longer work in isolation, particularly in the area of information communication. We are facing a new paradigm in our way of interacting with information that requires new approaches and new tools to filter through what is and what is not relevant. New business information and communication tools have to facilitate workflows that capitalize on using collaborative intelligence.

Leaders must acknowledge that uncertainty is a fact of life and that it is impossible to deal with it without enabling value co-creation mechanisms. We need to bring the significant economic advantage of co-creation to the forefront. We need to learn how to engage the right people in a co-creation process and to enable a new collaborative mindset that encourages growth and sustainability in times of change. We need to create a new model of leadership based on the co-creation paradigm. This model requires a certain level of humility and the ability of learning to fail while moving forward instead of only praising success.

A Time for Value Co-creation

One of the significant impacts of the ongoing progress in information and communication technologies is our ability to obtain information rapidly, everywhere and, practically, at any time. There are two key implications of this impact. First, people become more knowledgeable about products and services and about all comparable products and services across the globe. Their knowledge provides them with more negotiation power. As a result, they are not just buying or not buying. They are now demanding particular types of services and are willing to become part of the process. Second, the two economic crises in the last ten years made people skeptical about the way businesses operate. They now demand to be in control, to be part of the design process, and part of developing the services and products that are being sold to them. In other words, they no longer simply accept the traditional push of offerings from companies. Instead, they are the ones pulling by increasingly demanding more meaningful and sustainable goods and services.

These two implications call for new approaches to innovation and business strategy that replace the dominant but antiquated mindset of company-centric value creation. However, as C. K. Prahalad has pointed out, the solution is not just shifting from company-centric to customer-centric approaches, it is about designing and enabling value co-creation mechanisms, tools and environments. The difference between the customer-centric and the value co-creation approaches is that in value co-creation there are multiple actors in the value creation process and multiple problem solving perspectives: of the people using the co-created products and services, of the nodal company itself, and of the network of its partners. Each actor contributes value but, in addition to the individual value contributions, there is also jointly created or partnership value. The total value outcome is larger and qualitatively different than the sum of the individual contributions. To capitalize on co-created partnership value, companies should reinvent the way their business architecture and technological infrastructure operate. The role of modern information and communication technologies in this rebuilding process is critical as an enabler of co-creation experiences and as the key ingredients of the fundamental building blocks of value co-creation platforms.

Closing Thoughts

Most of the topics we have presented were discussed at the Copenhagen Co'creation Summit "Designing for Change 09". This was an international event held on August 29th and 30th, 2009, and set up by the Danish Design Association (DDA) to initiate a knowledge-sharing network concerning co-creation. DDA has set out to gather in Copenhagen twenty-five of the most recognized leaders, experts and practitioners in the world to address business issues of significant global interest through engaging in, exploring and developing new practices within the context of the emerging value co-creation paradigm. The participants agreed that co-creation is more than just a business tool. It is a form of open innovation that can be defined as a practice of collaborative development enabling all stakeholders to work closely together. One of the key insights of the Summit was the realization that interest in value co-creation is driven by the clear potential of its outcomes: profitable advantages for both companies and the people using their products and services.

 

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