When a word is used too many times a year and the context in which the word is used broadens in every article, it is very likely that the management community develops a sort of immunity. There are multiple examples of management terminology being coined as fast as falling out of favor.

Co-creation, as a phenomenon, was destined to have a similar lifecycle. The question that arises in such matters, is whether the term was a hype introduced by some management gurus, or an emerging domain just struggling with its maturity. As we see the world now, co-creation is here to stay. No matter what you would like to fit in the definition, co-creation is the result of a broad and irreversible shift in the society and corporate culture. During the growth to maturity we wonder what is left beyond the hype. What is the essence of co-creation? Which forms of co-creation proved to be most beneficial for the initiators and participants? Which processes are most suitable for ‘outsourcing to the crowd’?

This report will give you insights into the current status of co-creation, as perceived by top managers out of the FEM500 business list. If you would like to verify your current experiences or if you are curious about what co-creation could do for your business, assess the following three basic questions:

· Who contributes, who gets the benefits and who takes the risks?

· Where & when in the process is co-creation applied?

· What is the result of co-creation?

Co-creation assessment

To improve the success of your current co-creation business, it is very important to have the right knowledge to be able to assess the initiatives according to objective criteria. Those assessment criteria can also be used in advance, as a checklist for the design of a co-creation initiative.

Who contributes, who benefits and who takes the risks?
To answer this question you map who has a share in a certain part of the value creation process. There are three important events that are distinguishing: value creation, selection and consumption. Who creates and delivers the actual value, who is allowed to make selections or set priorities within the content that has been provided, and finally, who does benefit from the co-created value?

Content creation
You could ask yourself whether you can still call it co-creation, when the content is purely created by the company. It actually can be co-creation, for instance when the selection is done by the consumer. This is a typical customization setup, where the building blocks are still predefined and internally created. The opposite can work also: content creation by the consumer or business network, but selection by the organizing company. This is a typical ‘contest setup’. In the last phase of value consumption, it is impossible to call it co-creation when the benefits are not shared between the initiator and the participants. The benefits can be split into hard benefits, for instance the firm’s business case and the extraction of economic value by the consumer, and soft benefits, like corporate reputation and social drivers of the consumer.

Initiator or director?

Another important discriminator is the distribution of roles like the initiator and director of the process. Those two can be different. A company could consider joining a current community instead of creating one itself. We learned that you have to have a strong brand or have to claim a clear

theme, to be able to keep a company-owned community alive. The director of the co-creation process is the party that is allowed (or accepted) to set the rules of the game, determine the duration or moderate other contributions. Again, it is not obvious that the firm itself has to control all those elements. The right degree of ‘self guidance’ is always an important factor for success.

Costs & risks
Finally, there are the cost and risk elements, which are in fact closely related. Who bears the costs of setting up a co-creation environment and therefore also runs the risk of there being no significant outcome? You can think of the online environment, but for instance when co-creating during use-phase, it could also mean significant FTE costs for supporting internal processes. The legal implications of the creation process present another risk. Who is responsible for the co-created product or service when it fails physically or economically? Equally applicable to co-creation is the fact that: Sharing benefits also means the willingness to share risks.

Where & when in the process is co-creation applied?

The second key question zooms in on the practical elements in the design of a co-creation initiative. Map the most important processes, using a standard value creation chain, like: strategy, NPD phases (idea generation to product launch), marketing, logistics, use phase, recycling. For every step in this chain you can think of processes within that step that could be open for outside participation. Most of the time co-creation is connected to one of the NPD stages or during marketing (campaigning) phase. This is not wrong, because co-creation has mainly proved its value in those areas, but do not forget to consider customer or b2b cooperation in the other steps.
The impact of the introduction of co-creation is different for each step. Co-creating on strategy formulation for instance, could have significant impact on the organization if you are fully transparent and willing to change course because of external ideas. On the other hand there are a lot of examples of companies that neglected the collective opinion and had to deal with even more organizational impact. In logistics there can also be a nice tradeoff between consumer participation and the price the consumer is willing to pay for the product, including transportation. This often resulted in new business models like IKEA and McDonalds which were introduced in the past, but which have become quite common nowadays. During the use and recycle or replacement phase many opportunities are lost. If you have the right approach towards your brand ambassadors or lead users, using ‘permission based marketing’, you can direct the realization of additional value by the user community. This also provides the opportunity to personalize your product or service according to the exact context the customer is in after the moment of selling. The original targeted needs often change and an intensified number of interactions enable the company to make the necessary adjustments or to provide additional extensions. This brings us to the next question: what is the intended frequency of the interactions and which channels do you plan to use for that? The range of possibilities extends from twice, like in an idea competition, to almost continuously in an innovation development community. This last type of co-creation results in strong ‘learning relationships’, leading to products or services that have an optimal market fit while creating strong loyalty both ways.
When thinking about proper co-creation channels, companies should not forget to define the right balance between on- and offline or even online in virtual worlds. Joining an existing platform or social medium is a fast way to reach potential co-creation participants and saves all the effort of building a platformand keeping it vivid. Another possibility is to share a platform with multiple organizations, which are all interested in a certain topic. Sharing a platform can enable one to attain the larger scale that is necessary to start the co-creation process.

What is the result of co-creation?
The third and final question is all about the outcome of the co-creation process. It is recommended that you try to visualize the results in advance. What about the ‘richness’ of the value created? Is the goal to reach a certain level of customization? This is a form of extreme segmentation, allowing the personalization of the offering based on limited combinations of modules. Not every product or service is suitable for splitting into several modules. In that case the modules can also apply to for instance, the logistics or processes around the offering. The unbundling trend among the low cost carriers is an example of that.
Another goal, when defining the desired end-result, is to reach a certain level of collaboration. The proportion between in-house and externally co-created value, is crucial for the final success. The most advanced form of co-creation, in which customer experiences are co-created, can only be achieved by performance in personalization and collaboration. When a company does not take care of one of them, there will be a barrier that hinders full deployment.

Furthermore it is important to verify whether the outcome of an initiative meets the basic guidelines of co-creation, like:

· Does the collaboration offer more value than the individual contributors could have delivered themselves?

· Can the final result be characterized as ‘win-win’ or ‘pie-growing’? (None of the collaboration partners should win by damaging others.)

· Is the result a matter of value creation instead of value distribution?

The last, but not the least important topic relating to the outcome of the co-creation is about the impact on the organization as a whole. Even a co-creation pilot does have impact on back office processes. When an organization chooses to continue with co-creation as a central, strategic theme, it is inevitable that there will be significant changes in the corporate culture and several processes in the operating model. Co-creation is even a main driver in the transition to new business models.

Understanding needs as the main driver

How far beyond the hype are we with Co-Creation? To answer this question, we have launched the Global Co-Creation Survey 2010, asking top managers from the FEM500 business list to what extent co-creation is currently applied in their business, what results co-creation brings and what are their expectations of the future.

The survey shows that 70% of the respondents expect revenues from co-creation to rise in the coming years, indicating the opportunities and high expectations the respondents have of co-creation initiatives within their organization.

Although the respondents have high expectations from co-creation, only 25% indicate that they proactively and continuously involve customers in the design and development of new products or services. If most respondents expect increased revenues due to co-creation, why have only 25% started implementing it? Although there is a high level of willingness to co-create, organizations have to deal with barriers which place constraints on their ability to achieve their co-creation goals.

The main constraints that respondents identify are the urgency of pressing day to day business demands (36%) and lack of formal processes for co-creation (28%). This indicates that co-creation is not yet at the top of the management agenda, although the respondents do recognize the opportunities co-creation has to offer. To align co-creation and make it part of the day to day business successfully, organizations have to make dedicated choices and deploy a clear and focused co-creation strategy.

Drivers & results

The respondents indicated three main drivers for involving customers in their value creation: understanding new needs, increasing their competitive advantage and improving their customer loyalty. Although co-creation is currently often used as a marketing tool, these drivers show that co-creation is much more to the respondent than just a marketing tool. Its aim is to understand customers better and to develop services and products that fit their needs.

According to our respondents, involving customers really does result in meeting their needs; new products and services are for them the key result of customer involvement. It is however interesting that attracting new customers is only the fifth driver for co-creation, whereas it is the third highest result. We have seen this unexpected result before in our previous research ‘Co-Creation & Firm Performance’ (Arjan Tijmes, 2010). This research showed that whereas most organizations engage in co-creation to serve current customers better, it also resulted in new customers, even if this was not a goal in itself. This indicates that co-creation can have a snowball effect.

Managing the complexity of co-creation

In literature co-creation is often associated with collaborative Research & Development activities. This can extend from crowd-sourced idea generation to long term development communities. Also, customization of the final product by selecting a set of predefined modules or designs, can still be considered part of the development phase. In practice, and endorsed by our survey, we see most examples coming from companies that pilot co-creation merely owing to reputational motives. The launch of a rather superficial form of collaboration, meticulously controlled by the firm and supported by traditional mass communication, can result in the desired open brand image. One could wonder whether this can be considered as genuine co-creation. If you look at the three most important steps in the co-creation process - who creates, who selects and who benefits?- the effort-benefit balance of this kind of co-creation initiative, tends to be most beneficial for the firm. Therefore you could argue whether this is contributing to client loyalty, which is strongly connected to a ‘win-win’ outcome. Most of the time companies are not willing to change processes, because this also means a decrease of control.

Collaboration on the front-end always calls for a transformation of the back-office. The firm has to provide full transparency and has to share risks as well as profits.

But does this matter?
Why should we have a theoretical discussion about what is ‘genuine’ co-creation? Is a superficial co-creation form endorsed with mass communication, like an idea competition, worth less than a small-but-deep open source development community? For a large company an idea competition or for instance customization, can help to experiment with customer collaboration and client centricity. You can compare it with ‘green’ environmental activities, at first used to manipulate the common corporate image, but nowadays integrated in core processes and part of the corporate strategy.

At the moment there are just a few examples of companies that adopted co-creation in multiple processes along the development and usage value chain. We expect this is not because of a clear strategy, but due to the lack of focus on
co-creation and internal competition with other priorities.

Superficial with mass vs. profound with a selection of people

Capgemini research has revealed new insights in the building of a strong co-creation strategy, by managing the complexity of co-creation, in order to ensure its success. Managers should make dedicated choices on the level of co-creation and the number of organizational functions involved.

Co-creation has the most impact on product and service innovation when the organization focuses on an organization-wide low level of co-creation (co-creation on many business levels but under strict control and with strict conditions), or when organizations engage in high level of co-creation and involve a small number of organizational functions (completely customizing one small part of their offering on which customers can co-create their experience). What both strategies have in common is that they both enable organizations to maintain control over their co-creation activities.

Always wondered how to get your customer in touch with your Brand DNA? Struggling not to tell them again what you stand for but to really let them feel it? Volvo’s marketing department in the Netherlands gives us a clear example how this can be done. Of course there are some down sides on this initiative which I will get to later, but the main idea is clear example of experience co-creation.

Click on the picture for a short animation

Most of the time co-creation is associated with cooperation during the development stage of products and services. Less attention is paid to co-creation in other stages of the value chain such as distribution, marketing and for instance recycling. This is a missed opportunity because once part of the value creation experience, customers would like to stay involved in other phases as long its relevant and has a balanced pay off.

So what’s the deal Volvo is offering? Let’s take out some facts first: in a radio commercial Volvo is offering their C30 for the reduced price of 20.900 Euro. But that’s just one part of the extraordinary deal: in return of this deduction you have to travel to the factory in Sweden to get the car yourself! Of course this trip is a well managed customer journey. You can expect to see Gothenburg, enjoy nice meals and poke around in the Volvo museum. This all comes to a climax in the Volvo Delivery Center, where clients face their brand new car and are instructed by a ‘delivery consultant’. And finally there is the pleasant drive home through Denmark, with your green-conscious mind strengthened knowing just to consume one tank of gasoline.

Wondering what Volvo drives to arrange it this way? Is it really originated by a smart business case? Like ‘We do not have to transport our car to you, so you get in return a better price and a nice experience.’ Unfortunately that’s not the case. If it would be the case, this would be a perfect example of co-creation in distribution, which is the basis of their Swedish blue and yellow neighbor.

Here is the counter side: the C30 isn’t born in Sweden, it actually leaves the assembly-line in a Belgium plant in Gent. The car is shipped to Sweden where it meets its new owner that just flew in and that owner drives back to nearly 100 kilometers of the car’s origin. This routine now catches some media attention because the eco-friendly C30 has an extra eco-footprint even before it is on the road.

You can argue about this eco-aspect of the deal, but for me it is a great example how to connect the customer to your brand DNA. It’s not just the car, it is the complete Swedish experience of quality design, food and service. Those elements become part of the brand image in a natural way because the interested clients want to have that piece of emotion attached to their car. They are searching for more than car functionality.

Volvo is just there. If this initiative would have a matching business case, clients cooperating to reduce transportation movements, helping Volvo to save money and giving them a reduction plus a nice brand journey in return, it would perfect.
 Let’s rethink your business. What elements in the value creation process can be shared with your clients? Are there smart distribution opportunities for your product, while raising the brand experience at the same time? I am sure we have discovered just a small part of all co-creation possibilities. For sure the consumer is ready to participate, so why wait? 

Tension in the Value Chain

In fact, the aviation industry offers a very complex value chain. Luckily you often do not notice this at all, a few companies will represent a specific part of the chain. You can think of the travel agency, the airport, the airliner, the accommodation and additional services like an airport shuttle or meeting facilities. On the surface it looks like they are all cooperating happily together, offering you that pleasant trip. But there is something important going on in aviation. Right now, all parties are cooking up plans to conquer a bigger share of the pie. They are stretching their activities, trespassing their neighbor’s clearly marked business area.
So, who has the best cards to decide on the new business domain borders?

The most important trend in aviation: ancillary revenues

Companies are fighting for new profit centers. Kerosene prices force airliners to rethink the flight schedule; parking a plane can be an economically right decision. The auction pricing model has become quite common and cost cutting by skipping on board services reached its boundaries. The new promise in aviation is called ‘ancillary revenues’. Meaning getting money out of almost everything except flying. Off course additional services and products exist already for a long time now. But given the new economic context they gain extra attention by airports, airliners and every other company linked to the travel value chain. Basically there are two things to do: A. find new profitable and differentiating ancillary products and B. fight for the client’s favour to become the supplier of the new proposition. This will lead to the following questions:

1. How to invent , develop and market compelling additional products and services?
2. How to become the most favorable supplier of the new proposition, being number one within the ‘evoked set’?

When you consider to answer those questions separately you might become disappointed. Why take the risk and costs inventing and developing products and services for end consumers, while you are not sure the client will purchase it? Market research is capturing client desires, often totally different of real consumptive behavior. Besides this, you are always to late because you start the development process at the moment the client states this need as being most important. By the time the product or service is available the world has changed, consumer desires are modified and the competitor comes up with exactly the same for even better prices.
‘Okay, in that case we do not compete on innovation power, but we launch best in class marketing.’ Good try, but what is the competition doing? Selling that commodity service just labeled with another flashy brand? When the client does not have a historic connection with your brand, a reason to switch supplier is hard to find. In addition to this, the client is less willing to listing to convincing arguments due to the commercial information overload.

It may sound strange, but there is one solution available covering the two topics at the same time.

Shake Up the Value Chain: set up direct end-user interaction, claim your added value and become most relevant.

Involving the client in product & service development, from idea phase to commercialization phase, has many advantages. The chance a consumer will buy a co-developed product is extraordinary realistic and it is quite usual the consumer will become a brand advocate. After the period of product and service development there is less urgency to reach out for traditional marketing methods. There is no gap to close with marketing, because you and your client already know the proposition is unique and relevant. And you will be the fastest supplier of a specific solution, because of the continuing dialogue with the end-user.
Of course this sound interesting, but why would the end-consumer decide to co-create especially with you? Maybe your company is just a small part in the chain; invisible because you are hidden behind a well known consumer brand. This is no excuse. You could be the first company that opens-up for real customer interaction. You can ask for ideas and improvements and you will receive ideas from interested prosumers, as long the topic is relevant. The ‘Shaking Up the Value Chain’ approach is split into three manageable steps to set up and maintain this end-user connection.
With every single moment of client interaction the perceived added value of your brand is strengthened. Your brand will become an unique selling argument, also used by other chain players.
In fact the value chain will become a value network with your company positioned as most relevant for the end-consumer.