A perspective of companies as autonomous value creators that discover and learn about customer needs and then design and deliver value in the form of fixed products and services is increasingly redundant. Today, progressive companies are building new learning and innovation capabilities to co-create adaptive and personalised value with their customers.
Whilst the basic principles and logic of co-creation are widely understood, little attempt has been made to identify and distinguish the different styles of value co-creation that companies can deploy. In this article, I make an attempt to address this shortcoming by defining eight styles of customer value co-creation along with a few examples of companies practising each.
In doing so, I seek to help companies identify which co-creation style (or combination of styles) could be deployed for their particular market and context. Then, I identify the critical questions they need to address to design purpose, strategy and capabilities for realising new co-creation possibilities, leading to growth.
The factors that distinguish different styles of customer value co-creation
First, I identify and summarise the factors that help to characterise the different styles of co-creation. These are:
1. The nature of the value being co-created –Whether the value is defined as functional in nature (embodied in products and technology), experienced-based (in services and interactions) or social value (in relationships), or some combination of these.
2. The location of value co-creation – Where the value is co-created, whether inside the company in early research and development, design or prototyping phases, or in the market or close to the context of the customer’s actual experience, their value-in-use.
3. The degree of mutuality in the co-creation exchange –The balance of value derived by the company, the customer or both from their involvement and knowledge-sharing in the co-creation process.
4. The degree of customer knowledge required – The degree of customer capability and skill required, whether in the form of specialist explicit knowledge contributing to technical product design or more general tacit sharing of changing needs, contexts, perspective and experience.
5. The intensity of company-customer interaction and customer involvement – The frequency and intensity of knowledge exchange between the company and the customer, which may range from continuous to highly intermittent.
6. The number and types of customers involved – Whether value co-creation is limited to lead users, a single customer at a given point in time or all customers.
7. The transparency of value co-creation – Whether customers are performing an active or passive role, i.e. they are aware they are co-creating value with a company or are not.
8. The nature of customer knowledge exchanged – Whether explicit or tacit knowledge, or some combination of both.
9. The degree of customer-customer interaction – Whether co-creation occurs in distributed environments amongst customers and away from the direct management or influence or participation by a company.
10. Who owns the intellectual property created - Whether there is no ownership of any intellectual property or the company takes ownership for its own purposes (which relates to the third factor - the degree of mutuality in the co-creation exchange).
After consideration of the above factors and a review of company examples, I settle upon two criteria that together are most able to distinguish different styles of value co-creation. These are:
(1) The nature of the value being co-created created, ranging from standard, fixed product-based value to unique, personalised, adaptable experience-based value.
(2) The location of value co-creation, extending from within the company with limited customer involvement, to the point of use by a customer or user in the market.
By deploying these two criteria as intersecting x and y axes, it is possible to plot eight different styles of value co-creation on a chart, as shown in the figure below.
The Eight Styles of Customer Value Co-Creation
With examples, the eight different styles of value co-creation are as follows.
(1) Product Finishing. Here, the customer completes the product or service and is the final co-creator of value in the business model or value chain, e.g. IKEA.
(2) Lead User Collaboration. In this style of value co-creation, a limited number of expert customers are invited into the company to share their knowledge and contribute to the development of new products and services. Examples include 3M (which attributes much of its innovation success to lead user collaboration), Apple, Adidas, Lego and BMW.
(3) Existing Product-Service Feedback. Here a company actively solicits expressed customer needs or feedback to improve its products and services using traditional market research techniques. Most companies do this, although there are risks arising from solution bias when applying the literal voice of the customer to new product development.
(4) Mass Customisation. This style of co-creation consists of the provision to the customer of a limited set of company-determined options with which the customer can personalise a standard product or service template. Examples include miAdidas custom shoes, Dell PC’s, Lands End clothing and BMW cars (plus nearly all vehicle manufacturers) (for more cases, refer to www.mass-customization.de).
(5) Open Innovation. I distinguish open innovation as a standalone form of value co-creation because a) it is more distributed and b) companies cede more control to the community of users and creators. Examples include P&Gs Connect and Develop, Innocentive, and the PatientsLikeMe platform that allows patients to share knowledge and experience about their conditions, and co-create solutions (http://www.patientslikeme.com).
(6) Collaborative Service Design. I distinguish Collaborative Service Design from Lead User Collaboration (no. 2 style above) because services tend to involve more users in the innovation process and are also easier to test in markets than products through experimentation. Also, of course, service value is inherently more adaptable than tangible product value, involving more interaction. There are plenty of examples of course. One is that of the Kone Corporation (www.kone.com). It has discovered new opportunities in markets beyond its core business of elevators by creating a wider service-based frame of value that it defines as ‘people flow’. Deploying collaborative service design with all actors in this value frame (architects, developers, users, facilities management and building maintenance etc.) this representation has reshaped how Kone and its customers think about value and engage in its co-creation.
(7) Real-Time Service Adaptation. Moving more to within markets and value-in-use with higher levels of adaptability, this style of co-creation is characterised by high levels of customer interaction. This allows individual customers to co-create value in real-time. For example, Cemex allows its customers to modify the delivery time and quantity of cement to fit with their changing requirements; Fedex allows large corporate customers to change package transit times and destinations in real-time. These are enabled via an intelligent service interface between the company and individual customers.
(8) Personalised Experience Co-Creation. Finally, this style of value co-creation is the most adaptable and unique to the individual customer. Here, the company and a customer interact within an experience environment to realise unique co-created value through shared knowledge. In this style, the locus of value is not the product or the service but the customer’s experience of interaction with a company, its platform of partners and other customers. Examples include Medtronics’ MyCareLink system where value is not only found in the pacemaker technology worn by a user but in the intelligent care network and support system that it provides access to. Another is that of John Deere. Here, the value is not located in the functional performance of its agricultural equipment, but in the integrated remote sensing, diagnostic and learning capabilities of its MyJohnDeere platform, an information system to help agricultural producers optimize the management of production data, equipment information and farm operations (for more on this, see here.)
Some questions to consider
In the sequence described above, the eight styles of value co-creation can be seen to move progressively from within to beyond the traditional boundaries of companies, from R&D to experience environments.
This inside-to-outside shift in the locus of innovation and value co-creation has profound implications on several levels. These include:
- How a company defines its purpose and strategy, particularly if it reframes all value as service value (Style 8)
- The value it places on customer-held knowledge and the frames it uses to capture and usefully deploy it
- How it represents value and operates spaces for teams to search for novel opportunities and possibilities to co-create it
- How it defines return on investment beyond financial measures to include knowledge value, which may change the priority it gives to different value propositions
- How it organises the innovation process or approach itself and the roles and collaborative efforts of functional teams within it
- How it defines its business model and its ongoing evolution
In summary, each of the eight styles of co-creation requires distinct capabilities and resources for sensing, shaping and seizing novel opportunities and possibilities for innovation and growth. To build these successfully, a company must first define a clear purpose, decide how it represents value in its business model, and then determine the particular styles of co-creation it wishes to pursue.
The above article was first written in 2007 and updated in August 2017 with new company examples.
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Chris Lawer is the CEO of Umio. He can be contacted at firstname.lastname@example.org