Claiming the Competitive Edge---One Customer at a Time
To succeed in "new age of innovation," firms must partner with individual consumers to co-create customized experiences, say researchers.
ANN ARBOR, Mich.—Who will shape the consumer experience of the future? The actual consumer, argue Ross professors C.K. Prahalad and M.S. Krishnan in The New Age of Innovation (McGraw-Hill, 2008). Their new book, subtitled Driving Co-Created Value Through Global Networks, asserts that the most successful companies no longer invent products and services on their own, but rather "co-create" them in partnership with customers.
"The sources of value are rapidly shifting from products to personalized experiences," Prahalad says in a recent interview with InformationWeek. "They are shifting from dependence on a company to a network of suppliers, and, from the company deciding unilaterally what consumers can have and should expect, to co-creating value with the active involvement of consumers."
One example that clearly demonstrates the concept of co-creation is the Web site Facebook. Facebook's purpose is not to sell products or provide a service, but rather to help individuals shape their own unique Internet experience using customizable applications, profiles, images, and groups. No single user has the same Facebook experience, and Prahalad and Krishnan note that increasingly, no consumer will have the same experience with any business.
"It's clear that companies need to re-evaluate their capabilities for this emerging business model," Krishnan tells InformationWeek. "They need to re-examine their core capabilities in business processes, talent management, and business analytics, as well as their use of IT systems."
The authors cite Apple, Google, ING, McDonald's, and Starbucks as companies in the forefront of personalized, globally sourced innovation. They also point to a life insurance product in India that is priced according to customers' compliance with a personalized health program. ICICI Prudential regularly tests blood sugar levels and other vital statistics and then adjusts insurance rates based on the results.
"If this trend is already transforming a wide variety of industries, it's prudent to ask 'How will it impact me and my work?'" says Prahalad in the article.
At this time, the authors point out, most companies are not structured to capitalize on co-creation. Organizations tend to be built around an old-school model of creating products and services and then offering them to consumers. With the innovations proposed by the authors, companies would instead co-create products and experiences with the consumer in real time. As a result, the consumer's set of choices will be infinite, not limited as they are in the current model of mass-customization.
"Success in this new business model brings out the centrality of business processes enabled by information technology and social architectures to value creation," says Krishnan.
Companies that fail to adapt to the co-creation framework may be the ultimate losers in the fight for innovation, according to the authors.
Prahalad, a best-selling author and expert in corporate strategy, is the Paul and Ruth McCracken Distinguished University Professor of Strategy at the Ross School of Business. He is a consultant to some of the world's foremost companies. Krishnan is a Michael R. and Mary Kay Hallman Fellow and chair of business information technology at the Ross School. He researches corporate IT strategy, business value of IT investments, and management of distributed business processes.
Learn more about the authors, their book The New Age of Innovation, and the co-creation concept at newageofinnovation.com
Written by Leah Sipher-Mann
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InformationWeek interviews C.K. Prahalad.
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