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The Power of Co-Creation

9/7/2010 --

A Q&A with marketing professor Venkat Ramaswamy.

The traditional goods-and-services model of business is getting a makeover. Shoe companies, fashion houses — even cement companies — increasingly are engaged with customers, suppliers, and other stakeholders in a quest to co-create value. It could be Nike Plus installing sensors in shoes and providing software for athletes to display performance stats online. It could be Starbucks encouraging people to post ideas, vote, and talk about how to improve their experience. Marketing professor Venkat Ramaswamy and C.K. Prahalad first explored why companies were moving in this direction in their 2004 book, The Future of Competition: Co-Creating Unique Value with Customers (Harvard Business School Press). Now Ramaswamy and co-author Francis Gouillart deliver the "how" in The Power of Co-Creation (Free Press, 2010).

Dividend: How quickly is co-creation being embraced, and what's driving it?

Ramaswamy: I just Googled co-creation yesterday and got 20 million hits. Two years ago it was about a million. To me, that's an indication it's exploding exponentially. A lot of it has to do with the Internet, communication technology, and social media. They all drive interaction. People want to be engaged in the value they get from the product or service and have some say in how it's designed. Delivering a high-quality product is not enough. And it's not just about engaging customers anymore. It's about engaging all stakeholders, including employees who use social media. I'm also seeing more co-creative partnerships with suppliers. So the book is trying to get us up to speed on co-creation, the here and now. People are getting warmed up to co-creation. It's in the air. But enterprises don't fully understand its scope and how to leverage it.

Dividend: Are there also internal company drivers such as the intense need to innovate and create more effective ways to do it?

Ramaswamy: Innovation itself is undergoing a lot of change. People today realize they can't just innovate within the company. They need to open it up. That's why you see all kinds of contests where companies are trying to tap into ideas. You see people using open innovation tools, wikis, social media, and bits and pieces of new communication technologies. So what does that all imply? It implies innovation is much more dissipative. For instance, P&G's previous CEO A.G. Lafley mandated 50 percent of P&G's innovation had to come from the outside. That's one part. The other part involves the ability to grow in emerging markets like India and Brazil. By one estimate, in the next 40 years about 80 percent of global growth will come from countries outside North America, Europe, and Japan. But if companies want to grow in emerging markets, they can't take an existing model and just put it there. A company in India recently developed a $69 refrigerator that doesn't require electricity. That's the kind of innovation required in those markets. If you are going to serve the poor as a market, you have to create value the way they want it created. To do that, you're going to need more than market research. You need much deeper, continuous engagement with your partners.

Dividend: The book provides a lot of examples, and the benefits of co-creation are pretty clear. So why are many companies slow to get on this train?

Ramaswamy: It's the mindset, or lack thereof. Most companies are focused on products and processes. The process thinking can get in the way. When you do engagement on a large scale, you need to build some kind of platform. Sometimes it's hard for a traditional company to go and make a case for it. But you need to make an investment, and that's very challenging. It's not a program. To make a business case for a platform where it's not concrete – where it's a means to an end – is not easy. But this is the cost of doing business, and it's something people fail to see or accept, which also is understandable. But once they start seeing it, there comes a tipping point. People ask me what is the return on engagement? I don't know. Engage and find out. It requires some experimentation.

Dividend: Some of the examples, such as Nike Plus, required an investment in people, technology, or both. But some, like Club Tourism, took a successful low-tech approach. Can you start small and build big, or do you need to jump in with both feet?

Ramaswamy: Starting small is more doable. Nike Plus started with social networking, using a sensor in the shoe that measures running performance and software that displays it on an iPod, iPhone, or any computer. Athletes can share the data with other athletes and coaches, etc. Compared with Nike's strategy as a whole, it's a small piece. But it demonstrates continuous engagement. The way to transform is to start with some experimentation. Club Tourism has a model for a co-creative travel experience. Every event and interaction with a customer is recorded and filed, using low technology like ordinary paper. The company has filing cabinets galore with tags and codes and colors, which are easily accessed. So if a Club Tourism employee wants to engage customers in creating a trip together, they have instant access to information about people's past travel experiences and can involve customers in sharing these experiences. The point is, you need some type of enabling engagement platform, whether it's Web-based or people- and paper-based.

Dividend: How do companies make use of all that data and feedback? How do they separate the useful information from the chaff and put it to work?

Ramaswamy: It's a challenge, but there are a couple of things you see companies doing. Starbucks got people to post ideas, vote, and talk about how to improve the Starbucks experience. They do a good job of putting information in categories and tagging them. But the company's managers still have to make decisions. In the first two years, they received more than 80,000 ideas. They implemented about 50 that made sense to them. Transparency and dialogue are most important. Starbucks has ongoing conversations with customers. They tell consumers what they are thinking in terms of ideas being reviewed by the company – what makes sense and why. Co-creation is an ongoing process, and you learn. You need to take it seriously and actively manage it.

Dividend: Some of your examples with help-desk call centers will be of interest to people who have been in call center hell. How hard was it for Nestle and Nokia to change the culture at their call centers?

Ramaswamy: Quite difficult. In the case of Nestle, they had a captive call center and the challenge was for the CIO to justify the investment. He had to go against the grain and not outsource it. His point was that the call center is a place where there should be a dialogue. He thought an outsourced call center would focus on conventional quality and productivity metrics –maximizing the number of calls processed, "handle time," etc. In his view, that priority was misplaced. Once the higher-ups saw added engagement led to better customer insights, better product traction, and more market success, he was able to open three additional call centers in a hurry. That's a good example of a mindset shift. Nokia India was a little different. They used outsourced call centers for their customer care. But they had to sit down and reform their agreement to influence how customers are engaged in order to enhance the experience.

Dividend: It seems that for people to embrace the co-creation idea, they have to see it in their own context. They say, "Sure Google can do it. They're a platform company. Nike can do this. They're a huge company. How does this apply to me, an asphalt company?"

Ramaswamy: If you look at companies that failed and companies that succeeded during a time of change, I'm willing to bet that in the successful cases, people affected by the change were engaged in the change. It's as simple as that. The way you get to co-creation is through co-creation. Otherwise change feels imposed. People react negatively to the imaginary pain of change. If you can make it easier to understand the idea of co-creation from that context, it works. It doesn't matter what business you're in. Think about interactions people have in your business. That's what we tried to do in the book with everyday examples – shoes and call centers. As head of the asphalt company, the first step is to have a conversation with your customers or your employees about their experiences with your product and service.

Dividend: Will there be a day soon when co-creation becomes like the quality movement — starting with a few early adopters and then just becoming a universal way to do business?

Ramaswamy: I think it's going to happen. My thought when writing the first book was, "Why co-creation?" Now we understand the "why" better and we get the "what" in more detail by breaking it into components like experiences, interactions, engagement, and relationships. How are companies faring? Do we have all the answers? Absolutely not. But more companies are attempting co-creation, and we'll all learn something. Part of my job is to understand these efforts and challenges, and continue to evangelize and get people to see the power of co-creation, while continuing to learn from it all.

—Terry Kosdrosky

For more information, contact:
Terry Kosdrosky, (734) 936-2502,