Managing the innovation co-creation challenge

Managing the innovation co-creation challenge:Lessons from service exemplars Disney and IKEA

Robert C. Ford, Bo Edvardsson, Duncan Dickson, Bo Enquist

Organizational Dynamics (2012) 41, 281—290

Available online at www.sciencedirect.com

jo u rn al h om ep ag e: ww w.els evier .c o m/lo c ate /o rg d yn

INTRODUCTION

In a service-driven economy, companies seek to increasetheir competitiveness through innovations that can createvalue for existing customers, attract new customers, andenhance shareholder value. This is true not only for the serviceindustry, but also for the traditional manufacturing sector thatis discovering that it can gain a competitive advantage byadding services to its manufactured market offerings.

This trend is emphasized by marketing scholars who arguethat companies no longer can think of themselves as onlyselling products and services to customers, but must think interms of how they co-produce solutions that customers canand will value as meeting their needs. Customers, in thisview, don’t really want a drill bit or a jet engine, they want ahole the bit makes and power the engine provides. In otherwords, value is determined by the experiences that productsand services provide and not by what they are.

Arguing from a logic based on the dominance of serviceas the basis of market exchange, all organizations, manu-facturing and service, are actually service providers as theyco-create value with their customers. Thus, organizationalperformance is determined by the ability to integrate theknowledge, skills and capabilities of an organization withthe knowledge, skills, and capabilities of its customers toco-create an experience that customers can successfullyco-produce. Whether an organization manufactures a phy-sical product or provides an intangible service experience,it is what is co-created with the customer that producesvalue.

Every encounter between company and customer thatrequires each to perform in some way to co-produce a servicerelies to a degree on some form of collaboration that yields anintegration of each one’s knowledge, skills and capabilitiesfor the experience to be of value. This process can take anyof several collaborative forms, ranging from intensive give-and-take brainstorming discussions between company and

0090-2616/$ — see front matter # 2012 Elsevier Inc. All rights reservedhttp://dx.doi.org/10.1016/j.orgdyn.2012.08.003

customers, to indirect data gathering and analysis throughlarge scale customer surveys, to intensive data mining thatanalyzes customer behavior.

The success of those organizations that recognize thevalue of this co-creation collaboration is changing the wayothers look at what they do and what they must do better tostay competitive in a rapidly changing marketplace. Thechallenge is not only in expanding the definition of what aproduct or service is for today’s customer, but also in inno-vating new and attractive solutions for tomorrow’s customer.Although the idea that all organizations must find ways toengage their customers successfully to co-produce a serviceand co-create its value is gaining acceptance, the idea thatcustomers should also be engaged in co-creating innovationsand the new co-production roles these innovations willrequire have seldom been discussed.

CO-CREATING SERVICE INNOVATION

While a large literature discusses the importance of thecompany managing its resources and capabilities to achievesuccessful innovation, and another large literature discussesthe importance of the role the customer plays in successfulinnovation, we could not find discussions of the importance ofsimultaneously managing the learning needs of both companyand the customer in successful innovation. We argue thatcompanies that are successful in developing sustainableinnovations have discovered the value and the process ofco-creating them with their customers.

By offering examples from two international companieslargely considered service excellence exemplars, we detailhow these successful companies integrate their customersinto their innovation development process. We then presenta model that categorizes the dual roles and responsibilitiesthat co-creation of innovation requires of both customer andcompany as a guide to those seeking to learn from the successof these benchmarked companies.

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http://dx.doi.org/10.1016/j.orgdyn.2012.08.003

http://www.sciencedirect.com/science/journal/00902616

http://dx.doi.org/10.1016/j.orgdyn.2012.08.003

Innovation from the

Company’s Persp ective

Radical

Incremental

Incrementa l Radical

Innovation from the Customers’ Perspective

Cell 1: Experience Ex tension -

Incremental ly New to

Customer/Radically New to

Company

Examples:

Disney’s Ep cot Pre-const ruction

Simula tion

IKEA’s IKEA Foo d

Cell 4: New Experien ce - Radically

New to Cus tomer/Radic ally New to

Company

Examples:

Disney’s Hi gh Tech Fast pass

IKEA’s 3D Busine ss Website

Cell 2: Experience Enh ancement-

Incremental ly New to

Customer/I ncr ementally New to

Company

Examples:

Disney’s Wi ld Africa Tr ek

IKEA’s Japan Market Entry

Cell 3: Experience Refr aming -

Radically New to

Customer/I ncr ementally New to

Company

Examples:

Disney’s Ticket Book Elimination

IKEA’s The Kitchen Pl anner

Figure 1 Co-Creating Successful Innovation: Examples from Disney and IKEA

282 R.C. Ford et al.

Our argument is both simple and profound. If theresources and capabilities the customer brings to the serviceexperience must be simultaneously coordinated with thecompany’s to successfully co-produce today’s experiences,then the customer must be included in the company’s strat-egy to co-create innovations for tomorrow’s experiences aswell. This paper provides a unique framework to analyzethe roles that both company and customer should play tosuccessfully recombine, reconfigure, or supplement theresources and capabilities needed to co-create innovationsthat succeed.

We suggest that the missing ingredient in understandinghow to achieve successful innovation over time is that com-panies do not consider the simple truth that both they andtheir customers will have to change. Simultaneously incor-porating the knowledge, skills and capabilities of both cus-tomer and company through a process that ensures theircollaboration is the innovation co-creation challenge. Orga-nizations that successfully co-create innovation use thisprocess to not only manage the resultant changes internally,but also understand what their customers and others involvedmust learn and do to successfully co-produce the newlycreated experience. We contend that firms that manage thisco-creation challenge well are likely to have innovations thatsucceed.

Two firms that are widely recognized as successful inrealizing the value of co-creating innovation for themselvesand their customers are the Walt Disney Company and IKEA.They have both demonstrated a sustainable ability to engagetheir customers in successful co-production of today’s experi-ences and in co-creating innovations for tomorrow’s. Basedon our extensive research of service innovation and howthese two companies successfully co-create and co-produceit, we believe that the key reason behind their success is that

they systematically co-create with their customers the newroles and behaviors required by innovation and then teachboth their own employees and their customers how to per-form.

The lesson all organizations seeking to successfully imple-ment innovation can learn from these two benchmark serviceorganizations is simple: take the time to co-create theinnovation with customers, so that the co-productionrequirements for successful implementation can be plannedfor and taught to both customers and company employees.These companies carefully study what their customers andemployees will need to know and do to co-produce the magicat Disney and the real life solutions at IKEA and then makesure both have the resources and capabilities needed tosuccessfully perform in their roles.

Here we present, describe, and illustrate the applicationof an innovation matrix (Fig. 1) that depicts the key concernsin customer and company co-creation of innovation we foundin these service benchmarks. This matrix categorizes thedegree of learning that an innovation requires of both orga-nization and customer to identify an effective implementa-tion strategy. We illustrate our points through Disney’s use ofits famed ‘‘Guestology’’ and IKEA’s use of its approach toproviding ‘‘Solutions to real life problems at home.’’ Thesetwo different companies are similar in how they both suc-cessfully co-create service innovations. The model, derivedfrom their success, provides guidelines to all firms seeking toimprove their chances for successful innovation.

DISNEY’S GUESTOLOGY

The term ‘‘Guestology’’ describes the Walt Disney Company’sapproach to fulfilling its commitment to excellent guest

Interconnection between customers and employees in co-creating innovation 283

service. It was coined by former senior executive, Bruce Laval,at Walt Disney World in the late 1970s to communicate thecustomer focused logic of decisions made in creating Epcot. Ina published interview, he defined it as ‘‘the scientific study ofthe behaviors, needs, and expectations of the guests and howto use this data optimally design and manage a theme park.’’ A‘‘Guestologist’’ is one who manages the organization from theguest’s point of view. Guestology defines the science thatmakes and continuously improves the magic at Disney. It isDisney’s commitment to include their customers in co-creatingthe experiences their guests co-produce.

Disney co-creates innovation with both individuals andgroups of customers. Not only do its guestologists use guestinterviews, surveys, and focus group data in their systematicefforts to collect customer input, but they also constantlytalk with and study their individual guests’ actual behaviorsto find out exactly what their customers do when co-produ-cing their ‘‘magical’’ experiences. Moreover, these dataallow Disney to train its employees to co-produce in thenew roles required for both guests and employees in anyinnovations, as well as to accommodate ever-changing guestbehaviors and expectations. They know each guest is unique,with differing capabilities that can impact how each guest co-produces the Disney magic. Disney’s goal is to sustain asuccessful business model based on its ability to co-createmagical experiences that when co-produced with its guestsdeliver or even exceed the promises that its marketing makesand, thereby, make a profit.

IKEA’S ‘‘SOLUTIONS TO REAL LIFE PROBLEMSAT HOME’’

IKEA, as the world’s leading furniture company, seeks to pro-vide its customers with solutions to real life problems at homeby involving customers in co-creating the solutions. IKEA’svision, as noted in its 2011 Sustainability Report, is ‘‘to createa better everyday life for the majority of people.’’ The socialtrends in the twentieth century toward increasing democrati-zation in IKEA’s home country of Sweden had convinced IKEA’sleadership of the value of actively engaging with its customersand co-producers wherever they are. Consequently, it activelyseeks to learn about ordinary people’s lives in each differentcultural context and life situation (e.g., families with children,elderlypeople,andstudents)whereitoffers itsproducts.Usingits extensive data base of customer surveys, customer com-plaints, customer suggestions, observations in customers’homes, and focus group interviews, IKEA designs and offersdurable and functional home furnishing products that are‘‘solutions to real life problems at home’’ regardless of wherethat home is. As chief executive officer (CEO) Mikael Olssonnoted in the 2009—2010 IKEA Annual Report:

We are now one year into our new strategic direction,Growing IKEA together! It focuses on growth, mainlythrough serving our customers even better in the future,so we can give more people possibilities to improve theireveryday lives at home. We are on a constant journey tofurther develop our product range, which is distinctivelyIKEA but with the local flavor of each market.

Because IKEA has learned the importance of co-creatinginnovation with its customers, its company culture is based

on offering products that enhance shared values and mean-ings. Thus, its managers listen closely to customers andactively seek out ways to meet their customer’s expecta-tions.

LESSONS FOR INNOVATION FROM DISNEY ANDIKEA

If a company’s goal is to provide outstanding service experi-ences that drives repeat visits not only today but alsotomorrow, then it must understand why guests come to itin the first place, what guests expect to co-produce, whatknowledge, skills, and abilities those guests possess, and howto make sure that its employees are ready, willing, and ableto do what they must to meet or exceed guests’ expectations.

The beginning point for both Disney and IKEA’s innovationco-creation process is identifying their customers’ key valuedrivers. Key value drivers are those specific activities, inter-actions, touch-points or functions that are provided to cus-tomers, which, based on how well they are performed, have adirect impact on the overall success of the company and thevalue of the customer’s experience. These are what theinnovation literature calls performance attributes. If thecustomer’s rating on a specific activity, interaction or func-tion has a direct and significant relationship to the overallsuccess of the company, then it is a key value driver.

The most direct way to identify key value drivers in co-creating innovation is to ask the customers in surveys, focusgroups, or individual interviews. They can tell the company agreat deal about what it is doing that works or doesn’t work.They can also identify what the key value drivers in theexperience are and, consequently, where innovative activityneeds to be focused.

Innovating a customer solution is a special challenge forservice companies, as experiences exist in customers’ ima-ginations when they co-create them and in their memoriesafter they co-produce them. Thus, for a newly createdintangible service customers are asked to co-produce anexperience that they have never seen or done before. Onthe other side of co-producing a service innovation is thecompany that has to gather and organize its resources andcapabilities to co-produce an experience that it has neverproduced before either. For an elaborate service, this canmean a major investment that does not meet enough cus-tomers’ needs or adequately match their capabilities to beprofitable. Co-creating a cruise ship, information system, ormedical service that customers won’t or can’t use requires alot of upfront money, only to find out that what seemed like agood innovation in the customer co-creation process, wasn’t.

THE ORGANIZATION/CUSTOMER SERVICEINNOVATION MATRIX

Fig. 1 shows a matrix that describes four different ways thatcustomer and company co-created innovations can beplanned and implemented. The intersection of requiredtasks, roles, and responsibilities for these two co-creatingpartners in innovation allows identification of managerialstrategies for planning what the learning needs of customerand company are for successfully performing in their new co-producing roles. The innovation for the company might be an


incremental change over an existing service offering or itmight be discontinuous and radically different from anythingit has offered before. Likewise, the innovation for the cus-tomer might be classified the same way into incremental andradical. The innovation research provides evidence that theextent of change for either customer or company will make adifference in selecting an innovation strategy. The differencebetween the two categories for both company and customerdetermines the extent of learning required to co-create andthen co-produce the experience.

Disney’s Guestology and IKEA’s ‘‘Solutions to real lifeproblems at home’’ approaches have led to effective co-created innovations by requiring managers to match the typeof innovation co-production requirements to both their com-pany’s knowledge, skills and capabilities and their custo-mers’. We offer examples from both organizations wherethe application of their customer-focused philosophy led tosuccessful co-created innovations in each of the cells toillustrate the use of the matrix defined in Fig. 1.

CELL 1: RADICAL CHANGE FORORGANIZATION/INCREMENTAL CHANGE FORCUSTOMER

The first type of innovation is at the intersection (cell 1)where the innovation represents a radically new way ofoperating from the company’s point of view, but is stillconsistent with its organizational mission. It is not likeanything it has done before and the company does notcurrently have all the knowledge, skills, or capabilities todeliver it.

The company will have to carefully plan for implementa-tion and the new roles its employees must play in co-produ-cing it. Redesigned delivery systems and facility layouts, newemployee training, changes in reporting relationships andrevisions in organizational policies and procedures will berequired. For the customer in this situation the change,however, is incremental, as it seems similar in its co-produc-tion requirements to previous market offerings even thoughit is new and different. Using Disney and IKEA as examples, wecan see how these two companies planned and executed aninnovation that was radically new for their organizations, butonly incrementally new for their customers.

Experience Extension at IKEA

A popular Swedish saying is ‘‘The way to more satisfiedcustomers goes through the stomach.’’ IKEA began askingits customers about their perception of the value of offeringfood products at IKEA stores during the early part of the newmillennium. Reviewing customer feedback, IKEA learned thattheir shoppers wanted food to be available in IKEA stores andeven indicated what kinds of foods they wanted. Conse-quently, IKEA Food division was created with its mission‘‘to help the IKEA store sell more IKEA home furnishingproducts.’’ Based on customer input and IKEA’s business plan,this new division consisted of four units: an in-store publicrestaurant, a food market, a Bistro, and a staff restaurant.

As with IKEA’s furniture, the food division was created tolink to the company’s Swedish heritage. Thus, IKEA offered itsfamous Swedish meatballs in its restaurants, while hot dogs

and other fast food items were available near the checkoutcounters. Besides its core food offerings, customers couldfind many Swedish specialties varying by the season. In thesummer, IKEA offers different traditional Swedish bakerygoods, such as rhubarb tarts or lemon muffins. From mid-October, it stocks Christmas specialties such as gingerbreadhouses and Swedish glogg.

Although customers saw adding food to IKEA’s experiencein its stores as a simple thing to do, this was a radical changefor the organization. Providing food required not only creat-ing a new supply chain, inventory system, purchasing unit,and retail strategy, but also doing a considerable amount oflearning at the organizational and individual employee level.IKEA was unable to utilize the same process it had developedfor purchasing wood and other furniture-related materialswhen it added over 100 new suppliers for its food section.Moreover, IKEA food had to create its own systems andmanagement capabilities to uphold standards for both qual-ity and value for selling its food products.

Customer feedback from surveys and interviews indicatethat this co-created innovation is a well-received idea.Customers can co-produce a greater value experience atIKEA because they can not only shop for IKEA home furnish-ings but also eat in the stores and buy Swedish food to takehome. This has yielded benefits for both customers andcompany. IKEA data show that the food offerings have hada positive impact on customer satisfaction and sales.Although it was co-created to enhance the customer experi-ence, it is a profitable business unit.

One further benefit gained by IKEA from its new foodofferings resulted from the feedback obtained in its co-creation process. IKEA learned by collaborating with itscustomers that many, especially in Europe, prefer food pro-ducts that are produced in environmentally friendly andsocially responsible ways. Thus, all of IKEA’s coffee is UTZCertified. This certification means that the beans can betraced back to a growing plantation that is compliant withsocial and environmental standards for sustainable coffeegrowing and distribution. Since IKEA’s furniture business,local, national and global, had already systematically inte-grated sustainability into its everyday operations, IKEA foodnow does this as well. IKEA has learned that these things payoff in customer loyalty, satisfaction, and profits. As IKEA’sCEO stated, ‘‘we seek to do well by doing good and this meanshaving sustainability as a key driver of our future growth anddevelopment.’’

While food products seem like a simple extension of IKEA’sofferings, adding them to its market offerings was a majorchallenge for IKEA and its employees because the supplychain, employee training, customer expectations of howtheir food products were produced, and the food safety rulesand regulations were all totally new to learn.

Experience Extension at Disney

Epcot is an example of an innovation where the Walt DisneyCompany was seeking to offer something radically new that ithad never done before, but from the guests’ perspectiveseemed to only be an extension of the familiar theme parkexperience. The company invested $1 billion to createEPCOT, an innovative concept theme park. The radical dif-ference was in how the individual attractions at Epcot would


need to be designed to hold guests for longer period of times. Itis a much different management problem to plan capacityutilization, guest flows, and queue design for the hours a guestwould spend inside Epcot’s ‘‘Land Pavilion’’ than it is for theminutes spent on the Magic Kingdom’s ‘‘Space Mountain.’’

No one had built a park like this before, so a major effortwas undertaken to collaborate with customers on how theywould co-produce this new park’s experience to minimize therisk of building an innovation that dissatisfied customers.Besides gathering direct guest input into this innovation,Disney’s planning team, its Guestologists, also created acomprehensive computer simulation of how guests wouldactually co-produce the Epcot experience as a basis formaking critical planning decisions related to the ‘‘location’’and ‘‘amount’’ of capacity for all operating facilities in thepark.

Using its extensive guest data, interviews, and diaries, themodel could simulate how guests spent their time and movearound the park during a full operating day. For example, adesign day, which might be set at 50,000 daily guests, wasprogrammed into the computer model to have guests arriveat a rate which replicated those at other parks. Individualguests were simulated through the model of the park basedupon ‘‘demand factors’’ and ‘‘guest behavior’’ standardsestablished through intensive study of guest behavior in otherparks.

As described by the developer of this model in an exten-sive published interview:

The simulation model replicated the way guests maketheir decisions as they moved about Epcot. There arebasically only six choices guests can make. If they areleaving an attraction, for example, they can decide tonext go to another attraction, to seek out a restaurant toeat, to stop and shop at a merchandise shop, to view areaentertainment, go to the restroom, or to just stop for abreak or rest. We knew from our research what percent-age of the guests will do each of these activities at anygiven time of day. The probability of what they do next weknew is a function of what time of day it is and whatactivities they have done up to that point in their day.Therefore, our simulation model was designed to repli-cate the decision-making process that guests make everytime they exit an attraction in order to determine whatthey are going to do next.At the end of a simulation run for an entire day, we couldproject utilization rates for all facilities and trace guestflow patterns throughout Epcot. We knew what the de-mand and percentage utilization we would have on all theindividual attractions, restaurants, merchandise shopsand even bathrooms. We could also project what the waittimes would be based upon the design capacity of thefacility.

The point is that Disney, like IKEA, recognized it had toincorporate what it had learned from talking to and observingguests to co-create this radically new theme park. While theyknew from their studies of guests that they would not seetheir co-production roles in Epcot as that much differentfrom those they played in traditional theme parks like theMagic Kingdom, the planners knew that the organization hadto ensure that guests could successfully co-produce whatwould be operationally and managerially a radically new

experience. Likewise, IKEA realized that it had to extensivelyplan for the introduction of a new product line that they knewcustomers would see as only an incremental innovation, butwould require IKEA to develop a whole new way of operatingits business.

We might add that most organizations are familiar withthis type of innovation as it is the most commonly discussed.It is one of two cells of our model where the role of thecustomers in co-producing the new experience remains sosimilar to the old that they do not need much training orlearning to successfully co-produce tasks or responsibilitiesrequired by the innovation. What makes this type of innova-tion different from the discussions seen in much of theinnovation literature, however, is that both companiesstarted with their customers to ensure that the innovationincluded extensive customer input so that the new experi-ence would require little learning or changes in role expecta-tions of its customers.

These two exemplars illustrate their recognition of theimportance of seeking their customers’ knowledge and asses-sing their capabilities to co-create an experience that theywould have to successfully co-produce. Both companies knewthat innovations that required minimal new learning bycustomers tended to be more successful. While they didn’thave to teach their customers much new to benefit fromthese innovations, they both took their customers’ learningrequirements into consideration as they fleshed out thedetails of the radical change for their own operations andpeople. In other words, studying and asking customers abouttheir needs, expectations, and behaviors is for these com-panies a critical component of co-creating innovations.

CELL 2: INCREMENTAL CHANGE FORORGANIZATION/INCREMENTAL CHANGE FORCUSTOMER

The second type of co-created innovation is seen in cell 2,where the company expands an existing service experienceincrementally to make it somehow innovative. While it maybe different, better, bigger, or newer, it is still only anincremental innovation for the company, as it builds uponsomething that it has done before. For the customer thechange is also incremental, as it feels like a similar experi-ence even though it is new and different. This cell representsthe most common type of innovation and requires the leastamount of new learning by either the company or the cus-tomer. This cell is also where customer input is most easilygathered, as most organizations already have available datain the form of surveys, complaint letters, and other routinelycollected forms of customer feedback. When a hotel orrestaurant asks a departing guest ‘‘is there anything we couldhave done to make your experience with us better?’’ it isseeking customer co-creation of incremental innovations.

Experience Enhancement at IKEA

Cell 2 is illustrated by IKEA’s entry into new geographicalmarkets with differing cultural traditions. The extensiveresearch that IKEA carries out before deciding to enter anew country is reflected not only in what it offers in itsindividual stores, but also in the set up and design of the


‘‘experience rooms’’ (store displays) to ensure that theyaccurately reflect that country’s cultural traditions andvalues. Thus, whatever market IKEA enters, its researchersnot only talk to potential customers individually and collec-tively, but also observe carefully what customers do in theirhomes, how they use their furnishings, and arrange the layoutof their rooms as input into its co-creation.

When IKEA decided to enter the Japanese market in 2006,for example, it conducted extensive research to identify theJapanese peoples’ needs, wants, behaviors, and expecta-tions before it opened the first store. IKEA learned thatJapanese women are very influential in purchasing (co-pro-ducing) interior decorations and decided to focus on femalecustomers for co-creating its approach to entering this mar-ket. Based on the input of a focus group of Japanese women,IKEA learned that home was the most important place tothem. Thus, its ad campaign used slogans such as: ‘‘The homeis the most important place in the world;’’ ‘‘Have you seenyour kids today?’’ and ‘‘Stay home today!’’ While the opera-tions of the stores in Japan were very similar to all other IKEAstores, its co-creation collaborations allowed it to see theimportance of making shopping at IKEA a culturally basedextension to existing ways that Japanese women shopped.

To both customers and IKEA, entering new markets is anincremental innovation. IKEA co-creates its strategy by talk-ing to and studying customers in the new markets to gain adeep understanding of the culture and context of its newcustomers. This research guides IKEA as it adjusts its peopleand processes to fit what it does to what those customersexpect. It is based on offering culturally specific productsthat it knows will fit its existing strategy of finding solutionsfor customers in any country it chooses to enter.

Experience Enhancement at Disney

Cell 2 is also illustrated by the introduction of the Wild AfricaTrek at Walt Disney World’s Animal Kingdom. This experienceis an extra-fee, three-hour guided small group tour ofselected parts of the 100 acres comprising the KilimanjaroSafari Expedition, one of the most popular attractions inAnimal Kingdom. Guest input through letters, surveys, andfocus groups identified the need for more opportunities tosee the animals in the Kilimanjaro Safari Expedition moreclosely and at a slower pace. Since this attraction operates ona tightly timed schedule, the chance for guests to stop andwatch a lion at play, or a giraffe nibbling or any otherinteresting animal event is unavailable. Thus, the Wild Afri-can Trek was co-created to provide this experience.

This experience begins with a walk through forested areasof the attraction where guests put on a special harnessesbefore entering an area where hippos are feeding. Theyproceed across rope suspension bridges, including one thatspans a crocodile filled stream. Guests then board a jeep-type vehicle to take a leisurely tour of the savannah, stoppingwhenever good animal viewing opportunities are available.The tour stops in the middle of the savannah at a strategicallylocated observation station where a box lunch is served whileguests view elephants, giraffes, and other African animals intheir simulated natural habitat.

For Disney, this is an incremental innovation, as it is forthe guest. Disney had previously developed other VIP smallgroup tour experiences inside of their parks, such as Epcot’s

backstage tours, Underground Disney and other additionalcost tours. For guests, this is an opportunity to get a morepersonalized exposure to areas where the regular visitorscan’t go. There are many visitors to Disney World that seek todo something beyond what’s available to any guest; they tellDisney this in their letters, one-on-one interviews, focusgroups, and by the high demand for those tours that areavailable. Obviously, it is in Disney’s interest to create thesewhere possible, as there is guest demand for these specialopportunities.

In the examples of incremental innovations, both theorganization and the customer had to change, but not much.The Disney example shows that it can be a relatively painlessand profitable process. In both companies, guest satisfactiondata was carefully gathered to ensure that the co-createdinnovation was successful.

CELL 3: INCREMENTAL CHANGE FORORGANIZATION/RADICAL CHANGE FORCUSTOMER

Cell 3 represents the third type of innovation, where theorganization sees it as an incremental change, but customersview it as something radically new. In these cases, theemphasis must be placed on teaching customer contactemployees how to teach customers to perform in a new role,in order to co-produce the experience so that the innovationhas more value than what was offered before. Again, bothIKEA and Disney offer illustrations of benchmark organiza-tions that implemented co-created innovations in ways thatits customers can and will co-produce them and get the valueexpected.

Experience Reframing at IKEA

IKEA illustrates this cell with its innovative experiencerooms. Customers had told IKEA that they were having adifficult time visualizing how the furnishings offered in astore setting would fit in their homes. Based on this feedbackand after talking further with their customers about whatthey wanted in their shopping experience, IKEA offered a newdisplay concept that would enable its customers to experi-ence in a store what the furnishings would be like in their ownhomes. IKEA’s goal was to provide the same experience asproduct-based companies can with ‘‘test drives,’’ wherecustomers duplicate the feel of the ‘‘real world.’’ In theexperience rooms they could ‘‘test drive’’ a new kitchen,living room or bedroom. Today, experience rooms — such asinnovative kitchens, bedroom, or offices providing real lifesolutions — are found in every IKEA store as a valued part ofthe service offering.

Although experience rooms are common today in furniturestore displays, IKEA claims to have initiated the idea ofputting together combinations of furniture so that the spacefelt like an actual living room, a kitchen or a bedroom. Thiswas different from what other furniture stores were doing atthat time where different products like chairs, tables orbookshelves were all separated from one another in sections,often in different physical rooms in the store. To customers,this was a radical innovation even though, for the company, itwas merely rearranging its store displays. Based on customer


input, IKEA subsequently expanded this concept to Web-based experiences (such as the IKEA ‘‘kitchen planner’’),allowing customers to simulate or ‘‘test-drive’’ various IKEAproducts in a simulated ‘‘real world’’ setting at home.

On the Web site customers were able to see all the IKEAmodels and find the ones they liked best. Then, they usedIKEA’s on-line 3D planning tool to design their kitchen. Afterseeing what the kitchen looked like in 3D, they visited thestore to experience the actual kitchen they had designed. Atthe store, customers could also talk with IKEA employees whoprovided them with information and specifications.

IKEA has learned that experience rooms inspire customersto buy after they see how IKEA’s products match theirexpectations and needs. They also enhance the customer’sfeeling of making a wise choice, so they are happy with whatthey have bought. This co-production of the furnishingexperience improves its value, engages customers, and hasa positive impact on satisfaction and loyalty.

Experience Reframing at Disney

The elimination of ticket books at Walt Disney World is anexample of co-creating a radical change for the customer andan incremental change for the company. In its early years,wait times were a very big problem across the Magic King-dom. Most, but not all, of the attractions required entrytickets and the highest valued attractions, those requiring E-tickets, had extremely long wait times. In analyzing the datagathered from customer feedback, customer diaries, focusgroups, and guest satisfaction surveys, Disney’s Guestologistsmade a counterintuitive discovery — that the ticket bookswere compounding the wait time problems by creating a‘‘false demand’’ for the higher priced ‘‘E’’ attractions.

To illustrate the problem, consider two attractions in theMagic Kingdom; Country Bear Jamboree and the MickeyMouse Review. Since Mickey Mouse is the main Disney char-acter and part of the Walt Disney brand, the Mickey MouseReview should be more popular and have much longer linesthan the Country Bear Jamboree — all other things beingequal. However, a study of guest behavior discovered thatCountry Bear had an hour wait and Mickey Mouse Review hadalmost none. Bruce Laval, the creator of Guestology,described the problem:

I realized that people coming into the park were using theticket books as their guidebook. Printed on each ticketcoupon was the price of that ticket, which in turn told ourguests what the attraction was worth. The E tickets wereworth $.90, D tickets $.75, C tickets $.50, and A ticketsonly $.10. As an uninformed guest, given that information,what are you going to do? You’ll say, ‘‘Well I’m going to getmy money’s worth. I don’t want to waste my time in themorning on a $.50 ticket or a $.10 ticket — I’m going to getmy $.90 worth.’’ Therefore, everybody spent the firstthree or four hours of the day trying to use all of theirE tickets because they were worth the most money. That’swhy you had very long lines at Country Bear Jamboree(along with all the other E attractions) and little or no linesat the Mickey Mouse Review (a ‘‘C’’ ticket attraction). Itappeared clear to me that this imbalance in wait timesbetween the two attractions was caused by the ‘‘false’’demand created by the ticket books.

We also learned that guests were not visiting some of thebest attractions simply because they were listed as ‘‘free’’in the ticket book. They were free attractions only be-cause they had corporate sponsors. However, they werelisted in the ticket books as ‘‘Free’’ after the ‘‘A’’ coupons,which were valued at only $0.10. This gave our guests theperception that they were not very good, because theyhad no value assigned to them. Carousel of Progress wasone of the most popular attractions in Disneyland, but inDisney World it had little or no lines. The only differencewas that in Orlando the ticket books created the misper-ception that these ‘‘free’’ attractions were of lesser valuethan all the other attractions. I felt that by eliminating theticket books, not only would we spread guest demand outequally across all the attractions, but we would spreadthem into the three underutilized/high capacity freeattractions, which in turn would significantly reduce waittimes in the major E attractions.

Disney used the information it gathered in its studies ofguest behavior and customer feedback to co-create theincremental innovation for the company of eliminating ticketbooks. While not having to buy and manage ticket usage was aradical change in co-production requirements for the custo-mer, for the company it only required small changes in how itoperated. In actuality, it simplified operations, because thecompany no longer had to monitor and collect tickets at theattractions. Moreover, they could eliminate all the in-parksales kiosks and their staffs while eliminating the capacityunderutilization created by the ‘‘false demand’’ ticket bookscreated.

CELL 4: RADICAL CHANGE FORORGANIZATION/RADICAL CHANGE FORCUSTOMER

The fourth cell in the matrix is where the service innovationrepresents a radical change for both the company and itscustomers. This is by far the most interesting and mostchallenging to co-create and co-produce, as it requires sig-nificant learning by both company and customer. Using IKEAand Disney again as examples of companies who recognizeand plan for this co-creation of innovation very well, we cansee the critical importance of managing this intersection ofcustomer and company.

New Experience at IKEA

In responding to repeated calls from its small businesscustomers to better serve their needs, IKEA decided toexplore ways to expand beyond its traditional customersby building new ties with these small businesses and, espe-cially, those run by women. This new direction represented aradical change for both it and its customers. Small businessesoften have limited financial and spatial resources that makethem fit well into the IKEA target markets. IKEA designed asmall business Web-based network to provide a means forthis target group to engage and learn how they could co-create innovations. By using the IKEA Business network,companies and entrepreneurs could collaborate not onlywith IKEA but also with each other to co-create innovative


solutions. Customers could co-create solutions for theirbusiness problems and simulate how they would work onthe Web site.

As customer feedback was collected on how to improvethe Web site, IKEA added tips on office space layout fromdesigners, space for others to post photos of their officespace layouts, and videos that taught customers how tochange a workspace into something practical with minimalcost and effort. This was a radically new innovation for IKEAas well as for these small business customers. They had neverbeen invited to co-create innovations like this before. IKEA’sphilosophy of collaborating with its customers led it to seekand receive much input from its customers in creating thisradically new innovation.

Customer participation in this co-creation process led tofurther innovations. IKEA organized a virtual communityunder the concept ‘‘Share your space.’’ This Customer toCustomer collaboration enables customers to co-producesolutions with other customers. The key driver is to providereal solutions created by real customers to other customers.In other words, IKEA’s new innovation was to provide a net-work that allows new small business customers to not onlyshare knowledge with each other but also to learn aboutIKEA’s solutions. Customers could teach other customers howto use IKEA products.

New Experience at Disney

The example of co-creating a radical innovation by Disney isthe enhanced High Tech FASTPASSTM system being developedas part of Disney’s NextGen project. Even though this bearsthe same name as the existing FASTPASS, this enhancedsystem, based on RFID (radio frequency id) technology repre-sents a radical change for both guests and the company. Theenhanced FASTPASS is based on providing hotel guests with awristband that has a uniquely coded RFID chip in it. This chipidentifies a guest at all the places where identification isrequired wherever that guest may go in the 43 square miles ofDisney property in Orlando, Florida. Once the guest puts onthe wrist band, it allows him or her to use it for chargingmeals anywhere across Walt Disney World, opening a hotelroom door, gaining access to areas restricted to a particularhotel’s guests, obtaining a FASTPASS in the parks, parkentrances, and purchasing souvenirs. In other words, thiswristband becomes the key to anything requiring guest iden-tification for entry or payment.

For Disney and most guests this is a radical innovation.While some guests are accustomed to using their Smart-phones or similar swipe technology to enter buildings, buygas, and provide identification for a variety of purposes,this is a radical change for most of Disney’s repeat andolder customers. Guests are used to paying for their sou-venirs, presenting tickets for park entry, and holding a keyfor their hotel room. Having a one swipe fits all wrist band isa very new experience for these customers. For Disney,creating a completely integrated information system likethis is this is expensive and radical. All existing Disneysystems require reprogramming to accommodate this inno-vation and new systems must be created to make thesewrist bands work in all the places where a guest might go orspend money.

WHY RESOLVING THE CUSTOMERCO-CREATION CHALLENGES MATTERS

The four categories of co-created service innovationsdescribed in the four cells and illustrated with examplesfrom Disney and IKEA show the importance of consideringboth customer and company as co-creators in successfulinnovations. Both have to learn new ways of doing thingsto co-produce the service experience. The degree to whichthe change is incremental versus radical will determine howmuch effort and time must be allocated to training bothcustomer and company to successfully co-produce the inno-vation. In any innovation, companies must learn new ways ofusing resources, operating, and then teach its employees howto provide the service its customers expect. As important,however, as IKEA and Disney illustrate, companies need todevelop strategies and tactics to teach its employees toteach its customers how to co-produce the experience inways that successfully capture its value. For innovation to besuccessful, the organization must not only learn new ways ofdoing things, but it must also ensure that the customersacquire the new knowledge, skills and abilities an innovationwill require of them.

If customers’ ability to use newly acquired knowledge andskills drive their successful co-production of innovations,then the companies that are successful innovators make surethey provide them with training in the necessary knowledgeand skills. Managing the innovation co-creation challenge isabout managing both customers and employees’ activitiesand interactions as they co-produce the experience custo-mers come to the company to have.

Lessons from IKEA and Disney

The matrix seen in Fig. 1, offers several important lessons inhow two organizations successfully met the co-creationchallenge. Both Disney and IKEA start by collaborating withcustomers. Both have learned that there are degrees ofinnovation requiring different innovation strategies. More-over, as the RFID wristbands illustrate, even within categoriesthere are varying levels of customer capabilities that must beplanned for, trained, and managed to match the differenttypes of customers with different ways that employees co-produce the experience.

Furthermore, these companies have learned that it isn’tenough to teach their own employees how to adapt to anyinnovation; they must also train their employees to teachtheir customers how to adapt. Because these two are bothcommitted to involving customers in co-creation, they havebeen successful in meeting the innovation co-creation chal-lenge. They offer several lessons for all organizations thatseek to implement successful product or service innovations.

First, the innovation co-creation challenge is exactly that— a co-creation challenge. It is not sufficient for organiza-tions to plan only for the internal changes that innovation willrequire. The exemplars teach us to discover through custo-mer involvement in co-creating them what the implicationsof those changes will be for the customer. If the customermust do something radically new, like learn to use the newDisney Magical Express, the new free bus service that takespeople from Orlando airport directly to their hotel rooms


along with their luggage, then the company must anticipatethe learning that will be required and provide for it.

Disney spent the time and effort to train its employees tohelp customers use this new service and added extra peopleat the Orlando airport to guide and explain how to use thisradical (for guests) innovation. The introduction of self-service technologies at airline check-ins and retail checkoutshas had varying success depending upon the degree to whichthe companies have provided trained employees to educatecustomers into what is, for many, a radical change in howthey interface with the organization.

Second, the organizations that successfully implementinnovations account for the impact of innovation on custo-mers as part of who they are. It’s in their DNA. If customersneed to do new things to enjoy or benefit from the innova-tion, then the successful organizations try to make learning aworthwhile part of the experience for the customer. When acustomer is required, for example, to do new things, thesesuccessful organizations make the new things fun or offer abenefit to the customer for doing the new thing versus theold. When Disney added the free Magical Express bus servicefrom Orlando’s airport to the guests’ hotel rooms, guests feltthey were getting a valuable new benefit that saved them theaggravation and cost of finding their way from the airport totheir rooms.

Moreover, organizations that consider their customers asco-creators of innovations put more thought into the custo-mer interface. Whether this is an environmental setting, Website, or a personal contact with an employee, when aninnovation changes the way the customer interacts withthe organization, the point of interaction is very carefullydesigned with the customer in mind. When Epcot opened,few guests recognized that the concept of a theme park hadbeen redesigned to hold people in attractions for longer timeperiods. It is a far different experience to spend an hour ormore in Epcot’s The Land versus the typical minute’s longexperience at attractions in the Magic Kingdom just as it isvery different to be immersed in an IKEA experience roomthan it is to visit a traditional furniture store. Both organiza-tions spent considerable effort in the innovation co-creationprocess gathering customer data, input, and feedback to besure they had it right.

A third lesson learned from this matrix and the companiesthat have successfully met the customer co-creation challengeis that all organizations can use this matrix to assess how theyinterface with their customers. An insurance company thatsells policies through agents may think it has the agents forinteracting with its customers, but in reality, the insurancecompany is only successful if it thinks in terms of how it musthelp its agents solve their customers’ insurance problems.

Even traditional manufacturing companies that thinkthemselves far removed from their final customers have someco-creation challenges. A tire manufacturer has to resolve

the customer co-creation challenge in innovating new pro-ducts. If the customer demands that tires come with war-rantees and better product information, then it too is facedwith resolving the challenge of co-creating solutions for itscustomer’s problems in its ads, its labeling, service personneltraining, and its ability to fix service product failures. As partof its innovation process, it must teach its retailers and theiremployees how to teach customers what the innovationmeans and how it benefits them.

The fourth lesson learned from this matrix is that co-creation of innovation means that the company must teachits employees how to teach its customers. Few organizations,especially manufacturing organizations, spend enough timeteaching employees to teach their customers. Yet, the matrixillustrates that, even with customer involvement in co-crea-tion of innovation, there is no guarantee that the innovationwill be successful. Innovations, especially radical ones, willrequire new behaviors of customers. While it is commonknowledge that innovation requiring change requiresemployee training, too often the need to train customersis overlooked. If both employees and customers will have todo different things as a result of an innovation, then both willneed training. And the more radical the change, the moretraining will be required.

The lessons learned from the successful implementationof innovation by both Disney and IKEA are important andprofound. Perhaps the most important is that the innovationrequires the customer to co-produce in some way any experi-ence that the innovation creates. The company that fails torecognize and plan for customer participation in that co-production is not likely to attend to both its and its custo-mers’ learning needs when co-creating the innovation. Whenthat happens the benefits of the innovation are likely to beunrealized.

Disney and IKEA are both exemplars when it comes tocontinuously renewing their customers’ service experiencesby co-creating innovations. You can’t know what guests wantunless you find out, and the entire point of Disney’s Guest-ology and IKEA’s ‘‘Solutions to real life problems at home’’ isto find out. In the final analysis, it doesn’t matter what yourcompany wants, your employees think, or your engineersmeasure; if your guests don’t value what you are offering andbelieve that it is at least equal to what the marketers havepromised, they will leave disappointed, tell their friends, andnot come back. Companies who have learned to co-createinnovation with customers are the ones that bring guests backbecause of today’s service excellence and tomorrow’s inno-vations.


SELECTED BIBLIOGRAPHY

For a more detailed explanation and review of the servicedominant logic see S. L. Vargo and R. F. Lusch, ‘‘Evolving to aDominant Logic for Marketing,’’ Journal of Marketing, 2004,68(1), 1—17; and S. L. Vargo and R. F. Lusch, ‘‘Service-Dominant Logic: Continuing the Evolution,’’ Journal of theAcademy of Marketing Science, 2008, 36(1), 1—10.

For further explanation of the co-creation of value and co-production of service experiences see B. Edvardsson, B.Tronvoll, and T. Gruber, ‘‘Expanding Understanding of ServiceExchange and Value Co-creation: A Social ConstructionApproach,’’ Journal of the Academy of Marketing Science,2010, 39(2), 327—339; and V. Ramaswamy and F. Gouillart,‘‘Building the Co-Creative Enterprise,’’ Harvard BusinessReview, 2010(October), 100—109.

For more discussion of IKEA’s approach to co-creatingservice experiences with its customers see B. Edvardssonand B. Enquist, Values-based Service for Sustainable Business

— Lessons from IKEA (London: Routledge, 2009); B. Edvards-son and B. Enquist, ‘‘The IKEA SAGA — How Service CultureDrives Service Strategy,’’ The Service Industry Journal, 2002,22(4), 153—186; and B. Edvardsson, B. Enquist, and R. John-ston, ‘‘Co-creating Customer Value through Hyperreality inthe Pre-Purchase Service Experience,’’ Journal of ServiceResearch, 2005, 8(2), 149—161.

For further discussion of Disney’s Guestology and FastPasssee; R. C. Ford and D. D. Dickson, ‘‘The Father of Guestology:An Interview with Bruce Laval,’’ Journal of Applied Manage-ment & Entrepreneurshi, 2009, 12(2), 80—99; D. D. Dickson,R. C. Ford, and B. Laval, ‘‘Managing Real and Virtual Waits inHospitality and Service Organizations,’’ Cornell Hotel andRestaurant Quarterly, 2005, 46(1), 52—68; and R. C. Ford, M.C. Sturman, and C. P. Heaton, Managing Quality Service inHospitality (Albany, NY: Delmar Publishing, 2012).

Robert C. Ford is a professor of management in the College of Business Administration (COBA) at the University ofCentral Florida (UCF). Ford has authored or coauthored numerous publications. His current focus is managingemployees who co-produce service experiences with customers. He has also published several books and activelyserves his profession (e-mail: [email protected]).

Bo Edvardsson is professor and director, CTF-Service Research Center, and vice director, Karlstad University,Sweden and Professor II at NHH in Bergen. His research covers service quality, new service development and serviceinnovation, customer experiences and transition from products to service. He has written 12 books and 76 journalarticles (e-mail: [email protected]).

Duncan Dickson is on the faculty at the Rosen College of Hospitality Management, University of Central Florida. Histeaching and research interests are managing service organizations and Human Resources Management. Hispublications focus on how service management theory frames and explains knowledge gained from his seniorleadership positions in the hospitality industry, especially those at Walt Disney World (Tel.: +407 903 8042; e-mail:[email protected]).

Bo Enquist is a professor of business administration and executive team member at CTF-Service Research Centerand deputy director at Vinn Excellent Center, SAMOT, in transport research, Karlstad University. Prior to joiningKarlstad, he worked as a business executive for 20 years. He has written 4 books and over 20 journal articlesfocusing on services, governance, and CSR (e-mail: [email protected]).

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Managing the innovation co-creation challenge