The race to implement co-creation of valuewith stakeholders: five approaches tocompetitive advantage

Francis J. Gouillart

Ten years ago, C.K. Prahalad and Venkat Ramaswamy initiated the co-creation of

value movement as a new philosophy of business in their ground-breaking book The

Future of Competition. Their core idea was that companies could produce goods,

services and experiences of unique value by involving customers and other stakeholders in

a process of continuous innovation and learning, now a well-accepted practice. Now, taking

this concept another leap forward could transform traditional business thinking. Leading

theorists are predicting that in the foreseeable future the co-creation model will become a

primary source of the firm’s competitive advantage. Instead of trying to encapsulate and

defend unique capabilities within their walls, firms will compete by opening up their value

chain of traditional functions and processes, from R&D through marketing and selling,

offering docking points that attract a dynamic ecosystem of customers and other

stakeholders. Having invited customers and other stakeholders to participate, corporations

now need to learn how to be outstanding networkers.

Anticipating how co-creation practice will evolve, theorists assume that firms increasingly

will compete on the basis of how much value their network produces. This opening up of the

traditional value chain to stakeholders could precipitate a race to co-creation, as every firm

tries to connect each function and process to the relevant ecosystem and attract the best

external players as partners. In this vision of the future, the company that proves most able

both at linking its key functions or processes to a growing and energized ecosystem of

players and at managing the continuous innovation opportunities that the ecosystem affords

will win the competitive game.

If this vision of a value chain evolution and its reconfiguration as a network of stakeholder

platforms that provide constant stimulation and insights is correct, the question then

becomes: how does a firm do that in practice? With which function or activity should it start?

What is the process of engagement the organization should use? How does it measure its

progress in this race to co-creation?

There are some preliminary answers to these questions. At this point in time, Prahalad’s and

Ramaswamy’s vision of a new competitive strategy has produced a sizable implementation

track record. After leading more than thirty co-creation projects, and observing more than

200 others, I can offer a view on why co-creation with stakeholders is becoming a

cornerstone of the creative economy and suggest how the most popular approaches

contribute to helping firms gain a competitive advantage through connections that enable

continuous innovation.

The race to co-creation

Let’s start by listing what all co-creation programs have in common. To tackle large, complex

problems, co-creation, in its most generic form, requires adopting five processes that each

represent a potential source of competitive advantage; an approach can utilize each

PAGE 2 j STRATEGY & LEADERSHIP j VOL. 42 NO. 1 2014, pp. 2-8, Q Emerald Group Publishing Limited, ISSN 1087-8572 DOI 10.1108/SL-09-2013-0071

Francis J. Gouillart is

President of the Experience

Co-Creation Partnership

(fgouillart@eccpartnership.

com) located in Concord,

MA and the co-author of the

book The Power of

Co-Creation, with Venkat

Ramaswamy (Free Press,

2010) and the Harvard

Business Review article

‘‘Community-Powered

Problem-Solving,’’ with

Doug Billings (2013).

process from very little to a lot. A co-creation strategy will be most powerful when all five

processes are used in combination:

B Community: Does the approach involve a process of engagement that leads to the

building of a large, diverse community of people inside and outside the firm?

B Platform: Does the approach provide a physical or virtual open discussion platform to this

community, leading to the generation of new ideas, valuable designs of physical objects,

places, processes or the development of analytically-based insights?

B Interactions: Does the approach enable the development of a new set of stakeholder

interactions, which are broad, frequent and cost-effective?

B Experience-based: Does the approach result in an individualized experience for all

stakeholders?

B Economic value: Does the approach allow all the entities involved to create significant

new economic value as a network?

These five processes are employed in a variety of ways and to various degrees in all

initiatives designed to promote stakeholder participation. Some company experiments

started out as innovation projects that invited employees from functions other than just R&D

to share their ideas. Adding customers and outsiders to the team was once seen as a

revolutionary step. Other firms started their co-creation experiments by making common

cause with customers through online platforms. By analyzing how various corporate

examples use these processes as a source of competitive advantage, managers can learn

the strengths or weaknesses of various forms of co-creation and make judgments about

where they are best applied.

Five archetypes of co-creation

Leading corporations have experimented with many approaches to involving stakeholders

in the process of product or service innovation and learning. While each brand of

implementation is unique to the firm that practices it, I have elected to focus on five

archetypes[1].

1. Community or social marketing – also called social media marketing, user communities in

B2B.

2. Design thinking – also called user-centric design, experience design, open design,

user-led innovation.

3. Co-creative transformation – using co-creation as the process of change.

4. Crowd-sourcing – also called mass collaboration or open source.

5. Open innovation – also called crowd-sourcing R&D or product development.

Included with each of the following methodology descriptions is a brief case of an

implementation project that demonstrates the approach.

1. Community or social marketing – also called social media marketing, user communities

in B2B

One of the earliest forms of co-creation to take hold in the market is community marketing,

also called social marketing, or social media marketing.

‘‘ Leading theorists are predicting that in the foreseeable futurethe co-creation model will become a primary source of thefirm’s competitive advantage. ’’

VOL. 42 NO. 1 2014 jSTRATEGY & LEADERSHIPj PAGE 3

This model, most commonly used by fast-moving consumer goods businesses, involves the

opening up of the marketing, sales and service part of the value chain. It was born of the

realization that unlike in traditional sales and marketing, the organization does not have to

personally sell or market to each individual prospect, but can rely on existing customers to

do the job at lesser cost and with greater credibility. Some of the best known examples of

community marketing in the B2C area include Starbucks’ mystarbucksidea.com or Dell’s

Ideastorm. In the B2B area, Salesforce.com’s user community or Microsoft’s MVP service

community are two prominent examples.

In the next few years, the challenge of community marketing will be to open up the brand

itself to co-creation. Community marketing platforms often originate with companies with a

strong history of staging the customer experience and controlling the brand, making it

culturally hard for them to let go of their company-centric instincts. Their other challenge will

be to expand the community beyond customers and form a large ecosystem of

stakeholders, allowing the breadth of experience and range of interactions to continue to

expand. Nike is now doing that with its technology incubator and Starbucks is another good

example of this emerging trend, as it increasingly links its customers, baristas and coffee

producers in various parts of the world, particularly on the issue of sustainability.

2. Design thinking – also called user-centric design, experience design, open design,

user-led design

Design thinking, an approach to designing physical objects and processes that relies on a

deep understanding by the designer of the context in which the product or process will be

used, allows the designer to connect emotionally with targeted customers and engage them

in a highly visual, iterative design process that utilizes a set of analytical design tools and

techniques.

Companies that use design thinking include GE Healthcare, Procter & Gamble, Philips

Electronics, Hewlett Packard, Apple, the Japanese bicycle components maker Shimano,

Fidelity, Kaiser Permanente and the Mayo Clinic in healthcare.

Design thinking does well on experience, encouraging a deep, anthropological

understanding of everybody’s context and appealing to the designer’s sense of empathy.

The value it creates comes from the quality of experience generated for customers and the

loyalty and repeat business it engenders.

However, two limitations to design thinking are apparent. First, the cost of each effort is high;

because design thinking requires a deep exploration of customer experience, it makes it

difficult for many organizations to scale the approach beyond isolated projects. Second,

success depends heavily on the creativity and empathy of the designer.

The Nike pathway

Nike originally saw its co-creation platform Nike þ as a means to encourage people to run more.

The Nike þ site features a rich dialog between runners, and increasingly other sports communities

on a vast array of sport-related issues. The system enables the automatic collection of running data

by each customer through the phone’s GPS tracker. This data can be analyzed individually, and

benchmarked or exchanged with the customer’s chosen social network. This produces a valuable

experience for runners, and also information for coaches, trainers and event organizers. Nike has

been able to increase its market share significantly at the expense of Adidas, a 14 percent gain over

the last seven years, and has reduced its conventional marketing expenses by more than 50

percent.

Community marketing is most successful when it exploits an opportunity to mobilize a large group of

highly motivated people around data. Marketing communities that rely only on qualitative

exchanges can be successful – mystarbucksidea.com and Dell’s Ideastorm are good examples.

But the real source of competitive advantage lies in the accumulation of data and the generation of

unique insights for individual customers and their community, and ultimately for the company that

provides the platform. A qualitative platform is a good place to start, but long-term success

inevitably requires layering a data-sharing platform on top of the first generation platform.

PAGE 4 jSTRATEGY & LEADERSHIPj VOL. 42 NO. 1 2014

3. Co-creative transformation – using co-creation as the process of change

Organizational transformation, also called process transformation, is a well-established

discipline of business. Co-creation offers a new paradigm of organizational or process

transformation, by engaging employees jointly with external stakeholders as a group in

designing the new model of the business. In this approach, the role of customers and other

external stakeholders extends beyond defining the product, service or experience they wish

to obtain and instead has them become full-fledged actors in the design of the company’s

processes.

There are a growing number of organizational transformation examples through co-creation.

They include Becton Dickinson’s transformation of its syringe business through co-creation

with hospitals, the UK’s unemployment office Jobs Centre Plus building local communities

across people seeking employment and local employers, or Microsoft Consumer

transforming its service arm through co-creation with the entire PC chain. The French Post

Office (La Poste), five years ago, initiated a highly acclaimed transformation of its 12,000

main post offices through co-creation.

While most traditional change approaches run into organizational fatigue because of their

internal and top-down nature, co-creative transformation mixing bottom-up and outside-in

dynamics – customers play a key role in sustaining the approach – produces the infectious

enthusiasm and momentum that motivates middle and upper management to invest the

necessary resources for change.

In the next few years, co-creative transformation will face a double challenge: it will have to

learn to incorporate collaborative design tools, and to build a data collection infrastructure

that helps generate further insights besides the early wins of workshop-based engagement.

Once it masters those two challenges, we predict that co-creative transformation will attract

The Mayo Clinic case

In the early 2000s, the Mayo Clinic challenged itself to transform health care delivery. It engaged the

vast community of its own healthcare workers, from doctors, nurses and service personnel, to

patients and their family, the health insurance companies, and the larger community where the

Clinic operates. It initially set up a skunk works lab called Sparc, where doctors and designers could

jointly devise new interactions between the clinic and its patients. Today, this initial platform has

grown into the Center for Innovation, a design-oriented center of excellence with 32 full-time

employees dedicated to redesigning interactions along the healthcare value chain and

transforming customer/clinician experiences, while reducing the cost of healthcare.

Using design thinking, the Mayo Clinic has redesigned physical spaces – for example, exam rooms

or waiting areas – as well as processes and has implemented new technologies. The Center for

Innovation also utilizes many data-driven platforms. In fact, the original premise of the Sparc lab

was to apply the rigor of clinical trials to the design of the patients and healthcare workers

experience.

Better mail service

La Poste defined a broad, highly engaging problem at the outset: how should we operate our local

post offices to better serve local communities? It mobilizedmost of its 50,000 teller employees and a

large number of its local customers in the redefinition of the operating model of each post office,

often also engaging elected officials or community leaders in the process. These communities have

generated a lot of new ideas – from how to allocate tellers to various types of customers, to local

opening hours – through qualitative platforms of various kinds. These initiatives range from

employee-conducted market research and simple questionnaire-led interviews in the post offices

themselves to conducting half-day co-creation workshops with customers and members of the

community. On the value front, La Poste has been able to expand its opening hours by more than 30

percent while reducing its total manpower during the period, and generating a more than 30

percent increase in customer satisfaction and new growth in its package and banking businesses.

VOL. 42 NO. 1 2014 jSTRATEGY & LEADERSHIPj PAGE 5

the community of process, quality and reengineering change agents who, because they

tend to be analytically-minded, have so far largely sat out the co-creation revolution.

4. Crowd-sourcing – also called mass collaboration or open source

In crowd-sourcing, a large number of people come together in person or virtually to solve a

problem and build common content on a platform, with the expectation that their collective

output will be shared freely between them and possibly a larger community.

Examples of crowd-sourcing include Wikipedia in publishing, Linux for open-source

software, and Kickstarter or Indiegogo for crowd-funding. Businesses such as YouTube or

Facebook also utilize many aspects of a crowd-sourcing approach, although their economic

model is based on a more traditional advertising push strategy. Crowdsourcing can be used

to address just about any type of problem, including very broad ones.

The main shortcoming of crowd-sourcing from a business standpoint is that it operates in an

egalitarian, typically nonprofit universe which prevents companies from making money from

it. This makes crowd-sourcing a very apt approach for social issues, but less applicable to

the solving of business problems by companies trying to earn a rate of return on their

investment. This weakens the ability of crowd-funding models to sustain the model over time

(users can become tired of incessant calls for donations). As a result, companies have

tended to craft non co-creative models on top of their crowd-sourcing strategies, producing

mixed models such as YouTube and Facebook who crowd-source most of their content, but

generate their revenues through traditional company-centric advertising. This mixed

strategy solves the economic model problem, but produces an uneasy experience for users

who have to accept this compromise of true co-creation and traditional advertising push,

therefore creating an unstable equilibrium for the model, as YouTube and Facebook have

experienced at various stages of their life.

In the next few years, we expect crowd-funding to continue growing in addressing social

issues of increasing scope, and mobilizing global communities in the solving of large

humanitarian issues. The jury is very much out on whether crowd-sourcing will develop a

stable model that profit-minded businesses can use.

5. Open innovation – also called crowd-sourcing R&D or product development

Open innovation has enjoyed great popularity, fueled by the market power of

venture-backed open innovation platform developers like Innocentive and highly touted

stories of corporate success with Procter & Gamble’s Connect & Develop, GE’s

Eco-Imagination, and similar initiatives at Kraft, Weyerhaeuser or Philips.

Advocates of open innovation approaches recommend always starting with a highly focused

problem formulation. This constitutes both a strength, because it is easier to answer

technical problems when they are framed narrowly, and a weakness, in that there is typically

no large community able to engage on such narrowly defined problems. As a result, the

community engagement is typically limited to a small number of people who interact in

one-off fashion as ‘‘problem solvers’’ with the ‘‘problem seekers,’’ but there is no community

co-creation per se.

The Achilles’ heel of open innovation lies in the fact that it often fails to engage internal R&D

people effectively. External contributors enjoy open innovation platforms, because it allows

them to generate additional income or gain recognition for themselves, but too often,

engineers inside the firm are barely consulted on the use of open innovation approaches.

The world’s encyclopedia

Wikipedia has demonstrated it can solve the challenge of publishing a constantly up-to-date global

dictionary and encyclopedia. The community reached byWikipedia is impressive in its global reach

of both contributors and readers. The interactions it allows are limited to search, reading and

writing, but produce a good experience for both readers who want up-to-date, thorough

information, and writers, who want to ‘‘own’’ particular entries they are passionate about.

PAGE 6 jSTRATEGY & LEADERSHIPj VOL. 42 NO. 1 2014

P&G has claimed good results in improving its R&D throughput and reducing its cost, but

there have been few other documented claims of economic success for open innovation

projects.

The challenge for open innovation in the next few years will be to escape the narrowness of

its problem definition, to better associate internal R&D people in the problem definition and

make them an integral part of the co-creative community, and in expanding the community of

problem-solvers beyond product development experts. As was true for mass customization,

this will require engineering-dominated firms to develop the humility necessary to accept

engaging with external, layman contributors, a formidable cultural challenge for many of

them.

What path should leaders take?

While there has been much confusion about the similarities and differences between all the

methodologies cited in this article my goal is to show what they have in common, and to what

degree they contribute to creating competitive advantage.

All of them do offer a practical starting point, and probably each approach will play a

significant role in the further development of co-creation. Each already does some things

well, and each has room to evolve as a means of generating value with stakeholders. So the

adoption of any of these methods is a step in the right direction. What leaders can do now is

encourage more experimentation on the path to developing a co-creation ecosystem.

Toward ecosystem co-creation

Many observers believe that the pressure of continuous innovation is challenging firms to

further open up their traditional functions and processes and engage external stakeholders

in the co-creation of new ecosystems where each will compete as part of a network, rather

than as traditional stand-alone capitalistic entities.

So which approach is most likely to lead to ecosystem co-creation? Unfortunately, none of

the five approaches as currently practiced offers a perfect transformational path to

co-creation for large, complex problems and opportunities. The ideal transformation plan

would:

B Start by addressing very broad challenges, typically at the intersection of a business

problem and a societal problem. Its formulation will have a compelling emotional appeal,

but will also be defined as an analytically-solvable problem.

P&G’s idea network

Procter & Gamble’s Connect & Develop (C&D) platform is good at generating useful ideas – P&G

has signed 2,000 contracts over the last 10 years – but it has minimal capabilities in terms of

physical design of products and is not used to generate analytical data beyond the ones

contributed by both sides at the outset. Moreover, the platform is not designed to stimulate or

capture insights and at present it only acts as match-maker. Because the goal of the platform is to

engender a subsequent co-creative live dialog between interested parties, the interactions enabled

by the platform are narrow and not particularly generative.

‘‘ Opening up the traditional value chain to stakeholders couldprecipitate a race to co-creation, as every firm tries to connecteach function and process to the relevant ecosystem andattract the best external players as partners. ’’

VOL. 42 NO. 1 2014 jSTRATEGY & LEADERSHIPj PAGE 7

B Offer the potential to engage a vast global community of people with extremely different

skills levels, from simple passionate customers to highly sophisticated experts, and will

allow the gradual expansion of that community to an ever-growing set of stakeholders.

B Generate a rich set of ideas and help the community see how these ideas are valued and

used.

B Provide user-friendly tools that allow laypeople users to participate in the actual design of

physical objects and places and exchange concepts with professional designers who

value their input.

B Place data in the hand of users and allow them to use that data to fashion a unique

experience for themselves in the context of their social community, while allowing the firm

to continuously develop new insights from the mining of that data. The data set will be

aggregated across the community, and the insights resulting from the new data set will

also be co-created across members of the community.

B Gradually increase the scope of interactions allowed by the platform as new community

members join in, allowing the designs resulting from the platform to become less and less

product-or service-oriented, turning themselves more and more into co-creative

platforms.

As implementation proceeds, the breadth of experience of each stakeholder should become

larger and larger, and the empathetic connections between these stakeholders more

intense. The network value being created will increase exponentially as more and more

stakeholders join the network. The economics of the network, as well as of each firm in the

network, will exhibit exponential economics or ‘‘increasing returns.’’

During the next ten years a key challenge for leaders will be managing this journey.

Note

1. From the set of co-creation processes chosen for analysis I excluded mass customization and

personalization because it is applicable to fewer corporations than the other models and

agile/scrum because it requires mastery of a project process not widely used except by software

firms. For more information on agile as a co-creation process see Stephen Denning (2012), ‘‘How

agile can transform manufacturing: the case of Wikispeed,’’ Strategy & Leadership, Vol. 40 No. 6,

pp. 22-28.

Corresponding author

Francis J. Gouillart can be contacted at: fgouillart@eccpartnership.com

‘‘ Community marketing is most successful when it exploits anopportunity to mobilize a large group of highly motivatedpeople around data. ’’

PAGE 8 jSTRATEGY & LEADERSHIPj VOL. 42 NO. 1 2014

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