Co-Creation
(Prahalad Ramaswamy)

Creating value jointly with customers. Explanation of Co-Creation of Prahalad Ramaswamy. ('03)

What is Co-Creation? Description

According to C.K. Prahalad and Venkatram Ramaswamy, deregulation, emerging markets, new forms of regulation, convergence of technologies and industries, and ubiquitous connectivity have changed many facets of the business world. And are still causing further changes.

These factors have changed the nature of consumers. Today consumers are informed, networked, active and global.
These factors have also changed the nature of companies. Today firms can fragment their value chain in ways that were not possible before. Both the physical and the non-physical part of corporations (business and management processes) can be split up.

The above trends are enabling a new form of value creation: Co-Creation, in which value is not created in the firm and then exchanged with the customer, but in which value is co-created by the firm and the consumer. Value will have to be jointly created by both the firm and the consumer. In the traditional system, where firms decide on the products and services they will manufacture, by implication they decide what is of value to the customer. In this system, consumers have little or no role in value creation. During the last two decades, managers have found ways to partition part of the work done by the firm and pass it on to their consumers. Be it self-checkout, involvement of a subset of customers in product development, or a range of variants in between. Note that Co-Creation goes far beyond being merely customer oriented.

Connected to this trend of jointly creating products, according to Prahalad, we are also moving away from a company- and product-centric view of value creation towards an experience-centric view of Co-Creation of value. High-quality interactions that enable an individual customer to co-create unique experiences with the company are the key to unlocking new sources of competitive advantage. Products are but an artifact around which compelling individual experiences are created.

Origin of Co-Creation. History

Back in the 1990s, Prahalad and co-guru Gary Hamel published an influential management theory: "Core Competence". Core Competences are the unique capabilities and know-how that give a company its competitive edge.

Steps in Co-Creation. Process

Typical steps involved in co-creating value include:

Defining clear objectives for the project.
Figuring out who are the right customers to involve in the process. Compare: Kraljic Model. The customers of today might be different than the customers of tomorrow.
Working with customers to find out what they really want to include in a product or service.
Designing products or systems jointly to meet those customers' needs. This includes selecting the partners to be included in your network.
Deciding how to share the value.
Overcoming internal resistance to change - within seller, buyer and partner organizations. This is a critical step in ensuring that you control the channel.

Limitations of Co-Creation. Disadvantages

Markets and industries and companies and systems and people do not change quickly. So it may take quite some time before the whole world is co-creating.
Collaboration is a lot harder than competition.
The concept challenges many of the habits of managers. To change the mind-set of people within a company into the way that an external customer thinks, is not easy.
Accounting rules that are based on what a company "owns", are also challenged. Accounting laws are also notoriously hard to change.

A final note on Co-Creation: Try it out. Here and now!

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Book: C.K. Prahalad and Venkatram Ramaswamy - The Future of Competition -

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Co-Creation (Prahalad Ramaswamy)