the clarion call · value creation is now largely driven by continuous interaction among...

Value Co-Creation – Charting the path to higher levels of growth through exceptional customer experiences

the clarion group REAL. CLEAR. INSIGHT.

the clarion call December 2014

Jonathan Wheeler Alex Silva de Balboa

Partners of The Clarion Group

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Growth and innovation are on the minds of nearly all senior executives, particularly those who are leading mature businesses or competing in industries that are going through disruptive change. Yet, amidst the frenetic pace of business, the path forward is often unclear. Almost every day, we hear comments from our clients that illustrate their rising levels of anxiety: “Our organization seems stuck in time and our culture keeps us from innovating”; “We can’t keep slugging it out for market share in a low growth industry”; “We’re ready to invest in growth, but can’t seem to build a sufficient and sustainable pipeline of good growth opportunities.” At The Clarion Group, we have been on a journey with our clients to find 21st century solutions that address the biggest challenges executives face today. Over the past few years, we have developed greater clarity in how organizations can more effectively create sustainable value and thrive in today’s complex, digital and consumer-centric market reality. This new paradigm, called value co-creation, places the interactions between an organization and its stakeholders (customers and other stakeholders such as employees, suppliers and partners) at the center of the organizational operating model. Sounds obvious – but many leaders fail to shift from the mindset of customers as simply collective receivers of an organization’s products and services to creating value by engaging customers and other stakeholders in enriched experiences which connect with what they value most. While the traditional approaches to value creation are still relevant and pervasive, they are increasingly insufficient to meet the urgent need for innovation and sustainable growth. What we are witnessing is the beginning of a seismic shift away from a traditional view of operating models anchored in 20th century management concepts (think economies of scale, mass production, market exploitation and hierarchical top-down, command and control leadership). By dramatically redefining the way organizations engage with stakeholders and by accepting individual customer experiences as the starting point in the value creation process, leaders unleash a previously untapped reservoir of global talent and resources. This will challenge organizations to develop new capabilities needed to thrive in our highly networked world. Our thinking around how to build a 21st century operating model with value co-creation at its core has advanced through extensive research and client work, as well as learnings from three senior executive forums we have hosted on the topic of value co-creation. To further develop our thinking, in early 2014 we formed a partnership with Dr. Venkat Ramaswamy, a globally recognized author, business school professor and thought leader on value co-creation. Dr. Ramaswamy popularized the concept in his Harvard Business Review article co-written with C.K. Prahalad, "Co-Opting Customer Competence." In collaboration with Dr. Ramaswamy, we have created and implemented with clients a series of frameworks which help establish the organizational mindset and groundwork necessary for success in their value co-creation efforts.

Intro: The Value Co-Creation Journey

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In this and subsequent articles over the coming year, we will walk through our view of how organizations can fully integrate value co-creation into their operating model to drive sustainable growth. Our commitment is to provide clear guidance on how to begin this journey towards value co-creation while still evolving the organization’s core business, recognizing it is the cash flow engine and primary source of near-term profitability. But first, let’s start with the basics.

Really, What Is Value Co-Creation and Is It Fundamentally Different? The traditional view of value creation is based on the output of new products and services – products and services that are almost always designed within the four walls of the organization. This approach works when the marketplace is generally predictable and stable, and access to resources is considered limited. Quality and efficiency programs generate a disproportionate share of the value created (think Six Sigma and Just-in-Time Processing). Perhaps most importantly, in the traditional view, customers are viewed as passive recipients of organizational offerings; partners, suppliers and other stakeholders who affect and are affected by the value creation process are held at arm’s length.

1. Value is generated through products and services. 2. Organizations are largely unilateral in determining how they will

create value through their products and services. 3. Customers, as well as vendors, suppliers and other stakeholders

are passive participants in the value creation process. 4. Organizations have more information than all their stakeholders.

The Tenets of the Traditional View of Value Creation

Vendors, Suppliers

The Organization

Marketing/ Distribution Channels

Customers As Passive

Recipients of Goods and

Services

Traditional Value Chain

Traditionally, consumers and stakeholders are viewed as passive recipients in the creation of value…they are at the end of the line.


Today, enabled by exponential advances in technology, empowered, informed and connected individuals want to engage with organizations on their own terms and through a range of experiences. Value co-creation embraces customers and other stakeholders (i.e., partners, suppliers and employees) as active co-creators of value. As the diagram below shows, by bringing the knowledge, skills and capabilities of the organization (the blue) on left side together with the knowledge, creativity and skills of customers and other stakeholders (the yellow) on right side, value is created together (the green) in the center. Broadening the scope of value creation beyond products and services, value is created through individual experiences and continuous interactions between the organization and its stakeholders…interactions that happen both physically (i.e., in a store) or digitally (i.e., online or through social media).

Emerging Tenets of Value Co-Creation

1. Consumers are empowered, informed and connected. 2. Consumers expect to be active participants in the value creation process. 3. The traditional processes to create value within an organization still exist but are no

longer the primary source of innovation or drivers of growth. 4. Value creation is now largely driven by continuous interaction among stakeholders

and an expansion of focus beyond products and services to include individual experiences.

Physical & Digital Means of

Engagement

Org

aniza

tion

Private Sector Public Sector Social Sector

All Stakehold

ers as C

o-Creators

Customers Employees

Suppliers Partners

Financiers Citizens Others

Consumers are empowered, informed and connected. Value creation is now largely driven by continuous interaction among stakeholders and an expansion of focus beyond products and services to include individual experiences.

Individual Experiences as the Basis of Value Creation

Operating Model Transformation Source: Venkat Ramaswamy & Kerimcan Ozcan, The Co-Creation Paradigm (Apr. 2014)


The Importance of Human Experiences

In value co-creation, the dialogue between the organization and consumers shifts from reactive to proactive…from “what do you think of our product?” to “what can we do to create the most value for you?” and “what is the experience you really desire?” Consumers can be engaged much earlier in the product development process and can continue to be co-opted at each step of the way in driving innovation. In value co-creation, the customer experience goes beyond the underlying product or service and is defined holistically, shaped by an accumulation of customer interactions with the organization in physical as well as digital environments. This is what we call the customer journey. Along this journey, customer experiences are shaped by: The environment in which a product/service resides

Access to related information and customer reviews

Interactions with multiple digital and physical touch points and channels

Customer interactions with employees

Social connections with other consumers and affinity groups, serving as rich sources of feedback and referral for the organization.

Ultimately, customers have the flexibility to create and navigate their own journey, on their own timing, shape their own unique experiences, and define value on their own terms. From Dr. Ramaswamy’s research, four predominant ways organizations can engage with their customers (called “engagement platforms”) have emerged as the means for how value can be co-created. It’s important to remember that an organization can engage with its stakeholders in both a physical environment and digitally (online, social media, etc.). Regardless of method, the key is offering a medium of interaction between individuals. In many instances, value co-creation is enhanced by seamlessly integrating complementary physical and digital engagement platforms as part of an experience-based offering.

“The co-creation paradigm can usher in a new era of wealth creation through new economics of interactions and human experiences.” Venkat Ramaswamy


Since the early 2000s, established organizations have embraced value co-creation and built new systems of engagement to co-opt customer and stakeholder competence. Companies on the leading edge, such as Starbucks and Nike, have recognized the transformative impact by successfully integrating co-creation capabilities across all four engagement platform types.

The Offering Goods

and Services An Organization’s External Activities

An Organization’s Internal Activities

Social networks such as Facebook or Google+ are good examples of this type of engagement platform where customers are provided a way to engage, share content and connect with others for a variety of purposes. The capacity to co-create is primarily driven by the interactions with other users, not with the enterprise.

The NikePlus online platform in concert with their wearable devices and interfaces provide a good example of this type of engagement platform. Here the user is able to sync his/her personal “activity” data with the platform, customize their own profiles and connect and share with other users.

The Apple store is a prime example, serving not only as a vehicle to sell Apple products and services but to provide a broader and richer experience for consumers. Consumers may learn about the range of Apple products, test in the store, and interact with Apple technicians for trouble shooting advice and/or basic maintenance and repairs through the Genius Bar.

Enterprise social collaboration platforms such as Salesforce Chatter or Jive are examples. In many cases, platforms designed to support certain internal activities such as new product ideation and design can enable multiple stakeholders within the organization to engage in active product prototyping, experimentation and related feedback.

1

The Four Engagement Platforms

2 3 4

Engaging with customers and stakeholders through…


Creating Strong Stakeholder Engagement

In addition to the four types of engagement platforms, Dr. Ramaswamy advances four principles to guide the configuration of co-creation experiences between the organization and its stakeholders: Dialogue, Access, Reflexivity and Transparency (DART). For co-creation to occur, the DART principles should be embodied in the organization’s engagement platforms, and the more DART-enabled a platform is, the more co-creative the interaction with stakeholders on the platform will be. Applied more broadly, the DART principles are central to how a 21st century co-creation culture operates, behaves and functions.

Dialogue – Enabling shared communication and learning as equals; engaging individuals on their terms and learning with them as needs and experiences evolve. Access – Providing individuals with access to information, contextual data, tools, expertise and skills so they have the means to co-create value as well as guide their own experiences. Reflexivity – Establishing a continuous feedback loop with customers and other stakeholders to gather insights and learning which in turn get incorporated back into the experiences offered to make them better. Transparency – Enabling truly open, candid communication that builds trust between stakeholders and the organization and provides mutually better access to information and knowledge, more meaningful dialogue, and more timely assessment of risks and rewards.

Dialogue

Access

Reflexivity

Transparency


Introduced in 2008, MyStarbucksIdea.com represents a great example of a DART-enabled platform of engagement. Upon entering the site, Starbucks customers are invited to help co-create the Starbucks experience by offering their ideas, checking out ideas submitted by other customers, and voting on the ones they like best. Designed around features that allow users to “Share,” “Vote,” “Discuss” and “See,” the platform embodies the DART principles of co-creation:

Establishes ongoing Dialogue with customers through moderated discussions and feedback around customer ideas for each aspect of the retail store experience

Provides users with ongoing Access to a specially trained internal resource, called an Idea Partner, that can advise and help bring an idea from concept to implementation

Incorporates Reflexivity by allowing customers to see the direct impact of ideas on the retail store experience and provide feedback on those changes as well as shedding light on how ideas are curated, filtered and ultimately selected for implementation

Creates Transparency through the active discussion and opening up of Starbucks’ business practices and decision process around changes to the retail store experience, promoting trust and authenticity in the customer relationship

So, at this point we have laid out the building blocks for value co-creation and proposed a new 21st century value creation equation:

+

Experienced-Based Value Co-Creation

Innovation

Operating Model Transformation

Growth

DART in action

Enterprise

+ Stakeholders

DART

+ Platforms Of Engagement

=


Changing Mindsets Experiencing Value Co-Creation – Launching the Journey

Before moving on to begin exploring exactly how to start incorporating a value co-creation approach into your organization, take a few minutes to reflect on some critical questions:

1. How does this emergent approach to value creation apply to your organization?

2. What are the possibilities? 3. What strategic needs could value co-creation address? 4. What do these concepts say about the limitations of

your current operating model? 5. Where and how could you start to apply value co-

creation and its principles in your organization?

Our client experiences suggest that a successful journey to establishing an operating model with value co-creation at its core begins with self-reflection; taking the time and finding the courage to challenge the underlying assumptions and fundamental theories about your business. Embarking on this journey and transitioning to a 21st century operating model in the digital age is a leadership challenge; quite possibly, THE defining contemporary leadership challenge. For most leaders, value co-creation will seem to be intellectually obvious, but the task of bringing value co-creation to reality within their organization may seem like an insurmountable challenge. The thought of partnering with stakeholders to create experiential value can instill a fear of losing control by creating what appear to be new and uncomfortable levels of risk. For those leaders who cut their teeth and rose through the ranks using traditional approaches (process efficiency, command and control, etc.), the journey to value co-creation can be even more difficult as they are challenged to relinquish what feels tried, true and natural. Finally, many executives feel there is a chasm between their current operating capabilities and what is required from their organizations to realize the potential of value co-creation. Fully embracing a value co-creation approach requires a fundamental (and pretty dramatic!) shift in mindset that will at times be awkward and uncomfortable for leaders and their teams. And leaders can’t change the market and consumer dynamics that are evolving at a dizzying speed. So leaders have to change themselves. Continue reading to learn how.

If your operating model is not changing in the ways and at the rate the marketplace is changing, then your organization is becoming less relevant…every day.


Successfully migrating from a historic operating model to a contemporary model requires, as we’ve established, a fundamental shift in mindset about how organizations really create value today –first on the part of leadership, then extending deeper into the organization and beyond its walls to include external stakeholders. The best way to begin is to step back and allow the time and space necessary for a shift in mindset and perspective to occur before stepping forward and launching the value co-creation journey. By stepping back, we mean taking the time to have a series of discussions or workshops with an initial team of leaders. These discussions should first establish a strong rationale for value co-creation among the team before moving to introduce co-creation concepts. Through open peer-to-peer dialogue, leaders should then connect and share the experiences they have in their own daily lives as consumers before connecting with the experiences they have in their own roles and when working across the organization. What generally follows is a discussion on the implications value co-creation has for the organization’s current operating model and the emergence of potential near-term applications. In our experience, enabling a mindset shift to co-creation thinking ultimately requires four critical elements:

A recognition of the essential, active, unique and ongoing role consumers, employees, suppliers and partners have in the value creation process

Resetting how control and risk are managed with the acceptance that opportunities unleashed by value co-creation could present new considerations and risks to the organization

A visceral, tangible connection to personal co-creative experiences enabling leaders to envision the experience of their organization’s offering, transaction or process from all perspectives

An acceptance that value co-creation is an emergent and evolving discipline requiring an approach rooted in discovery, experimentation and rapid learning where failure must not only be tolerated but viewed as fundamental to creating sustained growth

The best way to begin is to step back and allow the time and space necessary for a shift in mindset and perspective to occur before stepping forward and launching your organization’s value co-creation journey.


Through unique, personal and experiential connections in a team setting, individuals often make the bridge to new possibilities for their own areas of responsibility and begin to grasp the implications for the broader enterprise. Based on our client experience and collaboration with Dr. Ramaswamy, the diagram below offers a proven approach to stepping back to build a sustainable foundation through experience-based awareness and understanding (-4 to -1) before beginning your organization’s co-creation journey (0 to 4). The second part of our approach, steps 0 to 4, builds upon a shared understanding of value co-creation concepts and suggests conducting an overall assessment of your organization’s capabilities and assets to highlight clear opportunities for where to start your co-creation journey. What follows is a gradual expansion of your organization’s value creation footprint through “sandbox experiments” where engagement mechanisms – physical or digital – are designed and built using DART principles as a guide. As the organization becomes more successful in its co-creation efforts and additional engagement platforms are introduced, a capability architecture of linked co-creation environments will begin to emerge and be a source of continuous innovation and learning. In time, a full inter-connected system of engagement platforms is built which unleashes the full power of value co-creation for the organization and its stakeholders. We call this the organization’s co-creation ecosystem.

Assemble Initial Team Discuss the Strategic

Rationale for Co-Creation

-3 -2 -1 -4 “Sandbox” Selection

Readiness Assessment Personal

Experiences

Functional Experiences

Cross-Functional Experiences Co-Creation

Sandbox (little co-creation

experiments)

Co-Creation Ecosystem

(operating model with co-creation at the

core, enabled by lots of integrated co-

creation experiments)

…to the…

Building Capabilities for Co-Creation

1 2 4 3 0

In time, a full inter-connected system of engagement platforms is built which unleashes the full power of value co-creation for the organization and its stakeholders. We call this the organization’s co-creation ecosystem.


Think you’ve got the concepts and are ready to start with Step 1? It is our experience that the most well-intentioned leaders will have false starts with value co-creation if they try to step into the question of “what do we do?” without providing the opportunities and forums for members of their team to understand and experience value co-creation for themselves. Over time, as value co-creation gradually permeates the organization on the strength of successful initiatives, an ever-expanding circle of leaders, employees and stakeholders will emerge as potential co-creators. These individuals will need to go through their own process of personal experience and connection to shift their mindsets and effectively join the co-creation movement within the organization. What we are proposing in this and future articles is no easy task. It suggests extending and potentially rebuilding your operating model while still running the day-to-day business and meeting the rising expectations of your customers, employees, partners and shareholders. This is a long-term evolutionary journey characterized by experimentation, learning and adaptation. The notion of straddling the bi-polar tensions of the historic 20th century highly structured organization-centric world while building up the 21st century networked customer-centric world is captured on the next page. During the client forums we’ve hosted over the past year, participants across the board resonated with this chasm as their greatest personal challenge… leading the core business while concurrently experimenting in the rapidly emerging world of value co-creation. Ultimately, a dramatically new and different operating model – market strategies, culture, leadership competencies and organizing structures – will emerge for your organization. The initial and most essential ingredient, we’ve learned, is bringing yourself and your leadership team fully on board and aligned with a deep understanding of value co-creation thinking, concepts and experiences.

Traditional approaches to business management are faltering under the pressures of rapidly changing market dynamics and the shifting needs and expectations of consumers, employees and company stakeholders. As value co-creation takes firm root as the engine behind creating sustainable growth, organizations must adapt where, how and when work gets done. The age of hierarchy, predictability and structure is being left behind…in its place, an age where structure-less structures prevail. Organizational boundaries are fading and leaders are being challenged to think differently and develop approaches to management that meet the challenges of the 21st century and enable the gradual redefinition of where, when and how work gets done. What is a structure-less structure? When you’re ready, take a look at the July 2014 Clarion Call on structure-less structures by clicking the link below:

Structure-less Structures

http://theclariongroup.com/images/insights/Structure_less_Structures.pdf

Transforming the Enterprise… THE Leadership Challenge




“Allocate & Optimize”

■ Organization-Centric Mindset

■ Internal/Narrow Definition of Available Talent & Resources

■ Top-Down Command and Control

■ Inside-Out Customer Service and Delivery Focus

■ Incremental innovation & Cash Flow Engine

“Engage, Discover & Learn”

■ Experience-Centric Mindset

■ External/Expanded Definition of Available Talent & Resources

■ Decentralized and Democratic

■ Intense Cross-Functional Collaboration and Alignment

■ Outside-In Flat Organization

■ Disruptive Innovation & Growth Engine

The 21st Century Leadership Challenge

During the client forums we’ve hosted over the past year, participants across the board resonated with this chasm as their greatest personal challenge… leading the core business while concurrently experimenting in the rapidly emerging world of value co-creation.


In later articles, we will introduce an approach to assessing your organization’s readiness and identifying opportunities to begin the value co-creation journey. We will also lay out an approach to guide you in developing effective engagement platforms and innovation across the enterprise. Our approach is rooted in entrepreneurial thinking where experiments with limited risk and with iterative and tight feedback loops with stakeholders are designed. We call this step-wise approach “going from the sandbox to the ecosystem,” and we’ll share examples from our client work and research. We hear from many of our clients, particularly those in more established organizations, that beginning and accelerating the development of value co-creation based their own operating model capabilities to enable growth is a challenge – but also a strategic imperative. Senior leaders who can most expeditiously and substantially extend and evolve their organizations to a digitally-enabled, experience-centric operating model with value co-creation at its core will reap the rewards of higher organic growth and sustainable market share gains. Not all industries or organizational circumstances are the same, but we strongly believe if you’re not already thinking about or on the journey to new value co-creation possibilities, the viability of your organization is at ever greater risk of decreasing market relevancy.

Strategy

Culture Organizing Structures

Leadership

An Invitation To support and accelerate this journey and to live the co-creation principles ourselves, we have created a community of clients from the three executive forums who are participating in periodic video conferences and ongoing digital dialogues – all confidential and in the spirit of experimenting, sharing and learning. As we further develop the “what” and the “how” of value co-creation operating models, we will continue to share with you our insights. If you are inclined to actively lean in and discover for yourself how value co-creation can transform your organization, please request to join us in one of our invitation-only senior executive forums. Or perhaps consider launching your own journey to value co-creation by hosting an internal forum customized to your organization’s needs. To connect with us, please visit www.theclariongroup.com and, as always, your comments are welcome.

If you are interested in learning more about value co-creation in practice, please contact a Clarion Group Advisor who can provide case studies across a range of industries and circumstances. Also, check us out at www.realclearinsight.com for a look at how The Clarion Group is leaning into the future…

The Operating Model

Where Are We Going from Here? In Part 2 of our series, we will share with you the specific characteristics of the 21st century operating model with value co-creation at its core.

http://www.theclariongroup.com/

http://realclearinsight.com/

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