Open Source business resource 3/2011 Co creation

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Featuring a.o,
The Future of Co-Creation
Marko Seppä, Stoyan Tanev

A Network-Centric Snapshot of Value Co-Creation in Finnish Innovation Financing
Jukka Huhtamäki, Martha G. Russell, Kaisa Still, Neil Rubens

Using Value Co-Creation to Redefine Business Models
Kati Järvi, Antti Pellinen

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Open Source business resource 3/2011 Co creation

  1. 1. Editorial Chris McPhee, Marko Seppä, and Stoyan Tanev The Future of Co-Creation Marko Seppä and Stoyan Tanev A Network-Centric Snapshot of Value Co- Creation in Finnish Innovation Financing Jukka Huhtamäki, Martha G. Russell, Kaisa Still, and Neil Rubens Using Value Co-Creation to Redefine Business Models Kati Järvi and Antti Pellinen Renewal Through Co-Creation in Business Networks Raimo Hyötyläinen, Katri Valkokari, and Petri Kalliokoski The Strategic Impact of Corporate Responsibility and Criminal Networks on Value Co-Creation Frederick Ahen and Peter Zettinig Quality-Based Co-Value in SaaS Business Relationships Xian Chen and Paul Sorenson Trusted to Lead: Trustworthiness and its Impact on Leadership Taina Savolainen and Sari Häkkinen Upcoming EventsMarch Contribute2011
  2. 2. March 2011 Editorial 3PUBLISHER Chris McPhee, Marko Seppä, and Stoyan Tanev introduce the issue and discuss the editorial theme of Co-Creation.The Open SourceBusiness Resource is a The Future of Co-Creation 6monthly publication of Marko Seppä and Stoyan Tanev summarize recent value co-creationthe Talent First Network. research and identify an emerging focus on business co-creation.Archives are available at:http://www.osbr.ca A Network-Centric Snapshot of Value Co-Creation in Finnish 13 Innovation FinancingEDITOR Jukka Huhtamäki, Martha G. Russell, Kaisa Still, and Neil Rubens use network analysis to examine linkages between organizations and the Chris McPhee emergence of cooperative activities in an innovation system. chris.mcphee@osbr.ca Using Value Co-Creation to Redefine Business Models 22ISSN Kati Järvi and Antti Pellinen examine evolving business models in mobile service production and provision with an emphasis on the 1913-6102 shift from one-sided to two-sided markets, including the emergence of application stores as intermediaries in service delivery.ADVISORY BOARD Renewal Through Co-Creation in Business Networks 29 Chris Aniszczyk Raimo Hyötyläinen, Katri Valkokari, and Petri Kalliokoski present four EclipseSource models of business renewal through co-creation within networks, Tony Bailetti distinguishing between the exploitation of present knowledge for Carleton University efficiency and the exploration of new knowledge for innovation. Leslie Hawthorn Oregon State University The Strategic Impact of Corporate Responsibility and Criminal 38 Chris Hobbs Networks on Value Co-Creation QNX Software Systems Frederick Ahen and Peter Zettinig argue that if networks are effective Rikki Kite mechanisms for criminal organizations to infiltrate into any value LinuxPro Magazine chain, then networks should also work for responsible businesses in Thomas Kunz their quests to counter this phenomenon of value destruction. Carleton University Steven Muegge Quality-Based Co-Value in SaaS Business Relationships 43 Carleton University Xian Chen and Paul Sorenson examine the effect of service quality on Michael Weiss business relationships between clients and SaaS service providers Carleton University and provide an approach and tool for evaluating SaaS applications. Trusted to Lead: Trustworthiness and its Impact on Leadership 52 © 2007 - 2011 Taina Savolainen and Sari Häkkinen present two case studies that Talent First Network illustrate the importance of trustworthiness as a leadership trait and managerial skill. Upcoming Events 57 Contribute 60 Open Source Business Resource http://www.osbr.ca
  3. 3. Editorial Chris McPhee, Marko Seppä, and Stoyan TanevFrom the Editor-in-Chief From the Guest EditorsThe editorial theme for this issue of the OSBR is The articles invited for publication in this spe-Co-Creation. I am pleased to welcome our Guest cial issue of the OSBR were originally presentedEditors: Marko Seppä from the University of last September at EBRF 2010 (http://ebrf.fi/Jyväskylä and Stoyan Tanev from the University 2010), in Nokia, Finland. EBRF – the research for-of Southern Denmark. um to understand business in the knowledge so- ciety – is the oldest international peer-reviewedWe encourage readers to share articles of in- business research conference organized annu-terest with their colleagues, and to provide their ally in Finland. The first EBRF conference was or-comments either online or directly to the au- ganized in Tampere, Finland in 2001. The grandthors. theme of the 10th anniversary EBRF conference was "Co-Creation as a Way Forward".The editorial theme for the upcoming April issueis Communications Enabled Applications. For For this issue of the OSBR, a preliminary subsetsubsequent issues, we welcome general submis- of EBRF articles were selected by a specificallysions on the topic of open source business or the designed committee of scholars that was askedgrowth of early-stage technology companies. to nominate EBRF articles fitting the topic of thePlease contact me if you are interested in sub- special issue and providing valuable insights tomitting an article (chris.mcphee@osbr.ca). both scholars and practitioners. We invited the authors to create specialized versions of the pa-Chris McPhee pers that were previously published in the EBRF 2010 Conference Proceedings by focusing on theEditor-in-Chief practical relevance of their research for an audi- ence including not only scholars but also busi- ness and technology experts. After theChris McPhee is in the Technology Innovation submission of the OSBR versions, an additionalManagement program at Carleton University in peer review process was used to select seven art-Ottawa. Chris received his BScH and MSc degrees icles offering diverse perspectives on co-creation.in Biology from Queens University in Kingston,following which he worked in a variety of man- In the first article, we offer our view of the emer-agement, design, and content development roles ging research on value co-creation by focusingon science education software projects in Canada on three key topics including a general manage-and Scotland. ment perspective, new product development and innovation, and business (enterprise) co- creation. The article concludes with a discussion of the ongoing transformation of businesses, 3March 2011 Open Source Business Resource http://www.osbr.ca
  4. 4. Editorial Marko Seppä and Stoyan Tanevwhich is based on two major trends: i) customer enabling renewal according to the strategic tar-value is emerging from unique, personalized ex- gets of their firm.periences that force firms to focus on one con-sumer experience at a time, and ii) no firm is big Ahen and Zettinig study the strategic impact ofenough in scope and size to satisfy the experi- corporate responsibility on value co-creation inences of one consumer at a time, therefore, all pharmaceutical business networks. The paperfirms are focusing on acquiring resources from a adds the responsibility component to the defini-wide variety of other big and small firms. tion of value co-creation and builds a model of value-optimization through value co-protectionNext, Huhtamäki and colleagues apply the and ethical responsibility. Metaphorically chal-concept of value co-creation to understand a na- lenging criminal organizations and their effi-tional innovation ecosystem. The article ana- cient use of networks, the study argues thatlyzes linkages between organizations and their corporate responsibility can be used to achievehuman and financial resources to observe the high strategic impact on value co-creation inemergence of co-operative types of activities in business networks.Finland. This research provides early evidenceon how co-creation emerges through financial Chen and Sorenson integrate service quality andlinkages. The network-centric snapshot of value value co-creation in Software-as-a-Serviceco-creation highlights collaboration of venture (SaaS) business relationships between servicecapital and government agencies in Finnish in- providers and customers. The paper argues that,novation financing. in the SaaS delivery, it is necessary to pay more attention on the nature of service quality sharedJärvi and Pellinen find value co-creation as key by both service providers and customers. The re-to redefining a business model. The prevailing search derives from a survey demonstrating aenvironment forces firms to reinvent value to- strong correspondence between the service qual-gether, instead of just adding it. The imperative ity required or desired by a client and the busi-of co-creation is highlighted in the information ness relationship needed between SaaS clientsand communication technology sector, where and providers.the markets are transforming from “one-sided totwo-sided”. The article integrates the business Savolainen and Häkkinen examine trust inmodel concept with value co-creation in the con- leadership as an antecedent of co-creation intext of two-sided markets, with emphasis on mo- "multi-voiced" organizations. The paper focusesbile service production and provision models. on how leaders enable co-creative interactions: how leaders show trustworthiness by buildingHyötyläinen and colleagues present four mod- and sustaining or violating trust. The findings,els of business renewal within business net- based on two case studies on small industrialworks. The article distinguishes between the companies, suggest that competence (ability) isexploitation of present knowledge for efficiency a key factor in a leader’s trustworthiness. There-and the exploration of new knowledge for new fore, the value of developing leadership skills forbusiness development. They describe their re- showing trustworthiness cannot be overestim-cent research, which provides evidence from five ated in value co-creation.cases on how co-creation between participantsdiffers according to business focus and complex- Marko Seppä and Stoyan Tanevity of networks. Ideally, the approach will helpmanagers use co-creation in business networks, Guest Editors 4March 2011 Open Source Business Resource http://www.osbr.ca
  5. 5. Editorial Marko Seppä and Stoyan TanevMarko Seppä is a “serial co-creator”. In 1981, atage 16, he co-created an American football clubin Finland, and in 1991, he co-created a pioneer-ing VC firm focused on the emerging markets ofRussia and the Baltic countries. In 2001, he co-created an ambitious e-business research centrefor a pilot of the eEurope programme. He cur-rently serves the University of Jyväskylä as Profess-or of Growth Venture Creation and works toco-create a global faculty partnership for prob-lems worth solving. He is founding chair of Glob-al Venture Lab Finland, a university consortiumthat is developing a “distributed business co-cre-ation environment”. He is also a co-founder ofthe Global Venture Lab Network, which is co-ordinated at UC Berkeley.Stoyan Tanev is an Associate Professor in the De-partment of Technology and Innovation andmember of the Integrative Innovation Manage-ment (I2M) Research Unit at the University ofSouthern Denmark, Odense, Denmark. I2M is aresearch group operating across the faculties ofsocial sciences and engineering. Before joiningthe I2M unit at SDU in August 2009, Dr. Tanevwas a Faculty member in the Technology Innova-tion Management Program of the Department ofSystems and Computer Engineering at CarletonUniversity in Ottawa, Ontario, Canada. StoyanTanev has an MSc. and PhD. in Physics (1995,jointly by the University of Sofia, Bulgaria, andthe Pierre and Marie Curie University, Paris,France), an MEng. in Technology Management(2005, Carleton University, Canada), and an MA.(2009, University of Sherbrooke, Canada). Hismain research interests are in the fields of techno-logy innovation management and value co-cre-ation in technology-driven businesses. Dr. Tanevteaches technology innovation, technology mar-keting, and technology management courses inthe MSc. Engineering program “Product Develop-ment and Innovation” at the University of South-ern Denmark. 5March 2011 Open Source Business Resource http://www.osbr.ca
  6. 6. The Future of Co-Creation Marko Seppä and Stoyan Tanev "Go for it now. The future is promised to no one." Wayne Dyer The objective of this article is to provide a brief summary of the key directions in value co-creation research that have emerged in the last 10 years. It points to sev- eral emerging streams in value co-creation research including: i) general manage- ment perspective; ii) new product development and innovation; iii) virtual customer environments; iv) service science and service-dominant logic (SDL) of marketing; and v) international markets and entrepreneurship, with a focus on the general management and innovation perspectives. In addition, the article points to another emerging new direction focusing on business co-creation. The development of business co-creation frameworks integrating the participatory role of both universities and vibrantly emerging business ecosystems represents a valuable alternative to traditional technology transfer and business administra- tion approaches.Introduction personalize the existing and shape new products and services. The ability of value co-creationValue co-creation has emerged as a business platforms to enable the personalization of newparadigm describing how customers and end products and services challenges the operationalusers could be involved as active participants in presuppositions of traditional marketing seg-the design and development of personalized mentation techniques by promoting a new ser-products, services, and experiences (Prahalad & vice-dominant logic (Vargo & Lusch, 2004;Ramaswamy, 2004; http://tinyurl.com/ http://tinyurl.com/4zt926w). The new dominant4fxnv5m). It is based on the design and develop- marketing logic enables firms to address broaderment of customer participation platforms, heterogeneous markets aiming at a better fitproviding firms with the technological and hu- between what a customer needs and what theman resources, tools, and mechanisms to bene- firm does and offers. It entails a new vision offit from the engagement experiences of the topology and the dynamics of the entireindividuals and communities as a new basis of value creation system including: i) a shift fromvalue creation. The active participation of cus- thinking about consumers to thinking about co-tomers and end users is enabled through mul- creators of value; ii) a shift from thinking abouttiple interaction channels, very often by means value chains to thinking about value networks;of specifically designed technological platforms iii) a shift from thinking about product value tothrough the Internet. Indeed, it is the advances thinking about network value; iv) a shift fromin information and communications technolo- thinking about simple co-operation or competi-gies that have enabled customers to be much tion to thinking about complex co-opetition;more active, knowledgeable, globally aware, and and v) a shift from thinking about individualwilling to use interactive virtual environments to firm strategy to thinking about strategy in rela- 6March 2011 Open Source Business Resource http://www.osbr.ca
  7. 7. The Future of Co-Creation Marko Seppä and Stoyan Tanevtion to the entire value ecosystem (Hearn & dimension of value co-creation platforms leadsPace, 2006; http://tinyurl.com/4u9ldxn). Such to a more dynamic type of economic mechan-vision promotes a new understanding of the cus- isms as the underlying driver of the innovationtomer centricity of the traditional value network processes. These mechanisms operate on theconcept, which is now considered dynamically basis of multiple transactions between custom-as a people-driven web of potential value config- ers, partners, and suppliers at multiple accessurations that could be actualized on the basis of points across the value network. They enablespecific customer demands (Prahalad & customers and end users to control the relation-Ramaswamy, 2004). ship between price and user experience (Pra- halad & Ramaswamy, 2004) by providing themThe adoption of value-creation practices leads with the opportunity to actualize (i.e., create)to the need for “changing the very nature of en- specific value-chain configurations that wouldgagement and relationship between the institu- fit their proper need, context, and preferences. Ittion of management and its employees, and is in this context that we could talk about cus-between them and co-creators of value – cus- tomer value co-creation. Although focusing ontomers, stakeholders, partners or other employ- the proactive role of the customer, such under-ees” (Ramaswamy, 2009; http://tinyurl.com/ standing is generically holistic in nature; it em-45spva). This ongoing change challenges the braces all the actors involved in themanagement of innovations by promoting a new value-creation process, providing an opportun-vision of the nature of innovation itself. The new ity for firms to broaden the boundaries of theirco-creative vision of innovation builds on two open innovation processes.key distinctive features. The first one is the trulyuser-driven aspect of the value co-creation activ- Key Directions in Value Co-Creation Researchities between firms and customers. In this sense,value co-creation platforms represent a natural A systematic search of existing research literat-extension of some of the key aspects of the user- ure presented by Thomsen, Tanev, and Pedrosadriven innovation paradigm (von Hippel, 2005; at the EBRF 2010 Conference, Nokia, Finlandhttp://tinyurl.com/57xp5x) by focusing on the (http://ebrf.fi/2010) identified several emergingdevelopment of participation platforms to, liter- streams in value co-creation research: i) generalally, multiply the effect of user-driven innova- management perspective; ii) new product devel-tion methods such as the design of innovation opment and innovation; iii) virtual customer en-toolkits and searching for lead users (von Hip- vironments; iv) service science andpel, 2005). Another distinctive feature is the fo- service-dominant logic (SDL) of marketing; andcus on the co-opetitive (from co-opetition) v) international markets and entrepreneurship.nature of the interactions between the different A detailed analysis of these research streams isstakeholders, including the customers and end out of the scope of this article, however the num-users, participating in the value co-creation pro- ber of publications per year shows a growingcess. Before competing and negotiating to cap- body of the literature on value co-creationture value, the different players in a value (Table 1). For the purpose of this article, we willco-creation network need to compete and nego- briefly discuss some of the key insights of thetiate in order to be able to participate and to con- first two research streams: “general manage-tribute value (Tanev et al., 2009; ment perspective” and “new product develop-http://tinyurl.com/4k9b9on). The co-opetitive ment and innovation”. 7March 2011 Open Source Business Resource http://www.osbr.ca
  8. 8. The Future of Co-Creation Marko Seppä and Stoyan TanevTable 1. Number of Publications Per Year ences. The initiation of dialogue during co-cre-Dealing with Aspects of the Value Co-Creation ation requires a forum with clear rules of engage-Paradigm ment leading to an orderly, productive interaction within emerging thematic com- munities. The focus on Access challenges the no- tions of openness and ownership. Providing customer access to resources, information, tools, assets, and processes at multiple points across the value network provides companies with innovative ideas about new products and services, new business opportunities, and new potential markets. As customers become co-cre- ators of value, they become more vulnerable to Risk and demand more information about the potential risks associated with the design, manu- facturing, delivery, and consumption of particu- lar products and services. Proactive risk communication and management offers com- panies with new opportunities for competitive differentiation. Transparency builds trust between both institutions and individuals. It en- ables a creative dialogue in which trust emerges. When companies make vital business process in- formation available to consumers, they hand over part of the control of the value creation pro-General Management Perspective cess. Empowering customers with such control becomes a key component of companies’ cus-The general management perspective provides tomer relationship management and differenti-several frameworks describing the principles, ation strategies.the organizational, management, and marketingaspects of value co-creation practices. From a In addition to the DART framework, Prahaladmanagerial perspective, the work of Prahalad and Ramaswamy (2004) identified four dimen-and colleagues (2004) is of particular interest be- sions of choice that could enable personalizedcause their research suggests a more holistic gen- co-creation experiences: i) co-creation acrosserative framework describing the fundamental multiple channels that enabling new co-creationbuilding blocks of value co-creation practices, in- horizons; ii) co-creation through multiple op-cluding Dialog, Access, Risk management, and tions where customers could go beyond the op-Transparency (thus, DART framework). The tions designed by a company in order to fit itsopen Dialog between the multiple actors within value chain in terms of profitability alone (en-the value network encourages knowledge shar- abling the possibility for customers to createing and mutual understanding. It provides an their own options opens the door for user-drivenopportunity for customers to interject their view innovation); iii) co-creation through multipleof value into the value creation process and transactions at multiple points of access acrosshelps companies understand the emotional, so- the value network enables customers and endcial, and cultural contexts of end-user experi- users to affect the way a product or service is de- 8March 2011 Open Source Business Resource http://www.osbr.ca
  9. 9. The Future of Co-Creation Marko Seppä and Stoyan Tanevsigned, to reject unnecessary features, to negoti- cesses, intellectual property, knowledge, and re-ate a particular price component, or decide to source flows used by firms to engage into a morebecome engaged in the value-creation process; proactive pursuit of new markets and innova-and iv) co-creation through the ability to influ- tions (Chesbrough, 2003).ence the relationship between price and experi-ence where customers could associate their The participatory platform nature of value co-specific choice with the type of experiences they creation practices enables a broader and moreare willing to pay for. While the literature within systematic positioning of customers and endthis stream provides multiple examples of firms users across the entire innovation lifecycle, lead-that have adopted co-creation principles and ing to a significant enhancement of the user-useful insights about the specific business and driven innovation potential. As a result, the de-marketing issues that need to be addressed, velopment of value co-creation platforms is in-there is relatively little research on the specific creasingly recognized as a promising innovationgroups of activities that should be undertaken in strategy associated with an ongoing change oforder to enable the value co-creation processes. the nature of innovation itself (Tanev et al.There is a need of more research studies that 2009). The co-creation paradigm positions thewould contribute to the development of value source of value within the co-creation experi-co-creation platform design rules, transition ence, which is actualized through the company-pathways, and maturity implementation models. customer interaction events. By co-creating with the network, the customer becomes an activeNew Product Development and Innovation stakeholder in defining both the interaction and the context of the event, including their specificThe new product development and innovation personal meaning. The personal nature of the in-research stream emerges by means of a termino- teractive experiences enables new dimensions oflogy that oscillates between the semantics of two value which are based on the quality and the per-other paradigms: user-driven innovation (von sonal relevance of the interaction events, as wellHippel, 2005) and open innovation (Ches- as on the opportunity for customers to co-createbrough, 2003; http://tinyurl.com/47uzztq). On their own unique end products, services, and ex-one hand, user-driven innovation distinguishes periences. These dimensions are critical for theitself by promoting a single, firm-driven, emergence of experience-innovation networksproduct-centric, non-transactional, and particip- putting the individual at the heart of co-creationatory approach to user involvement in the experience through the development, access,design of new products and services. However, and dynamic reconfiguration of appropriatelyits focus on innovation toolkits and innovation designed technological, business process, andcommunities brings it close to the value co-cre- human resource infrastructures. In this sense,ation paradigm with its focus on customer parti- the value co-creation paradigm represents a spe-cipation platforms, personalization of market cific, market-driven approach to the adoption ofoffers, multiple stakeholder interactions and ac- an open innovation business philosophy. Itcess to global resources, customer-driven busi- provides a dynamic understanding of firms’ in-ness models, and virtual customer experience novation boundaries, which opens the possibil-environments. On the other hand, the open-in- ity for a better competitive positioning through anovation paradigm promotes a more generic better articulation of their innovativeness. Exist-and broader vision of the innovation landscape. ing literature clearly emphasizes that customerIt articulates the key mechanisms for inbound participation in value co-creation activitiesand outbound business and innovation pro- should impact their innovation outcomes, such 9March 2011 Open Source Business Resource http://www.osbr.ca
  10. 10. The Future of Co-Creation Marko Seppä and Stoyan Tanevas innovation cost, time-to-market, new tion will focus on a brief summary of the philo-product/service quality, and development capa- sophy behind the GVL.city. It also points out that firms tend to measurethe performance of co-creation practices from The Global Venture Lab is a product of an Amer-an innovation perspective alone, neglecting the ican-Finnish-Indian co-creation initiative. Theremarkable side effects, such as brand percep- need for a global approach, community, andtion or customer-firm relationship quality, platform to educate those who can solve the Bigwhich may even exceed in value the actual in- Problems through entrepreneurship was jointlynovation performance. Online co-creation plat- addressed by three professors from three contin-forms, or virtual customer environments serving ents at a conference at the University of Califor-the purpose of co-innovating with external stake- nia at Berkeley, in December 2007. This initialholders, can be considered as massive interact- momentum was followed by additional kick-offive marketing campaigns due to the sheer meetings at the Indian Institute of Technology atnumber of contact points with potential custom- Kharagpur and at the University Alliance Fin-ers. In light of these additional benefits, collabor- land at University of Jyväskylä. The Global Ven-ative innovation with consumers, if properly ture Lab Network was formally launched inmanaged, may become a cost-efficient or even November 2009 at UC Berkeley as a communitycostless way of innovating. However, most of the of 26 members worldwide.existing studies are case-based and there is littlequantitative research focusing on the relation- GVL Finland, a consortium of seven Finnish uni-ship between the degree and the scope of firms’ versities, stands to enhance co-creation of enter-involvement in value co-creation activities and prise for problems worth solving by aiming at atheir innovation-related outcomes. This gap distributed, globally scalable, web-enabled, uni-could be explained by the emerging nature of versity-based production environment: athe value co-creation paradigm; however, its smartly co-owned factory in which faculty areemergence has gained enough momentum to “foremen” and students the “labour”. It is a fact-enable more systematic studies of the relation- ory where enterprise is raw material, entrepren-ship between co-creation and innovation. eurs are suppliers, and industry and investors subcontractors. In other words, GVL Finland en-A Business Co-Creation Perspective visions a new role for faculty and students in an emerging new domain of knowing which, as ofIt is important to point out another emerging re- November 2010, was coined as Art of Businesssearch direction focusing on business (or enter- Creation (see the University of Jyväskylä press re-prise) co-creation. The development of business lease dated 24 November 2010: http://tinyurlco-creation frameworks integrating the particip- .com/4kv52y5).atory role of universities (scholars) in vibrantlyemerging new business ecosystems represents a In all of the business administration disciplines,valuable addition to traditional technology trans- enterprises are investigated from the outside, viafer, entrepreneurship, and business administra- interviews, surveys, and statistical analyses. Intion approaches. This has not been articulated the Art of Business Creation approach enterpris-enough in research publications but it has be- ing is investigated from within by participatingcome the subject of several action research pro- in the creation as part of the entrepreneurialjects at multiple locations across the world. Two team, for example, in the role of a knowledge in-representative examples are Lead to Win vestor (See Seppä 2006: http://ebrc.fi/kuvat/(http://leadtowin.ca) and the Global Venture eBRC_rr29.pdf).Lab initiative (GVL; http://gvl3.com). This sec- 10March 2011 Open Source Business Resource http://www.osbr.ca
  11. 11. The Future of Co-Creation Marko Seppä and Stoyan Tanev "Whereas the Science of Business Administra- Conclusiontion aims at generalisation and repeatability, theArt of Business Creation aims at the opposite: As final note on the future of the value co-cre-uniqueness. In the former one interviews champi- ation business and innovation paradigm weons to understand their actions, in the latter you could summarize a somewhat prophetic view ofparticipate in the creation, because you are a Prahalad and Krishnan (2008; http://tinyurlchampion yourself." .com/4vhnnyy). According to them, there is a Christian Aspegrén fundamental transformation of business under Serial entrepreneur and PhD candidate way, which is supported by two basic pillars: i) University of Jyväskylä value is based on unique, personalized experi- ences and firms have to focus on one consumerThe inspiration of the approach is the research experience at a time (N=1), even if they serve 100that produces new materials, devices and medi- million consumers; ii) no firm is big enough incines, even symphonies, and the fact that re- scope and size to satisfy the experiences of onesearch on enterprise has classically produced consumer at a time, therefore, all firms will focusless concrete outcomes. on acquiring resources from a wide variety of other big and small firms, i.e. the focus will be "If enterprise growth is wanted as a research on access to “R”esources on a “G”lobal scaleoutcome, there are no shortcuts. Swimming in- (R=G).structors should be able to swim, also in thissport, and the swimming schools be located by As Prahalad and Krishnan state:the water." “We believe that the traditional sources of com- Mikko Reinikainen petitive advantage, such as access to capital, phys- Partner of PwC in Finland ical location, and raw materials or technology, will become table stakes. These factors are dimin-Action learning and action research are at the ishing in their importance as sources of competit-heart of the Live Case approach. Faculty and stu- ive advantage. Access to these factors is becomingdents participate alongside entrepreneurs in the easier. As we move to an N=1 and R=G world ofgrowth resourcing action: real life, real time. value creation, we believe that competitive ad-Herein, the roles of entrepreneurs, investors, vantage will depend on a firm’s approach to busi-customers, faculty, and students are often rotat- ness processes that can seamlessly connecting and sometimes multiply integrated. PhD can- consumers and resources and manage simultan-didates willingly participate in delivering study eously the needs for efficiency and flexibility.”courses to multidisciplinary groups of masterslevel students whose work produces valuable re-search data for them. Needless to say, the idealPhD candidate is a co-founder of a Live Case tar-get enterprise.We underscore that there are only early observa-tions available from the GVL action. The valueand potential of the pilot ending at the end of2011 is under evaluation and will be reported inDecember at EBRF 2011 at Aalto University inHelsinki. 11March 2011 Open Source Business Resource http://www.osbr.ca
  12. 12. The Future of Co-Creation Marko Seppä and Stoyan TanevMarko Seppä is a “serial co-creator”. In 1981, atage 16, he co-created an American football clubin Finland, and in 1991, he co-created a pioneer-ing VC firm focused on the emerging markets ofRussia and the Baltic countries. In 2001, he co-created an ambitious e-business research centrefor a pilot of the eEurope programme. He cur-rently serves the University of Jyväskylä as Profess-or of Growth Venture Creation and works toco-create a global faculty partnership for prob-lems worth solving. He is founding chair of Glob-al Venture Lab Finland, a university consortiumthat is developing a “distributed business co-cre-ation environment”. He is also a co-founder ofthe Global Venture Lab Network, which is co-ordinated at UC Berkeley.Stoyan Tanev is an Associate Professor in the De-partment of Technology and Innovation andmember of the Integrative Innovation Manage-ment (I2M) Research Unit at the University ofSouthern Denmark, Odense, Denmark. I2M is aresearch group operating across the faculties ofsocial sciences and engineering. Before joiningthe I2M unit at SDU in August 2009, Dr. Tanevwas a Faculty member in the Technology Innova-tion Management Program of the Department ofSystems and Computer Engineering at CarletonUniversity in Ottawa, Ontario, Canada. StoyanTanev has an MSc. and PhD. in Physics (1995,jointly by the University of Sofia, Bulgaria, andthe Pierre and Marie Curie University, Paris,France), an MEng. in Technology Management(2005, Carleton University, Canada), and an MA.(2009, University of Sherbrooke, Canada). Hismain research interests are in the fields of techno-logy innovation management and value co-cre-ation in technology-driven businesses. Dr. Tanevteaches technology innovation, technology mar-keting, and technology management courses inthe MSc. Engineering program “Product Develop-ment and Innovation” at the University of South-ern Denmark. 12March 2011 Open Source Business Resource http://www.osbr.ca
  13. 13. A Network-Centric Snapshot of Value Co-Creation in Finnish Innovation Financing Jukka Huhtamäki, Martha G. Russell, Kaisa Still, and Neil Rubens "In co-creation, strategy formulation involves imagining a new value chain that benefits all players in the ecosystem." Venkat Ramaswamy and Francis Gouillart (2010) In this article, we apply the concept of value co-creation to the analysis of linkages between organizations and their human and financial resources to observe the emergence of cooperative activities in a specific innovation system. Through visu- al network analysis of a federated and socially constructed dataset of organiza- tions and their related actors, we show how co-creation occurs through financial linkages. We use the ecosystem concept as a metaphoric reference to value co-creation with a network-centric mindset. Business financing linkages reveal convergence and co-creation in the innovation ecosystem, and network analysis is used to visu- alize the relationships between firms. Through the lens of relationship-based syn- ergy, we provide a snapshot of innovation funding, which highlights the collaboration of venture capital and government agencies in co-creating the emer- ging Finnish innovation ecosystem.Introduction idea in open innovation is that, because valuable knowledge exists outside of an individual organ-The term co-creation was coined to explain ization, companies purposively co-create valueemerging relationships between customers and networks through vendor-supplier relationshipsthe companies though which they were jointly and collaborative service offerings that are spe-creating value. Recently, the frame of reference cific to market segments. Inter-firm relation-has been extended to an emerging business and ships created by the participation of executivesinnovation paradigm that leads to the need of and board members in two or more enterprises“changing the very nature of engagement and re- with related missions, markets, products, or so-lationship between the institution of manage- cial initiatives are additionally a potentiallyment and its employees, and between them and powerful force for value co-creation. In a similarco-creators of value - customers, stakeholders, way, enterprises receiving investment resourcespartners and other employees” (Ramaswamy, from the same financial source may share com-2009; http://tinyurl.com/47c9ook). plementary visions of the future, complement- ary benefits from new technologies, andStrategic value creation networks can be ob- synergistic market development. Business eco-served through network analysis of small, medi- systems are comprised of the aggregate of theseum, and large enterprises, and they are relationships among individuals and groups ofimportant examples of co-creation. A leading individuals in clusters of companies. The com- 13March 2011 Open Source Business Resource http://www.osbr.ca
  14. 14. Value Co-Creation in Finnish Innovation Financing Jukka Huhtamäki, Martha G. Russell, Kaisa Still, and Neil Rubenspetitive advantage of clusters accrues from the venture funding in the Finnish innovation eco-linkages and the synergy between activities system. A socially constructed dataset is used to(Porter, 2000; http://tinyurl.com/4csuj9u). study the nature of business co-creation through syndicated venture capital investments. WeCo-creation is an essential force in a dynamic in- show that the dataset can be explored to providenovation ecosystem because a continual realign- value to researchers as well as ecosystem facilit-ment of synergistic relationships of people, ators and other agents of change. The snapshotknowledge, and resources is required for growth of innovation funding in Finland is examined byof the system and responsiveness to changing in- means of network analysis to visualize inter-firmternal and external forces (Rubens, et al., 2011; relationships, following the ecosystem as meta-http://tinyurl.com/4rnup6h). On one hand, ven- phoric reference for value co-creation in a net-ture capital is the “independent, professionally work-centric mindset. The analysis concentratesmanaged, dedicated pools of capital that focus on investments of venture capital, which in Fin-on equity or equity-linked investments in land have been oriented to early equity-phaseprivately held, high growth companies” (Gom- financing of high-tech startups. A total, all-in-pers and Lerner, 2001; http://tinyurl.com/ clusive analysis of the Finnish system is outside4vd5r2z), has specific termination objectives of the scope of this article, but the visualizationthat drive investments. On the other hand, gov- snapshot of venture funding will serve as a start-ernment development agencies are often framed ing point to stimulate the development of in-around capacity building missions – building sights relevant to innovation experts, analysts,markets, standards, supply chains, and technical and decision makers within the context of theand managerial talent. The investment strategies Finnish innovation ecosystem.of development agencies vary in outcome object-ives, as well as in time frame and financial ob- Venture Funding for the Finnish Innovationjectives. For examples, differences in the Ecosystem“cultivation vs. harvesting” strategies evidencedby investments into and out of China have been The Finnish national innovation system hasdescribed (Rubens et al., 2011). been described as a network of various actors, with education, research, product development,Jungman and Seppä (2004; http://tinyurl.com/ and knowledge-intensive business and industry4cpwxm5) differentiate the role of angel in- at its core. Regarding the flows of investments in-vestors, incubators, advisors, and corporate in- to this system, it has been noted that “because ofvestments in bridging the gap between seed the importance of the public venture capit-funding of prospective companies and capital in- al/private equity organizations, the Finnish ven-fusion into investable companies. While all these ture capital system can be described as dual onetypes of financial resources may be available for in which some private venture capital fundsbusiness investment in a region, the role and have been initiated by public intervention”proportion may vary. Investors’ ultimate object- (Luukkonen, 2006; http://tinyurl.com/5v4tota).ive is for a new company to undergo the major li- Furthermore, special characteristics have beenquidity event that allows it to become listed on a noted: i) due to the small markets in Finland, thestock exchange. An ecosystem including both ex- growth expectations oftentimes have been lim-periential and financial resources is needed to ited, which has impacted non-Finnish investors’co-create successful journeys across the gap perceptions of the attractiveness of investmentfrom a prospective to a listable company. in Finnish companies; ii) these existing public in- vestors many times have been passive; and iii)In this article, we use data-driven social network that there are very few corporate venture capital-visualization to present a network analysis of ists in Finland (Luukkonen, 2006). 14March 2011 Open Source Business Resource http://www.osbr.ca
  15. 15. Value Co-Creation in Finnish Innovation Financing Jukka Huhtamäki, Martha G. Russell, Kaisa Still, and Neil RubensIn this sample of 108 high-tech companies, 53 in- companies that have come of age – sold or is-vestments were announced from 28 institutional sued an initial public offering (IPO), amidstinvestors, made in 29 rounds between 2005 and many independent firms – and a few with inter-2010. An examination of the social networks and national connections. One actor dominates theother structures produced from this data is investment landscape.much like a walkabout in the Finnish innovationfunding ecosystem. Visual analysis shows the Figure 1 shows all 136 actors in our sample,patterning of connections between company act- which consisted of 108 technology-based com-ors as well as those of financial resources flowing panies with a home office in Finland and 28 in-to Finnish technology-based companies, imply- vestment organizations. Companies and theiring co-creation from innovation funding. For ex- funding organizations are interconnected withample, the walkabout reveals a landscape of four edges. The actors are colour-coded: companiesFigure 1. Network of Finnish Technology Companies and their Investment Organizations 15March 2011 Open Source Business Resource http://www.osbr.ca
  16. 16. Value Co-Creation in Finnish Innovation Financing Jukka Huhtamäki, Martha G. Russell, Kaisa Still, and Neil Rubensare gray, unless they were sold or have issued and Finnish Industry Investment invested inIPO, in which case they are red. Investors with Ipsat Therapies. This was the first investment intheir home office in Finland are blue; investors the sample and occurred in April 2005.whose whereabouts are international or un-known in the dataset are orange. The nodes are 5. Medisapiens received investment from VTTinflated according to their degree (i.e., the num- Ventures, Eqvitec Partners, Veraventure, andber of connections that they have to other Lifeline Ventures. This was the most recent in-nodes): the bigger the node, the more connec- vestment and occurred in June 2010.tions it has. 6. Most of the companies (75%) in this sampleAmong the notable relationships in the sample, are not receiving funding from an investment or-Figure 1 shows: ganization. Although some companies have in- vestments from individuals, angel investors are1. Ipsat Therapies, Medisapiens, Iqua, and Silecs not included in this analysis.have the largest number of connections to in-vestors. In our sample, 56 of the companies and invest- ment organizations (41%) are connected to one2. Finnish investment organizations represent or more actors. Figure 2 shows the betweennessroughly half of the investors for these Finnish centrality values for the 26 actors that have acompanies. value larger than zero. Betweenness centrality is one of the key metrics in social network analysis3. Conor Venture Partners, Veraventure, Eqvitec (http://wikipedia.org/wiki/Centrality#Between-Partners, Innovations Kapital, Midinvest Man- ness_centrality). It is based on counting theagement, and Nexit Ventures are linked to more number of times that a given node is included inthan one company by their investments. the shortest path between two nodes. Of the companies, Iqua has the largest betweenness4. Biofund Management, Sitra Ventures, Varma centrality value: 610. Of the investment organiza-Mutual Pension Insurance Company (Varma), tions, government-owned Finnish Industry In-Figure 2. Distribution of Betweenness Centrality 16March 2011 Open Source Business Resource http://www.osbr.ca
  17. 17. Value Co-Creation in Finnish Innovation Financing Jukka Huhtamäki, Martha G. Russell, Kaisa Still, and Neil Rubensvestment is connected to the largest number of programmatically. The locations of these in-companies, with a betweenness centrality value vestors were therefore classified as unknownof 1557. For the whole sample, including the act- and are shown in orange in Figure 3. These or-ors with no connections, betweenness centrality ganizations include, among others, Varma, Sitravalues of the lowest, low-medium, and upper Ventures, and VTT Ventures.)medium quartiles are zero, making the averagevalue 36. Figure 4 reveals funding paths or bursts for com- panies that have received two rounds of funding;The value distribution of betweenness centrality no companies in this dataset were reported toroughly follows a power law. Node degree value, have received a third-round investment. Second-the number of connections per actor, has a simil- round investors are shown on the outer circle ad-ar kind of distribution. This suggests that the net- jacent to the investors of the first round for thework is scale free – characterized by a very small same company. Finnish Industry Investment, fornumber of nodes that are highly connected and example, has been both a first-round investormany nodes with little connection (Barabási and and a second-round investor. When Sitra Ven-Bonabeau, 2003; http://tinyurl.com/4e3oxof). In tures and Varma are regarded as being Finnish,scale-free networks, growth patterns that show we can see that a small majority (57%) of fund-preferences for attaching to highly connected ing organizations participating in multiple fund-nodes are typical and generally lead to the devel- ing rounds are Finnish organizations.opment of hubs (i.e., nodes with an enormousnumber of links) in a rich-get-richer manner. DiscussionScale-free networks tend to be “robust againstaccidental failures but vulnerable to coordinated The approach for visual co-creation analysisattacks” (Barabási and Bonabeau, 2003). presented here is a synthesis of visual social net- work analysis and data-driven information visu-Through the companies they co-fund, relation- alization. Visualization and measurement areships between investment organizations are of claimed to be the two main factors enabling thestrategic interest for co-creation. Sunburst dia- explosive development of modern science. Visu-grams were applied to visualize patterns in the alization has been a key element of social net-Finnish innovation ecosystem. Figure 3 shows work analysis - and its precursor, sociometry - inthe co-investments of 22 investment organiza- supporting the exploration, presentation, andtions into 19 Finnish companies. Each investor analysis of the structure of communities. Thethat co-invested with another investor in this general objective of information visualization issample is shown in the inner circle. Their co-in- to amplify the cognition of a user through an ex-vestors are placed in the outer circle adjacent to pressive, often interactive view that gives insighteach investor, without specification of the time on a given phenomena represented by the data.of investment. In this design, each investor ap-pears as co-investor at least two times in the dia- Data-driven visual storytelling allows insights ongram. Investment organizations identified as the structure and dynamics of a network to beFinnish are shown in blue. The Finnish Industry shared with the help of visualizations.Investment co-invested with 15 other funding or- “[S]torytelling allows visualization to reveal in-ganizations; some co-investors were Finnish, formation as effectively and intuitively as if thewhile the location of others was not available in viewer were watching a movie” (Gershon &the data. (It should be noted that some of the in- Page, 2001; http://tinyurl.com/6k8nb3t). Hansvestors are known by the authors to be Finnish, Rosling gives particularly inspiring examples ofbut their Finnish locations were not identifiable such storytelling; his presentations are some- 17March 2011 Open Source Business Resource http://www.osbr.ca
  18. 18. Value Co-Creation in Finnish Innovation Financing Jukka Huhtamäki, Martha G. Russell, Kaisa Still, and Neil RubensFigure 3. Patterns of Co-Investing in Finnish Technology Companiestimes referred as “the best stats youve ever Finnish companies in the high-tech sector haveseen” (TED Talks, 2006; http://tinyurl.com/ not received funding from investment organiza-99rnmm) tions since 2005. For those Finnish companies that have received funding, 63% of have receivedThis study’s visual social network analysis re- either first or second-round funding fromvealed structural connections between Finnish Finnish Industry Investment. A handful of invest-technology-based companies and their invest- ment organizations (some Finnish and somement organizations. A significant proportion of not) provide modest diversification to the 18March 2011 Open Source Business Resource http://www.osbr.ca
  19. 19. Value Co-Creation in Finnish Innovation Financing Jukka Huhtamäki, Martha G. Russell, Kaisa Still, and Neil RubensFigure 4. First and Second-Round Investment Paths in Finnish Technology CompaniesFinnish funding landscape, which shows a scale- highlight the flexibility of Finnish government in-free pattern. vestment organizations to co-create in both first- round and second-round funding. The co-cre-Further, this analysis has generated preliminary ation role of these organizations is visualizedinsights about the general patterns of co-creator through both concurrent and sequential cooper-networks supporting the Finnish innovation eco- ative investments. At the same time, the visualiz-system in the high-tech sector. The sunburst ations also reveal a dependency on Finnishvisualizations display funding pathways and Industry Investment and an opportunity to fur- 19March 2011 Open Source Business Resource http://www.osbr.ca
  20. 20. Value Co-Creation in Finnish Innovation Financing Jukka Huhtamäki, Martha G. Russell, Kaisa Still, and Neil Rubensther diversify institutional investments in of high value when the dynamics of innovationFinnish companies. ecosystems are studied for insights on trends, the roles of different actors, diffusion of informa-These initial patterns suggest avenues for future tion and innovations et cetera, but they insist onstudy. Investment relationships reflect an inten- the availability of rich data sources.tional alignment of business resources and goalsthat may be based on technologies, markets, or Conclusionglobalization strategies. A resource-based rela-tionship implies that the partners share object- Applying information visualization and visual so-ives, share risks, and share rewards as they cial network analysis has huge potential for re-co-create value through investments. In co-cre- vealing the social structures and networkation, both the risks and rewards are shared; dynamics within innovation ecosystems, fromhowever they may not be equal. The roles of first individual organizations to the whole world. Des-and second-round investors may be specialized pite recent rapid development of visual tools forwith respect to the amount of risk, the financial social network analysis, one major issue thatand temporal objectives for exit, and the value of hinders data-driven visual analysis of co-creatorthe network itself. Across public and private networks in innovation ecosystems is the lack ofFinnish organizations making investments in accessible, timely data about the global ecosys-technology-based companies with headquarters tem of high-tech companies. We anticipate de-in Finland, this study showed that Finnish In- velopment in this area in the near future withdustry Investment is unique in both leading and the advent of (open) linked data (seefollowing the investments made by other entit- http://linkeddata.org), which is currently en-ies. dorsed with respect to opening up public admin- istration. The authors are contributing to thisThis study lacks two very important investment opportunity by creating a dataset representingplayers for a full view of the Finnish innovation high-tech companies and building up researchecosystem. Since firms were used as the unit of methods for this dataset.analysis, individuals serving as angel investorswere not included. In a subsequent study, we The scale-free patterning of the Finnish ventureseek to gain further insight on the business an- capital network is similar to the findings of Bar-gels’ vital role in seed financing for new techno- abási (2010; http://brsts.com) who claims thatlogy-based companies – an act of co-creation in such patterning can be found in nearly all kindsthis sense. An interesting, though difficult, task of human activities. Adding the temporal dimen-for future work is visualizing the role of incubat- sion to data enables the analysis of the evolutionors and business angels in closing the gap of the network. This opens up a new level of in-between venture and capital. sights into changes in the network that, at best, supports the formulation of future scenarios forFurther studies could include the utilization of agents of change in different innovation ecosys-temporal data, which often yields insights about tems. Two important opportunities for innova-the evolution of a network. Network visualiza- tion policy analysts concern identifyingtion tool-development initiatives such as Gource incentives to effectively encourage the reinvest-(http://code.google.com/p/gource/) and Gephi ment of exit resources and orchestrating mech-(http://gephi.org) are clear indicators of the in- anisms to strategically encourage globalterest that the open source community has in participation in a manner that provides a returntemporal network visualization. These tools are on investment back to its origin. 20March 2011 Open Source Business Resource http://www.osbr.ca
  21. 21. Value Co-Creation in Finnish Innovation Financing Jukka Huhtamäki, Martha G. Russell, Kaisa Still, and Neil RubensThis article is based on a paper presented in Kaisa Still studies innovation, technology trans-EBRF 2010: Co-Creation as a Way Forward. The fer, and the role of technology, with a focus on in-authors express their gratitude to the Venture formation and knowledge creation, sharing, andCapital Industry, Business Angels, and Know- management. Her studies focus on supportingledge Investors session chairs Prof. Markku collaboration and cooperation in organizationsMaula, Prof. Marko Seppä, and Dr. Jennifer Wal- as well as in community settings. Recent studiesske, as well as the other participants of EBRF include mobile, online and social networking2010 for their co-creation efforts contributing to communities, innovation ecosystems, and innov-the article. Camilla Yu provided valuable feed- ation indicators. Dr. Still has over 10 years ofback for revising the article. For additional ver- cross-sector business and academic experience insions of these visualizations, please refer to Finland, USA and China. She currently works forhttp://bit.ly/fininnofin. VTT Technical Research Centre of Finland and collaborates with Stanford’s Innovation Ecosys- tems Network.Jukka Huhtamäki (M.Sc, Hypermedia) is a re-searcher, a post-graduate student, and a teacher Dr. Neil Rubens is an Assistant Professor at theworking for the Hypermedia Laboratory (HLab) Knowledge Systems Laboratory, University ofat Tampere University of Technology. Jukka also Electro-Communications, Japan. He is the Direct-collaborates with the Innovation Ecosystems Net- or of Active Intelligence Research Group and is awork, lead by Martha G. Russell. His interests in- member of the Innovation Ecosystems Network atclude visual social media analytics, methods of Stanford University. He holds an M.Sc. degreestreamlining social network visualisation and in- from the University of Massachusetts and a Ph.D.formation visualisation, user and information degree from the Tokyo Institute of Technology -modeling and the development methods, and im- both in Computer Science. His research focusesplementation technologies of social, adaptive, on developing Active Intelligence systems, whichand distributed hypermedia. Currently, Jukka is are systems Artificial Intelligence systems that areworking to develop data-driven visual analysis self-adaptable utilizing unsupervised and semi-processes for insights on, for example, social me- supervised learning, and active communicationdia usage and innovation diffusion. and data acquisition. He collaborates with Stan- ford’s Innovation Ecosystems Network.Martha G. Russell is Senior Research Scholar atHuman Sciences Technology Advanced ResearchInstitute and Associate Director of Media X atStanford University, a membership-based, inter-disciplinary research catalyst focused on people,media, technology, and innovation. Dr. Russell’sbackground spans a range of business develop-ment, innovation, and technology-transfer initi-atives in information sciences, communications,and microelectronics at the University of Min-nesota, The University of Texas at Austin, andStanford University. She collaborates with Stan-ford’s Innovation Ecosystems Network and serveson the editorial boards of the Journal of Interact-ive Advertising, the Journal of Electronics, andTechnology Forecasting and Social Change. 21March 2011 Open Source Business Resource http://www.osbr.ca
  22. 22. Using Value Co-Creation to Redefine Business Models Kati Järvi and Antti Pellinen "No man is an island, entire of itself; every man is a piece of the continent, a part of the main." John Donne In the information and communication technology (ICT) sector, a revolution is underway in the delivery channel of mobile service (or application) production and provision, and application stores are building up a central position as inter- mediaries in service delivery. The market is transforming from being one-sided to being two-sided. Thus in this article, we focus on integrating the business model concept with value co-creation with respect to the emergence of two-sided mar- kets and intermediaries. As the transformation from a one-sided to a two-sided market and the birth of intermediaries bring forth value co-creation possibilities, this article aims to find out how value can be co-created in different mobile ser- vice production and provision models.Introduction side, both of which represent cost and revenue. However, this duality of both sides representingVolatility in the competitive environment forces cost and revenue is often neglected. Even in thefirms to reinvent value instead of just adding it. presence of two-sided markets, the one side is of-In addition to reinvention, different economic ten treated as a source of profit while the otheractors have to work together in order to co-cre- side is treated as a loss or as financially neutral.ate value. With many innovations, value is co-created through intense collaboration and com- Business Models for Two-Sided Marketsplex business models. This is highlighted espe-cially in the ICT sector, where several other A typical two-sided market in the informationfactors also contribute to the urgent need for the era brings together two groups of users, namelybusiness model to become more comprehensive suppliers and customers. Examples of these two-in terms of value co-creation. sided markets include personal computer oper- ating systems (which bring together softwareMost of the business model literature has fo- providers and users), web search services (whichcused on value creation towards the customer; bring together information providers andthis is one-sided market logic. In one-sided mar- seekers), video games (which bring togetherkets, the traditional value chain applies, as game developers and players), and online re-shown in Figure 1a. Value moves from left to cruitment sites (which bring together employersright, meaning that the left (upstream) repres- and job seekers). In the telecommunications in-ents cost, and the right (downstream) represents dustry, the proliferation of application stores hasrevenue. In the two-sided market, as shown in transformed a previously one-sided market intoFigure 1b, there are distinct participants on each a two-sided market. On one side of the market, 22March 2011 Open Source Business Resource http://www.osbr.ca
  23. 23. Using Value Co-Creation to Redefine Business Models Kati Järvi and Antti PellinenFigure 1. Value and Revenue Flow in One-sided and Two-sided Marketsthere are third-party application developers, new models combine the most suitable featureswho have previously lacked an attractive deliv- from traditional and new approaches so thatery channel to end-users, such as the Internet telecommunications operators can operate in ahas provided for software developers to reach more agile and co-operative manner.users. On the other side of the market, there aremobile phone users, especially smartphone Based on our empirical data, we have identifiedusers, who are hungry for value-adding services four different types of mobile service productionthat are easy-to-download, easy-to-use, and and provision models, which will be described ineven free-of-charge. As a two-sided market, ap- the next section. These models represent differ-plication stores give birth to a new delivery chan- ent types of delivery channel choices available tonel choice for application developers. application developers.Application stores act as intermediaries between Choice of Delivery Channelthe two sides of the market. They have becomethe hubs of the telecommunications industry In general, an application developer has threevalue chain and representing a delivery channel different delivery channel choices in their pur-revolution, particularly from the perspective of suit to provide a service (or application) to anapplication developers. Application stores also end user: the direct channel, the operator chan-generate the need to redefine the business mod- nel, and the application store channel. For theel with value co-creation. We argue that the tele- application developer, the sales and distributioncommunications industry, to which the Internet challenge is to reach an end-user audience thatworld has brought major technological changes is as broad as possible. For independent or smal-and revolutionary commercial changes, is adopt- ler developers, this challenge may be greater be-ing new models of providing the communica- cause of limited marketing resources; acquiringtion and related services or applications. These the attention of their target audiences often re- 23March 2011 Open Source Business Resource http://www.osbr.ca
  24. 24. Using Value Co-Creation to Redefine Business Models Kati Järvi and Antti Pellinenquires multiple resources beyond those required Figure 2 illustrates the four different types of mo-to develop the service or application. Similarly, bile service production and provision models.both consumer and business end users, have an They represent the different delivery channelinterest to gain information and offers from ser- choices available to applications developers, thevices and applications that potentially provide two-sided market phenomenon, and also value-utility, entertainment, or enhancements. End creation possibilities. Production is requiredusers cannot approach all relevant developers or with services and applications that have an on-even acquire knowledge of their products and of- line element, meaning they utilize server orferings. Furthermore, it requires significant tech- backend infrastructure. Similarly, we can in-nological knowledge to be able to distinguish the clude certain support and maintenance require-suitability of the service or application to the ments, even for standalone application. Inend user’s mobile terminal or access network. addition to production, provision includes pack-Direct distribution of services or applications aging or bundling, customer management,(i.e., the direct channel), is likely to lead a very billing, branding, marketing, sales, and custom-fragmented, expensive, and non-user-friendly er acquisition. Thus the delivery channel choiceenvironment due to the phenomenon called the also represents a business model choice andlong tail. leads to value co-creation possibilities.Figure 2. Models of Mobile Service Production and Provision 24March 2011 Open Source Business Resource http://www.osbr.ca
  25. 25. Using Value Co-Creation to Redefine Business Models Kati Järvi and Antti PellinenTraditional operator model: The Internet is plication stores. For example, Google’s Androidchanging the way services (or applications) are Market, Apple’s App Store, and Nokia’s Ovi Storebeing provided and used. In the telecommunica- provide applications for corresponding commu-tions sector, application developers have tradi- nication terminals, or mobile phones. Thesetionally chosen the telecom operator as their stores even provide applications that can bedelivery channel when reaching the consumers used for communication services – the tradition-and enterprise end-users. The applications al operator services. This is the application storeprovided are usually white labeled (branded un- model of providing services.der the operator’s brand name). The operatorshave traditionally managed – and created value Open operating systems in mobile devices havethrough – both the technology and service provi- enabled the development of native applicationssion. Traditional communication services, like on the particular environment. Mobile devicevoice and SMS, have been produced and manufacturers and providers of open operatingprovided by the operators, who have invested in systems have established market places, or ap-networks and service platforms, as well as oper- plication stores, to promote their environmentsated them for service production. The operators and advertise an increasing number of serviceshave, at the same time, acquired the customer, and applications based on their environments.managed the customer relationship, and billed Whereas the operator channel is limited to thethe customer, as well as packaged and marketed geographical area where the mobile operator isthe service. This is the traditional operator mod- operating, the application stores are practicallyel of providing services. limited to the certain mobile operating systems or devices from a certain manufacturers, thusThe traditional model of distributing services limited the target market. Generally, the applica-and applications to mobile devices is operator tion stores act only as the distribution andcentric, where the mobile operator provides the billing channels. Everything from developmentservices and application with their communica- and production to packaging and bundling aretion and access offerings. Where the basic tech- managed by the developer. Application storesnology may be provided by various sources, the form market places where the end users are ableoperators develop, operate, package, and bundle to find and purchase a great number of servicesthe services. They are also handling customer and applications, but the fulfilling is the respons-management, marketing communications, and ibility of the provider. Applications stores chargesales activities. The operator-centric model has developers for the distribution and billing, butbeen dominant in an environment where mobile most of the value creation is gathered by the de-devices are closed and no real external interfaces veloper.are opened for external service provision. Thevalue capture is clearly in the operator’s hands. Managed service model or brand co-operation model: Between the two extremes shown in Fig-Application store model: End users are becom- ure 2, there are a number of potential ways ofing familiar with the service-provision model combining these models. In some communica-from the Internet: services are being made tion services, operators outsource the techno-simple to download and easy to use, even free of logy and even creation of the service concepts tochange. During the past few years, there have smaller, more agile players that are even able toemerged an increasing number of terminal-de- produce the services in the Internet or thependent – and thus operator-independent – ap- “cloud.” This results in faster service-creation 25March 2011 Open Source Business Resource http://www.osbr.ca
  26. 26. Using Value Co-Creation to Redefine Business Models Kati Järvi and Antti Pellinentimes and more cost-efficient structures. Operat- Three types of value co-creation and related in-ors are able to brand the services and include terdependence between the supplier and cus-them in their product portfolio, increasing the tomer can be distinguished (Forsström, 2005;value brought to their customer. These are the http://tinyurl.com/675gb6h). The first type is se-managed service model and brand co-operation quential, which implies that one party givesmodel. something to the other, thus making the output of one’s activity the input of another. This typeOperators have many advantages in their mar- of value co-creation and interdependence rep-kets: they have an existing customer base, a resents the linear value chain, one-sided marketbrand, a billing mechanism, an established dis- logic, and in our study, the traditional operatortribution network, and, in many cases, a market- model.ing budget among the biggest in the marketarea. However, operators are limited to their The second type is pooled value co-creation andmarket area and a global or wide geographical interdependence, which refers to supplier andpresence requires co-operation with a number customer or any two or more collaborating orof operators. Furthermore, different operators coopetiting parties providing a joint pool of re-have different interfaces to which the developers sources from which they both draw. In ourhave to adapt. And in many cases, the operator study, this is the managed service model orchannel may not be the most cost efficient for brand co-operation model, where both applica-the developer. The operators know that they are tion developers and operators need and benefitthe most prominent distribution channel for from the resources of the other.their customer and often price their services cor-respondingly. The third type is reciprocal value co-creation and interdependence, where parties mutually ex-Value capture in the operator channel model var- change inputs and output and there is a need toies depending whether there is a contractor rela- learn from each other. This type of value co-cre-tionship or a revenue-sharing relationship, or ation involves the customer as a co-producer ofwhether the operator acts only as the billing value. Reciprocal value co-creation is presentmechanism. But in the cases where services are with our application store model.provided by the operator channels or with theoperator banding, the developer has fewer pos- Research Implicationssibilities to capture most of the value. The different models described in this articleImpact on Value Co-Creation highlight several noteworthy issues. First of all, the traditional operator model represents linearIn one-sided markets and in traditional value and transitive-value-creation logic, thus makingchains, value creation is sequential, with the the model and the application developer’s deliv-value moving from left to right. With the se- ery channel choice a manifestation of a one-quences from left to right, value is ‘added’. sided market, where value in the chain movesHowever, with technological advancements, from left to right and it is added in differentvalue is no longer created in a linear and transit- stages. Thus, with respect to this type of deliveryive process; value creation is becoming less se- channel, value co-creation possibilities are nar-quential, more synchronic, and more interactive. row due to the inherent characteristics of the de- livery channel. 26March 2011 Open Source Business Resource http://www.osbr.ca
  27. 27. Using Value Co-Creation to Redefine Business Models Kati Järvi and Antti PellinenSecond, with the managed service model or target market’s brand awareness, and above all,brand co-operation model, value co-creation the developer’s strategy. Naturally one canpossibilities are relatively greater compared with choose multiple channels or accommodatethe traditional operator model. However, the channel decisions for the different target seg-value creation process in these models is still ments or markets. In this case, however, the de-more linear and transitive than synchronic and veloper has to maintain consistency betweeninteractive. Thus, in terms of the number of mar- channels in order to avoid conflicting businessket sides, the managed service model and brand models or pricing plans for individual end-cus-co-operation model are still seen as representa- tomer segments.tions of one-sided markets. Channels, operators, and application stores typ-Third, the application store model is a true oc- ically see application sales as a complementarycurrence of a two-sided market, where the ap- tool for enhancing the attractiveness of theirplication store acts as an intermediary. Whereas core product, such as a communication or ac-the long tail of mobile applications makes it diffi- cess service for mobile service operators, or ancult for application developers to bring their ap- end user device or platform for application storeplications to the awareness of a wide end-user operators. In this sense, application sales haveaudience, the application store model (or the been seen only as an individual tool for creating“open garden approach”) can enable and stimu- competitive advantages in marketing. However,late the emergence of mobile applications along in recent years, the financial importance of ap-the long tail in a positive way. As a central hub, plication sales has increased along with thethe application store offers visibility for applica- growth of the ecosystems and, subsequently, thetion developers. Since the application demand is number of applications and developers in thedistributed over an increasing number of applic- network.ations and the mobile application market ismore fragmented than earlier, there is more vari- Conclusionety both in supply and demand where nicheproducts can achieve high usage among the few This study illustrates that the inherent character-who adopt them. The increasing number of ap- istics of the delivery channel have implicationsplications and greater variety of supply and de- on the business model, both in terms of the de-mand accentuate the intermediary role of an livery channel choice from the perspective of theapplication store in order to generate positive application developer and in the function of thenetwork effects. With the application store mod- delivery channel from the perspective of the op-el, value creation is synchronic and interactive; erator or application store. These delivery chan-hereby value is co-created. nel characteristics, such as value co-creation possibilities whether operating in a one-sided orWhile no model studied here is preeminent com- two-sided market, have been discussed here inpared to the others, the developer has to make the context of mobile service or application pro-the choice between the channels and, as de- duction and provision but they also have relev-scribed in the study, the business model related ance in other settings.to it. This choice is based on the application, the 27March 2011 Open Source Business Resource http://www.osbr.ca

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