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Customer Co-Creation


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My bachelor thesis on virtual environments for customer co-creation

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Customer Co-Creation

  1. 1. Capstone Assignment: Customer Co-creation of Innovation Maastricht University School of Business and Economics Maastricht, Februar 21, 2011 Schneider, Philip I576638 International Business Mayor: Marketing Capstone Assignment Topic 2
  2. 2. Table of Contents 1. Introduction 2. The Internet as an Enabler and Catalyst of Change 3. A Fundamental Relationship Shift: from Exploitation to Involvement 4. Migrating customers from passive recipients to active co-creators 4.1 Traditional Tools 4.2 Emerging Tools 5. The Impact of Co-Creation on Firm Competitiveness 6. Implementing and Managing Co-Creation Processes 7. Limitations 8. Conclusion Bibliography Appendix
  3. 3. Abstract The openness of the Internet facilitates the evolution of virtual collaboration and has the potential to accelerate the rate of innovation. Virtual environments enable companies to continuously interact with customers and develop valuable relationships with many customers at low costs. But companies need to understand the implications and limitations of virtual tools for co-creating innovation with customers in order to develop a coherent strategy and implement web-based environments, which mutual value for companies and customers. 1. Introduction The emergence and widespread adoption of the Internet has enabled companies to establish virtual and ubiquitous collaborations with their stakeholders. Many companies have strengthened their innovative capacities and capabilities in this way. Recently, online collaborations have eroded traditional corporate boundaries. Technologies and markets keep evolving at an unprecedented pace. Yet, modern information technology is not only transforming back-end but also to front-end corporate processes such as marketing. Today, IT revolutionizes traditional company customer relations and the way of the marking function to reach out to customers in order to create, communicate and deliver value. Historically, the customer’s consumption and value creation has been a black box for marketing departments because the goods themselves are rather a distribution mechanism for a customer’s job-to-be-done (Vargo and Lusch, 2006). Customers create value themselves by using products (Grönroos, 2010). The Internet offers the marketing function new means to improve upon the creation, communication and delivery of value. Customers can be actively involved in the value creation process and become co-creation partners. Therefore, virtual collaboration can dramatically alter traditional company-customer relations. Virtual environments involving customers to crowd source innovation, offer substantial opportunities, but they also conceive new challenges.
  4. 4. The purpose of this paper is to discuss recent academic findings on virtual customer co-creation. It investigates the question, whether companies can and should employ virtual co-creation environments to develop a sustained competitive advantage. Firstly, the paper looks at the impact of virtual environments on customer-company relationship. Then, it turns to examining traditional and emerging tools to involve and interact with customers to co-create innovation. It considers the benefits and drawbacks of the most prominent tools and discusses the potential of virtual environments to create a sustained competitive advantage. Lastly, it points out influential limitations and implications for the application of virtual environments in an organizational context. 2. The Internet as an Enabler and Catalyst of Change In today’s increasingly diverse and dynamic market place, companies need to respond quickly to market changes. In order to cope with market changes as well as rising technology demands, many companies reach out to external sources outside the firm’s borders because company resources are scarce (Nambisan, 2002). Increasingly, web-based and distributed innovation models are used to collaborate with stakeholders, such as competitors and customers, in pursuit of accelerating learning curves (2002). The Internet has increased the resolution rate of previously unsolved R&D problems of many big and small corporations (Appendix A). Virtual co-creation platform Innocentive has helped to increase the resolution rate of its clients by up to 29,5% (Lakhani et al, 2007). The Internet has played a vital role in this respect because of its ability to connect widely dispersed stakeholders at low incremental costs. As a consequence, the Internet has transformed company-stakeholder relationships in many ways. It has change the direction, richness and intensity of customer interaction as well as the scale and scope of the audience by providing cost effective, interactive, real time means to connect with customers (Sawhney et al, 2005). Until the beginning of the21st century, the Internet had been a static collection of data sets located on servers around the world. With the advent of Web 2.0, interactive features were introduced, web pages became user centric and interactive features liberated users to generate content on virtual platforms and actively participate in social networking. Nowadays, companies are starting to take advantage of virtual platforms to center their attention on customers. Thanks to the wide spread adoption of the Internet, it is now possible to establish
  5. 5. ongoing dialogs with many customers at low incremental costs (Nambisan, 2002). According to the International Telecommunications Union, the number of Internet users has reached more than 2 billion at the end of 2010, and the number of users is expected to continue rising (ITU, 2010). The widespread adoption around the globe has drastically increased the importance and diversity of Internet users (Appendix A). Since consumers are now able to share their opinions and knowledge freely and conveniently on a 24/7 basis, they influence and shape other consumer’s perceptions about products and brands. As the Internet connects and affects potentially one third of the global population, it promises a lot of prospects to develop valuable customer-company relationships, but it also conceives many risks. 3. A Fundamental Relationship Shift: from Exploitation to Involvement Customers are not only rich sources for knowledge; participants of virtual environments are also value co-creators through interaction and active engagement (Sawhney et al, 2005). Hippel and Katz (2002) note, that virtual customer co-creation abandons the attempt to understand customers. Instead customers become a valuable partner in the product design process. Web-based co-creation transfers and effectively outsources the need-related product development task to customers. Therefore, companies can tap into social and experimental knowledge dimensions of the diverse customer base by employing virtual environments (2005). The challenge is to define and allocate and manage the new roles taken on by customers to harness the collective co-creation of value. If no clear structures and roles are in place, companies risk becoming distracted and overwhelmed trying to integrate the virtual community into their existing processes. Prahalad and Ramaswamy (2004) point out, however, that virtual co-creation goes further than just outsourcing new product developments. They emphasize, that “the role of the consumer in the industrial system has changed from isolated to connected, from unaware to informed, from passive to active. The impact of the connected informed and active consumer is manifest in many ways.”(2004). Virtual co-creation personalizes company-customer interactions by letting the customer choose the communication scheme and interaction involvement and frequency (Prahalad and Ramaswamy, 2004). Thus, co-creation environments are more suitable to meet the customer on their own terms, than traditional
  6. 6. methods involving the customer. This represents a fundamental change in the company-customer relationship and the value-creation locus. Traditional marketing approaches have focused on gaining and exploiting customer knowledge. Market research has widely been bound to physical interactions limiting its scale and scope due to its high costs (Nambisan, 2002). Whereas traditional approaches are more concerned with directly interacting with current individual customers one-on- Traditional, Physical Environment Emerging, Virtual Environment one, online approaches initiate one-to- many interactions. They broaden the Innovation Firm centric Customer centric interaction focus to not only reach out perspective to existing but also potential customers Customer role Passive, Active, Recipient of endresult Partner in the process (Sawhney et al, 2005). User Direction of One way Two way interactions on product and company interaction Firm to customer Dialogue related sites, such as comments and Intensity of Spot Continuous questions on blogs and social networks interaction Richness of Individual knowledge Social and are monitored and followed up by interaction experimental employees. Today, conversations are knowledge Size and scope Direct with current initiated by the firm as well as by the customers customers themselves. Thus, rich and continuous two-way communications evolve online reaching out to many customers. So far, we have discussed the main changes underlying the shift towards the virtual world. We have pointed out “what” relationship features need to be altered for successful virtual co-creation. Direct+mediated with current and prospect customers Figure 1: Customer-Company Relationship Changes. Sawhney et al. (2005) Now we will address “how” virtual environments can facilitate customer-company relationship changes by comparing traditional and emerging tools to involve customers in the innovation processes. Can companies merge traditional and emerging tools into an integrated co-creation strategy? Then we will discuss if and how an integrated co-creation strategy can provide a sustainable competitive advantage.
  7. 7. 4. Migrating customers from passive recipients to active co-­‐creators 4.1 Traditional Tools The traditional and emerging tools diverge in terms of usage possibility and function. Each tool has its own benefits and drawbacks due to its idiosyncratic features. Traditionally, firms have employed various offline mechanisms to engage customers, such as mass customization, conjoint analysis, and lead users involvement. Mass customization enables customers to choose from a list of options to customize the product according to their preferences. By offering mass customization options firms are more capable to meet customer needs, while ensuring to be able to produce without major adjustments to their production facilities (Hippel and Katz, 2002). Pre-specified degrees of customization keep the production costs down to a reasonable level, but do not necessarily meet customer needs sufficiently (2002). Today, many cars, like the BMW Mini, are made to order. “Only two out of every 100 Mini cars are the same” (Payne, 2008). Mass customization certainly offers advantages for customers as well as manufacturers, but it is static in itself because it is set up to fit the company’s supply chain, rather than the customers unique needs (Prahalad and Ramaswamy, 2004). The customer has limited influence on what and how he wants the product to be customized. Therefore, firms have historically been rather reactive to shifts in customer needs and reliant on forecasting through market research. Commonly employed research approaches are conjoint analysis and lead user involvement. Conjoint analysis and lead user involvement gathers and analyses customer preferences in order to improve products. Manufacturers incorporate the gained customer insights into standardized products (Hippel and Katz, 2002). However, customer research is a mixed blessing. On the positive side, it connects firms to the market and enhances its ability to sense and respond to trends. On the negative side, it has traditionally been very costly. A further drawback is its focus is on current customers. Market research such as conjoint analysis is one-sided firm-centric undertaking and restricts itself to reacting, instead of facilitating changes in customer preferences. Similar to mass customization, lead users involvement’s focal point is the current customer. Current customers, however, are often biased towards what they already familiar with. In summary, traditional market research tools are an unlikely source of true innovation, which would allow companies to develop a continuous competitive advantage for the increasingly complex and dynamic markets of the 21st century.
  8. 8. 4.1 Emerging Tools Because of ubiquitousness and accessibility of the virtual environments, emerging tools offer various new functionalities and value to the customers and companies -depending on the nature of collaboration efforts (Sawhney et al, 2005). Since a virtual environment offers numerous points of interaction with the customer, the individual tools have to be integrated to form a coherent, robust experience environment (Prahalad and Ramaswamy, 2003). Many traditional and emerging tools complement each other’s functionality. Sawhney et al. (2005) note, “the synergistic usage of different tools supporting different phases of the new product development is an important factor in enabling successful Internet-based collaborative innovation with customers” (p. 15). Sawhney et al. (2005) has developed a two dimensional framework to systematically map virtual collaboration tools according to their usefulness at different stages of new product development. The framework addresses two distinct collaboration dimensions, the nature of collaboration and the co-creation applicability to the stage of the product development process. The first dimension, the nature of Figure 2: Mapping Internet-Based Collaboration Mechanism Based on Nature of Collaboration and collaboration, distinguishes between broad Stage of NPD Process. Sawhney et al. (2005) customer reach and high information richness. The second dimension, applicability to each stage of new product development process, differentiates between front-end and back-end processes, from ideation to product testing (Sawhney et al, 2005). The underlying methodology gives a general overview as well as useful insights into the complementary design of virtual environments. Thanks to the different nature of information gained from the emerging tools, it is beneficial for firms to employ tools from every quadrant in their virtual environments. The complementary use of tools will yield the greatest market insights for product development, while giving the customer the freedom to choose their level of involvement and time invested each session (2005). In the following, we will focus our analysis on listening in, virtual communities and toolkits for user innovation. The tools will be briefly explained and their advantages and disadvantages discussed.
  9. 9. The listening in technique is positioned at the front-end development process with the potential to reach many, diverse customers. Listening in uses customer input to create value for the company in terms of accurate, up to date market information for product ideation and conceptualization. Listening in permits companies to discover new customer segments and need combinations, which are currently unaddressed by the market. General Motors built a virtual advisor for car buyers and successfully identified a new customer segment of car buyers (Urban et al, 2004). On the advisor website, potential car buyers can find their most suitable car based on their specific preferences and desires. Following a series of questions about the car requirements and typical usage situation, the virtual advisor recommends a list of the most appropriate cars models. During the process, the customer needs are recorded and consolidated into a large database. The aggregated customer needs data is subsequently analyzed by applying mathematical algorithms called „Monte Carlo Simulations“. The software algorithm activates an opportunity trigger, if current products on the market do not meet a sizable needs combination. Once an opportunity is identified, Urban et al. point out that it is beneficial to verify and complement the result with traditional tools such as conjoint analysis and focus groups (2004). Tracking down new opportunities and adapting them to new market trends is crucial for companies’ long-term survival (Urban et al, 2004). In this respect listening in offers several advantages over traditional market. First and foremost, customers are incentivized to reveal their true, unbiased needs because they want to get the most suitable advice. Secondly, instead of telling the customer what the want to choose, as it is the case for mass customization options, firms yield accurate customer needs information by listening to what customers actually want to choose. Thirdly, due to its web-based design extensive customer data can be obtained at low incremental costs (2004). The Internet enables firms to scale their efforts and reach potentially millions of people. However, an important limitation of Listening in is, that in order for the virtual advisor to identify market opportunities, a large amount of users have to participate. Scale is not an option, but an imperative for the advisor to be effective. An ongoing dialog between a large and diverse customer base and virtual advisors give customers valuable product advice, while permitting the firm’s access to the latest information on consumer needs and market trends. Companies can subsequently modify and tailor their products more effectively to customer needs. By employing listening in techniques companies and customers can cooperate to mutually create value for each other anywhere, anytime.
  10. 10. Instead of exploiting customer knowledge, value is created two-directionally. Listening in results in a win-win situation for both parties -the customer and the company. Virtual communities enable customers to communicate directly with the company and become deeply involved in the product ideation process. Depending on its design, virtual communities can either have a broad reach or rich collaboration. If communities are open, all customers have the opportunity to communicate with the firm as well as with other customers. The firm has to monitor and moderate customer communities in order to ensure coherent, high quality content. Otherwise communities run the risk to become inconsistent and confusing for customers. In virtual communities firms as well as customers themselves can provide information and support to each other. Virtual communities can create means for far-reaching, two-way dialogs, but they also provide means for deep customer-company collaboration. Through the use of virtual communities many potential value contributors, not only lead customers, have the chance to make their voices heard in the product ideation process. Historically, lead customers were hand-selected for product innovation initiatives by the firm, based on long standing exchange relations. By using virtual communities, important value contributing customers do not need to be individually selected by the firm anymore. Rather, important contributors evolve and reveal themselves through their online interactions and engagement (Sawhney et al, 2005). Ducati and Eli Lilly successfully established a virtual collaboration environment to innovate and co-create with their customers. As part of its initiative, Ducati uses several virtual community designs. By featuring a photo competition on its website, Ducati was able to identify and bring together highly technical experienced fans. The winners were rewarded with an invitation to Figure 3: Ducati’s Internet-Based Innovation join a gated online expert community Collaboration Initiatives. Sawhney et al. (2005) (2005). Thereby, the cost of identifying important value contributors for firms diminishes, while its reach and accuracy increases. Hence, the customer experience as well as the value potential of virtual environments can be enhanced by gate keeping mechanisms for such specialist communities. If virtual communities are designed in such a way, they can create win-win situations for companies
  11. 11. and customers. By monitoring customers´ virtual engagement virtual communities identify possible high value contributors in a very effective and efficient manner. In addition, virtual communities can be used as a first step for intimate, longstanding customer-company relations. Valuable online contributors can be invite to more traditional, physical approaches such as focus groups, or customer community events as in the case of Ducati, which invited its most valuable online contributors to follow up offline events (2005). This illustrates again the complementary usage possibilities of traditional and emerging methods for customer involvement. By integrating toolkits for user innovation virtual environments also offer users the possibility to innovate and create value for themselves. User-friendly toolkits, designed for specific design challenges, shift the product prototyping task to the customer (Hippel and Katz, 2002). Toolkits´ computer simulations enable customers to design, prototype, evaluate and improve upon their product concepts (2002). Well-designed toolkits translate the functionality requirements of the user into the production design language of the manufacturer without need for further adjustment for actual production. Toolkits for user innovation are particularly useful and valuable, when user demands are heterogeneous (2002). Hippel and Katz (2002) emphasize however, that applicability of toolkits require some important prerequisites. The effectiveness of toolkits depends on its ability to separate the overall product development task into smaller subtasks (Hippel and Katz, 2002). Specific subtasks can then be allocated to, and executed by, either the user or the manufacturer. Reallocating subtasks can be difficult for example due to missing complementary information or the way the information is encoded. The ability to transfer tasks depends on the stickiness of the required information (2002). Information is sticky, if acquiring the information involves high costs. Therefore, the partitioned subtasks need to be standardized in order to reduce the stickiness of the information required for problem solving. This can be done by making tacit knowledge explicit in the form of design rules for the virtual solution space. However, toolkits work best if the common user design language is adopted (2002). The focus of the toolkit’s design language should thus be on the functionality of the customer product since the user is very familiar with the intended functional performance of the to be designed product. The employment of toolkits implies ex-antes that the customer has the necessary minimal product design knowledge and design language. On the down side, the cost of acquiring the knowledge needed to use a toolkit represents a significant barrier. On the upside, the design language imposes switching costs on the user and strengthens customer loyalty.
  12. 12. The more heterogeneous the product performance demands of the customer, the more valuable is the employment of user toolkits for firms because do not need to acquire the customer information on the different product usage settings (2002). Transferring the design task to the customer is beneficial for the firm because the customer exactly knows the functional needs of the product, as well as the usage setting of the product (2002). Toolkits decrease company-customer miscommunication about product specifications, empower customers to add value to company processes and reduces the firm’s cost and risks to meet customer needs exactly. Toolkits are advantageous, compared to mass customization, because it allows customers to combine and manipulate general-purpose building blocks to fit their needs (Hippel and Katz, 2002). Instead of offering predetermined options to choose from, toolkits offer a larger degree of freedom for the customer to create novel solutions for himself. Providing already created modules can further facilitate the customer’s creative process. Module libraries effectively empower the customer to focus on his creative new elements of his product (2002). Simplifying the creation process, by letting the customer add and subtract elements from existing modules, enhances the customer’s creative design experience. In summary, emerging co-creation tools create mutual value for firms and customers. They can be used as stand alone initiatives or complements to offline as well as other online tools. However, web-based tools are best used in an integrated co-creation environment to allow customers to choose their level of involvement. Virtual tools are advantageous compared to offline tools due to their scalability, low cost, 24/7 availability and their potential to reach many, dispersed and diverse customers. 5. The Impact of Co-­‐Creation on Firm Competitiveness In the ubiquitously connected competitive environment of today, product lifecycles become shorter, and it gets harder to differentiate products from low cost competitors. Thus, innovative firms have to develop a sustainable competitive advantage in order to stay ahead of competition. The determinants of a sustainable competitive advantage are valuable, rare, immobile and non-substitutable assets. How can co-creation tools help to develop a sustained competitive advantage? The employment of customer co-creation toolkits allows the first movers to attract more customers and engage in a new, deeper of relation with them (Hippel and Katz, 2002). Toolkits are valuable for customer and companies. However, in the semiconductor industry,
  13. 13. which was one of the first to introduce toolkits, competition can quickly imitate and developed its own toolkits (2002). Toolkits not only transfer the design task to customers, but also sticky and valuable firm knowledge. Thereby, valuable firm knowledge becomes expose potentially threatening the firm’s traditional sources of competitiveness. Because toolkits are developed to fit the company specific production facilities toolkit designs are rather immobile, however; conversion kits can erode this immobility of firm specific designs. Conversion kits allow customers to convert designs easily to fit toolkits of competitors. Hence, conversion kits reduce the possibility of value extraction for firms and decay their competitiveness. Thus, the question arises, weather firms are well advised to follow or lead the introduction of co-creation tools? The usefulness and application possibility of co-creation tools is industry-dependent. Toolkits are not germane for design processes that require a great deal of tacit knowledge or learning on the customers’ side. However, if toolkits can be employed, it is beneficial for firms to be among the first movers because they will set an industry standard. Because the customer community needs to learn the design language of the first movers, at least a temporal competitive advantage can be established. If toolkit designs are inconvertible to other platforms, a lasting competitive advantage can be developed. By setting design standards competitive barriers arise because a new competing standard of rivals has to attract a large user and customer base. The competitive importance of co-creation toolkits has become especially apparent in the consumer electronics and software industry. Manufacturing devices with the best or most features is no guarantee for a competitive advantage anymore. The Nokia CEO Stephen Elop point out, that “the game has changed from a battle of devices to a war of ecosystems” (Dignan, 2011). Customers are able to personalize the experience of their device and customize its functionality by downloading and/or creating application. They create their own mobile experiences and thereby add value the manufactures devices. Ecosystems for co-creation have become an important market force. Today, toolkits have an important role in the dynamic telecommunication industry and a substantial impact on firms’ competitiveness. Promoting and empowering customers to become developers to actively co-create a thriving eco-system commands the development of effective toolkits as well as mechanisms to share economic rents. Developer toolkits as well as learning resources are openly available to everyone with Internet access. The availability of an easy and comprehensive distribution mechanism, such as the app store, has, in combination with SDK developer kits, created a gold rush among developers. The toolkits have created an open and lucrative market for co-
  14. 14. creation and turned many customers into developers. Within four years over 350,000 applications have been created just for the Mac’s iOS mobile platform and the number of applications keeps growing on a daily basis (Bilton, 2011). By 2015 the revenue from application is expected to rise to $38 Billion (2011). The SDK toolkits are an important factor in the recent revolution and transformation of the telecommunications industry. The Figure 4: Global Smartphone and Table App Shipments in US$. Bilton (2011) win-win-win-win situation for customers, developers, mobile operators and device manufactures shows the humongous potential of toolkits to enhance products and services. In comparison, listening in tools and customer communities might be valuable and rare at first, but they are neither immobile, nor non-substitutable. Still, the use of the tools can enable companies to gain superior customer knowledge and subsequently better product offerings. For these tools to be advantages, special attention has to be paid to their implementation and integration into existing marketing processes. Customer communities have to be monitored and moderated on an ongoing basis in order to ensure valuable customer service and good experiences. The algorithms underlying listening in tools and their proper calibration for opportunity triggers are very important for successful use. The complementary use of tools allows customers to have a unique and personalized co-creation experience. The combination of co-creation tool can lead to distinguished customer relations, which are valuable, rare, immobile and non-substitutable, and thus create a competitive advantage. In summary, deciding on a suitable degree of customer involvement – hinging on the nature of collaboration; choosing the appropriate tools -depending on the industry applicability; integrating the tools into a personal experience environment -based upon customer’s own terms; and then managing the virtual environment makes a good virtual co-creation environments. Producing great customer experience during the virtual encounters enables companies develop intimate customer relationships over time. The capability to set up, manage and integrate co-creation is of utter importance for successful co-creation and a lasting competitive advantage. Due to the customer-company relationship change organizational transformation is needed. In the next section, we will discuss the
  15. 15. managerial implications for successful implementation and management of co-creation environments. 6. Implementing and Managing Co-­‐Creation Processes The framework of customer co-creation tools for NPD by Sawhney et al. (2005) is helpful to demonstrate the application possibilities of virtual tools. It is capable to provide a useful overview, but falls short on addressing the customer’s perspective. The framework lacks a customer perspective on the co-creation experience because its dimensions concentrate on organizational processes and information types. It is set up from a business, inside-out perspective. It does not give guidance on which tools are appropriate for the individual customer interaction points, that make up the overall customer experience. In order to derive managerial implications for a successful, customer focused implementation, an outside-in perspective has to be taken. In contrast to Sawhney, Payne et al. (2008), examines co-creation encounters from a customer perspective. Mapping the different stages of the customer-firm encounter is advantageous to understand where customer co-creation opportunities exist (Appendix C). Firms have to be aware that multiple value creation opportunities may exist during the customer-company encounter, but this also implies that multiple opportunities for failure exist (2008). After identifying co-creation opportunities, firms can choose which customer processes it wants to support. Because the overall customer experience is made up by multiple offline and online encounters, it is important that firms create a coherent appearance across media (2008). Therefore, companies need to manage each stage, identify critical processes and ensure, that the promises made at each stage are delivered upon in following stages. From the business perspective, the integration of virtual co-creation initiatives into existing organizational processes is vital, in order to leverage the customer insights across the organization. But the implementation and integration of co-creation processes challenge the traditional firm structures and departmental roles (Payne, 2008). By implementing co-creation initiatives, the marketing department has to take on a new role of facilitating, managing and integrating the co-creation processes into existing firm processes (2008). On the one hand, customers become part-time product developer and marketer. The marketing function, on the other hand, can focus on developing relationships, supporting customer encounters and facilitating interactions. Successful co-creation efforts require the firm to actively manage
  16. 16. knowledge flows, and selectively direct appropriate knowledge across the organization (2008). “It is not the resource per se, but the ability to access, deploy, exchange, and combine them that lies at the heart of value creation” (Moran et al, 1999). Thus, the adaption of organizational structures and knowledge management systems is as important as the setup of a virtual co-creation environment. Its is not sufficient to set up an customer co-creation environment, but it is necessary to also reconfigure the organizational support processes in order to leverage and integrate the gained knowledge (Nambisan, 2002). By developing co-creation relations with customers, companies change their traditional direction of marketing communication (Payne, 2008). Instead of hunting the customer’s attention, marketing can focus its attention on deepening its relationships with customers in support of their product experience. 7. Limitations Although organizations have already used virtual co-creation environments successfully, many questions remain unanswered and uncertainties endure. Firstly, the effect of mismanaged customer expectations during the co-creation process on customer trust and loyalty remains unclear. Secondly, what is the best way to re-distribute economic rents from joint developments, in order to ensure motivation for participation? Thirdly, how can customer co-creation efforts be aligned with the overall long-term company strategy? What is the right balance between co-creating with customers and blindly following customer demands? In addition, although metrics exist to measure customer-company interaction, what determines the success of co-creation? How can monetary values be assigned to firm’s co-creation efforts? Further, co-creation tools widely vary in their applicability and usefulness. Thus, virtual environments are not equally suitable and desirable for all industries. Collaboration requires to share and exchange knowledge, which might be proprietary or essential for sustaining the company’s current competitive advantage. Once toolkits became industry standard in the semiconductor industry, for example, competition became as fierce as ever. But after a widespread adoption of toolkits across industry is not possible for firms to stop using them due to competitive pressures. After the control over sticky knowledge is lost, it is hard to undo changes. Companies interested in developing virtual co-creation environments have to carefully consider the implications and possible future consequences before adopting co-
  17. 17. creation tools. Great uncertainties still surround virtual co-creation and pose constraints on the adoption and spread of co-creation environments. 8. Conclusion Virtual collaborations offer enormous benefits for companies and customers. Until recently market and customer research was very costly and hence limited in scale and scope. But information technology has transformed traditional one-sided firm-customer relations into two-directional customer-company interactions. The Internet has empowered customers to not only consume, but also (co-)create the value of products and services. It has allowed companies to engage in a continuous dialog and interaction with current and potential customers, which enables firms to increase the reach, richness, flexibility, speed and persistence of their market sensoring at low incremental costs. In sum, marketing communication is not a one-sided firm undertaking anymore, but reciprocal in nature. Instead of trying to understand the consumer, companies should recognize the value of customers as a partner to create, deliver, and communicate value. Instead of seeking customers’ attention, marketing based on co-creation creates valuable customer relations in support of customer experiences. In today’s knowledge and network economy, it is crucial to actively manage co-creation interaction and knowledge flows between companies and its external environment in order to capture the full value potential of customer collaboration. Therefore, carefully designed, complementary systems and processes need to be in place. Companies need to take the functionality and limits of traditional and emerging tools into account, in order to accomplish effective and efficient customer involvement. Firms have to redesign and adapt their organizational structure and processes in order to take advantage of co-creation initiatives and leverage its benefits across the organization. Companies’ long-term survival depends on the ability to change and adapt to market changes. In the long run, competitive environments are likely to become even more complex, dynamic and fierce. Because problem resolution rates increase significantly with a more diverse solver base, customer co-creation works at its best, when tools, such as toolkits, empower and reward customers to become their own problem solvers and influence product changes themselves. With the right tools and incentive systems in place, customer co-creation can unleash and orchestrate the power of the collective for the benefit of companies and
  18. 18. customers; therefore implementing and experimenting with virtual co-creation initiatives is not a question of following or leading, but of long-term company survival. Today, virtual collaboration and co-creation becomes important for the broader context of mankind. Whether it is improving upon purifying water with solar, or helping oil companies to find substitutes for petroleum, virtual collaboration platforms such as Eli Lilly´s Innocentive or Amazon´s Mechanical turks, they all have the potential to create real impact on the world by facilitating and increasing the speed of technological advancements. The connectedness and linkages of the 21st century will continue to lift the speed of innovation to unimaginable heights. Maybe, technology by itself is not the answer to mankind’s current, most pressing issues and threats, but virtual coordination mechanisms facilitating collective collaboration and co-creation for innovation.
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  21. 21. Appendix Appendix A Lakhani, K.R., Jeppesen, L.B., Lohse, P.A., Panetta, J.A. (2007) “The Value of Openness in Scientific Problem Solving.” HBS Working Paper Collection, Retrieved from Appendix B International Telecommunication Union (ITU). (2010). “The World in 2010, ICT Facts and Figures”. Retrieved from
  22. 22. Appendix C Payne, A.F., Storbacka, K., Frow, P. (2008), “Managing the co-creation of value.”, Journal of the Academic Marketing Science, 36, 83-96