In the foreword to my last book, Paul Polman, the CEO of Unilever, states that “marketing and innovation have and will continue to be two of the strongest drivers of margin and revenue growth. The concept of customer value is central to both of them.”  This is true.  And perhaps just as importantly, collaboration and co-creation are increasingly central to creating customer value.

Open innovation thinking, where companies collaborate with suppliers, distributors, and customers to co-create unique value, is fast replacing traditional thinking that viewed innovation as a proprietary activity and marketing as a static, one-way broadcast. However, while there is significant advocacy and buy-in for collaborating with customers, there is little guidance for companies on how to undertake the journey from applause and appreciation to execution. The mere intent to innovate with customers and other stakeholders does not guarantee co-creation of value.

Successful companies harness the creativity and energy of stakeholders by establishing projects and systems for marrying their collaborators’ interests with corporate knowledge and resources. In recent years, leading firms have developed innovative processes, tools and technologies to better enable and expedite value co-creation.

Why Co-Creation?

Companies engage in co-creation projects because they want to them to foster the discovery of customer interest and value, which they can turn into innovation and competitive advantage. The process starts with setting objectives and proceeds through four additional steps: selection of arenas, engagement with collaborators, choice of project tools and processes and defining contracts with stakeholders.

Most co-creation objectives can be classified into one of three categories:

• Generation – in these cases, the company’s objective is to solicit ideas, suggestions or designs from customers and other stakeholders, through contests or open-ended appeals, for subsequent use in the design and development of products and services.
• Refinement – here, collaborators work with company representatives to refine one or more features of a target product or service, to help improve its physical performance, leading to a better customer experience.
• Creation – collaborators and the company’s professionals work together to develop a prototype of an entirely new product or service. In almost all cases the prototype needs additional refinement and improvement before it is ready for commercialization.

Examples illustrating these three categories of co-creation are:

Generation – Electrolux is a global leader in household gadgets and appliances, selling more than forty million products to customers in more than 150 markets every year. According to its corporate website, the company bases its innovations on extensive consumer insight and designs them thoughtfully to meet the real needs of consumers and professionals. One of the sources for these innovations is the Electrolux Design Lab, a forum for generating ideas for new products and services. Established in 2003, Electrolux Design Lab is an annual global design competition open to undergraduate and graduate industrial design students who are invited to present innovative ideas for household appliances of the future.

Refinement – Nokia’s beta labs provides a site for two-way sharing with the phone company’s many collaborators. The first phase takes place when Nokia unveils exciting new ideas that the company has been working on with its customers. The second phase occurs when Nokia invites customers to suggest refinements and improvements to make Nokia’s products better.

Creation – Deutsche Bank is running an  innovation challenge on jovoto (a platform for “crowdstorming”). The challenge?  They invite you to “share your vision of how Artificial Intelligence can help Deutsche Bank reinvent its customer service experience.”

Consumer companies use user-generated content (UGC) using contests and prizes to solicit ideas. Remember how Frito-Lay used co-creation to develop a ratings-topping, award-winning commercial to crash the Super Bowl ad party? The season-ending championship game of America’s professional football season, the Super Bowl, is broadcast live to millions of people in the US and around the globe. The Super Bowl is really two contests. The first takes place between the two football teams in the stadium and the second pits a throng of multi-million-dollar advertisers and their advertising agencies against each other to win the attention of viewers. Using co-creation, Frito-Lay managed to crash the Super Bowl party starting in 2007. An early adopter of social media, Frito-Lay was very impressed by the talent and creativity of consumers. It decided that the best way to stand out was by engaging and collaborating with them to co-create TV ads and it established its first annual contest for submissions. By 2009, the contest produced 2,000 ad submissions, and one of them, a humorous ‘‘Free Doritos’’ commercial, created a huge explosion in the ad world when the morning after the game it received the first prize based on USA Today’s Super Bowl AdMeter ratings. Not only did Frito Lay soar above every other advertiser on Super Bowl XLIII Sunday, it legitimized user-generated content as a valued source of advertising material.

Arenas for co-creation
Co-creation can occur in physical or in digital arenas. Given the ubiquitous reach of the internet, and our ever-increasing use of digital technologies ranging from smartphones to the dashboard displays in our automobiles, it would be tempting to conclude that all co-creation takes place in digital arenas. However, the world of bricks and mortar also offers excellent opportunities for shaping co-creation. While it is true that physical environments cannot compete with digital spaces on dimensions such as reach, interactivity, connectivity and scale, there are times when the ability to actually witness customers in action is not a luxury, but a non-negotiable necessity. Consider the following cases, for example:

• Customer teams trying to solving nagging work flow problems.
• Managers trying to simplify customer-facing tasks to minimize the incidence of service failures.
• Designers working on SUV and van auto interiors interacting with families with young children.

Where the ability to watch context-bound behavior and judge the potential value of product innovations is at a premium, the opportunity to be present as a participant is vital, making physical spaces more relevant for collaboration and co-creation.

Collaborators
In the context of collaboration and co-creation, the most-prized customers are creative and eager to collaborate with companies. So which customers, or types of customers, should a company recruit for its collaboration and co-creation programs? Companies essentially have two options. The first option is to collaborate with end-users who have ideas, passion and energy, but who are not formally trained in the co-creation task. The second option is to collaborate with professionals and specialists, people who are formally trained, like scientists, engineers and computer specialists.

Collaborating with customers
How does a company or brand decide which customers to select for participation in specific co-creation programs?

Brand passion – Customers who have extraordinary passion for their brands are willing to put a great deal of energy into co-creation forums. Such customers are usually self-selecting.

Customer/segment demographics – Companies also use target audience demographics of attractive or untapped market segments to select participants for collaborative innovation projects. For Hallmark the preferred demographic group is moms, for Mercedes Benz it is Gen Y customers and for Electrolux it is undergraduate and graduate industrial design students. Choosing collaborators based on market segment affiliation is common in B2B settings. Lately, experts have recommended that companies also consider the innovation behavior of customers and select only those customers that exhibit a high co-creation potential. In all product categories, there exist a group of individuals who are far ahead of the rest of the rest of the population in terms of their early adoption of innovations and their desire to develop and create solutions where none exist. These individuals are perceived to have high co-creation potential. Arguably, by collaborating with high co-creation potential customers companies can improve the overall effectiveness and productivity of their collaborative innovation activities.

Innovators and early adopters – Innovators and early adopters exert a disproportionate influence on an innovation’s subsequent acceptance by the rest of the market. By relying more heavily on their inputs in the value creation stage, companies hope to generate an adoption momentum in their innovations, thereby aiming to accelerate post-launch performance in terms of sales and market share.

Lead users – Eric von Hippel is credited with pioneering the concept of lead users. Just like innovators and early adopters, lead users are also ahead of the majority, but there’s a twist. The two key differences between lead users and early adopters are that lead users are ahead of the majority with respect to an important trend, and they also have a vested interest in finding a solution to their need, because none exists! Lead users are a highly attractive co-creation resource. Viewed from the perspective of innovation adoption, information on the needs and behavior of these product mavens is invaluable, as it lowers the probability of market failure.

Collaborating with professionals
An alternative to collaborating with end-users or customers is collaborating with professionals – who may or may not be end-users or customers – but who are formally trained and qualified to contribute to the goals of the co-creation exercise. Two corporate examples are:

Recaro – When aircraft manufacturers and airline operators like Boeing and Lufthansa embark on co-creation programs to develop aircraft cabin interiors, they work with companies like Recaro and its team of professionals. Recaro is a top-notch aircraft-seating manufacturer that has won several awards for its quality and innovative designs. The company and its staff of engineers and designers are formally trained in disciplines that drive effective and aesthetic design, such as material selection, structural integrity and ergonomics.

Topcoder – The website of Topcoder, the world’s largest community of competitive software developers, proudly proclaims, ‘‘We’ve been ‘crowdsourcing’ before there was a name for it.’’ When companies engage with TopCoder, they engage with a global community of thousands of programmers, developers, software architects, graphic artists and other talented individuals who are formally trained in their disciplines. Depending on the task, different groups of TopCoder professionals collaborate with the company’s clients to co-create unique solutions and experiences.

Tools and processes
Co-creation has to be organized, managed and facilitated. A group of customers or professionals – their passions, interests and energy notwithstanding – are at best mere potential for value creation. In order for this potential to materialize, collaborators need resources and processes to convert their creativity into tangible value. In certain cases, resources such as software applications may be easily available. For example, because members of TopCoder’s global development community are professionals, they have easy and open access to tools like Linux, Java, Visual C++,VM Ware, PHP and Dreamweaver for building software or applications. But when working with nonprofessional stakeholders, providing collaborative tools may take priority, because without them the hoped-for co-creation event would remain grounded.

Co-creation processes

Innovation Jams
Pioneered and made popular by IBM, Innovation Jams are large-scale internet-enabled brainstorming events that focus the creative energy of participants on complex issues, such as:

• Identifying business opportunities for placing future strategic bets.
• Building businesses around customer solutions rather than technologies.
• Transforming an organization’s culture.

The concept of jamming is not new; John Kao’s 1997 book on business creativity and innovation is called Jamming. What is new is the magnified scale on which effective collaboration can occur because of the Internet. Innovation jams attempt to push the boundaries of current solutions by unleashing the collaborative imagination and creativity of Jam participants. Co-creation tools for generating and developing ideas Co-creation tools help a company play three key roles: connect with customers’ ideas, select which ideas to pursue and then convert the selected ideas into tangible customer value. Generating and selecting tools At the front end of the co-creation continuum, the emphasis is on generation and selection of ideas. Consequently, tools like listening (Blizzard, Pitney-Bowes), dedicated websites (Nokia beta labs), and contests (Jovoto, Frito Lay, Electrolux) are frequently used to help companies connect with customers’ ideas. Once ideas are generated, the task of selecting which ones to pursue for development still remains. Companies will usually rely on a mix of collaborator input, like voting and their own judgment of market interest to determine which ideas to take to development. An interesting forum for jointly addressing the generation and selection of ideas is prediction or idea markets. In these markets, collaborators bid up or down the value of ideas based on their attractiveness, very much like traders bid up or down the prices of stocks on a stock market. In recent years, several companies like HP, Motorola, IBM, GE and Nokia have experimented with these markets to improve the quality of their internal forecasts and decision-making.

Development tools
Once ideas are selected, the focus shifts to development, refinement and commercialization. At this stage companies use tools like simulation, experimentation, toolkits and prototypes to move speedily from idea to the development of the final value proposition.

Simulation – These technologies have been instrumental in transforming innovation from a ‘‘show and tell world,’’ to a ‘‘show, ask and suggest world.’’ Simulation technologies allow customers to experience a potential innovation in a virtual environment and make productive suggestions on how it could be refined and improved.

Play and experiment – Approved collaborators can download beta applications and play with them. It is only after they have had sufficient time to experience the software and its features, through play, that the collaborators can help refine, improve and re-create specific aspects of the product.

Toolkits – These uniquely featured technologies and design kits allow companies to effectively share the responsibility of value creation with customers. International Flavors and Fragrances (IFF) is an accomplished user of tool kits. The company has developed a Consumer Fragrance Thesaurus (CFT), which is an easy-to-use, interactive perfumer tool for refining and creating new fragrance ideas. The CFT is a database of fragrances that allows the company’s creative staff and its clients to collaboratively determine which fragrances to develop further, based on the product’s ability to create a specific mood experience for the customer. By using this toolkit the company has increased speed to market and formulated fragrances that can be used by clients and their customers to co-create a variety of fragrance experiences, such as perfumes, bath gels, room and air fresheners and laundry detergents.

Prototypes – These are the objective correlative of development and innovation. Since people always react better to things that evoke their senses, prototypes, no matter how crude or one-dimensional, facilitate the migration from ideas to tangible solutions. Prototypes played a key role in helping the Pitney Bowes team respond to a very general strategic question, ‘‘How do we add value to low volume batch mailers of information and promotional materials?’’

Contracts & incentives
Collaborative innovation projects need to define ‘‘What’s in it for the collaborators?’’

Customer collaboration rarely operates independent of incentives. Passion notwithstanding, collaborators need incentives and promises to part with their effort and time. It is naive to expect that collaborators will be driven only by altruistic motives. However, it is also usually wrong to assume that collaborators are only in it for the money. Reality lies somewhere in between and is more nuanced than either altruism or financial gain. A variety of contracts, some explicit and some implicit, some benefiting the individual, others benefiting an organization or cause they support, have proved to be strong incentives for customers to part with their time, effort and creativity. For example:

Self-image – Moms do not participate in Hallmark’s ‘”Circles of Conversation” communities for money. In fact, they sign a legal document giving away any and all rights to ideas and monetary gains that materialize as a result of their interaction with Hallmark. Moms participate in Hallmark’s communities because being asked for advice and opinions, being heard and taken seriously and seeing their ideas implemented fills them with a sense of pride and accomplishment.

Belonging – Sometimes belonging to a group and being affiliated with its activities is reward enough. Certain groups, like the HOG (Harley Owner’s Group) motorcycle riders wear their group identity as a badge of honor. The act of being invited to collaborate and co-create is incentive enough to participate.

Consumption – The reward of being the first to try new products and emerging technologies should not be underestimated. It is this desire to be the first to try, and subsequently own, new products, that drives customers to websites like Nokia beta labs.

Need for a solution – The need for a solution is a potent motivator for collaborating. Lead users are attractive resources for innovation precisely for this reason. They are looking for solutions before actual markets come into existence.

Supporting causes – Supporting a cause, whether it is collaborating with a group to find a cure for breast cancer, or fighting global warming by buying green products, is a powerful incentive to offer time and effort. The $300 House is an example of this sort of collaborative innovation challenge.

Monetary rewards – Money has been and continues to be an important motivator for participating in collaboration and co-creation activities. TopCoder winners receive prize money, as do winners in Electrolux’s design lab contest. Even companies like Hallmark, where the rewards for collaboration are mainly psychological, offer some form of monetary rewards in the form of coupons and sweepstakes prizes.

How does your company approach collaboration and co-creation?  Let us know what works and what doesn’t.  We have barely scratched the surface of the true opportunities awaiting companies willing to learn, fail, and succeed.

Gaurav Bhalla is the CEO of Knowledge Kinetics, a customer value innovation company.