New Product Development in High Tech Industry: The Prosumer Model Assignment | Online Assignment

Conduct of a summary of my MBA Dissertation

Abstract
The ever-changing economic climate along with the ongoing globalization put pressure on companies’ innovative capability. Firms are obliged to cope with a difficult and unprecedented challenge: The world is changing much faster than them. In every industry, without exception, it is observed the phenomenon of firms being overtaken by an accelerating pace of change showing no signs of letting up any time soon. In the new business environment of increasing uncertainty, there is only one thing certain: the pace of change is only going to get faster.
In this context, concepts such as Open Innovation and the extensions of this approach, such as the Collaboration Platforms and the model of Prosumers (that is the combination of a person being both producer and consumer) are increasingly gaining ground and attract the interest of companies struggling to offer their customers products and services that meet their needs in the best possible way.
Many large well-established firms in various industries, from P&G & Unilever in the FCMG, to AUDI & BMW in the Automotive, have already adopted a practice based on which they actively involve their customers in the process of creating new products using various means, from traditional to more sophisticated ones (i.e. digital platforms).
The purpose of the study is to examine whether and to what extent the active participation of final customers in the New Product or Service Development (NPD/NSD) Process can lead to fostering the companies’ innovation capability, and subsequently to providing superior firm’s performance.
Finally, in order to assess the impact of prosumer model in developing innovative, customer-centric products, there will be examined & analyzed different cases from the Telecommunications Industry, in which such a technique played an important role for particular Operators so as to transform from Traditional Communications Service Providers to innovation leaders by exploiting collaboration with customers through implementing co-creation approach.
Keywords
Open Innovation, Co-Creation, Digital Platforms, Prosumer, Crowdsourcing, Competitive Advantage, Customer Experience
Page | 1
1. Introduction
1.1 Background
Industries across all over the world are undergoing a major shift as the traditional firm-centric and product/service-centric model is challenged by the personalised customer experience standard (Prahalad & Ramaswamy, 2004).
In the past, firms tended to provide to their customers what they produced, or in the best case what they reckoned their customers need. This practice was in a sense acceptable from the customers’ side, as they lacked easy access to information regarding other available options.
Business in the current century is more diverse than they used to be during the previous one. We live in the era of markets globalization and due to this fact, our knowledge is far more advanced than before. This is important basically because firms are trying to predict the next steps the world is to take. Many researchers try to answer this question so as to figure out what will be the next type of ‘fuel’ that will lead the companies exploiting it to the road of the success.
All these efforts always concluded to the same finding: Customer is -still- the King!
Taking that into consideration, it is observed a new trend paradigm implying that the previously product-centric view of creating value is now considered to be obsolete and is gradually being substituted by a new approach: the joint-effort between firms and customers.
Moreover, the role of the customer has been upgraded from just being a passive recipient of value to a more active one, which enables them to be co-creators of their own personalized experiences.
This way, customers nowadays sit on the driver’s seat and so they, along-with the firms, are active participants in the process of joint-problem definition and afterwards problem-solving development.
Co-creation seems to be an emerging new trend providing the answer to the contemporary challenges firms are struggling to cope with. There are numerous researches denoting that co-creation approach of value creation can be of significant importance as far as the achievement
Page | 2
of sustainable competitive/comparative advantage is concerned, especially within the current business environment (Chung, 2009; Zhang & Chen, 2008).
Based on another research, there are two critical determinants for product success: the deeper and more frequent interaction between firms and their customers (Kristensson, Gustafsson, & Witell, 2011). Both determinants are considered as main characteristics of co-creation.
In order for a product to be successful, its profitability level is a critical performance indicator. Actively involving the customers into the value creation by including them into a firm’s cross-functional teams is a prerequisite and of strategic importance in order to achieve greater levels of profitability (Zhang & Chen, 2008).
In order to get the most from the co-creation process, customers’ contribution should not be limited to the phase of commercialization but it has to continue all the way through the entire innovation process stages.
Co-creation requires multiple points of firm-customer interaction. To get the most out of this process, firms should pay great attention to the experience the customer will get through the entire process. For this reason, the creation of a robust and solid experience environment from the side of the firms is considered as non-negotiable (Durugbo, Hutabarat, Tiwari, & Alcock, 2011).
Though a great number of researches stress the importance of co-creation, there is still a debate about what co-creation really is. In their 2008 paper Prahalad and Ramaswamy extend the co-creation dimension so as to also include the suppliers into the process. This demonstrates that Co-Creation is still in a development phase, until it is precisely defined and matured, where a proposed categorization of Co-Creation theory will help towards updating the current state of knowledge.
Page | 3
1.2 Research Question
This study focuses on whether the use of co-creation in New Product/Service Development (NPD/NSD) impact positively the firms’ innovative capability or not, especially in comparison with competitive firms applying traditional approaches to conceive and create New Products/Services.
The study will examine the impact (positive or negative) that co-creation may have on promoting innovation in the High-Tech Industry, where service innovation is considered of significant importance because it is a major source of competitive advantage for firms operating in this industry in cultivating their ability to take advantage of the knowledge attained from customers, competitors and their own organization capabilities so as to create usefull and distinctive services.
The main research questions that is central for this study are the following:
▪ Do firms increase their innovation capacity by actively including their customers in the New Product/Service Development Process?
▪ Does the adoption and implementation of co-creation approach provide sustainable competitive advantage to companies applying it?
▪ How does and to what extent the prosumer model helps companies to provide superior products/services to their customers, outperforming this way the competition?
To answer this question, there should be tested different dimensions of co-creation. The involvement level in co-creation is an important factor in the NPD/NSD process and so it should be tested to evaluate its effect on product/service innovation.
Additionally, another critical factor is the mean applied by the firms in order to actively include their customers into the NPD/NSD process and collaborate with them. There are various means that could be used, from traditional, such as work-groups requiring physical presence, to more sophisticated one, such as digital collaboration platforms. The rapid expansion of internet usage and the advancement in technology have favored the massive adoption of almost any kind of digital collaboration tools.
Page | 4
1.3 Previous Research
Eric von Hippel published a paper in 1986 proposing that high-technology firms, as well as those producing novel products, have to collaborate closely with lead users, as their potential users, especially those comprising the mass market customers’ segments, lack of the required skills and knowledge to solve the problem.
Moreover, von Hippel explored in the same study the ways and the forms of collaboration between firms and customers, in conjunction with the possible ways the results of such a collaboration could be included into customer and industrial research analysis (von Hippel, 1986). The specific survey regarding ‘lead users’ examination was literally the predecessor of the co-creation concept.
Collaborative Innovation was a field that studied extensively between 1986 to 2004 by numerous researchers. Nonetheless, it wasn’t until 2004 when Ramaswamy and Prahalad came up with the terminology of co-creation.
Co-creation challenges the old-style firm-centric approach of creating value by suggesting a different model, that is the ability from the side of the customers to choose the method and the depth of their active participation in the firm, according to their preferences (Prahalad & Ramaswamy, 2004).
Another model is also introduced in the same paper: the DART Model. DART is the abbreviation of Dialogue, Access, Risk and Benefit, Transparency. DART model fundamentally expounds on the building blocks of the interaction between firms and customers. This interaction is one of the main elements supporting the co-creation experience.
Co-creation is a two-way process, and because of this fact, it requires from the firms’ side to create a robust experience platform in order to allow customers to co-create a personalised experience (Prahalad & Ramaswamy, 2003).
Till the introduction of the co-creation term, there was a growing research interest on the specific topic. This interest was mainly fed by the awareness about the role of key stakeholders’ collective knowledge (customers and employees) in creating and sustaining competitiveness and information dispersion and sharing (Durugbo, Hutabarat, et al., 2011; Chung, 2009).
Page | 5
Co-creation was gradually gaining significant importance, both in the context as learning strategic initiative (Chung, 2009) and business strategic initiative (Sawhney, Verona, & Prandelli, 2005; Ramaswamy & Gouillart, 2010).
In the past, the majority of the literatures regarding co-creation focused on the development of a theoretical foundation and the testing of the conceptual framework in order to understand the dimensions of the model.
During that period, dimensions such as the communication content, the frequency, the direction and the modality (Kristensson et al., 2011) on one hand, and the types of the value derived from the co-creation process (Tynan, McKechnie, & Chhuon, 2010) on the other were mainly tested. Moreover, these foundations were extensively used in surveys and researches in fields such as the telecommunication sector (Matthing, Sandén, & Edvardsson, 2004), the retail (Oh & Teo, 2010), and the pharmaceutical and automotive sector (Sawhney et al., 2005).
Many researches aimed at exploring the value and the possible outcomes deriving from co-creation process, as we can see in the paper of Durugbo (2011), in which the customers practice and group formation methodology in co-creation was identified (Roberts, 2008; Vargo & Lusch, 2008; Nuttavuthisit, 2010; Payne, Storbacka, & Frow, 2008).
1.4 Conceptual Model
Given the complexity of the object study, a conceptual model approach of the co-creation process was first created in order to narrow-down the scope of the study and focus on the most important issues of the particular model.
Thus, the following conceptual model was developed to examine the impact of the co-creation process on fostering the firms’ innovative capability and thus on creating sustainable competitive advantage over their competitors.
Figure 1: Conceptual Model
Co-Creation Model
Customer participation in NPD/NSD
Innovation capability improvement
Page | 6
Based on this conceptual model, it is suggested that the implementation of co-creation significantly affects the ability of companies to innovate, which in turn helps to create products and services that are differentiated from competition.
At the same time, active customer engagement in the creation of new products and services is a catalytic factor so that new products, which are essentially created by customers themselves, have exactly those features that customers are looking for. These are products and / or services that exactly meet the needs of the target audience.
It is also proposed to apply this practice so that companies that adopt it are able to create a sustainable competitive advantage, create a separate customer experience, and finally establish strong customer relationships, as client experience copies very hard competitors.
This study will focus on analyzing the model of co-creation as a factor of improving business innovation capacity. In addition, the impact of actively including customer in the new product/ service development phase through the prosumer model will be examined. Last but not least, there will be studied how and to what extent this process helps increasing the engagement of customers with the firms that adopt such a model in order to come up with products/services meeting the needs of their customers in the most effective way.
1.5 Focus Areas and Limitations
The study focuses mainly on the analysis of the impact of co-creation approach and the model of prosumers in one of the most competitive sectors of the economy, that of high-tech companies.
This industry is characterized as highly competitive, and therefore the diversification of products/services provided by companies operating in this industry is more than vital.
In this effort of the perpetual drive for diversification, innovation is the only way for the firms to standout of the crowd. As companies’ ability to innovate is finite, they will have to continually invent new sources of ideas to turn them into innovative products/services.
An additional characteristic of the high-tech sector is the fact that this is considered as capital-intensive by its nature. This characteristic makes the need for successful products and services even more essential, as their production costs are extremely high -mainly due to the high cost
Page | 7
of R&D implemented – with the result that the only way to succeed is diversification through innovation.
On the other hand, the prosumer concept gradually begins to gain more and more ground, as customers are now more aware, know what they want, have easy and quick access to information, and finally express their opinion and interact with business, primarily through the social networks.
As far as the study constraints are concerned, the main obstacle regards the limited previous literature on the prosumers model in the telecommunications industry, which will be analyzed in depth. All previous studies on the subject have been conducted mainly in other sectors, resulting in data collection and best practices gathering to be an extremely difficult task.
1.6 Structure of the thesis
The dissertation presented in the particular study is organized in 7 chapters, as follows:
Chapter 2 concerns the literature review. This chapter presents and analyzes the theories of Open Innovation models, a concept that is the cornerstone of the rest models and approaches that will be presented and analyzed throughout the study. Going one step further, the models of co-generation and those of the prosumer, that is the combination of customer & producer who essentially shapes the characteristics of the products and/or services they are to ‘consume’ through his active participation in the process of product creation and services (NPD / NSD), are critically analyzed
Meanwhile, there is a thorough presentation and critical approach of big companies from various sectors of the economy, which have successfully adopted and applied the above models, having managed to create a competitive advantage over competitors, providing their customers with holistic solutions that meet their needs in the highest possible way.
In Chapter 4 (Conceptual Framework – Research Modeling), the research model is essentially formed and the research hypotheses are built on the theories presented in chapter 3, while chapter 5 (Research Methodology) comprises an extensive reference to the methodology behind the research of this study. It describes and motivates the research design, empirical data collection and analyzing methods.
Page | 8
In Chapter 6 (Data Analysis) we describe how the data will be collected (e.g. survey with the use of the structured questionnaire), but also the population and the sampling method followed. The analysis of the primary data is carried out employing statistical analysis aiming at drawing meaningful conclusions.
Finally, chapter 7 presents the results of the data analysis, as it was made in the previous chapter. In this context, we try to reach useful conclusions about the practical application of the afore-mentioned theories, in order for the companies applying them to improve their ability to innovate. In this context, a critical analysis of the conclusions reached is also made.
Page | 9
2. Literature Review
2.1 Open Innovation Paradigm
According to Henry Chesbrough, “Open Innovation is the use of purposive inflows and outflows of knowledge to accelerate internal Innovation, and expand the markets for external use of Innovation, respectively”1.
Based on the aforesaid term, Open Innovation is considered as a model that should exploit internal & external ideas, sources, routes to the markets, as companies seek to develop their technology (Chesbrough Henry, 2003).
According to a most recent study, Open Innovation is defined as “a distributed innovation process based on purposively managed knowledge flows across organizational boundaries, using pecuniary and non-pecuniary mechanisms in line with the organization’s business model”2.
The most recent definition suggests that the particular approach (that is Open Innovation) is not merely a firm-centric process, but rather a much broader process also including creative customers, communities and user innovators (West, Joel; Lakhani, Karim R., 2008).
During the recent years, the particular approach has gained substantial importance, primarily among researchers and business executives (Schroll & Mild 2011; Chesbrough & Brunswicker 2013) because of the huge potential it seems to have in firms innovation practices.
The following are the benefits arising from adopting an Open Innovation process:
Business Knowledge Base Expansion
Access to Knowledge outside the Business boarders
Maximization of Intellectual Property
Faster Time-to-Market for New Products and Services
1 Chesbrough, Henry William (1 March 2003). Open Innovation: The new imperative for creating and profiting from technology. Boston: Harvard Business School Press. ISBN 978-1578518371.
2 Chesbrough, H., & Bogers, M. 2014. Explicating open innovation: Clarifying an emerging paradigm for understanding innovation. In H. Chesbrough, W. Vanhaverbeke, & J. West (Eds.), New Frontiers in Open Innovation: 3-28. Oxford: Oxford University Press. Page 17.
Page | 10
The importance of Open Innovation has primarily to do with the direct benefits deriving from the adoption of this process versus the traditional Closed Innovation model. Closed Innovation forms rely solely on internal resources to innovate. The ideas screening process is considered obsolete, as in the most of the cases the ideas are evaluated only internally, and those considered to be the best and most promising among the rest are picked for their development and commercialization, while those showing to have less potential are abandoned.
The main difference between the Open and Closed Innovation model is that based on the latter, ideas and the whole process required for new products/services development takes place within the company. Yet, by applying the Open Innovation approach, companies gain access to, and can exploit, external resources, such as know-how and expertise of specific groups of people that they would otherwise not have access to. In this way, they gain significant benefits, while simultaneously listen to the needs of the market in a much better and more targeted way.
There are many established firms, in various sectors, such as IBM, Xerox, Intel (Chesbrough 2003), Lego (Antorini et al 2012), P&G, Philips, Siemens (Enkel et al 2009), and others having successfully applied open innovation practices, gaining substantial benefits.
The successful paradigms of this dort of firms prove that open innovation can be a sustainable trend providing a foundation for gaining competitive advantage. Though, the effective implementation of open innovation can be really complex, as it incorporates several management operational & functional fields, and additionally the term, the categorization, the scope and the practice of this new trend have yet to totally be agreed.
This chapter introduces the concept and the nature of the Open Innovation model and its original contributions. Then, a detailed description of the purpose of Open Innovation is made, as well as a reference to the broadening of the concept having been made in recent years.
Finally, it concludes with a new approach regarding the purpose of Open Innovation, which includes multiple perspectives and contributions within its scope.
2.1.1 Origin of Open Innovation Paradigm
Open Innovation term was developed by Henry Chesbrough, in his book: Open Innovation: The New Imperative for Creating and Profiting from Technology. Initially, the author had
Page | 11
described a new approach, that of Open Innovation, while making reference to the factors that contribute to the change from traditional methods of innovation to this new model.
In the same book he analyzed the fundamental principles of Open Innovation and provided examples of companies having applied this model successfully. Chesbrough’s study has had a great impact on the Innovation Management Theory, and has also become prevalent to both practitioners and academics.
Chesbrough describes Open Innovation as the model by which firms can and should exploit ideas arising or existing both inside and outside the firms’ borders, in order to gain faster and effective access to markets, as well as to develop their technology (2003, xxiv).
The basic concept of open innovation proposes that ideas could derive from either inside or outside the organisation and could be shifted at within and outside.
In many of his studies, Chesbrough proposes to switch from a Closed to an Open Innovation model, due to the fact that the first model characterized by and requires huge R&D Centers and vertically integrated industries.
In these structures, the main disadvantage is that knowledge is formed and exploited within the borders of the enterprise, which are finite.
The following figure presents the flow of ideas and innovation based on the Closed Innovation model, where flow flows from within to the narrow limits of the enterprise (Figure 2).
Figure 2: Old Model of Managing R&D (Chesbrough 2003, xxii)
Page | 12
On the other hand, the following figure illustrates the same process as this occurs when the open innovation model is applied (see Figure 3)
Figure 3: Open Innovation Model (Chesbrough 2003, xxi)
Chesbrough attributes the modification from Closed to Open Innovation to various factors that had a significant impact on the knowledge field, as follows:
The availability and agility of skilled labor
The development of the venture capital (VC) market
External options
The increase in the capabilities of external suppliers
Overall, these factors affected and, in a sense, formulated the way to create, distribute and transform knowledge into processes for the development of new products/services and ultimately changed the rules of the competition.
The below table describes the aforementioned factors.
Page | 13
Factors
Description
Availability & mobility of skilled labor/workforce
Through increased and easier access to information and knowledge sources, as well as improved communication quality, knowledge diffuses into sources other than traditional media and R & D Units. Also, due to globalization, worker mobility has increased
Growth of VC Market
During the 1980s and 1990s, the Venture Capitals market grew rapidly, resulting in the support and promotion of Ventures
External options
Intellectual Property, which remains idle, can be used from outside agencies to create spin-offs and start-up companies
Enhanced capabilities of suppliers outside the organizations
Over the past decade, both the number and availability of specialized suppliers have increased dramatically
Table 1: Factors impacting the knowledge field (Chesbrough 2003)
In addition, the scholar makes a comparison of the basic foundations of Closed and Open Innovation. These foundations are opposed to those of traditional Innovation model and the way that could firms can take advantafe of them. Furthermore, these foundatons are still in force despite having been mentioned over a decade ago. In addition, they appear to cover more businesses and sectors as the factors that erode the previous model have increased in size.
The table presented below presents the contrasting principles of Closed and Open Innovation Models.
Divergent Foundations of Closed and Open Innovation
Closed Innovation Foundations
Open Innovation Foundations
The smartest and most talented people are working for our business
There are smart and talented people who work in other businesses as well. We must approach them and convince them to work for our business or to work with them.
The business that will succeed in launching innovation in the market will win
It is more important for a business that can create a sustainable business model than being the first in the market
Businesses that invent the best and most innovative ideas, they are the ones who finally earn
The companies that make the best use of the innovative ideas that come both inside and outside of them eventually earn
In order to win a business from its R&D, it should have brought it and has developed it in-house
R&D coming from outside sources can provide very significant value to the business. Inside R&D is also important to accomplish the goal of creating additional value
Firms that invent an idea themselves are the ones that launch it first in the market.
Firms do not have to stop research to profit from it.
Firms should control and regulate Intellectual Property in such a way as to prevent their competitors from profiting from their ideas.
Firms should also benefit from the exploitation of other’s intellectual property. Additionally, companies should buy other firms’ intellectual property in the case they advance their own Business Model
Table 2: Contrasting Foundations of Closed and Open Innovation (Chesbrough 2003, xxvi)
Page | 14
Chesbrough’s study at its initial stage, presents and analyzes various case of companies incorporating knowledge from the external environment and other cases of companies taking advantage of unused knowledge in new forms.
An example of the first case is the Intel Corporation, which used the knowledge created by research institutes, giving the company the opportunity to focus its resources (human resources, investments, time, etc.) on other critical areas, such the improvement of its production infrastructure. In this way, Inntel Corporation succeeded in gaining value by using the knowledge produced by others, while at the same time managed to achieve operational excellence.by targeting their resources to other areas.
However, when they were not able to gain the desired value from the basic research conducted by third parties, such as research centers, then they invested some of their resources in R & D.
Intel Corporation has benefited from access to early technological developments through intelligent and targeted investment in specific research centers.
On the other hand, Xerox managed to exploit unused business knowledge and find new untapped opportunities -beyond those provided by the Parent Company- through the Xerox Palo Alto Research Center (PARC) spin-off.
Xerox gave the allowance and enabled many of its employees to use idle technology in spin-offs. These spin-offs managed to find their way into the market by creating a new organizational structure, testing and advancing technology, thus creating a new business model.
According to Chesbrough, the collective value produced by 11 of the spin-off companies created in this way was twofold the market value compared to the respective of the parent company.
The above examples convincingly convey that open innovation can be implemented and bring great success and spectacular results.
In recent years, some new forms of knowledge exchange have emerged, such as open-source software, crowdsourcing, and co-creation, with the result that open innovation has expanded considerably.
In the next sub-chapter there will be a description the concept of evolution throughout the last decade.
Page | 15
2.1.2 Evolution of Open Innovation Term
At this point, we have to mention that Open Innovation as a term, has been used for many decades before Chesbrough invented it and dealt with it (Duarte & Sarkar, 2011; Lazzarotti & Manzini, 2009).
For example, there are strong signs of formal business activities that have taken place over the past few decades, including procedures such as licensing, partnerships, divestments and mergers & acquisitions.
However, when the concept of Open Innovation was introduced as a new method, it directly impacted the mindset and the way companies collaborated with external stakeholders.
Nowadays, Open Innovation covers a very wide field compared to what it used to be the case in the past (Muller, Hutchins, & Cardoso Pinto 2012) and one could say that the concept has evolved over the years.
In this respect, there should be a separation on the term Open Innovation and what it ultimately stands for in relation to the original approach of the concept several years ago.
In this section we will look at the evolution of the concept of Open Innovation over time. The concept and subject of the term in the past, as well as its content today, including some current trends, will be analyzed.
The definition of Open Innovation has not yet been clearly and precisely defined. Given the complexity and the evolution of the term, several researchers have different approaches and view on it (Table 3). The original version of Open Innovation proposes that ideas can derive from either inside or outside the company, and can be promoted within or outside the firm. According to this definition, the value of access and use of an idea over its ownership is highlighted.
A later definition by Chesbrough, West & Vanhaverbeke (2006) goes one step further and develops the concept of ideas into knowledge, which can be incorporated into ideas, products, technology, etc.
A study by Gallagher & West (2006) provides a new perspective, including the systematic process of exploring, incorporating and exploiting internal & external sources of new ideas.
Page | 16
In another study by Lichtenthaler (2008), Open Innovation is committed to exploiting internal and external technology through company capabilities. The same scholar in a newer study (2011) adapts the concept of Open Innovation by replacing the element of technology with that of knowledge, while at the same time enhancing new concepts such as exploring and exploiting this knowledge, in line with the West study and Gallagher.
Taking into account the previous definitions from the best-known Open Innovation scholars, there is a tendency to broaden the Open Innovation scope to include notions, like the following:
Identifying opportunities
Integrating them into the innovation process
Investigating knowledge
At the same time, the capabilities of companies are referred as a significant factor in the firms’ innovation process, while on the contrary knowledge is gradually considered as a significant component of Open Innovation, as it incorporates concepts such as ideas, intellectual property, know-how etc., while it can be integrated into people, products, services, processes etc.
Author
Definition
Chesbrough (2003)
Open Innovation is the model by which companies are able to and should exploit ideas that come from within the company as well as from abroad, with the aim of studying their technology. This combination of ideas has the effect of creating the requirements of Business Model
Chesbrough, Vanhaverbeke, West (2006)
Businesses exploit the input and output of information and ideas to enhance their internal innovation but also to expand markets of innovation of a
Lichtenthaler (2008)
The management and use of technology in the process of innovation is included in the concept of Open Innovation. In this way, Open Innovation includes a plethora of internal and external sources of innovation, as well as commericialization channels
Lichtenthaler (2011)
Open Innovation is the methodical search, exploration, preservation and exploitation of knowledge coming both inside and outside the enterprise .
Table 3: Open Innovation definition by the most prominent scholars.
At the same time, if the factors that affect the field of knowledge, we will see that they have grown in size (Table 4) mainly due to continuous improvements in the IT and telecommunications sectors. for example, the availability of skilled workers has been greatly
Page | 17
enhanced mainly by access to new sources of knowledge, dominated by MOOCs platforms, and secondly to advances such as distance work, on-line specialized communities etc.
At the same time, venture capital markets have been extended and new forms of fund raising have been invented, such as crowdfunding. Additionally, access to new external sources of ideas has been facilitated, giving access to private and public resources.
Factors
Status a decade ago (2003)
Current status (2014)
Skilled labor availability & mobility
Information widespread to other sources outside R&D Units. Institutions and other contemporary networks (i.e. the internet) are spreading knowledge. Likewise, labor mobility along-with other trends, i.e. outsourcing, has transformed the knowledge field.
Developments of MOOCs, formulation of communities, development of open software/hardware, and open office.
VC Market Growth
A settled VC market since 1990’s
Extended to peer-funding, crowdfunding, crowd-equity and others
Exterior Options
Idle IP can be occupied to external paths in form of spin-offs and startups.
Not just through startups and VC funding. New options aroused (i.e. innovation markets & innovation intermediaries)
Enhanced capabilities of suppliers outside the organizations
Increase in the number of specialized suppliers during the last decade
Emergence of new smaller and highly specialized suppliers. Because of the limited internal market size, they tend to function internationally so as to reach a significanr market segment portion.
Table 4: Factors impacting the knowledge field (updated)
Since the commencement of Open Innovation term, the scope of this new paradigm has expanded to cover also other areas. Researchers have been discussing the term and what it could also include (Elmquist et al 2009; Gasman et al), without concluding to a common outcome.
On the other hand, the advancement of Information and Communication Technologies, also known as ICT, brought about the expansion of the term’s scope so as to incorporate concepts such as crowdsourcing, crowdfunding, prosumers, co-creation, platform ecosystems, online communities etc.
Page | 18
These new concepts aren’t explicitly highlighted in the previous researches and definitions, but they need to be considered in the current status of Open Innovation approaches.
Additionally, the number and the nature of activities related to Open Innovation concept have also expanded, as the factors impacted the change of this concept have increased in terms of number and intensity.
Furthermore, there were some authors that diagnosed that Open Innovation is subject to the organizations applying it, as well as their environment (Dittrich & Duysters 2007, Curley & Samelin 2013; Campbell Smith 2008; Laursen & Salter 2006).
According to another research (Gassman, 2010), there are some trends related to Open Innovation suggesting the concept has matured (see table 5 below).
Class
Initial status
Current status
Analysis
Market share
Innovators
Mainstream
Upward trend towards adopting of Open Innovation. Shift from the few leading companies to many small ones with market fragmentation
R&D strength
High tech
Low tech
Shift φrom low-tech companies to high tech companies. Incorporation of users, consumers and institutions at different stages of the innovation proces
Size
Large
SMEs
From large multinational firms to smaller ones.
Innovation process
Stage-gate
Review and Learn
From step-wise procedures to lean/agile ones.
Structure
Standalone
Alliances
Formulation of value creation associations (i.e. innovation networks)
Universities
Ivory towers
Knowledge brokers
Greater collaboration between industry and academic circles
Interior procedures
Amateurs
Professionals
Shift from amateurs to experts regarding the internal process of Open Innovation Management. New positions have arisen, like Open Innovation Executives, Consultants, and Open Innovation intermediaries.
Content
Products
Services
Shift to servuction and servitisation of P&S
Intellectual Property
Protection
Tradable Products/Services
Shift to an IP trade market. Frequent phenomena such as patent wars
Table 5: Current trends in Open Innovation (Gassman et al 2010).
Page | 19
2.2 Co-Creation Model
2.2.1 Definitions of Customers Co-Creation
The use of the term has been very large and this is reasonable and expected as it coincided with developments in areas such as the rapid expansion of the Internet, the change of attitudes of companies from product-oriented to customer-oriented, and the new dynamics was given the term Open Innovation (Chesbrough, 2006).
Given the great appeal and interest shown for the term of Co-Creation, a commonly accepted definition of the term has not yet been found, resulting in many different approaches to what Co-Creation is ultimately thought to be.
Brown & Hagel 2005
Co-Creation is a very strong tool for innovation. Instead of restricitng someone to what businesses can create within their boundaries, it is preferable and more effective to make it available to many different participants whose contribution can lead to the production of products and services that will cover a wide range of needs.
Vargo, 2008
Co-creation is a combination of readily available resources and those available through a variety of service structures and are capable of contributing effectively to the welfare of the system as defined by the system’s environmental framework. (Payne, 2008)
Co-creation refers to the relationship between producer and consumer, a proactive, energetic and cooperating set of experiences taking place within a specific context, using tools that are deliberately and in part unwitting
Kristensson et al., 2008
Co-Creation is generally the process of active participation of consumers in the production and customization of products and services and which requires teamwork to achieve innovation (Kirah, 2009)
Co-Creation is the perpetual interaction circle and collaboration between all participants taking place within network -creating value- through any specified procedure of designing, developing and executing useful products / services
Ramaswamy & Gouillart, 2010
Co-Creation is the process of setting people’s experience at the heart of the firm’s design (Reay & Seddighi, 2012)
This approach has set a new way of innovation, according to which value is co-created jointly by the companies and the customers, and exchanged with the customers.
Ind & Coates, 2013
Co-Creation is the process providing the opportunity for an enduring collaboration, where firms are willing to share their information with external stakeholders, so as to produce in return the insight deriving from their engagement (Roser, DeFillippi & Samson, 2013)
It is considered a vehicle to extend the innovation and companies’ capability to create value, while fostering customer affairs and curtailing the costs for marketing and R&D (von Stamm, 2004)
Table 6: Definitions of Co-Creation
Page | 20
From the above table with the different definitions of Co-Creation it follows that there are different approaches to the concept as some scholars approach the term as a process while others as a result.
In essence, co-creation is essentially both the medium and the outcome of a particular cooperative process (Prahalad & Ramaswamy, 2004). By making a thorough review of the term co-creation, we find that there are two faculties: the first to consider the process of innovation as a sequence of co-creation, suggesting the categorization of the overall innovation process into five (5) core activities, co-idea, co-evaluation, co-design, co-test, and co-launch (Russo-Spena & Mele, 2012). On contrary, the second faculty sees co-creation as the means of developing enhanced innovation and value, which are implemented within the innovation course.
At this point, it is useful to elucidate that co-creation is a method by which customers have a strengthened and upgraded role in the innovation process. This entails the differentiation of co-creation in relation to the other methods of co-operation that companies apply. Based on the co-creation model, the client is treated as an active participant in the value creation process, resulting in an upgraded role from the one he had in the past. Essentially, the client is considered a problem-owner and responsible for finding a solution to this problem (Prahalad & Ramaswamy, 2004).
2.2.2 Conceptualizing Customer Co-Creation: Existing Models
In order to better and more accurately define the term co-creation, scholars develop some models so as to determine the essence of the term. At this point, the most prominent and important models are presented.
Co-Creation as a Continuum
In contrast to the view that co-creation is a concept differing from co-production, there are many researches proposing that co-creation should be considered as a continuum.
Gaurav Bhalla (2010) tried to categorize the co-creation approach based on the level and focus on customer collaboration and the implementation interaction.
The below figure derives from Bhalla’s book entitled “Collaboration and Co-creation: New Platforms for Marketing and Innovation” and presents the aforesaid relationship between customer collaboration and focus with co-creation focus.
Page | 21
Figure 4: customer collaboration and focus with co-creation focus (Bhalla, 2010)
Bhalla suggested that there are three different levels of co-creation implementation: the light, the moderate and the high.
In line with Bhalla’s notion that co-creation is a continuum, Chathoth published his survey in which he proposed that co-creation is the natural expansion of co-production. Based on this theory, co-creation stands on the extreme right side of the continuum, while co-production stands on the opposite side, the extreme left. Additionally, Clathoth proposed a matrix to explain the relationship between the value creation stage and the level of interaction among customers and firms.
Involvement Type
Customer-Frim:
Customer-Driven Customisation
Co-Creation Approach
Customer-Frim:
Co-Production Approach
Firm-Driven Service Innovation
Production Process
Consumption Process
Primary Value Creation
Figure 5: Co-Creation to Co-Production Matrix (Chathoth, 2013)
Page | 22
DART Model
Prahalad & Ramaswamy in their survey tried to define the building blocks regarding the firm-customer interaction so as to analyze the way this relationship facilitates the co-creation experience. They proposed the DART Model, the abbreviation of the following terms: Dialog, Access, Risks/Benefits, Transparency. They considered this model as the basis for firm-customer interaction. The figure below illustrates this model:
Figure 6: The DART Model (Kahle, 2012)
The term dialogue requires the interaction between the two sides (firm and customer) in such a way as to allow for an honest and uninterrupted exchange of views and ideas.
Dialogue is problematic, if not impossible, in cases where customers lack of access to information in exactly the same way as the firm. In the vast majority of cases, companies have more and better access to information, thus exploiting this asymmetry.
Given the state of the art, individuals now have the ability to access information, something which in the past was not feasible. Therefore, access and transparency are two crucial and necessary factors for dialogue between companies and customers.
The DART model presents the challenges posed by the factors hampering the success of co-creation, such as disclosure, transparency in data such as financial statements, open access to information and others (Prahalad & Ramaswamy, 2004). At the same time, an attempt is made to imprint and distinguish co-creation in what it is and what it is not.
Page | 23
The Reference Model
Another version of Value Co-Creation is the benchmark model in which co-creation is seized
and synchronized throughout the value chain of enterprise development, while being integrated
into a vigorous co-creation landscape (DeFillippi, T. Roser & Samson, 2013).
In this version we encounter 6 parameters regarding the issues of support for the required
decisions in the context of co-creation.
These parameters are as follows:
Type of co-creator
Purpose
Place
Integrity
Time
Incentives
Figure 7: The Reference Model of Co-Creation (Rosser; Defillippi; Samson, 2013)
The above dimensions reflect both the theoretical and managerial aspects of co-creation
strategy. Correspondingly, a recent work conducted by Swink (2006), Gloor and Cooper
(2007), as well as a respective work by Owen (2008) proposes a diversity of dimensions that
are valuable in order to govern co-creation endeavors and intensify co-creator engagement.
Page | 24
2.2.3 Forms of Co-Creation
The analysis made in the previous sub-chapter highlights the nature of co-creation as a complex and multidimensional phenomenon. This sub-chapter attempts to further analyze each different aspect of co-creation in order to present a comprehensive and comprehensive view.
Below is presented a brief report of the forms of co-creation as a process which ends up to creating value for both the customers and the firms adopting and implementing this model.
The below figure presents the eight forms of Co-Creation:
Figure 8: The Eight Forms of Co-Creation (Donaldson, 2014)
Crowd-Sourcing: The practice of finding the required services, ideas, and content by imploring contributions from a large group of people.
Mass Customization: The process combining the prerogatives of large-scale production with those of customisation.
Peer-to-Peer Networks: They are decentralized networks where all participants act as suppliers and consumers to share resources and information
Open Innovation: The practice of innovating with partners inside and outside the organization and sharing risk and rewards with them.
Shared Resources: The practice of suppliers and customers sharing resources in order to co-create value.
Page | 25
Joint Ideation: The practice of suppliers and customers gathering to brainstorm new ideas.
Experience Centers: They allow customers and suppliers to interact with products/services in a sensory way.
Product-as-a-Service: The practice based on which customers pay for the use of products or services.
2.2.4 Benefits and Costs of Customer Co-Creation
The adoption and implementation of Value Co-Creation not only benefits the firms, but also the customers as by its nature co-creation requires interactivity. Below, some of the benefits of this model are presented:
Co-Created Products/Services better fit the customers’ needs
Co-Creation is an effective method in terms of ascribing value to the proposition relative to use context
Co-Creation enables firms to more accurately target customer groups
Co-Creation is a source of more valuable ideas, as they are more original
Co-Creation creates barriers to imitation
Co-Creation can lead to creating sustainable competitive advantage
On the other hand, the implementation of Co-Creation involves several risks and costs. These costs are not limited simply to the direct costs of resources for the application/execution of Value Co-Creation but also include the costs arising from the need to create the appropriate environment that will support and promote the practical implementation of Value Co- Creation.
The afore-mentioned costs relate to resources consumed to cultivate and create a transparency environment on money, time and human resources (RF Lusch & SL Vargo, 2006).
Finally, customers are also burdened with the cost of co-creation due to the opportunity cost, time and effort needed to co-create (Robert F. Lusch & Stephen L. Vargo, 2006).
Page | 26
2.2.5 Risks of applying Customer Co-Creation: Co-Destruction
If the costs related to co-creation can be considered as significant and so each and every firms adopting and implementing such a model should take them into serious account, the risks associated with this approach (co-creation) can be classified as critical for the firms.
Though co-creation proclaims a better future for customers and businesses, the application creates a number of risks. When businesses co-organize with customers, they open their borders, allowing others to participate in the decision-making process. The interaction between businesses and customers have two possible effects: either they will have beneficial repercussions or harmful ones.
In several cases of co-creation, rather than generating value-creation, such a process could lead to a co-destruction of value (Plé & Cáceres, 2010). There are many aspects and correspondingly different reasons that lead to these different results.
A common cause of this phenomenon, which can lead to co-destruction rather than co-creation, is the abuse of resources by at least one of the members involved in the process, i.e. the business or customers. The definition of this kind of abuse is the integration or application of resources by a member, in a way different from this that the other member thought it would be (Plé & Cáceres, 2010).
This abuse can occur mainly for two reasons: either due to either unintentional or intentional misuse. If the abuse reduces the prosperity of customers, it will create customer dissatisfaction or even a disappointed member of the community. In this case, there is a great risk that other enthusiastic customers will change their attitude to a resistance against the business, which would cause a large generalized wave of resistance that is easy to spread due to the seamless digital communication that exists today (Gebauer, Füller, & Pezza, 2013).
Accidental abuse