Why innovation springs from collaborative invention

A new study finds a framework for extending co-creation’s scope

From tapping commands into an automatic teller machine or checking out goods at the supermarket self-service terminal, co-creation is part of everyday life.

For many businesses, in the quest to save money, solve problems, innovate or better satisfy customers, co-creation has become a keen focus. Typically, finding ways to collaborate with customers, suppliers, distributors and others to add value has been an ad hoc process. Few have a full understanding of co-creation's scope and how to approach it.

"People tend to think about co-creation in a very restricted sense; they think it's checking out at the supermarket or assembling IKEA furniture, but it's much more all-encompassing than that," says UNSW Business School marketing professor Adrian Payne, who cites countless examples of smart ways businesses have engaged co-creation to great effect.

Big brand sports shoe manufacturers, Nike and Adidas, let customers co-design shoes online, for instance. Tech giant Apple effectively co-outsources the design of applications for its App Store. US carrier Southwest Airlines encourages passengers to engage in co-disposal by asking them to clean up the plane before disembarking.

Co-pricing caused a furore in the music industry when British band Radiohead became the first major act to release a pay-what-you-want album, In Rainbow, in 2007, proving the practice of letting consumers name their price could be profitable.

 IBM also became a trailblazer when it opened use of its software patents to the outside world.

"Co-creation is an umbrella term that covers a whole lot of different areas, but most people associate it with co-production or getting customers involved in design," Payne explains.

Indeed, recent impetus for co-creation has been driven by customers wanting more involvement, he says, and accelerated rapidly by the internet and social media.

In business, the potential for competitive advantage is particularly alluring. "Once businesses understand its scope, people start to get very excited by the potential for co-creation," says Payne, but there's the resounding question of how to identify opportunities to co-create.

Co-creation is an umbrella term that covers a whole lot of different areas, but most people associate it with co-production or getting customers involved in design

ANDRIAN PAYNE

Innovation framework

A research project, designed to put a structure around the ad hoc process, has resulted in an innovation framework to help spark ideas and further thinking about co-creative possibilities.

The framework significantly broadens the field, revealing 12 ways to co-create and the motivations for doing it.

"We wanted to give people a structured way of thinking about co-creation: What is our motive in business?; Where do we want to improve our value proposition over time?; Where should we be innovating?," explains Payne, who conducted the research with colleagues Pennie Frow, Suvi Nenonen and Kaj Storbacka.

The project drew on the insights of 29 senior executives from eight large European businesses which were undertaking co-creation activities or intending to do so.

The framework uncovers nine motivations for co-creation, from access to resources to enhancing customer experience and commitment, creating more competitive offerings, speeding time to market, emerging strategies and cost savings. Users of the framework must consider who to co-create with, the level and means of engagement.

The 12 forms of co-creation revealed by the framework include the popular co-production and co-design and previously mentioned co-pricing, co-outsourcing and co-disposal.

In their paper, Managing Co-creation Design: A Strategic Approach to Innovation, the researchers give examples of co-conception (including crowd-sourced solutions), co-promotion (the Harley Davidson brand community), co-distribution (Unilever's use of last-mile local women distributors for products in India), co-consumption (US women's fashion brand Wet Seal turning the online shopping experience into a virtual trip to the mall with friends), co-maintenance (UK supermarket chain Tesco engaging customers for trolley recovery), co-experience (adventure holidays) and co-meaning creation (online gamers' sharing virtual worlds).

Three categories

With so many "co-s" to consider, companies need to figure out how much they want to get involved in co-creation, asserts Payne, who explores opportunities with management teams via "co-creation radar charts" to help businesses assess current and potential activities.

Companies tend to fall into three categories. "First are those that set out to be very active – they want to build a co-creative organisation. This has to come from the top and involves change management because there can be a lot of resistance," Payne says.

The standout example of this is US multinational consumer goods company Procter & Gamble, under the leadership of chief executive A.G. Lafley, who has nurtured "networks of people and other organisations – customers, suppliers, researchers, contract laboratories, entrepreneurs, even competitors – the company could co-create with", says Payne.

Lafley also introduced open innovation architecture, known as 'Connect + Develop' online, which has resulted in 50% of P&G's new products going to market each year with at least one external partner.

Companies in the second co-creation category choose a more focused approach concentrating on particular activities. A stellar example is LEGO. The Danish-founded global company initially was outraged in 1998, when a Stanford student hacked the interface of its first programmable Mindstorms Robotics kits within weeks of them launching. The kits create software and hardware for customisable, programmable robots.

However, rather than take legal action, LEGO executives paused for thought and opted for a co-creative approach by including a "right to hack" into the Mindstorms' software licence.

The upshot has been a universe of innovation as hackers created everything from LEGO car factories to bowling robots and soda machines. And, when looking to design the next version of Mindstorms, the company found it had a ready community of highly skilled devotees to help. Proof of how well co-creation works is Mindstorms' status as the best-selling product in the LEGO Group's history.

The third category of co-creation activity remains ad hoc as companies take a less strategic approach and co-create in hotspots. "Different teams within the company may engage in specific co-creation projects," says Payne.

It’s clear there’s quite a head of steam around co-creation and it has come to centre-stage as an important construct

ADRIAN PAYNE

Paying for content

While co-production has been the preoccupation to date, Payne sees innovation through co-creation growing widely, particularly in the field of co-pricing with 'pay what you want' initiatives. 'Priceless' restaurants that ask patrons to pay what they think the meal is worth now operate across the world, he notes.

Co-pricing also may present a solution to media companies' vexing problem of how to get subscribers to pay for content by inviting them to name their own price, Payne believes.

With colleague Pennie Frow, Payne is working with Teleshuttle Corporation, a US company that promotes user-centric innovation, on the 'Fairpay' concept, in which online businesses, such as digital newspapers or magazines, let subscribers set their own prices.

The trade-off on Fairpay's pay-what-you-want platform is subscribers must answer simple questions on how useful and valuable they find the product after using it.

"In time, those who continue to want to receive it for next to nothing are made to revert to a set price category. For those willing to pay more, proprietors draw on the wealth of information they have gleaned to home in on customers' specific interests and make a whole range of value-added offers," says Payne.

Fairpay pricing also has potential for the music and software industries, says Payne. While its greatest opportunity is with digital products, "where the marginal cost of producing an incremental unit is close to zero", the concept has application for traditional businesses as well, he suggests. 

Head of steam

With many compelling reasons for doing it and so many different ways of going about it, brainstorming concepts for co-creation has an observable contagious effect, according to Payne. The arrival of the framework highlighting the numerous co-creative options has given him the chance to watch what happens when co-creation ideas start sparking.

The level of inspiration and excitement – emanating from MBA students to teams in major consultancy groups, such as PwC –  as they realise so many possibilities, Payne says, is the surprise result from the co-creation research and its framework.

"It's clear there's quite a head of steam around co-creation and it has come to centre-stage as an important construct," he concludes.