Innovation with customer co-creation – the rules of thumb

A recent eye-opening study made by Professor Anders Gustafsson at BI Norwegian Business School has analyzed the value of customer co-creation in innovation. The findings show a huge difference between results from customer co-creation in incremental innovation and radical innovation respectively. Read on to learn more

Customer co-creation is a hot buzzword right now. It has become increasingly popular among companies, and intensive communication with customers in the product development is generally seen as a determinant of the success of a new service or product.

With good reason: A lot of research has shown that under the right circumstances, customers can co-develop products which are both creative and have greater value for the users, than what the company can come up with it self.

On the other hand, we hear designers at leading innovators such as Apple claim that:

“At Apple we don’t waste our time asking users, we build our brand through creating great products we believe people will love”, and the famous quote by Steve Jobs “It is really hard to design products by focus groups. A lot of times people don’t know what they want until you show it to them”.

What is up and down here? When is co-creation useful, and when is it meaningless or even devastating for the innovation and development process? And more importantly, how do we use co-creation optimally to benefit from customer and user insights in developing products and services?

At Nosco we have seen that including all kinds of stakeholders in the innovation process can be a source to great synergy, but at the same time we recognize that this needs to be done in the right way and at the right time.

A recent study made by Professor Anders Gustafsson at BI Norwegian Business School analyzes the value of customer co-creation in innovation. The findings show a huge difference between results from customer co-creation in incremental innovation and radical innovation. Lets have a look at it:

Source: 1000ventures.com

Incremental innovation – three factors for success

It turns out that customer co-creation is likely to have a positive effect on market success for a product, when using it for incremental innovations.

The product success depends on communication three factors being present in the process:

- High frequency in communication. The amount of time you use for dialog based communication. You should get to know your customers on a deep, deep level, and develop an understanding of what creates a genuine value for them.

- Focus on two-way communication. Companies have a tendency to take an overly dominant role in the relationship with their customers. This is a no-go. If you want a meaningful output, you have to create an environment, where both parties take initiative and can expect to contribute to the end result.

- Customer influence. The customer should be directly involved in the development of the actual content of your new offering. They know which improvements they need, and are willing to pay for, and using their experiences in your development is likely to increase user value of your product.

Furthermore the research finds, that the form of communication is secondary. Using online platforms or an idea management tool is just as powerful as face-to-face communication in focus groups.

 

In radical innovations, don’t be too influenced by your customers

Radical innovations, on the other hand, are difficult to infuse with customer co-creation. The only factor with a positive impact on the outcome and product success is frequency in communication.

As explained above, this means, that using customer co-creation in radical innovation requires an ongoing relationship, and consistent communication with your customers, which gives you the ability to know your customers from the inside out. This is not a big surprise. What’s surprising, is that a high level of customer influence on your end product is likely to have a directly negative influence on the product success. You shouldn’t listen too much to your customer’s specific proposals if your ambition is radical innovation – they don’t know what they want until they see it.

Why? “Because the consumer often considers radical solutions unthinkable in advance, which can make radical solutions hard to imagine. They create solutions based on their previous experiences of usage of different products or services, which makes it difficult to suggest solutions that are truly radical”, Gustafsson suggests.

 

What do we do, then?

Some say that customer co-creation is a waste of time, and others think that it is the holy grail of innovation.

Unfortunately a very few of us has the ability to innovate as radically as Steve Jobs, and customer co-creation can be a powerful tool for incremental innovation, especially if you remember the three factors: High frequency, two way communication and customer influence (and of course structure – but that’s another talk).

For radical innovation, customer co-creation is still an obvious choice, but you should rather use it to gain market and customer insights than involving the customers in the concrete product development. One way to do this, could be to find out what your customers want without asking them directly. Ask them about their everyday life, and analyze their deepest pain, needs and desires.

In other words: The customer co-creation strategy should be differentiated based on the innovation level. During incremental innovation you could ask your customers to contribute with specific ideas and improvements to increase user value of your products. In radical innovation you should use customer co-creation to get to know your customers and develop an understanding of what is truly valuable for them….and then make the radical decisions yourself by internal idea management.

 

Dictionary

Co-creation: A business strategy focusing on customer experience and interactive relationships. Co-creation allows and encourages a more active involvement from the customer to create a value rich experience.

Incremental innovation: Incremental innovation refers to innovation processes within the company that seeks to improve existing systems and products to make them better, cheaper, faster etc. The incremental innovation usually helps maintain or improve the competitive advantage over time.

Radical innovation: Radical innovation is major innovations focused on new technologies, markets and business models. Ultimately, they often end up replacing existing methods/technologies and changes existing industries – or creates new ones.

 

 

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