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 / Second Quarter 2002 / Issue 27(originally published by Booz & Company)


The Co-Creation Connection

What is co-created in this process is not just a boat, a physical artifact, but also experiences. Even before owners set sail, they begin to form an emotional attachment to their boat while building their stake in the outcome of the value creation process.

The company also benefits. Sumerset and its suppliers learn more about the end consumer and access new ideas for design, engineering, and manufacturing. Everyone from design engineers to carpenters gains a deeper understanding of consumer desires and the potential value trade-offs. This reduces investment risk for the company as well as the risk the consumer won’t be satisfied.

A Quiet Revolution
As the noise from debates about the old economy and the New Economy dies down, it is easier to detect a quieter revolution — fomented by a shift in how value is perceived and created. Movement toward a market environment in which companies and consumers co-create experiences is gaining momentum, but as with any change in deep-seated assumptions about competition and strategy, the adjustments for companies will be complicated and trying.

First, companies must embrace the notion that consumers can become partners in the co-creation of experiences. Only by letting go of the company-centric view of value creation, once and for all, can companies proceed with the difficult and long-term work of making lasting reforms to the business system. Managers must make a major transformation in the way they conceive of the tasks of value creation, and therefore change how firms are organized. Management disciplines and the relationships between disciplines need to be reexamined — market research, product development, logistics, branding, pricing, and accounting, among others.

Companies are getting more used to competing on the basis of their adaptability and how fast they innovate and apply knowledge, and they are rising to the challenge of keeping down the costs of experimentation as they test new ideas. But business competition is a lot more unpredictable when innovation and flexibility, rather than efficiency, are the main drivers of value.

Firms also need new and different IT strategies and applications that incorporate the principles of a more balanced system of value creation, and a system more sensitive to the consumer’s perception of value. A new information architecture that allows a company to maintain a consistent brand identity and quality of customer experience across channels, for example, is an essential strategic asset. Likewise, IT vendors need to work with companies to come up with replacements for today’s company-centric business software systems.

Companies can and will make the adjustments to thrive in a world where value is co-created in experiences. But it will take time, courage, and stamina to compete in a different value creation space. If companies rise to the challenge, they are sure to discover an exciting new era of business creativity and opportunity.

Reprint No. 02206

C.K. Prahalad, [email protected]
C.K. Prahalad is the Harvey C. Fruehauf Professor of Business Administration at the University of Michigan Business School, Ann Arbor. He is also the founder and chairman of Praja Inc., a pioneer company in interactive event experiences, based in San Diego, Calif.

Venkatram Ramaswamy, [email protected]
Venkatram Ramaswamy is professor of marketing, the Michael R. and Mary Kay Hallman Fellow of Electronic Business, and the director of the Community for Business Innovation at the University of Michigan Business School.
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  1. J. Philip Lathrop, Gary D. Ahlquist, and David G. Knott, “Health Care’s New Electronic Marketplace,” s+b, Second Quarter 2000 Click here.
  2. C.K. Prahalad and Stuart L. Hart, “The Fortune at the Bottom of the Pyramid,” s+b, First Quarter 2002 Click here.
  3. C.K. Prahalad and Venkatram Ramaswamy, “Co-Opting Customer Competence,” Harvard Business Review, January–February 2000 Click here.
  4. Neil Strauss, “Behind the Grammys, Revolt in the Industry,” New York Times, February 24, 2002
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