How can firms cocreate knowledge with their customers

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How can firms co-create knowledge with their
customers?

• Doctoral Colloquium, March 24th 2006
• Chris Lawer
• Part Time PhD Candidate
• Supervisor Professor Simon Knox

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Structure

• Perspectives on the research question
• The literature on co-creation
• Research gap and contribution
• Market learning and co-creation capability
  framework
• Methodological considerations

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Perspectives informing the choice of question
Resource-based theory and the existence, growth
and evolution of the firm
The firm as a creative entity that evolves and
adapts to changing market conditions.
Resource-based theory (RBT) and especially
evolutionary perspectives on firm growth (Nelson
and Winter, 1982).
Dynamic capabilities, strategic management and
sustainable competitive advantage
The organisational learning literature
(action-oriented perspectives)
The market-orientation literature (market-learning
processes and capabilities)
The customer knowledge co-creation literature
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Perspectives informing the choice of question
Resource-based theory and the existence, growth
and evolution of the firm
Dynamic capabilities are built and nurtured by
senior management decision makers in the firm -
market-learning processes are key determinants of
capabilities.
Dynamic capabilities, strategic management and
sustainable competitive advantage
The organisational learning literature
(action-oriented perspectives)
The market-orientation literature (market-learning
processes and capabilities)
The customer knowledge co-creation literature
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Perspectives informing the choice of question
Resource-based theory and the existence, growth
and evolution of the firm
Dynamic capabilities, strategic management and
sustainable competitive advantage
Applied or learning organisation perspectives
from the organisational learning literature
examine multiple levels and types of knowledge
and learning (individual, group, internal and
external)
The organisational learning literature
(action-oriented perspectives)
The market-orientation literature (market-learning
processes and capabilities)
The customer knowledge co-creation literature
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Perspectives informing the choice of question
Resource-based theory and the existence, growth
and evolution of the firm
Dynamic capabilities, strategic management and
sustainable competitive advantage
The organisational learning literature
(action-oriented perspectives)
Studies that identify how firms learn about their
market(s), customers and competitors in order to
build sustainable competitive advantage.
The market-orientation literature (market-learning
processes and capabilities)
The customer knowledge co-creation literature
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Perspectives informing the choice of question
Resource-based theory and the existence, growth
and evolution of the firm
Dynamic capabilities, strategic management and
sustainable competitive advantage
The organisational learning literature
(action-oriented perspectives)
How firms can develop their market-learning
capabilities by co-creating knowledge with their
customers. There is a growing body of literature
in this field yet it does not yet conceptually or
empirically define how firms can change their
market-learning capabilities.
The market-orientation literature (market-learning
processes and capabilities)
The customer knowledge co-creation literature
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The evolution of the literature on co-creation

• Product innovation and the lead user concept of
  von Hippel (1977)
• Important milestones
• Interactive strategy and self-service (Normann
  and Ramirez, 1993)
• One-to-one marketing (Peppers and Rogers, 1996)
• Mass-customisation (Pine, 1999)
• The Experience Economy (Pine and Gilmore, 1999)
• Real-time marketing (Oliver, Rust and Varki,
  1998 McKenna, 1999)

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The impact of the internet

• The internet and other new networking and
  communications technologies provide a new
  environment and context for firms to evolve into
  co-creation, driven by
• Lower cost means to source and provide
  personalised value
• Falling barriers to knowledge transfer
• More knowledgeable customers and different value
  expectations
• New self-forming and socialising / relating
  customer communities of interest
• New types and levels of information wrapped
  around products they become more interactive
• Higher levels of market turbulence, uncertainty
  and a need for renewal

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Co-creation arrives in the literature

• 2000-2002 saw the publication of several papers
  on co-creation from a number of functional
  perspectives
• Product innovation (Thomke and von Hippel, 2002)
• Relationship marketing (Sheth, Sisodia and
  Sharma, 2000)
• Services marketing logic (Vargo and Lusch, 2002)
• Customer knowledge management (Sawhney and
  Prandelli, 2000 Gibbert et al., 2002)
• Managing communities of creation (Sawhney and
  Prandelli, 2000)
• Strategy (Prahalad and Ramaswamy, 2000)

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Why co-create?

• A greater ability to sense emerging market
  opportunities before the competition
• More effective unlearning of established
  assumptions and practices through
  open-mindedness, shared vision and an enhanced
  commitment to market experimentation and
  organisational learning.
• Higher innovation potential, effectiveness and
  predictability creating more innovative new
  products
• Validate the knowledge already accumulated in the
  organisation
• Better and faster response to latent customer
  needs
• Shorter loop of learning errors
• Faster customer access to knowledge about, and
  resolution of, customer service problems
• Higher perceived customer switching costs arising
  from the customers ongoing knowledge investments
  in the firm.
• An enhanced ability to co-create mutual value on
  an ongoing basis value in the form of
  personalised, unique experiences for the customer
  and higher profitability and growth through
  higher levels of customer loyalty for the firm
• Creative stretching of existing products,
  services and skills to generate additional
  revenue and efficiency
• Expanded market share

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The co-creation literature suggests that

• Firms need to move from being autonomous
  knowledge creators that learn about customers and
  create value for them, to becoming co-creators of
  knowledge that learns and creates value with
  customers
• The very locus of knowledge-creation is shifting
  from within to outside corporate boundaries and
  that this shift demands a new consideration of
  how firms learn about their markets and customers
  (Prahalad and Hamel, 2000 2004)

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conceptualised as
Firm boundary
Community
Firm RD
Customer
Locus of Knowledge Creation

• What are the firm antecedents to this shift
  taking place?
• What types of knowledge?
• What forms of marketing orientation?
• What is the nature of customer value?
• Which learning capabilities to create or change?

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Definition of knowledge co-creation (and Unit of
Analysis)

• The management of the processes that lead to the
  co-creation of new knowledge through interactions
  between firms and their customers
• (After Sawhney and Prandelli, 2000b)

Firm boundary
Community
Marketlearning capability development
Marketlearning capability development
Firm RD
Customer
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Managerial challenges cited in the co-creation
literature

• What are the preconditions for customer
  involvement?
• How does the firm select and motivate customers
  to share different forms of knowledge?
• What communications infrastructure is required?
• How can managers overcome the cultural challenge
  of valuing the customer as an active and
  knowledgeable entity?
• How do marketing managers develop appropriate
  trust-building processes?
• How is the knowledge held by customers to be made
  explicit and transferable within the firm?
• How and in what circumstances should managers and
  employees act upon customer knowledge?

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Academic gaps in the co-creation literature

• The following are absent from the literature
• A clear definition of co-creation
• Analysis of the range and types of customer
  knowledge involved
• Measurement
• Context and antecedents
• Integration of different perspectives
• Balanced views on learning (A bias towards
  information processing)
• Understanding of market-learning capabilities to
  develop or change

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Primary contribution

• The development of market-learning capability
  frameworks for strategic management

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What have I done to date

• Completed First Review
• Developed initial market-learning and co-creation
  capability frameworks and summarised all
  capabilities from the literature in each

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Conceptual framework for market-learning
capabilities
Information Distribution
Knowledge Appraisal
Market Learning Orientation
Information Interpretation / Sensemaking
Knowledge Use
Market Scanning and Knowledge Acquisition
Capabilities
Capabilities
Capabilities
Capabilities
Capabilities
Capabilities
Unlearning
Reflection
Collective Memory
Capabilities
Capabilities
Capabilities
A MARKET-LEARNING ANTECEDENTS
B MARKET-LEARNING PROCESSES (BEHAVIOUR)
C MARKET-LEARNING OUTCOMES
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Conceptual framework for knowledge co-creation
capabilities
New capabilities
New capabilities
New capabilities
New capabilities
Knowledge Co-Creation Orientation
Customer Knowledge Acquisition
Customer Information Sharing
Customer Information Interpretation
Information Distribution
Knowledge Appraisal
Market Learning Orientation
Information Interpretation / Sensemaking
(Customer) Knowledge Use
Market Scanning and Knowledge Acquisition
Capabilities
Capabilities
Capabilities
Capabilities
Capabilities
Capabilities
Unlearning
Reflection
Collective Memory
Capabilities
Capabilities
Capabilities
A MARKET-LEARNING ANTECEDENTS
B MARKET-LEARNING PROCESSES (BEHAVIOUR)
C MARKET-LEARNING OUTCOMES
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My problems

• Now exploring methodological considerations
• Current bias is towards case-study / action
  research
• Unit of analysis is the management of the
  knowledge co-creation process
• Questions
• Is action research the only viable research
  method to surface knowledge-creation and its
  impact?
• How can routines or capabilities for
  market-learning be identified and operationalised?