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The Future of Value Creation: Co Creating Value with Customers

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The Future of Value Creation: Co Creating Value with Customers C.K. Prahalad Paul and Ruth McCracken Distinguished University Professor The Ross School of Business – PowerPoint PPT presentation

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Title: The Future of Value Creation: Co Creating Value with Customers


1
The Future of Value Creation Co Creating Value
with Customers
C.K. Prahalad Paul and Ruth McCracken
Distinguished University Professor The Ross
School of Business The University of Michigan

2
Organic Growth through Innovations within an
Established Enterprise (Value Creation) is at a
Premium. The Focus, Sources and the Processes
of Innovation are Changing.
Basic Hypothesis
3
My Starting Points Anticipation
  • Next Practices not Best Practices
  • 2. Amplifying Weak Signals
  • 3. Focus on Value Creation Process
  • 4. View of Firm- Consumer Interactions
  • 5. Changing Nature of the Firm
  • 6. Global Perspective

Innovation Debate, Value Creation Debate
4
Let us Start with Three Core Principles
5
Principle Number 1 The Essence of
Entrepreneurial Transformation
Situation A Situation B
Resources Low High Aspirations
High Low
6
Principle Number 1
Aspiration gt Resources
Aspiration
Leverage Resources
Change the Game
7
Principle 2 Fold the Future In
2007
2015
Clarity to Direction Willingness to
Discover Clear Milestones Speed and Stamina
400 meters at a time but a Marathon
8
Principle 3 Focus on Next Practices
Next Practices
Well Known Practices
Best Practices
Amplify Weak Signals
Market Perspective, Diversity, Ethics
Leadership, Intercultural Training, Global
Perspectives
9
Focus on Here and Now Tactical, Blocking and
Tackling. Focus on New Opportunities Aspiration
gt Resources, Folding the Future in, Focus on
Next Practices Thinking Differently about the
Here and Now
10
All three principles are based on developing a
Distinct Point of View about Opportunities
11
Drivers of Innovation and Growth The Next
Practices
Value Creation Space
The Fortune at the Bottom of the Pyramid
Global Restructuring Of Industries
The Future of Competition Co Creation of
Value
12
Challenge to CEOs Developing New Strategic
Capital
13
Value Creation Challenge 1
The Changing Roles of the Consumer and the Firm
14
Building an Experience Environment Build a Bear
Buy a Bear Shell
15
Building an Experience Environment Build a Bear
Give it Life A Personal Identity Stuff it. Put
a Heart in. Put a sound in Give it the first
shower Get a birth Certificate
Buy a Bear Shell
16
Building an Experience Environment Build a Bear
Create a unique Life Style Accessories, Dresses
, Gifts, Home, Camping gear, Food, Cleaning
Give it Life A Personal Identity Stuff it. Put
a Heart in. Put a sound in Give it the first
shower Get a birth Certificate
Buy a Bear Shell
17
Building an Experience Environment Build a Bear
Create a Community
Create a unique Life Style Accessories, Dresses
, Gifts, Home, Camping gear, Food, Cleaning
Siblings for your bear? Other kids,
Mothers? On going relationship
Give it Life A Personal Identity Stuff it. Put
a Heart in. Put a sound in Give it the first
shower Get a birth Certificate
Buy a Bear Shell
18
The Bear Promise
My Bear is Special I brought it to Life I chose
it I stuffed it Now I am taking it home Best
Friends are forever So I promise right now to
make My bear My 1 Pal.
19
Let us look at the Toy Industry
Conventional Wisdom Large Volume, Low cost, Low
margin, Seasonal, Lots of Churn Product
Development A Gamble Fads, Few Staples
(e.g. Barbie)
20
Let us look at the Toy Industry
Conventional Wisdom Large Volume, Low cost, Low
margin, Seasonal, Lots of Churn Product
Development A Gamble Fads, Few Staples
(e.g. Barbie)
Build a Bear Moderate Volume, Low
cost, High margin, All Year, less seasonal,
Stable Product Development Experience
based Not a fad, Staples (e.g. Experience)
21
The Current Paradigm Value f (Internal
Efficiency)
The Firm
Suppliers
Channel
SCM ERP CRM Quality
Cycle time Innovation
22
Discontinuities Challenge the Firm Centric View
of the World Consider Convergence of
Technologies, Convergence of Industry
Boundaries, Ubiquitous Connectivity
23
Emerging Entertainment Space
24
Consumers and the Wellness Space?
Health spa
Beauty aids
Specialty clinics
Health supplements
Treatment centers
Cosmetics
Cosmaceuticals
Hospitals
Assisted Living
Health foods
Lifestyle drugs
Pharma drugs
Yoga
Therapeutics
Nutraceuticals
Surgery
Personalized medicine
Fitness regimen
Nutritional supplements
Drug delivery
Self care
Remote diagnostics
Pharmacogenomics
Ayurveda
Minimally invasive treatments
Remote consultation
Genetic screening
Medical devices
Herbal medicine
Alternative medicine
25
Consumers and the Wellness Space?
Health spa
Beauty aids
Specialty clinics
Health supplements
Treatment centers
Cosmetics
Cosmaceuticals
Hospitals
Assisted Living
Health foods
Lifestyle drugs
Pharma drugs
Yoga
Therapeutics
Nutraceuticals
Surgery
Personalized medicine
Fitness regimen
Nutritional supplements
Drug delivery
Self care
Remote diagnostics
Pharmacogenomics
Ayurveda
Minimally invasive treatments
Remote consultation
Genetic screening
Medical devices
Herbal medicine
Alternative medicine
26
Convergence of Technologies and Markets
Computing, Communications, Components, CE,
Software, (e.g. Philips, Sony, Dell,
Microsoft, ..) Chemical and Electronics
(e.g. Kodak) Mechanical and Electronics (e.g.
Ford, ABB) PCP and Pharmaceuticals (e.g. PG,
Revlon, UL) Food and Pharmaceuticals (e.g.
UL, Nestle) Commodity Products and High Tech
(e.g. Cargill) Retailing, F. Services and
Databases (e.g. Wal-Mart, Citicorp., Tesco,
..) Fusion of New and Old Knowledge,
Creation of Hybrids, Forgetting,
Learning, Harmonizing, and Investing.
27
Typical Response
Good News and Bad News Product
Variety Richness of Features and Functions
Product Variety is not Experience Variety
28
Connectivity and Consumer Activism
  • Information Access
  • Global View
  • Networked
  • (Individuals,
  • Communities)
  • Experimentation
  • Activism

Impact on Value Creation?
29
Consider Cardiac Pacemakers
Patient
30
Consider Cardiac Pacemakers
Your Doctor
Experts Conference
Doctor on Location
Patient
Away Hospital
Spouse
31
The Value of the Pace Maker?
  • Experience of the Patient?
  • Integration of the Experience for the Patient,
  • Doctor, Family, others?
  • Do we need a Network of Providers to
  • Create an Experience Environment?
  • 4. Is the Pacemaker a Part of but Distinct
  • from the Experience?
  • 5. What can you Monetize? How?

32
Car as a Stand Alone Product or a Node in
Seamless Connectivity?
High Capacity CC Node
33
Key Imperative of Co Creation of Value
Experience and Innovation
  1. Cemex in Cement
  2. John Deere and the Harvester
  3. Remote Diagnostics Jet Engines
  4. Remote Diagnostics Patient care
  5. Supply Chains and RF tags
  6. Children and Learning

34
Transformation of the Elements of Value
Creation DART
Access
Value Creation Space
Dialogue
Transparency
Risk-Benefits
35
Transformation of the Role of the Consumer and
the Firm
36
Evolving Pattern of Firm-Consumer Interaction
Basic Firm-Consumer Implications/ Concept
Roles Tools
Traditional Distinct Roles/
Production and Consumption
37
Evolving Pattern of Firm-Consumer Interaction
Basic Firm-Consumer Implications/ Concept
Roles Tools
Traditional Distinct Roles/
Production and Consumption Self
Service Transfer of work from
Firm to Consumers.
Consumers part of value chain
(e.g. Gas station, ATMs, )
38
Evolving Pattern of Firm-Consumer Interaction
Basic Firm-Consumer Implications/ Concept
Roles Tools
Staging Experience Firm creates and
Controls Consumer Experience
(e.g. Disney)
39
Evolving Pattern of Firm-Consumer Interaction
Basic Firm-Consumer Implications/ Concept
Roles Tools
Staging Experience Firm creates and
Controls Consumer Experience
(e.g. Disney) Co Development Firms allows
consumers to construct their products
(e.g. GE, Boeing,)
40
Evolving Pattern of Firm-Consumer Interaction
Basic Firm-Consumer Implications/ Concept
Roles Tools
Segment of One Firm allows you the
Opportunity to construct your own
product from a predetermined menu
(e.g. Dell)
41
Evolving Pattern of Firm-Consumer Interaction
Basic Firm-Consumer Implications/ Concept
Roles Tools
Segment of One Firm allows you the
Opportunity to construct your own
product from a predetermined menu
(e.g. Dell) CRM Firm learns more
about you based on track record
to sell more (e.g. Banks? .)
42
Comparison of Firm- Consumer Interactions
Interaction Access Transparency
Dialog Risk
  1. Traditional ---- ----
    ---- ----
  2. Staging Exp. v ----
    ---- ----
  3. CRM ---- ----
    ---- ----
  4. Segment of one v v ?
    ---- ---
  5. Co Development v v
    v ? v ?
  6. Solutions v ?
    v v
  7. Co Creation v v
    v v

43
The Emergence of Nodal Firms
  1. Intellectual Influence
  2. Network Infrastructure
  3. Standards
  4. Consumer Interface
  5. Privileged Access, not ownership

44
New Demands of Value Creation
  • The Need for an Experience Network
  • The Need for Intelligent Products/Services
  • The Need for Dialogue, Access and Transparency
  • The Importance of Consumer Communities
  • The Need for Real Time Action
  • The Need to Cope with Heterogeneity and
    Complexity
  • The Need for Alliances
  • The Need for Rapid Reconfiguration of Resources

Technology Infrastructure is Strategic
45
Active Involvement of the Consumer Changes the
Innovation Dynamic
The Sources of Competence is Changing
Enhanced Network of suppliers, Partners, Consume
rs
Business Units
Extended Supply Network
Corp. as a Portfolio Of Competencies
Pre 1990 1990 -
1995- 2001 -
46
The Meaning of Innovation is Changing
Customer Experiences Co Creation
Customer Specific Solutions
Product Innovations
Pre 1995 1995 -
2001-
47
We can Identify an Innovation Continuum
Enhanced Network Customers
Locus of Competence
Extended Supplier Network
Corp. As a Source
Build Sell Build Co
Create Products Solutions Experiences
Locus of Innovation
48
The Basic Transformation
The Firm
Suppliers
Channel
SCM ERP CRM
Nodal Firm
49
The New Game
N 1 R G
( Co creation of Personalized Experiences)
Multi-Institutional and Multi Geographic Access
to Resources
50
What is the Transformation?
1900 2000 2015
Focus Resources
Global Resource Access Consumers Mass
Mkt. N1
51
What is the Transformation?
1900 2000 2015
N1 R Global
N Undifferentiated Mass Market R Vertically
Integrated Firm
52
Implications for Global Firms
Software Intensity in Products/ services
Consumers As Co Creators DART
Building A Nodal Network Alliances
Real Time Configuration Of Resources
Micro-Billing And Auction Oriented Pricing
53
Implications for Global Firms
Software Intensity in Products/ services
Consumers As Co Creators DART
Managerial Models and Behaviors
Building A Nodal Network Alliances
Real Time Configuration Of Resources
Micro-Billing And Auction Oriented Pricing
54
Who is Influencing Whom?
Firm gt Consumer
Consumer Firm?

55
Drivers of Innovation and Growth The Next
Practices
Value Creation Space
The Fortune at the Bottom of the Pyramid
Global Restructuring Of Industries
The Future of Competition Co Creation of
Value
56
Value Creation Process The Changing Focus
Firm gt Consumer
Consumer Firm?
Top of gt Bottom Pyramid of Pyramid
Bottom of Top of Pyramid Pyramid?
Dev. gt Developing Countries Countries
Developing Developed Countries Countries?
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