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Meet Vijay Govindrajan, VG to the world.      


Widely regarded as a leading expert and thinker on strategy and innovation, he is the Earl C. Daum 1924 Professor of International Business at the Tuck School of Business (Dartmouth).  More relevant from a personal perspective, he was my Professor at IIM Ahmedabad, first year, first trimester, Managerial Accounting, summer of 1974.  


While his accomplishments and awards are too numerous to list in a blog, two deserve a special round of applause.


First, Thinkers 50 recently awarded him the 2011 Breakthrough Idea Award for sparking a global conversation and challenge to build a $300 house (I was part of the effort), and ranked him number three in the definitive listing of the world's top 50 thinkers


Second, a 2-year stint as Professor in Residence and Chief Innovation Consultant at GE, led to a celebrated HBR article on reverse innovation, co-authored with Jeff Immelt and Chris Trimble, which recently culminated into a book - Reverse Innovation: Create Far From Home, Win Everywhere.


The book was launched globally on April 10, and it is where we pick up the action.  He very kindly agreed to visit with the readers of this blog to share his thoughts on Reverse Innovation and the key themes of his book.


VG, hearty congratulations on the Thinkers 50 award, the HBR article with GE's CEO, Jeff Immelt, and the book on Reverse Innovation, must be very heady times?


Thanks Gaurav.  Yes, heady and humbling times.  The book is the culmination of decades of research, but the reverse innovation journey is just beginning, gaining global momentum, as we speak. All that I can say is I am truly excited about the road ahead and the potential impact of reverse innovation thinking on the growth of multinationals in emerging countries.


Reverse Innovation - in a nutshell?


Historically, large multinationals, residing in rich, developed countries, innovated in their home countries, and then exported that innovation to the not so rich, developing countries.  Reverse innovation is exactly the opposite. Innovations are developed and adopted in poorer, emerging economies, and are subsequently adopted by customers and companies in richer, more developed economies.


A few examples please, to illustrate reverse innovation?


GE Ultrasound Machines - we discuss this example in the article and the book.  In markets like India, where more than 60% of the population lives in rural areas, without reliable sources of power, you can't have effective health care service models that rely on the patient coming to the hospital, you have to take the hospital to the patient.  Large ultrasound machines that are the size of appliances and cost between $100k to $500k are impractical and cost-prohibitive.  A light, portable, PC-compatible ultrasound machine, costing as little as $15k, was developed in India to help the local market meet its needs.  This equipment is now finding its way to developed markets - an example of reverse innovation.


Gatorade - is another fine example of reverse innovation; it's also the first case study in the book.  Quintessentially American, Gatorade actually has its roots in the treatment of cholera patients in Bangladesh and other South Asian countries.  To treat severe diarrhea caused by Cholera, patients were kept hydrated by giving them carbohydrate rich concoctions comprising of coconut water, carrot juice, and carob flour.  A centuries old tradition on that side of the world, it was a total shock to doctors trained in western medicine, who believed that putting carbohydrates in the stomachs of cholera patients would worsen their condition.  But as they say, results speak for themselves.  So, it was only a matter of time before the British Journal Lancet covered the story, and a doctor in Florida reasoned that if it is good enough to rehydrate unhealthy cholera patients, surely it must be good enough to rehydrate healthy Football players.   


In your book you state that Reverse Innovation requires a clean slate approach - interesting juxtaposition of words, slate and innovation - but that aside, please explain what constitutes a clean slate approach?


(Laughs) Yes, it is interesting, the juxtaposition of slate and innovation, now that you bring it to my attention.  By clean slate I mean that winning in emerging markets requires much more than geographic expansion, meaning it requires more than simply ramping up sales, distribution, and production.  I recommend looking at these markets with an entirely fresh set of eyes, with an intense amount of curiosity, supported by an abiding admission that the needs of these markets are different than those at home.  It will require rewriting the script, away from exporting innovations to emerging markets, to innovating in emerging markets.


You are not a big fan of the word - glocalization?


No, I am not, because at heart glocalization is still about exporting products.  Glocalization does not take into account the fact that the structure of markets and customer needs are fundamentally different in emerging markets, and hence require a set of "clean slate solutions." (Smiles, I smile too).


What do you see as the single biggest opportunity in the coming years for multinationals?


Emerging markets becoming more than nominal contributors to the sales and growth of multinational companies.  In the next 25 years, the single biggest opportunity I see for multinationals is customers moving from rich countries to emerging/poor countries - reverse innovation should make that possible.


Reverse Innovation is where you live, and Co-Creation is where I live - do the two intersect?


(Smiles) Is that a trick question?


Not at all! (I protest - though asking VG trick questions would be quite cathartic, given all the trick questions he asked us when he taught us Managerial Accounting).


Most definitely they do.  The $300 House initiative - you were part of that movement - it also received the Thinkers 50 Breakthrough Idea 2011 award - is an excellent example where Reverse Innovation and Co-Creation intersect.  In fact I would go one step further, they don't just intersect, they positively reinforce each other.  If the structure of markets and consumer needs are different, then so must be the architecture of solutions and customer experiences, a perfect set up for Reverse Innovation and Co-Creation to work with each other, and for end users and customers to collaborate in co-creating innovative solutions and experiences.


Could you share three key themes from your book for the benefit of busy executives who may not have had a chance to read it yet?  


Just three?


Yup, just three.


(Groans) Boy, you sure make it tough, Gaurav. (It's my turn to smile now).


I would say the three key themes are:


  1. You must innovate, not simply export, if you want to capture the mammoth growth opportunities in the developing world. 
  2. The stakes in emerging economies are global not local. Passing up an opportunity in the developing world today may invite formidable new competition in your home markets tomorrow. 
  3. Legacy multinationals must rethink their dominant organizational logic if they are to win in an era of reverse innovation.
Thanks VG - most gracious of you to have shared your time and thoughts.  Hope we can get together again soon for another round.


Absolutely, this was a lot of fun.  You know where to find me.


Have you been to an Innovation conference lately?  


Then you must have noticed a peculiar variant of the 20-80 rule at play!  


A handful of companies - Apple, Nike, P&G, GE, Google, Walmart - provide virtually all the fodder for industry examples and case studies.  Not just at one conference, but several.  Net result - we get to hear the same stories, with different spices and seasonings of course (depending on who's presenting), over and over again.  


Begs the question, do we really benefit by listening to stories and case studies of just the giants - majority of them from the US? Especially problematic in a global world, wouldn't you say?  Is nothing of consequence happening in other parts of the world?  


And then why do we only hear wildly successful case studies?  Is no one out there failing? Surely there have to be.  Just look at the plethora of articles in magazines like Harvard Business Review, Sloan Management Review, Fast Company, and Wired urging companies not be afraid of failure, and to learn from failure. 


I am ready, here - the guy with his hand raised - I am ready to learn from failure.  But how can I, if case studies dealing with failure and learning from failure are never presented?  


And what about the non-hall-of-famers?  "Unusual Suspects" (taking liberties with the famous line from Casablanca) tucked away in different parts of the world also have a lot to teach us. Korean companies, Turkish companies, Brazilian, Australian, and Malaysian companies; Indian and Chinese companies too, and not just Tata Nano and Baidu! Its time we heard their stories as well, and celebrated them, the way we celebrate Steve Jobs and Apple, and Jeff Bezos and Amazon.


In that spirit let's celebrate Hyundai, not unknown, but definitely short on conference exposure and attendee applause/recognition.


Cars carrying the Hyundai badge have made impressive sales and market share progress in the US, and have achieved market share leadership in growth markets like India.  In the eyes of an everyday auto buyer, the Hyundai line-up may lack the cache of a BMW, Cadillac, or Mercedes, but not when it comes to auto experts. They have been rewarding and recognizing Hyundai models for several years.


  • Earlier this year, the Hyundai Elantra was chosen as the 2012 North American Car of the Year, an award designed to recognize the most outstanding new vehicle of the year.  What made the award unique was that instead of being given by a single media outlet it was awarded by a coalition of automotive journalists from the United States and Canada who represent magazines, television, radio, newspapers and web sites.  This was not Hyundai's first trip to the podium - in 2009 the Genesis won, and the Sonata was one of three finalists last year.

If this is not enough, visit Hyundai's website, and click on Awards and Reviews.  The website provides a variety of awards not just for its car models, but also for its engines, emissions, green characteristics, and customer loyalty, in a variety of market segments.  Surely none of this would have been possible without healthy investments in innovation, and a few (or several) false starts. So, let's hear from Hyundai. 


Even in the area of collaboration and co-creation Hyundai has a lot to share.  


  • In Feb. 2009, Hyundai partnered with Passenger, the technology leader in on-demand Customer Collaboration, to create the "Hyundai Think Tank," a private online community for Hyundai owners, to help shape and co-create the future of the brand.  Several interesting initiatives have been co-created with the help of this community, notably the Hyundai Assurance Program.


  • More recently, to usher in its new "breaking-the-mold" compact car, the 2012 Veloster, Hyundai launched an ultra-creative co-creation project.  Called Re:Generation, 5 DJs - Premier, Mark Ronson, Skrillex, Pretty Lights and The Crystal Method - turn the tables on the history of music as they collaborate, co-create and reimagine five traditional styles of music, from the classical perfection of the Symphony Orchestra to the bayou jams of New Orleans jazz.

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Simultaneously, Hyundai has also launched a global co-creation challenge on eYeka, a co-creation challenge platform, to echo the spirit of the Veloster- a groundbreaking car that challenges all preconceived notions of what a coupe should be. Hyundai is inviting participants to demonstrate how new thinking can challenge conventions for the better and how new possibilities can be created in life, through 30-60 seconds video/animation or illustration. 

This is rich material that would stimulate and inspire virtually any professional engaged in innovation and co-creation.  I am sure there are others out there, equally brilliant and creative as Hyundai.  Can we hear and learn from them?

Hope you are listening dear conference organizers and presenters.  Please give us more than just the "usual suspects."  In turn, we promise to turn off our smart phones, our i-everything, and stay glued to our seats!

Merci beaucoup!






UPDATE: I've posted an entry on the $300 House on the Harvard Business Review site: The $300 House: The Co-creation Challenge >>

One of my professors, the late C.K. [Prahalad], used to say that "managers are so preoccupied with operating efficiently that they don't even think about value in terms of the consumer's experience."

Sadly, despite all the brouhaha about customer-centricity, most companies still operate in a highly product-centric manner.   The difference between the two approaches, using C.K.'s words follows:

The traditional company-centric view says: (1) the consumer is outside the domain of the value chain; (2) the enterprise controls where, when, and how value is added in the value chain; (3) value is created in a series of activities controlled by the enterprise before the point of purchase; (4) there is a single point of exchange where value is extracted from the customer for the enterprise.

The consumer-centric view says: (1) the consumer is an integral part of the system for value creation; (2) the consumer can influence where, when, and how value is generated; (3) the consumer need not respect industry boundaries in the search for value; (4) the consumer can compete with companies for value extraction; (5) there are multiple points of exchange where the consumer and the company can co-create value.


All is not dark and bleak of course.  Several countries, cities, companies, and nonprofit oranizations are beginning to take the initiative to collaborate with their customers to co-create value in fields as diverse as healthcare innovations (Norway), improving the quality of life of 50+ year olds (Scotland), Swasthaya Chetna; Hindi for creating health awareness (Hindustan Lever), and Crashing the Super Bowl (Frito-Lay).   

In my new book, I devote an entire chapter to co-creation beyond the business world.  I share case studies of how the new platforms of customer collaboration and co-creation can be applied equally effectively beyond the business world, to drive collaborative innovation efforts in fields such as education, health care, energy, alleviation of poverty, and sustainability. The consumer-centric view is gaining momentum in non-business environments as countries, regions, and cities experiment with collaboration to co-create more promising futures for their people and the environments in which they live.

One example of a project which will be using co-creation at the bottom of the pyramid is the $300 House (disclosure: I'm an advisor).

$300 House for the Poor


The project, which came to life based on the remarkable response to a blog entry in Harvard Business Review, will take into account customer needs in various countries - from Haiti to India and the Philippines.  I don't expect to see a single house design emerge, but rather a variety of local designs - each designed to meet local needs.

How do you engage the customer at the bottom of the pyramid?  By spending time with them, and understanding their experiences, challenges, and frustrations as they tackle everyday tasks and chores that so many of us take for granted. Or like A.G. Lafley was fond of saying - by doing your laundry in 25 countries! 

Let's just pause for a moment to acknowledge that your company's customer of the future may well be at the bottom of the pyramid.  You would be well advised to adopt a customer-centric mindset and develop a system of initiatives to engage her.
book_medium.gifCome October, Springer will launch my new book, Collaboration and Co-Creation: New Platforms for Marketing and Innovation.  In this blog post, I'd like to briefly introduce the book - what motivated it, its structure, and essence.  I'd also like to take this opportunity to recognize and celebrate my collaborators.


It's a rare day when some media personality or academic guru doesn't proclaim - this is not your father/grandfather's economy!  It isn't. The reason it isn't is because the ethos (defining characteristics) of today's world is different.  Several C's and a T; connectivity, creativity, collaboration, community, and technology, especially the Internet, best capture the ethos of the world we live, play, and work in.  At the center of this maelstrom lies a new and empowered customer that best exemplifies this ethos in motion.


Companies today are dealing with a new type of customer; one that is more educated, better connected, and infinitely more creative and resourceful than at any time in the past. Today's customers expect to be heard; they are unwilling to be mere consumers, passive and invisible at the end of a long value chain - instead they want to be collaborators and co-producers of the products and services they consume.  They don't want to merely watch TV reports on Haiti's earthquake, they also want to report on it and use their social media skills to mobilize aid.  They don't want to merely watch the Super Bowl game, they also want to win Frito Lay's "Crash the Super Bowl Ad Contest" by creating ads for Doritos.  They don't want to merely moan and groan about Dell's lousy customer service - been there, done that - they also want to shape Dell's customer service and product innovation priorities by participating in its IdeaStorm community.   


Consequently, customer collaboration and co-creation is a hot item on the strategic agenda of most companies.  They have been fired up by books like Wikinomics, Here Comes Everybody, Crowdsourcing, We-Think, etc., that applaud and celebrate the rise of the empowered customer.  They hear pundits urging them to rethink the way in which traditional firm-centric activities like marketing and innovation should be implemented to win the empowered customer's business.


But for most companies the key question is how?  There is little out there to help them migrate from applause to implementation.  What does a company do after it gets all excited and motivated about collaborating with customers?  How does it engage them in re-shaping its marketing and innovation efforts? A few market leaders, like Unilever, IBM, Hallmark, and Audi have figured it out.  But the majority of companies are still huddled at the starting line debating how best to implement collaborative innovation programs.


About the Book


Collaboration and Co-Creation helps bridge this gap.  Using a simple and easy-to-understand framework, Listen-Engage-Respond, and numerous case studies from around the world, the book helps readers shake hands with a core set of thinking and action tools for implementing collaborative innovation programs in their own companies.  It nudges readers to view collaborative innovation as a business process that can be systematically designed and implemented, not as some spontaneous, self-organizing outburst of periodic customer benevolence.  The book was written with a show, don't tell mindset.   Hence the emphasis on sharing, discussing, and guiding using a variety of business and non-business cases, examples, and stories, so as to make the content eminently readable and interesting.   


Collaboration and Co-creation is a compact eight-chapter book.    


  • Chapters 1 and 2 set the stage.  Using case studies like the creation of the Oxford English Dictionary, birth of mountain biking, open source software, and Hallmark, chapter 1 discusses the evolution and dissemination of collaborative innovation in contemporary businesses.  Chapter 2 presents the Listen-Engage-Respond framework and illustrates it with case studies involving the Phoenix Suns and Unilever's Marmite.
  • Chapters 3 through 6 provide an elaboration of the Listen-Engage-Respond framework.  They discuss each of the legs of the framework, once again liberally supported with a large number of short (a few paragraphs) and regular (a few pages) case studies.  A few examples being - Barak Obama's election campaign, International Flavors and Fragrances, Nike, Audi, Blizzard Entertainment, Nokia, P&G, Frito Lay, NASA, Ellen Degeneres, and the Susan G. Komen Race for the Cure.
  • Chapters 7 and 8 aim to end the book on an emotional high.  Chapter 7 discusses the implications of becoming more open and collaborative on traditional firm-centric activities like marketing and innovation.  Supporting examples and case studies drawing on the experience of Unilever, Crayola, IBM, Sun, and Ubuntu are provided to help support the discussion.  Chapter 8 takes the reader on an eclectic journey beyond the business world.  Using examples ranging from the country of Denmark, to a clinic of innovation in Norway, to IBM's innovation jams, the chapter discusses how the Listen-Engage-Respond framework is just as effective and relevant in co-creating value in the fields of education, healthcare, economic growth, and global welfare, as in co-creating advertising based on UGC (user-generated content).


The book's Foreword is by Mr. Paul Polman, CEO of Unilever.  Leading business executives and thought leaders from the academic and consulting worlds, like Vijay Govindrajan, Nicolas Mirzayantz, Jacob Buur, Vince Barabba, John Hagel III, and Steve Howe, who had a chance to review the content before it went to print, have provided their insights and frank assessment of the book's framework and ability to foster customer-centric transformation.  We hope you will find it just as useful in leading customer-centric transformations in your own companies.


Collaborators


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Writing a book is seldom a solo endeavor; it is always a team event.  Collaboration and Co-creation is no exception.  I would like to acknowledge and celebrate Deanna Lawrence and Gabriela Head's valuable contributions to researching the myriads of cases and examples that breathe life into the book's content and their participation in triggering and writing various chapter drafts.  



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This collaboration has a very compelling underlying story that deserves to be shared.  Deanna lives in Michigan, Gabriela in Arizona, and I in Virginia.  I have known and worked with Deanna for several years, so working remotely with her was not a big deal.  But till today, one book and hundreds of calls later, I have yet to meet Gabriela.  And barring a two-hour meeting over a cup of coffee while in Arizona to attend a wedding, well after approximately 70% of the book was written, neither does Deanna have any previous history of working with Gabriela.  Needless to add, we are working hard to synchronize intent and calendars so we can all be in one place and toast the launch of the book in October.     


As the famous line in the classic short story - Face on the Wall - states, truth is not only stranger than fiction, but also greatly more interesting.  Yes, it is true, honest and productive work relationships can flourish, despite time and distance barriers.  They merely need a steady and constant infusion of trust and commitment.  Make no mistake, though, it is difficult, but infinitely rewarding.  I was not surprised at all therefore to learn that the latest "Richard Beckhard Memorial Prize" for the best article published in 2008-2009 was awarded by the editors of Sloan Management Review to the article  - How to Manage Virtual Teams.  Folks, if anyone is looking to do more research on this subject and needs first hand experiential data, please talk to us.  We will be happy to tell all!


In the coming weeks, I intend to feature interviews with companies and individuals who shared their stories with us and also provide more details on selected aspects of the book.  Stay tuned!

In Rethinking Marketing: From Marketing Products to Cultivating Customers my co-authors and I wrote about how companies must make products and brands subservient to long-term customer relationships.  We also made the point that for ongoing customer value innovation to become a part of the DNA of the organization, it is important that the company move from an internally focused concept of customer value creation, to a more open, collaborative model of co-creating value with customers and other key stakeholders.

In much the same way, I'm more convinced than ever that we must rethink the purpose of modern businesses.  As the global financial crisis has so bluntly shown us, "maximizing shareholder value" is no longer a sustainable purpose for business.  We doubt it ever was.  But back then, Jack Welch was preaching the gospel and companies were lapping it up.  Interestingly, even Jack Welch is no longer singing the "maximize shareholder value" song. 

This is the age of consumer capitalism and the triple bottom line.  The new gospel is people, planet, and then profits.  Near term thinking that just does good for the company without consideration for the environment, or the social social systems that a company operates in, is not a responsible option!    

So where should we look for new role models? 

Across the border to the north, and across the Atlantic to the sub-continent.

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Recently I read an article describing Ratan Tata's visit to Canada to deliver the first Thomas Bata Lecture on Responsible Capitalism.

The late Thomas Bata and Ratan Tata, and their corporations have a lot in common.  They epitomize socially-conscious leadership

The Tata story has been well covered in this article, which sums up the vision as follows:

Since its founding in 1868, Tata has operated on the premise that a company thrives on social capital (the value created from investing in good community and human relationships) in the same way that it relies on hard assets for sustainable growth. With every generation, Tata's executives and managers say, they have nurtured and improved their capability for "stakeholder management": basing investments and operating decisions on the needs and interests of all who will be affected. For Tata, this means shareholders, employees, customers, and the people of the countries where Tata operates -- historically India, but potentially anywhere.
These are not platitudes. Tata has won the goodwill of the people not by talk, but through action. Key decisions are based on the impact on society.  The company's humanitarian actions, for both employees and non-employees, following the dastardly November 2008 terrorist attacks on the Taj hotel are well documented, and have won raging applause from even the most anodized critics of business. 

People first, business second.  Both Bata and Tata teach us that it is possible to be a global powerhouse without sacrificing one's soul.  It is not necessary to separate social good from business well being, as so many companies do.

Dartmouth's Professor Vijay Govindarajan explains the Tata Nano as a social innovation:

Through his actions in the Tata Nano project, Ratan Tata has demonstrated that capitalism can have a soul--the profit mission and the social mission do not conflict and can, in fact, be pursued simultaneously. 
Increasingly, we are going to see businesses doing well by doing good, a philosophy that guides thinking and decision making at Unilever. In a recent discussion, Harish Manwani - President Asia, Africa, Eastern and Central European Regions at Unilever - shared that for Unilever value co-creation was not just collaborating with customers, it is collaborating with the interlinked ecosystems that the company operates in.  According to him, this passion and commitment to doing well by doing good, is the reason why the Dow Jones Sustainability Index has rated Unilever as the best company in its category for ten years running. I intend featuring more of the Unilever social responsibility story in my forthcoming blogs.

Social good and company well being can co-exist, as the examples of Bata, Tata, and Unilever demonstrate.  They should not be divorced from each other any longer. The people and the social systems they live in are both customers of the company.  The paramount purpose of modern businesses should be more than just "Do No Harm."  Rather it must be "Do Long Term Good for All."
Recently, I had the pleasure of being introduced to ICFAI University, one of India's leading educational institutions, recognized for its skills in developing innovative educational programs and writing insightful case studies.  It is also a leading publisher, 18 magazines and 46 journals, in areas such as marketing, finance, environment, and health care.

effectiveexecutive.gifEffective Executive is the flagship magazine of the University.  Started in 2000 and published monthly, it features articles on topics like marketing, strategy, sustainability, and innovation.  Every issue also features interviews on these topics with experts.  In the recent past, the magazine has interviewed globally renowned experts and intellectuals, like Philip Kotler, Michael Tracy, Pankaj Ghemawat, Vijay Govindarajan, and Dr.A.P.J.Abdul Kalam, a renowned nuclear scientist, and former President of India.

The magazine's latest issue is dedicated to the theme Co-Creation: the New Frontiers of Competitive Advantage.  The issue features an interview conducted with me on my HBR article and on co-creation

I would like to share two key topics covered by the interview.  The first deals with the nature of co-creation, and the second with the difference between customization and co-creation.

Understanding co-creation

Often, the more people use an expression, the less certain we are what they really mean by it.  It's as if usage guarantees understanding, and more frequent usage guarantees deeper understanding.  But that's not true.  Take expressions like Web 2.0, the new normal, or sustainability.  People don't often explain or use these terms the same way. 

In the interview, I explained co-creation not by defining it, but by decomposing it, to better explain its features and characteristics. 

Co-creation, as currently used in the business and marketing world, has a very specific meaning.  Rather than present a definition, my preference would be to explain co-creation by decomposing it, so we can better understand its characteristics.  First, co-creation, represents interaction, and takes place between one or more firms, and one or more actual or potential customers.  Second, this interaction is willing, purposive, and intentional.  Third, this interaction is managed, either by the firm, or jointly by the firm and its customers.  Fourth, the output of this interaction results in value for both the firm and for its customers.  Lastly, the value created for customers may or may not be unique, and is derived through a variety of experiences, such as suggesting ideas, refining current value, designing new products, improving current designs, fixing defects, and consuming new products and services.

Customization and Co-Creation

I've blogged on this topic before when I interviewed Page Moreau.  But its worth revisiting, since the two words are often used interchangeably, giving the impression that the two concepts are the same.

There is no doubt that in specific cases there is a blurring of boundaries, but customization and co-creation are not the same.

Let me answer the last part of the question first - do boundaries between customization and co-creation get blurred?  Yes, they do.  Part of the reason is that researchers and authors who introduce these terms are not always diligent in defining them, and differentiating them from other similar terms.  Let me illustrate this for you with an example.  Take a men's clothing company like Paul Fredrick, that sells its offerings through a catalog.  If you want to order dress shirts, you have two options.  You can either buy the color and pattern you prefer, in your size, based on all the shirts displayed in the catalog, or you can order a custom shirt.  Customization allows you to mix and match the fabric, collar and cuff styles, fit, pleat style, pocket, among other things!  But wait, there's more.  You can also have the shirt personalized, by having your initials monogrammed in several different styles, in different colors, on either the cuff, or the pocket.  Customization, personalization, or both! But is it co-creation?

What is important to realize is that customization and personalization are possible only within the boundaries of choices offered by the company.  To go back to the shirt example, the only way I can order a shirt with kurta sleeves (an Indian style shirt with tubular sleeves) is if the company offers that option.  If the company does not offer that option, then all that I can do is pick from the sleeve styles offered.  This is in sharp contrast to co-creation.  If the shirt were being co-created, then all options would be on the table, including kurta sleeves, because the starting point would be a blank canvas, not a menu of predetermined options and styles.

I am sure I'll blog again on the similarities and differences between customization and co-creation.  We owe it to ourselves to keep our thinking fresh and focused. 
Cogito ergo sum - one of Descartes's most famous legacies - loosely translated as, I think, therefore I am.

Peter Drucker had a similar way of introducing himself - I write - is how he used to introduce himself.  What Peter should have really said was - I think and I write, and I don't know which one comes first.  An interesting chicken and egg problem, but not one you lose sleep over, especially if your writing borders on the prolific, and your thinking can stand the test of time!

November 2009 marked the 100th anniversary of Peter Drucker's birth and we should celebrate it.  Universally acclaimed as a great management thinker and business guru, for over 50 years, from the early 1950's to the early 2000's his provocative and often controversial ideas dominated the business world. 

The management kingdom is rediscovering him and finding him to be just as relevant as he was all those years ago. 

druckersbrain.jpgHBR ran a special issue on Drucker in Nov. 2009 - asking What Would Peter Drucker Do?

Books like Inside Drucker's Brain are attempting to make him and his cutting edge thinking more accessible.  

Paradoxically, in the West, where he made his greatest contributions, he is all but forgotten, pushed aside by gurus du jour.  On the other side of the Atlantic, Drucker societies are still alive and flourishing.  They assemble routinely to discuss his work and learn from his teachings.

It is impossible to compress a sixty-year career comprising over thirty books that have sold over 5 million copies and scores of articles, including some HBR classics, in a page or two.  So, how about we take inspiration from Hollywood and present instead a 90 second trailer on the World according to Peter Drucker.

His signature idea - Management by Objectives; still relevant, especially as companies flounder with direction and purpose. 

His committed and unwavering focus - the long term health and well being of companies, not short-term hits.  He rarely blamed individuals, maintaining that it was always the underlying systems that were the root causes of failure.  He believed organizations should constantly challenge their design and operations; he saw this as the key to long-term well being.

His favorite questions - What is your company's ultimate purpose? Who is the customer? What is your mission?  What is it you should continue to do?  What is it you should stop doing? Where has the obsession with the short-term undermined long-term effectiveness? Why aren't some younger people in the company earning more than the Directors?  

His passions - writing, context-bound thinking, integrating ideas, processes not outcomes, urging companies to innovate and create the future, long-term corporate well being, nurturing future stars, and of course - the CUSTOMER!

What did A.G. Lafley, ex CEO of P&G, learn from Drucker?

In A.G.'s own words:

Over the years, I learned many things from Peter, but far and away the most important were the simplest:

  1. The purpose of company is to create a customer.
  2. A business is defined by the needs, wants, desires a customer satisfies when buying the company's product or service.
  3. To satisfy the customer is the most important mission and purpose of every business.

No presentation of Peter Drucker's work is complete without sharing some of his memorable quotes and brilliant observations.  A very brief, you might even say self-serving, sampling related to marketing, the customer, and innovation follow.   

  • Because the purpose of business is to create a customer, the business enterprise has two--and only two--basic functions: marketing and innovation. Marketing and innovation produce results; all the rest are costs. 
  • The customer rather than the manufacturer defines a market
  • Of course innovation is risky.  But so is stepping into the car to drive to the supermarket for a loaf of bread.  All economic activity is by definition 'high risk.' And defending yesterday - that is, not innovating - is far more risky than making tomorrow.
Paraphrasing Drucker and taking a few artistic liberties: since customers define markets, and market creation should be the fundamental focus of a company, and innovation is the primary fuel that drives this market creation - then what better world to be thinking, writing, and consulting in, than customer-driven innovation!

Happy 100th Peter!  You are not forgotten.

We are being constantly reminded, by scholars, practitioners, and journalists, that today's individuals and business organizations live in a highly networked, interactive, and collaborative world. 

This new reality has given rise to new customer behaviors, and to entirely new vocabularies.  The consumer is dead, long live Prosumers, Trysumers, and several other forms of  - - - sumers yet to be born.

  • Prosumers - today's customers are both producers and consumers; i.e., they are not just consumption machines, but also contributors and co-creators of unique value

  • Trysumers - consumers immune to most advertising, who enjoy full access to information, reviews, and navigation, who love to try out new products and services - appliances, artists, outfits, food, holiday destinations - new "anything", with post mass-market gusto
Despite this daily dose of revivalist thinking, several companies approach their customers and markets as if they were still stuck in the 1960s; an era of impersonal transactions with the customer, relying on everything "mass" - mass markets, mass media, and mass undifferentiated value.  For these companies, Marketing is still a one-way street, where companies do the talking and influencing through their advertising, and customers do the listening and consuming; passively at the end of a long invisible value chain.

There is something wrong with this picture and it needs fixing.  What is wrong is that most companies are still set up to market products.  That needs fixing.  Companies must transition from marketing products to cultivating customers! 

hb.gifIn the January-February Harvard Business Review article - Rethinking Marketing (download here) - my co-authors (Roland Rust, Christine Moorman) and I discuss how companies must shift their focus from driving product-centered transactions, to building long-term relationships with customers by offering whichever of the company's products the customer values most at any given time. 

This can only be done if companies make products and brands subservient to long-term customer relationships.  And that means - reinventing the marketing department altogether.

The essence of reconfiguring marketing as a customer department is captured in this diagram:

hb_dia.gifThe traditional marketing department must be reconfigured as a customer department that puts building customer relationships ahead of pushing specific products. To this end, product managers and customer-focused departments report to a Chief Customer Officer instead of a CMO, and support the strategies of customer or segment managers.

Two key implications of this reconfiguration need additional emphasis:

  • First, reconfiguration is not merely drawing a different looking organizational chart, with different sounding titles.  It is a fundamental shift in allocating, sharing, and managing resources - people, budgets, and information.  This has implications not only for which tasks get priority and how they are executed, but also for who is the best person to execute them.  For instance, since the role of the customer manager is the ultimate expression of what marketing should be - cocreating unique value with and for specific customers - we expect them to approach their task more like consumer anthropologists and behavioral scientists (see my post on A.G. Lafley), as opposed to advertising or promotion specialists.

  • Second, in this reconfigured world, being able to offer relevant consumer value at all times becomes a key driver of business success and profitable growth.  For ongoing customer value innovation to become a part of the DNA of the organization, it is important that the company move from an internally focused concept of customer value creation, to a more open, collaborative model of co-creating value with customers and other key stakeholders.  Integrating R&D into the customer department will go a long way to ensuring that the customer remains at the center of all value creation activities.
A migration from marketing products to cultivating customers will also require a shift in metrics to gauge the effectiveness of a company's customer-focused strategy.  We discuss four new ways of thinking about business success in this customer-led world of marketing:

  • Focus more on customer profitability, less on product profitability
  • Customer Lifetime Value (CLV) thinking should trump maximizing current sales thinking
  • Customer equity - the sum of all CLV's of a company's customer base - should replace a brand equity orientation  
  • Companies should pay more attention to customer equity share, and less attention to market share
I hope you find the article relevant, interesting, and useful.  If you're having similar discussions in your own organizations, please share them with me.  I'd love to start a conversation with you on how we need to rethink and reinvent the fundamental focus of marketing.

DOWNLOAD: Rethinking Marketing, by Roland Rust, Christine Moormon, Gaurav Bhalla, Harvard Business Review, January-February 2010.  

The American Marketing Association (AMA), Decision Strategies International, a global consultancy specializing in scenario planning, and a group of marketing leaders from industry and academics recently completed a project on the role of marketing in 2015 - Future of Marketing in 2015 - an American Marketing Association Special Report.


After nearly a year of secondary research, a survey of business and consumer marketers, and workshops with marketing leaders, the AMA developed four possible future states in 2015 and their potential impact on marketing in the organization.  These scenarios are presented below.  For each scenario, the project also created thumbnail sketches of key goals and objectives of professionals operating in each scenario.  


The four scenarios and the CMO archetypes for each scenario follow:


future1.gif


CMO Archetypes:

future2.gif

While the effort of the AMA to peer into the future is laudable, I am personally very troubled by the output, and the lack of emphasis on some fundamental game-changing trends like customer collaboration, value co-creation, customization, and open systems thinking.  

A useful tactic in evaluating the output of a future oriented undertaking is to study the inputs used.  The report states that the scenario building process began with an identification of forces that might shape the role of marketing between now and 2015.  The key issues and trends identified were:

  • Shrinking world, expanding relationships - increase in globalization and technology integration
  • Rise of new class, BRIC by BRIC - creation of new consumer markets
  • Innovation or Invasion - push back due to micro-profiling and and behavioral targeting
  • Command and Control becomes Cultivate and Create - two way conversations providing valuable information for new products/services offerings
  • Channel Convergence and Consequence - traditional media continues to be challenged
  • Talent Turmoil - increasing competition for valued skills and competencies
  • Pressure to Prove - Marketing is persistently challenged to prove strategic value and bottom line contribution.
Only one of the above inputs - "command and control becoming cultivate and create" - comes close to addressing how the concept and dynamics of value creation are changing.  What could be more fundamental than the identification, creation, delivery, and nurturing of customer value?  Yet not one of the archetypes presented above is obsessed with it.  

The Future of Marketing should be a paradigm shift, not a straight line extension of Marketing's current focus with selling, promoting, and packaging.  Even more disappointing is that the above scenarios and archetypes do little to move Marketing from its current inward product focus to a more outward customer orientation.  

Marketing needs a bolder different future, one that is obsessed with customer value creation.  This bolder future can't be achieved by a functional focus alone, no matter how cleverly worded - network integrator, sales facilitator, etc.  Because Marketing is not a function, it is a business orientation that shapes how a company creates long term, sustainable value for customers, for society, and for itself.

The Future of Marketing can't lie in peddling influence and shouting brand superiority.  It must lie in making investments in consumption ecosystems, of which the company is only one small part.  For the future of marketing to be viable, it must part ways with its incarnation of today.  The scenario that is personally most exciting to me is one where an obsession with customer value makes marketing as we know it today obsolete and unnecessary!

That indeed would be a bright new future.
pagemoreau.jpgPage Moreau is an Associate Professor of Marketing at the Leeds School of Business at the University of Colorado in Boulder.  She obtained her Ph.D. In Marketing from Columbia University.  Her research interests span the areas of customization, value co-creation, innovation, and customer collaboration.  Her 2005 paper: Designing the Solution: The Impact of Constraints on Consumers' Creativity, received the best paper award in 2008.  No that's not a typo.  Academics like ideas in papers to ferment before they recognize them! 

I met Page a few years ago at an MSI conference on Innovation.  We met again in June this year at yet another MSI conference at which she presented some of her ideas on customization.  I thought the blog's readers would be interested, so I invited her for a conversation, to share her thinking, and she most graciously accepted.

Page, let's start by examining the relationship between Co-creation and Customization.  Are they related?  

Co-creation is the bigger concept.  Any time you involve customers in the creation of value for themselves and for the company, you are in the realm of co-creation.  It spans the entire range from idea generation to product development to post-purchase occasions, like usage and consumption. 

And Customization? 

Customization is a sub-set of co-creation.  In majority of the cases, when people speak of customization, they are referring to mass customization, where the emphasis is on feature or attribute customization.  A classic example being Dell - customizing PCs.

However, that's only part of the picture.  Customization is more than just feature customization.  Companies can do more.  For example, companies can customize customer experience touch points, like web sites, user interfaces, and personal services.  

Beyond the obvious benefit - I like it more - what are the key benefits of customization you have observed in your research?  

As you rightly say the most obvious benefit is generating higher customer preference.  But there are other equally interesting benefits.  Take the case of products that can be publicly displayed.  Customization give consumers the power to express their identities, what they value, and what their values are.  A person who uploads the photo of an endangered specie on a coffee mug, like the Polar bear, is deriving a very different benefit and signaling a very different identity than a consumer who uploads the photo of a Parent.  

In the context of gifts, the benefits of customization are equally interesting.  Being able to customize a gift signals some level of effort undertaken by the giver, leading to both the giver and the recipient deriving greater value from the exchange, not just the receiver.  

But can't this backfire.  Can't customization sometimes be intimidating, as when you receive a very elaborate, heavily gold embroidered, wedding invitation card?  

It could.  There is the obvious signal of feeling that I am important enough to have received this elaborate invitation.  But then there is also the added stress - what should I wear, what would the reception be like, should I brush up on my dancing skills, what gift should I give, how expensive should it be?  I guess all that could be intimidating - would vary though from person to person - how much the person values the signals associated with customization and its implications for self-worth and self-identity.  

Do the benefits of customization hold across different product categories or are they limited in their scope?  

Interesting question!  This has not been explored extensively and would actually form an interesting research agenda.  Let's go back to our staple - signaling and signal value.  Technically speaking customization could be more valuable in the case of products and services that are publicly consumed; because there is a greater ability to communicate self-identity.  

But then how do you explain a customized Michael Graves toilet bowl brush?  No public display there, at least I hope not!  There will always be exceptions.  But I think that the benefits of customization hold across different categories - but we clearly need more rigorous thinking here.   

What about the relationship between customer-centricity and customization?  Can one exist without the other?  

I thought we had an agreement Gaurav.  Only easy questions!  

First, we need cleaner definitions.  I guess customization could be one way to characterize customer-centricity.  But where does it say that all customization has to involve the company's product or service?  If customer-centricity is being sensitive to customers' ideas and inputs, then that sensitivity can be reflected in one's advertising, or packaging, or customer service.  I think there is an asymmetry here: 
  • a company can be customer-centric without customizing.  But it would be difficult to argue how a company is not customer-centric if it is willing and able to customize its products and services. 

Finally,    - - - 

Sorry, one more thought - my guess is that as customization increases, meaning more companies customizing their products and services, the demand for customization will increase, because customers' expectations will increase.  

Which brings us to an interesting and provocative question - will the pulling power of brands decrease as customization increases?  Will brands begin to mean less? 

Who are the leaders of the pack when it comes to customization - best in class, so to speak? 

Tough question again.  The best way to answer that question is by simply saying those who are the most successful at it.  Companies like Dell - functional customization; Nike - aesthetic customization; and Timbuk2 - flexible manufacturing.  

Thanks Page for sharing your thinking on customization and its relation to co-creation with a larger audience.  Hopefully, more readers will be motivated to experiment with and execute customization and co-creation programs.

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