No matter the industry, the co-creation of value is a hot topic. Marketing specialists swear by it, manufacturers and service providers try to integrate it into their innovation practices, and researchers study it. Value co-creation happens within networks and enables individuals, groups, and organizations to connect, collaborate, solve problems, and satisfy heterogeneous needs and expectations together.
In this blog post, we explore what value co-creation is and how it can boost your innovation process significantly. Let's dive in!
What is Value Co-Creation?
Value co-creation is a specific type of collaboration considered to be an innovative and interactive process between customers and organizations that aims to increase the value of a product or service.
What differentiates value co-creation from other implications of open innovation management is that all of the stakeholders typically aim to ensure that each party benefits from the relationship. Value co-creation stands as a testament to the power of collective ingenuity and its capacity to foster growth, loyalty, and mutual success.
Why Innovate Through Value Co-Creation?
Value can no longer be solely produced by innovators, but rather is jointly created by supply and demand. The former offers the frame and resources for the co-created value, and the latter makes their needs and expectations explicit and shares their knowledge on how to satisfy them. Furthermore, supply is not only the one organization that eventually launches the innovation on the market but the whole network of stakeholders that contribute to the development and implementation of the innovation itself.
Procter & Gamble, for instance, has made co-created value the core element of its innovation strategy and management practice, by implementing an open innovation approach that involves most of its stakeholders, including customers, in its innovation chain.
Nevertheless, while value co-creation is potentially beneficial for all its members, bringing together diverse stakeholders leads to potentially divergent goals and interests, communication difficulties, distrust among stakeholders, and conflicts over value appropriation.
Fostering Co-Created Value in Innovation Networks
Effective management of innovation through value co-creation relies on the sustained engagement of individual stakeholders over time. As they become more familiar with each other, develop inter-organizational trust, and learn how to best identify the needs and expectations of all parties, they are able to create interactions that are more comprehensive and meaningful. This allows them to strike a balance between the needs and expectations of all parties and arrive at optimal solutions.
To achieve this, the original network leader should identify and actively involve potential stakeholders from the earliest steps of the initiative development. In other words, stakeholders should be invited to help shape the network to contribute to its characteristics, values, vision, and mission. For instance, this can be achieved by actively involving frontline employees of service providers in the innovation process.
In a study on a Dutch innovation platform for facility management services, I saw how having monthly innovation meetings with frontline employees, such as cleaners and caterers, allowed to uncover day-to-day practices. In turn, a better understanding of operational tasks and processes implies a better understanding of the needs and the demands, which is crucial to developing innovations that can better serve their demand.
Moreover, the ongoing interactions with front-line employees created empowerment and a sense of belonging that pushed them towards contributing to innovation with new ideas and increased their loyalty to their organizations and also to the other stakeholders in the innovation platform.
At the same time, stakeholders can have different expectations and attitudes toward the complex network so the network leader should encourage them to be transparent about these differences, as they can be used to create sub-groups of actors. Eventually, the network can select, apply, and modify tools and methods to facilitate the interaction and contribution of stakeholders depending on the circumstances and the platform’s development over time.
Another way to engage stakeholders in the innovation and value co-creation processes is to provide resources and build structure and processes that allow all parties to integrate these resources with their own. This includes, for example, working together with suppliers and distributors to develop an appropriate infrastructure for the network.
Research shows that within a network that connects diverse stakeholders aiming for open service innovation, value co-creation does not happen right away – rather, it emerges during the expansion of the network when the network owner uses it to stimulate stakeholder interaction. In this context, innovation in the network starts with building the support infrastructure. Then the focus is on building relationships among stakeholders. Finally, trusting and empowered stakeholders alternate themselves as network facilitators across the development of the network by launching and guiding value co-creation activities.
In the Dutch innovation platform, co-creation consisted of a combination of activities and progressions that allowed the network and its individual participants to co-create through progressive learning and stakeholder relation development.
On top of the monthly meetings with the front-line facility management employees, all participants ran the platform collaboratively. Management representatives of each stakeholder involved in the platform met four times a year for strategic evaluation and planning. The agenda for these meetings included in plenum discussions and group work and was simple yet effective:
“What have we achieved since the last meeting? Where is the potential for innovation given the current circumstances? Who will be in charge of the different innovation initiatives?”
Three Ways to Achieve Shared Benefits Through Co-Created Value
Overall, a network of stakeholders collaborating to manage innovation openly can co-create value over time through:
- Adaptable structure for the network to organize innovation activities and establish support routines;
- Facilitated interactions to support stakeholder relation development;
- Participants’ self-empowerment.
Let's explore each way in more detail:
1. Adaptable structure
Adopting a structure and set of routines that all actors agree upon uncovers the needs, expectations, and backgrounds of the different stakeholders. This reduces complexity in the relationships across the network, as the different parties learn how to interact with each other over time.
At the same time, using participatory and open-ended innovation activities and support routines allows the network to keep the structure flexible. In doing so, the network can easily adapt the structure of the platform when circumstances change.
2. Facilitated interactions
Through the organization of innovation activities, the network can ensure that stakeholders interact on a regular basis by establishing opportunities for stakeholders to meet, share knowledge, and cooperate. While these activities should aim at value co-creation, the recurrent interactions also create the ground on which to build up inter-organizational trust on mutual commitment, common goals, dialogue, and shared interests.
However, differences in the needs and expectations of the different parties can sometimes lead to a lack of transparency, information asymmetry, power games, and opportunistic behavior. In these situations, recognizing the potential downsides and acting upon them through openness can actually support fruitful interactions.
While the initiative of one or more parties can facilitate the emergence of value co-creation activities and result in these actors assuming the role of network leaders, their contribution can evolve over time.
As stakeholders interact and start co-managing the network, leaders will go from being a critical function (without which value co-creation cannot happen) to being supportive figures. Other actors will show themselves as driving figures and motivators as inter-organizational trust increases and participants at all levels feel more and more self-empowered.
Co-created value is the driving force behind innovation in various industries. It connects people, groups, and organizations in networks, allowing them to collaborate, address heterogeneous needs, and collectively solve problems. Through adaptive structures, facilitated interactions, and empowerment, co-created value delivers mutual benefits, transforming innovation strategies and becoming a transformative concept for companies.