Emerald Group Publishing Limited
Copyright © 2004, Emerald Group Publishing Limited
These brief summaries highlight the key points and action steps to be found in the feature articles in this issue of Strategy & Leadership.
4 Co-creating unique value with customers
C.K. Prahalad and Venkat Ramaswamy
The traditional system of company-centric value creation (that has served us so well over the past 100 years) is becoming obsolete. Leaders now need a new frame of reference for value creation. In the emergent economy, competition will center on personalized co-creation experiences, resulting in value that is truly unique to each individual.
The authors see a new frontier in value creation emerging, replete with fresh opportunities. But successful prospecting will require framing and practicing value creation in a fundamentally different way from that of the past.
It begins by recognizing that the role of the consumer in the industrial system has changed from isolated to connected, from unaware to informed, from passive to active.
What is the net result of the changing role of consumers? Companies can no longer act autonomously, designing products, developing production processes, crafting marketing messages, and controlling sales channels with little or no interference from consumers. Armed with new tools and dissatisfied with available choices, consumers want to interact with firms and thereby co-create value. The use of interaction as a basis for co-creation is at the crux of our emerging reality. The co-creation experience of the consumer becomes the very basis of value.
The new frame of reference for value creation is described in this article as well as what co-creation is not. How to begin? The authors offer a model for building co-creation processes. At the conclusion they warn that although many firms and industries are experimenting, and the evidence of the changing nature of value creation accumulates, many companies are unable to embrace the new framework of co-creation. Why?
A large part of the answer is that co-creation fundamentally challenges the traditional roles of the firm and the consumer. The tension manifests itself at points of interaction between the consumer and the company – where the co-creation experience occurs, where individuals exercise choice, and where value is co-created. Points of interaction provide opportunities for collaboration and negotiation, explicit or implicit, between the consumer and the company – as well as opportunities for those processes to break down.
10 Partnering with the customer
With their new theory about the coming revolution in value creation, C.K. Prahalad and his new collaborator, Venkat Ramaswamy, seek to go further than they or other strategy writers have gone. In their new book The Future of Competition (Harvard Business School Press, 2004), they aim to shift our whole business paradigm, or "dominant logic", by impelling us to rethink the very nature of competition as we have come to know it.
Unlike most business books that set out to identify current best practices so that others might learn from them, The Future of Competition sets out to explore "next practices", so that strategists might better anticipate and prepare for them. Few seem more qualified to offer us a convincing view of the future "in embryo" as Prahalad and Ramaswamy.
The fundamental idea in The Future of Competition is that in the business world of tomorrow, value will be interactively co-created by companies and consumers, rather than merely exchanged between them. The emergence of more connected, informed and active consumers is transforming the company-consumer relationship. We are moving from a world in which our view of value creation is company-centric and product/service focused to one that will be more consumer-centric and experience focused. The transition will not happen overnight, but the implications are enormous, and already visible to those who know where to look.
Although there are no fully flowered examples of firms demonstrating all the practices that exemplify the authors' vision of the future, the overall trend towards "experience co-creation space" is inevitable and has already started; the question is "how fast" will it take hold? Many firms are well on their way, and the phenomenon is broadly based. John Deere, General Motors and Cemex are among the many illustrations used by Prahalad and Ramaswamy, as well as "new age" firms like eBay. The Future of Competition is brimming with ideas, though it has a conceptual vocabulary of its own, which is not the easiest to master. Yet, few can afford not to learn it.
14 When co-creating value with a customer goes wrong
In the highly competitive cellular phone market, Sprint has pioneered some marketing and sales practices that, in effect, allow the co-creation of value in cooperation with the customer (Examples are cited). When it works, co-creating value with customers leads to highly desirable customization, a potent way of developing loyal customers and building profitability. But when the customer/company relationship hits a snag, the resulting dissatisfaction needs special handling.
This article succinctly presents a mini-case study of one of the pitfalls referenced in the Prahalad/Ramaswamy article in this issue. At crucial points of interaction between the consumer and the company – where the co-creation experience occurs, where individuals exercise choice, and where value is co-created – service breakdowns can destroy the relationship. Points of interaction provide opportunities for collaboration and negotiation, explicit or implicit, between the consumer and the company – as well as opportunities for those processes to break down. The latter is what happens in this case of a Sprint customer.
Insightful lessons for Sprint are summarized at the end, with the essential point being that this case illustrates how a company needs to learn to focus on customer experiences, and on learning to make accommodations when problems arise.
16 Collaboration with other firms and customers: innovation's secret weapon
Bettina von Stamm
Innovation is at the top of many CEO's agendas, and to increase the odds of success, collaborate with outsiders. There are two major benefits of engaging "outsiders": they challenge company-internal assumptions, and they bring a new body of knowledge to the party. The theory that external collaboration is linked to radical innovation is supported by recent research findings cited in the article. Innovation most often happens when some previously unconnected bodies of knowledge converge. So for companies that want to stretch the business boundaries and innovate around markets and business models, external collaboration is critical. Outsiders are both other firms and customers.
How collaboration helps innovation
Collaboration helps to address the major challenges of innovation in many ways:
Sharing risks – the most frequent answer given to "why collaborate?" was "the desire to share costs and risks".
Getting innovation to market faster – Internal and external collaboration allows uncertainties and conflicts to be resolved earlier; one example is Ford's collaboration up and down their supply chain.
Connecting body of knowledge – consider an approach like Eli Lilly's www.innocentive.com.
Understanding customer needs – per C.K. Prahalad, the co-creation experience of the consumer becomes the very basis of value.
Stimulating out-of-the-box thinking – cross industry adventures such as Mercedes and Swatch can create new markets (the Smart Car).
Collaboration most often fails because of interpersonal issues, such as lack of trust, support, respect, and clarity. Several guidelines are discussed that will help you to avoid the pitfalls and high "divorce" rate:
clear and well communicated rationale and direction;
clear rules of engagement;
a win-win deal for all parties; and
focus on people not technology.
21 Leaders manage dilemmas
Alex Lowy and Phil Hood
Consider a new look at a strategic decision-making methodology: focus on understanding the dilemmas confronting your organization. This is how Lou Gerstner turned around IBM. The three big dilemmas he faced in 1993 were: "strategy vs. execution", "revenue vs. profit", and "organizational alignment vs. autonomy". Doing what so many of the best leaders in business do, he faced a difficult situation but resisted taking immediate action, favoring exploration, consultation and understanding of the key dilemmas as a first step. He then used his findings to bring focus and tension, and create the necessary context for organizational action and success.
Why focus on dilemmas?
For leaders, the learning produced from wrestling with dilemmas is often more important than answers to them. Big challenges tend to be complex, ongoing in nature, and highly resistant to simple "fixes". Fixes are often symptomatic in nature, especially when applied without a full appreciation of forces at play in a situation. Therefore, before the leader can provide the strategic direction to guide organizational efforts, he/she must first recognize, define and deal with the prime dilemmas of the day.
Who focuses on dilemmas?
Leadership is both a role and a mindset. As managers, the priority is on solving problems quickly to allow processes to occur seamlessly, and people to do their work unimpeded. As leaders, the priority is on making sense for the organization, its staff and other stakeholders. Leaders manage dilemmas; managers solve problems.
How to manage dilemmas
Dilemmas fall into two categories: direction-setting and culture-setting. Several examples of each are presented as well as three action steps: recognition, definition, and translation. Leaders need to interpret forces and help shape the context for decision-making and action. They can do this by:
immersing themselves in the issues to understand competing forces;
creating models of possible future scenarios to be able to prepare for what is not controllable;
posing "what if" questions to tune the corporate antenna into both strong and weak environmental signals; and
searching for patterns, and challenging all to think twice about anomalies and factors that may have been too quickly dismissed.
Armed with unique knowledge, leaders are then able to focus the attention of the organization on what is important. All this is possible when they attend to dilemmas. Dilemmas are the leader's source of direction and renewal.
27 Matching management tools and techniques with management challenges
John Cullen, Marion O'Connor and John Mangan
In a recent Strategy and Leadership article, Russell Ackoff states "leaders can be made more effective by learning about the management tools and techniques available to them and how to use them". This seems like sound wisdom, but how does it play out in practice? Are the most popular tools being used successfully?
This article compares the results of two separate research projects on Irish business practices – conducted in late 2002 and early 2003 – to see how the usage of the management tools and techniques relates to the real challenges that managers face.
The article's exhibits present the details of the ranking of the management tools used and the degree of satisfaction with them. Although there were some cases where the utilization of the tools and techniques appeared to match the challenges facing the managers, in general this was not the case. The research projects, though they were not designed to complement each other, make it apparent that additional research should be done on the rationales and reasons behind an organization's strategic choice of particular management tools and techniques. Ackoff's point – "leaders can be made more effective by learning about the management tools and techniques available to them and how to use them" – is valid if it is understood to mean that managers need to know how to match the appropriate tool with their organizational need.
31 Company culture provides competitive edge for Sargento Foods
Barbara Gannon and John Sterling
People and culture are a core element of strategy. At the Wisconsin-based cheese processing and marketing company, Sargento Foods, their key competitive advantage stems from the capabilities and loyalty of its 1,200 employees.
Today, three interrelated business drivers define the company's core strategy – a focus on cheese products, a commitment to outstanding customer and consumer response, and an economic engine centered on customer profitability. This three-pronged strategy is guided by the company's cultural philosophy – people, pride and progress. The culture and the commitment to people is the foundation for all other strategic initiatives.
There is a cultural underpinning for virtually every decision the company makes. The culture of Sargento cannot be distinguished from the business of Sargento, because they are virtually one in the same. The culture of success is based upon respect and care for the employees and for the people served.
For over 50 years, Sargento has translated their philosophical commitment to people and culture into meaningful long-term action through several HR programs cited in the article. The result:
an ability to attract and retain high performing people, often coming from its larger competitors;
highly satisfied employees (compared to competitors in food industry);
satisfaction translates into dramatically better employee retention;
lower turnover saves recruiting and transition costs;
dedication and productivity translated into significant cost savings.