The Empty Whitecoat

How can firms co-create knowledge with their customers?

Here is a copy of a presentation I recently gave to the research panel at Cranfield University School of Management. The .pdf paper defines the "story of co-creation", explores my research question, presents a conceptual framework for market-learning capabilities (before and after co-creation) and suggests some of the challenges I will need to resolve when conducting the research, which I shall be starting shortly.

In September I will be requesting access to companies who are interested in developing capabilities for co-creation. To assist them do this, I am currently developing a co-creation toolkit, which as the name suggests, consists of several capability and skills frameworks, options and opportunities to help them build a leading co-creation competency. If anyone reading this is part of or knows of a company that may be interested in finding out more about co-creation or is already exploring potential benefits and outcomes, then please do get in touch.

Capabilities for customer knowledge co-creation

it is possible to identify a number of antecedents for both the customer and the firm to participate in co-creation through knowledge sharing. These are, firstly from the customer’s point of view:

Customers must be able to speak the same language as the firm. To be able to contribute their own knowledge, customers first need to absorb the firm’s specific knowledge and to understand its meaning. Not all customers are knowledgeable or competent enough to co-create value.

Customers must deeply trust in the firm. Any information they share must not be used against their own interests. Marketing has a fundamental role in managing customer risk.

Customers must be motivated to take part in the knowledge creation process. Such motivation can derive from an awareness of the relevance of their knowledge contribution or from incentives in the form of early access to new products, special events, discounts and so on.

Second, from the firm’s perspective of utilising customer knowledge:

Firms need to develop absorptive capacity with dialogue for their customers’ knowledge; that is an ability to recognise the value of customer knowledge, sense and incorporate it within the firm. The first step in doing this is to select the best knowledge assets on the market. As well as scanning, it includes dialogue.

Organisational sharing capacity for co-creation emphasises mechanisms for integrating customer and organisational knowledge assets and then reproducing them internally. As strategy becomes interactive, involving more dialogue and collaboration with customers, there must be wider dispersion of information and decision-making throughout the organisation.

Deployment capacity concerns how firms act upon customer knowledge. Firms need to overcome the bias that “R&D knows best” when moving from passive involvement of customers to active co-development with customers. However, as an incentive for knowledge contributions, firms must recognise individual customer rights in the outputs created with their knowledge. This calls for new capabilities in intellectual property rights management.

Below I list a selection of capabilities that firms can develop to harness knowledge from their customers and co-create superior innovations and value:

Capabilities for customer knowledge co-creation

Firm antecedents
- Enable employee flexibility to engage in dialogue with a diverse and evolving customer base
- Develop long-term stable relationships with “learning partners” that benefits both parties
- Rework employee compensation plans and promotion decisions to incentivise co-creation
- Create superior transparency for effective collaboration

Customer antecedents
- Customers must be able to speak the same language as the firm.
- Customers must deeply trust in the firm and have a sense of belonging
- Customers must be motivated with regular reminders of the benefits of co-creation
- Keep customers excited and actively involved in co-creation

Customer Knowledge Acquisition
- Choose the right customers through smarter market-sensing
- Develop a user-friendly tool-kit for customers and evolve it continuously to satisfy leading-edge customers
- Accommodate a wide base of heterogeneous customers to create a diversity of perspectives
- Build communities of creation. Develop a capability of putting together customer groups of expert knowledge that interact not only with the company, but also importantly with each other.

Customer Information Distribution
- Maintain a balance between high internal variety and flexibility, and chaos
- Build a platform for ongoing, active multiparty dialogue between the firm and its communities of consumers
- Activate knowledge-sharing at the point of customer contact
- Interact effectively with competent customers who will increasingly recognise and leverage their own value to the company
- Create new relationships or new ways to combine and manage existing relationships
- Develop an environment where knowledge can be co-created and shared continuously
- Make customers more intelligent as well as firm offerings

(Customer) Knowledge Use
- Build new capabilities in intellectual property rights management. As an incentive for knowledge contributions, firms must recognise individual customer rights in the outputs created with their knowledge.

Outcomes from customer knowledge co-creation

Finally I list some potential benefits and outcomes for the firm that becomes an effective customer knowledge co-creator:

- 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 customer’s 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

I have written an academic paper on the above if anyone is interested. Email me to get a copy.

Free Discussion Paper - Personal Knowledge Banks - Putting the power of personal data in the hands of individuals

When it comes to personal information, the dominant trend of the last few decades has been corporate control: companies have gathered and used personal information, treating it as a corporate asset to further the corporation’s purposes.

Yet dominant organisational approaches to the acquisition, ownership and use of personal data are hitting inherent relationship and structural limits and may even now be facing diminishing returns. The problem? Many different organisations collecting many different slices of information about the same individual can never really develop a ‘single view’ of this customer (few are rarely able to develop a single view of their own organisation...)

Ultimately the only entity capable of ensuring ‘a single customer view’ is the customer himself! So while organisations focus all their efforts on extending and deepening their ownership and control of personal data, there is surely a significant opportunity for firms to help individuals collect and manage their own data - in effect, by operating "Personal Knowledge Banks".

A prescient new discussion paper from the UK Buyer-Centric Commerce Forum (disclosure - I am on the Steering Group) argues the case for Personal Knowledge Banks. It defines and develops the opportunity and suggests that over time, the data available within Personal Knowledge Banks will grow richer, deeper and more accurate than the data held within organisations.

I have long been an advocate of the personal infomediary concept, ever since Hagel and Singer articulated the case back in the late 90's (see their book, Net Worth). I was even involved in setting-up the UK's first infomediary solutions provider, Conciera, back in 2000. So I am bound to agree that Personal Knowledge Banks represent a huge new market with the potential to transform the relationship between individuals and organisations and the ways organisations collect, manage and use data. At the same time, they address a wide range of privacy and data protection issues.

As the paper suggests:

Organisations that help place the power of personal data in the hands of individuals will be offering them a great and valued service – while potentially playing the pivotal role of ‘interface manager’ in a fast-changing commercial landscape. Personal Knowledge Banks raise many technical, legal, database management and relationship management issues. These hurdles can and will be addressed. But to facilitate this, we need to encourage the sharing of ideas and emerging ‘best practice’, and to explore new business models.

So to get the ball rolling again, the BCCF is making the paper available to anyone with an interest in the concept and opportunity. If you would like to receive a copy of "Personal Knowledge Banks - Putting the power of personal data in the hands of individuals", please email me at info@theomcgroup.com. If you have any ideas or feedback, I will share them with the BCCF.

The BCCF is also having a networking event on the topic, to be held in London at the end of May/June. Let me know if you are interested in receiving further details.

The customer interaction is king part II

Firms are in danger of neglecting the value and knowledge contained in their customer interactions if they outsource their contact centre operations remotely. The latest Peppers and Rogers newsletter provides examples of companies that recognise the customer interaction is king:

The trend of moving outsourced operations back in-house is gaining momentum. Insurer Conseco recently made news by bringing call center jobs back to the U.S. from India, and companies including Capital One, Dell, Lehman Bros. and AXA have "repatriated" similar work, says David Butler, an assistant professor at the University of Southern Mississippi's College of Business and Economic Development in a recent USA Today article. Conseco cited "the need to exercise close control over the processes that most directly affect its relationships with current customers and distribution partners" as a main reason for bringing its call center back home.

The article goes onto descrbe the practices of North Fork Bancorp. a $26 billion multi-bank holding company.

Its chairman, John Kanas "keeps a close eye on the important call center touchpoint. He has a line in his office that allows him personally to audit telephone conversations between service reps and customers. "The call center is obviously one of the first lines of communication with the customer," he says. "It's much the same as a branch or somebody walking into one of the executive offices. We want to be aware at all times what people are happy with or having difficulties with, and we want to stay close to that stream of information."

Chris Selland, vice president of sell-side research for Aberdeen Group, says such attention to customers at the top-level is unique. "There are absolutely companies that appreciate the value of the customer service centers, their customers and running their operation to maximize the value of the customer relationship, but I still think that's a minority," he says.

"Everyone is all excited about 'call centers' and 'offshoring,'" Kanas says, "but this is just customers calling into a company with a problem or question...So we try to hold the call center as close to our heart as we can and monitor the results as close as we can, because it's one of the most important functions we do and contributes to our reputation -- our face-to-face communications -- every day."

Further, Kanas argues that the perceived benefits of sending jobs overseas -- many of them financial -- have been vastly overstated. "A couple of years ago when offshoring was becoming popular, there was lots of talk about a 50 to 60 percent savings," he says. "Everyone has a different number, but most people today think it's much closer to 15 to 20 percent, if it's even that high." For his company, the value of maintaining close customer relationships outweighs any short-term benefits of an overseas call center.

New Perspectives in Customer Knowledge Co-Creation: new article

Advanced customer knowledge is an essential competitive requirement for most companies. Indeed, developing capabilities to create and act upon customer insight can make a vital contribution to successful CRM as well as product, service and even business concept innovation. Yet whilst customer information in the form of profile and spend data typically provide the decision-making foundation of most CRM and customer-centricity programmes, some progressive companies are beginning to pursue more radical and alternative strategies and methods for sourcing valuable customer knowledge.

The CKM perspective

In an article in the European Management Journal in 2002, University of St. Gallen academics Gibbert, Leibold and Probst identify and distinguish these new forms of customer knowledge management (or CKM as they call it – sorry, another acronym!) from the more dominant knowledge management (KM) and customer relationship management (CRM) perspectives across several dimensions.

These include managerial mindset, knowledge-creating rationale, the alternative purpose of customer communications and an extended view of the role of the customer in the company learning process. But perhaps the most significant defining variable of CKM as defined by the three authors is the type of customer knowledge sought by CKM-practising firms.

Specifically, customer knowledge managers seek to acquire knowledge from the customer as well as the more typical knowledge about the customer. In doing so, whilst incorporating principles of KM and CRM, CKM they write, “moves decisively beyond both to a higher level of mutual value creation and performance. More specifically, the notion of CKM values the customer as a knowledgeable agent in the (firm’s) knowledge creation process.”

Software Pioneers

The concept of pursuing the direct involvement of customers to boost a company’s knowledge assets is not new, although to date efforts have been limited mostly to product development and problem solving in the software industry. Here, pioneering CKM businesses (as reported in a 2000 HBR article by Prahalad and Ramaswamy) have shifted their approach from testing products in closed R&D labs to validating and developing them in open, shared customer environments, usually over the internet.

At Microsoft for example, more than 650,000 users tested a beta version of the Windows 2000 operating system. In doing so, they were able to contribute to the refinement and overhaul of some of the product’s key features. Cisco, the internetworking firm, went even further in its integration of customer knowledge; it still provides its customers with open access to its information, resources and systems through an on-line service that enables them to engage in dialogue.

In this way, Cisco customers solve the problems encountered by other customers and each has access to the Cisco knowledgebase and user community. Dell Computers has a similar service. It employs data mining techniques to identify areas of improvement, new services, and ultimately new innovative products based on the discussions among customers in its online forum.

Managerial implications

A shift in mindset towards looking at the customer as a knowledgeable entity has important implications. Significantly, firms developing a CKM capability are more likely to have an external perspective and outlook on knowledge creation and renewal and to exhibit higher levels of market experimentation or “probe and learn” behaviour. Also, to achieve an advanced CKM competency, customer knowledge managers seek opportunities for partnering with customers as equal co-creators of organisational and customer value.

They focus on generating growth for the organisation and value for the customer through motivating and incentivising individuals to share their knowledge and to engage in active dialogue with the firm and with each other. In other words, CKM firms are developing new ways to mobilise and then act upon customer knowledge using a variety of collaborative, community and interactive approaches.

Of course, many CKM companies use the internet as the primary mechanism for collaborating with customers in order to create new knowledge for product and service development, innovation, customisation and to achieve superior marketing performance Often, they set-up customer panels to solicit ideas, develop and monitor communities to create dialogue and interaction and implement toolkits to enable the co-design and introduction of valuable new products and services.

Challenges

Yet for many other firms, the opportunity to develop CKM strategies and tools is limited for three reasons. First, there is a cultural challenge in terms of the need to re-think the role of the customer and the implications this has for the mindset of managers and employees within the organisation. Second, there exists a competency challenge in respect of the skills and processes needed to take full advantage of participative customer knowledge sharing opportunities. Third, there is a customer access challenge in that companies may not be able to reach the right customers in their current or even new markets (particularly those who are opinion-formers).

For example, they may find it difficult to access people at a sufficiently early-stage in their decision-making process or they may not be capable of providing the right context or incentive for individuals to participate in broad conversations with little perceived value. Equally, customers might not always hold the vested knowledge or the desire necessary to be able to contribute successfully and willingly to a market innovation process.

The customer interaction is king

Whilst some businesses are struggling – despite their best intentions - to overcome the barriers to successful CKM implementation, others are missing out on the opportunity for entirely different reasons. Unfortunately, many firms view potentially knowledge-rich customer interactions as a cost to be reduced rather than as a potential investment in dialogue, learning and innovation.

For example, by automating customer interactions (as most CRM IT software systems tend to do) or outsourcing them overseas for example, I argue that many companies are at risk of severely limiting their most precious future assets, i.e. the opportunity to learn from and create value with their customers. In most cases such cost-focused or automated initiatives will fail to deliver lasting value. Why? Because organisations use them as quick-fixes instead of addressing a more deep-seated underlying problem - a lack of customer knowledge and a limited orientation to learning with and for their customers.

Limited external orientation

Perhaps the problem is that many companies have become so internally focused that they have gotten carried away with their own issues and have taken their eye off the customer and their needs. Until such organisations make a serious effort to understand their markets and their customers better, initiatives designed to take cost out of customer interactions will amount to expensive, time-consuming mistakes.

For example, many financial services businesses in the UK are spending too much of their valuable resources on internal operational efficiency at the expense of creating real and lasting value for their customers. But, by considering and then exploring new perspectives in customer knowledge creation and management, they might at least be able to start identifying opportunities to inject a significant boost to their future CRM, product and service innovation efforts.

New Perspectives in Customer Knowledge Co-Creation

First CRMToday article, "New Perspectives in Customer Knowledge Co-Creation" is posted here today

The customer interaction is king

Customer Knowledge Management or CKM is an innovative and important strategic process by which progressive companies are now able to emancipate their customers from being passive recipients of products and services to becoming empowered knowledge partners in the organisational value-creation and -sharing process itself. Indeed, in this age of knowledge-based competition, it is incumbent upon firms to pay increasing attention to the development of customer knowledge.

The concept of pursuing the direct involvement of customers to boost a firm’s knowledge assets, mainly for the purpose of product innovation, is not new. Yet the novel perspective at the heart of advanced CKM is the fundamental shift in emphasis from "the firm as knowledge creator" that learns about customers and creates value for them, to a perspective of "the firm as a co-creator of knowledge" that learns and creates value with its customers.

In an excellent article in 2003, University of St. Gallen academics Gibbert, Leibold and Probst distinguish CKM from the more dominant knowledge management (KM) and customer relationship management (CRM) perspectives across several dimensions. These include managerial mindset, knowledge-creating rationale, the alternative purpose of customer communications and an extended view of the role of the customer in the innovation and organisational learning process. But perhaps the most significant defining variable of CKM proposed by the three authors is the type of customer knowledge sought by CKM firms. Specifically, customer knowledge managers seek to acquire knowledge from the customer as well as knowledge about the customer (the latter being the more typical domain of customer relationship management [CRM]). Although it incorporates principles of KM and CRM, CKM they write, “moves decisively beyond both to a higher level of mutual value creation and performance. More specifically, the notion of CKM contributes to the KM literature by providing an expanded view of organisational epistemology; i.e. one that includes the customer as a knowledgeable agent in the knowledge creation process.

A shift in mindset towards looking at the customer as a knowledgeable entity has important implications. Significantly, firms developing a CKM capability are more likely to have an external perspective and outlook on knowledge creation and renewal and to exhibit higher levels of market experimentation or “probe and learn” behaviour and outcomes.

To achieve an advanced CKM competency, customer knowledge managers must seek opportunities for partnering with customers as equal co-creators of organisational value. Their focus is on how to generate growth for the organisation through acquiring new customers and through engaging in active and value-creating dialogue with them. In other words, CKM suggests that customers are more knowledgeable than businesses normally assume and consequently firms must mobilise customer knowledge using a variety of collaborative and dialogical means from a diversity of customers in order to co-create valuable personalised experiences, products and services.

Unfortunately, many businesses today view such potentially knowledge-rich customer interactions as a COST TO BE REDUCED rather than as a potential investment in dialogue and learning. By automating customer interactions or outsourcing them overseas for example, many companies are at risk of commoditising one of their most precious future innovation assets: the opportunity to learn from and create value with their customers. In most cases such cost-focused initiatives will fail to deliver lasting value. Why? Because organisations use them as quick-fixes instead of addressing their more deep-seated underlying problems - i.e. a lack of customer knowledge and a limited market orientation...

The problem is that many companies have become so internally focused they have gotten carried away with supply-side issues and have taken their eye off the customer and their needs. Until such organisations make a serious effort to understand their markets and their customers better, initiatives designed to take cost out of the customer interface will amount to expensive, time-consuming mistakes. Many financial services businesses in the UK for example are spending too much of their valuable resources on internal operational efficiency (i.e. doing things right at lower cost) at the expense of external customer effectiveness (i.e. doing the right things).

I was talking to one such organisation only the other day. Having already outsourced their customer management function, they were now concerned that each customer inbound call was costing them a "grossly expensive" 41 pence per contact. Their response? Shift them onto the web of course.... !

Prahalad on customers as co-creators

It seems that the idea of viewing customers as co-creators of value is about to become one of the hot innovation concepts for 2004. This is simply because CK Prahalad (of "COmpeting for the Future" fame with Gary Hamel) and VK Ramaswamy are publishing a new book this Spring on this important and compelling subject - The Future of Competition: Co-creating Unique Value with Customers. I am mightily encouraged by this as it underlines that my PhD research into the development of firm capabilities for these more advanced "partnership-based" forms of value-creation and customer knowledge management will have real practical relevance and application in the years to come.

This is the precis of the book on Amazon:

In this visionary book, C. K. Prahalad and Venkat Ramaswamy explore why, despite unbounded opportunities for innovation, companies still can't satisfy customers and sustain profitable growth. The explanation for this apparent paradox lies in recognizing the structural changes brought about by the convergence of industries and technologies; ubiquitous connectivity and globalization; and, as a consequence, the evolving role of the consumer from passive recipient to active co-creator of value. Managers need a new framework for value creation. This book is about the emerging "next practices" in value creation.

Increasingly, individual customers interact with a network of firms and consumer communities to co-create value. No longer can firms autonomously create value. Neither is value embedded in products and services per se. Products are but an artifact around which compelling individual experiences are created. As a result, the focus of innovation will shift from products and services to experience environments that individuals can interact with to co-construct their own experiences. These personalized co-creation experiences are the source of unique value for consumers and companies alike.

In this emerging opportunity space, companies must build new strategic capital—a new theory on how to compete. This book presents a detailed view of the new functional, organizational, infrastructure, and governance capabilities that will be required for competing on experiences and co-creating unique value. This is the future of competition.

From this, we can see how the concept of "co-creative customer value" is part of the family of buyer-centric perspectives as traditional firm and industry sectors dissolve and begin to organise around individual value. I hope that with this book and the impetus and interest it will no doubt create, commercial organisations will not only recognise but also take action to acquire and manage new forms of customer knowledge. But to do this, they must first engage in a more open and humanistic dialogue with customers by adopting a common language and shared perspective on mutual goals.. Only then will they be able to develop the necessary co-creative value generating capabilities and knowledge assets to better sense emerging market opportunities and to more effectively “unlearn” established assumptions and practices for creating customer value in the future.

You can read more about my research programme into CKM competencies by downloading a recent publication of mine "Developing customer knowledge management competencies for superior market experimentation and organisational learning" from the Knowledgeboard website.
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