Book Review: The Future of Competition: Co-Creating Unique Value with Customers
By: C. K. Prahalad and Venkat Ramaswamy. Boston, MA: Harvard Business School Press , 2004. 257+xiii pages. Review by: George Kingston
Should the Product Development Management Association (PDMA) be renamed the “Experience Development Management Association”? C. K. Prahalad and Venkat Ramaswamy think so, and they have a point. In The Future of Competition, they argue that value is increasingly being co-created at the point of interaction between a company and its customers and that value is created through the experience of that interaction rather than being embodied in a physical product. In this book, which aims squarely at those who are developing new offerings for the marketplace, they examine the co-creation of value across a wide range of consumer and industrial businesses. They explain the concept of co-creation of value, which they apply broadly and which involves new ways of thinking about value, and propose ways for companies to utilize this concept to compete effectively in the future. Anyone who is interested in understanding the emerging world of empowered consumers, communities of users, and co-creation of value will benefit from reading this book.
The basic thesis of the book is set out in the preface, where the authors state their belief that the consumer and the firm are intimately involved in jointly creating value that is unique to the individual consumer and sustainable to the firm” (p. x, italics in original). The authors propose that value is created in the experience of the interaction and that companies need to focus on creating the environment for this experience as well as the products or services that provide the focus of the interaction. This concept goes well beyond the idea of mass customization to active involvement of the individual customer in the value creation process. It is based on several years of close collaboration and research by the authors, who are both professors at the University of Michigan Business School.
The authors set out four building blocks for the co-creation of value: dialog, access, risk assessment, and transparency.
Dialog is an open, two-way communication between the firm and the customer as equal problem-solving partners. It tends to create loyal communities of users, who actively participate in shaping the co-creation experience, sometimes outside of the company's control.
Access is the concept that one need only to be able to participate in an experience to create value from it and not necessarily assume ownership of a physical product. One can rent or lease a car, or in some places can buy a membership in a car-sharing program, rather than purchasing the vehicle. It is becoming more common for companies to outsource manufacturing, thus creating value without owning plants or machinery.
Risk assessment is the concept that businesses and consumers must share risks through the sharing of information. When a user created and published a new operating system for the microprocessor in the Lego Mindstorms robot system, the company declined to take action against him, taking the position that anyone who installs the new system knows and accepts the risks involved.
Transparency is the ability of consumers to obtain information traditionally held by the firm. This might involve something as simple as open-source software or as complex as sharing details of a company's design cycle and manufacturing process.
At first glance, these building blocks may seem unrealistic, but as the authors explore each in turn, it becomes clear that these concepts already are playing important roles in the marketplace. A good example is cost structure and differential pricing in the pharmaceutical industry, where the Internet and the media have created transparency in spite of industry efforts to prevent it. Companies should understand these building blocks and should learn how to use them to their advantage.
Much of this book is devoted to exploring the value creation experience, using the four building blocks as a framework. This includes such concepts as creating an experience environment conducive to utilizing dialog, access, risk assessment, and transparency. They propose that experience innovation should replace product innovation as the corporate focus.
There is a strong emphasis on personalizing experience. This goes well beyond segmenting customers by product type to involving each individual customer in co-creating value in such a way that the individual contributes to the personalization of the experience. Finally, they explore experience networks, which connect suppliers, dealers, and support staff with customers and customers with one another. Many of the elements of such a network are outside the company; they all may not be linked through the company, but they all influence the co-creation of value. This concept of the experience network leads to a discussion of one of the most important concepts in this book, that of the “nodal company.” A nodal company is one that links customers with suppliers and other influencers through its ability to leverage a wide network of support. A good example of such a company is Li & Fung, a Hong Kong-based textile company that has access to 7,500 suppliers in 37 countries. It uses this network to connect clothing designers and retailers to raw material suppliers and clothing factories, using its experience and expertise to supply finished product quickly and to specification, perhaps without ever actually touching the raw materials or products themselves. Another example is United Parcel Service (UPS), which is a nodal company in logistics. Going well beyond delivery, UPS provides such services as inventory management and warranty repairs, linking its customers into a worldwide logistics network. The authors contend that such nodal companies will be among the most successful competitors in the future.
While this book is strong on insight and observation of change, it is weak on solutions to the many problems it surfaces. Particularly troubling is the failure to suggest approaches to issues of intellectual property in a co-creation environment. Indeed, one of the author's opening examples of value co-creation is Napster, the ultimate intellectual property nightmare. The authors also recognize that risk sharing with customers is a difficult issue but offer little concrete guidance on how to achieve it successfully. They appear to feel that dialog and transparency will result automatically in a fair resolution. Let us hope that they will follow up this book with a sequel that explores how to deal with such issues in a more specific way.
This is not a book that will give you formulas and roadmaps for competing successfully but rather is one that will help you look at the emerging business world in a new light.
Released: October 1, 2013, 11:36 am
| Updated: November 20, 2013, 10:34 am