Coimbatore Krishnarao Prahalad

Introduction

(8 August 1941(born) – 16 April 2010(dead))[1] was the Paul and Ruth McCracken Distinguished University Professor of Corporate Strategy at the Stephen M. Ross School of Business in the University of Michigan.

He was renowned as the co-author of "Core Competence of the Corporation"[4] (with Gary Hamel) and "The Fortune at the Bottom of the Pyramid"[5] (with Stuart L. Hart).

On April 16, 2010, Prahalad died of a previously undiagnosed lung illness in San Diego, California.[2] He was sixty-eight at the time of his death, but he left a large body of work behind.

He was renowned as the co-author of "Core Competence of the Corporation"[4] (with Gary Hamel) and "The Fortune at the Bottom of the Pyramid"[5] (with Stuart L. Hart).

On April 16, 2010, Prahalad died of a previously undiagnosed lung illness in San Diego, California.[2] He was sixty-eight at the time of his death, but he left a large body of work behind.

About his life

Prahalad was the ninth of eleven children born in 1941 in to a Kannada speaking family in Coimbatore, Tamil Nadu. His father was a well-known Sanskrit scholar and judge in Chennai [6] . At 19, he joined Union Carbide, he was recruited by the manager of the local Union Carbide battery plant after completing his B.Sc degree in Physics from Loyola College, Chennai, part of the University of Madras. He worked there for four years. Prahalad called his Union Carbide experience a major inflection point in his life. Four years later, he did his post graduate work in management at the Indian Institute of Management Ahmedabad.

At Harvard Business School, Prahalad wrote a doctoral thesis on multinational management in just two and a half years, graduating with a D.B.A. degree in 1975

Professorship and teaching

After graduating from Harvard, Prahalad returned to his master's degree alma mater, the Indian Institute of Management Ahmedabad. But he soon returned to the United States, when in 1977, he was hired by the University of Michigan's School of Business Administration, where he advanced to the top tenured appointment as a full professor. In 2005, Prahalad earned the university's highest distinction, Distinguished University Professor.

Achievements

Writings, interests, and business experience

In the earlier days of Prahalad's fame as established management guru, in the beginning of the 90's, he advised Philips' Jan Timmer on the restructuring of this electronic corporation, then on the brink of collapse. With the resulting, successful, 2–3 year long Operation Centurion he also frequently stood for the Philips management troops.

C. K. Prahalad is the co-author of a number of well known works in corporate strategy, including The Core Competence of the Corporation (with Gary Hamel, Harvard Business Review, May–June 1990) which continues to be one of the most frequently reprinted articles published by the Harvard Business Review.[8] He authored or co-authored several international bestsellers, including: Competing for the Future (with Gary Hamel, 1994), The Future of Competition (with Venkat Ramaswamy, 2004), and The Fortune at the Bottom of the Pyramid: Eradicating Poverty through Profits (Wharton School Publishing, 2004). His last book, co-authored by M. S. Krishnan and published in April 2008, is called The New Age of Innovation.

Prahalad was co-founder and became CEO of Praja Inc. ("Praja" from a Sanskrit word "Praja" which means "citizen" or "common people"). The goals of the company ranged from allowing common people to access information without restriction (this theme is related to the "bottom of pyramid" or BOP philosophy) to providing a testbed for various management ideas. The company eventually laid off 1/3 of its workforce and was sold to TIBCO. At the time of his death, he was still on the board of TiE, The Indus Entrepreneurs.

Prahalad has been among top ten management thinkers in every major survey for over ten years. Business Week said of him: "a brilliant teacher at the University of Michigan, he may well be the most influential thinker on business strategy today." He was a member of the Blue Ribbon Commission of the United Nations on Private Sector and Development. He was the first recipient of the Lal Bahadur Shastri Award for contributions to Management and Public Administration presented by the President of India in 1999.

Honors and awards

In 1994, he was presented the Maurice Holland Award from the Industrial Research Institute for an article published in Research-Technology Management titled "The Role of Core Competencies in the Corporation."[9]

In 2009, he was awarded Pravasi Bharatiya Sammaan.[10]

In 2009, he was conferred Padma Bhushan 'third in the hierarchy of civilian awards' by the Government of India.

In 2009, he was named the world's most influential business thinker on the Thinkers50.com list, published by The Times.[11]

In 2009, he was awarded the Herbert Simon Award by the Rajk László College for Advanced Studies (Corvinus University of Budapest).

In 2010, he was posthumously awarded the Viipuri International Prize in Strategic (Technology) Management and Business Economics by Lappeenranta University of Technology.

His Theories

Bottom of the pyramid Core competency Co-creation

Bottom of the Pyramid

In economics, the bottom of the pyramid is the largest, but poorest socio-economic group. In global terms, this is the 2.5 billion people who live on less than US$2.50 per day.[1] The phrase “bottom of the pyramid” is used in particular by people developing new models of doing business that deliberately target that demographic, often using new technology. This field is also often referred to as the "Base of the Pyramid" or just the "BoP".

Several books and journal articles have been written on the potential market by members of business schools offering consultancy on the burgeoning market. They include The Fortune at the Bottom of the Pyramid by C.K. Prahalad of the University of Michigan, Capitalism at the Crossroads by Stuart L. Hart of Cornell University and the first empirical article, Reinventing strategies for emerging markets: Beyond the transnational model, by Ted London of the University of Michigan and Hart. London has also developed a working paper, commissioned by the United Nations Development Programme, that explores the contributions of the BoP literature to the poverty alleviation domain.

History

The phrase “bottom of the pyramid” was used by U.S. president Franklin D. Roosevelt in his April 7, 1932 radio address, The Forgotten Man, in which he said “These unhappy times call for the building of plans that rest upon the forgotten, the unorganized but the indispensable units of economic power...that build from the bottom up and not from the top down, that put their faith once more in the forgotten man at the bottom of the economic pyramid.”

The more current usage refers to the billions of people living on less than $2 per day, as first defined in 1998 by Professors C.K. Prahalad and Stuart L. Hart. It was subsequently expanded upon by both in their books: The Fortune at the Bottom of the Pyramid by Prahalad in 2004[2] and Capitalism at the Crossroads by Hart in 2005[3].

Prahalad proposes that businesses, governments, and donor agencies stop thinking of the poor as victims and instead start seeing them as resilient and creative entrepreneurs as well as value-demanding consumers. He proposes that there are tremendous benefits to multi-national companies who choose to serve these markets in ways responsive to their needs. After all the poor of today are the middle-class of tomorrow. There are also poverty reducing benefits if multi-nationals work with civil society organizations and local governments to create new local business models.

However, there is some debate over Prahalad's proposition. Aneel Karnani, also of the Ross School at the University of Michigan, argued in a 2007 paper that there is no fortune at the bottom of the pyramid and that for most multinational companies the market is actually very small. Karnani also suggests that the only way to alleviate poverty is to focus on the poor as producers, rather than as a market of consumers. Prahalad later provided a multi-page response to Karnani's article. Additional critiques of Prahalad's proposition have been gathered in Advancing the 'Base of the Pyramid' Debate.

Meanwhile, Hart and his colleague Erik Simanis at Cornell University's Center for Sustainable Global Enterprise advance another approach, one that focuses on the poor as business partners and innovators, rather than just as potential producers or consumers. Hart and Simanis have led the development of the Base of the Pyramid Protocol, an entrepreneurial process that guides companies in developing business partnerships with income-poor communities in order to "co-create businesses and markets that mutually benefit the companies and the communities". This process has been adopted by the SC Johnson Company [4] and the Solae Company (a subsidiary of DuPont)[5].

Furthermore, Ted London at the William Davidson Institute at the University of Michigan focuses on the poverty alleviation implications of Base of the Pyramid ventures. He has created a BoP teaching module designed for integration into a wide variety of courses common at business schools that explain the current BoP thinking. He has identified the BoP Perspective as a unique market-based approach to poverty alleviation. London has also developed the BoP Impact Assessment Framework, a tool that provides a holistic and robust guide for BoP ventures to assess and enhance their poverty alleviation impacts. Companies, non-profits, and development agencies in Latin America, Asia, and Africa have implemented this framework.

Another recent focus of interest lies on the impact of successful BoP-approaches on sustainable development. Some of the most significant obstacles encountered when integrating sustainable development at the BoP are the limits to growth that restrict the extended development of the poor, especially when applying a resource-intensive Western way of living. Nevertheless, from a normative ethical perspective poverty alleviation is an integral part of sustainable development according to the notion of intragenerational justice (i.e. within the living generation) in the Brundtland Commission's definition. Ongoing research addresses these aspects and widens the BoP approach also by integrating it into corporate social responsibility thinking.[citation needed]

Examples

Microcredit

One example of "bottom of the pyramid" is the growing microcredit market in South Asia, particularly in Bangladesh. With technology being steadily cheaper and more ubiquitous, it is becoming economically efficient to "lend tiny amounts of money to people with even tinier assets". An Indian banking report argues that the microfinance network (called "Sa-Dhan" in India) "helps the poor" and "allows banks to 'increase their business'".[6]

Market-specific products

One of many examples of products that are designed with needs of the very poor in mind is that of a shampoo that works best with cold water and is sold in small packets to reduce barriers of upfront costs for the poor. Such a product is marketed by Hindustan Unilever.

Venture capital

Whereas Prahalad originally focussed on corporations for developing BoP products and entering BoPmarkets, it is believed by many that SME might even play a bigger role. For LPs, this offers an opportunity to enter new venture capital markets. Although several social venture funds are already active, true VC funds are now emerging.

Business and community partnerships

As Fortune reported on November 15, 2006, since 2005 the SC Johnson Company has been partnering with youth groups in the Kibera slum of Nairobi, Kenya. Together SC Johnson and the groups have created a community-based waste management and cleaning company, providing home-cleaning, insect treatment, and waste disposal services for residents of the slum. SC Johnson's project was the first implementation of the Base of the Pyramid Protocol.

BoP conferences

There have been a number of academic and professional conferences focused on the BoP. A sample of these conferences is listed below:

Sankalp Conference[7] - May 2012 in Mumbai, India - hosted by the Intellecap. Eradicating Poverty through Profit[8] - December 2004 in San Francisco, CA - hosted by the

World Resources Institute(WRI). Business Opportunity and Innovation at the Base of the Pyramid[9][10] - August 2005 in São

Paulo, Brazil, September 2005 in Mexico City, Mexico - two sister conferences co-hosted by WRI, the Multilateral Investment Fund and Ashoka.

Research at the Base of the Pyramid[11] - May 2006 in Ann Arbor, MI - co-hosted by the William Davidson Institute (WDI) and the Ross School of Business at the University of Michigan.

Business with Four Billion[12] - September 2007 in Ann Arbor, MI - co-hosted by WDI and the Center for Sustainable Global Enterprise at Cornell University.

Sustainable Innovations at the Base of the Pyramid[13] - September 2008 in Helsinki, Finland - hosted by the Helsinki School of Economics.

"The Bottom of the Pyramid in Practice"[14] - June 2009, hosted by the Institute for Money, Technology and Financial Inclusion at the University of California, Irvine, and sponsored by Intel Research, the UC Discovery program, and the Center for Research on Information Technology and Organizations at UC Irvine.

"Impact of Base-of-the-Pyramid Ventures"[15] - November, 2009 in Delft, the Netherlands - hosted by the Delft University of Technology.

core competency

A core competency is a concept in management theory originally advocated by CK Prahalad, and Gary Hamel, two business book writers. In their view a core competency is a specific factor that a business sees as being central to the way it, or its employees, works. It fulfills three key criteria:

1. It is not easy for competitors to imitate.2. It can be re-used widely for many products and markets.3. It must contribute to the end consumer's experienced benefits.

A core competency can take various forms, including technical/subject matter know-how, a reliable process and/or close relationships with customers and suppliers.[1] It may also include product development or culture, such as employee dedication, best Human Resource Management (HRM), good market coverage etc.

Core competencies are particular strengths relative to other organizations in the industry which provide the fundamental basis for the provision of added value. Core competencies are the collective learning in organizations, and involve how to coordinate diverse production skills and integrate multiple streams of technologies. It is communication, an involvement and a deep commitment to working across organizational boundaries.[vague] Few companies are likely to build world leadership in more than five or six fundamental competencies.

For an example of core competencies, when studying Walt Disney World - Parks and Resorts, there are three main core competencies:[2]

Animatronics and Show Design Storytelling , Story Creation and Themed Atmospheric Attractions Efficient operation of theme parks

The value chain is a systematic approach to examining the development of competitive advantage. It was created by M. E. Porter in his book, Competitive Advantage (1980). The chain consists of a series of activities that create and build value. They culminate in the total

value delivered by an organization. The 'margin' depicted in the diagram is the same as added value. The organization is split into 'primary activities' and 'support activities'.

Core CompetenceThe neutrality of this article is disputed. Relevant discussion may be found on the talk page. Please do not remove this message until the dispute is resolved. (February 2012)

A core competence is the result of a specific set of skills or production techniques that deliver value to the customer. Such competences enable an organization to access a wide variety of markets. Executives should estimate the future challenges and opportunities of the business in order to stay on top of the game in varying situations.[vague]

In 1990 with their article titled "The Core Competence of the Corporation", Prahalad and Hamel illustrated that core competencies lead to the development of core products which further can be used to build many products for end users. Core competencies are developed through the process of continuous improvements over the period of time. To succeed in an emerging global market it is more important and required to build core competencies rather than vertical integration. NEC utilized its portfolio of core competencies to dominate the semiconductor, telecommunications and consumer electronics market. It is important to identify core competencies because it is difficult to retain those competencies in a price war and cost cutting environment. The author used the example of how to integrate core competences using strategic architecture in view of changing market requirements and evolving technologies. Management must realize that stakeholders to core competences are an asset which can be utilized to integrate and build the competencies.[vague] Competence building is an outcome of strategic architecture which must be enforced by top management in order to exploit its full capacity.[citation needed]

In Competing for the Future, the authors Prahalad and Hamel show how executives can develop the industry foresight necessary to adapt to industry changes, discover ways of controlling resources that will enable the company to attain goals despite any constraints. Executives should develop a point of view on which core competencies can be built for the future to revitalize the process of new business creation. The key to future industry leadership is to develop an independent point of view about tomorrow's opportunities and build capabilities that exploit them.[vague]

In order to be competitive an organization needs tangible resources but intangible resources like core competences are difficult and challenging to achieve. It is even critical to manage and enhance the competences with reference to industry changes and their future. For example, Microsoft has expertise in many IT based innovations where for a variety of reasons it is difficult for competitors to replicate Microsoft's core competences.

In a race to achieve cost cutting, quality and productivity most of the executives do not spend their time to develop a corporate view of the future because this exercise demands high intellectual energy and commitment. The difficult questions may challenge their own ability to view the future opportunities but an attempt to find their answers will lead towards organizational benefits.

Co-creation

Co-creation is a form of marketing strategy or business strategy that emphasizes the generation and ongoing realization of mutual firm-customer value. It views markets as forums for firms and active customers to share, combine and renew each other's resources and capabilities to create value through new forms of interaction, service and learning mechanisms. It differs from the traditional active firm – passive consumer market construct of the past.

Co-created value arises in the form of personalised, unique experiences for the customer (value-in-use) and ongoing revenue, learning and enhanced market performance drivers for the firm (loyalty, relationships, customer word of mouth). Value is co-created with customers if and when a customer is able to personalize his or her experience using a firm's product-service proposition – in the lifetime of its use – to a level that is best suited to get his or her job(s) or tasks done and which allows the firm to derive greater value from its product-service investment in the form of new knowledge, higher revenues/profitability and/or superior brand value/loyalty.[1]

Scholars C.K. Prahalad and Venkat Ramaswamy introduced the concept in their 2000 Harvard Business Review article, "Co-Opting Customer Competence".[2] They developed their arguments further in their book, published by the Harvard Business School Press, The Future of Competition, where they offered examples including Napster and Netflix showing that customers would no longer be satisfied with making yes or no decisions on what a company offers.[3] Value will be increasingly co-created by the firm and the customer, they argued, rather than being created entirely inside the firm. Co-creation in their view not only describes a trend of jointly creating products. It also describes a movement away from customers buying products and services as transactions, to those purchases being made as part of an experience. The authors held that consumers seek freedom of choice to interact with the firm through a range of experiences. Customers want to define choices in a manner that reflects their view of value, and they want to interact and transact in their preferred language and style.

From co-production to co-creation

In their review of the literature on "customer participation in production", Neeli Bendapudi and Robert P. Leone found that the first academic work dates back to 1979.[4] From 1979 to 1990, papers and studies focused on a firm-centric approach, examining customer participation as a source of increased productivity.

In the late 1970s and early 1980s, scholars were mostly concerned with productivity gains through passing on tasks from the firm to the consumer. The self-service model was at that time popular. We observe, however, a slow shift starting in the mid-1980s: the participation of the customers begins also to be understood under the perspective of less-accounting-type metrics. Mills and Morris (1986) see the customers as partial employees and Goodwin (1988) realizes that customer's participation may help increase quality.

From 1990 onwards, new themes are emerging: John Czepiel suggests that customer's participation may lead to greater customer's satisfaction.[5] Scott Kelley, James Donnelly and Steven J. Skinner are dealing with productivity but suggest other ways to look at customer participation: quality, employee's performance, and emotional responses.[6] Song and Adams (1993) suggest that customer participation should not be examined under the aspect of cost-minimization. Instead it can be seen as an opportunity to differentiate.

Although not reviewed by Bendapuli and Leone, the groundbreaking article by R. Normann and R. Ramirez suggests that successful companies do not focus on themselves or even on the industry but on the value-creating system.[7] This idea is actually pretty close to that developed by Vargo, Maglio, Akaka (2008), i.e., that of "service systems". As already mentioned earlier in this paper, Normann and Ramirez disagreed with Porter's ideas and proposed that the linearity of the value chain be replaced by "value constellation". In this context, the authors define the task of companies as the "reconfiguration of roles and relationships among this constellation".

Michel, Vargo and Lusch recognize the influence of Normann on their own work and acknowledge similarity between the concepts of co-production and co-creation: "his customer co-production mirrors the similar concept found in FP6".[8] The authors suggest that Normann enriched the S-D Logic particularly through his idea of "density" of offerings.

Schrage in a letter sent to the editor of the Harvard Business Review in reaction to an article by Pine, Peppers and Roger ("Do you want to keep your customers forever") argues that not all customers are alike in their capacity to bring some kind of knowledge to the firm.[9] In his letter, he uses the word "co-creation" and states "at the core of collaboration is co-creation: customers aren't just customizing; they're collaborating with vendors to create unique value".

Wikström sees the role of consumers changing.[10] When he writes "the customer is no longer regarded as a passive receiver but is coming to be seen as an active and knowledgeable participant in a common process", he echoes Normann's and Ramirez's metaphor on theater and their saying that the customers are coming "on stage". He is also one of the first researchers to define co-production: "I define co-production (collaboration, consumer co-operation, etc.) as company-consumer interaction (social exchange) and adaptation for the purpose of attaining value".

Firat, Fuat, Dholakia, and Venkatesh introduced the concept of customerization (which is a buyer-centric evolution of the mass-customization process) and stated that it enables consumers to serve as "the co-producer of the product and service offering".[11] However, Bendapudi and Leone (2003) concluded in an empirical paper that "the assumption of greater customization under co-production may hold only when the customer has the expertise to craft a good or service to his or her liking".[4] Particularly interesting within the framework of customer-perceived value is the conclusion that "a customer who believes he or she has the expertise and chooses to co-produce may be more likely to make self-attributions for success and failure than a customer who lacks the expertise. A customer who lacks the expertise but feels forced to co-produce […] may make more negative attributions about co-production".

At the turn of the century, Prahalad and Ramaswamy (2000) produced another important piece of work and built further on Normann and Ramirez's ideas.[2] They see the roles between firms and consumers shifting and the relationship changing. Using again the metaphor of a theater, they wrote that customers are taking active roles. Although the authors

do not identify its origin, they suggest that changes in the business environment accompany the transformation of customers from a passive audience to active players. They ask companies to harness the competencies of the consumer and suggest that this be done along four axes: engage in dialogue with customers, mobilize communities, manage customer diversity and co-create personalize experiences with customers. In particular they write that "personalization is about the customer becoming a cocreator of the content of their experiences".

In 2004, Prahalad and Ramaswamy kept working on their original idea published four years earlier.[12] In this other groundbreaking paper, they use extensively the wording "value co-creation". Once used sporadically by other authors (for instance Schrage in 1995), we can therefore say that the official debut of "value co-creation" takes place 2004. The authors recognize that the unilaterality of the marketing offer can not be sustained. According to them the origin of this shift is to be seen in the increasing bargaining power of buyers due to the emergence of communication between customers.

The authors see the co-creation of value as an initiative of the customers who are "dissatisfied with available choices [and] want to co-create value and thereby co-create value". The co-creation of value is conceptualized thanks to a model called DART (for dialogue, access, risk-benefits, transparency).

At the same time, Vargo and Lush (2004) published on the service-dominant logic of marketing. The process of value creation is dealt with in FP6. Opposing the goods-dominant logic and the service-dominant logic, the authors state: "the customer is always a coproducer". FP6 will be later (Vargo and Lush, 2006) altered in "the customer is always a co-creator".

At the base of the shift that Vargo and Lusch's groundbreaking created, is the opposition between the Goods-Dominant Logic (GD Logic) and the Service-Dominant Logic (SD-Logic). The customer is seen as separated from the value offering process in the GD Logic because it requires maximum "efficiency" (which means maximum output in this logic) and thus makes no "space" for customer interactions before the sale actually happens. The authors stress that "the consumer is always involved in the production of value. Even with tangible goods, production does not end with the manufacturing process; production is an intermediary process".

Prahalad commented in the same issue of the Journal of Marketing on Vargo and Lusch's FP6 and found that the authors did not go far enough.[13] He associated customer engagement to coproduction and found five ways leading to coproduction. However, he wrote that "although work and risks increasingly are shared, the firm decides how it will engage the customer", which is for him a piece of evidence that this coproduction process stays firm-centric. Prahalad identifies increased connectivity, convergence of technologies and globalization of information as opportunities to "escape the firm and product-/service-centric view of value creation".

From 2004 onwards, publications on value co-creation tend to flourish because of the resonance of Vargo's and Lush's ideas. The next wave of research was concentrated in Vargo's and Lusch's book "the service-dominant logic of marketing: dialog, debates and directions" published in 2006 which was a collection of papers. Jaworski and Kohli somewhat answer Prahalad's critics of 2004 and propose guidelines to "co-create the voice of

the customer".[14] The assumptions made by the authors are seducing and the context rightly chosen, but the model proposed ends up in being a series of very theoretical guidelines which may be difficult to apply in B2C markets. One of the major assumptions made is indeed that the customer is looking for a dialog with the firm. Although this may be true in B2B (because it is made necessary by the procedures), one may doubt that the majority of the B2C customers will see dialogs with firms as a priority in their lives. Moreover, following the authors' statement that "a common premise underlying many approaches to uncovering needs/wants of customers is that they know what they need or want", one may wonder whether focusing the dialog on those consumers who seek it may not result in a bias. The purpose of the firm should indeed be to fulfill the needs of a majority of consumers and not dialoging with the silent majority may result in biased conclusion as far as needs and wants are concerned.

In the same book, Kalaignanam and Varadarajan (2006) also follow Prahalad's comments and elaborate on the IT implications on coproduction. As the authors put it "developments in information technology […] enable customers to create value by collaborating with the firm". The main contribution of the authors in this article is a conceptual model of the intensity of customer participation as function of product characteristics, market and customer characteristics, firm characteristics. In their conclusions and directions for future research the authors deal with three promising topics. First they propose to study supply-side issues and how increasing communication, participation from the customers and the emergence of communities enable customers to interact between them, sometimes leading to new creations. Second they see the "locus of innovation" as of interest and in particular how the shift of firm-centric networks to user-centric networks can lead to increased innovation capabilities. Third they wonder whether demand-side issues may not result in negative consequences on satisfaction. The third issue is already mentioned by Bendapuli and Leone: "A customer who believes he or she has the expertise and chooses to co-produce may be more likely to make self-attributions for success and failure than a customer who lacks the expertise. A customer who lacks the expertise but feels forced to co-produce […] may make more negative attributions about co-production".[4]

Last but not least, Oliver (2006) also proposes his view on V&L's FP6 and suggest that customer's expectations on the firm should be counterbalanced by firm's expectations on the customer. The underlying idea is of course that consumers should be seen as a co-creative part of the firm and the latter should therefore get something in return and set expectations. Although nicely put, Oliver's idea is not really revolutionary. It says basically that the firm should monitor the customer co-creation and therefore set KPI's on it.

Further important developments were published in 2008. Grönroos (2008), after more than two decades of co-production and co-creation debates, asks "if customers are co-creators of value, what is the role of the firm? Are firms the main creator of value, or what are they?". The important underlying question is that the debate around co-creation has somewhat blurred the "entity" at the origin of value. Following the ideas of V&L, Grönroos thinks that value-in-use is superior to value-in-exchange because customers add skills, knowledge, processes when using a good and therefore transforming it into a service. For him "if value is created in customers' value-generating processes and should be understood as value-in-use, and if value-in-exchange for the suppliers is dependent on whether value is emerging or not, the customers have to be the value creators". The view that customers are co-creators only (and not creators) results from the confusion between the customer and a production resource (the idea of the customer as a co-producer).

After Schrage (1995) stressed the need for "tools to analyze co-creation" Payne, Storbacka, and Frow proposed a framework around value co-creation in the context of S-D logic.[15] The framework is based on processes which the authors see as central in value co-creation. It consists of three components. First are customer value-creating processes where the value relies on "practices", i.e., routinized actions, the value of which can be enhanced by the supplier. Second are supplier value-creation processes based on co-creation opportunities (through technological breakthrough, changes in industry logics, changes in customers preferences and lifestyles), planning, implementation and metrics. Third are encounter processes.

Early applications of co-creation

The introduction of enterprise social software may have functioned as an enabler of this change in how companies evolve to business networks, and how both large and small companies cooperate. But Prahalad and Ramaswamy stated in their published work, as other practitioners have affirmed, that co-creation is about far more than customers co-designing products and services.

Co-creation is at the heart of the open-source-software movement, where users have full access to the source code and are empowered to make their own changes and improvements to it.

Co-creation can be thought to have its roots in the work of Herstatt and Von Hippel at Hilti, where they worked with "lead users" on innovative products.

In the early 2000s, consultants and companies deployed co-creation as a tool for engaging customers in product design. Examples include Nike giving customers online tools to design their own sneakers. At a MacWorld conference in 2007, Sam Lucente, the legendary design and innovation guru at Hewlett-Packard, described his epiphany that designers can no longer design products alone, using their brilliance and magic. They are no longer in the business of product and service design, he stated; they are really in the business of customer co-creation.[16]

During the mid-2000s, co-creation became a driving concept in social media and marketing techniques, where companies such as Converse persuaded large numbers of its most passionate customers to create their own video advertisements for the product. The Web 2.0 phenomenon encompassed many forms of co-creation marketing, as social and consumer communities became "ambassadors", "buzz agents", "smart mobs", and "participants" transforming the product experience.

Co-creation and corporate management

After the publication of The Future of Competition, companies applied the principles of the Prahalad-Ramaswamy research to a broader range of business activities. Companies engaged customers in the delivery of their experience, including Harley Davidson (bikers riding together and customizing their motorcycles), Scion car dealerships (customization of cars at the dealer and dealer events) or Apple Inc. (exchange of play lists through iTunes). Co-creation played an even bigger role at companies such as Cisco and Goldcorp where executives involved outside resources, such as researchers, academics, and customers, to

actually change and redesign the ways things are done inside the firm. Customer-facing functions such as sales or customer service were also opened up to co-creation at companies including Starbucks and Dell Computer.

During the mid-2000s, these innovations in customer engagement and collaboration expanded and morphed into global economic trends including the co-created development of products and services. Authors published bestselling books developing theories influenced by "co-creation" and customer collaboration. Major concepts included crowdsourcing, coined by Jeff Howe in a June 2006 Wired magazine article,[17] open innovation, promoted by Henry Chesbrough,[18] a professor and executive director at the Center for Open Innovation at Berkeley, and consultant Don Tapscott's and Anthony D. Williams's Wikinomics: How Mass Collaboration Changes Everything,[19] a book that popularized the concept of corporations using mass collaboration and open source innovation.

User innovation was coined by Eric Von Hippel, a professor and head of the Innovation and Entrepreneurship Group at the MIT Sloan School of Management. He argued that in many industries, new product and service ideas come from lead users – that is, customers who utilize the product or service in extreme conditions and effectively help the company co-create new offerings as a result. After being recognized for his work on this customer-driven innovation, Von Hippel moved on to writing about communities jointly developing new products and services, in the Linux and Apache mode.

Co-creation became global, as practices reached senior managers at companies in Europe and Asia including Linux (open software), Procter & Gamble's Connect & Develop (dramatically improved research productivity through reliance on global collaboration platform with people outside P&G), and InnoCentive (a research collective in the pharmaceutical industry).

Of this rapid morphing of co-creation, Ramaswamy and his co-author Francis Gouillart wrote: "Through their interactions with thousands of managers globally who had begun experimenting with co-creation, they discovered that enterprises were building platforms that engaged not only the firm and its customers but also the entire network of suppliers, partners, and employees, in a continuous development of new experiences with individuals."[20]

Third stage of co-creation

Ramaswamy and Gouillart now advise companies on a third stage of co-creation that seeks to improve how companies operate throughout their organizations, and in all their systems and processes. This "full theory of interactions" goes beyond the existing forms of co-creation of the customer experience and co-creation of products and services. Transforming traditional corporate practices such as training, performance management, and communications into co-creative interactions, sparks innovation, cuts costs, increases employee engagement, and generates value. Examples of companies at various stages of transformation through co-creation include Nike,[21] Nokia, IBM and Credit Agricole. Leveious Rolando, a co-creation facilitator, says traditional media such as radio and television in their heyday heralded the ability for families to come together and experience consumption as one entity. The decentralizing of technologies of entertainment and consumption from the business sites into the physical site of the body has meant new forms of configuration in design and convergence. The iPod as the descendant of the Walkman phenomenon celebrates both the body and movement while stressing the elements of individualization and personalization of content whereby the moving body can create a library of sounds and content unique to itself.

Capitalist enterprises have recognized the criticism of mass reproduction leveled at the culture industries by emphasizing the remaking of individuals through technology and have stressed the personalization of technology on a mass scale. The personalization of technologies has become a major marketing tool for mobile technologies. More importantly, many mobile technologies, such as the iPod, are designed to speak to other new media technologies and constitute part of a new media ecology in which individuals can customize their content and have the agency to transgress the boundaries between a producer and consumer. So co-creation is just a natural evolution of this on-going convergence and rapid speed of personalized applications. Co-creation is seismic shift in thinking from the industrial age mind set to people engagement mindset.

Companies like InnoCentive, NineSigma, Spigit are providing the services and the platform to collaborate to innovate with people beyond the traditional four walls of the enterprise. Rolando made the point at a co-creation European conference that www.trendwatching.com words "user manufacturing" coined by Trendwatching perfectly describes symbiotic relationship developing between people and companies as result customers are becoming not only co-designers, but also manufacturers, using only the infrastructure provided by specialized companies.