Major business trends such as deregulation, globalization, technological convergence, and the rapid evolution of the Internet have

transformed the roles that companies play in their dealings with other companies. Business practitioners and scholars talk about alliances, networks, and collaboration among companies. But managers and researchers have largely ignored the agent that is most dramatically transforming the industrial system as we know it: the consumer. In a market in which technology-enabled consumers can now engage themselves in an active dialogue with manufacturers--a dialogue that customers can control--companies have to recognize that the customer is becoming a partner in creating value. In this article, authors C.K. Prahalad and Venkatram Ramaswamy demonstrate how the shifting role of the consumer affects the notion of a company's core competencies. Where previously, businesses learned to draw on the competencies and resources of their business partners and suppliers to compete effectively, they must now include consumers as part of the extended enterprise, the authors say. Harnessing those customer competencies won't be easy. At a minimum, managers must come to grips with four fundamental realities in co-opting customer competence: they have to engage their customers in an active, explicit, and ongoing dialogue; mobilize communities of customers; manage customer diversity; and engage customers in cocreating personalized experiences. Companies will also need to revise some of the traditional mechanisms of the marketplace--pricing and billing systems, for instance--to account for their customers' new role.

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Experience Co-Creation
A mb i d ex t r o u s O r g a n i z a t i o n

C.K. Prahalad What is Experience Co-Creation?

Venkat Ramaswamy

L i f el o n g C l i e n t L o y a l t y

The Experience Co-Creation approach shows that in an increasingly large number of industries, value is
Mapping

created at the point of interaction between the company and its customers. Instead of relying on the traditional business model where the company creates value through its core competencies and produces a product or service it sells to customers, the Experience Co-Creation approach focuses on the experience created for the customer. For the experience to be meaningful, it argues that this experience needs to be cocreated between the company and its customers. The co-creation process requires a technology interface provided by a variety of devices -- such as a web site, an on-board computer or a call center -- and a social interface putting customers in touch with each other or some other relevant communities.

L ea r n i n g t o L ea r n t o L ea d

Where does Experience Co-Creation come from?

The Experience Co-Creation process was created by C.K. Prahalad and Venkat Ramaswamy, both professors at the University of Michigan Business School. C.K. Prahalad is a world-recognized expert in the field of strategy and innovation, and is best known for the strategic intent and core competencies model he developed with Gary Hamel. Venkat Ramaswamy brings to the approach his multi-disciplinary expertise and

global experience in innovation, information technology, marketing, strategy and innovation. The Experience Co-Creation approach is described in the 2004 Harvard Business School Press book entitled The Future of Competition. Prahalad's and Ramaswamy's approach is also described in a series of articles such as the bestselling Harvard Business Review article entitled "Co-opting Customer Competence" (January 2000), the Strategy & Business article "The Co-creation Connection " (Summer 2002), the MITPriceWaterhouseCoopers award-winning Sloan Management Review article entitled "The New Frontier of Experience Innovation" (Summer 2003), and an Optimize article entitled "Co-creating Value with your Customers" (January 2004).

What's the difference between Experience Co-Creation and other approaches to strategy or innovation?
The Experience Co-Creation approach starts with the operational process through which customers interact with the company and generate their own experience. It offers a practical starting point on how to change the rules of the game. The reengineering of the interaction process will, at the minimum, lead organizations to new operational insights on how to interface with the customer, creating one of the most effective operations innovation methodologies available. The true ambition of the Experience Co-Creation process, though, is to go beyond operational innovation. In many cases, the approach will generate new strategic insights and allow the organization to create a new competitive game altogether. Its strength lies in gradually morphing the existing capabilities of the firm toward the new world of Experience Co-Creation, by bringing some of its key capabilities to interact more effectively with the customer. This practicality contrasts with many of the discontinuous methodologies which require leaps in capabilities which few companies are able to make. In its ultimate form, the Experience Co-Creation approach believes our entire economic system will eventually be redesigned. Instead of having companies producing value through their supply chain and core competencies and capturing it through their pricing, it suggests that the future lies with experience networks inside which companies continually co-create with their customers, with the various parties co-extracting value in a negotiated process.

Who should sponsor Experience Co-Creation programs?

When used at the strategic level, the Experience Co-Creation process requires that CEOs and General Managers drive the effort. Given its multi-functional nature. Heads of Strategy or New Business Development also often act as sponsors of Experience Co-Creation initiatives. CIOs and Heads of E-Business also frequently initiate Experience Co-Creation efforts, given the key role played by interaction technologies in the approach. Chief Marketing Officers also commonly become involved in Experience Co-Creation efforts, as they typically "own" the design of the customer interaction. Finally, the Heads of Organization Development or Leadership Development are also natural sponsors for Experience Co-Creation projects, given the key role of capabilities development in the approach. The Experience Co-Creation process was created by C.K. Prahalad and Venkat Ramaswamy, both professors at the University of Michigan Business School. C.K. Prahalad is a world-recognized expert in the field of strategy and innovation, and is best known for the strategic intent and core competencies model he developed with Gary Hamel. Venkat Ramaswamy brings to the approach his multi-disciplinary expertise and global experience in innovation, information technology, marketing, strategy and innovation. The Experience Co-Creation approach is described in the 2004 Harvard Business School Press book entitled The Future of Competition. Prahalad's and Ramaswamy's approach is also described in a series of articles such as the bestselling Harvard Business Review article entitled "Co-opting Customer Competence" (January 2000), the Strategy & Business article "The Co-creation Connection " (Summer 2002), the MIT-PriceWaterhouseCoopers award-winning Sloan Management Review article entitled "The New Frontier of Experience Innovation" (Summer 2003), and an Optimize article entitled "Co-creating Value with your Customers" (January 2004).

What's the difference between Experience Co-Creation and other approaches to strategy or innovation?
The Experience Co-Creation approach starts with the operational process through which customers interact with the company and generate their own experience. It offers a practical starting point on how to change the rules of the game. The reengineering of the interaction process will, at the minimum, lead organizations to new operational insights on how to interface with the customer, creating one of the most effective operations innovation methodologies available. The true ambition of the Experience Co-Creation process, though, is to go beyond operational innovation. In many cases, the approach will generate new strategic insights and allow the organization to create a new competitive game altogether. Its strength lies in gradually morphing the existing capabilities of the firm toward the new world of Experience Co-Creation, by bringing some of its key capabilities to interact more effectively with the customer. This practicality contrasts with many of the discontinuous methodologies which require leaps in capabilities which few companies are able to make. In its ultimate form, the Experience Co-Creation approach believes our entire economic system will eventually be redesigned. Instead of having companies producing value through their supply chain and core competencies and capturing it through their pricing, it suggests that the future lies with experience networks inside which companies continually co-create with their customers, with the various parties co-extracting value in a negotiated process.

Who should sponsor Experience Co-Creation programs?

When used at the strategic level, the Experience Co-Creation process requires that CEOs and General Managers drive the effort. Given its multi-functional nature. Heads of Strategy or New Business Development also often act as sponsors of Experience Co-Creation initiatives. CIOs and Heads of E-Business also frequently initiate Experience CoCreation efforts, given the key role played by interaction technologies in the approach. Chief Marketing Officers also commonly become involved in Experience Co-Creation efforts, as they typically "own" the design of the customer interaction. Finally, the Heads of Organization Development or Leadership Development are also natural sponsors for Experience Co-Creation projects, given the key role of capabilities development in the approach.