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The Future of Value Creation: Co Creating Value with Customers. C.K. Prahalad Paul and Ruth McCracken Distinguished University Professor The Ross School of Business The University of Michigan.

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The Future of Value Creation: Co Creating Value with Customers


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    1. The Future of Value Creation:Co Creating Value with Customers C.K. PrahaladPaul and Ruth McCracken Distinguished University ProfessorThe Ross School of BusinessThe University of Michigan

    2. Organic Growth through Innovations within an Established Enterprise (Value Creation) is at a Premium. The Focus, Sources and the Processes of Innovation are Changing. Basic Hypothesis

    3. My Starting Points: Anticipation • Next Practices not Best Practices • 2. Amplifying Weak Signals • 3. Focus on Value Creation Process • 4. View of Firm- Consumer Interactions • 5. Changing Nature of the Firm • 6. Global Perspective Innovation Debate, Value Creation Debate

    4. Let us Start with ThreeCore Principles

    5. Principle Number # 1:The Essence of EntrepreneurialTransformation Situation ASituation B Resources Low High Aspirations High Low

    6. Principle Number # 1 Aspiration > Resources Aspiration Leverage Resources Change the Game

    7. Principle # 2: “Fold the Future In” 2007 2015 *Clarity to Direction *Willingness to Discover *Clear Milestones *Speed and Stamina: 400 meters at a time but a Marathon

    8. Principle # 3:Focus on NextPractices Next Practices Well Known Practices Best Practices Amplify Weak Signals Market Perspective, Diversity, Ethics Leadership, Intercultural Training, Global Perspectives

    9. Focus on Here and Now:Tactical,Blocking and Tackling.Focus on New Opportunities:Aspiration > Resources, Folding the Future in,Focus on Next PracticesThinking Differently about the Here and Now

    10. All three principles are based on developing a Distinct Point of View about Opportunities

    11. Drivers of Innovation and Growth:The Next Practices Value Creation Space The Fortune at the Bottom of the Pyramid Global Restructuring Of Industries The Future of Competition: Co Creation of Value

    12. Challenge to CEOs:Developing New Strategic Capital

    13. Value Creation: Challenge # 1 The Changing Roles of the Consumer and the Firm

    14. Building an Experience Environment:“Build a Bear” Buy a Bear “Shell”

    15. Building an Experience Environment:“Build a Bear” “Give it Life”: A Personal Identity Stuff it. Put a Heart in. Put a sound in Give it the first shower Get a birth Certificate Buy a Bear “Shell”

    16. Building an Experience Environment:“Build a Bear” “Create a unique Life Style” Accessories, Dresses, Gifts, Home, Camping gear, Food, Cleaning “Give it Life”: A Personal Identity Stuff it. Put a Heart in. Put a sound in Give it the first shower Get a birth Certificate Buy a Bear “Shell”

    17. Building an Experience Environment:“Build a Bear” “Create a Community” “Create a unique Life Style” Accessories, Dresses, Gifts, Home, Camping gear, Food, Cleaning Siblings for your bear? Other kids, Mothers? On going relationship “Give it Life”: A Personal Identity Stuff it. Put a Heart in. Put a sound in Give it the first shower Get a birth Certificate Buy a Bear “Shell”

    18. “The Bear Promise” My Bear is Special I brought it to Life I chose it I stuffed it Now I am taking it home Best Friends are forever So I promise right now to make My bear My # 1 Pal.

    19. Let us look at the Toy Industry Conventional Wisdom Large Volume, Low cost, Low margin, Seasonal, Lots of Churn Product Development: A Gamble Fads, Few Staples (e.g. Barbie)

    20. Let us look at the Toy Industry Conventional Wisdom Large Volume, Low cost, Low margin, Seasonal, Lots of Churn Product Development: A Gamble Fads, Few Staples (e.g. Barbie) Build a Bear Moderate Volume, Low cost, High margin, All Year, less seasonal, Stable Product Development: Experience based Not a fad, Staples (e.g. Experience)

    21. The Current Paradigm: Value = f (Internal Efficiency) The Firm Suppliers Channel SCM ERP CRM Quality Cycle time “Innovation”

    22. Discontinuities Challenge the “Firm Centric View” of the World:Consider:Convergence of Technologies,Convergence of Industry Boundaries,Ubiquitous Connectivity

    23. PC Web TV FAX Cable TV Digital TV set Interactive TV PCTV Laptop Printers HDTV Satellite TV Flat Displays Digital Set-top Box Tablet PC Handheld Digital Broadcasting Scanners Home Networking PDA Video on demand Wearable Computer Telematics DVD Digital Video Recorder Digital Camera E-mail Pager Digital Imaging System Video Camera Cell Phone Multimedia Storage Digital Jukebox Electronic Toys CD Player Reality TV MP3 Player Stereo System Game Console Internet Video Emerging Entertainment Space

    24. Consumers and the Wellness Space? Health spa Beauty aids Specialty clinics Health supplements Treatment centers Cosmetics Cosmaceuticals Hospitals Assisted Living Health foods Lifestyle drugs Pharma drugs Yoga Therapeutics Nutraceuticals Surgery Personalized medicine Fitness regimen Nutritional supplements Drug delivery Self care Remote diagnostics Pharmacogenomics Ayurveda Minimally invasive treatments Remote consultation Genetic screening Medical devices Herbal medicine Alternative medicine

    25. Consumers and the Wellness Space? Health spa Beauty aids Specialty clinics Health supplements Treatment centers Cosmetics Cosmaceuticals Hospitals Assisted Living Health foods Lifestyle drugs Pharma drugs Yoga Therapeutics Nutraceuticals Surgery Personalized medicine Fitness regimen Nutritional supplements Drug delivery Self care Remote diagnostics Pharmacogenomics Ayurveda Minimally invasive treatments Remote consultation Genetic screening Medical devices Herbal medicine Alternative medicine

    26. Convergence of Technologies and Markets * Computing, Communications, Components, CE, Software, (e.g. Philips, Sony, Dell, Microsoft, ..) * Chemical and Electronics (e.g. Kodak) * Mechanical and Electronics (e.g. Ford, ABB) * PCP and Pharmaceuticals (e.g. P&G, Revlon, UL) * Food and Pharmaceuticals (e.g. UL, Nestle) * Commodity Products and High Tech (e.g. Cargill) * Retailing, F. Services and Databases (e.g. Wal-Mart, Citicorp., Tesco, ..) Fusion of New and Old Knowledge, Creation of Hybrids, Forgetting, Learning, Harmonizing, and Investing.

    27. Typical Response: Good News and Bad News Product Variety Richness of Features and Functions Product Variety is not Experience Variety

    28. Connectivity and Consumer Activism: • Information Access • Global View • Networked • (Individuals, • Communities) • Experimentation • Activism Impact on Value Creation?

    29. Consider Cardiac Pacemakers Patient

    30. Consider Cardiac Pacemakers Your Doctor Experts’ Conference Doctor on Location Patient Away Hospital Spouse

    31. The Value of the Pace Maker? • Experience of the Patient? • Integration of the Experience for the Patient, • Doctor, Family, others…? • Do we need a Network of Providers to • Create an Experience Environment? • 4. Is the Pacemaker a Part of but Distinct • from the Experience? • 5. What can you Monetize? How?

    32. Car as a Stand Alone Product or a Node in Seamless Connectivity? High Capacity CC Node

    33. Key Imperative of Co Creation of Value Experience and Innovation • Cemex in Cement • John Deere and the Harvester • Remote Diagnostics: Jet Engines • Remote Diagnostics: Patient care • Supply Chains and RF tags • Children and Learning

    34. Transformation of the Elements of Value Creation: DART Access Value Creation Space Dialogue Transparency Risk-Benefits

    35. Transformation of the Role of the Consumer and the Firm

    36. Evolving Pattern of Firm-Consumer Interaction Basic Firm-Consumer Implications/ Concept Roles Tools Traditional Distinct Roles/ Production and Consumption

    37. Evolving Pattern of Firm-Consumer Interaction Basic Firm-Consumer Implications/ Concept Roles Tools Traditional Distinct Roles/ Production and Consumption Self Service Transfer of work from Firm to Consumers. Consumers part of value chain (e.g. Gas station, ATMs, …)

    38. Evolving Pattern of Firm-Consumer Interaction Basic Firm-Consumer Implications/ Concept Roles Tools Staging Experience Firm creates and Controls Consumer Experience (e.g. Disney)

    39. Evolving Pattern of Firm-Consumer Interaction Basic Firm-Consumer Implications/ Concept Roles Tools Staging Experience Firm creates and Controls Consumer Experience (e.g. Disney) Co Development Firms allows consumers to construct their products (e.g. GE, Boeing,)

    40. Evolving Pattern of Firm-Consumer Interaction Basic Firm-Consumer Implications/ Concept Roles Tools Segment of One Firm allows you the Opportunity to construct your own product from a predetermined menu (e.g. Dell)

    41. Evolving Pattern of Firm-Consumer Interaction Basic Firm-Consumer Implications/ Concept Roles Tools Segment of One Firm allows you the Opportunity to construct your own product from a predetermined menu (e.g. Dell) CRM Firm learns more about you based on track record to sell more (e.g. Banks? ….)

    42. Comparison of Firm- Consumer Interactions Interaction Access Transparency Dialog Risk • Traditional ---- ---- ---- ---- • Staging Exp. √ ---- ---- ---- • CRM ---- ---- ---- ---- • Segment of one √ √ ? ---- --- • Co Development √ √ √ ? √ ? • Solutions √ ? √ √ • Co Creation √ √ √ √

    43. The Emergence of Nodal Firms • Intellectual Influence • Network Infrastructure • Standards • Consumer Interface • Privileged Access, not ownership

    44. New Demands of Value Creation • The Need for an Experience Network • The Need for Intelligent Products/Services • The Need for Dialogue, Access and Transparency • The Importance of Consumer Communities • The Need for Real Time Action • The Need to Cope with Heterogeneity andComplexity • The Need for Alliances • The Need for Rapid Reconfiguration of Resources Technology Infrastructure is Strategic

    45. Active Involvement of the ConsumerChanges the Innovation Dynamic The Sources of Competence is Changing Enhanced Network of suppliers, Partners, Consumers Business Units Extended Supply Network Corp. as a Portfolio Of Competencies Pre 1990 1990 - 1995- 2001 -

    46. The Meaning of Innovation is Changing Customer Experiences: Co Creation Customer Specific Solutions Product Innovations Pre 1995 1995 - 2001-

    47. We can Identify an Innovation Continuum Enhanced Network: Customers Locus of Competence Extended Supplier Network Corp. As a Source Build & Sell Build Co Create Products Solutions Experiences Locus of Innovation

    48. The Basic Transformation The Firm Suppliers Channel SCM ERP CRM Nodal Firm

    49. The New Game: N = 1 R = G ( Co creation of Personalized Experiences) Multi-Institutional and Multi –Geographic Access to Resources

    50. What is the Transformation? 1900 2000 2015 Focus: Resources Global Resource Access Consumers: Mass Mkt. N=1