The Future of Co-Creation and Crowdsourcing

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Information about The Future of Co-Creation and Crowdsourcing

Published on March 14, 2014

Author: janspruijt


DRAFT THE FUTURE OF co-creation AND crowdsourcing – 15-05-2013 Copyright 2013® Nick van Breda & Jan Spruijt The Future of Co-creation and Crowdsourcing Nick van BREDAa,1 , Jan SPRUIJTa,b a Academy of Marketing, Avans University of Applied Sciences, The Netherlands b Professorship of Innovative Entrepreneurship, Avans University of Applied Sciences, The Netherlands Abstract: This article reviews how co-creation is developing over the world and how different businesses are able to use co-creation. To give a clear sight of that, stories of companies, marketers and trend watchers will be used to tell about this phenomenon called crowdsourcing and co-creation. Marketers found a method to combine co-creation with the existing method of creating something new. Based on research we can now predict how co-creation will develop over the following years. The evolution of co-creation is more exciting than we previously thought and we think that these results have to do with how the internet and social media have developed. A revolution is coming up and organizations will see an increase in turnover based on fast innovation and participation by the crowd. We are living a world with a new dimension: a dimension where large organizations have no reason for existence when customers aren’t satisfied with their purchase, the organization’s service and most of all their feeling of participation. Consumers feel that they should have the power to change visions and missions of the old fashioned marketing way: the manipulative way to earn money. A dimension where 24/7 online is the key to succeed, fast responses to questions and remarks. In this time if continuous changes, creativity is a must. Keywords: Innovation, co-creation, crowdsourcing, open source, management system, progress, trends, opportunities, prosumers, participation, globalization, consumers, open innovation, collaborative innovation. Introduction This research started its way by an organization called Edcom which started an open contest to write a paper about co-creation. Recently co-creation and crowdsourcing, which is a form of open innovation as well, has been an increasing topic of interest in the market and therefore we have searched for the link between different forms of co-creation and how both forms could impact today’s business. Platforms on co-creation and crowdsourcing, like 99designs and Crowdsite, have had a big rise in interest over the years (see table 1). This article will explain how co-creation and crowdsourcing could have its impact and could be implemented in the management of organizations in the upcoming years. Year Contests per month Designers Growth in designers Growth in contests 2009 75 6.325 141,04% 200,00% 2010 150 8.921 175,78% 166,67% 2011 250 15.681 156,85% 160,00% 2012 400 24.595 128,57%* 130,00%* 2013* 520* 31.623* 120,00%* 130,00%* 2014* 676* 37.948* 116,67%* 130,00%* 2015* 879* 44.273* 120,00%* 130,00%* Year Contests per month Designers Total contests Growth in designers Growth in contests 2008 1.214 22.685 14.568 233,60% 123,69% 2009 1.502 52.993 32.587 163,10% 142,90% 2010 2.146 86.431 58.337 154,54% 193,58% 2011 4.154 133.571 108.185 135,30% 147,85% 2012 6.142 180.716 181.884 124,08%* 124,68%* 2013 7.658* 224.232* 212.514* 116,21%* 116,23%* 2014 8.900* 260.576* 276.555* 115,77%* 113,48%* 2015 10.100* 301.663* 328.720* 114,00%* 110,00%* *Prognose of growth Table 1. Growth number of crowdsourcing platforms (Crowdsite, 99designs) Existing literature Co-creation is a term introduced by Barbara Marx Hubbard in 1980 (Hubbard, 1989). In the beginning it didn’t become popular, but that changed in 2000 when the term was reintroduced in marketing being described as consumers that are enabled to contribute in the development of a product. Prahalad and Venkat Ramaswamy refined the definition with being an extension to companies’ products and services to create an additional economic value (Prahalad & Ramaswamy, 2004). In short “an interactive more valuable product or service made by a meaningful, creative and inclusive engagement with all stakeholders” . There are two forms of co-creation. The first is described as outside-in and the second as inside-out. Outside in means that “the enterprise ports a platform on top of which the stakeholders can engage in the various activities” (Ramaswamy, 2011). As an example we take Apple that made their iTunes store where people could sell their songs on with a share of profit and create value to the customer by selling single songs instead of CDs. Inside out means that the organization is searching for solutions within their organization, actively working and engaging employees to collect their idea. Every idea is being showed in the progress so that the employees interact and add more value into ideas of other. This progress can be tracked all the way to the realization.

Idea Click and T-Mobile are great examples here: they managed the employees to participate and employees felt that they were doing something meaningful (Ramaswamy, 2011). Why should organizations use co-creation? There are several reason why it is good to use co-creation in organizations and, to make a clear sight we use the most valuable reasons for both the organization and for the participating stakeholders (Rossi & De Chiara, 2009). Organizational benefits:  Organizations creates a self-sustaining system  Developing products/services  (Positive) network effects  Reputational gains  Setting of an informal standard  The revealing by other of related innovations  Building online community Stakeholder benefits:  Communal norms  Sense of belonging  Friendship  Gain of knowledge  Intellectual stimulation  Fun and excitement  Pride and passion What has crowdsourcing has to do with co-creation? The definition of crowdsourcing is; “when a company takes a job that is once performed by an employee and outsources it in the form of an open call to a large undefined group of people generally using the internet” (Howe, 2006). This means that jobs like researching, designing, innovating, testing and more can be done by the (generally online) crowd. crowdsourcing is more like the first step to outside-in co-creation, where organizations start to interact with the crowd and whether the organization chooses to work with a small amount or one single person to create more value in a product or service it starts to be co-creation (co-creation differs in that co-creation is about working collaboratively with a group of people with specialized skills or talents (Teng, 2011)). For example, let’s take Battleofconcepts, a platform that uses the form of crowdsourcing and when the winning concept has been declared, the company asks the person to start co-creating it into realization. At that point it becomes a meaningful engagement . It isn’t successful for every participating company, but chances are big. Prahalad tells us that this meaningful engagement has to do with four principals: transparency, access, dialogue and reflexivity. The last principle seems the most relevant for co-creation. He explains it as “enhancing, sense making and learning while evolving the design of the environment to make participants’ engagement experience more meaningful” (Prahalad, 2006; Teng, 2011).

Below, some statistics about the forms crowdsourcing, co-creation and open innovation have been depicted. As you can see co-creation is the smallest of the three which explains how widespread crowdsourcing is and how much awareness is rising. Googling the word “co-creation” yields over 375 million hits today (May 2013) which were 30 million hits in May 2011, up from barely a million hits from around June 2007. The same is happening with crowdsourcing, introduced in 2006 by Jeff Howe and grew to 11 million hits on Google (May 2013) and interest is still going up. Figure 1: trends in crowdsourcing, co-creation and open innovation Next to this graph we took a look at “Crowdfunding”. As you can see it has grown explosively. Crowdfunding is the step after crowdsourcing, co-creation and open innovation to fund money by the crowd. The amount of platforms and the successful project stories created huge awareness and this form of co-creation has shown to contribute to a bright future for small organizations or starter to realize their projects. (Source: Google Trends, May 2013) Figure 2: trends including crowdfunding To get a clear understanding about the use of co-creation take P&G as an example (one of most progressive organization on co-creation). Procter & Gamble serves 4,4 billion consumers today and they strive for extraordinary quality. They use open innovation to grow by the touching and improving of more consumers this is done with finding out consumer behavior through co-creation (Source: crowdsourcing and co-creation at P&G is implemented the following way: 1. Make a contest (what section will you innovate in). 2. Set a price (see below P&G example).  The organization offers the winning contestant to work with their experts  The winner is able to see creative ideas from other designers/innovative thinkers  The first three will be awarded with a price (USD 5000, 2500, 1500)

 The fourth to tenth ranked persons will be awarded with products packages/vouchers 3. Set rules to join (over 18 years old, no employees of P&G aloud). 4. Make a login system to get contact details (on the platform, website, through Facebook). 5. Make sure the platform describes the briefing very clear so that anyone could understand it and always re-read it before submitting the proposal. 6. Make sure that the proposal is as clear as the level of detail they provide (advise them on the platform, offers them an example) 7. Set key deadlines (of one or two months is the standard). 8. Make sure participants can contact for questions (helpdesk, mail address). 9. Contact winner by phone/mail and ask them if they do not infringe 3rd party material. 10. Make sure the agreement will include the rights to be transferred to the organization when the winner is chosen. 11. Make certain rules against offensive entries (inform/evaluate the participant about it and delete the entry of the platform). 12. If you offer tools for the participants, make sure these are working and that they can get support by contacting the support center (by mail/phone). 13. Start co-creation with the winner(s) in combination with your experts. Missing literature Consumers to prosumers. Today, business are no longer in control of their products, brands and messages, because the possibility to interact with organizations and the market became available from everywhere over the world (because of the internet). The consumers are in control now. They can choose what they want instead of having no other choice than consuming it from the seller in the city. Prosumers start to believe in companies’ products if they are convinced by the crowd, a friend, family or the members of a social web, like bloggers. Companies will need to create trust and engagement now instead of just telling that they are the best. After that people will become the voices of the products and this will have significantly impact on the success or failure of companies. co-creation is in a way connected to this, because the crowd/consumers that believes in the organization will be the one with the most chance of interacting and collaborating to eventually become their ambassadors (Gunelius, 2010). In a theoretical overview of user participation in innovation, Bogers, Afuah, and Bastian (2010) have provided numerous elements that haven’t been researched so far and should provide interesting insights for future developments in co-creation:  Definition of co-creation users: given the variety of results, roles of users, contexts and methodologies, many articles are difficult to compare.  Radical versus incremental innovation: the general perception indicates that co- creation lead to more radical innovation, however, there seems to be no evidence of this fact.  Tacit knowledge: there is a lot of tacit knowledge that contributes to the effectiveness of co-creation. However, this knowledge should be made explicit before it could contribute to research studies.  Industry dynamics and locus of innovation: the changing role of co-creators should be investigated; are they participators or innovators themselves? Are they innovating a particular product or providing useful insights to the market as a whole?

 Firm boundaries: co-creation has an interesting effect on business models and it could be questioned whether organizational theory is changing because of the fact that firm boundaries become less clear to users.  Open innovation: users start participating in internal innovation processes; the effect of this development on organizations and users has not been researched widely.  Profit: who will profit from user innovation and co-creation? There is much debate going on about how co-creators should be rewarded for their work. Research questions and methodology The foregoing leads to interesting dilemmas and research possibilities. The increasing attention to both co-creation and crowdsourcing, combined with the lack of literature on future possibilities of these theories, leads to our research question: In what ways will co-creation and crowdsourcing manifest itself in the (near) future? Results Co-Creation in the near future. During our research we have found different possible ways in which both co-creation and crowdsourcing will change in the near future. These changes will have a high impact on organizations and business models. The most important aspects that will change are: co-creation leadership; co-creation as mechanism for branding, viral marketing, social media in co-creation 1. Leadership of co-creation: Co-creation seems to change the way an organization is organized in the future. Where the old organization structure is still a hierarchy in many organizations it will turns them into a heterarchy. Hierarchy is disrupted, we run many systems in hierarchy but it’s now more of a network instead of a perfect tree. “A heterarchy instead of hierarchy” (Maeda, 2012). Figure 3: heterarchy Leaders have a challenge today, how to lead differently. co-creation leadership is a concept that has become out of the heterarchy. Leaders found out that it’s way more effective to use less people on the jobs by a more collaborative and transparent way. Every person in an organization will be asked the questions where they are good at or passionate about. The moment when the managers face a problem it is easy to find the right internal person to co-create a solution together with. Employees book better

results when they can work informal with the formally higher staff and when they can express their talents/passion. To innovate fast a selected group that combines either talented designers with their creativity, researchers with their knowledge and marketers’ with their selling capabilities to co-create value to stay up to date with world latest trends (where organizations used to pay lots of money for in outsourcing). When everyone has the same influence in the company employees will be much more motivated and proud of their work. For example Google is doing this, every employee got 20% of their workday free to create and offer ideas for the future of the company. The difference in this new creative leadership is showed in the table below. Traditional Leadership vs. Creative leadership (Maeda, 2012). These findings are supported by different organizational theories, such as the structural holes and social capital (Burt, 2001, 2009). Traditional Leadership Creative leadership One-way Interactive Concerned with being right Concerned with being real Follows the manual Improvises when appropriate Loves to avoid mistakes Loves to learn from mistakes Reliability Validity Orchestra model (one influencer) Jazz model (everyone influencer) Community in harmony Community in conversation Wants to be right Hopes to be right Open to limited feedback Open to unlimited critique Sustaining order Taking risks Closed system Open system Table 2. Traditional vs. Creative leadership. Organizations also started a new way of finding the right employee through a crowdsourcing platform (introduced in 2011). A new business model that gives you the opportunity to write you in as an available employee or offer yourself to be a recruiter to find the very best employee per job. When someone gets picked you will get a certain fee for helping. Because they are working in the cloud it saves a lot of time and money. (Source: Organizations seem to more and more ask for leaders that can handle the openness of this new way of leadership. The first applications are on the web, from Director of Global Open Innovation” to “Head of crowdsourcing. What skills are essential for these kind of jobs? It’s all about connecting and development to help organizations with their outside in and inside out co-creation (Roth, 2013). 2. Co-creation as a mechanism for branding Branding is about the connection between firms and consumers, with co-creating value, the business can connect with social connections in a more meaningful way. Those people are the influencers and these are not only restricted to their own country anymore. Organizations learn from the monitoring of their co-creation process by creating value among consumers. Three important elements are used in this process:

consciousness of kind, share rituals and traditions and a sense of moral responsibility (Muniz Jr & O’guinn, 2001). Brand communities start pushing and pressuring firms to engage with the empowerment of consumers from all over the world to use value co- creation and creating an appropriate global value proposition (Pongsakornrungsilp, Bradshaw, & Schroeder, 2008; Pongsakornrungsilp & Schroeder, 2011). 3. Viral marketing through Word-of-Mouth Co-creation by consumer-generated advertising influences the words of mouth effect in a way that campaigns become viral. For example Doritos used the fans on social media to give ideas about a new ad for the chips. The fans immediately reacted to this and shared the question to many others. Doritos just had to pick the one that was liked the most and created the ad. Immediately after they posted the ad on the internet people started sharing, first of all because the idea was given by a normal person from the fan page and second of all they learnt about what their target group likes the most. With the ads they made in 2011, 2012 and 2013 they have been awarded for the Super Bowl contest for best ad because of the great engagement with their fans who are proud of themselves creating this ad Benjamin Lawrence (2012). . Figure 4. Word-of-mouth 4. Impact of social media on co-creation Research indicates that social media could have a large impact on co-creation (Piller, Vossen, & Ihl, 2012):  Impact of social media on the lead user method, which is a method to get information from specialist users (lead-users) in the fuzzy front end of innovation or the generation phase of innovation.  Impact of social media on toolkits for customer co-design, which focuses on using the crowd – average consumers, not lead users – to participate in the design.  Impact of social media on solution contests, where organizations (seekers) set out contests for users (solvers). It has shown to be highly effective in problem solving when it comes to technical problems, therefore focusing rather on incremental innovation instead of radical innovation.

 Impact of social media on ideation contests, which focuses on the same group as the foregoing impact, however more on the ideation phase of innovation. Co-Creation in the far future. Besides co-creation in the near future, this article also depicts some interesting insights regarding co-creation in the far future: 1. Trends As part of this research, several entrepreneurs and specialists in the field of co- creation have been interviewed.  “Co-Creation is booming”: Buuron (2013) expects that a lot of organizations will work with co-creation in the upcoming years. To citate: “first of all just the innovative clubs/groups are focusing on it, but this is going to change. We just reached the era that we can say: Co-Creation-is-so-new-that-it-is-in-the- newsletters-phase” (Buuron, 2013).  Every kind of organization will work with co-creation: “I expect that every kind of organization will work more with co-creation. Even the small ones.” (Kapitein, 2013).  “The major development is the professionalization of the implementation of co- creation. The brainstorming is often the first step of co-creation. This is innovative and fun and appeals to a certain type of people very (creative, innovative, fast, curious, open attitude to everything, etc.). Next, the ideas are realized. You'll need other people and often complementary skills (solid, solution, open communication, doers, go-getters and 'finishers'). In co-creation projects, these type of people to cooperate well with each other and in a professional manner. For small businesses are less different people and departments in the entire co-creation process involved. The implementation of the co-creation is therefore less complex for them than for large organizations. So I think co-creation for small businesses is a great opportunity to successfully do Innovation.” (Kapitein, 2013).  “Social media helps to involve stakeholders quickly and easily to co-create. Here are some very useful tools and platforms too. Although those are just the resources.” (Kapitein, 2013). 2. Co-creation in education Schools are implementing participation by co-creating and co-designing. Avans University for Applied Science in ‘s-Hertogenbosch offers education in co-creation. This is done by offering a variety of platforms and form small co-creation teams to send in a concept or a design which will be presented and rated. More schools will follow this way of education in the future. Whether it’s in educations of design, research or programming co-creation can be used (Sanders & Stappers, 2008).“The links between social sciences and design are getting stronger and several schools are including participatory design techniques, etnography and pychology into the curriculum of industrial design engineers” (Sanders & Stappers, 2008). Industrial designers are shifting from product development to design researchers while co- creation platforms make it much cheaper to get the right designs and schools will eventually offer to do it for free to work on their curricula. 3. Ecosystem Co-Creation Pitelis and Pitsa (2011) have constructed a theory that indicates that co-creation is not just applicable on product and service innovation, but also on markets and

ecosystems as a whole. They argue that co-created ecosystems enable entrepreneurs within these ecosystems to make stronger use of co-creation. As an example they name Apple, “In this context, and in line with Schumpeter, Apple’s innovation is aimed at both value creation and value capture by co-creating and leveraging a business ecosystem. […]Apple helped in creating the backbone of this market by organizing and bringing a consciousness to the players behind it in the supply chain.” (Pitelis & Pitsa, 2011). Another example would be Starbucks: “As in the case of Apple, Starbucks helped create the market infrastructure which secured that coffee of high quality would reach the consumer (ibid). This is not just an instance of opportunity co-creation but rather one of market and ecosystem co-creation.” (Pitelis & Pitsa, 2011). Expectations are that market and ecosystem co-creation will play an increasing role for businesses in the far future. 4. Future ways of innovation:  Mediation and coordination. Because there are so many things tracked organization started tracking what media works in what culture on what period of time. To innovate on consumer base, organization will need to know more and more about the interests of the consumer and this gives the opportunity to see where innovation can have the greatest (value) impact. When everyone has smartphones with GPS tracking this can be seen as larger opportunities.  Wider participation. Participation is going to more more widespread, from everywhere over the world people can participate over the internet, whether its a graphic designer in Russia or a researcher in Hongkong we are more and more connected and this will lead to a wider participation (also with the fact that schools are focusing on real projects to participate in) (Sanders & Stappers, 2008).  Changing motivation. The market is more and more customer-driven, because the true value of a market offering can only be evaluated through the lens of the customer. Its focus is not only on what to offer but on the customers’ value creation processes, in which value for customers emerges (Grönroos, 2008; Moeller, 2008)The focus used to be on what customers purchase rather than what they actually do, it is focused on the passive customer. The proactive market orientation asks for a firms attempts to discover, understand and satisfy the expressed need of its customers. This can be accomplished (with co-creation as in a way) to work closely with lead users (Narver, Slater, & MacLachlan, 2004). 5. Crowdsourcing as an integrated part of the innovation process Crowdsourcing can be used in different ways in the innovation process, whether organizations are searching for high–value solutions for complex or novel probems, a collaborative community to generate insides about the consumer, encouraging innovations with your core products and work efficiently and flexible to descrete tasks. Whether you need help in searching the right information, the right solutions for innovative users about core products and a higher efficiency and flexibility finding the right persons for discrete tasks crowdsourcing offers it all (Kevin J Boudreau & Lakhani, 2012; Kevin J. Boudreau & Lakhani, 2013). See the figure below.

Figure 5. crowdsourcing as an integrated part in the innovation process. Conclusions Co-creation and crowdsourcing are terms that are expected to be more and more used in todays and future business. Trends tell us that the interest and awareness is growing fast and that this is confirmed by all the positive stories, the already succeeded innovations through co-creation and the way we consume our products and services these days. Organizations will run differently with this new form of co-creation leadership and the crowd will have a fundamental role in the existence of a long lasting consumer driven market. With the revolution of the internet it all started and future innovation will be more connected, more contesting and with more teamwork than ever before. References Bogers, M., Afuah, A., & Bastian, B. (2010). Users as innovators: a review, critique, and future research directions. Journal of Management, 36(4), 857-875. Boudreau, K. J., & Lakhani, K. R. (2012). How to manage outside innovation. Image. Boudreau, K. J., & Lakhani, K. R. (2013). Using the Crowd as an Innovation Partner. Harvard business review, April 2013. Burt, R. S. (2001). Structural holes versus network closure as social capital. Social capital: Theory and research, 31-56. Burt, R. S. (2009). Structural holes: The social structure of competition: Harvard University Press. Buuron, M. (2013). Interview. Grönroos, C. (2008). Service logic revisited: who creates value? And who co-creates? European Business Review, 20(4), 298-314. Gunelius, S. (2010). The Shift from CONsumers to PROsumers. Forbes.

Howe, J. (2006). The Rise of Crowdsourcing. Wired Magazine. Hubbard, B. M. (1989). The Book of Co-Creation: Highlight Productions, Incorporated. Kapitein, A. (2013). Interview. Lawrence, B., Fournier, S., & Brunel, F. (2012). Online Word-of-Mouth in the Co- Creation and Dissemination of Consumer-Generated Ads. Boston U. School of Management Research Paper(2012-16). Maeda, J. (2012). How art, technology and design inform creative leaders. Moeller, S. (2008). Customer integration—A key to an implementation perspective of service provision. Journal of Service Research, 11(2), 197-210. Muniz Jr, A. M., & O’guinn, T. C. (2001). Brand community. Journal of consumer research, 27(4), 412-432. Narver, J. C., Slater, S. F., & MacLachlan, D. L. (2004). Responsive and Proactive Market Orientation and New ‐ Product Success*. Journal of Product Innovation Management, 21(5), 334-347. Piller, F., Vossen, A., & Ihl, C. (2012). From social media to social product development: the impact of social media on co-creation of innovation. Die Unternehmung, 65(1). Pitelis, C., & Pitsa, E.-M. (2011). Entrepreneurship, Appropriability and the Role of Market and Ecosystem Co-Creation. Available at SSRN 1963726. Pongsakornrungsilp, S., Bradshaw, A., & Schroeder, J. (2008). Brand Community as Co-Creation Value in the Service-Dominant Logic of Marketing. Available at SSRN 1103970. Pongsakornrungsilp, S., & Schroeder, J. E. (2011). Understanding value co-creation in a co-consuming brand community. Marketing Theory, 11(3), 303-324. Prahalad, C. K. (2006). The Fortune at the Bottom of the Pyramid: Pearson Education India. Prahalad, C. K., & Ramaswamy, V. (2004). Co-creating unique value with customers. Strategy & leadership, 32(3), 4-9. Ramaswamy, V. (2011). What is Co-creation - Innovation. Youtube. Rossi, C., & De Chiara, A. (2009). The Challenge of Co-Creation: Corporate Blogs and Collaborative Product Innovation. Available at SSRN 1842323. Roth, Y. (2013). Birth of a New Job Type! Arise co-creation manager. Innovation Excellence. Sanders, E., & Stappers, P. J. (2008). Co-creation and the new landscapes of design. CoDesign.

Teng, S. (2011). The Power of the People: Crowdsourcing Versus Co-creation - See more at: versus-co-creation/#sthash.RHs51gdD.dpuf. Eyeka.

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