by: Chris Lawer
Several papers from a 2001 conference on Nelson and Winter's Evolutionary Theory of the Firm are available for download.
One by Lars Bo Jeppesen, Making Consumer Knowledge Available and Useful:The Case of the Computer Games Industry, caught my eye. It provides a highly prescient review and analysis of the factors influencing the opportunity for firms to source and co-ordinate consumer knowledge - and then make it valid for input into the innovation process. Here is one particularly insightful passage from the paper, defining a sort of Interface - Competence dynamic that influences the opp for valuable consumer knowledge sharing.
Primarily, firms are dependent on the number of consumer’s who are able (and willing) to engage in interaction with them. The higher the cost of interaction with producers the more reluctant consumers will be to make their knowledge available. So, the available interfaces between the parts must be considered. Secondarily, some degree of competence at the consumer level is necessary in order for knowledge to be valuable for the firm. The higher degree of interaction the firm has with highly competent consumers the better it leaves the firm to take advantage of consumer generated knowledge and thereby for innovation.
The benefits of interaction between end-consumers and producers vary among firms and industries according to interfaces available and according to degree of consumer competence. Certain firms or industries obtain only little or no feedback from end-consumers, simply because there exists no interface to connect the two entities. Other firms or industries get lots of feedback but of no value because their consumers are not competent. But we can also imagine the situation in which the presence of technologies allowing for efficient communication coincide with a crowd of competent consumers.
What this dynamic implies is that firm strategies for developing customer competence must be a vitial element of any co-creation programme. This flips traditional data-centric approaches to customer learning on their head, approaches epitomised by Citibanks' new US Supremo, Steven Freiberg recent declaration (in this week's BusinessWeek- Oct 24):
Freiberg’s first big push is to mine the bank’s 120 million credit-card customers—along with 18 million new ones annually—for more business. If he can sell at least one bank product to one in 20 of them, he says, he can double the retail bank’s profits. Also, Freiberg wants to step up marketing to professionals such as doctors and lawyers, as well as to small-business owners and CitiGold bank customers. These so-called mass affluent clients with at least $100,000 in assets are a potential goldmine. He figures that every new product they buy, say an auto loan or a mortgage, yields 12 times the profits of the first sale simply because the cost of recruiting new customers is so high.
I say get that man a Juicer! Squeezing the last drop of insights for targeted cross-selling to an existing customer database is ultimately an inside-out, zero-sum game rooted in 1990s CRM approaches. Frankly, its not particularly evolutionary either.
Anyway, Jeppesen's paper goes on to review the experiences of the computer games industry. It also uses the example of cyclists and their willingness and desire to adapt their machines to fit their personal preferences (Bicycles themselves were invented by users way back when - it would be interesting to review the history of their innovation from a co-creation perspective)..
Well worth a read.