Value Co-creation and Service Systems

I am finally going to post the reason why this blog is called value-based service systems but I have a few final words on value co-creation.

To reiterate, the concept of value co-creation surround the idea that firms do not really provide value, but merely value propositions and it is the customer that determines value and co-creates it with the firm at a given time and context best for the customer achieve the outcomes they want. So a firm’s product offering, whether they are goods or activities, are merely value unrealized i.e. a ‘store of potential value’, until the customer realizes it through co-creation and gains the benefit. As I mentioned previously VCC implies customer resources to realize the value become central towards achieving end benefits.

We are seeing value co-creation gaining a more prominent role with healthcare (with greater customer empowerment), with mobile telecommunication and the internet (with user generated content), education (with self study courses). That is the world we're going towards. Customer resources as central to value, benefits and outcomes.

Actually, I like to flip it around. Think about yourself as a 'firm'. You would ordinarily do everything yourself but that would be hugely inefficient and impossible. So you would 'outsource' certain aspects. Take an extreme view - you could drink water from a tap but that is not effective so you buy a cup to hold the water to drink it. You have just outsourced that function to a cup. So all goods and services are offerings to make your life better, more effective and improve your quality of life. I like to say this to the NHS - 'your service is an interruption to my quality of life. How are you interrupting me today?' - it gives an 'outside-in' perspective and if you read some of the VCC literature (Payne, Gummesson, Prahalad), they talk about the need to balance out the system to understand VCC better - Evert Gummesson calls it 'balanced centricity'. (By the way, for UK people, Evert is coming to Cambridge and London on 11/12 Mar so let me know if you'd like to attend his seminar.)

So if you think about the customer as a 'firm', you will understand VCC as a partnership with shared resources. Steve Vargo has a real nice paper out on 'It's all B2B...' forthcoming in the industrial marketing management. Really a good read. So as a 'customer/firm', what are our resources? There is currency in our time, our ‘eyeballs’, our effort, our loyalty and all type of resources accessible only to us which we can trade off with money (price) and firm’s propositions - all to co-create value. But do we know how to measure this VCC? or price it?

The answer, I think, means we need to extend the logic a little further coz most of us who come from the cause-and-effect world, the Porterian 'value chain' world, don't necessarily look at the right unit of analysis to find the answer.

It's nice to think of the firm and the customer in partnership, sharing resources, co-creating value and then think of the price the firm can charge for the service (that includes customer resources) and then try to compute customer long term VCC-informed value, VCC-informed customer equity and the like. It's nice to think of it like that because we can see the cause, and the effect, and it makes it all nice and neat.

The truth, like life, usually gets a little bit more complicated.

In today's world of outsourcing, firms' value propositions can sometimes be a network of propositional value e.g. server farms from Amazon, social media from facebook, search engine from google, all work together in one click, or on one web page. On top of this, content can sometimes be from other customers, so consumption (and the realisation of value-in-use) is derived from multiple customers consuming and providing value propositions with the firms. This is starting to get really murky.... and it's not just online either - whether you're talking about an airport, transportation, olympics, value is being co-created in systems now, by multiple stakeholders - customers, suppliers, firms. In such systems, it’s hard to tell who’s the provider and who’s the customer. Also, who pays whom for what is also unclear. The future resides in a service system of resources proposed, consumed and value co-created by a web of stakeholders, including customers themselves, all of whom have something to gain and something to give to the system.

What is cause, and what is effect? And when you really can't tell cause from effect, what technologies should we use? As a social scientist, an economist, a consultant, this problem intrigues me. Yes, and this is the reason why this blog is called value-based service systems. The interplay between processes and outcomes within a service system which are non-linear and multi-directional in nature suggests that our current instruments of analysis may not be as effective. Miller and Page (2007) calls it, “understand running water by catching it in a bucket”. The future will see the development of more dynamic system level tools, with the system as a unit of analysis in measuring value co-creation, stakeholder (including customer) equity... think about how this could work for hybrid public-private sector collaboration.. which of course leads to ..........ta-da! my NHS project starting this April.

But I will talk more about systems.......