Wisdom of wise crowds and the limits to Co-creation

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The model of co-creation is assuming that companies make use of consumers in the innovation process, by informing and empowering active consumers to create value. It is assumed that the innovation success ratio is increased by using this model. Underlying this assumption is the concept of the wisdom of crowds, i.e. that aggregate information as basis for decisions is better than information from single sources (even when those sources are experts in the field). The Web 2.0 mania is exploiting this concept, claiming that user content creation is a successful outcome of this. Well-known examples are Wikipedia.org and YouTube.com.
After some recent participation statistics the question of validity arises: Is it really true that usage of crowd-knowledge is enhancing your innovation capabilities as a firm?

What is Co-creation?
In contrast to traditional concept of corporate innovation with large R&D departments, co-creation sets a new standard for innovating. By tapping into the large base of consumers and making use of and/or learning from their intellectual capital companies are able to shorten the development cycle for new products or services.
In this model there are several variations. Prahalad and Ramaswamy (2004) write that informed, networked, empowered and active consumers are increasingly co-creating value with the firm. This is in contrast to the traditional view of a market, where consumers only are involved at the point of exchange, i.e. outside the firm. In the new view on the market the firm is interacting with the customer, creating new value. As we see innovation as “a process by which value is created from the application of insights and techniques in areas where this didn’t happen before �, co-creation is a way of using external knowledge to improve innovation capabilities.

The Wisdom of crowds
The marketplace where companies and consumers meet is supported by technology. In particular the rise of Web 2.0 technology is seen as an important enabler. Web 2.0 is in essence about user generated content, i.e. that users of a website (often in the form of a community) are generating the content of the website. A well-known example is Wikipedia.org, an online encyclopedia, where users write the content. Some research (although the validity of the research is questioned) suggest that the quality of information retrieved from Wikipedia is comparable to the Brittanica encyclopedia.

These findings are synchronous with James Surowiecki’s statement in The Wisdom of Crowds that the many are smarter than the few and that collective intelligence shapes business, economies, societies and nations.

If this is all above is true, then using customer knowledge for innovation is not only a should have, but a must have for organizations.

Limits to co-creation
However. The crowds appear to be not the just everyone outside, but only a small percentage of maybe ‘wise crowds’. Recent research done by Ben McConnell of the Church of the Customer Blog indicate that the number of contributors in user generated content- environments is pretty dissapointing:

* 50% of all Wikipedia edits are done by 0.7% of users
* 1.8% of users have written more than 72% of all articles

In hindsight these findings are not surprising. As a point of self reflection I must confess that most of the information coming from the blogosphere is also not newly created content, but constructed content from different earlier bloggers. Look at the blog-indexing site Technorati (which is tracking over 50 million blogs) and you will find out that most of the content is relatively similar. Also on the web we see this pattern evolve: most of the search results of Google will deliver you the same information.

Bruce Nussbaum (Businessweek) mentions the following:

If 1% of crowds are creators, then what is the difference between “experts” and “crowds?” What is the difference between professional historians who write encyclopedias and the “masses” of people who do? Where does the real value of crowds lie?

Co-creation therefore is not only about creating a communication platform with consumers, but it should be accompanied with a targeting process to invite and retain experts. Many co-creation examples are one-time competitions for design of a specific product. The more sustainable co-creation initiatives pay attention to the creation of a community. Important incentives for people to stay involved in generating content are (source)

• Status
• Bespoke lifestyle
• Monetary rewards
• Employment
• Fun and involvement

suggested reading

• Prahalad C.K., and Ramaswamy V., (2004) Co-creation Experiences; the next practice in value creation, Journal of Interactive Marketing, Vol. 18, Nr. 3

This post is the second article in a serie on Outside-inside learning, i.e. how companies can learn from the outside. In the previous post i featured Eric von Hippel’s Lead-User concept as a source for innovation.

This entry was posted on Monday, July 31st, 2006 at 11:12 pm and is filed under Digital Library, Theory Building blocks, Innovation, podcast, Outside-Inside Learning. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.