21 July 2016

Harnessing the power of innovation through living labs

Engaging with customers in the creation of new products and services is now of paramount importance for firms. Such a revolutionary approach can shorten the time to market and ensure a better fit between a company’s offer and market needs, two of today’s strategic imperatives to survive in progressively more competitive environments. In order to derive insights from customers, firms are experimenting with innovative organisational solutions: amongst them the use of living labs is increasingly capturing the interest of managers.

Success stories of co-creation are emerging across various industries, and involve both small and large firms. Organisations that are embracing this approach outperform the market, develop better products and place them faster onto shelves, provide superior service, and build deeper, more loyal relationships with their customers. For example, LEGO employs co-creation to successfully engage many of their adult customers in the design process of new products. Peter Espersen, head of global community co-creation at Lego explains “We have learned some big lessons. First, that creativity has almost no boundaries; people can do amazing things. Second, we can’t always predict what consumers want. [..] When you combine the idea of Lego with another strong community, and a fun one, that is rocket fuel in the engine - it really works.”

In spite of the term co-creation being now widely used, all co-creation is not the same. The catch-all term has meant that everything from crowd-sourced marketing ideas to general collaboration has been labelled as co-creation. This led many organisations to believe that they have practiced co-creation, when they actually have experienced a tactical (and often far less value adding) interpretation of the practice. Co-creation is not a tactical marketing method, nor is it just a synonym for collaboration. It is a way of innovating that can truly revolutionise how organisations work and address customers’ unmet needs. So what is co-creation exactly? Co-creation refers to collective creativity that results in something that is not known in advance. In essence it is the idea that organisations can be more successful by innovating with customer rather than for customer. In its purest form, co-creation suggests that customers are no longer at the end of the value chain, but take up a key role in the process of value creation.

In order to engage with customers in the co-creation process, the use of living labs has emerged as a new way to sustain competitive advantage. Living labs are open innovation platforms that enable systematic customer co-creation whilst integrating research and innovation processes in real life settings. One example is JOSEPHS – a living lab located in the town centre of Nuremberg in Germany. JOSEPHS offers an open innovation space where five companies display their product and service innovations for three months under one theme. This space is open to the public. JOSEPHS as facilitator encourages customers to try out products and services and then give feedback.

However, the understanding of how the co-creation process can be best facilitated is limited. To support managers pursuing this strategy and engage in a vibrant and growing academic debate, we conducted a study to identify factors that are critical to successful co-creation in living labs. The case JOSEPHS has been chosen for this study due to its set-up as a continuous platform for interactive innovation. The outcomes of this research are available through our webinar or monthly Cambridge Service Alliance paper, and as a podcast.

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