22nd Jul 2010
Does the future reside in a service system of resources proposed, consumed and value co-created by a web of stakeholders, including customers themselves? Irene Ng believes so.
Value drives everything we do. We buy stuff because we value it, we collaborate because there is value in the collaboration.
As a business economist, I am interested in value the way it can be captured in an exchange, monetarily or otherwise. This does not mean I believe in value as exchange value. Value to me is always value-in-use. But I am interested in how use value translates to exchange value. There is a subtle, but important difference.
Let’s look at the dimensions of value.
- Value is contextual (state dependent) both in terms of when we consume it and when evaluate it (to buy). This means it depends on the state of the world at the point of use. Between 10 and six last night when I was asleep, I did not value the functional use of the iPhone but I valued its availability for functional use, which is a use value as well, but an emotional use. But when I bought this phone, I might not have envisaged this particular context or all contexts where I would have valued the use of my phone. Indeed, the context in which I purchased my phone would have influenced the price I was willing to pay for it at that time. It also means that I have to imagine the future use value contexts to develop a present value of the phone.
- Value also has an emotional dimension. If you don't believe in emotional value, take a look at your watch. If it's worth anything more than £10, you bought it for emotional value because if you truly only bought it for functional reasons, you wouldn't have bought any watch above £10. So the Ferrari that is sitting in my driveway (I wish) gives me great emotional (ownership, status) value even if I don't drive it.
- There is also a practical dimension. Practical value is an abstract concept that can be described as function. If you think of a chair, the practical value of a chair is the abstract notion of a seat.
- Conversely, there is nothing abstract about logical value. Its value is defined and purposeful. If you want to buy a tape measure, it must be a correct tape measure i.e. the measurement on the tape measure must be accurate. If it's a hotel, you want it to have a bed, a bathroom, i.e. logical value is about objective standards.
What is interesting to me about these dimensions of value is not merely that they exist, but from an organisation's perspective, many firms just do not design and deliver all dimensions of value to the customer. Often, they reduce it to some six-sigma of practical or logical value but to be truly able to deliver value to the customer, the organisation must be able to deliver all dimensions of value, not merely one or two. This is hard, because design and delivery of services often do not design and deliver emotional value because the transformation required to deliver that value is the transformation of the customer themselves.
There is also expected and perceived value. Human beings seek to minimise costs (and maximise net value i.e. benefit minus costs) even if the benefit is in the future. So when we decide to buy, we weigh the expected value in the future and decide how much to pay now. When we actually consume the service, we develop a perception of the value and we compare that to what we expected when we purchased. And then evaluate if we want to repurchase.
Go to a café with 'new eyes' and evaluate the experience by critically looking at all the attributes (features) of the café. Go out, have nice coffee/tea, come back. What is the outcome of the experience (value)?
In terms of the emotional and functional outcomes you may say 'relaxed', 'feel good', 'got updated on the gossip', 'chilled', 'cosy and warm'. And what are the attributes of the café? People will usually say 'music', 'ambience', 'good coffee', 'not crowded', 'good seats', 'good heating'.
Between the attributes and the outcomes, how the hell did 'ambience' become 'chilled'? How did 'music' become 'relaxed'? This may be puzzling – unless I say 'what if you can't hear'? Would 'music' still lead to 'relax'? What if you are there to sort out a problem with a girlfriend, would 'ambience' still lead to 'chilled'?
People often completely forget their own role in creating that experience. That they, as customers, co-created the value with the café. They realise that for attributes to become outcomes, they unlock the value proposition of the cafe to achieve benefits. And more importantly, and this is a key point - they needed to access their own resources to co-create that value whether these resources are their ability to choose the right company to go to the café, or even their basic resource of being able to see, hear and feel. The customers designed themselves so that they can co-create value with the firm.
In essence, it's a lot about whether the customer is able to access the resource to achieve the best benefit and whether the firm takes for granted what the customer is able to access. BMW i-drive. Have you tried it? In its early days, you could sit inside the state-of-the-art BMW and feel really stupid because you don't know how to work it (they've tried to make it easier but I haven't tried it recently). In my world, you just didn't have the right resources to co-create value. So the best value proposition in the world (iPhone) is useless if you don't know how to use it. And it would give you the greatest value if you did.
What does this mean for firms? Well, to service designers out there - how much of service design includes the design of the customer and the resources they need to co-create value? And to achieve what types of outcomes?
It is also worth clarifying that value co-creation isn't co-production. Co-production is helping the firm shape its value proposition (users helping Nokia with the next phone, or better software, or even a better café). Value co-creation is bringing in your own resource to achieve the beneficial outcomes with the firm at the point of consumption (remember, we are still talking about value-in-use.) There is a difference.
Value in systems
To reiterate, the concept of value co-creation (VCC) 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 to achieve the outcomes they want. So a firm's product offering, whether they are goods or activities, are merely value unrealised i.e. a 'store of potential value', until the customer realises it through co-creation and gains the benefit. As I mentioned previously VCC implies customer resources to realise the value which 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.
If you think about the customer as a 'firm', you can understand VCC as a partnership with shared resources. 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 firms' propositions - all to co-create value. But do we know how to measure this VCC? Or price it?
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?
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.
Systems thinking is important in understanding value and outcomes because it radically changes the way we think and we really have to start thinking in this way. The world we are currently operating in is becoming more complex, where components cannot be analysed on its own, but within their 'whole', as the interactions between components are key to achieving system-level outcomes. Our world is evolving towards complex systems where offerings are interconnected. The nature of the interdependencies are accelerated by technologies moving towards convergence resulting in the involvement of multiple stakeholders and multiple customers all contributing resources into the system and paying for different facets of the system and deriving different benefits.
Emergent properties such as community, health, etc. are starting to be key outcomes to society and yet because the design is not one of cause-and-effect, is not one of modularity (plug and play), we need to think differently. During the industrial era, outcomes were achieved with inventions such as steam engine (transportation), TV (entertainment) and these are designed and produced in a reductionistic, component-driven way. Our future in the modern economy wants critical systems-based outcomes such as community, sustainability, health and yet the knowledge to achieve such outcomes is still so lacking.
Professor Irene C.L. Ng is professor of marketing science at the University of Exeter Business School, senior visiting fellow, University of Cambridge, and Advanced Institute of Management (AIM) Research Services Fellow. She regularly blogs at http://value-basedservicesystem.blogspot.com, and can be contacted via her website or on Twitter: @ireneclng.