Self-organization in complex systems - Essay Example

I. Summary With the onset of globalization, the new rules of the business world have been redefined over the of the years. An immense shift that is apparent in the common trends of today is the shift from the industrial-age idea of mass production and offering products that may contribute value to the consumers, to today’s idea of creating value by providing experiences to consumers, to which they actively contribute through insights. This new concept has been coined recently as “co-creation.” As the marketplace becomes more and more sophisticated, also with the advancement of technology that enables consumers to connect to companies like never before, companies are faced with challenges to succeed in the modern marketplace. When in the past, success can be defined by capturing the largest segment in the market and having the largest amount of sales figures, at present success can be more accurately determined by a firm’s ability to create sustainable practices in order to achieve long-term competence in the future. These sustainable practices in the modern marketplace require firms to fight in a different manner. As the competition toughens up, firms are required to create value at the same time make the most out of their resources. Strategic management has been one of the trends that are adopted by management in order to compete in the modern marketplace. Strategic management is a tool that enables firms to create value and compete in the modern marketplace. As experiences today are creators of value by working closely with consumers, firms need to be strategic with their approach. They need to implement strategic intent in order to affect the internal environment of the organization, thus making it more receptive to the changes of the external environment and the needs of the market, in line with the creation of value. In order to thrive, firms are also required to develop core competence or a set of skills within the organization that would enable it to get ahead in the industry. In order to prove the point that success in the modern marketplace requires co-creation of value with consumers, strategic intent by the companies and commitment to build core competencies to remain ahead of the competition, various literatures that cover these topics are explored. Most of these include works of C.K. Prahalad. The new rules that govern the employment of strategy in the modern marketplace are looked at. Lastly, this paper concludes that in order to compete in the modern marketplace, firms need to create value not in the traditional sense of creating products that might contribute value to the consumers, but establishing an active dialogue with the consumers. In line with this value-creation, firms need to establish core competence in order to get ahead in the competition; core competence requires self-organization within a complex system and interaction of the company, the suppliers and the consumers. Building core competence requires firms to adopt the concept of strategic intent within the company. Strategic intent will bring cohesion within the organization in order for it to better implement the strategy, and make it an system that actively converse with the consumers. These concepts are the cornerstone of strategy in the modern marketplace that will determine the success of a firm over the long-run. II. What is co-creation of values, history and how it affects business Co-creation of values is a concept that denotes the emerging role of consumers as active contributors to value creation (Pralahad & Ramaswamy 2002). The advancement of the technology has enabled consumers to reach the company in more ways than ever in order to participate in defining what provides value in terms of a companys offerings. Co-creation of values has first been mentioned by Pralahad and Hamel in one of their articles in the year 2000. Co-creation of values has been perceived as an emerging philosophy where companies are required to focus more on creating experiences that provide value to the consumers and find competence and advantages from an outside-in perspective (Pralahad and Hamel 2000). Pralahad and Ramaswamys argument as regards co-creation of values is that the days when consumers are a passive force to which the company tailors its product offerings (2002). The most prevalent concept of efficiency, which is an industrial-age concept becomes less important, as far as value is concerned. What matters more are experiences that contribute to the creation of value (2002). Thus, co-creation of values centers on the consumer-centric philosophy of doing business, which aim is to focus on consumers in order to create competitive advantages. Because co-creation of values treat consumers as active contributors to the creation of values, consumers needs and wants should be the cornerstone of the companys efforts. This can be done by actively encouraging consumers to give input to the company as regards what provides value to them. As according to Pralahad and Hamel, it is not the features that a customer usually looks at, but rather the experiences in order to determine what is valuable to her in the process (2000). With the onset of the development in information technology, consumers have find ways to maintain communication to the company, thus contributing insights into what provides value to them, and what does not. The companys loss of control in determining value and offering it to consumers have created constant changes in the marketplace. As the consumers role in creating value have constantly increased, the shift of power in the marketplace becomes apparent. Companies who still could not adapt to this changing market dynamics and will not make consumers co-creators in creating value will face more challenges as regards the success of their operations. III. Examples of companies who are effective in the use of co-creation of values and those who are not While co-creation of values has just recently emerged with the onset of technological advancement, especially the introduction of the Internet during the late 20th century, there are companies who recognized the value of the concept and have applied it to their process of value creation. Take for instance the case of Saturn of General Motors (Pralahad and Rawaswamy 2002, 4-5). General Motors has recognized, that in order for Saturn to be a different car company, it has to make partner of consumers in crafting value. The company has accomplished this by creating a community comprised of consumers that are engaged in constant dialogue to help determine the optimal product offerings of the company (Pralahad and Ramaswamy 2002). With Saturn knowing what experiences could provide value to its customers, the company strives to create what creates value from the point of view of the organization—efficiency, and what creates value from the point of view of the customer—experiences (Pralahad and Ramaswamy 2002). Personalization, according to Lawer is one of the major shapers of consumers experiences (2005). With the development of the Internet, personalization which requires consumers to give their personal inputs as regards the combination of choice in terms of the companys product offering, has been practiced by companies like Dell Computers and BMW (Pralahad and Ramaswamy 2002, 6). As these companies who adhere to the co-creation philosophy entails, self-service has become an apparent trend in order to give consumers enough flexibility for them to customize a product or service that they need. This is apparent in practices of Amazon.com (Pralahad and Hamel 2000, 82), Southwest Airlines and Land End, Inc. by providing IT systems where consumers could gain better access to their service at the same time, their unique experiences when dealing with the companies (Pralahad and Ramaswamy 2002. 6). Pfizer also recognizes the need to tailor its products according to the needs that it has learned from its consumers. Its success with its product Zithromax, and the innovative Z-pak has shown the benefits to involving consumers and acting on their insights to provide value (Pralahad and Ramaswamy 2002, 8). By focusing on its consumers behaviors as regards the use of its product, it is able to create an innovative packaging. The Z-pak provides an experience that aims to increase the benefits—effectiveness of the drug—to the consumers. While some companies see the effectiveness of adopting the co-creation philosophy, there are companies who have failed to utilize the philosophy which puts it in a relative disadvantage. One of these is Atlantic Corporation. With the onset of new technology, the music industry is faced with challenges in terms of intellectual property issues. According to Pralahad and Ramaswamy (2002, 11), this can be attributed to the music industrys inability to listen to consumers and involve them in the value creation. Wells Fargo is another company that has failed to utilize this co-creation philosophy. In its pursuit to create unique Web experiences without involving its consumers in the process, it has forced its consumers to its PC-based banking services which lead to consumers annoyance and dissatisfaction (Pralahad and Hamel 2000, 84). IV. What are the factors that force companies to make bad decisions as well as good ones As apparent from the examples above, the factors that shape the companies decisions that determine the state of outcome whether good or bad in terms of incorporating the concept of co-creation include, as according to Lawer: “the degree of adaptability or personalization of the value created, and the point (the locus of innovation) where the value creation occurs (2006).” These two factors could force companies to make good or bad decisions in terms of co-creation of value. Take for instance Amazon.com. The companys decision to involve its consumers in other parts of the value chain, as apparent in its affiliate marketing activities (Kambil, Friesen, Sundaram 1999) is determined by either of the two factors mentioned above. The degree of adaptability or personalization in the shopping experience of Amazon.com has enabled it to setup online communities which is a good decision on the part of the company. In contrast to this, as apparent in the Wells Fargo example, the point where the value creation occurs has been is off-target, which has lead to a bad decision. When the company wrongly assessed that it could contribute value by inducing self-service through its online services, the point is not in line with what the consumers want, which has lead to the companys failure of co-creating value with consumers with the use of information technology. V. What are the effects of today’s business environment /trends in co-creation of values The changes in the modern business landscape have played a major role in the evolution of co-creation of values as a concept being integrated in contemporary marketing philosophy which talks about being consumer-centric. These changes have been triggered by the advancement of technology which has affected the other political, economic and social factors. The Internet has enabled consumers to become proactive in contributing insights to the company because of the many channels that allow the consumers to maintain constant dialogue with manufacturers. According to Pralahad and Ramaswamy, as communities of consumers in the Internet have emerged over the years, these communities are a potent force which could contribute a lot to a companys creation of value (2002). The Internets interactivity is another factor in the consumers evolving role in the co-creation of values between companies. When in the past, the flow of information between companies and consumers is through one-way communication, the emergence of the Internet has created opportunities for two-way communication between the entities. It is through these online communities where consumers can find recommendations from their fellow consumers, and from which companies can gather first hand information on how to best serve them by improving product and service offerings (Pralahad and Hamel 2000). The speed that the Internet offers also provide some implications on negative as well as positive word-of-mouth from consumers, which would have a huge effect on the companys reputation. Consumers can file complaints in a faster manner and demands speed in terms of addressing their concerns. Consumers are no longer just individuals, they are a strong social force (Pralahad and Hamel 2000). Through these changes in the business environment, consumers are able to gain the upperhand in the market in prompting companies about what experiences create value to them--which makes them co-creators of value in the process. VI. The example of a company we made up, how we would incorporate the successful values, and how we would avoid the bad ones and how we would structure it. Amazon.com is one of those companies who have put the co-creation concept into working ever since they have started their operations (Kambil, Friesen, Sundaram 1999). The company has made its consumers its partner in creating value with the use of information technology (Ferrall & Mayall 2006). Shopping in Amazon.com is a different experience, as every visit is tailored to the consumers own preferences. The company, with the use of information technology creates a sort of database for individual consumers where their recent searches, purchases and related products are featured. This makes shopping easier and more relevant to the consumers needs. Apart from these, the online communities that Amazon.com has created through its users who review the products they have purchased as well as their experiences provide information to consumers to aid them in their decision-making process. This shows how a company can successfully incorporate value creation in its operations by creating valuable experiences through personalization. Amazon.com has incorporated the interactivity of the Internet in order to induce personalization of customer experience. By focusing on creating unique shopping experiences, Amazon.com has redefined the rules of the competition in the retail scene after it has applied the concept of co-creation. Apart from this, consumers are also partners in promoting products through affiliate marketing (Kambil, Friesen, Sundaram 1999). By involving consumers in marketing activities, consumers play a huge role in the operations of the company as partners to creating value. Not only are consumers rewarded by their great experiences when they transact with the company, they are given financial incentive in participating in the companys marketing activities. Although many companies like Amazon.com have taken advantage of the advancement in technology and make it a potent tool in order to connect to consumers in pursuit of making them co-creators of value, there are other companies which fail in the process. From the Wells Fargo example, it can be seen that utilizing information technology in order to induce self-service in pursuit of creating unique experiences to individuals does not necessarily make co-creation follow. The bottom-line is knowing what the consumers needs and wants are, creating experiences to meet these needs while leveraging information technology in the process. VII. Conclusion The changes in the business environment have constantly altered the ways companies do businesses nowadays. Because of the advancement of technology, environmental factors such as political, economic and the social landscape have been altered, which has caused a drastic shift in terms of the rules of the marketplace. Information Technology plays a huge role in this shift of trends in the market, especially the Internet. The Internet has created numerous possibilities in terms of interactions between many stakeholders of the company, most notably, the consumers. The Internet has enabled the consumers to interact with the company in many ways, making them the most important co-creator of value in the process. Gone are the days when consumers are just a passive group in the past to whom a company offers its products. With the interactivity of the Internet, consumers have been given ways to affect the value-creation in terms of the products that a company offers. Consumers also participate actively in many areas of the value chain such as marketing, with the creation of online communities and greater networking being made possible by the Internet. This creates a shift in terms of the balance of power, where consumers are active determinants of value. In order for a company to create value, it has to provide unique experiences with its consumers by the way it transacts with it. Personalization is key to creating this unique experience. With the advancement of technology, personalization is made more possible to companies without incurring high costs. When properly used, this convergence can help consumers and companies jointly create value in the process. However, it should be noted that information technology is not the end, but rather a means to pursue personalization of service that aims to bring unique customer experience, and then value. When companies become short-sighted in the process of utilizing the promises of the information technology and they lose sight of what is important to consumers, it can backfire against the company as noted in those companies who failed in utilizing information technology in the co-creation of value with consumers. References Ferrara, L. & Mayall, A. (2006). “Successful business relationship management: collaboration for co-creation of value.” CSC.com. Date accessed: March 9, 2009 from http://www.csc.com/csc_world/012006/fa/fa004b.shtml. Kambil, A, Friesen, G. B. & Sundaram, A. (1999). “Co-creation: A new source of value.” Accenture.com. Date accessed: March 9, 2009 from http://www.accenture.com/NR/rdonlyres/63EBA8BD-5931-49D5-9752-8A0C65FF8049/0/cocreation2.pdf Lawer, Chris.. (2006). “Eight styles of co-creation: a model and definitions.” CSC.com. Date accessed: March 9, 2009 from http://chrislawer.blogs.com/chris_lawer/2006/05/eight_styles_of.html. Pralahad, C. K. & Hamel, G. (1990 May-June). “The core competence of the corporation.” Harvard Business Review. Pralahad, C. K. & Hamel, G. (2005 July-August). “Strategic Intent.” Harvard Business Review. Pralahad, C. K. & Ramaswamy, V. (2000 January-February). “Co-opting customer competence.” Harvard Business Review. Pralahad, C. K. & Ramaswamy, V. (2002). “The co-creation connection.” Strategy + Business. Issue 27, 2002 Second Quarter. Read More