customer co-creation and dynamic capabilities - an ikea...
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IN DEGREE PROJECT INDUSTRIAL ENGINEERING AND MANAGEMENT,SECOND CYCLE, 15 CREDITS
, STOCKHOLM SWEDEN 2020
Customer Co-creation and Dynamic Capabilities - An IKEA Case Study
SHALINI MEHRA
KTH ROYAL INSTITUTE OF TECHNOLOGYSCHOOL OF INDUSTRIAL ENGINEERING AND MANAGEMENT
Customer Co-creation and Dynamic Capabilities
– An IKEA Case Study
by
Shalini Mehra
Master of Science Thesis TRITA-ITM-EX 2020:194
KTH Industrial Engineering and Management
Industrial Management SE-100 44 STOCKHOLM
Samskapande med Kunder och Dynamiska Förmågor - En fallstudie från IKEA
Shalini Mehra
Examensarbete TRITA-ITM-EX 2020:194
KTH Industriell teknik och management
Industriell ekonomi och organisation
SE-100 44 STOCKHOLM
Master of Science Thesis TRITA-ITM-EX 2020:194
Customer Co-creation and Dynamic Capabilities – An IKEA case study
Shalini Mehra
Approved
2020-06-11
Examiner
Kristina Nyström
Supervisor
Kent Thorén
Abstract
Dynamic Capabilities of a firm bundle all the processes that enable it to sustain competitive
advantage in today’s volatile markets. Study of the microfoundations of dynamic capabilities
is a fairly new framework. Even so, it is a widely researched one. Customer co-creation has
armored firms with a new level of customer knowledge and mature firms are taking to customer
co-creation for designing better value propositions to sustain their competitive advantage in the
market. This thesis aims at examining how customer co-creation is contributing to the dynamic
capabilities of a mature firm. Through the case study of a mature firm, this research analyses
the connection between customer co-creation and microfoundations of dynamic capabilities of
a mature firm. Relevant literature of co-creation and dynamic capabilities has been used to
analyze the data collected through semi structured interviews, other research work and official
information shared online by the firm under study. The findings suggest that customer co-
creation has improved the microfoundations of the dynamic capabilities of the firm in focus.
The fact that customer co-creation has emerged as a promising innovation strategy for mature
firms makes this study important for firms evaluating the use of customer co-creation to
improve their dynamic capabilities and sustain their competitive advantage.
Keywords: Dynamic Capabilities, Customer Co-creation, Sustained Competitive Advantage,
Microfoundations of Dynamic Capabilities
Sammanfattning
Ett företags dynamiska förmågor samlar de processer som gör det möjligt att upprätthålla
konkurrensfördelar på dagens volatila marknader. Trotsa att det teoretiska ramverket gällande
byggstenar för dynamiska förmågor är relativt nytt, har många studier genomförts inom ämnet.
Samskapande med kunder har bidragit till ny viktig kunskap för företag. Väletablerade företag
arbetar tillsammans med sina kunder för att utforma bättre förslag och öka kundvärdet för att
upprätthålla konkurrensfördelar på marknaden. Denna uppsats syftar till att undersöka hur
samskapande med kunder bidrar till väletablerade företags dynamiska kapacitet. Genom en
fallstudie av ett väletablerat företag analyseras sambandet mellan samskapande med kunder
och byggstenar för dynamiskt kapacitet. Relevant litteratur om samskapande och dynamiska
förmågor har använts för att analysera de svar som samlats in genom semistrukturerade
intervjuer. Tidigare forskning och officiell information som delas online om företaget har också
använts. Resultaten tyder på att samskapande med kunder har förbättrat byggstenarna för
företagets dynamiska kapacitet för det undersökta företaget. Det faktum att samskapande med
kunder har framkommit som en lovande innovationsstrategi för etablerade företag gör denna
studie viktig för företag som utvärderar användningen av samskapande med kunder för att
förbättra deras dynamiska kapacitet och upprätthålla deras konkurrensfördel.
Nyckelord: Dynamiska förmågor, kundsamskapande, Hållbar konkurrensfördel,
Mikrofundationer av dynamiska förmågor
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Contents
1. Introduction ............................................................................................................................ 1
1.1 Background ...................................................................................................................... 1
1.2 Problem Statement ........................................................................................................... 2
1.3 Case Study ........................................................................................................................ 3
1.4 Delimitations .................................................................................................................... 3
1.5 Sustainability .................................................................................................................... 3
1.6 Outline .............................................................................................................................. 3
2. Literature Review................................................................................................................... 4
2.1 Dynamic Capabilities ....................................................................................................... 4
2.1.1 Sensing Capabilities .................................................................................................. 5
2.1.2 Seizing Opportunities ................................................................................................ 5
2.1.3 Managing Threats and Reconfiguration .................................................................... 5
2.2 Customer Value Co-creation ............................................................................................ 6
2.3 Dynamic Capabilities, Co-creation and Business models ................................................ 8
3. Methodology ......................................................................................................................... 8
3.1 Research Paradigm ........................................................................................................... 8
3.2 Research Design ............................................................................................................... 9
3.3 Data collection................................................................................................................ 10
3.4 Ethical considerations .................................................................................................... 11
4. Empirical Observations ........................................................................................................ 11
4.1 IKEA – The Business ..................................................................................................... 11
4.2 Co-creation at IKEA....................................................................................................... 12
4.2 Co-creation and Foundations of Dynamic Capabilities at IKEA ................................... 13
4.2.1 Sensing Opportunity Capabilities ............................................................................ 14
4.2.2 Seizing Opportunity Capabilities............................................................................. 16
4.2.3 Managing Threats and Reconfiguration Capabilities .............................................. 18
5. Discussions .......................................................................................................................... 20
5.1 Main Findings ................................................................................................................ 20
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5.1.1 Customer co-creation impacts specific microfoundations of dynamic capabilities of
a mature firm in relation to the firm’s real-life context .................................................... 20
5.1.2 Firms need to improve and fine tune the processes and routines of the impacted
dynamic capabilities if they want customer co-creation to yield ..................................... 21
5.1.3 Customer co-creation is valued by mature firms for innovation ............................. 21
6. Conclusion and Further Research ........................................................................................ 22
7. References ............................................................................................................................ 22
Appendix 1 ............................................................................................................................... 28
Appendix 2 ............................................................................................................................... 30
List of Figures
Figure 1. Elements of an ecosystem framework for ‘sensing’ market and technological
opportunities ............................................................................................................................ 15
Figure 2. Strategic decision skills/execution ........................................................................... 17
Figure 3. Combination, reconfiguration, and asset protection skills ....................................... 18
Table
Table 1. Summary of the impact of customer co-creation on the three classes of
microfoundations of dynamic capabilities at IKEA…………………………………………14
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Acknowledgement
This thesis would not have been completed without the support, guidance and contributions of
many individuals. I take this opportunity to thank all of them.
First, I would like to thank my supervisor Dr. Kent Thorén, for his interest and patience. Kent
always guided me to the right direction. It is invaluable to have someone of his calibre always
guiding you but not imposing their thought process. This has helped me learn so much during
the thesis work and instilled confidence in me.
I would also like to thank Tjeerd van Waijenburg and Trond Bugge from IKEA, for their
participation in the interviews. Despite their unusual schedules and challenges due to COVID-
19 situation, they shared their insights for their work which was critical for this thesis.
I would also like to thank my peers for their valuable feedbacks during the thesis seminars.
Last but not the least I want to thank my family for their unconditional support through the
whole program and especially the thesis.
Shalini Mehra
Stockholm, June 2020
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1. Introduction
1.1 Background
Organizations exist and aspire to prosper in an ever changing and demanding environment.
Mature firms that are present in the market for a long time might get tricked into thinking that
they do not need to innovate because they are currently successful. They may fail to sustain
their competitiveness after having attained it (Christensen, 1996). The new entrants in the
existing market come with new business models or new technology or sometimes, alternate
solutions. A mature firm is resistant to change because it is in an existing market (Levinthal &
March, 1993, Christensen & Bower, 1996). The changes in the market are rapid, and the
competencies needed to keep pace with such an ever-evolving market cannot be static by any
means. If anything, there is a need to make the competitive advantage of the organization
adaptable and dynamic. The concept of sustained competitive advantage of organizations has
been a focus of research in strategic management for organizations (Porter, 1980). Michael
Porters five forces (Porter, 1980) provides for an excellent starting point for understanding how
companies can sustain competitive advantage (Srivastava, Franklin and Martinette, 2013).
The Resource Based View (RBV) of an organization’s competitive advantage describes how
the organization’s competitive position manifests in relation to its idiosyncratic resources
(Barney, 1991). The organization’s resources include its assets, processes, knowledge,
information, human resources etc. While the RBV gives an insight on an organization’s
inherent competitive advantage, the context in fast changing market environments needs an
adaptive approach (Eisenhardt and Martin, 2000).
The Dynamic Capabilities View (DCV) is an integrated view of the organization’s existing
competence, successful processes and learnings, along with external competences relative to
the organization to develop new competitive advantage (Teece, Pisano and Shuen, 1997).
Looking beyond the established boundaries of operational capabilities is a challenging task.
And that is why established successful companies have difficulty to think about possibilities
and innovations (Lee and Kelley, 2008). Dynamic capability is “the firm’s ability to integrate,
build, and reconfigure internal and external competences to address rapidly changing
environments” (Teece, Pisano and Shuen, 1997, p.516). Applying transformation to knowledge
and learning (both within the organization and from the surrounding environment) to create
and capture value for the organization’s benefits is the driving force behind innovation (Lidija
and Robert, 2014). An organization’s dynamic capabilities will therefore carry an influence of
its innovation strategies. “From the literature on strategic management, we can argue that
innovation and innovation capabilities refer to an important part of dynamic capabilities; in
fact, it is one of the central entities of dynamic capabilities” (Strønen, Hoholm, Kværner and
Støme, 2017, p.95).
It can be said that making strategies for future, derived from what the company knows from
the past, is faced with the challenges of VUCA (Volatility Uncertainty Complexity Ambiguity),
and therefore this existing knowledge needs to be sharpened with perspectives of the future
(Thorén, 2018). To deal with the inherent complexity and volatility of the market, ambiguity
and uncertainty have to be dealt with. To reduce uncertainty, better decisions need to be made
which is possible by reducing ambiguity. Ambiguity can be resolved by “clarifying, context
defining, and sense-giving rich information builds on reasoning. One of the most effective
methods for this is to engage in discussions that are genuinely open so opinions get exchanged,
questions can be spoken, and problems get co-defined” (Thorén, 2018). With co-creation this
information becomes richer and more reliable. Adapting the organization’s dynamic
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capabilities based on ‘rich’ learning and knowledge goes a long way in strengthening the
organization’s competitive advantage (Ravasi and Verona, 2003).
Customer cocreation is a way of directly feeding information from the customer into the
business model of a firm. “In the new economy, companies must incorporate customer
experience into their business models-in ways hitherto untapped” (Prahalad and Ramaswamy,
2000, p.1). Customer co-creation refers to making the customer a part of generating new ideas
or processes to create a product that is the desired value for the right price for the customer.
Prahalad and Ramaswamy discuss the importance of customer’s role in creating knowledge for
the organization. The customer’s role in product development has evolved from passive and
uninformed to active and informed (Prahalad and Ramaswamy, 2004). As satisfying a customer
is becoming more and more difficult, companies cannot sustain success by developing the
product alone (ibid). Customer knowledge has always been of key importance to organizations.
Organizations earlier relied on their market research but lately the organizations have realized
that the idea ‘if only we knew what our customers know’ is just as important as ‘if only we
knew what we know’ (Gibbert, Leibold and Probst, 2002). To be customer-oriented is not only
knowing about the customer, it is knowing what resides in the customer. This knowledge is
used for creating value for the customer. Clearly the role of the customer is changing from that
of a passive audience to a contributing and leading one in defining and creating value (ibid). It
can therefore be said that customer co-creation as an innovation strategy is a powerful way to
innovate. Knowledge possessed by customers can be used by firms to create better value
propositions when making new products as well as improving the existing ones (Desouza et
al., 2008). Customer cocreation would hopefully increase the number of ideas for innovation
and reduce the risk for failure owing to customer loyalty (Auh, Bell, McLeod and Shih, 2007).
1.2 Problem Statement
Dynamic capabilities are important concept to layout the strategic management of a firm
(Winter, 2003) and dynamic capabilities enable a firm’s innovation attitude and aptitude (Zhou,
Zhou, Feng and Jiang, 2017). Micro processes of B2B value cocreation can help support the
dynamic capabilities of the firm better and help create solutions that have a differentiated
standing in the market (Preikschas, Cabanelas, Rüdiger and Lampón, 2017). The relationship
between dynamic capabilities and value cocreation has been explored (Karagouni and
Protogerou, 2015). The researcher finds value in comprehensive analysis of the
microfoundation of dynamic capalities framework in the light of cocreation, based on case
study of a mature firm. This research will further strengthen that co-creation and dynamic
capabilities impact each other (Teece, 2010; Wilden et al., 2019; Karagouni and Protogerou,
2015). As dynamic capabilities are critical to the sustained competitive advantage of a mature
firm, the thesis can help decision makers at mature firms align the firm’s processes and
strategies to use cocreation in the most constructive ways.
This research intends to explore the shaping of a firm’s dynamic capabilities micro-foundations
as a result of customer cocreation implemented by the firm by answering the question:
“How does customer co-creation contribute to dynamic capabilities of mature firms?”
This research question can be further addressed as research sub-questions. The sub-questions
are:
“Which microfoundations of dynamic capabilities of a mature firm does cocreation impact?”
“Does this improve the dynamic capabilities of a mature firm? If so, how?”
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1.3 Case Study
The company for case study is IKEA, a Swedish retail furniture giant. IKEA has a low-cost
strategy and generates profits from its low operating costs and large sales volume. It is
imperative for such a mature firm to be preferred by the customers. Co-creation with customers
sparks customer loyalty and interest in products because they see their pain points being
addressed. IKEA has extensively employed cocreation activities, including customer value
cocreation to create products that have high value for the customers.
1.4 Delimitations
The scope of the thesis is limited to the case study of one successful mature firm and its
processes and internal alignments to the research topic. The strategic decisions of the firm
delimit the scope of thesis in terms of what type of customer cocreation is employed and how
adaptable the firm is to the market dynamics. The thesis studies the impact of cocreation on
dynamic capabilities by using a single theory. The analysis of the empirical data focusses on
the microfoundations that are affected by cocreation activities of the organization under
consideration. The author is aware that other factors (Political, Economic, Social,
Technological, Environmental and Legal) influence the dynamic capabilities and thereby the
strategic decisions of an organization. To narrow the thesis to a practical limit, the author
delimited the scope to the influence of cocreation on the dynamic capabilities.
This thesis is a study of how customer co-creation benefits dynamic capabilities of a mature
firm from the perspective of the firm. The study explores what happens after customer co-
creation strategy is employed by the firm and so, the discussion does not include how customers
view the co-creation strategy as.
1.5 Sustainability
In 1987, the United Nations defined sustainability as “meeting the needs of the present without
compromising the ability of future generations to meet their own needs.” And in 2015, the UN
suggested the Sustainable Development Goals (SDGs) which are a collection of 17 global
goals designed to be a "blueprint to achieve a better and more sustainable future for all". One
of the SDG that this thesis can contribute to is “Ensure sustainable consumption and production
patterns” – SDG 12.
For the companies it means that they should aim at doing more while using less and it requires
that the stakeholders in product/service development should act in synchronization towards
sustainability. One of the ways is to increase awareness amongst customers about sustainable
consumption. Also, consumer preferences are changing and the customers voice their
environmental concerns by choosing products that are sustainable over products that are
harmful. Development and production of green products calls for a high investment. In using
co-creation for designing products with higher perceived value for customers, companies can
use inputs from customers to hopefully align the use of resources in optimal way to create
products that have intended value for customers and have sustainable production patterns.
1.6 Outline
This thesis has six chapters. The first chapter is an introduction to the problem background,
motivation for the problem statement and delimitations of the study. It touches on the
sustainability aspect of the thesis. Chapter two is dedicated to the literature review on the
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dynamic capabilities and the framework for microfoundations of the dynamic capabilities. The
literature on customer co-creation is also reviewed in this chapter.
In chapter three, the methodology is discussed. It discusses and justifies the various theories
used, the case study chosen, design and methods of data collection. Chapter four has a detailed
discussion of the empirical findings of the case study. This discussion is based on the theory
discussed in the literature review.
In chapter five and six, conclusions are followed by discussions. The opportunities for further
research are also discussed in chapter six. Chapter seven, the final chapter, lists the references
used for this study.
2. Literature Review In this section, the theory used for answering the research question are presented. The section
starts with an explanation of the Dynamic Capabilities, followed by the Co-Creation concept.
2.1 Dynamic Capabilities
For understanding the dynamic capabilities of an organization, we first start with the concept
of Resource Based View (RBV). RBV emphasizes the role of resources in an organization’s
capability to stay competitive - “There is a close relation between the various kinds of resources
with which a firm works and the development of ideas, experience, and knowledge of its
managers and entrepreneurs” (Penrose, 1959, p.85). RBV is a managerial framework through
which it is possible to understand and identify which resources a company has to use in order
to reach a competitive advantage (Eisenhardt and Martin, 2000). The resources are assets (like
equipment), people (and their skills) and organizational processes and structure. The resources
are the main elements of RBV. Together the resources contribute towards value-creating
strategies (Eisenhardt and Martin, 2000). However, the RBV was a static view of the
organization’s capabilities (Cavusgil, Seggie and Talay, 2007) and in this light, the Dynamic
Capability View (DCV) gave more insight to the organization's key to success. Dynamic
capabilities strongly impact the firm’s business models (Teece, 2018). For a firm it is essential
to have dynamic capabilities to adapt its business with customer needs because when the value
proposition of a firm changes, it leads to changes in how and which resources are used.
Dynamic capabilities of an organization are determined by how the resources are integrated,
reconfigured, gained or released by the organization in a bid to gain competitive advantage in
the market.
According to Teece (2018), the company has to continuously be on a watch out for
opportunities, and adapt its organizational processes and structure to respond in the most
effective way. “Dynamic capabilities thus are the organizational and strategic routines by
which firms achieve new resource configurations as markets emerge, collide, split, evolve, and
die” (Eisenhardt and Martin, 2000, p. 1107). The firm’s capacity to be able to adapt to changing
requirements in the ecosystem where it exists and develop a business that is profitable depend
on its dynamic capabilities. The foundations of Dynamic Capabilities Framework (Appendix
2) identifies the three important classes of dynamic capabilities, and also the micro-foundations
of the capabilities are identified (Teece, 2007). The three classes are (1) Sensing, (2) Seizing
and (3) Transforming dynamic capabilities. Questions of micro-foundations help to understand
the capabilities of a firm, how these are built, roles of individuals, business models, leadership
and decision-making within the firm (Barney and Felin, 2013). The micro-foundations of
capabilities bring the focus on what skills, capability, abilities and knowledge together make
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the firm what it is, and who are the people that together with these resources give the firm its
unique position in the market (ibid).
2.1.1 Sensing Capabilities
No marketplace is in constant state. New opportunities keep coming, some are easily
recognized, most are not so obvious. So, firms need to invest in research related activities to
identify opportunities. Essentially sensing capabilities involve scanning, creating, learning and
interpreting activities. It is important to look beyond the current markets and obvious
technologies if the company is interested in shaping opportunities and not in copying them.
Mature firms can be limited in their view of the market due to their highly efficient functional
capabilities. It is noticeable that opportunities can be detected when existing information is
accessed and understood differently by firms which is the Kirzner way or as Schumpeter
described, opportunities may result from new knowledge (Bostaph, 2013). The micro-
foundations of sensing capabilities have been identified in the framework as (1) Processes to
identify target market segments, changing customer needs, and customer innovation, (2)
Processes to direct internal RnD and select new technologies, (3) Processes to tap
developments in exogenous science and technology and (4) Processes to tap supplier and
complementor innovation. The sensing of new opportunities is not only a result of ability of
individuals in the organization. It is also shaped by the organizational processes. The possibility
to apply creativity and practical wisdom arises when there is information available to interpret.
Also, processes are implemented enterprise-wide and will stay within the enterprise whether
individuals stay with or leave the firm. Sensing activities relate to the information in the
business ecosystem. Therefore, such information needs to be captured in relevant ways and has
to be used by the top management to create and evaluate hypothesis that will drive future
investment activities of the firm. Particular attention needs to be paid on assuring that there is
no information decay while the information moves up or down the organizational hierarchy.
2.1.2 Seizing Opportunities
After opportunities are sensed, work must begin to address them. This calls for investments for
development of relevant products or services. Due to initial uncertainties around the features
of these products or services, there are several investment paths to choose from until a dominant
design emerges and firms that adapt will survive (Klepper and Graddy, 1990). It is important
to keep competences up-to-date so that appropriate investments can be made when it is required
to do so (Teece, 2010). A business model lays out how value is created within a firm and how
it is delivered to the customers (Margretta, 2002). A mature firm may be prone to averting risk
as they rely on their proven processes and strategies that have led to success in the past. So,
existence of a business model that enables exploring new opportunities undergrids the
organization’s success. Although a defined business model charts the path of innovation to
market, the capacity of a firm to adjust and improve its business model is an important dynamic
capability. A strong top management that is open to learning and evaluates new investment
opportunities without a bias towards risk aversion is key to such a dynamic capability. The
micro-foundations of seizing opportunities capabilities have been identified in the framework
as (1) Delineating the Customer Solution and the Business Model (2) Selecting Decision-
Making Protocols, (3) Selecting Enterprise boundaries to manage Complements and “Control”
Platforms and (4) Building Loyalty and Commitment.
2.1.3 Managing Threats and Reconfiguration
Sensing and seizing opportunities will hopefully lead to profits and firm’s growth. This will
lead to addition of assets and slowly routines will develop for achieve operational efficiency.
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As new routines emerge, the dynamic capabilities of the firm will enable the firm to reconfigure
the assets (adding or removing assets). New routines will result is costs of changing from the
current organization processes. These routines will also be met with resistance to change from
the employees if the internal change acceptance is not attuned to such a culture. The firm will
need dynamic capabilities to reconfigure and manage the new assets. This reconfiguration is a
continuous process wherein the old and the new coexist as the firm learns from outside and
from within. Sometimes the success of an asset is determined by it use alongside other assets.
Such as asset is a cospecialized asset and the assets on which its success depends may be a
product or a process within the firm or may need to be procured from outside. As new assets
get added to the firm’s pool, the firm will need to work on governance mechanisms to ensure
that the firm’s knowledge is not misused and its intellectual property remains guarded.
Decentralized organizational structures will aid prevention of loss of information in the
hierarchy, and the real world of customers and market will be visible to the top management
with fewer layers of abstraction. It also important to keep in mind that despite the
decentralization (for speeding up decision making), different units of a firm need to be
connected to ensure the integration of activities that have to be coordinated. The top
management will play an important role in popularizing the pro-change culture. The
microfoundations of managing threats and reconfiguration capabilities are (1) Knowledge
Management, (2) Governance, (3) Cospecialization and (4) Decentralization and near
Decomposability.
2.2 Customer Value Co-creation
Customer Value Cocreation can be defined as joint value creation by customers and company,
that is facilitated by the company (Prahalad and Ramaswamy, 2004).
Today’s customers are equipped with access to information like never before (Prahalad and
Ramaswamy, 2004). They also have a global view of organizations, products, technologies etc.
and have access to consumer communities (Prahalad and Ramaswamy, 2004). Much of this is
enabled by digitalization. All of this implies that the customer has an increased sense of product
value and is not easily satisfied. In fact, the customer today is “connected, informed and active”
(Prahalad and Ramaswamy, 2004, p.6). As the customer’s role in the industrial system has
changed from passive to active, the implication on industries has been that they can no longer
work in isolation with the customer. The old market spectrum which had production at one end
and consumption at the other end, has blurred into production becoming a function of assessing
the customer’s requirements by working with them and not merely analyzing them. This leads
us to the concept of Customer Value Co-creation.
Customers are engaging in both defining and creating the value that they want from companies
(Prahalad and Ramaswamy, 2004). Recent studies show that the value is generated among users
and suppliers through an interactive process, where the customer with his/her ideas plays an
important role (Lenka, 2016). Organizations evolve and their products will keep moving on
from the new product development (NPD) stage to maturity phase in the product life cycle.
And it comes as no surprise then, that businesses will run out of ideas. To keep innovating and
bringing to the market what the customers want, co-creation is a valuable approach.
Organizations can co-create not only with the customers, but also with suppliers, other
companies (partner and competitor), collaborators (Sang M. Lee, 2012). Co-Creation has
different benefits for the company, like decreasing time to market, increasing quality, and
higher success rate. By customer value co-creation, it means that the customer is the main
character in the process and the product/service is designed according to his/her inputs
(Mukhtar, 2012, p. 291). As a matter of fact, the role of the consumer is transformed from a
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passive user to active user; it means that the customer is now an active participant in innovating
(Mukhtar, 2012, p. 291). Through customer value co-creation, the customer feels involved in
the process and he/she is more inclined to buy the co-created product (Iglesias, 2013).
According to Iglesias, the brand can have a positive impact too; as a matter of fact, it appears
more considerate and more in line with the customer needs. It is interesting to review the types
of customer value co-creation and also the techniques used by companies to facilitate customer
value co-creation.
During the new product development process, two activities will take place – contribution of
new concept or ideas and selection of the ideas that should be pursued. Organizations can
engage in customer co-creation by releasing control of the contributions made to the NPD
process and/or the selection of the contributions (O’Hern and Rindfleisch, 2009). The interplay
between extent of contributions and selections has been depicted by a typology (O’Hern and
Rindfleisch, 2009). As per this typology, the following are the four types of customer co-
creation. Collaborating is “a process in which customers have the power to collectively
develop and improve a new product’s core components and underlying structure” (O’Hern and
Rindfleisch, 2009, p.91). Open source software is a good example of this. Collaborating gives
the customers the highest level of freedom to contribute to the development of new products in
a way that they believe brings the most value to them. It also implies that customers need
unlimited access to basic structure (in terms of licensing for example). Tinkering is “a process
in which customers make modifications to a commercially-available product and some of these
modifications are incorporated into subsequent product releases” (O’Hern and Rindfleisch,
2009, p.93). Gaming industry uses this approach when they encourage user-initiated
contributions and modifications. Tinkering also needs the customers to have unlimited access
to the basic structure of the product. But the selection of what part of the co-creation makes it
to the product to be released is done by the company. Co-designing is “a process in which a
relatively small group of customers provides a firm with most of its new product content or
designs, while a larger group of customers helps select which content or designs should be
adopted by the firm” (O’Hern and Rindfleisch, 2009, p.95). Popular designs in the clothing or
furniture industry are many times the result of such co-creation. In this approach, the
organizations have a lot of control over the format of submissions of ideas. However, selection
of ideas is left much to a network of interested customers. Submitting is “a process in which
customers directly communicate ideas for new product offerings to a firm” (O’Hern and
Rindfleisch, 2009, p.96). It is the most restricted form of co-creation in which the organizations
exercise control not only on the format and level of details for the submissions of ideas, but
also the selection of the ideas is controlled by the organization. These more or less sum up the
ways in which customers can co-create with organizations.
Several techniques can be used for customer value co-creation and the most common of these
are discussed here (Mukhtar, 2012, p. 292). Participatory Method is a typical example of
participatory method is the workshop, in which the customer is called to design the new product
in accordance with his/her needs for the company (Mukhtar, 2012). The user, here, has an
active role and influences the outcome. Emphatic Design is the technique with which the firm
observes the customer behaviour while they are testing the product, in order to understand how
to develop the best product for each customer (Mukhtar, 2012). Co-designing is a process in
which the ideas are generated through mock-ups or prototypes (Mukhtar, 2012). The customers
are called to provide creative ideas for solving problems. Interviews: The company makes
several interviews with different people, collects several data that are processed and analysed
in order to understand the customer needs (Mukhtar, 2012). Community Based Innovation
Method involves a community that has a group of people that share a common interest: the
8
firm can collect innovative ideas from it in order to develop new product/services (Mukhtar,
2012). A community allows the knowledge exchange, aggregation, recycle and recombination
(Hienerth, 2013). An important feature of the community is that people inside it is bound by
common rules and ideas (Hienerth, 2013). In terms of innovation, the principle benefits of a
community are diversity and cumulative innovation.
2.3 Dynamic Capabilities, Co-creation and Business models
Osterwalder has presented the Value Proposition Canvas (Osterwalder, Pigneur, Bernarda and
Smith, 2014) which details the customer’s jobs-to-be-done (needs), pains (frustrations) and
gains (aspirations) and motivates a value proposition that has higher success probability.
Understanding the customers’ needs, frustrations and aspirations can help the firm deliver
better value to the customers. When customers cocreate the value proposition, the delivered
value to customers has the element of the expectations of the customers, empowering the
organization with competitive advantage.
Since the Value Proposition Canvas is a direct part of Business Model Canvas, the business
model of a firm has dependencies also on the value proposition(s) of the firm (Osterwalder,
Pigneur, Bernarda and Smith, 2014). Business Models are fueled by the dynamic capabilities
of the organization (Inigo, Albareda and Ritala, 2017).
3. Methodology 3.1 Research Paradigm
This paper aims to study how customer cocreation contributes to a mature firm’s dynamic
capabilities. The data collected will be examined in depth to understand how this happens by
referring to the foundation framework of dynamic capabilities given by Teece (2007).
Therefore, it can be said that the research falls under the “interpretivism” paradigm of research
(Collis and Hussey, 2014). Interpretivism supports that social reality is not objective, but
subjective. So, a social reality is in fact shaped by how it is viewed and in what context (ibid).
This is in contrast to “positivism” paradigm which is based on the belief that reality is
independent of us. So, the new theories can be proposed based on empirical research (ibid).
Co-creation and dynamic capabilities concepts have been discussed in detail and there is
abundant literature to support the existence of these phenomena. Since this paper explores how
co-creation helps the dynamic capabilities of a mature firm, we can say that the paper falls
under the interpretivist paradigm. Unlike deductive approach which aims at testing a
hypothesis, this research follows an inductive approach that is concerned with suggesting a
new perspective on existing phenomena.
A qualitative research emphasizes on understanding a phenomenon in the light of its real-life
context rather than merely as a cause and effect explanation (Njie and Asimiran, 2014). It gives
us a better understanding of what is going on between the variables under observation and
reveal the interaction of various factors in the real-life context without measuring the frequency
of such interactions. The researcher finds qualitative research appropriate for this thesis as the
aim is to understand how dynamic capabilities and customer co-creation interplay in a mature
firm.
Under the interpretivist paradigm of research, one can expect low level of reliability and high
level of validity (ibid). Research findings are a result of the researcher’s perception and
therefore can vary every time such a study is carried out. In that sense, the reliability of this
research is low. Validity however (ibid) is the extent to which the data used for the research
9
can be trusted or is credible. The data being used for this paper comes from other journals,
articles and interviews, so the validity of this research is high.
3.2 Research Design
This paper uses an explanatory case study to understand and explain what is happening (Collis
and Hussey, 2014). A case study is an instrument that allows the “investigation of a current
phenomenon within its real-life context” (Yin, 2003, p.13). This enables obtaining in-depth
knowledge of the phenomena to ‘understand the dynamics present within single setting’ (Collis
and Hussey, 2014, p.82). A single case study is chosen in this research to understand the events
in a particular case (Mills, Durepos, and Wiebe, 2010). The case selected for this research is
the case of a mature firm in retail furniture that employs customer cocreation as one of their
key strategy and have shown high level of dynamic capabilities. The firm is present in several
countries. The nature of the business of this firm makes customer cocreation relevant and its
success in the market ecosystem speaks of its ability to adapt to the market demands. Using the
data from the case study, the theoretical framework discussed in the literature review is
analysed. This explains the implications of the theory in real life situations.
The literature for theories on sustained competitive advantage has several views to consider
(Wang, 2014). Theories around the Market Based View (MBV) focus on the end products of
the firm and the firm’s market position, Porter’s Five Forces being one such (Porter, 1985).
Resource Based View drew attention to the internal heterogenous resources of the firm without
any focus on the market dynamics (Penrose, 1959). Due to its restrictive assumption of markets
being static places, the RBV gave way to the DCV – Dynamic Capabilities View of the
sustained competitive advantage of a firm (Teece, Pisano and Shuen, 1997). The DCV builds
on the RBV by including the external resources into consideration to respond to the fast-
changing environments in which the firm operates. Additionally, the Relational View of
Strategy (Dyer and Singh, 1998), explores the inter-organizational alliances at the micro and
macro level for gaining competitive advantage.
Another theory that motivates achieving sustained competitive advantage is the Management
Control Systems. It motivates the strategy implementation to achieve the firm’s overall goals,
organizational learning and adaptation of the firm’s strategies to being successful in the market
(Simons, 1995). Management Control Systems are of three categories – performance, belief
and boundary control systems. Interactive use of these control systems helps in tracking
strategic information and uncertainties using tools like direct contact, face-to-face discussions,
data from Key Performance Indicators etc (Simons, 1995). The managers are able to get a
glimpse of the bigger picture and “identify specific vulnerabilities, opportunities, and the
source of any problems that require proactive responses” (Simons, 1995, p.120). However,
much of the information is collected after the job is done, making the information available as
feeder only to corrective and not preventive measures. To that end, the purpose of the
Management Control Systems amounts to increasing effectiveness of the organization (Thorén,
2004). To respond effectively to the dynamics of the environment in which the firm works,
dynamic capabilities theory underpins the opportunity sensing, seizing and managing activities
(Li and Liu, 2014).
So, the researcher finds the theory for foundations of dynamic capabilities (Teece, 2007) as an
appropriate choice of theory for interpreting and analyzing the results. The theory is itself based
on several different theory. This theory has been used in recent years to conduct research on
firm strategy and competence. Papers from as recent as the year 2019, discuss the relevance of
the theory of foundations of dynamic capabilities, like in History and the micro‐foundations of
10
dynamic capabilities by Suddaby et al., (Suddaby, Coraiola, Harvey and Foster, 2019). This
theory can hopefully better highlight why some firms are more successful than other. Even
though the author does not feel that it completely answers the question of superior performance
of some firms, the theory does provide insights to what leads to a firm’s competitive advantage
in market.
Customer cocreation has emerged as a prominent part of the go-to-market strategy of many
companies (Alves, Fernandes and Raposo, 2016). There is a gap in research about how
customer cocreation contributes to the microfoundations of the dynamic capabilities of a
mature retail firm in consumer markets. Customer cocreation is an innovation strategy
(Prahalad and Ramaswamy, 2004), and innovation is key to dynamic capabilities of a firm.
Consequently, the research investigates if customer cocreation can improve the dynamic
capabilities of a mature firm.
To this end, the literature analysis spans the published work about the area chosen and about
related topics that emerged as the researcher delved into the existing literature. The search
began with articles about dynamic capabilities and cocreation. The search words were
“cocreation”, “dynamic capabilities” to start with and gave 18900 hits. To narrow down the
search, the researcher focused on fairly new articles that were published post 1997 when
Teece’s paper on dynamic capability was published. This brought up 6370 hits. The analysis
of existing work and their readings lead the researcher to discover other articles for a deeper
understanding of the work on Resource Based View and other theories that led the theory as
proposed by Teece (2007). The author found that the literature had a logical flow from the
history to the theory selected for analyzing the case study.
This thesis has a limitation of using only one case for empirical analysis. The IKEA case study
reinforces a positive impact of co-creation on the company’s dynamic capabilities. Including
more firms of different sizes and from various industries would have helped to generalize the
discussions and understand best practices to fine-tune the dynamic capabilities of the firms that
use customer co-creation.
As COVID-19 pandemic was on-going during the scheduled time period for this thesis, there
was an effect on the number of interviews that could be conducted. As work schedules became
hectic with Work-from-home, several IKEA employees who were eager to help could not make
time for interviews. Also, data collection through direct observation at stores was also impacted
as the footfall at the stores was impacted by COVID-19 due Public Health Authority advisory
to people to stay home unless critical.
3.3 Data collection
For a case study data needs to be collected. There are three methods to collect data for a case
study, namely, documentary analysis, observation and interviews (Collis and Hussey, 2014).
While interviews and observation account for the primary data collection for a case study,
documentary analysis provides for the secondary data for the case study.
“Under an interpretive paradigm, interviews are concerned with exploring ‘data on
understandings, opinions, what people remember doing, attitudes, feelings and the like that
people have in common’ and will be unstructured” (ibid, p.144). As the researcher is trying to
explore the concepts of Dynamic Capabilities and Customer Co-creation in real-life context of
the firm in focus, the primary data collection source for this paper has been semi structured
interviews. The researcher proceeds with the interview by asking predetermined questions but
not necessarily in the same order (Given, 2008). The questions are open ended to the effect that
11
the answers can change the course of further interview and there are no fixed answers expected.
As the concepts and relationships between them are relatively well discussed and understood
in literature, using semi structured interviews gives the researcher a control over the interview
while at the same time allows for information to come as perceived by the interviewee (Given,
2008). Using unstructured interviews can give very rich data but is suitable when far more time
is available to interview the respondent. Due to limitation on the time available with the
respondents, the researcher found semi structured interviews the most suitable way of primary
data collection.
The research included two semi structured interview for primary data collection at the case
selected. Prior to these interviews, there was a brief of the thesis purpose sent to the
respondents. One interview was with Trond Bugge, who is the Cocreation manager in the group
- Strategy Development and Innovation. He has been with IKEA for just over a year but has
been working in the field of open innovation for several years. This interview ran for about 40
mins and was recorded with explicit permission of the respondent. The other interview was
with Tjeerd Van Waijenburg, who is currently employed as a Creative Innovator at Co-create
IKEA. The respondent has been working with the firm for a long time in varied roles and is at
a senior and responsible position for cocreation activities in the firm for more than 2 years now.
This interview ran for about 75 mins and was recorded with explicit permission from the
interviewee. Appendix 1 presents the interview guide.
For secondary data collection, online documentation was referred. It comprised of other
published research work, news articles, annual reports and press releases. As annual reports
and press releases are of interest to the company, they might be biased.
3.4 Ethical considerations
The researcher followed the guidelines for ethical issues as in Collis and Hussey (2014). The
interviews were conducted with voluntary participation. Anonymity and confidentiality were
offered to the respondent, although the respondent chose to let his name be mentioned and
clarified that responses should not be considered as official statements. The interview was
recorded with the permission of the respondent. All literature has been duly quoted or
explained, and all data collected using secondary sources have been referenced to give adequate
credit to the source.
4. Empirical Observations
4.1 IKEA – The Business
IKEA started as a small family-owned business in 1943. In 2019, IKEA had 433 stores around
the world and employs 211,000 co-workers who have together contributed to a sales turnover
of EUR 41.3 billion ((IKEA Highlights 2019, 2020). It is the largest furniture retailer in world.
It is known for its flat-pack, ready-to-be-assembled Scandinavian style furniture. The IKEA
business idea is to use low price, function, form, quality and sustainability as the dimensions
that guide business at IKEA. “The IKEA Way” is to offer a wide range of well-designed
“I see my task as serving the majority of people. The question is, how do you find out what
they want, how best to serve them? My answer is to stay close to ordinary people because
at heart I am one of them” - Ingvar Kamprad
12
products which are affordable to as many as possible. For making good quality products at
affordable price needs cost-efficiency as well as innovation. And this has been the focus of
IKEA since its conception. This is reflected in the culture of the organization, its business
model and its processes, innovation strategies, policies, and marketing strategies (The IKEA
Way - IKEA, 2019).
4.2 Co-creation at IKEA
The business idea at IKEA has been to bring great products to market at low prices. Offering
low prices is enabled by sales volume, and reducing the cost of storage and shipping. Part of
IKEA’s winning strategy has been the transferring of the onus of assembling the products to
the customers (IKEA, 2020). Therefore, the concept of customer co-creation is not completely
new at IKEA. The customers have been co-creating goods after the flat-pack concept was
introduced in early years of IKEA’s operations. Instead of receiving the fully assembled
furniture, customers drew satisfaction and a sense of pride from assembling them furniture
themselves. Customers find it satisfying to use the products beyond their original design
(Mochon, Norton and Ariely, 2012). The site Ikeahackers.net was started in 2006 by a user
who was amazed by the ideas on internet to use IKEA products in different and amusing hacks
(About - IKEA Hackers, n.d.).
The IKEA Effect is defined as “consumers' willingness to pay more for self-created products
than for identical products made by others, and explore the factors that influence both
consumers' willingness to engage in self-creation and the utility that they derive from such
activities” (Mochon, Norton and Ariely, 2012).
“Co-creating with the customers has been in IKEA’s DNA from the beginning; starting from
picking the products from shelves at the stores, to carrying the flat packs home and finally
assembling the products. That’s the IKEA Effect – we do a little, you do a little” (T Bugge
2020, personal communication, 8 May).
In 2011, IKEA launched “Share Space”, an online social platform that provided for customers
to share pictures of how they have transformed spaces using IKEA products. This increased
the user engagement as well as brought to the forefront the needs and thoughts of customers
that inspired trends across markets (Nahai, 2017). A lot of information flowed in. As IKEA
grew, such information became hard to consolidate and manage, to ensure getting the right
message from the customers (T Waijenburg 2020, personal communication, 16 April).
One of the core values at IKEA is to be in dialogue with customers (Why we co-create | IKEA
co-creation, 2019). It has been a practice at IKEA to meet a lot of consumers at the stores and
get a feedback from all the markets.
“It is important to have a dialogue [with customers] while developing a product because that
solves the right problem. Within IKEA it has always been that products are always based on
real needs and we are not dreaming up products. Ingvar has a lot of quotes that say that we
should really engage with customers and talk to them to understand what it is it that they are
telling us or that they are not telling us, to understand what are people struggling with, so we
can create right solutions for them. Because right solutions are not only beneficial for the
customers, it also means good business” (T Waijenburg 2020, personal communication, 16
April).
This inspired the IKEA CoCreate project which was started in the year 2015. “It started with
very high ambitions of co-creating with customers around the globe using technology to gather
13
data on a continuous basis, through websites and mobile apps” (T Bugge 2020, personal
communication, 8 May). The IKEA Cocreate project was run for a certain amount of time to
understand when is it valuable to do co-creation. The driving idea was that co-creation when
done, should be valuable for IKEA and the people who are participating.
4.2 Co-creation and Foundations of Dynamic Capabilities at IKEA
“One of the core values within IKEA is that we are always on the move. The job is never done.
It’s a glorious future. [We] Cannot sit back and think that we have arrived because we will
never have. We will always need to keep improving” (T Waijenburg 2020, personal
communication, 16 April).
IKEA has, since its inception, found value in evaluating and improving its current market
position (IKEA culture and values, n.d.), i.e, have a sustained competitive advantage. IKEA
currently engages in customer co-creation in a unique way that best suits its needs and such
that it can be managed in an effective way. IKEA engages in customer co-creation ‘need-basis’
– reaching out for ideas and opinions of customers when the development teams within IKEA
see its value. This is more in the lines of using co-designing type of co-creation and it uses
mainly co-designing and participatory method for customer co-creation. Open customer co-
creation is something that IKEA would like to achieve. However, from the interviews it is clear
that given the large customer base of IKEA, such a level of customer co-creation will need very
advanced management of data thus generated.
Based on the theory by Teece (2012), dynamic capabilities of a firm are its ability to build and
reconfigure resources to match the ever-changing market. These dynamic capabilities can be
discussed under three main classes (Teece, 2007). Table 1 summarizes the impact of customer
co-creation on the microfoundations of dynamic capabilities at IKEA.
14
Class of
Dynamic
Capabilitie
s
Microfoundations Impacted by
Customer Co-creation
Is the
impact
positive?
Perceived degree
of impact
Sensing ▪ Processes to identify
target market
segments, changing
customer needs, and
customer innovation
▪ Processes to direct
internal RnD and
select new
technologies
▪ Processes to tap
supplier and
complementor
innovation
✓
✓
✓
Very strong
Strong
Medium
Seizing ▪ Delineating the
Customer Solution and
the Business Model
▪ Selecting Decision-
Making Protocols
▪ Building Loyalty and
Commitment
✓
✓
✓
Strong
Very Strong
Very Strong
Managing
Threats and
Reconfigura
tion
▪ Knowledge
Management
▪ Governance
✓
✓
Very Strong
Medium
Table 1 – Summary of the impact of customer co-creation on the three classes of microfoundations of dynamic capabilities at IKEA
In the following text, the researcher presents (using the primary and secondary data) those
microfoundations of dynamic capabilities framework which are impacted by co-creation at
IKEA.
4.2.1 Sensing Opportunity Capabilities
At IKEA, co-creation contributes to the microfoundations of sensing dynamic capabilities as
is illustrated from the data collection. The microfoundations that are impacted have been
marked in Figure 1.
15
Figure 1. Elements of an ecosystem framework for ‘sensing’ market and technological opportunities
(Source: Teece, 2007: 1326)
(1) Processes to identify target market segments, changing customer needs, and customer
innovation
IKEA uses customer interactions for understanding its customers. Over the years, this has
evolved from in-store customer experience and (Milestones in Our History - Inter IKEA Group,
n.d) to home tours of customers and cocreation of prototypes in the IKEA Cocreate project
(How we co-create | IKEA co-creation, 2018).
The IKEA experience rooms are designed in every IKEA store to give an opportunity to the
customers to move around and get a feel of the functioning of the products. These physical
arrangements are aesthetically appealing. The customer relates to such spaces at their home
and it may even spark some creative ideas in the customers. This is where IKEA can gather
information through observing the customers. Further in-store information is assimilated by in-
store interactions with customers. These activities provide for data points in identifying target
markets and customer needs. Surveys, polls, home-visits, product reviews and research provide
more such data points.
“If we want to understand the needs and dreams and frustrations [of the customers], we have
to be transparent by interacting with the consumers and engaging with the consumers” (T
Waijenburg 2020, personal communication, 16 April).
As discussed earlier, IKEA has been working on customer co-creation. In this, the latest attempt
is the IKEA Co-create project. The aim of this project is to orchestrate processes for tapping
the innovation coming from customers in the best possible way. To do so, the development
teams engage with the customers at the problem level, as is evident from the interview. Now
customer co-creation is on specific points so that it can be managed effectively.
“We use activities on social media like Facebook, Instagram and so on, where we invite
customers to share their feedbacks and ideas. But we do that in a systematic way on specific
questions. We don’t have one big open channel for all kinds of ideas coming all the time. That
was the thought initially for customer co-creation. But we had to pivot on that. Now we use co-
creation when we have specific strategic activities to explore” (T Bugge 2020, personal
communication, 8 May).
16
IKEA is working towards being able to effectively use the huge number of ideas that come
when the stage is open for the customers. “Open customer co-creation is what we look forward
to. We have to be able to handle the expectations and ideas of the customers and their
engagement needs to be handled in a good professional way. We are working on getting those
processes in place” (T Bugge 2020, personal communication, 8 May).
(2) Processes to direct internal RnD and select new technologies
A large-scale business, like IKEA, has processes that are driven by the business idea. New
product development at IKEA is driven by the challenge of making good quality products at
the lowest possible price. This requires extensive market research to align RnD with customer
preferences. At the same time, IKEA invests in technologies and processes to assure long-term
access to sustainable raw materials (Choosing Materials - IKEA, n.d).
In the interview, one of the insights was - “All the projects that we have are based on research
from market insights. But questions about specifics of a new product under development cannot
be answered by the bigger research” (T Waijenburg 2020, personal communication, 16 April).
IKEA uses reflections from the IKEA Cocreate project in its new product development. The
guiding principles or thoughts on this are that whenever there is an area that is new or the point
when they choose to deliberately go into something new to find new solutions and make some
bigger changes in the existing business. “During the development phase it makes sense to keep
customers in loop so that we do not miss out on important details because sometimes details
are extremely important” (T Waijenburg 2020, personal communication, 16 April).
(3) Processes to tap supplier and complementor innovation
IKEA works with its suppliers in way to make production efficient to realise the IKEA business
idea. Efficiency in total supply chain implies reduced costs and better value propositions to the
customer (IKEA Range & Supply - Inter IKEA Group, n.d.). The insights from working in
close co-operation with suppliers is also an innovation strategy at IKEA (ibid). As relationships
with the suppliers are close and long-term, it decreases the cost and time-to-market for the
products. IKEA has a very stable and efficient supply chain; therefore, co-creation insights are
used for evolving and improving with the existing supply chain.
The following excerpt from the interview highlights IKEA’s close relationship with its
suppliers and that the willingness of the suppliers to engage in IKEA’s customer co-creation.
“In one of the projects, when the development team went to stores with a prototype for getting
the customer feedback, they did it together with the suppliers. It had a lot of benefits because
the suppliers got to hear what the consumers think is more important for the product and what
they think is less important. This helped to align the development team and the suppliers to aim
for the same thing as they heard it together from the consumers. This helped them to work
together as a team. It happened in the early phase of development. Though this is not an official
routine yet” (T Waijenburg 2020, personal communication, 16 April).
4.2.2 Seizing Opportunity Capabilities
At IKEA, co-creation contributes to the microfoundations of seizing dynamic capabilities as is
illustrated from the data collection. The microfoundations that are impacted have been marked
in Figure 2.
17
Figure 2. Strategic decision skills/execution
(Source: Teece, 2007: 1334)
(1) Delineating the Customer Solution and the Business Model
The essence of a business model is to capture and deliver value to customers, to make money
from the business (Ovans, 2015). For this, the business needs to ensure that the customer
expectations on the delivered value are fulfilled. At IKEA, this microfoundation of the seizing
opportunity dynamic capability is driven by the inputs from customer expectations.
“Within IKEA everybody is very much of the opinion that if the customers want something,
then it is a right product. If you can make a good argument and you can say that we have
verified it with customers (who may or may not yet be IKEA customers) then you make a very
strong case. There are lot of benefits in engaging with consumers. It is very important to listen
to the customers because if we are solving a wrong problem then we are not addressing a real
need” (T Waijenburg 2020, personal communication, 16 April).
(2) Selecting Decision-Making Protocols
At IKEA the protocol for future investments is that the decisions are made by strategy
innovation councils. That’s where bigger IKEA initiatives are decided and funded and that is
done by top management. Like the decisions regarding material, development and product
architectures. There are business plans from which action plans for different business areas are
created. There is a set way of working. Once the innovations to be acted upon are identified,
they are presented to the top management who have the final say in which paths of investment
are chosen (T Waijenburg 2020, personal communication, 16 April).
At IKEA, different business areas have different co-creation activities in progress. These
activities provide important insights in to market trends and customer expectations. For a firm
operating at IKEA’s scale, there is a need to understand the bigger picture that comes
collectively from them. Once strategic decisions are made, then there is a commitment for
resource allocation and action that is narrowed down to (Mazzolini, 1981). The decision-
making is top management driven at IKEA to ensure adhering to the overall firm objectives.
(3) Building Loyalty and Commitment
“In the beginning, it was very new for the product design and development teams. They felt
that they were the experts on design and development and so there was some resistance towards
customer co-creation even though it is in the DNA of IKEA to co-create. But step by step we
18
have proved the value of customer co-creation and there has been a mentality shift of the co-
workers” (T Bugge 2020, personal communication, 8 May).
At IKEA, the initiative to value customer co-creation comes from the top management. So,
there are processes that enable the co-workers in accepting customer co-creation and deriving
value from it. Customer co-creation can be very difficult to handle because the teams that are
developing products for a certain range, sit with a lot of basic knowledge that they have built
up over the years. They also know about what is possible and what is not. People have worked
in a certain way for a long time. Now there is a new way to work which sounds like a lot of
work and sounds very complicated too. This often happens with new things and is part of
change process (T Waijenburg 2020, personal communication, 16 April).
“I support co-workers at IKEA to understand the exploration ideation method. We work with
many ideas and boil them down to fewer concepts, developing these concepts further and all
along the way having different interaction points with the consumers to sharpen up the projects.
We have another training now to train people to go to the stores to bring early prototypes by
talking to consumer. The consumer interactions help in making good conclusions. So, when
presenting the idea to the decision makers, the co-workers are confident about what the
consumers said and what impact it may have on product development” (T Waijenburg 2020,
personal communication, 16 April).
4.2.3 Managing Threats and Reconfiguration Capabilities
At IKEA, co-creation contributes to the microfoundations of managing threats and
reconfiguration dynamic capabilities as is illustrated from the data collection. The
microfoundations that are impacted have been marked in Figure 3.
Figure 3. Combination, reconfiguration, and asset protection skills
(Source: Teece, 2007: 1340)
(1) Knowledge Management
In-store customer interaction has always been IKEA’s way of understanding its customers
better. Now IKEA also uses home visits to add to its information base. With the IKEA Co-
create project, IKEA has taken its customer co-creation activities very seriously too.
19
Initially, IKEA had the ambition to be in a continuous customer engagement and to share ideas
bidirectionally. However due to the scale of its operations and due to the large customer-base
that wished to be a part of such interactions, managing information thus generated became
unmanageable. It was realized that many a times the information was outright tangential to the
current operations and on several occasions, it was quite similar to the ideas already given by
internal teams.
It was then decided to invite customers to share ideas during product development. Instead of
opening up the question completely, customers were invited to co-create in the on-going
projects. Quoting from the interview, co-creation took the form of “This is the problem that we
are going to solve and this is the target group so we know who the target consumer is and this
is the problem that we want to solve – do you recognize the problem?” (T Waijenburg 2020,
personal communication, 16 April).
Together all the sources of information provide with a wealth of information that helps IKEA
stay ahead of the market curve. But this information needs to be managed effectively to make
sure that all of this information is combined and bundled in one place. That is an ongoing
change where the information does not sit with separate teams responsible for collecting
information. There is on-going work to develop and improve tools, to ensure that the
information from home visits, in-store interactions and co-creation activities are not lost.
Different teams interpret and use the same information differently. At IKEA, all this
information is converted into knowledge with the help of tools that are developed in-house
(Information technology (IT) - IKEA, n.d).
(2) Governance
At IKEA, often in customer co-creation trainings conducted for co-workers, concerns arise
about how can it be ensured that other companies do not go out and develop the prototypes we
show to our consumers. To this end, IKEA feels that the benefits of working on projects with
customer co-creation outweighs the risks of a competitor developing an idea that we have, may
be faster than us. If there is a question about development of a new product for which the
development teams would like customer input, then such a question is posed to customers.
Their insights and engagements are gathered and the communication is with the customers is
halted there. The customers are not updated with day-to-day development cycle. Rather results
of such engagements are shared with the customers. Such customer interactions are intermittent
and so the whole thing becomes fragmented. It may not be something that competitors can
copy easily. The majority of what is to be learned, needs to come in very early in the product
development. When inputs are taken from the consumers for a certain question, things can still
change a lot, two months down the line and the final product may be very different (T Bugge
2020, personal communication, 8 May; T Waijenburg 2020, personal communication, 16
April).
Another ‘governance’ factor is that the incentives associated with taking decisions should not
shadow the correct decisions. As has been noted earlier from one of the interviews, at IKEA,
if a customer need has been verified, then there is no bias towards whether the idea is coming
from within IKEA or outside IKEA. In that sense, customer co-creation boosts fairness in
decisions at all levels in the company.
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5. Discussions
The aim of this thesis is to answer the research question: “How does customer co-creation
contribute to dynamic capabilities of mature firms?”
This research question has led to two sub questions - “Which microfoundations of dynamic
capabilities of a mature firm does cocreation impact?” and subsequently “Does this improve
the dynamic capabilities of a mature firm? If so, how?”
With the data collected from several journals, articles and interviews, the researcher has been
able to answer the first question by using the dynamic capabilities framework as proposed by
Teece (2007). This has subsequently helped in answering the next question. With empirical
data from IKEA, it can be said that customer co-creation improves several of the
microfoundations of the dynamic capabilities at IKEA. As stated earlier, different firms work
in their real-life contexts. So, which microfoundations are improved and whether in small or
big ways, will differ firm-basis. This thesis provides empirical evidence to demonstrate that
customer co-creation indeed improves the microfoundations of dynamic capabilities.
5.1 Main Findings
5.1.1 Customer co-creation impacts specific microfoundations of dynamic capabilities of
a mature firm in relation to the firm’s real-life context
The dynamic capabilities framework illustrates the microfoundations of the three classes of
dynamic capabilities. By examining the empirical data, it can be said that it is not necessary
that all the dynamic capabilities of a firm are impacted by customer co-creation activities of
that firm. As such, which microfoundations are impacted will be determined by the context in
which a particular firm operates. For instance, the microfoundation ‘Selecting Enterprise
Boundaries to Manage Complements and “control” platforms’ is not impacted by customer co-
creation in case of IKEA. This is in all probability due to IKEA’s current stance of using
customer co-creation to exploit its existing resources. The idea is to improve the products that
IKEA has decided to produce. Those ideas from customer co-creation that may need radical
changes in for example, supply chain, are not picked by IKEA. Consequently, the innovation
from customer co-creation may never need to be patented to ensure that they benefit IKEA
more than its imitators. This is specific to IKEA. In another mature firm, specific to its real-
life context, customer co-creation may strongly impact the microfoundation mentioned above.
Another example is the microfoundation ‘Governance’ which helps the firm in ensuring that
innovations help the firm more than its imitators. However, at IKEA the nature of customer co-
creation does not in particular push the legal processes for ensuring protection of intellectual
property. In other mature firms that are more technology oriented, customer co-creation would
call for better processes in the microfoundation ‘Governance’.
Looking at the microfoundation “Processes to identify target market segments, changing
customer needs, and customer innovation”, in IKEA’s context, it is evident from the empirical
data that this microfoundation derives a lot from customer co-creation. The processes of this
microfoundation and customer co-creation go hand in hand. They interplay and shape each
other.
21
5.1.2 Firms need to improve and fine tune the processes and routines of the impacted
dynamic capabilities if they want customer co-creation to yield
As data from customer co-creation can come from various streams at IKEA, consolidation of
this information calls for well-defined processes for the microfoundation ‘Knowledge
Management’.
At IKEA, the microfoundation ‘Selecting Decision Making Protocols’ needs to have well
defined processes as customer co-creation demands that information from various customer
co-creation activities are consolidated and presented to strategic councils who make future
investment decisions. Although IKEA is using customer co-creation in its full capacity, it is
ensured that customer co-creation is accepted by the co-workers at IKEA. For this trainings
and workshops are arranged regularly. This speaks about the very strong positive impact of
customer co-creation on the ‘Building Loyalty and Commitment’ microfoundation at IKEA.
Co-creation also contributes favourably to some of the microfoundations of opportunity seizing
dynamic capabilities at IKEA. As a mature firm, IKEA has ongoing successful value
propositions. Customer co-creation generates insights that can improve the current value
propositions. These insights could also be useful during development of new products so that
IKEA can continue to bring successful value propositions to the market. However, due to
IKEA’s current underutilization of possibilities in customer co-creation, it is possibly not
contributing enough to the microfoundation ‘Delineating the Customer Solution and the
Business Model’ at IKEA. When IKEA moves to more open customer co-creation, the
processes and routines of this microfoundation will hopefully be improved to maximize the
gain from customer co-creation.
5.1.3 Customer co-creation is valued by mature firms for innovation
As is evident from the case study, mature firms realize the importance of customer involvement
in product development. When the receiver of the product is a stakeholder in its development
the chances of failure are far reduced. A mature firm can keep the burden of innovator’s
dilemma at bay by working on its dynamic capabilities (AKIIKE and IWAO, 2015).
At IKEA, one of the ways of customer co-creation is “The IKEA Effect”. The others are in-
store customer interactions, home-visits and IKEA Cocreate initiative. These activities provide
a very compelling basis to identify target customer segments and tap customer expectations
and innovations. Such data also provides an insight into the fields of RnD and selection of new
technologies. For instance, customer inclination towards environmental sustainability would
be strong reason to align internal RnD to achieve the same. However, validation of such an
inclination is better when the customer is actively engaged with product development through
surveys, polls, prototype discussion etc. Customer co-creation occurs in a limited or controlled
way at IKEA as of today. These limits are probably a barrier to some great ideas about
technology or design that could come from the customers. More likely, radical innovations
through customer co-creation are not making it to IKEA’s table currently due to limitations of
being able to handle huge data volumes generated through ‘no-restriction’ customer co-
creation. IKEA has teams working on how to make this feasible sooner than later because it
realizes the significance of open customer co-creation. This reaffirms that organizations can
sense opportunities better through customer co-creation than with traditional market research
techniques that have passive customer roles (Witell, Kristensson, Gustafsson and Löfgren,
2011).
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6. Conclusion and Further Research
Throughout this thesis, contribution of customer co-creation towards the microfoundations of
dynamic capabilities of a mature firm has been examined. By using relevant theories from
existing literature as well as the empirical findings, it has been determined that customer co-
creation improves the dynamic capabilities of a mature firm. This impact can be attributed not
only to the direct inputs from customer co-creation, but also indirectly to the changes in
processes that are required in a firm for using customer co-creation. The IKEA case study
shows that as markets change and become more volatile, IKEA strives to remain relevant in
the existing ecosystem by learning and adapting. Customer co-creation has been an important
source for learning at IKEA. The researcher is of the opinion that the theory of dynamic
capabilities is more relevant in than some of the older theories about how a firm can sustain
competitive advantage in a changing ecosystem. Customer co-creation has been recognized as
a powerful way to create highly-valued value propositions. So, it is imperative for managers to
understand the impact of customer co-creation on the dynamic capabilities of a firm. Not only
will this improve the firm’s dynamic capabilities but it will also increase the benefits of
customer co-creation.
As a research progresses, it opens up more areas that need investigation. While this research
proceeded with an aim to answer the research questions, there are some ideas that can lead to
topics for further research. This thesis uses only one case for empirical analysis. Further studies
can build on this thesis by including more firms of different sizes and from various industries.
Best practices can be guidelines to achieve success but how an organization uses these
guidelines to enhance its competitive advantage is idiosyncratic to the organization.
The focus of this thesis has been to examine if customer co-creation improves the dynamic
capabilities of a mature firm. It can be interesting to also explore if customer co-creation
impedes the dynamic capabilities in some cases. For this, a study of many more firms can help
in a more relevant qualitative analysis. Microfoundations of dynamic capabilities are impacted
by several other factors. A study to analyze what these factors are and what is their impact is
another idea for further research.
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Appendix 1
Questions to understand when and why co-creation started
1. When did your organization first decide to co create?
2. What events within or outside the organization prompted co-creation?
Questions to understand the current customer cocreation and its evolution over time
1. What are the ways for customer co-creation? Is it a co-creation by the customers or
with the customers?
2. What were the first activities for customer cocreation?
3. Has co-creation at the organization changed over years? Has the organization learnt
and evolved its co-creation processes?
4. How often does you cocreate? Is it for every product or you have guidelines for
choosing what you want to cocreate?
Questions to understand the Dynamic Capabilities
Sensing:
1. How are you defining new opportunities?
2. How are you focusing on the customer need?
3. Are inputs from customer cocreation used by internal RnD?
4. Are inputs from customer co-creation considered as very important innovation
points?
5. Are supplier and vendor processes tuned to accept the impact of customer co-
creation?
Seizing:
1. Can you talk about the organization’s business model? Is this model continuously
revamped to accommodate customer cocreation based innovation?
2. How are ideas selected for future investments? Is there a protocol?
3. How open are employees to these ideas from customers?
4. Has is happened that customer co-creation has given ideas which need
complementary products or services that r not in-house, so you collaborate with
another firm?
29
Managing threats and Reconfiguration:
1. Does IKEA have a centralized or decentralized structure? Meaning, do units across
the company have a rather formalized reporting and decision-making hierarchy?
2. Is knowledge from customer co-creation well documented whether or not you
choose to use it immediately?
3. How is it ensured that the new knowledge gained is not misused or leaked?
30
Appendix 2
Foundations of Dynamic Capabilities and Business Performance (Source: Teece, 2007)
TRITA TRITA-ITM-EX 2020:194
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