Convergence of industries and the emergence of active consumers in an increasingly networked society challenge the view that value is created through products and services.

For a long time, innovation was assumed to be best delivered in the product space. Companies believed they created value through the products and services they offered, and so they competed by offering product variety and expanding the markets they served. But the convergence of industries and the emergence of active consumers in an increasingly networked society now challenge that view.

Converging technologies are causing industry boundaries to shift and blur, changing the very nature of products and services. Traditionally, the education, communication, and entertainment markets were served by distinct industries: the consumer electronics industry, the computer industry, the communication devices industry, the music industry, and the movie industry. Today, the lines between these industries have all but disappeared in the wake of the consumer digital space.

Digitisation has enabled the combination of features and functions of traditional industries and products in a host of ways. A mobile phone today is an e-mail device, weather forecaster, a camera, a music streaming device, a date-finder, and an e-wallet. Soon, Google Glass will do these, and more. Similar convergence scenarios are occurring in the financial services, healthcare and car industries, among many others.

 

CONSUMER PARTICIPATION

For many consumers, this ever-expanding combination of features and functions embedded in products does not necessarily translate into better customer experiences, since too much choice can be bewildering. If so, product variety may then not be the best competitive strategy, even if it is becoming easier to do so today. Instead, value will increasingly have to be co-created with consumers, by allowing individuals to co-construct their own consumption experiences through personalised interaction, thereby co-creating unique value for themselves.

Having the individual consumer play an active part in value creation is not simply a matter of opening up access to a company's technology base or seeking customers' help in product development. If that were the case, innovation would still be centred on the technology or product. Rather, value is created by the consumer's participation.

Consider language learning mobile apps. Where previously language students removed from native speaker environments or in-person classes had to rely on books and cassette tapes, today learning a new language can be done at the flick of a finger. Apps such as Duolingo and Babbel offer interaction and personalised feedback, both key to mastering new language skills.

Much of the learning happens in the form of rapid-fire quizzes, which switch frequently between testing speaking, listening and writing. High scores unlock further lessons, and you can compare your progress with friends through Facebook. Suddenly, learning a new language is so much more entertaining, informative, convenient and fun.

These apps work because they are designed to deal with the experience space. They focus on the individual learner and are sensitive to the pace and contexts in which individuals learn. Equally important, they allow users to interact with their system through a simple, interactive interface. These dimensions help place the individual at the heart of a co-creation experience.

The co-creation and expansion of such experience spaces is the future of innovation. Consider the airline industry, one of the earliest investors of customer research data, segmentation and analytics. At the time that Amazon.com only sold books, airlines had already made it a breeze to book air tickets online. Nowadays, mobile online check-ins and QR Code boarding passes on mobile phones are all de rigueur, part of what we have come to expect of a seamless air journey.

 

EXPERIENCE INNOVATION

The value being created in this scenario cannot be found in the physical product (in this case, a flight), nor in the communication and IT network that supports the system, nor in the social-and-skill network that includes pilots, stewards and ground crew, in isolation. The value lies in the co-creation experience arising from the passenger's interaction with all of these elements.

The language learning app and airline examples illustrate the nature of experience innovation. For both cases, there is a broadened base of competence comprising three co-creators of value: the company and its network, the consumer, and potentially the consumer community.

In such a scenario, innovation comes through leveraging that competence base to expand and enhance the environment, broadening the range of potentially desirable experiences for individual customers. It is a fundamentally different approach to innovation from the current preoccupation with new product development, increased product variety and reduced cycle time for product development.

But such co-creation of value through personalised experiences is the new frontier of innovation. Good customer experience is rewarded with consumers' willingness to repurchase, reluctance to switch, and likelihood to recommend firms. Welcome to the age of the customer.

The article is contributed by Malcolm Ramsay, head of aviation, KPMG in Asia-Pacific and Lyon Poh, head of digital innovation, KPMG in Singapore. The views expressed are their own.