The New Frontier of Experience Innovation

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As competition intensifies and profit margins shrink, managers are under overwhelming pressure to create value. Traditional prescriptions such as cost reduction, reengineering and outsourcing, while critically important, cannot solve the problem. The need to innovate is greater than ever, but the focus of innovation must change, say the authors. Managers are discovering that neither value nor innovation can any longer be successfully and sustainably generated through a company-centric, product-and-service-focused prism.

By synthesizing societal trends and early experimentation in companies such as General Motors, LEGO and Medtronic, the authors paint a picture of the "next practices" of innovation in which the locus of value creation will inevitably shift from products and services to "experience environments." The intent of experience innovation is not to improve a product or service, per se, but to enable the co-creation of an environment in which personalized, evolvable experiences are the goal, and products and services are a means to that end. Profitable company growth will then result from individual consumers co-creating their own unique value, supported by a network of companies and consumer communities.

From that perspective, say the authors, managers must learn to view existing and emerging technologies not as enhancers of products, features and functions, but as facilitators of experiences. They offer examples of how technological capabilities such as miniaturization, networked communication and adaptive learning are fostering experience innovation at companies such as Sony, Apple, Microsoft and TiVo, illustrating their contention that technology will be the key facilitator of the nascent trend toward experience innovation.

C.K. Prahalad is the Harvey C. Fruehauf Professor of Business Administration at the University of Michigan Business School in Ann Arbor, Michigan, where Venkatram Ramaswamy is a professor of marketing. Contact the authors at CPrahalad@aol.com and Venkatr@umich.edu.

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