How social-media-enabled co-creation between customers and the firm drives business value? The perspective of organizational learning and social Capital

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Abstract

Contemporary business organizations are increasingly turning their attention to value co-creation using social media between individual customers and business organizations in the process of new product development (NPD). However, little is known about the mechanisms underlying social-media-based customer-firm co-creation and their implications for business value in NPD. To address this knowledge gap, this study develops a model from the perspective of organizational learning and social capital to examine how the social-media-based customer-firm co-creation mechanism conceptualized as the structural, cognitive, and relational dimension of social capital influences the first-order knowledge outcome (knowledge transfer effectiveness) and second-order dynamic capability outcome (absorptive capacity), and how these co-creation outcomes ultimately influence organizational performance. The model is tested using survey data from 149 Chinese mobile application developers. The results indicate that social-media-based structural, cognitive, and relational linkage, in particular the structural linkage, is an important co-creation mechanism to improve organizational performance. Knowledge transfer effectiveness and absorptive capacity have significant mediating effects in this co-creation mechanism-outcomes-performance framework. Further, the moderating effects of social media use level on the relationships between co-creation mechanism and outcomes are largely supported. The study contributes to theory and practice by shedding light on the social-media-based customer-firm co-creation in NPD at a process level.

Introduction

The process of new product development (NPD) in an enterprise has undergone radical shifts during the past decades [1]. From being confined within an organization, it has now evolved to the alignment between the enterprise and its customers, which is termed as customer-firm co-creation under the rubric of open innovation [2]. Driven by the ubiquitous penetration of social media in customer-enterprise and customer-customer interactions, NPD has gained traction for three main reasons. First, social media support real time, media-rich, and personalized interactions between a company and its customers [3], thus allowing for open innovation, whereby the firm can obtain external knowledge from outside its organization [4]. Using social media, a large number of highly distributed and heterogeneous individuals contribute diverse and commercially attractive ideas for new products. As these ideas are generated by customers themselves, they represent “wisdom of crowds” and are more likely to mirror customer needs, thereby increasing the likelihood of acceptance of new products [5,6]. Second, social media platforms provide design and evaluation toolkits to involve and empower customers during all stages (ideation, product development, commercialization, and postlaunch) of NPD. This facilitates firms to link customer resources and capabilities to improve new product creativity, reduce development costs, and facilitate continuous innovation [7]. Third, social media also incorporate tools that increase virality, whereby customers can efficiently share new product information within their online social networks, and thus facilitate the commercialization of the new product [3].

As social media act as an enabling technology for co-creation [8], a number of high-tech firms have leveraged its potential for involving their customers in the NPD process. For instance, the light manufacturer “Osram” launched an idea competition in the Second Life – a virtual world – and invited users to contribute creative ideas. Similarly, the Chinese mobile phone manufacturer “Xiaomi” encouraged its customers to actively engage in the creation of new products in its brand community by iteratively evaluating and improving the latest virtual prototypes, interactively discussing optimal solution details, testing and experiencing the new product features, and disseminating product marketing information.

An underlying assumption of such strategies is that customer-firm co-creation specific to NPD in social media can produce positive performance impacts. Although the practices suggest the need for understanding the role of customer co-creation in social media, there have been few studies in this area. The review of prior research on the effects of co-creation (see Table A1 in Appendix A) reveals important insights. First, previous research points to the benefits and risks of customer co-creation and reports mixed results. On the one hand, customer co-creation improves business value, such as service innovation performance [9], new product market success [10], market growth [11], and customer satisfaction [12]. On the other hand, customer co-creation leads to higher customer defection [13], reduced producer benefits [14], and poorer brand evaluations [15]. Such results suggest that the overall effect of customer co-creation on the performance of NPD may well be contingent on other mediating or moderating factors. Second, there are only limited empirical studies on social-media-based customer-firm co-creation in NPD. Extant research focuses mainly on alliance between upstream and downstream firms in NPD and customer-customer co-creation practices in social media. Little is known about the implications of customer-firm co-creation in social media for NPD. As social media provide companies with opportunities to harness customers’ innovative potential, which influences innovation performance, it is important to examine how customer-firm co-creation driven by social media influences business value in NPD.

The present study attempts to unravel this specific mechanism, that is, how social-media-based customer co-creation influences the business value (measured in terms of organizational performance) in NPD? Specifically, two important research questions are examined in this study. First, what is the mechanism behind the influence of customer-firm co-creation in social media on a firm’s business value given the contradictory findings from previous studies? Research (e.g., [16,17,2]) reveals that organizations collaborate with their customers to exchange knowledge and construct dynamic capabilities under the premise of gaining strategic competitive advantage and improving organizational performance. Although its importance is acknowledged in research and management practice, a holistic and systematic understanding of the role of customer co-creation in NPD remains elusive. The present study extends Iyengar et al.’s [18] model by embedding social-media-based social linkage as a co-creation mechanism, the first-order knowledge outcome, the second-order dynamic capability outcome, and the business value in a nomological framework from the perspective of organizational learning and social capital and uncovers the process of social-media-enabled value co-creation in NPD.

Second, how does social media use moderate the influence of co-creation mechanism on its first-order and second-order outcomes? The literature on value co-creation and information systems (IS) suggests that information technology (IT) is an important contingency factor that influences the value co-creation process [19]. Prior studies (e.g. [7,11,17],) on IT-enabled value co-creation report that IT-enabled platforms facilitate firms in executing NPD with customers. Further, the IS studies (e.g. [20,21],) uncover a positive IT-based co-creation cycle, with greater IT embeddedness spawning co-created value, which, in turn, forms the basis for further value creation. While the literature highlights the potential of IT as the contingency factor determining the impacts of value co-creation, few empirical studies link IT to the customer-focused value co-creation process. This study is motivated by calls to understand how IT facilitates customer-firm interactions to create business value in NPD. Regarding the most popular IT- social media, there are no studies that specifically and empirically examine the role of social media use in facilitating customer value co-creation for desired performance goals in NPD. Our study addresses this gap by examining how social media use complements customer-firm social linkage to influence the first- and second-order outcomes of value co-creation in NPD.

Section snippets

The theoretical framework

Organizational learning is the core assumption underlying value co-creation between the customers and the firm in NPD in the context of social media. Prior co-creation literature illustrates the learning-based recursive nature of co-creation [4,6,22,23]. Payne et al. [24] proposed a tripartite framework for value co-creation consisting of the customer value-creation processes, the supplier value-creation processes, and the encounter processes. From the perspective of the supplier value-creation

Research model and hypotheses

Based on the above discussion, we present our research model in Fig. 2.

Contextual setting

The mobile application industry was selected as the setting for our study for three reasons. First, the market is highly knowledge-intensive, competitive, and customer-oriented. The majority of mobile apps fail or are not as successful as expected, and only those app developers who meet customer requirements sustain the test of time [7]. Given that the developers need to learn to update their products in response to changing customer requirements, customer-firm co-creation, which enables

Data analyses and results

Following the two-step approach [48], we first estimated the measurement model to validate the instrument. Then we assessed the structural model and tested our research hypotheses. The data were analyzed by partial least squares using PLS-Graph 3.0, a component-based structural equation modeling (SEM) technique. Two reasons drove this choice: (1) PLS is well suited to handle formative constructs [49] and (2) our sample was relatively small, and therefore, the PLS technique, which is less

Discussion of findings

This study presents a few interesting findings. First, regarding the influences of social capital on co-creation outcomes, structural linkage, cognitive linkage, and relational linkage are positively associated with the first-order knowledge exchange outcome of co-creation (knowledge transfer effectiveness), but only structural linkage has a positive effect on the second-order dynamic capability construction outcome of co-creation (absorptive capacity). Second, regarding the relationships

Acknowledgment

The work described in this paper was supported by grants from the National Natural Science Foundation of China (No.71602152).

Hong Zhang is an Associate Professor at School of Management, Wuhan University of Science and Technology in China. Her research focuses on value co-creation, social commerce, e-commerce, and technology adoption of information system. She has published in Information & Management, International Journal of Information Management, Internet Research, and others.

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    Hong Zhang is an Associate Professor at School of Management, Wuhan University of Science and Technology in China. Her research focuses on value co-creation, social commerce, e-commerce, and technology adoption of information system. She has published in Information & Management, International Journal of Information Management, Internet Research, and others.

    Sumeet Gupta is a Professor at Indian Institute of Management, Raipur. His research interests include supply chain, information systems, and retailing. He has published in international journals such as Decision Support Systems, International Journal of Electronic Commerce, European Journal of Operational Research, and others.

    Wei Sun is an Associate Professor at School of Management, Wuhan University of Science and Technology in China. His research focuses on value co-creation and customer behavior.

    Yi Zou is a lecturer at School of Management and E-Business, Zhejiang Gongshang University in China. Her research focuses on value co-creation, advance selling, e-commerce, and auction.

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