Co-Creation: Effectual Partnerships

Some people think being successful is about beating the competition. Expert entrepreneurs work differently: they actively seek to cooperate with others and in the process, unlock additional available means and affordable loss. Working this way demands flexibility as the entrepreneurial journey is full of surprises, particularly when shared with others.

Welcome to Topic 7: Co-Creation: Effectual Partnerships. In this topic you will learn about:

1. The effectual approach to co-creation called the crazy quilt
2. Fundamentals elements of co-creation
3. How co-creation and the input from stakeholders plays a part in four very different ventures.

These relate to the Subject Learning Outcomes:

1. Identify and apply the core principles of effectuation and how they form the basis of the effectual cycle.
2. Explain the entrepreneurial bias toward action leads to experience, which in turn increases self-efficacy.

Welcome to your pre-seminar learning tasks for this week. Please ensure you complete these prior to attending your scheduled seminar with your lecturer.

Click on each of the following headings to read more about what is required for each of your pre-seminar learning tasks.

We have explored how effectuation sees expert entrepreneurs deal with uncertainty by operating with a clear understanding of their available means and affordable loss. Expert entrepreneurs also share the risk with other stakeholders which is where co-creation comes in.

In contrast to causal partnerships which are formed for the entrepreneur to achieve certain preconceived goals, effectual partnerships are created together with stakeholders, or co-created, in order to make the most of surprises or unexpected contingencies. A stakeholder is someone who is willing to make an actual commitment to the project and contribute their available means and affordable loss. The effectual process is based on interacting with all and any stakeholders willing to contribute to the co-creation of the venture.

Crazy quilt principle

While a causal approach to partnerships starts with a specific goal and identifies partners who can help enable these, an effectual partnership is more fluid, and dependant on how stakeholders help shape the venture. This effectual approach to co-creation is called the crazy quilt (sometimes referred to as the patchwork quilt) principle. A major benefit of this effectual approach is that it adds to the available means and affordable loss, reducing uncertainty and co-creatively shaping the new venture and future markets (Read et al 2016).

The Society for Effectual Action (2011) summarises this principle as follows:

"The crazy quilt principle of effectual reasoning is the focus on building partnerships rather than beating competitors. Since entrepreneurs tend to start the process without assuming the existence of a predetermined market for their idea, they don’t know who their competitors will be, so detailed competitive analyses have little value.

Instead, entrepreneurs generally take the product to the nearest potential customer. Some of the people they interact with make a commitment to the venture, committing time and/or money and/or resources and, thus, self-select into the new-venture creation process.

The partnership principle dovetails well with the affordable loss principle to bring the entrepreneur’s idea to market with very little cash expenditure. Obtaining pre-commitments from key stakeholders, suppliers or customers helps reduce uncertainty in the early stages of creating an enterprise".

Finally, since the entrepreneur is not wedded to any particular market for his or her idea, the expanding network of strategic partnerships determines, to a great extent, which market or markets the company will eventually end up entering or creating. The following video provides some examples of the crazy quilt principle and explains the idea of the self-selection of stakeholders. Pay attention to what is required from the entrepreneur to open themself up to co-creation.

Co-creation fundamentals

Having read chapter 14 of the prescribed textbook and watched the previous video, which both discuss the crazy quilt principle, you will recognise the following three fundamental elements of co-creation:

1. Interaction.
2. Partnership.
3. Venture.

Each element helps to facilitate the effectual partnership from the initial stages in forming a new venture, right through to its launch. These fundamental elements will assist an entrepreneur in reshaping a venture, gaining buy-in from stakeholders and ultimately, co-creating a venture that may not look like the original venture the entrepreneur had envisaged.

Take a closer look at the following explanations of each of the three elements, which have been adapted from Read et al 2016, pp. 160-166.

Interaction

• The entrepreneur reaches out for advice, input, knowledge, or help.
• Two-way communication occurs/takes place between entrepreneur and stakeholder.
• Interactions with stakeholders at the start of an effectual partnership are based on principles of effectuation, namely:
  • each stakeholder brings in available means
  • each stakeholder seeks to only invest what s/he can afford to lose
  • interactions bring surprises.

Partnership

• Commitments are sought from stakeholders to engage in a partnership.
• Flexibility and openness that partners might change the venture in ways you cannot anticipate.
• Often the roles of those involved (in the venture) are fluid in order to foster co-creation.
• Gaining buy-in is better than selling a non-negotiable package in which partners have no say and are unable to co-create outcomes for.

Venture

• While a direction may not be clear from the outset, increased interaction generally yields patterns, which then develop into a direction for a venture.
• Ventures are established based on sufficient conditions, compared to predetermined necessary conditions.
• Stakeholder acquisition stops as the venture becomes more established in order to maintain the venture at which point more predictive (causal) logic will be used.

 

Let us look further as to how these fundamentals may apply in real life.

 

Stakeholders and co-creation

How can stakeholder engagement affect the outcome of a venture? Let us take a look at four different case studies. Each demonstrates the exciting outcomes of different ventures ranging from art instruction for kids, open-source software, electricity generation and even health care in the Himalayas - get ready for a wild, co-creative ride!

Case study 1: Draw Together

The Draw Together case study demonstrates how the surprise of the pandemic was turned into an opportunity to co-create with children, parents, and teachers around the world. We will start by exploring the entrepreneur, their available means and affordable loss. Then we will look at how other stakeholders became part of the effectual partnership, helping to shape Draw Together.

Wendy’s available means

We learned previously that expert entrepreneurs do not focus on finding outside resources to fund their ideas. Instead, they start with their already available means. Interestingly, Wendy MacNaughton's mother naturally understood this concept and passed this wisdom on to her daughter, speaking of a 'basket' in which you put all of your experiences and riches (this sounds very much like a basket of available means!). Watch the following video to understand what available means Wendy drew on.

We wouldn't know about Wendy if she hadn't taken a small, but decisive action, sharing those drawings online. The action Wendy took in sharing her illustrations online not only added to her available means, it also created new opportunities, and enabled her to co-create with stakeholders such as the parents, children and teachers. Wendy’s stakeholders engaged with her work online, which led to multiple new opportunities for her.

Co-creating with stakeholders

Even if Wendy is not aware of effectual logic, she practices it. Instead of being goal-focused, she is process-focused, thriving and learning from interactions with others, as she describes in the following video. During the pandemic, the launch of Draw Together boomed, seeing Wendy's initiative skyrocket. This was achieved through Wendy making the most of her available means along with adapting from the learnings she received from her experiences and the feedback from the children she interacted with during the show.

When looking closely at the lemonade principle, we touched on the fact that mistakes are surprises, and surprises are opportunities. In Wendy’s case, her surprises were what happened after she sought solace in her drawing during the time of the passing of her aunt and when she was asked to make illustrations in a hospice.

Watch the following video to better understand the importance of the process and seeing where it takes you and how your ideas evolve along the way.

Yet another big lemon…

Making the most of unexpected opportunities is an important step in effectual entrepreneurship.

Wendy's extensive basket of available means, including a clever mother, set Wendy up for her unexpected step of launching Draw Together as the pandemic hit. Wendy's initial success attracted backers who helped fund a new set for her show and later, with another grant, launched Draw Together Classrooms. Observe how the simple pebble of a drawing class via social media resulted in not just ripples, but waves around the globe. It is important to highlight that the journey on an unknown path provided plenty of opportunities for Wendy (and her partner Caroline) to learn. This included understanding the power of audience perspective versus simply employing seemingly superior technology. Taking action with simple means (an iPhone via social media) resulted in thousands of kids processing their emotions (including trauma) through drawing. Beyond the drawing lessons, Draw Together became a connected community that shares creations and celebrates differences.

As you know, co-creating isn't necessarily easy. Wendy (a city girl), spent a whole day co-creating with a boot maker in the countryside. Despite their seemingly vast ideological differences, they explored and found commonalities through their mutual curiosity. The actions and approaches taken by Wendy demonstrate the importance of developing your means and drawing on this as you continue to take action. Wendy had a great time when connecting with those around her.

Case study 2: Himalayan HealthCare

Earlier, (as part of your pre-seminar learning tasks) you read about the Himalayan Health Care case (on page 161 of your textbook). Let us use this knowledge to have a quick look at how the key to this venture’s success was the involvement of the local citizens in determining, delivering and managing the services they needed. A wonderful example of co-creation at all levels!

Case study 3: Red Hat

The very first software programs were like islands. Separate entities, which functioned on their own and were proprietary systems, often sold as part of a complete package with hardware, such as the original IBM personal computers or Apple Macintosh. Like a car owned outright, it is up to the owner to resolve any problems with the system.

Red Hat took a different approach, called 'open-source' software, which has become a pivotal part of rapid developments in technology. Another perfect example of co-creation! How did open-source become revolutionary? What is significant about its rise? Watch the following video to understand the history of open-source and the creation of Red Hat.

With that backdrop, the seemingly crazy approach of Red Hat offering their software to anyone free of charge, via the Internet, makes more sense. The agreement being, users of Red Hat software commit to sharing any improvements they make available, without charge. As such, Red Hat is receiving free and fast innovation. By definition, co-creation is the foundation of the Red Hat business model.

By making their business model reliant on open-source software, customers are not tied to Red Hat. Those within Red Hat see this customer fluidity as a motivator to continuously ensure they provide their customer with a high-value product and service.

So, how does Red Hat make money, let alone profit? Revenue is achieved by offering customisation and providing consulting services to clients for a fee. This enables Red Hat systems to perform optimally within their specific customer market.

So, how does Red Hat make money, let alone profit? Revenue is achieved by offering customisation and providing consulting services to clients for a fee. This enables Red Hat systems to perform optimally within their specific customer market.

In the following video, Red Hat's CEO, James Whitehurst explains how, instead of forcing customers to pay for ongoing upgrades, they seek to constantly offer more value to entice customers to continue using their software.

Red Hat Software is an excellent example of leveraging partnerships and employing the affordable losses of stakeholders to advance the venture by crowdsourcing innovation.

What started as an approach for the software services themselves, became a way of working for the Red Hat team. Seeing the results in their own organisation led them to share both their approach and experience with the world in the form of a book, which the following video explains.

Red Hat has been so successful and become so attractive that they have been acquired by IBM. So, it is natural to question if the idea of open-source can be continued as part of a company that became so big by selling and servicing proprietary systems. It seems to be working however, look at how big the Red Hat business has become as of May 2022.

business has become as of May 2022. The following video discusses the importance of engaging with customers as stakeholders and how this was vital to the co-creation of Red Hat’s open-source software development. Watch the first seven and a half minutes to get a good overview of how Red Hat operates within the bigger picture of cloud computing and companies using their software. You may of course continue to watch the video which delves deeper into the specific ways Red Hat operates, however, this is optional.

Red Hat becoming part of IBM is just one example of independent open-source companies being acquired. It is interesting to think about what this means for the future of open-source as a whole.

Case study 4: Husk Power Systems

Based on the Husk Power case in your textbook chapter 8 (pages 89-90), let’s consider how stakeholders played a key role in co-creating this venture.

Through the lens of effectual logic, Husk Power demonstrates that even very basic available means, through co-creation and integration, can be employed in transformative ways.

This has been achieved through the integration and implementation of the following two components:

1. Diverse stakeholders – such as:
   1. Farmers and their rice husks.
   2. Villagers to run micro-grids.
   3. Electricity consumers.
2. Diverse technological solutions. For example:
   1. Solar power used during the day.
   2. Biogas (gaseous mixtures) from rice husk waste used in the evenings.
   3. Batteries used at night.

The following video provides background on the energy climate in India, which provides context to the issues Husk Power is aiming to resolve, along with the reason the venture was established. As you watch the video, note how access to power has provided opportunities to the people who did not have electricity previously.

Husk Power took a vastly different approach than other power companies. They engaged residents in their villages in order to create an emotional bond with a locally based power source, fuelled with a renewable energy source, which had previously been dumped as waste along the roads. In addition to connecting people, Husk Power connected technologies to offer a comprehensive, reliable, and affordable electricity source to increase social outcomes. A lot has happened since the founding of Husk Power, as the following video indicates. While watching, look for clues as to where they might go in the future.

Husk Power has demonstrated that it is possible to make money generating electricity from agricultural waste in Bihar, one of the poorest states of India, where people are not used to paying for the precious commodity. Prior to this, the traditional view was that power generation was dependent on big-ticket items such as:

• Major infrastructure -requiring significant capital investment.
• The creation of vast networks.
• Copious quantities of fossil fuels.
• Sufficient market size of customers with adequate buying power to generate profit from this costly model.

Dealing with the adversities posed in one of the poorest states in India has built resilience for the Husk Power team (adding to their available means), setting excellent foundations for the company’s global trajectory, as this update in the following video from late 2021 demonstrates.

The increasing prevalence of international agreements and climate action talks, along with the daily realisation that our reduction in fossil fuels is key, provides further opportunities for Husk Power in the scaling of micro-grids and furthering their operations. Grant funding from benevolent organisations and government buy-in might co-create their entrepreneurial journey into the future.

The following video provides an insightful look into how this may shape the future for Husk Power, along with providing a great overview of the company’s achievements thus far.

Consider their trajectory - from the tiniest village mini-grid, to addressing United Nations Sustainable Development Goals in many countries! The power of the entrepreneurial mindset!

Wrap-up

The crazy quilt principle is all about partnerships and co-creation. It allows the entrepreneur to operate in an effectual manner by increasing their available means, affordable loss and making the most of surprises encountered by collaborating with stakeholders and allowing them to actively shape the venture together.

The uncertainty of many business ideas compels expert entrepreneurs to work with potential customers and suppliers to find a workable solution. This co-operation helps entrepreneurs expand their available means, while keeping the affordable loss in check. In terms of what is needed from the entrepreneur to enable these effectual partnerships and be successful in the co-creation process; the entrepreneur needs to be open to surprises and be flexible as both stakeholders and the world around them naturally evolve.

The Draw Together case study demonstrates how the surprise of the pandemic was turned into an opportunity to co-create with children, parents and teachers around the world. Interacting with other stakeholders brought unexpected results and helped shape the Draw Together venture.

Co-creation is at the heart of Himalayan HealthCare, with trekking tourists providing healthcare and education to their local hosts. The case study demonstrates how remaining flexible and allowing stakeholders to self-select can lead to powerful alliances which serve a higher purpose.

Red Hat software bases its entire business model on co-creation and community-generated innovation. The case study Red Hat exemplifies co-creation as the engine of innovation.

And finally, Husk Power demonstrates how low-tech local solutions can become robust approaches to contributing to UN Global Sustainability Goals. This final case study demonstrated how even the simplest available means (agricultural waste) can be leveraged with stakeholders to become a scalable solution that addresses global wicked problems.

Welcome to your seminar for this topic. Your lecturer will start a video stream during your scheduled class time. You can access your scheduled class by clicking on ‘Live Sessions’ found within your navigation bar and locating the relevant day/class or by clicking on the following link and then clicking 'Join' to enter the class.

Click here to access your seminar.

The learning tasks are listed below. These will be completed during the seminar with your lecturer. Should you be unable to attend, you will be able to watch the recording, which can be found via the following link or by navigating to the class through ‘Live Sessions’ via your navigation bar.

Click here to access the recording. (Please note: this will be available shortly after the live session has ended.)

In-seminar learning tasks

The in-seminar learning tasks identified below will be completed during the scheduled seminar. Your lecturer will guide you through these tasks. Click on each of the following headings to read more about the requirements for each of your in-seminar learning tasks.

Welcome to your post-seminar learning tasks for this week. Please ensure you complete these after attending your scheduled seminar with your lecturer. Your lecturer will advise you if any of these are to be completed during your consultation session. Click on each of the following headings to read more about the requirements for each of your post-seminar learning tasks.

Each week you will have a consultation session, which will be facilitated by your lecturer. You can join in and work with your peers on activities relating to this subject. These session times and activities will be communicated to you by your lecturer each week. Your lecturer will start a video stream during your scheduled class time. You can access your scheduled class by clicking on ‘Live Sessions’ found within your navigation bar and locating the relevant day/class or by clicking on the following link and then clicking 'Join' to enter the class.

Click here to access your consultation session.

Should you be unable to attend, you will be able to watch the recording, which can be found via the following link or by navigating to the class through ‘Live Sessions’ via your navigation bar.

Click here to access the recording. (Please note: this will be available shortly after the live session has ended.)

These are optional resources to deepen your understanding of the topic material:

• TED 2021, Wendy MacNaughton: The art of paying attention.
• Society for Effectual Action 2018, Effectuation 101,Society for Effectual Action, https://www.effectuation.org/?page_id=207#:~:text=Expert%20entrepreneurs%20believe%20that%20the,or%20finding%20the%20optimal%20opportunity.

References

• 24Life 2017, Wendy MacNaughton: Unlock Creativity, streaming video, Youtube, https://youtu.be/eCuRt_35ijY
• Alaili, A 2020, ‘There’s no shortage of remarkable ideas, what’s missing is the will to execute them – Seth Godin,’ Entrepreneur Post, https://www.entrepreneurpost.com/2020/11/05/theres-no-shortage-of-remarkable-ideas-whats-missing-is-the-will-to-execute-them-seth-godin/
• CNBC 2019, The rise of open-source software, streaming video, You Tube, https://youtu.be/SpeDK1TPbew
• CTW Films 2012, Hearts in the Himalayas, streaming video, Youtube, https://youtu.be/ahAH9uyzq9g
• DW Shift 2020, The future of open source? When open source gets monetised, streaming video, You Tube, https://www.youtube.com/watch?v=ZCmqeOHhjzk
• Gopi, A.G. & Jimenez, B.T 2017, ‘Entrepreneurship as Value Co-Creation,’ Academy of Management Proceedings 2017 (1): 12670, 2017.
• Husk Power Systems 2021, Husk Power: 7 clean rural energy targets for 2030, streaming video, You Tube, https://youtu.be/nqe36pdwGZ4
• ILab Incubator, 2019, Crazy Quilt Principle, streaming video, You Tube, https://youtu.be/RvqSuWQWDbc
• PBS News Hour 2013, How Social Entrepreneurs Use Rice Husks to Power India, streaming video, You Tube, https://youtu.be/TG_HJh3hIjc
• PBS News Hour 2016, Brief but Spectacular: Wendy MacNaughton, streaming video, Youtube, https://youtu.be/ENmGG4opFIM
• Read, S. & Sarasvathy, S.D 2012, ‘Co-creating a course ahead from the intersection of service-dominant logic and effectuation,’ Marketing Theory, 12(2):225-229.
• Read, S, Sarasvathy, S, Dew, N & Wiltbank, R 2016, Effectual Entrepreneurship, 2nd ed., Routledge.
• Red Hat 2009, The value of Red Hat, streaming video, You Tube, https://youtu.be/1aAzwzqqjkI
• Red Hat 2015, The Open Organisation, streaming video, You Tube, https://youtu.be/rvyFYFXCj5c
• Shell 2019, Husk Power: Harnessing sunlight to provide reliable electricity, streaming video, You Tube, https://youtu.be/a8aBSuQupAw
• Society for Effectual Action 2011, ‘What is effectuation?’, Society for Effectual Action, https://www.effectuation.org/sites/default/files/documents/effectuation-3-pager.pdf
• Tech Field Day 2020, Red Hat Portfolio and Strategy, streaming video, You Tube, https://youtu.be/fJJe3ZA9jpQ