For decades, companies have been urged to invite customers into the product development process. The idea, known as value co-creation, is that collaborating with buyers on design, feedback, and problem-solving produces better products and stronger competitive advantage. Yet the research on whether this collaboration actually improves the bottom line has been inconsistent. Some studies find clear performance gains, while others suggest the benefits are murky or even negative.
A new study published in Marketing Intelligence & Planning proposes that the missing piece of the puzzle may be sitting inside the company all along: the employees. The researchers argue that co-creation improves firm performance largely by changing how employees feel about their employer, and that this employee experience is what translates customer collaboration into better business outcomes.
The question behind the study
Perry L. Parke of Wofford College, along with Prachi Gala, Pramod Iyer, Stefan Sleep, and Mona Sinha of Kennesaw State University’s Coles College of Business, wanted to understand why value co-creation sometimes pays off and sometimes doesn’t. Prior work has often treated employees as a precondition for co-creation to succeed. The team flipped that assumption around and asked whether co-creation itself changes how employees perceive their treatment by the firm.
The concept they focus on is employee relationship orientation, which refers to workers’ sense that their organization respects them, communicates openly, cooperates with them, and treats them as more than just cogs in a machine. This idea draws on human relations theory, an old strand of management thinking that links employee morale and well-being to productivity.
The researchers wanted to know three things. Does co-creation with customers actually improve how employees feel about their firm? Does that improvement, in turn, help explain why co-creation boosts firm performance? And do two common organizational practices, innovation efforts and knowledge-sharing, strengthen or weaken these connections?
How the study was conducted
The team surveyed 301 marketing and product managers based in the United States, recruited through a third-party research panel. To qualify, respondents had to have held their position for at least two years, work at a firm with more than 250 employees, and be at a company generating over $10 million in annual revenue. Attention checks were used to filter out inattentive respondents.
Managers answered questions on five-point scales about their firm’s co-creation activities with customers, their perceptions of how the organization treats them, the degree of innovation and knowledge-sharing at their company, and how their firm was performing on measures such as customer satisfaction, market share growth, and revenue growth relative to competitors. The researchers then used a statistical technique called partial least squares structural equation modeling to test the relationships among these variables.
What the data revealed
The first finding lined up with the researchers’ expectations. Managers whose firms engaged more actively in co-creation with customers reported stronger perceptions that their organization respected and valued them. Collaborating with customers, in other words, appeared to be associated with employees feeling better treated by their own employer.
Co-creation was also directly linked to better firm performance, echoing a long line of prior research. But the more interesting result concerned the pathway between the two. The analysis showed that part of co-creation’s benefit to firm performance flowed through employee relationship orientation. When co-creation activities went up, employees’ sense of being valued went up, and that in turn was linked to stronger reported performance. The authors interpret this as evidence that co-creation works partly by improving the internal employee experience, not just the external customer experience.
Innovation helps, knowledge-sharing hurts
The researchers also tested whether two organizational practices would strengthen the link between co-creation and employee relationship orientation. For innovation, defined as the application of novel ideas to create value through new products, services, or processes, the answer was yes. Firms with stronger innovation practices showed a tighter connection between co-creation activity and employees feeling valued. The authors suggest that innovation gives workers cutting-edge projects to contribute to, a sense of purpose, and visible outcomes from their efforts.
The result for knowledge-sharing was the opposite of what the team predicted. Knowledge-sharing refers to the exchange of information, insights, and expertise across employees and functions within a firm. The researchers expected that more knowledge-sharing would amplify the positive effects of co-creation on the employee experience. Instead, the data showed the reverse: when firms had high levels of knowledge-sharing, the link between co-creation and employee relationship orientation weakened.
The researchers offer several possible explanations, though they treat the finding as preliminary. Combining heavy customer collaboration with heavy internal information exchange may produce information overload. Employees pushed to share expertise widely while also engaging deeply with customers may feel their time and attention drained. Prior research the authors cite has found that formal knowledge-sharing can strain resources, produce uneven contributions across employees, and reduce personal returns on effort. When the quality of shared knowledge doesn’t justify the time invested, performance can suffer.
What it means for managers
The practical takeaway the authors offer is that firms hoping to reap the rewards of customer co-creation should pay close attention to their internal employee dynamics. Simply pushing employees to collaborate with customers may not be enough. Managers who actively govern the firm-employee relationship, ensuring workers feel respected and heard, may see stronger performance benefits from co-creation.
Investing in innovation appears to reinforce this virtuous circle. But the results suggest managers should be cautious about layering ambitious knowledge-sharing programs on top of intensive customer collaboration. The two may pull in opposite directions, at least in some contexts, particularly in complex business-to-business settings.
Caveats worth noting
The study has limits the authors acknowledge. All measurements were self-reported by managers, including the assessments of firm performance, which introduces the risk that perceptions rather than objective outcomes are driving some of the results. The sample was drawn entirely from managers in the United States, so the findings may not extend to countries with different cultures or labor market structures. The scale used to measure value co-creation showed lower internal consistency than the other measures, which the authors flag as a limitation for future work to address.
The design is also observational, meaning the study identifies associations rather than proving that co-creation causes changes in how employees feel. The researchers themselves call for further work to unpack the antecedent relationship between co-creation and employee experience, and particularly to investigate why knowledge-sharing produced its unexpected negative effect.
