The benefits and drawbacks of co-creating innovation

Market dynamics drive co-innovation

Gartner has studied the current co-innovation trend, reporting its findings in a February 2022 report titled, "Top 2022 Tech Provider Trend: Co-Innovation Ecosystems Will Boost Transformational Growth."

Gartner stressed the importance of co-innovation for providers in that report: "Co-innovation provides expanding opportunity in the digital world, and vendors that will ignore it will drop in competitiveness, face slower execution times in client projects and risk losing market share."

Annette Jump

Jump said five main factors are driving the shift to co-innovation.

• The accelerated pace of technology developments, as technologies like the metaverse, AI-enabled robots, digital twins and IoT combine. "You have to have experience in not just one area but in hardware, software, immersive worlds," she explained. "And none of the providers typically have all that, so you need partnerships."
• How rapidly startups can bring disruption to a market. Jump noted that the past two years have brought significant investment dollars to tech companies, particularly those focused on 5G, AI and smart robots. Co-innovation helps established companies more effectively compete against the well-funded innovation happening in the startup community.
• The desire to share financial risks and costs.
• Advancements in infrastructure, notably cloud computing, AI platforms, application programming interfaces and other tools that make it easier to co-develop and co-innovate.
• Pressure to accelerate time-to-market and sale volumes. Jump explained that companies looking to more effectively market new products or services can do so by partnering with others, a move that expands sales opportunities across all co-innovation partners' customers.

Of course, companies working together is not a new phenomenon. And some experts questioned whether what's happening now is any different than past working relationships between service providers or vendors and their enterprise clients.

George Westerman

"Every major consultant has said in the past, 'We're not going to build things for you; we're going to partner with you,'" said George Westerman, senior lecturer at the MIT Sloan School of Management and CIO award co-chair of the MIT Sloan CIO Symposium.

But Jump said she and Gartner researchers do indeed see something new in how MSPs, consultants, professional services firms and vendors have been coming together in the past year or two.

"Now co-innovation is around joint co-development. It's when you jointly develop something and you sell it to customers," she said.

Jump cited as a case in point: the partnership that IBM and Boston Dynamics formed in 2021 to bring mobile edge analytics to industrial operations.

"They're not just taking Boston Dynamic robots. They're together making adjustments to the robots for their customers and they're then selling their solution to other companies," she said.

Others also said they, too, see something new in today's co-innovation partnerships.

Tim Potter

"I don't think co-innovation is a new concept, but it has evolved -- as many trends and valuable initiatives will," said Tim Potter, a principal in the Technology Strategy and Cloud Engineering practice of Deloitte Consulting.

"For me and for Deloitte, co-innovation now is about where we find areas where we can fill gaps for clients and allow them to achieve things that [without the partnership] otherwise wouldn't be possible. That's been our big focus on how we go to market: operate to transform," he said.

He pointed out that many such partnerships grow out of work happening in the Deloitte Greenhouse Breakthrough Labs.

Potter said Deloitte often partners with cloud hyperscalers to help large legacy companies with mounting Technical debt. Those alliances aim to first modernize and transform organizations and then create new business lines enabled through digital transformation and newer technologies such as automation.

He said savings from cloud-driven efficiencies help fund the innovation work, which makes the partnership even more appealing.

"That ability to co-innovate without the company shelling out cash upfront is one area where we've had a lot of success," Potter added.

Benefits and drawbacks of co-creating

Proponents -- and even skeptics -- of co-innovation partnerships cited multiple benefits, including the following:

• Access to both a broader range of talent as well as deeper technical skills than any one partner has on its own.
• Faster innovation. "You can innovate quicker, because you can leverage innovation from other partners," Jump said.
• Less upfront financial investments per company. "It will be cheaper, because you're sharing talent and costs," she added.
• Speedier, broader adoption of innovations, as innovation partners can pool their customers and contacts to create a larger market.
• Real-world context, as co-innovation generally involves enterprise customers working with partners on specific problems that need to be addressed.

They also cited potential drawbacks and challenges to forming innovation ecosystems, including the following:

• Sustaining innovation or sustaining the desired pace of work among all partners.
• Getting agreement from all partners to commit to the longer timeframes typically required to see returns on innovation.
• Keeping up with agreed-upon funding and talent resources, particularly if startups are involved and are reliant on investment rounds to continue operations.
• The lack of clear ownership and control of any particular innovation as all partners can claim a stake in it.
• Creating revenue-sharing agreements that are fair to all parties.
• Hammering out agreements on selling innovations to enterprise clients, particularly in cases where the co-innovation ecosystem included an enterprise partner.
• Exiting failing or failed initiatives and navigating the negative consequences -- including litigation -- that could result.

Jump and others said vendors and providers as well as any enterprise clients involved in a co-innovation partnership should address those potential issues in advance and create detailed agreements on those various points to help ensure successful engagements.

Potter, for one, said it's critical for companies like his to do so in order to reach optimal success in the years ahead.

"Deloitte is going to continue to invest in our alliance relationships that help us deliver differentiated solutions," he said, "because we see it as a growth opportunity for us and something that benefits our clients."