Realising the limitations of their own knowledge, and internal R&D capabilities, an increasingly high number of companies are currently making the decision of partnering externally to develop new technologies. Companies’ interactions with their business partners or even competitors are becoming more and more frequent.

Since the potential for innovation increases consequently when people from various background interact, co-innovation or co-development partnerships are very efficient means to innovate. The term co-innovation, or co-development, refers to the extension of external partnerships and alliances in order to have access to, and to exploit new knowledge, new technologies, or new markets.

It consists of mutual working relationships between at least two parties, and the overall goal of this partnership is the creation of a new product, new market, or a new technology. Co-innovation has an impact on firms’ operation management, since it implies the collaboration of firms within their supply chain, but also effects firms’ ability to innovate. Thus, the ability to co-innovate with other companies can certainly become critical in keeping a firm’s competitive positioning, in a sustainable way.

Co-innovation partnerships can attempt to reach different objectives, among others, it can aim at increasing profitability, at reducing time to market, at improving innovation capability, at reducing risks, or at expanding access to market.  Whatever the goal behind it is, firms desiring to get involved in this type of partnerships have to evaluate their own R&D capabilities, and their classification is strongly recommended  based on different schemas such as R&D capabilities classified as Core, Contexual or Auxilliary.

This kind of classification helps provide a birds eye view on the capability portfolio as well as at the same time helps organisations look at idle IP and ways to monetise it. Core capabilities represent the principal source of a firm’s differentiation, and competitive advantages. Therefore, when these key assets are to be involved in a co-development partnership, they must be closely handled and cautiously shared. Indeed, without a careful management, co-development of core competencies can become relatively risky.

Secondly, critical capabilities are those necessary to the success of the entire product portfolio in the market, however they do not constitute a company’s core competencies. These competencies are more fitted to co-innovation, and offer a great possibility to create more value for the customers without a huge increase in R&D investment. Finally, the contextual capabilities are the capabilities making the offering of the company complete, but are not really linked to its differentiation.

SAP, the Germany-based world’s leading provider of business software, which provides small businesses, midsized firms, and multinationals, with solutions, has a strong history of co-innovation. In May 2007, SAP and SunGard, the global leader in software and processing solutions for higher education institutions, financial services, and the public sector, announced their intention to collaborate. SAP and SunGard will then offer a joint asset liability management solution in order to help banks reducing IT complexity.

Both companies consider this collaboration as being beneficial for customers, but also for them. Indeed, this co-innovation partnership puts together the strengths of SAP applications for banking, and the main solution for balance sheet risk management, SunGard’s BancWare.

Slightly later on that year, SAP also announced the opening of the SAP Co-Innovation Lab in Palo Alto, California. This lab, also sponsored by Cisco, HP, Intel, and NetApp, will provide an adequate infrastructure and environment to work on joint projects.

The BMW Group and Daimler AG have been collaborating in the area of hybrid drive systems since 2005, in the Hybrid Development Centre, in Troy, USA. In 2007, the two German automotive giants have pushed further this collaboration, by participating, as equal partners, in the development of a hybrid module for the rear-wheel-drive luxury cars segment.

This co-development now takes place in Germany. It will allow both firms to share their knowledge, to achieve a high efficiency thanks to economies of scale, to benefit from a quicker commercialisation, and to broaden their portfolio of innovative drive systems for the luxury segment. Then, each company will, on an individual basis, adapt the components to their brand.

The result of the partnership, the BMW-Daimler system, is a mild hybrid system with an electric motor located between the engine and the transmission, using a lithium ion battery. We are again seeing Coinnovation at play in the Hybrid space with California’s Tesla and Daimler.

Tata Consultancy Services (TCS), a global IT consulting firm, started in 2007 its Co-Innovation Network, which represented a significant turning point in the innovation strategy of the company. Cassat, CollabNet, and MetricStream are among the organisations part of the TCS Co-Innovation Network. Cassat is a US-based software and services firm.

With TCS, Cassatt aims at developing a new capability delivering the quantity and quality of application service flow needed by the customers as effectively as possible. This will be possible thanks to the combinaison of TCS’s best practices and methodologies, with Cassatt’s software.

Then, MetricStream, the leading provider of automation and content solutions for Fortune 1000 corporations in several industries, also partnered with TCS. Through their partnership, the two companies have implemented governance, risk, and compliance solutions for customers operation globally, thus in various regulatory frameworks.

Finally, CollabNet, the global leading provider of solutions for on-demand collaborative development, teamed up with TCS in 2005. Together, they have worked to develop and market a solution called the TCS Global Development Navigator. This solution is actually based on TCS J2EE software development process, but also on CollabNet Application Lifecycle Manager, which is part of CollabNet Enterprise Edition 4.0, the company’s flagship product.

Similarly, a new technology allowing inhabitants of remote villages in the state of Tamil Nadu, India, to have access to eye care has been developed jointly by the researchers at the University of California, and at Intel, in collaboration with an Indian hospital. This technology, based on low-cost and long-distance wi-fi networks, allows for high-quality video conference, over long distances.

Co-innovation requires complimentarity in terms of capabilities and trust as necessary ingredients- trust that’s all what we all are lacking in the business world as of today.

About the author

Gunjan Bhardwaj, advisor, senior editor and member of the editorial board. Gunjan is the leader of the Global Business Performance Think-tank of Ernst&Young. He is also the solution champion for Pricing strategy and effectiveness as well as Innovation management in the advisory services of Ernst & Young with a focus on Pharmaceutical and FMCG sector.

Gunjan is also a guest professor for Growth and Innovation management at European Business School (EBS) in Germany and a member of the scientific advisory board of Plexus Institute in the US which researches on complexity in health sciences.

Gunjan has published a number of papers and articles in various Journals and magazines and has been a frequent speaker in conferences on marketing and innovation related topics. He is also the chief editor of the quarterly journal of Ernst & Young’s advisory practice called Performance.