Relevance and importance

Not all companies possess a full range of capabilities necessary for commercialising their innovations, and research indicates that firms with an intensive network of linkages to external sources of expertise are more successful than those without it1. The capability of organisations to co-innovate with other organisations can be critical in sustaining their competitive position.

In many industries, firms are looking for ways to cut concept-to-customer development time, improve quality, and reduce the cost of new products. The benefits of accessing external expertise are particularly important to small firms with limited internal resources.

	In the game of competing technologies, co-innovation facilitates the formation of compatibility among technologies, which results in faster market acceptance.
	Co-innovation is one of the best means of targeting new markets - especially where trade barriers are high.
	Co-innovation with suppliers results in greater cross-fertilisation, reduced costs and improved efficiency.
	Collaborating with customers for innovation helps in the generation of product ideas, gathering information about user requirements, feedback on new product concepts, and assistance with the development and testing of prototypes.

Overview

Co-innovation inside the value chain allows companies to supplement their internal design and development activities by accessing the technical and managerial skills of customers and suppliers. Horizontal linkages, with competitors and other firms may result in cost and risk sharing, as well as accessing new markets, but this is less common in practice. Co-innovation promotes shorter product lead times due to effective collaboration among developers, customers, manufacturers and suppliers. In addition, higher customer satisfaction levels are achieved due to active customer and design chain involvement in the product development process.

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Recommendations and practical tips

	ICustomer/supplier co-innovation requires a detailed formal evaluation and selection of potential partners prior to consideration for involvement. Only trusted partners with a proven track record should be approached.
	Project outcome objectives should be shared and explicitly understood by all parties involved.
	Suppliers can be asked to contribute to the design and development of new products and processes.
	Customers involved in the design and development processes can help to establish the optimum price/performance combination, and therefore, the optimum specification.
	University research can be a source of significant innovation-generating knowledge.
	Government can play a network management role in brokering greater collaboration between firms.
	Technology and knowledge intensive industries have a greater need for intra- and inter-regional cooperation than industries operating on a low technological scale.

Warnings and potential pitfalls

Subcontracting out processes that add considerable value to the firm's profitability, or those that are key to the development to the company's core competence, may reduce the innovative capability of the buyer firm.

Firms are faced with the dilemma that on the one hand they wish to learn from their partners, however, on the other hand they want to retain their own core proprietary assets and thus prevent leakage of critical know-how.

Many firms are reluctant to enter horizontal collaborative agreements because of concerns over the ownership of project outcomes.

Entrepreneurs do not invest time and money in the development of networks unless they can expect clear profits for their business

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