Co-innovation: convergenomics,collaboration, and co-creation for

organizational valuesSang M. Lee, David L. Olson and Silvana Trimi

Department of Management, University of Nebraska – Lincoln, Lincoln,Nebraska, USA

Abstract

Purpose – The aim of this paper is to present a macro view of the evolution of innovation for valuecreation, from the closed to collaborative, open, and now co-innovation. It reviews several mega trendsthat have dramatically changed the dynamic nature of the global market place and also several newforces that have made innovation imperative for organizational value creation.

Design/methodology/approach – The paper provides a conceptual overview of co-innovationthrough some of its basic elements such as convergence revolution, collaboration, and co-creation withstakeholders.

Findings – Co-innovation is a new innovation paradigm where new ideas and approaches fromvarious internal and external sources are integrated in a platform to generate new organizational andshared values. The core of co-innovation includes engagement, co-creation, and compelling experiencefor value creation. Thus, the practices of co-innovative organizations are difficult to imitate bycompetition.

Practical implications – Innovation is imperative for organizational survival in today’s turbulentglobal market. This conceptual paper presents many real-world examples of co-innovative firms’strategies that can provide new insights for follower organizations.

Social implications – Innovation is a universal strategy for every organization, be it a firm,non-profit organization, or even a government agency. The new innovation approaches suggested inthe paper can contribute to social reforms such as creating shared value for all stakeholders.

Originality/value – This is an original paper that presents a broad-stroke direction and vision fornew organizational strategies for innovation.

Keywords Innovation imperative, Evolution of innovation, Value creation, Co-innovation,Convergenomics, Collaboration, Co-creation, Innovation, Partnership

Paper type Conceptual paper

1. IntroductionToday, organizations are operating and competing in the increasingly complex andturbulent global environment (Friedman, 2005, 2011). This dynamic environment isdue to a number of global, regional, national, and also industry specific factors in thecomplex systems we live in (Kauffman, 2000; Johnson, 2001; Ramo, 2009). However,there are major global trends, which we shall call “mega trends,” that affect everyindividual and organization in the world (Naisbitt, 1988; Aburdene, 2007). In addition,there are number of other subtle yet definite new forces that affect business strategiesof every organization (Friedman, 2011). There have been rapid developments in thecomputer world, transforming our society from a producing culture focusing on

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Management DecisionVol. 50 No. 5, 2012

pp. 817-831q Emerald Group Publishing Limited

0025-1747DOI 10.1108/00251741211227528

manufacturing to one that focuses on information exchange (Kurzweil, 2005; Zittrain,2008). This has led to the rise of the network society (Castells, 2000) that has had amajor impact on the politics of the Islamic world in the last year or so. There also havebeen major global impacts on energy (Scheer, 2002; Pringle, 2003; Roberts, 2004),ecosystems (Walker and Salt, 2006), food (Roberts, 2009), and warfare (Mandeles, 2005;Singer, 2009). Our entire world is undergoing transformation. In this rapidly changingand often unpredictable environment, innovation is the imperative key factor fororganizations to develop competitiveness and succeed in the market.

Innovation is a very broad concept. It can mean scientific inventions, patents,technological breakthroughs, or even a simple new way to do things. In this paper, wedefine innovation in a broad conceptual way. It includes any new idea or approach thatis applied in fundamentally different ways to create value for the organization andother stakeholders such as customers, suppliers, partner organizations, communities,governments, or even general good of humanity. Thus innovation is directly tied tovalue creation. There is an on-going debate and even social uprising (e.g. Occupy WallStreet) concerning the ethics and legitimacy of the value being pursued byorganizations. There is a new stream of research and business practice that advocatesthe “shared value” that should be the target of any innovation. It is at least safe to statethat innovation has become the key strategy for any organization to survive and growin the highly competitive and dynamic global market.

There are many issues involved in innovation. For example, some of the keyenablers of effective innovation have been explored such as strategic vision, culture,direction, and sense of urgency of the organization. Then, it follows that organizationsshould design proper DNA for sustainable innovation by balancing exploitative andexplorative innovations. Furthermore, the innovation value infrastructure should beproperly aligned with organizational strategy to create dynamic capability which helpsstrategies be congruent with the changing market environment (Teece, 2009). Thetraditional concept of developing unique corporate competence through innovationwithin the organization as a competitive asset (e.g. “invented here at P&G,” “as onlyNASA can,” “Bell Lab developed technology,” etc.) is often inadequate in the fastchanging, complex global economy. The closed innovation based on self-reliance ofR&D simply is too slow and also costly to stay ahead of the competition. Thus,innovation has gone through evolutionary steps to collaborative innovation and toopen-innovation during the past three decades (Lee et al., 2010).

In today’s global economy, no organization is local any longer. The new ecosystemof global business, where individuals, organizations, governments, and economies areall networked and interdependent, we need a new innovation model. This model mustbe based on the platform where internal, external, collaborative, co-creative ideas canbe converged to create organizational and shared value. We label this new approach toinnovation “Co-Innovation.” In this paper we discuss the mega trends at the globallevel and fast emerging new forces at the industry level that affect organizationalinnovation efforts. Then, we will generalize the evolution process of innovation tohighlight our new concept “co-innovation.” We will elaborate some necessary factorsfor organizations to become co-innovating firms. In the conclusion section, we willarticulate how co-innovation can help organizations gain and sustain competitiveadvantage.

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2. The new world, environment, and ecosystemIn the new interconnected global economy, even a small ripple in one corner of theworld may cause a tremendous tsunami in many other places as we have seen duringthe recent economic problems. Changes in the global market place are numerous,dynamic, and also unpredictable. The modern world has gone through three earthshaking changes that have forever changed the way people work and live: theagricultural revolution, the industrial revolution, and the information revolution.Today we are at the beginning of the fourth wave: the innovation revolution. This newrevolution has become necessary and possible because of several mega trends that arechanging the world, the business environment, and the ecosystem in which peoplework (Lee and Olson, 2010). In this section we shall discuss some of these changes thatare creating the “perfect storm” for the innovation age.

2.1 Mega trendsThis year, we had the tenth Anniversary of 9/11 which forever changed the way peopletravel and governments prepare for risk and security management. However, anothermajor incident which perhaps has had even a greater impact on globalization was 11/9,the fall of the Berlin Wall on November 9, 1989. Today countries no longer competebased on ideology but on economic issues. The world has indeed become much flatterbut countries and economic blocs are no longer independent. The current globaleconomic woes, from the sub-prime mortgage induced economic slow-down and thehigh unemployment rate in the USA, the sovereign debt problems in several EUcountries, the over-heating economy of China (Naisbitt and Naisbitt, 2010), and othereconomic problems in many other countries are felt not only in Wall Street but also inorganizations and most households. Globalization is clearly a major mega trend whichis shaping today’s world, but only one of many such mega trends.

The second major trend which has helped flatten the world is technologicaladvances (Fukuyama, 1992). It is not only technologies involving information,communication, transportation, materials (Asthana et al., 2006), bio- andnano-technologies (Gasman, 2006), but also the way they are converged to createnew technologies (Duncan, 2005). People are interconnected and share informationinstantaneously all over the world through the internet for personal, social, scientific,and artistic purposes. Telecommunication, medical, educational, entertainment, andsocial technologies have blossomed with the help of the network economies. Meyer andDavis (2003) discussed the convergence of business, information, and biology. Today,more than 4 billion people around the world use the internet to share knowledge,conduct e-business, and create value. The information and communicationtechnologies (ICTs) have been the catalyst for the digital world. Today all type oforganizations, from global giants such as Apple, IBM, Nike, InfoSys, Samsung, Google,Microsoft, Haier, Nokia, Toyota, Siemens, and others to many small and mediumenterprises (SMEs) draw on contributors of world-class competencies from all over theglobe. They collaborate, cooperate, and co-create for value generation, distribution, andconsumption by anyone who has access to the internet. Such new business modelshave become possible because of advances in ICTs.

Another major trend which is also reshaping the world is the changingdemographics. In many developed and developing countries, there is a drastic increaseof the older generation and a rapid decrease of the younger generation. The fertility

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rates are extremely low, much lower than the maintenance level of 2.1 children perproductive woman, in many developed or fast developing countries. For example,South Korea has the world’s lowest birth rate of less than 1.1 and many other countrieshave similar rates such as Bulgaria, Ukraine, Spain, Japan, and others. In contrast,however, the fertility is still extremely high in many Middle East countries, over 4.5children, where there already exist severe unemployment problems. Such demographicchanges have profound social, political, and economic implications not only in thoseaffected countries but worldwide (Longman, 2004). In Japan, for example, thegovernment has reported that now more than 25 percent of population are people over65 years of age. It is not difficult to imagine what kind of social welfare programs areneeded to support the aging population, while the working population is continuouslyshrinking.

In the course of the global economic development, there is another definite trend, thechanging industry mix. In the USA, the number of jobs in manufacturing is less than13 percent, government jobs around 5 percent, agriculture 2 percent, and the rest are inknowledge-intensive service industries such as bio technology, ICT, financial services,education, entertainment, and the like. This trend is also true in Western Europe. Inother words, manufacturing is gravitated to low cost regions of the world such asChina, Vietnam, Thailand, and some Eastern European countries. This trend has greatimplications for economic transition and the structural change of industries in manydeveloped and fast developing countries.

Another striking trend during the past 20 years is the global presence of emergingeconomies and their impact on the new economic order of the world. The globaleconomy has seen the influence of many fast developing economies such as SouthKorea, Sweden, Finland, Taiwan, Singapore, Hong Kong (although it became a part ofChina), and others. Today we talk about the importance of newly emerging economiessuch as BRIC (Brazil, Russia, India and China) or BIICS (Brazil, India, Indonesia, China,and South Africa). These countries no longer play the second fiddle to the developedeconomies as a provider of outsourced components, products, or services. In fact, manyoutsourcing-trained global firms in these countries have become global leaders in theirrespective industries. The emerging economies have amassed huge amounts of foreignexchange reserve and they are beginning to flex their muscles in the global economicscene. This development further complicates the global economic order.

There is a growing concern about the deteriorating environment. Global warmingand increasing pollution are now global issues of governments, organizations, andpeople. There is an ever increasing demand for energy resources while the naturalresources are becoming scarce. Thomas Friedman dubbed this development as“Mother nature and Father greed have hit the wall at once.” Emission of greenhousegases has skyrocketed, especially due to the tremendous economic growth of emergingcountries. For example, China is now the largest automobile market in the world andBeijing boasts about 6 million cars on its streets and ring roads. Today, the greenmovement for energy efficiency, renewable energy sources, and pollution control aremajor issues in every country.

2.2 Competitive environmentGiven the dynamic changes in the global economy due to the previously describedmegatrends, the business environment itself has changed dramatically. Competitive

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strategies of the firm must change because of the new forces that are creating new rulesof the game. Some of the major forces are described in the following.

2.2.1 Short life span of competitive advantage. Corporate strategies are typicallyformulated around creating competitive advantage based on some of its uniquecompetencies such as location, financial assets, human resources, technological orscientific knowledge, and the like. However, many of these seemingly uniquecompetencies are being commoditized (Chesbrough, 2011). With the internet, manynew business models have overcome the limitations of time, space, and distance, thusminimizing the locational advantage. Financing is no longer the major barrier wheninnovative business ideas and opportunities are present. Also, many knowledgeworkers, consultants, and outsourcing firms are widely available for providing humanresource support. Many new innovations that have been hailed as engines ofcompetitive advantage, such as TQM, Business Process Reengineering, Six Sigma,Lean Approach, ERP, Just-in-Time System, on-demand computing, etc. have alsobecome commodities. Many organizations can easily implement these systems and infact most large firms have either tried or have them in place. Thus, the life span ofcompetitive advantage based on these systems is indeed very short.

2.2.2 Ever shortening product life cycle. Because of the accelerating technologicaladvances, especially in ICT and bio technologies, product life cycle is becomingextremely short. Introduction of new mobile communication devices, such as smartphones, tablet computers, digital cameras, and numerous new medications clearlyindicates that competitive advantage based on new products is fragile at best withoutcontinuous innovation.

2.2.3 Business gravitation to low cost regions of the world. Many businessopportunities, especially manufacturing, are migrating to low cost regions of the worldsuch as Asia, South America, and Eastern Europe. Of course China’s dramaticeconomic growth of almost 10 percent per year during the past 30 years is primarilydue to its fast growing manufacturing sector which has become the factory of theworld. This trend means that the developed countries must continuously innovate newways to add special value to their products in order to preserve their remaininghigh-tech manufacturing.

2.2.4 Outsourcing-hardened new global firms in emerging economies. Many firms inthe fast developing and emerging economies used to be the outsourcing firms forglobal businesses in the developed countries. For example, Samsung Electronicsproduced color TV sets, video recorders, and cameras for such retail giants as Sears,K-Mart, etc. in these firms’ labels. Of course, Samsung Electronics is now the world’slargest electronics firm with its own brand image. The same can be said about LG,Hyundai, Haier, Lenovo, InfoSys, Tata, and many others. These firms are formidablecompetitors in the global market place. It is a new game now with these playersexerting their muscles.

2.2.5 Competitive advantage and value innovation. In the past, product-focusedinnovation worked to gain competitive advantage. Sony had a string ofproduct-focused innovations that helped the firm become a leading electronics giant.However, with the ever shortening product life cycle and commoditization of manymanagement innovations, product-focused innovation no longer provides sustainablecompetitive advantage. Some of good examples would be Motorola’s thin cell phoneRazr. While this product was well designed, customers want the total ecosystem of

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their cell phone with many other value-added innovations. Such service innovationsare rather difficult to imitate as they are based on tacit knowledge which takes time tocatch up (Nonaka and Takeuchi, 1995). Such service- and value-focused innovationsare necessary to sustain competitive advantage, at least for a while.

2.2.6 New customer values. In the past, customers usually search for values such asprice, quality, speed, and customization from products and services. However, today’ssophisticated and well-informed customers seek value beyond these. They want theexperience from the use of certain products or services. They want the sense of beauty,safety, comfort, affection, or even care or love. Innovations that create new value mustprovide such experience to the stakeholders.

2.2.7 The groundswell effect. In the past, people always try to search what theyneed, such as products or services, from traditional producers like corporations orgovernments. However, there is a fast growing new phenomenon, the groundswelleffect, created by people, technology, and online economics (Li and Bernoff, 2008).Through online social technologies, people are increasingly producing or getting whatthey need from each other rather than from traditional sources. The user generatedcontent, prosumers (producers who are consumers), proams (amateurs who are almostlike professionals), blogs, tweets, social networking sites, reviews offirms/products/services, etc. are all good examples of this trend.

The previous brief discussion of mega trends and some of new forces that form thecurrent competitive environment should clearly describe the complexity involvinginnovation imperative. In such a complex environment, organizations are hard pressedto develop and sustain competitive advantage through innovation. In this paper, wepresent co-innovation as the new approach to create value for competitive advantage.

3. Evolution of innovationInnovation is a result of human creativity, usually as a result of certain ideas to fulfill aneed. Innovation can also result unexpectedly from experiments or by accidents. Thus,innovation has been part of human history in the pursuit of a better quality of life. Asdiscussed earlier, we define innovation very broadly, from scientific breakthroughs tominor adjustments in the supply chain to create value. In business organizationsinnovation has evolved through several major stages. Again, we generalize thesestages very broadly: from the closed innovation to collaborative innovation, toopen-innovation, and now what we call “co-innovation.”

3.1 Innovation 1.0: closed innovationOrganizations strive to attain unique core competences that can be leveraged to createcompetitive advantage. The conventional factors of production (i.e. land, capital, andlabor) used to be the foundation for any enterprise to be successful in the market place.Later on other factors have been added as critical competitive assets such as location,technology, marketing and financial strategies, supply chain innovations, human andsocial capital, unique knowledge, management innovations, etc. Collaboration couldoccur among employee networks (Whelan et al., 2011). Organizations used to developunique competencies internally, often under a complete secret to the outside world, sothat the competitive advantage based on them would allow the firm to be the firstmover to the market. The R&D department was a critical source of innovation whichsupports the independent value chain of the organization. Some of the best known such

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closed innovation systems would be the Bell Lab, R&D Department of Proctor& Gamble, NASA, and the like. The typical value chain with the closed innovationsystem is shown in Figure 1.

3.2 Innovation 2.0: collaborative innovationAs discussed in the previous section, the global market place has gone throughtremendous changes based on the dynamic forces of global mega trends and othermarket changes. Thus, an organization’s own unique competencies would not besufficient to develop sustainable competitive advantage. The traditional approach ofself-reliance or self-sufficiency for global competition became a virtually impossiblegoal. Even the global leaders in their respective industries found it necessary to findcollaborative partners to design an innovative value chain, combining their own corecompetencies with that of other world-class firms (Tapsott, 2006). With the virtuallyopen global market since 11/9 and advances in ICT, organizations found it much easierto search for collaborating firms with world-class competencies anywhere around theglobe. Many new forms of partnerships, strategic alliances, joint ventures, andtechnology/patent sharing arrangement have become popular. Interorganizationalrelationships have helped such firms as Nike, Apple, Mattel, Dell, and many others todevelop value chains that provide sustained competitive advantage. Figure 2 presentsan abstract form of the value chain based on collaborative innovation.

3.3 Innovation 3.0: open-innovationThe networked global economy and the advent of ICT that supports wide knowledgesharing have opened the possibility of much wider collaboration for innovation. Now,

Figure 1.The value chainarchitecture and

innovation

Figure 2.Innovation 1.0 – closed

innovation

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collaborations are not restricted to only between firms but with any entity such asexternal research institutes, universities, scientific communities, individuals, and thelike worldwide. Thus, Chesbrough (2003) coined the word “open-innovation” forinside-out and outside-in collaborative innovative efforts for value creation. The basicidea of open-innovation is to build a world-class value chain through a new innovationecosystem where various complements can be combined into coherent value creatingsolutions seamlessly on collaborative arrangements. A creative convergence of theorganization’s own competence with external expertise is the core of open-innovation.P&G has established a value chain based on the convergence of the firm’s R&D andC&D (connect and develop). Many leading corporations, non-profit organizations, andeven governments have begun to implement open-innovation (e.g. P&G, Eli Lilly,Microsoft, SAP, LG, NASA, the US federal government, and many state governmentsas well). Today a number of brokerage firms for open-innovation provide services toconnect the solution seekers with solution providers. Perhaps the best know such firmsare: NineSigma, InnoCentive, Yet2.com, YourEncore, etc. (Lichtenthaler et al., 2011).Figure 3 shows the general value chain in the open-innovation environment.

3.4 Innovation 4.0: co-innovationToday, collective intelligence and crowdsourcing are possible through formal channelsand/or social networks. While increasingly people use social technologies to get whatthey need from other individuals rather than from formal channels, such arrangementsoften lack compelling experience among the participants. The key element ofinnovation is to provide compelling experience with network effects for value creation.Thus, co-innovation is a platform where new ideas or approaches from various internaland external sources are applied differently to create new value or experience for allstakeholders, including consumers (Von Hippel et al., 2011). The core of co-innovationincludes engagement, experience, and co-creation for value that is difficult to imitate bycompetition. The co-innovation platform is built on principles of convergence of ideas,collaborative arrangement, and co-creation of experience with stakeholders. We shalldiscuss co-innovation in greater detail in the next section. Figure 4 presents the generalframework of co-innovation.

4. Co-innovationInnovation is an imperative in today’s highly competitive global market place. Themain function of innovation is creating value for the organization and its stakeholders(Gupta and Govindarajan, 2003). If an organization is interested in only pursuing itsown goals without any regards to the shared value with its stakeholders, it will not

Figure 3.Innovation 2.0 –collaborative innovation

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survive long (e.g. the Enron fiasco). In any organization, be it a business enterprise,non-profit organization, or government agency, basically has five areas where it cancreate value in the value chain, as shown in Figure 5.

4.1 Innovation for value creationThe first area is to leverage innovative ideas to introduce new products, services oreven new ventures. This process requires collaborative efforts with internal andexternal partners so that a new blue ocean, where there is no competition, can becreated (Kim and Mauborgne, 2005). New products or services may not be based onnew technology or invention. They could also be results of new convergence orbundling with different complements or applications. New ventures can be based on acombination of intrapreneurship or interorganizational collaboration.

The second area of value creation involves value chain innovation to make thearchitecture more efficient which in turn will cut the cost, improve quality, and/orincrease the speed of the process. Many process innovations, such as Just-in-Time, TQM,Six Sigma, Lean Manufacturing, etc. are all intended to make the value chainarchitecture more efficient. Any new approaches that improve procurement,transformation process, or distribution channels will create value (e.g. electronicmarkets, outsourcing, disintermediation). Good examples can be found in Nike, Mattel,and Dell which have introduced a number of new approaches to value chain innovations.

The third area of value creation is reinventing the concept of customer value. Thisarea is especially fruitful for value co-creation with customers for a shared value. The

Figure 5.Innovation 4.0 –

co-innovation

Figure 4.Innovation 3.0 – open

innovation

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traditional customer values of price, quality, speed, and customization are of coursestill essential. However, today customer demand more than just those such asexperience, emotional fulfillment, and the public good. Customers would like to beengaged in the process of experiencing the product or service, a sense of beauty orsafety, and an opportunity to learn new things.

The fourth area of value creation is to expand the customer base. The end users areof course important ingredient of business success. However, e-customers (those whopurchase online), global customers (those residing overseas), customer communitiesthat have an enormous influence over the entire market, and non-customers who arepotential future customers are also important customers. Creating customer value forall customers and also differentiated value for specific customer groups requireinnovation.

The final area where innovation can create value is new business models. Businessmodels represent the approaches that the organization strategized to produce anddeliver its goods or services to the customer. The internet has revolutionized businessmodels such as e-banking, e-business, e-government, electronic markets, e-auctions,and the like. Of course, not all new business models create value, as witnessed by theburst of the dotcom bubble. However, new ways to increase the speed of transaction,improve customer security and privacy, improve information exchange and servicequality, provide new solutions to customer problems, and the like certainly create newvalue to all stakeholders.

4.2 Co-innovation platformInnovation has a life cycle, just like products. The innovation life cycle is shaped as anS curve, with long periods of initial efforts that, if successful, can rapidly create valueat a growing rate, followed by a period of innovation maturity and ultimately decliningusefulness of the innovation (often due to new innovations). Economist JosephSchumpeter’s (1942) “creative destruction” works for the life cycle of innovation. Morerecent theories emphasize a chain of incremental S curve innovations that can beviewed as evolutionary. Disruptive innovations are also evolutionary in that they startas inferior solutions to relatively small market customers until continuousimprovements allow these innovations to create value for the mainstreamcustomers. Nevertheless, in the dynamic global market, evolutionary innovationsmay not be sufficient. Revolutionary innovations based on breakthrough discoveries orconvergences may be needed for value-focused innovations.

The co-innovation platform is where an organization can create value, throughthose five value creating avenues, based on convergence, collaboration, and co-creationwith partners (suppliers, partner organizations, outside collaborators, customers, andthe general public at large). Figure 6 presents the conceptual schematic framework ofco-innovation. It should be noted that each partner may also have its own network ofpartner organization.

4.2.1 Convergence for co-innovation. Human history is a continuous link of ideasand experiments building on each other to create value. The adaptive network of ideas,compounded with advances in technologies, is often based on convergence ofseemingly unrelated things to meet the existing or new demand. Convergenomics, acoined word describing a new environment where the synergistic combination ofdifferent objects or ideas for different contexts for value creation, is very applicable to

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co-innovation (Lee and Olson, 2010). In the value chain architecture (see Figure 5),convergence is especially applicable to co-innovation for creating value through newproducts/services/ventures, value chain process innovation, and new business models.In order to imbed tacit knowledge in the value-focused innovation surrounding aproduct so that imitation is difficult, convergence of the product with innovativeservices is essential. Many products bundled with insurance policies or warranties aregood examples. Of course the best example would be the smart phone ecosystem withhundreds of thousands of apps (Apple iPhone has over 450,000 apps).

Perhaps the best example of convergence based co-innovation for service valuecreation would be medical tourism practices of the Bangkok International HospitalGroup. This private hospital firm has 30 hospitals under its umbrella. It provides onestop service to medical tourists, including airline reservations, visa applications,airport pick up, hotel reservations, hospital service scheduling, insurance or paymentarrangements, and after medical treatment care, etc. This co-innovation is possible byconverging different services of a number of organizations, such as five-star hotels,airlines, local transportation firms, hospital departments, government agencies, etc. toprovide an exceptional health care experience to the patient.

Convergence for value chain innovation would be possible by working incollaboration with suppliers, partner outsourcing firms, distributors, and the like.Convergence of various interorganizational functions for the world-class value chaincan assure process innovation. Nike, a global brand management firm, has establishedan exceptional global value chain working with many partner organizations such asdesign firms, Asian manufacturing firms, distribution and retail firms, etc. (Ghemawat,2007). The internet-based business models are often possible when expertise of anumber of firms are converged such as manufacturers, banks or financial service firms,distribution companies, etc. The convergence revolution plays a key role inco-innovation.

4.2.2 Collaboration for co-innovation. The main idea behind building a collaborativeorganization is to develop a value chain with world-class competencies. The “we”proposition is much broader and powerful than just “I” and “you.” We have already

Figure 6.Co-innovation for creating

shared value

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discussed many examples of collaborative work through interorganizationalrelationships. In addition to collaboration among organizations, many differentforms of collaborative work exist such as open-source collaborative community, socialnetworks for collaboration, Web 2.0 technology supported collaborations, etc. Themain characteristic of collaboration for co-creation is a shared purpose, be it makingprofit, participation experience, recognition without financial rewards, or just for fun.Everyone knows about Linux OS open-source community where individual softwareengineers contribute to make the system better. Collaboration is especially effective forvalue creation through new products/services/ventures, process innovation, and newbusiness models.

Collaborative organizations are “simultaneously innovative and efficient, agile andscalable” (Adler et al., 2011). They are focusing on knowledge production through bothinternal and external collaboration. To facilitate external collaboration, it is imperativethat the organization has internal collaboration culture in place. Product design,service-focused innovation, and new venture ideas may require a complex mixture ofinternal and external collaborations. As discussed previously, process innovation alsoneeds well-coordinated collaborative efforts of internal personnel and externalexpertise. New business models, such as e-business, require ICT expertise of anexternal partner, banking or financial service firms, and changed internal businessstructures, all for the shared purpose of stakeholders.

4.2.3 Co-creation for co-innovation. The traditional enterprise process is a pushsystem, where the firm develops certain strategic plans to produce products and/orservices and pushes such plans to employees, suppliers, partner organizations, andcustomers. However, in a co-creating process of value creation, the enterprise works incooperation with all the stakeholders, especially the customers. Customers (end users,e-customers, global customers, customer communities, and even non-customers) knowwhat they want and how products/services can be changed to provide new values. Thecore principle of co-creation is “engaging people to create valuable experiencestogether” while enhancing network economies (Ramaswamy and Gouillart, 2010).There are four elements that have been suggested for co-creation: experience mindset,context of interactions for collective intelligence, engagement platform, and networkrelationships (Ramaswamy and Gouillart, 2010).

Co-creation is especially relevant for value creation with customers. Customers,especially well-informed intelligent ones and the customer communities, are activelyinvolved in working with firms to create value, not only for themselves but even for thegeneral public at large, including such social issues as ethics and the environment. Forexample, designing and producing green products, green IT and greening by IT, andsustainable products are often the result of co-creation processes with customergroups.

5. ConclusionIn this paper we present the general concept of co-innovation, the latest stage in theevolution of innovation. The new ecosystem of global business is the result of acomplex interplay of mega trends and major forces that are changing the waybusinesses operate and compete. In the networked, interdependent, and hypercompetitive global market place, innovation is imperative for businesses to survive andgrow. However, innovation is a very broad concept which includes any new ideas or

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approaches, either based on technological advances or new ways of doing things thatcan create value for the organization and the stakeholders. Co-innovation is presentedas the new innovation paradigm which can best help organizations create valuethrough convergence, collaboration, and co-creation.

There have been major trends affecting global business in the twenty-first century.These include globalization itself, carried over from the twentieth century, along withnew technological advantages, changing demographics, leading to a change inindustry mix. Major forces changing the competitive environment have led to shorterdurations for competitive advantage, shorter product life cycles, movement ofcompetitive advantage to low-cost regions, and a broadening of participation. There isa need to focus on providing customer value, taking advantage of competitiveadvantages and value innovation.

We believe the key ingredient of innovation is to provide a compelling experience toall participants based on network effects for value creation. Thus, a platform ofinnovation for convergence of expertise/ideas, collaboration among participatingorganizations, and co-creation of the shared value with customers should be the core ofco-innovation. Collaboration comes in a variety of forms. What used to be closedsystems have given way to open systems emphasizing co-innovation focused oncreating shared value. This has had impact in the form of leveraging innovative ideasto develop new products/services, relying on more efficient value chain architecture toapply process innovations. Focus on customer value provides new and betterproducts/services for consumers, leading to broader customer bases, often supportedthrough on-line purchasing. New business models enable organizations to produce anddeliver these improved goods or services in more efficient ways.

Building a co-innovation enterprise is not simple. It requires a new innovationculture, strategic vision, courage, direction, and sense of urgency. Although the road toco-innovation is not smooth and easy, organizations do not have much choice but jointhe race to become an effective value creating organization for competitive advantage.We still have much work to do to lay the theoretical foundation work to firmlyestablish the concept of co-innovation and then do empirical research to determine thekey success factors and outcomes of co-innovation.

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Further reading

Friedman, T.L. and Mandelbaum, M. (2011), That Used to Be Us: How America Fell Behind in theWorld It Invented and How We Can Come Back, Farrar, Straus and Giroux, New York, NY.

About the authorsSang M. Lee is the University Eminent Scholar Emeritus at the University of Nebraska. He hasserved as a senior scientist for the Gallup Organization and a consultant for several global firms.He has published more than 300 journal articles and 60 books. He is a Fellow of the Academy ofManagement, Decision Sciences Institute, and Pan-Pacific Business Association. Sang M. Lee isthe corresponding author and can be contacted at: slee1@unl.edu

David L. Olson is the James & H.K. Stuart Professor in MIS and Chancellor’s Professor at theUniversity of Nebraska. He has published research in over 100 refereed journal articles, and hasauthored or co-authored 20 books. He is a Fellow of the Decision Sciences Institute.

Silvana Trimi is an Associate Professor of MIS at the University of Nebraska – Lincoln. Shehas published more than 35 journal articles in a number of refereed journals, includingCommunications of the ACM, International Journal of Production Research, Communications ofthe AIS, Information and Management, Industrial Management and Data Systems, InternationalJournal of Public Administration, Journal of World Business, Organizational Dynamics, andothers.

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