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With the fast pace of technological developments, the IT talent shortage and a skills gap to contend with, IT services providers eye co-innovation partnerships to create the best outcomes for their clients. But partners must also determine how to measure innovation success.
Co-innovation partnerships focus on collaboration between service providers and tech vendors to create an offering or digital transformation project for customers. Co-innovation partnerships also happen between MSPs and customers.
How to set up a co-innovation partnership
When setting up this type of partnership, outcome-based contracting is a best practice partners should adapt, said Hrishi Hrishikesh, a partner and director at Boston Consulting Group.
"Partners should likely leverage a combination of output-based and business outcome-based metrics that they are willing to be measured against and incentivized on,'' he said.
Pricing and term sheets must move beyond traditional service-level agreements and costs to more outcome-based terms that incentivize behaviors focused on business goals, agreed Fiona Mark, an analyst at Forrester.
The partnership should ensure that partners and client stakeholders are measured by and incentivized to achieve the same outcomes, Hrishikesh said. Further, partners should also ensure that they can monetize the innovation more broadly without compromising the competitive advantage for the client.
The effort should match the return, said Alex Pujols, senior director of systems engineering for Cisco's Global Partner Organization. Engaging in prolonged co-creation arrangements is best suited when the complexity of the co-innovation project is significant, he said. "This is often the case in co-innovation that cuts across many vendors and/or open source technologies,'' Pujols said.
In these situations, partnering is one of the best ways to overcome those challenges. "However, sometimes co-developed solutions are simple, elegant and straightforward. These solutions are best developed with a partner's in-house capabilities, in conjunction with the power of vendor platforms and developer communities, such as [Cisco's] DevNet," Pujols said.
For example, Cisco has formalized the partnership process with its Cisco Design Partner Program for partners and customers who want to co-innovate a capability that doesn't currently exist in the market, Pujols said. The company has also set up dedicated innovation labs to co-innovate with some of its largest partners. A typical scenario: A partner brings its innovative concept and relationships to the Cisco Design Partner Community; Cisco, in turn, offers its expertise.
Advantages and challenges of co-innovation
The advantage of a co-innovation partnership comes from the innovation opportunity and the ability to combine different value propositions from the parties in new ways that create value for the customer, according to Mark.
She notes that Forrester sees future-fit firms -- organizations that consider environmental, social and governance, as well as innovation and stakeholder value to measure progress -- are 3.5 times more likely to accelerate their growth than traditional firms.
The challenge is that this way of working requires a rethinking of the partner relationship and moving from an extraction model to a co-creation model. Not all parties are ready or incentivized to work in this way, Mark noted. Leaders who want to move into co-innovation relationships will need to be able to bring their organization along with them -- including legal, procurement and other stakeholders -- for the relationship to be successful.
Another challenge is that projects are in constant motion because customer technology preferences and business issues evolve quickly, Pujols said. Co-innovation partnerships need to reflect that. "Those partners that can anticipate evolutions in customer demand best will lead in co-innovation."
This requires having intuition and creativity, and every organization must make a fair assessment of whether, and to what degree, those capabilities exist in-house, he said.
Also, partners must understand that one size does not fit all, Pujols added. When partners are determining what success looks like for their co-innovation practice, they should take a customer perspective regarding how well the co-innovation outputs suit their needs, he advised.
"For example, co-development in industry solutions [like OT] versus IT solutions takes on a different context in terms of the work required to build a successful practice and drive successful customer outcomes,'' Pujols said.
In terms of when a partner may not want to use a co-innovation partnership, there are a few red flags to look for. One would be if a client is not willing to provide an equal seat at the table both in terms of driving the innovation as well as in governing the partnership, said Hrishikesh.
"If the partner does not have sufficient control, the partnership is likely not set up for success,'' he explained. Or "if a client does not appear to be able to operate with the partner in a nimble, flexible manner. Also, if the client is not capable of operating with a high degree of collaboration and coordination, the partnership will likely fail."
If the intellectual property is core to the client and cannot be monetized broadly, he added, the partner probably can do a co-innovation partnership, but it will be more like a traditional service provider arrangement.
Measuring the success of a co-innovation partnership
Partners should seek to measure the outcomes of the partnership in terms of value delivered.
"These measurements may be based on business results, such as increases in customer satisfaction, increased revenue or increased adoption," Mark said.
The full value of the partnership can also be measured through intangibles, such as knowledge acquired and shared culture, Mark stressed.
"Co-innovation partnerships are successful when the relationship is set up so that both parties can achieve success … [and] that they have a common purpose in the relationship,'' she said.
Hrishi HrishikeshPartner and director, Boston Consulting Group
This common purpose moves the parties toward achieving the same desired outcomes. It requires that partners adopt an agile approach to planning the relationship, so they can continuously progress toward those desired outcomes, Mark said. Partners should also ensure that internal teams, such as technology and operations, are aligned toward a new way of working.
Hrishikesh agrees that partners should measure the success of co-innovation partnerships by the following three metrics:
- the ability to deliver the appropriate business outcomes;
- collaboration and effectiveness; and
- financial and performance results.
Co-innovation relationships also need continuous involvement to maintain value alignment, as well as investment steering committees and value realization offices to coordinate the various parties, Mark said.
These relationships work best when the parties involved bring a unique value to the relationship and a high degree of trust and transparency is established. They are used in order to drive innovation and creativity rather than operational delivery, she said.
Co-innovation partnerships and the business models of the future
Co-innovation partnerships require different sales approaches, commercial and contracting structures, and delivery and governance models than what a typical outsourcing arrangement would look like.
"Partners will need to be much more agile and flexible in how they function than in a typical service provider arrangement," Hrishikesh said.
Customers demand more than ever, and they expect seamless fluid digital experiences, Mark said. "The most successful organizations are likely to be the ones that build and engage with customer ecosystems so that they can expand and strengthen relationships with their customers and seek opportunities to innovate and differentiate."