Because software resided in the cloud rather than being inscribed into car parts, the automaker could manage innovation
concerns by opening up opportunities for collaboration with
external partners without disturbing existing internal innovation
practices. Volvo Cloud allowed in-car functionality, such as web
radio, to be enabled, updated, or replaced without touching the
4. Balancing Flexibility and Control
Collaborating with new partners on product development in turn
invited new ways of thinking about innovation governance. Early
collaborations with application development companies revealed
that these new partners would not engage on the same terms as
traditional suppliers of car parts. The automaker therefore
launched an app development group, staffed with people from the
consumer electronics industry and embedded within Volvo Cars’
internal research and development department. This group served
as a bridge between internal and external environments and
crafted a range of boundary-spanning resources that could help
Volvo Cars interact with external application developers. Initially,
this spurred a series of cocreation initiatives involving external
partners such as the location-sharing app Glympse.
These options, however, lost momentum during transition
from demonstration to commercialization as soon as Volvo Cars’
purchasing department got involved. The purchasing department
staff instinctively applied traditional supplier contracts, based on
monetary transactions, to regulate supplier implementation of
Volvo Cars’ requirements. However, in its collaborations with
Pandora and Spotify, the automaker did not write elaborate
requirement specifications or pay these partners — essentially
making traditional contracts useless.
To effectively manage the relationships with these new types
of external partners, Volvo Cars learned to balance the need to
control the relationships with enough flexibility to stimulate
value cocreation. In doing so, the automaker crafted a new contract that emphasized mutual liability and cost neutrality. This
contract recognized partners’ need for Volvo Cars’ long-term
commitment to support delivery of high-quality digital services
and formalized, sustainable relationships that did not involve
explicit monetary transactions.
Embracing Digital Innovation
Volvo Cars’ journey toward digital innovation offers several
lessons about how incumbent companies can compete more
vibrantly in digitalized environments. First, it demonstrates
that digital innovation is an organizational capability, not
merely a new technological platform or an innovation incubator.
Developing digital innovation capability requires fundamentally
rethinking how the business is organized, how it makes decisions,
with whom it partners, and how those partnerships are managed.
These concerns are systematically interrelated and mutually de-
pendent, so companies may find that a failure to address any of
these competing concerns may have a wide-ranging impact on
the overall success of digital innovation initiatives.
Second, it is possible for established companies to develop digital innovation capabilities while maintaining their core businesses.
In fact, it is essential to do so. Successful established companies
possess knowledge and expertise that have served them well for
years, and the way they have done business is largely institutionalized. Digitalization provides opportunities to infuse new types of
features and services into existing products. Doing so certainly
means that some established ways of doing business must change.
For example, this was true for Volvo Cars’ traditional innovation
cycle time, collaboration patterns, and partnership governance
practices. This recognition, however, doesn’t mean the old way of
doing things is necessarily wrong. In fact, Volvo Cars managed to
retain critical aspects of its approach to car design and production
that still proved useful. Incumbent companies must find ways to
leverage their strengths to capitalize on new ways of doing business. Ultimately, managers need to carefully identify which
practices need to change and which need to be preserved.
Lastly, developing digital innovation capabilities will not happen by accident. Volvo Cars’ executive team developed a clear
vision for the broad parameters of their efforts, even though they
did not yet know much of the specifics. They communicated this
vision to the organization and provided the necessary support
and resources to begin and endure the journey. Not everyone was
initially on board. Many executives saw it as a high-risk, low-reward
undertaking. Yet the clear communication of the vision, and the
implementation of changes when needed, allowed Volvo Cars to
innovate in its organization and its products to continue competing in an increasingly digital business environment.
Fredrik Svahn is an assistant professor of applied information technology at the University of Gothenburg in Gothenburg, Sweden,
and is affiliated with the Swedish Center for Digital Innovation at
Umeå University in Umeå, Sweden. Lars Mathiassen is Georgia
Research Alliance Eminent Scholar and a professor of computer
information systems at the J. Mack Robinson College of Business
at Georgia State University in Atlanta, Georgia. Rikard Lindgren is a
professor of informatics at the University of Gothenburg as well as
research director and cofounder of the Swedish Center for Digital
Innovation. Gerald C. Kane is an associate professor of information
systems and McKiernan Family Faculty Fellow at the Carroll School
of Management at Boston College in Chestnut Hill, Massachusetts.
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Mastering the Digital Innovation Challenge (Continued from page 15)