Purpose: Digitalization is a fundamental disruptive force of Industry 4.0, which is revolutionizing the way business is conducted within industrial value chains. However, many firms are not prepared to benefit from the promise digitalization holds. A radical shift in the innovation process is required entailing increased emphasis on agility and co-creation of value through design, customization and delivery of increasingly intangible digital offerings in cooperation with their customers. Yet, literature on this topic is scarce. The purpose of this paper is to investigate how firms can co-create digital innovations with their customers to avoid the digital paradox.

Design/Methodology/Approach: The present research is based on an empirical study of four providers and their customers in manufacturing industries.

Findings: The results showcase the importance of aligning roles in co-creation and presents a detailed process model of ideation, development and implementation. Notably, we identify how forming dedicated joint teams at the strategic, managerial and operational levels are key to ensure appropriate cooperation and governance of co-creation engagements. We further detail how key activities for the joint teams vary over the phases of the innovation process.

Originality/Value: This study contributes to the growing body of literature on value co-creation in digital servitization by providing an in-depth account of how value co-creation processes for leveraging digitalization unfolds between provider and customer. This study offers four contributions. First, this study shows that value co-creation require openness and resource dedication from both provider and customer. Second, results show that value co-creation processes are interdependent and both parties perspective should be considered in parallel to ensure alignment throughout the process. Third, value co-creation is best managed through an agile approach which requires continuous innovation over time especially in the delivery phase. Finally, using the value co-creation lens provides novel insights into the digital paradox and how to profit from complex digitally enabled advanced services.