Digitalization is frequently seen as an important source of service innovation, enabling new solutions where products and services are bundled into offerings. As the realization of such offerings frequently requires the inclusion of new technological components and implies changes to activities across the value chain, they often require collaboration with other companies. This article explores what challenges arise when different organizations collaborate in service innovation enabled by digitalization. This study investigates a joint project between three companies aiming to innovate, build, and verify a proof-of-concept for an automated return process at a European rental company in the construction industry. An explorative case study approach was selected, and data were collected through semi-structured interviews with key managers in the collaborating companies as well as through meetings and workshops during the innovation project. The empirical observations revealed four main challenges: (1) the formulation of shared and complementary innovation objectives, (2) the joint design of a new business model addressing both value creation and value appropriation, (3) the management of the collaborative project across organizational boundaries, and (4) the fruitful combining of multiple agile organizing approaches.

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