The topical issue of the co-development of services in multi-agent environment is approached with the concepts of social and value chain innovations as well as prerequisites for networked activity. In this paper the aims, practices, and challenges of co-development between municipal organizations, local SMEs and citizens are studied. The specific focus is on the roles of the external consultant in the codevelopment. Two empirical case studies, carried out in Finland, deepen understanding on the dynamics of service co-development, the importance of external facilitation as well as multifaceted innovation activity. Promising, tentative results are presented. Keywords: Co-development, innovation, multi-agent network, KIBS 1. INTRODUCTION

Western economies are referred as service economies (Vargo & Lusch 2008). However, public services face critical and complex demographic, economic, and structural challenges. This study illustrates the situation in Finland, whose

organize, produce, and develop services. Citizens have shown growing interest in participating in this development, while digitalization and social media enable new kinds of services and their co-development. In addition, trends such as new public management and public-private partnerships have opened new opportunities for cooperation between municipalities and local companies. However, innovative thinking and novel participatory practices are required. (See Kivisaari & Saari 2012; Hartley 2005.)

Studies of service innovation and new service development (NSD) have focused on the provider-customer dyad and less on co-development in a multi-agent environment (e.g. Smith & Fischbacher 2005; Syson & Perks 2004). Recently, adoption of new concepts has broadened the perspective. For the public context, the concepts of value-chain innovation and social innovation provide relevant frames, which we present as theoretical background. They help to deepen understanding of multi-agent co-development (Sundbo 2011; Harrison et al. 2010). This paper examines the aims, practices, and challenges of co-development in the public (particularly municipal) context.