Continuous improvement is a consolidated concept in theory and practice, mainly in the context of stand-alone companies. However, the battlefield of competition is increasingly moving from the level of individual firms to that of organizational settings based on loose company boundaries and collaborative relations among different units, such as the extended manufacturing enterprises (EMEs). The concept of continuous improvement has hardly been applied in inter-organizational settings. The purpose of this paper is to propose preliminary theory on collaborative improvement (CoI), i.e. continuous improvement at the EME level. Based on a literature study on supply networks and continuous improvement, evidence from an in-depth case study of a large Dutch system integrator in the automotive industry and three of its suppliers, a model of CoI is proposed, explaining how collaborative improvement takes place within the EME context.