Posts tagged: Open Innovation

As the four main pillars that constitute my research topic at EINST4INE relate to ecosystem research, digital transformation, environmental sustainability, and Open Innovation, I would like to tell you a little about what I have learned in the intersection between technology and ecosystems. While some of my fellow EINST4INERs have similar research interests in ecosystem research, I hope to complement their thoughts on what ecosystems actually are and how they form.

Many paradigms nowadays emphasize the need for companies to adopt novel and disruptive technologies to stay afloat. Through such paradigms, like Open Innovation, business executives in today’s digital age have access to hundreds of new technologies that may revolutionize their operations and the quality of service they provide to customers, as collaborations and other types of connections enable companies to leverage the force of digital technologies, without having to create them in-house.
However, adopting cutting-edge technology isn’t enough to achieve these objectives; companies also need to know how to put such tools to good use for their operations and their consumers. This requires resources like time, funds, and expertise, which may be in short supply.

As such, how can businesses use the benefits of cutting-edge innovation and speed up the delivery of value to their customers?
Curating ecosystems is one solution: businesses should collaborate with one another, aligning talents and pool resources to develop ground-breaking new goods and services and shorten the time it takes to get them to market. And this is precisely what many businesses are doing.

As Gianlorenzo has given an overview of the different types of existing ecosystems, I felt the need to set the prerequisite of what ecosystems are not (based on Adner, 2017):

• Business models based on ecosystems are not the same as supply chains. Tiers of suppliers in a supply chain feed into an ultimate point of value creation, but the suppliers themselves are neither part of the brand promise nor material to the value generated, although top suppliers may be quite important.
• Then, platforms per se, are not ecosystems. While every platform has an ecosystem and is often the keystone actor (an ecosystem actor with a strong influence despite being relatively few in number. The term comes from the biological term of keystone species), there is a narrow focus on technology and transactions. Indeed, while platforms are concerned with interface governance, ecosystems are concerned with structures of interdependence.
• Older terms and arrangements like Networks and Alliances have a similar connection as in ecosystems, however, these mostly focus on patterns of connectivity. In this sense, for Networks and Alliances, the focus lies more on actor ties rather than the value proposition, and just like for platforms, there is not enough focus on the structure of interdependence.
• Open Innovation (OI) has also been related to ecosystem research. One could argue that OI provides a rather micro-perspective, taking into account the firm strategies. However, ecosystem literature applies a rather macro-vision, which helps us gain insights into the multilateral coordination between ecosystem partners in their quest to align their strategies to provide value.

Adner (2017) finds other similar structures which can be distinguished from ecosystems.

But, if we take a glance around, we can see that businesses of all stripes are attempting to implement ecosystem business models and, in many instances, even orchestrating their own ecosystems in an effort to generate profits. In Jessica’s post, ecosystem orchestration is defined as “hub players” taking the lead, where she clearly defined what an orchestrator is.
Of course, for companies, occupying the orchestrator or “hub actor” position can be beneficial for several reasons such as having a more centralized knowledge about the ecosystem, compared to other actors. However, orchestration is not necessarily easy:
The present academic literature tends to focus on successful long-standing ecosystems, which greatly looks at the organizational capabilities of firms, related to the success of their overall ecosystem. However, some scholars have extended this notion to the capabilities of the environment in which an orchestrator thrives, meaning that the success of the hub actor and the ecosystem depend on the architecture of the network, and how the network interacts with its environment.
From this, two streams of literature have emerged:
First, we can consider intentionally created ecosystems, departing from the definition of the overall value proposition that the ecosystem is supposed to achieve, and assembling actors that can contribute to the value creation and transfer in the ecosystem.
Second, we can consider the assemblage of different actors, who create and co-evolve a common value proposition together.

There are certainly differences in terms of processes and mechanisms of orchestration between the two approaches, however, some universal challenges that can impact orchestration overall can be distinguished (among others):

• Leadership: some researchers argue for the importance of a hub actor who should facilitate the interaction between actors. However, not every firm has the capabilities to become an orchestrator and gather the efforts of all actors that ultimately define the success of the ecosystem.
• Platforms: most platforms offer a space for orchestration as they, in some way, build the base for the ecosystem. Here the platform orchestrators can leverage several benefits such as Network Effects (when the value or utility of a service or product is defined by the number of users). Platforms and their surrounding ecosystem represent the most successful businesses nowadays as they achieve economies of scale very rapidly. That does not mean, however, that being successful is given… first, because network effects can also backfire (e.g. see Network Effects Aren’t Enough) and second, because what makes your platform successful can also make another platform successful!
• Actor role & position: one of the dangers of maintaining good relationships with actors is the way an orchestrator treats its connections. When shifting from a traditional business model, some focal firms tend to see actors as suppliers rather than a relationships. This implies a shift or adaptation of business models to current ecosystem standards.
• Finding the right business model: Ecosystem relationships imply a different strategic model that needs to contemplate the management of inter-and intra-actor relationships as well as the governance and coordination between multiple parties
• External factors: As trust is crucial for successful collaborations, hub actors need to depart from their self-interest view and focus on shared efforts, which is necessary for the long-term success of an ecosystem. This can be understood as gaining legitimacy, not only within a given ecosystem but also gaining acceptance from the environment and society, and other institutions as a whole. Other external factors can also comprise the competition: an ecosystem formation can improve the current market conditions for the players, but also for the competition. Thus, orchestration necessitates a lot of coordination, management, and governance efforts to not be overthrown by competing ecosystems and their value propositions.

Although there are other factors that play a role in ecosystem orchestration (e.g. capabilities, modularity, complementarity, bottlenecks, etc.) for the sake of brevity and comprehension I have limited these to the challenges mentioned above.

What amounts to all of this is that the current literature provides examples of how ecosystems can be orchestrated, but there is still a lot to learn from failed ecosystems. Successes can give a lot of insights into “good practice” strategies, but these are not said to work for every ecosystem, precisely because of the heterogeneous nature of participating actors, and their environments.

Thus, while some research has looked at the “dark side of ecosystem orchestration” (Oliveira & Lumineau, 2019), which can impact a firm and impede the capacity of complementors and consumers to innovate, more insights from failures cases could tell us a lot more about what can go wrong during the orchestration process, as well as insights into ecosystem governance mechanisms and even organizational capabilities needed to support ecosystem orchestration.
While we will see or recognize more such failures in the future, I am sure that their lost efforts will have an ultimate purpose, which is the benefit for academia to study why some ecosystems fail and others thrive and thus, creating several implications for businesses.

References

Adner, R. (2017) Ecosystem as Structure: An Actionable Construct for Strategy. Journal of Management, 34: 39-58.

Oliveira, N., & Lumineau, F. 2019. The dark side of interorganizational relationships: An integrative review and research agenda. Journal of Management, 45(1): 231-261.