The success of an innovating firm often depends on the efforts of other innovators in its environment. How do the challenges faced by external innovators affect the focal firm's outcomes? To address this question we first characterize the external environment according to the structure of interdependence. We follow the flow of inputs and outputs in the ecosystem to distinguish between upstream components that are bundled by the focal firm, and downstream complements that are bundled by the firm's customers. We hypothesize that the effects of external innovation challenges depend not only on their magnitude, but also on their location in the ecosystem relative to the focal firm. We identify a key asymmetry that results from the location of challenges relative to a focal firm-greater upstream innovation challenges in components enhance the benefits that accrue to technology leaders, while greater downstream innovation challenges in complements erode these benefits. We further propose that the effectiveness of vertical integration as a strategy to manage ecosystem interdependence increases over the course of the technology life cycle. We explore these arguments in the context of the global semiconductor lithography equipment industry from its emergence in 1962 to INTRODUCTIONA firm's competitive advantage depends on its ability to create more value than its rivals (Porter, 1985; Brandenburger and Stuart, 1996). Greater value creation, in turn, depends on the firms' ability to innovate successfully. To capture the returns from innovation, many firms strive to be technology leaders in their industry by being first to introduce new innovations to the market. A given innovation, however, often does not stand alone; rather, it depends on accompanying changes Keywords: technological change; first mover advantage; business ecosystem; vertical integration; complements; semiconductor lithography *Correspondence to: Ron Adner, Tuck School of Business, Dartmouth College, Strategy and Management, 100 Tuck Hall, Hanover, NH 03755, U.S.A. E-mail: ron.adner@dartmouth.edu in the firm's environment for its own success. These external changes, which require innovation on the part of other actors, embed the focal firm within an ecosystem of interdependent innovations (Adner, 2006).Consider, for example, Airbus's monumental investment in pioneering the super-jumbo passenger aircraft with its A380 offer. Airbus, as the focal firm, faces substantial challenges in designing and manufacturing the core airframe of the airplane. Beyond this internal challenge, it also relies on a host of suppliers for subassemblies and components. Some of these suppliers are themselves confronted with significant innovation challenges to deliver components that meet Airbus's requirements (e.g., engine, navigation system), while others will not need to innovate at all (e.g., carpeting). Receiving these various components, Airbus Value Creation in Innovation Ecosystems 307faces the additional challenge of integrating these components with the airframe in ord...

The success of an innovating firm often depends on the efforts of other innovators in its environment. How do the challenges faced by external innovators affect the focal firm's outcomes? To address this question we first characterize the external environment according to the structure of interdependence. We follow the flow of inputs and outputs in the ecosystem to distinguish between upstream components that are bundled by the focal firm, and downstream complements that are bundled by the firm's customers. We hypothesize that the effects of external innovation challenges depend not only on their magnitude, but also on their location in the ecosystem relative to the focal firm. We identify a key asymmetry that results from the location of challenges relative to a focal firm-greater upstream innovation challenges in components enhance the benefits that accrue to technology leaders, while greater downstream innovation challenges in complements erode these benefits. We further propose that the effectiveness of vertical integration as a strategy to manage ecosystem interdependence increases over the course of the technology life cycle. We explore these arguments in the context of the global semiconductor lithography equipment industry from its emergence in 1962 to 2005 across nine distinct technology generations. We find strong empirical support for our framework. ABSTRACTThe success of an innovating firm often depends on the efforts of other innovators in its environment. How do the challenges faced by external innovators affect the focal firm"s outcomes? To address this question we first characterize the external environment according to the structure of interdependence. We follow the flow of inputs and outputs in the ecosystem to distinguish between upstream components that are bundled by the focal firm, and downstream complements that are bundled by the firm"s customers. We argue that the effect of external innovation challenges depends not only on their magnitude, but also on their location in the ecosystem relative to the focal firm -whereas greater innovation challenges in components enhances the benefits that accrue to technology leaders, greater innovation challenges in complements erodes these benefits. We further argue that the effectiveness of vertical integration as a strategy to manage ecosystem interdependence increases over the course of the technology life cycle. We explore these arguments in the context of the global semiconductor lithography industry from its emergence in 1962 to 2005 across nine distinct technology generations. We find strong support for our arguments.

The success of an innovating firm often depends on the efforts of other innovators in its environment. How do the challenges faced by external innovators affect the focal firm's outcomes? To address this question we first characterize the external environment according to the structure of interdependence. We follow the flow of inputs and outputs in the ecosystem to distinguish between upstream components that are bundled by the focal firm, and downstream complements that are bundled by the firm's customers. We hypothesize that the effects of external innovation challenges depend not only on their magnitude, but also on their location in the ecosystem relative to the focal firm. We identify a key asymmetry that results from the location of challenges relative to a focal firm-greater upstream innovation challenges in components enhance the benefits that accrue to technology leaders, while greater downstream innovation challenges in complements erode these benefits. We further propose that the effectiveness of vertical integration as a strategy to manage ecosystem interdependence increases over the course of the technology life cycle. We explore these arguments in the context of the global semiconductor lithography equipment industry from its emergence in 1962 to INTRODUCTIONA firm's competitive advantage depends on its ability to create more value than its rivals (Porter, 1985; Brandenburger and Stuart, 1996). Greater value creation, in turn, depends on the firms' ability to innovate successfully. To capture the returns from innovation, many firms strive to be technology leaders in their industry by being first to introduce new innovations to the market. A given innovation, however, often does not stand alone; rather, it depends on accompanying changes Keywords: technological change; first mover advantage; business ecosystem; vertical integration; complements; semiconductor lithography *Correspondence to: Ron Adner, Tuck School of Business, Dartmouth College, Strategy and Management, 100 Tuck Hall, Hanover, NH 03755, U.S.A. E-mail: ron.adner@dartmouth.edu in the firm's environment for its own success. These external changes, which require innovation on the part of other actors, embed the focal firm within an ecosystem of interdependent innovations (Adner, 2006).Consider, for example, Airbus's monumental investment in pioneering the super-jumbo passenger aircraft with its A380 offer. Airbus, as the focal firm, faces substantial challenges in designing and manufacturing the core airframe of the airplane. Beyond this internal challenge, it also relies on a host of suppliers for subassemblies and components. Some of these suppliers are themselves confronted with significant innovation challenges to deliver components that meet Airbus's requirements (e.g., engine, navigation system), while others will not need to innovate at all (e.g., carpeting). Receiving these various components, Airbus Value Creation in Innovation Ecosystems 307faces the additional challenge of integrating these components with the airframe in ord...

Why do some new technologies emerge and quickly supplant incumbent technologies while others take years or decades to take off? We explore this question by presenting a framework that considers both the focal competing technologies as well as the ecosystems in which they are embedded. Within our framework, each episode of technology transition is characterized by the ecosystem emergence challenge that confronts the new technology and the ecosystem extension opportunity that is available to the old technology. We identify four qualitatively distinct regimes with clear predictions for the pace of substitution. Evidence from 10 episodes of technology transitions in the semiconductor lithography equipment industry from 1972 to 2009 offers strong support for our framework. We discuss the implication of our approach for firm strategy. Copyright

We consider firms in the context of their business ecosystems and explore how differences in the ways in which firms are organized with respect to complementary activities affect their decision to invest in new technologies. We argue that, in addition to creating differences in incentives and bureaucratic costs, firm‐complementor organizational form plays an important role in the firm's ability to coordinate accompanying changes in complementary activities so as to shape the benefits from investing early in the new technology. We test our predictions in the U.S. healthcare industry from 1995–2006. The study makes a strong case for viewing firms' competitive strategies in the context of their business ecosystems and for the existence of an important link between firms' coordination choices and their strategic investments. Copyright © 2012 John Wiley & Sons, Ltd.