Value Creation in Innovation Ecosystems: How the Structure of Technological Interdependence Affects Firm Performance in New Technology Generations

Abstract

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.

Entrepreneurship in global innovation ecosystems

“…Companies of all sizes have learned that success also rests in developing and managing their ecosystem in ways that allow them to quickly introduce and successfully commercialize their products as well as innovative business models. As a result, some companies have taken advantage of the growing use of open innovation, gaining access to the discoveries of their suppliers and competitors (Adner and Kapoor 2010;Dyer et al 2009;Chesbrough 2003;Nambisan and Sawhney 2007;Nohria and Ghoshal 1997). Companies have also worked jointly with their customers to develop innovative products (Felin et al 2009;Shah and Tripsas 2007).…”

“…As sources of innovation become globally dispersed (von Hippel 2005), technologies proliferate and their associated knowledge becomes more complex and diverse, companies have become more specialized and focused on building distinct competencies in niche areas while relying on their partnerships to address changing market needs (Luksha 2008). Co-specialization appears to extend well beyond immediate innovation networks to cover global supply chains as well (Adner and Kapoor 2010;Almirall and Casadesus-Masanell 2010;Dhanaraj and Parkhe 2006;Gray and Meister 2004). These trends have increased the number of technology development and commercialization alliances between new ventures and well established companies seeking to stay current and competitive.…”

A trajectory of early-stage spinoff success: the role of knowledge intermediaries within an entrepreneurial university ecosystem

“…In turn, ecosystems are comprised of interorganizational networks that provide entrepreneurial firms with resources and information to navigate a constantly changing competitive environment (Zara and Nambisan 2012). Further, business ecosystems can vary by technology, network intensity, and organizational variety, while cooperative and collaborative relationships exist simultaneously (Adner and Kapoor 2010;Iansiti and Levien 2004;Moore 1993). Ecosystem dynamics lead to 'an economic community supported by a foundation of interacting organizations-the organisms of the business world' (Moore 1993, p. 23).…”

Knowledge management capabilities of lead firms in innovation ecosystems

“…Innovation ecosystems enable a collection of assets to be leveraged jointly by member firms in order to help stimulate innovation 1 (Adner and Kapoor 2010;Gawer and Cusumano 2014;Thomas et al 2014). These collections of assets could be technologies, knowledge, or skills that comprise a platform 2 (Zahra and Nambisan 2011).…”

“…Hence, an innovation ecosystem consists of intentional communities of actors whose individual activities depend on and share the collective fate of the whole ecosystem (Moore 2006;Iansiti and Levien 2004). Recently, a number of authors have highlighted that the network structure among firms would be usefully enhanced as an ecosystem (Adner and Kapoor 2010;Adner 2006) to account better for community orientation (Snow et al 2011), growing interdependence, and the symbiotic nature of relationships between the firm and its external stakeholders (Moore 2006) and the firm as resource integrator (Vargo and Lusch 2004). Firms such as Apple and Facebook have offered recent potent examples of innovation ecosystem.…”