The forming of new structures- the business ecosystem of innovation federations

At present we are seemingly in a state of flux, we are learning to move from linear innovation models into more dynamic ones that are increasingly forming around innovation ecosystems.

Our whole understanding of innovation is changing; we are evaluating and changing our existing focus from closed (internal orientation) into open (external orientation) thinking for accelerating and improving our innovation performances.

Regretfully we are not yet fully equipped to manage within these new innovation ecosystems. We need to give the factors an increasing focus and lead into a better emerging theory of leading or good practice.

Measuring innovation in different ways is becoming important

To start we are today measuring innovation more on the following aspects or should be:

  1. Linkages– content and productivity of relationships, alliances, collaborations, interactions, networks, clusters and all the complementary aspects and assets deployed to do this
  2. Knowledge engagement– the ability to attract knowledge into the organization, through greater content and value, through the people involved and the way we access, anchor and diffuse this new knowledge.
  3. Intangible assets– the increased focus on providing improved climates and cultures to allow innovation to thrive and the struggle (still) between short term and long term payback. Increasingly people and the combination of the intellectual capital will be the central focal point of innovation capability building.
  4. Conditions for innovation– the ability to sense and respond to shifts in markets, competition, and evaluating changing and variable demand as well as assess the impact of changing policies, global impact points, recognizing changing patterns, the effect of non-linear dynamics, understanding adoption/ diffusion rates  and skill relevance are far more recognized.

These help build greater outward orientation and awareness for more open collaborative innovation to take hold.

Our pressing need is to review the Theory of the Firm to address the effects of Ecosystems.

In simplified terms, the theory of the firm aims to answer these questions:

  1. Existence – why do firms emerge and how and why do they thrive or die
  2. Boundaries – why is the boundary between firms and the market
  3. Organization – why are firms structured in such a specific way, for example as to hierarchy or decentralization? What is the interplay of formal and informal relationships?
  4. Heterogeneity of firm actions/performances – what drives different actions and performances of firms?

Theory of the firm is an analysis of the behaviour of companies that examine inputs, production methods, output and prices and today these are dramatically changing. Firms are required to operate in ecosystems, often multiple ones and this begins to alter our older theories that fitted more in the 20th century but not in this changed 21st century of globalization where speed, scale and scope increasingly play a more important part.

We need a new theory on the Organising Network of Firms with Ecosystems.

We are forming in many different ways significantly more relationships that matter to each organization, so as to deliver innovative products and services that would not be able to be delivered by only having the one organization attempting it, unless they are prepared to undertake the growing costs of more complexity. Often this involves designing the architecture, platforms, construct new standards and be equipped to integrate and adapt different members of a community, who have something relevant to contribute. Managing this growing form of complexity is challenging old theories, boundaries, organizations and how they exist going forward.

Ecosystem innovation is more today about managing beyond the immediate known’s found within one organizations limited focus of the world. The organization that envisages a changing world needs to often organize around ecosystems to seek and influence the broader effects of where they presently compete to bring about some kind of more substantial advantage or respond to survive. (an example is the Android ecosystem vs. Nokia’s race to catch up). The race is to gain advantage and often try to dominate and influence the future direction a market will take.

Opening up our thinking towards ecosystems has a powerful effect

As we begin to open up our thinking to ecosystems these are having a powerful effect on our perspectives as different partners contribute to this often ‘emergent’ thinking. This becomes more evolutionary and requires a completely different way to manage these ‘relationship contract’s that are forming around a given concept or platform. They require increased interactions within the community and need far more tightly controlled activities to gain the synergies and effects from working within an ecosystem.  Relationship management needs to keep focusing on enhancing, driving innovation and knowing how to adapt this within the whole concept. No easy task.

Ecosystems that produce ultimately new business models often rest on a large capacity for agility within the participating organizations. Internal capabilities and competencies often get highly stretched by the new dynamics taking place, you need a strong orchestrator of the ecosystem to manage these challenges and many cultural biases that can blind a ‘line of sight’.

Aligning partners on a platform needs-basis is very different from aligning them to just one organizations needs. In the past we adapted to meet that specific requirement  of that one dominant organization as they controlled the process. Today you can argue differently, why what you see as needed is not the best and maybe clearly different that first envisaged and it is better and evolutionary but demands more change and disruption both internally to manage it as well as how it is delivered to the end beneficary. It allows for more breakthrough innovation, greater challenging of the existing status quo and often taking organizations out of their existing comfort zones.

Of critical importance is nurturing the health of the ecosystem.

There are three fundamental aspects that need to be considered

  1. The value to each within the ecosystem. These values may be different but it is the recognition that the platform provided is the best possible way to deliver their individual part of the solution.
  2. Critical mass of the parties within the ecosystem gives it that certain robustness. The combined effects in the ecosystem are greater than the efforts and sum of individual effect.
  3. The successful ability to seek continuous performance and improvement by the way each learns. This equally achieves improved benefits and collaboration effects, so as to give the continuous upward push towards delivering a new innovation concept. This co-evolution or joint learning can lead to optimization effects, increased relevance and generating synergies unlikely without some creative friction along the way.

Ecosystems are evolutionary and do have ‘normal’ life cycles

For the health of the innovating ecosystem you need to go through four stages

  1. Birth– the buying into the initial concept, the pioneering and focus on the critical acquisition of key partners, market understanding iterations and the founding principles and roles each party is required to play and contribute
  2. Expansion– as the ecosystem knowledge and activities expand you will need to have scale and scope built into the system. Standards need to be actively worked out , platforms established and robust, dedicated resources enabling and coordinating activity
  3. Leading & Evolving– This could be possibly the ‘red queen effect’ that drive the evolution but you do need clear roles, that include network orchestrators and more than likely one dominant partner who manages the ecosystem. This party needs to ensure bargaining techniques, resolution management and an amazing set of skills not to throw something out that might have hidden value. One party needs to ‘mind the (open) commons and manage the IP across the ecosystem not to allow it to stop the collaboration. This type of leadership is going to be a rare, valued set of skill sets.
  4. Self-renewal – it is the ability to deliver on the ideas otherwise the value of contributing to the ecosystem has no value. The ability to understand the potential for delivery is critical in any assessment as non-renewable ecosystems will not lead to ongoing evolution and may have very specific or limited advantage. Where ecosystems seem to work is where the goal usually has to be for a BHAG (big, hairy, audacious goal) that delivers clear differentiation and increases revenues multiple fold.

You must match your organizations ability and access the fit within any innovation ecosystem.

Operating within an innovation ecosystem requires considerable evaluation. Does the synthesis of your new offering by working within the ecosystem federation combined with other organizations create a coherent customer solution that is more than likely going to disrupt the existing market? Can you afford to participate or go it alone? Collaborations that have increased levels of complexity have often higher risk by managing within ecosystems. You have to really assess that all the partners can deliver their parts and usually this is a complete unknown so you have to work through a set of tough strategic questions to get closer to the knowns. These would include but not limited to:

  1. How does your offering measure up as critical/ attractive within a ecosystem federation that will add value.
  2. Knowing where you fit within the value chain. Do you have dependencies on others, can each satisfy their commitments on time, what resolutions/ warning system needs to be in place and getting a clear understanding of risk of failure by others within the ecosystem.
  3. The higher the evolution for the final customer, the higher the delay in adoption as a risk so you have to be clear on the ‘returns’ and estimated timing to manage your expectations.
  4. The more partners within the ecosystem the more complexity and risk. The dominant party needs to provide some compelling arguments on vision, potential effects and understanding of the changes caused in competitive dynamics by joining.
  5. Answer the basis questions of when, why, how, where can we compete within any federation of parties. You need to pace your resources to match the process (see below)
  6. Maybe you can reduce your involvement (and risk exposure) by becoming a sub eco-system provider to support others within the platform.

Just remember this as a summing up.

In ecosystems this remains a key insight The dynamics of the system will be dominated by the slow components, with the rapid components simply following along.” Slow constrains quick, slow controls quick”.  To manage ecosystems is hard, it is an adaptive system.

Think carefully through any move to join innovation ecosystems, they do have potentially a high, immensely attractive return, if managed well, they are nearly always disruptive to the existing markets and highly valuable to the participants. There also is a big ‘but’ as the pathway to get to that ‘success point’ is full of potential risk and emense ‘spent’ energy.

Think this carefully through. Hence we need far more theory and informative discussions on innovation within ecosystem federations to help us all form around (or not) new structures for innovation.

7 thoughts on “The forming of new structures- the business ecosystem of innovation federations

  1. While reading this blog post, I remembered the book ‘Extension of Trust’ that says ‘with trust, you gain speed’

    I am personally a big believer in eco-system based innovation. This creates a big departure from ‘know all-do all’ attitude of innovation companies to ‘stick to what you are best at and network for the rest’. The core competence gets multiplied in an ecosystem.

    Easier said than done, there are several things that need to fall in place to implement and leverage such an ecosystem
    1. Trust: Without this, the whole ecosystem is a big political game
    2. Understanding your own core competence and to evaluate the additional competence that you get through collaboration
    3. Figure out ‘WhatsInItForMe’ for the participants in the innovation ecosystem
    4. Figure out if the ecosystem assumes peers or master-slave relationships, this is important for the cultural alignment of the eco system
    5. Assess your risk in case of failure, do you fail others or do you fail due to others

    We can conceptualize this topic in several ways but the real fun is in doing it.

    It the economy and knowledge is networked, why not innovation


    • Kiran,
      – I think you put this extremely well, it goes beyond simply trust but it is still ‘kind of hard’ for many to work through and participate.
      – The figuring out when often so much is still unknown requires significant faith and belief, let alone work out the ‘dynamics’ within the parties.
      – Being involved, achieving growing commitment and recognition must be amazing but this requires some deep thinking and identification, this route is not for the faint hearted.
      – The combination of knowing well who is participating within the ecosystem, the clarity of the platform, relationships and some ideas of the emerging business model/ proposition coming out really challenges all I’m sure.
      – It tends to be limited to parties needing disruption or seeing its value, have more radical elements to it and responds more in ‘burning platform’ situations it seems.
      -I think networked innovation is very different from eco-system based innovation in its demands.

      Thank you for your additional thoughts


      • Paul, Kiran,

        This is a very interesting topic, not in the least because I feel at present you can see changes happening in the business world as we speak. Changes that reflect that we are quickly moving from a situation that we only think and speak off eco system driven innovation, to a situation that people are actually believing it and starting to do it.

        We talk a lot about globalization nowadays, but most people mean with globalization that through technology advances communication lines are shorter etc. Although this is very true, but only the very base line. True globalization is in the heart of matters such as discussed here.

        One can argue about Networked Innovation vs Eco system based innovation, and networked being even a step further. And I think that that is true. On the other hand I also think that certain pieces of the puzzle are falling in place at present, (The general mindset of people, the comfort people have built up with working internationally, and the trust they gained in the other parties, technolgy shifts that makes things possible, SaaS type of architectures which in a way can be projected on organization type of thinking).
        This falling in place of pieces of the puzzle might also mean that things go faster then we expect, and then networked innovation is here rather sooner then later.


      • Steven,

        Most probably you are right, these things do move fast once you gain a degree of comfort and practical understanding by participating. I think it all depends more on the circumstances, the potential end prize that gives these the mommentum they need. We seem to have all the enablers in place, There is though, one need, to get this discussed, understood far more so it reduces in concern and becomes more of ‘normality’ within business



      • Paul,
        Thanks for the write-up. It’s indeed an interesting and ongoing discussion.
        I like (and agree) the parameters you have defined for measuring innovation – linkages, knowledge engagements, intangible assets and conditions.
        The world seems to be involved in competition and proving one higher in the market. As per my understanding, the idea should be to co-create and co-join for both incremental and revolutionary innovations. It reminds me of the competitive race going in the bus and railways & airways in Europe and other parts as well. Though all come under the same cover of transportation, however, their function is different. What if these groups join in hands to provide a smoother commuting for tourists and locals. For an instance, the rail XYZ tried to provide all benefits upto the mark of air travel, which was fair enough if their aim was to provide comfort to the travelers. however, the company’s main goal was to divert the air travelers towards the rail industry. I believe if each mode understands its value proposition well (in terms of convenience, availability, approach ability, etc.) and work together in business ecosystem, for the main goal of comforting travelers and respecting the environment (natural resources), there would be a better business, and a beautiful earth.
        Your further opinions would be appreciated.


    • Kiran, I appreciate the way you have explained the key things required for building up a business ecosystem. I agree to you that understanding one’s own competence should be the critical aspect, in which, many times, many decent companies still have a product based vision. By saying this, I mean, for instance, a razor company (say Gillette for stance) might have an understanding that their new XYZ razor could help men in enjoying a smooth shave or so. An eye of a design thinker could also see a happy wife (while she can enjoy with his husband) and a smiling baby (while his father’s beard not hurts him anymore), as a consequence of the smooth shave (can call it as hidden but critical benefits). Another example could be of a public transportation, say bus service. It should understand that though the technical aim is help people commute in a faster way, but is does includes many intangible benefits too.
      However, my understanding says that once you understand your capabilities & capacities, connecting to the people directly should be the task. (being in the people’s shoes), and then should you connect to the other edges of ecosystem (organizations, etc.).
      As far as ‘What’s in for me’, I vote towards more of an idealistic side, and would put this point in the agenda of business managers,and not business innovators. Just my opinion. However, I agree totally that structure of an ecosystem, master-slave,linear, hierarchical, (open, closed) etc. is definitely a key point.
      Would be happy to see more of your insights. Thanks.


  2. Pingback: Why We Are Entering A New Innovation Era. | Paul4innovating's Innovation Views

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