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:
- Linkages– content and productivity of relationships, alliances, collaborations, interactions, networks, clusters and all the complementary aspects and assets deployed to do this
- 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.
- 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.
- 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:
- Existence – why do firms emerge and how and why do they thrive or die
- Boundaries – why is the boundary between firms and the market
- 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?
- 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
- 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.
- 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.
- 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
- 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
- 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
- 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.
- 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:
- How does your offering measure up as critical/ attractive within a ecosystem federation that will add value.
- 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.
- 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.
- 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.
- 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)
- 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.