Open Field: How Ecosystems Generate Innovation

Business ecosystems contain dozens, hundreds, or sometimes thousands of companies representing numerous industries bringing a variety of technologies, products, and services to bear. The possibilities for innovations are innumerable, but finding the right combinations that will produce market-changing offerings cost-effectively is much harder than it sounds—which is saying something, because it doesn’t exactly sound like a piece of cake. 

In this month’s Collaborative Connection Monthly, Tammy L. Madsen, W. M. Keck Foundation chair and professor of strategy, vice president of the Academy of Management, and senior associate dean of faculty research and initiatives at Santa Clara University, offered some tips on how to weaponize ecosystems, so to speak. The former F-14 weapon control systems engineer who once held a job assembling circuit boards for Chuck E. Cheese animatronics—“I became really good with a solder gun,” she quipped—and author of Co-Innovation Platforms: A Playbook for Enabling Innovation and Ecosystem Growth was the featured guest in an episode titled “How Collaborative Ecosystems Can Yield Innovative Results.” 

How do you harness several organizations that “have different types of knowledge bases, skills, resources” and “varying degrees of complementarity” to create something where “the whole is greater than the sum of the parts”? Madsen reiterated the age-old principle of starting with the customer need or problem to be solved and then thinking about “your innovation scope, the types of innovations that you want to test out but you haven't really committed to going in that direction yet. Think about quick and dirty types of partnership arrangements that can give you some more information.” 

Outside Your Field, the Cream of the Crop Still Rises to the Top

The challenge—and opportunity—with the ecosystem: “Thinking far beyond your industry boundaries,” said Madsen. She cited several examples throughout the Q&A with host Michael W. Young, principal and founder of life sciences consultancy biomedwoRx, including:  

• A dairy farmer who leaned on technology companies to develop a tracking system that allows customers to see when a carton of milk “left the farm and its entire journey to the store shelf” with a quick QR code scan
• The auto industry, where vehicles are now “software on wheels,” which is “morphing into a network of relationships not only with traditional OEMs and suppliers but between software providers; hardware providers like Apple, Google, Ericsson, Microsoft, and Intel; tech startups [like] Cruise and Waymo; ride sharing companies; public utilities; government and regulatory bodies; and more”
• BASF’s ecosystem of 1.2 million users in 120 countries “that supports farmers worldwide, making decisions from the entire crop cycle to support efficiency and the use of resources to reduce waste” 

Declaration of Interdependence

Getting to this level of interaction and innovation doesn’t happen overnight, of course. Successful ecosystems see a shift “from pure focus on customer value to ecosystem value” over time, said Madsen. “Customer value still matters, but the interdependencies in the system must be addressed to ensure that the customer experiences the full value of your offering.”  

It’s up to alliance and ecosystem managers to help all parties identify and connect with potential partners that could bring an important piece of the client’s puzzle—“making those introductions, helping them collaboratively problem solve,” said Madsen. For example, AWS’s “public innovation platform” convenes government agencies and nonprofits to collaborate “over common cloud challenges.” SAP employs “knowledge brokers” who help companies navigate the Fortune 500 ISV’s massive ecosystem. “You need an additional partner for this project, or you're lacking the subject matter expertise? Let me go out into the ecosystem and identify those resources for you and bring them in to help with that collaboration.” 

Generative Activity: Connecting the Unconnected

As the players increase their engagement within the ecosystem and begin building on existing innovations, ecosystems ultimately reach the Holy Grail of “generativity,” which is characterized by ubiquitous “spillover knowledge” that results from “making new connections, connecting unconnected partners, [and] tapping conversations and discussions. That often leads to net-new projects that [ecosystem members] otherwise might not have engaged in and might not have been on their roadmap,” Madsen explained.  

This generative activity is the last of three horizons of ecosystem growth, according to Madsen. The first sees organizations coming up with a “continuous stream of incremental innovations” over the course of a year—“you're competing for today,” Madsen explained. From there, organizations scale these initial offerings and take them into new markets over the span of one to three years, depending on the industry. 

Reach this third horizon and a virtuous cycle starts to take shape. The innovations built on these platforms help the ecosystem leader improve its offerings—the aforementioned SAP incorporates new wrinkles produced by ecosystem partners into its product lines, for example—which in turn drives further innovation across multiple customer segments. 

“Now we have an additional software capability that's layered on to that [product set] that makes it more valuable, not just for that one customer but for a broad set of customers,” Madsen noted. “This notion of generativity very much plays into the customer lifetime value piece.”  

Change That Can Be Heard, Not Seen

However, the road to lifetime value can be a relatively long one that requires patience. 

Madsen made the point that “because innovation is iterative, it's uncertain. You might not get an answer immediately, right? You might not get profits immediately.”  

This is particularly true when it comes to sustainability initiatives, where “we might not see the value that comes back from them very quickly, or that value might be entirely intangible—external to the organization, benefiting society, benefiting the environment but not the firm's bottom line,” said Madsen, before adding that sustainability ecosystems could serve to do more than just foster collaboration among disparate stakeholders that results in new solutions.  

“Certainly, [sustainability ecosystems] can be used for collective action to support or influence regulation,” said Madsen, “but also industry standards—setting new norms or expectations about what we'd like organizations to try to achieve in this space.”