True stability results when presumed order and presumed disorder are balanced. A truly stable system expects the unexpected, is prepared to be disrupted and waits to be transformed.
Tom Robbins, American novelist
In today’s Information Age, connectedness is something we can’t survive without. Thanks to technology, we’re all connected more than we were ever before.
And although it might seem obvious, the same holds true for organizations. As markets expand and barriers to communication fall, collaboration takes new and exciting forms to reflect these changes. Exemplified by the move from demanding, contract-based strategic alliances in the 1970s to the loose ecosystems of co-created value today, business innovation is becoming less of a solo act and more of a group performance.
To survive and prosper in highly competitive contexts and markets, firms must learn to share ideas, initiate, and react to change, and build dynamic capabilities in the process. In a nutshell, firms must be able to seed and nurture ecosystems of shared value.
Here, we explore what open innovation ecosystems are and how to build and manage them to bring value to your organization through co-creation.
What is an open innovation ecosystem?
In an open innovation ecosystem of shared value, customers, competitors, collaborators, complementors, and all other categories function as one well-oiled machine. Everyone provides input, and everyone derives value. Every member is simultaneously a giver and a receiver of resources and knowledge. Suppliers and customers coincide.
Open innovation ecosystems typically have a shared vision and shared enterprise, helping each other to create value and pursuing jointly formulated strategies and goals.
Researchers Stephen Vargo and Robert Lusch define ecosystems in "The SAGE Handbook of Service-Dominant Logic" as “relatively self-contained, self-adjusting systems of resource-integrating actors connected by shared institutional arrangements and mutual value creation through service exchange”.
According to academic and the author of "The Wide Lens: What Successful Innovators See that Others Miss" Ron Adner, ecosystems have a long-term orientation, are partly self-adjusting, and make complex interdependencies between various types of partners, including end customers, explicit.
Ecosystems are typically characterized by:
The absence of a formal authority
Strong dependencies among members
A common set of goals and objectives
- A shared set of (complementary) knowledge and skills
How to build an open innovation ecosystem
Building an open innovation ecosystem of shared value is, in essence, building and managing individual cultures, structures, processes and metrics, and then securing the synergies between them (across organizations and people).
Sounds straightforward, doesn’t it? Let’s take a closer look to find out.
Before starting to build an ecosystem, you need to find out whether this innovation model is right for your organization.
Start by asking yourself:
- What are your goals?
- What do your customers need?
Can you achieve your objectives alone?
- Would collaboration help you compensate for your weaknesses and enhance your strengths? If yes, then how?
- What happens if you do nothing and maintain your current course? (“Go-It-Alone Strategy”)
If answering these questions confirms that an ecosystem would help you achieve your goals, it’s time to get building.
We divide the process of building an innovation ecosystem into four main stages:
- Evaluate your innovation culture
To build ecosystems of shared value, you should first scrutinize the various elements of your culture. For example, ask:
“Does our organization nurture the values that are most conductive to joint value creation? How do our customers relate to these values?”
This process starts with understanding what culture is – both in itself as well as in the industry and/or context in which your firm functions.
An effective culture of co-creation should be open and collaborative toward its customers and other open innovation partners. This type of culture keeps the entrepreneurial and intrapreneurial spirit alive.
To self-assess your innovation culture, download our scorecard here.
- Define the structure for collaboration
Organizational structure, or the “anatomy of an organization” as it’s sometimes called, is the second element of the framework. Structure consists of all formal reporting relationships and their sub-components, including, but not limited to, the number of levels in your hierarchy, managers’ and supervisors’ span of control, and cross-departmental communication Essentially, organizational structure comprises everything related to your departments and functions.
Reengineering a firm’s structure to support ecosystems of shared value is an inherently difficult task. Deep structural change typically starts small via informal coordination activities that cut across existing product and functional silos. In this scenario, well-trained and well-incentivized members of staff not only manage complex collaborator relationships but also take accountability for their actions.
The key here is to ensure a structure that allows ideas to be spun in and out of the firm as necessary.
- Polishing the processes
The third element of the framework is all about your firm’s operations. Business processes are actions that firms engage in to accomplish a pre-established purpose or objective. Five generic processes define a customer-focused organization:
• An internal strategy development process with both your firm and customer in mind;
• An internal value creation process of the same nature;
• A multi-channel integration process for managing your customer relationships and a consistent company image;
• An information management process to collect, collate, and use customer data;
• A performance assessment process to ensure that your strategic aims are reached.
For value co-creation to take place, however, these business processes must be taken one step further.
For example, you should encourage two-way communication with your customers as well as other collaborators in your ecosystem. Similarly, your performance management process must facilitate learning from all parties. Just like the structural changes, process changes also involve a step-by-step approach.
First, you can develop or buy IT systems of varying complexities to automate parts of your ecosystem’s value co-creation process. Next, you can map your processes to better understand the possibilities for creating new value. Finally, you can audit your processes internally, making sure they are aligned to your value co-creating mission.
- Metrics for co-creation
The fourth element of the framework is all about metrics and evaluation.
Developing adequate metrics for co-creation is important for two reasons:
• First, metrics can motivate employees more effectively to meet customer and collaborator needs by offering the right incentives.
• Second, metrics can help managers determine the financial implications of their customer- and collaborator-focused decision making.
Hard metrics such as the number of co-creation projects or idea campaigns, the number of employees involved in open innovation initiatives, and the intensity and duration of the co-creation project can all be collected on a regular basis.
At the same time, understanding the level of customer satisfaction, trust, and intention to collaborate repeatedly must be monitored for collaboration between ecosystem partners to be sustainable over the long term. Despite the continuous emergence of new metrics to capture customer focus and co-creation, effective monitoring remains a difficult task.
Customer loyalty, advocacy, reduced price sensitivity in particular pose this problem. Keeping track of how metrics change as a firm undergoes transition, for example, from a product focus in an alliance to value co-creation in an ecosystem. Decisions to downsize or outsource, for instance, can lead to increased profitability in the short run, but might erode carefully accumulated customer satisfaction over the long run.
Hard metrics like revenue and speed of gaining market share remain critical in certain areas of a customer-focused organization. Softer metrics are also important, for capturing insights from online “listening” (customer perceptions, for instance), sentiment analysis, and data mining.
How to manage open innovation ecosystems of shared value
Building an ecosystem is the first part of the process. The key question then becomes how to ensure that it works as effectively as possible to deliver the results you’re expecting and create value for the whole ecosystem.
Download our white paper "Building and Managing an Open Innovation Ecosystem of Shared Value" to discover how to build and manage an open innovation ecosystem.
And because there’s no better way than to learn from experience, we’ve included five compelling case studies from companies like Fujitsu and Burberry, who are successfully implementing ecosystems today.
You’ll also find a self-assessment questionnaire in the paper to help you assess how an open innovation ecosystem could benefit your organization.