Value creation in innovation ecosystems: how the structure of technological interdependence affects firm performance in new technology generations

TLDR

The success of an innovating firm often depends on the efforts of other innovators in its environment. The study investigates how external innovation challenges—both their magnitude and their location within the ecosystem—affect a focal firm's outcomes and how vertical integration’s effectiveness evolves across the technology life cycle. The authors map the ecosystem’s interdependence structure by tracing input‑output flows to distinguish upstream components bundled by the focal firm from downstream complements bundled by customers, and apply this framework to the semiconductor lithography equipment industry from 1962 to 2005 across nine technology generations. They find that upstream innovation challenges increase benefits for technology leaders, while downstream challenges erode those benefits, and empirical evidence from the semiconductor industry supports this asymmetry. © 2009 John Wiley & Sons, Ltd.

Abstract

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. Copyright © 2009 John Wiley & Sons, Ltd.