Value Creation in Innovation Ecosystems: How the Structure of Technological Interdependence Affects Firm Performance in New Technology Generations

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\u27s 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\u27s 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

Innovation Ecosystems and the Pace of Substitution: Re-Examining Technology S-Curves

Why do some new technologies emerge and quickly supplant incumbent technologies while others take years or decades to take off? We explore this question by presenting a framework that considers both the focal competing technologies as well as the ecosystems in which they are embedded. Within our framework, each episode of technology transition is characterized by the ecosystem emergence challenge that confronts the new technology and the ecosystem extension opportunity that is available to the old technology. We identify four qualitatively distinct regimes with clear predictions for the pace of substitution. Evidence from 10 episodes of technology transitions in the semiconductor lithography equipment industry from 1972 to 2009 offers strong support for our framework. We discuss the implication of our approach for firm strategy

The Emergence of Emerging Technologies

What is discontinuous about the moment of radical technological change? We suggest that the discontinuity typically does not lie in a radical advancement in technology itself; rather, the discontinuity stems from a shift of an existing technical lineage to a new domain of application. Seeming revolutions such as wireless communication and the internet did not stem from an isolated technical breakthrough. Rather, the spectacular commercial impact was achieved when an existing technology was re-applied in a new application domain. We use the biological notion of speciation events, which form the basis for the theory of punctuated equilibrium, to reconcile the process of incremental change within a given line of technical development with the radical change associated with the shift of an existing technology to a new application domain. We then use this lens to explore how managers can cope with, and potentially exploit, such change processes

A Demand-based View of Technology Competition: Demand Structure and Technology Displacement

This paper investigates how the structure of market demand affects the nature and extent of competition over consumer subgroups in the market. It develops an analytic model to examine how the satisfaction of consumers¹ requirements and the relationships between consumers¹ preferences interact to affect competitive interactions. The model, tested using simulation, reveals demand-side influences on the emergence of three distinct competitive regimes: isolation, in which technologies do not interact throughout the course of their evolution; convergence, in which technologies evolve to compete head-on for the same consumer groups; and displacement, in which one technology cedes dominance of its home market to its rival. The model highlights the critical role played by price in influencing technology displacements and sheds some new light, supported by empirical data from the disk drive industry, on the important phenomenon of disruptive technologies

Implications of market heterogeneity for technology strategy

While the primary concern of the strategy and technology management fields has been with the supply side activities of firms and technologies, there is growing recognition that external demand environment can exercise significant influence over these activities. This dissertation contributes to our understanding of the role of demand in innovation by explicitly focusing on the diversity of consumer needs and preferences present in the market place, and considering the implications of such heterogeneity for technology development and firm strategy. Each essay of the dissertation examines the effects of market heterogeneity on a distinct aspect of technology strategy—technology evolution, technology competition, and development strategy. The dissertation presents a model of that explicitly considers the influence of heterogeneity in market demand on firms\u27 innovation choices. The model is analyzed using computer simulation. The model is used to examine the dynamics of product and process innovation (Utterback and Abernathy, 1975) as well as the dynamics of technology substitution and displacement. The analysis reveals market heterogeneity to be a sufficient driver of these phenomenon, independently of the supply-side factors to which these outcomes are often attributed. Drawing on the conceptual drivers of the model, the dissertation also presents a discussion of the implications of market heterogeneity for the management of innovation within the firm

What Firms Make vs. What They Know: How Firms ’ Production and Knowledge Boundaries Affect Competitive Advantage in the Face of Technological Change

Product innovations are often enabled by changes in components. We examine how firms ' ability to manage such changes depends on their governance strategies, their knowledge of components, and the nature of technological change. Using data on all firms in the DRAM industry across 12 technology transitions from 1974 to 2005, we find that vertically integrating into component production improves firms ’ ability to manage technology transitions. Although non-integrated firms have lower performance, this effect is muted by the firms ’ component knowledge. Moreover, the relative advantage of extending production vs. knowledge boundaries is determined by two factors. The first is the nature of technological change – integrated firms have a greater advantage over non-integrated firms when innovation is architectural than when it is incremental. The second is the degree of integration – non-integrated firms derive greater benefit from their knowledge of external components than do integrated firms. Our results clarify the conditions under which extending knowledge boundaries can be a substitute for extending production boundaries in managing technological change