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

54 Pages Posted: 4 Mar 2009

See all articles by Ron Adner

Ron Adner

Dartmouth College - Strategy & Management Area; Dartmouth College - Tuck School of Business

Rahul Kapoor

University of Pennsylvania - Management Department

Date Written: March 4, 2009

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 argue that the effect of external innovation challenges depends not only on their magnitude, but also on their location in the ecosystem relative to the focal firm - whereas greater innovation challenges in components enhances the benefits that accrue to technology leaders, greater innovation challenges in complements erodes these benefits. We further argue 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 industry from its emergence in 1962 to 2005 across nine distinct technology generations. We find strong support for our arguments.

Suggested Citation

Adner, Ron and Kapoor, Rahul, Value Creation in Innovation Ecosystems: How the Structure of Technological Interdependence Affects Firm Performance in New Technology Generations (March 4, 2009). Available at SSRN: https://ssrn.com/abstract=1353582 or http://dx.doi.org/10.2139/ssrn.1353582

Ron Adner (Contact Author)

Dartmouth College - Strategy & Management Area ( email )

Hanover, NH
United States

Dartmouth College - Tuck School of Business ( email )

Hanover, NH 03755
United States

Rahul Kapoor

University of Pennsylvania - Management Department ( email )

The Wharton School
Philadelphia, PA 19104-6370
United States

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