The Most Important Factor Behind the Formation of Innovation Ecosystems

There is a key factor that influences how an innovation ecosystem forms, the type of innovation ecosystem it is likely to become and the potential scope of its impact.

I refer to this factor as ‘Value Capture Scope.’

In simple terms, ‘Value Capture Scope’ is the number of primary stakeholders in an innovation ecosystem who receive the bulk of the value generated from the ecosystem outputs. An example of an ecosystem output is an innovative product. Examples of value generated from an ecosystem output are revenue and impact on end users.

‘Value Capture Scope’ can be low, medium, high or super high. There is no right or wrong when it comes to level of Value Capture Scope, however a conscious awareness of the type of innovation ecosystem being created by the extent of this scope is important.

The below diagram illustrates how a Value Capture Scope choice can result in different forms of Innovation Ecosystems.

Low Value Capture Scope — Single Organisation Driven Innovation Ecosystem

If the innovative product is developed to mostly benefit one initiating organisation, the ‘Value Capture Scope’ is deemed to be low.

In other words, the innovation ecosystem is designed from the outset to ensure that product ownership rights and the bulk of the financial, market share growth, employee impact, customer impact and other key benefits reside with the initiating organisation.

Other stakeholders are invited to participate for pre-determined rewards such as a set fee paid for a new product idea.

The rules of engagement for invited co-participants in this type of ecosystem are clear and form part of the organisation’s internal policies, procedures and governance.

Medium Value Capture Scope — Partner Organisation Driven Innovation Ecosystem

When more than one organisation initiates an innovation ecosystem to develop a solution to a common problem, the possible value capture scope grows to include the organisation partners and all their sets of respective employees, suppliers, start-up relationships and customer-bases in that ecosystem.

The higher ‘Value Capture Scope’ results in a different type of innovation ecosystem which is still organisationally driven in terms of its intended impact, but has more complex dynamics due to multiple organisations bringing value to and seeking value from the ecosystem.

High Value Capture Scope — Structured Hub Based Innovation Ecosystem

Innovation Hubs or Co-Labs set up with the intention to solve an industry or country-wide problems (versus solving a problem only for an organisation’s target market customers) aim to ensure value is captured for a broader community-driven ecosystem (as opposed to an organisationally driven one.)

An example could be a hub set up by a larger community of hospitality operators to solve for low occupancy levels in a nationwide lockdown. The hospitality operators do not necessarily become partner organisations but achieve shared value cocreation from an industry-wide solution. Each stakeholder contributes value to the solution and captures value from the solution, which value in turn positively impacts large numbers of hospitality industry employees, suppliers and customers.

Super High Value Capture Scope — Living Lab Innovation Ecosystem

The ‘Value Capture Scope’ intention can also be infinite. Communities that started out by solving an industry-wide problem could become flexible communities that solve other problems together on an ongoing basis. Each time a solution is developed to a shared problem, a different form of value is captured by the core ecosystem role-players and all their stakeholders.

Taking the hospitality operator example above a bit further, should the community of hospitality operators also start solving for reducing plastic waste across their industry and includes other co-creators such as environmentalist groups, the original hub has become a ‘living lab’ in the sense that it can evolve over time.

Each time a solution is developed to a shared problem, a different form of value is captured by the core ecosystem role-players and all their stakeholders. This can continue forever or until the hub naturally ceases to exist.

Conclusion

The upfront decision to limit or make boundless the factor of ‘Value Capture Scope’ will influence the type of Innovation Ecosystem that arises. Fearless leaders will not be scared to enable ecosystems to grow in order to co-create and share in as much value as possible, for as many of us as possible. Both commercial and societal benefits are possible from all the above types of innovation ecosystems whether organisationally or community driven in terms of value contributed and captured.

The below diagram illustrates how a Value Capture Scope choice can result in different forms of Innovation Ecosystems: