Ecosystem Innovation and Culture Change in Organizations
Global markets and technological developments lead to the loss of monopolies and fiercer competition; radically new products, services and business models threaten the established ones – clearly, these are tough times for many organizations, not only in Switzerland. However, tough times also come with new opportunities. Organizations have begun to realize that to keep up with these developments and to strengthen the Swiss marketplace, they need to work together.
This article by Jennifer L. Sparr, Nora Varesco Kager and Gudela Grote can be found in our book “Ecosystem Innovation”. Free download here.
By collaborating with external partners, they can create value that no single organization could create alone. Therefore, many of the larger organizations in Switzerland have started to open up to external collaborations and to engage in ecosystems for innovation. Today, these organizations are somewhere on their way from traditional, closed innovation settings (innovating within the company with limited exchange with the external world, “not invented here” syndrome) and open innovation (working together in defined projects with customers, suppliers, and universities to innovate within the core technology domains), towards ecosystem innovation (innovating together in multiple forms with multiple externals in both core and new technology domains and new business models). This transition requires profound changes in the way organizations work within and beyond their boundaries. An organization’s preferred and enacted styles of collaboration are deeply rooted in the values and assumptions of its identity and culture. Culture change is key to the success of engaging in ecosystem innovation.
The nature of collaboration in the transition from closed to open and ecosystem innovation
In the transition from closed to open and ecosystem innovation, the nature of collaboration for innovation within and across organizations changes tremendously. In closed innovation, the collaboration mainly relies on single formal units within the company that collect outside information to explore and exploit within their given domain. The predominant mindset in this type of innovation is “we can do it all alone” and the famously coined “not invented here syndrome”, which prevents collaborations with external parties since usually, companies in that stage are very protective of their own knowledge.
Going beyond that, in open innovation, the formal innovation units open up to exchange with external parties, including competitors, suppliers, universities and startups. They recognize the necessity to both share their knowledge as well as to receive outside knowledge, and to combine their efforts to both innovate within their given domain and to explore new options in new domains. At this stage, the exchange is still mostly restricted to designated innovation units within the organization. There are the “innovation people” who handle the exchange with the outside world, while others continue to focus on the core business. Ecosystem innovation goes beyond open innovation.
An ecosystem allows companies to create value in ways that no single firm could manage on their own; the ecosystem includes the consideration of challenges that different actors need to overcome to make sure that value is created in the first place. This value is created through interactions, cooperatively and competitively, across industries and countries. To do so, the organizations start to organize and allow for both formalized exchange with externals through the designated innovation units, as well as more informal activities by multiple units and individuals, which enable a more dynamic approach to innovation, thus moving beyond traditional areas and technologies. Innovation becomes a constant buzz in the organization rather than a shielded activity in a separate part of the organization.
The organizational culture challenge
With these changes, it is more important than ever for companies to build an organizational culture that not only values and supports innovation and change, but that is open to collaboration and being part of an ecosystem that expands well beyond the company’s boundaries. Organizational culture is about “the way we do things around here”, which is an expression of the shared values and assumptions of the people in an organization. It is based on the organization members’ collective identity, that is the understanding of “who we are” and “what we do”. To support ecosystem innovation, assumptions and mindsets of employees need to open up from “not invented here” to “creating value as part of an ecosystem”.
Successful ecosystems rely on a common vision, strategy and identity that allows them to pull together. To engage in ecosystem innovation, organizations and their members are required to identify with the ecosystem. However, at the same time, organizations need to maintain their distinctive identity. Therefore, in the transition to ecosystem innovation, organizations need to learn how to keep the balance between keeping their distinctiveness as an organization while identifying as part of the innovation ecosystem. In the following, we elaborate on how developing a culture that allows for both will help organizations deal with the uncertainties involved in the collaborations within the ecosystem.
Changing the organizational culture is not an easy or quick endeavour, as the following quotes from our 2018 interviews with Kickstart partner-organizations illustrate. One of the gatekeepers explained:
“… this is a question of culture, organizational culture, which we need to address now. This means that our departments need to learn how to deal with such outside innovations, how to cooperate with a startup; this includes totally different time horizons, planning processes and communication needs compared to now where everything is much more complicated and fixed. This means culture change…”
How to develop a culture that supports ecosystem innovation (while remaining distinctive)? How can organizations develop their culture to be part of and support ecosystem innovation while keeping their distinctiveness? To answer this question, we need to have a closer look at the main influencing factors for organizational culture. These are the company’s strategy, structures and interactions, including leadership and collaboration within the organization. Within those factors, we can find answers to the question of how to build a culture for ecosystem innovation.
Vision, Mission, and Strategy
The company’s strategy is built on the company’s mission, which formally defines the organization’s reason for being. The vision, which defines the overall aspirations of a company in the mid- to long term. Companies can use their mission and vision as a powerful tool of both define their purpose large enough and relevant enough to fuel the need for the joint effort of ecosystem innovation, but specific enough to keep their distinctiveness amongst their competitors.
Consider, for example, a Swiss pharma company. An inspiring mission that clearly can benefit from ecosystem innovation (and therefore is not very distinctive) would be “to continuously improve the health and life of people in Switzerland and the world”. Combined with the vision for the company, for example, “taking the lead in developing new pharmaceuticals to cure the top three widespread diseases” (which is distinctive since it claims the lead but remains inviting for ecosystem innovation), they can both open up to the ecosystem while staying distinctive at the same time. The means to achieve the vision while serving the company’s mission, of course, need to carefully be specified in the strategy, which defines the company’s goals and metrics and identifies the ecosystem that can help to realize these goals while also defining measures on how to ensure the position of the organization. Organizations are well-advised to ask themselves the following questions:
- Do we have a mission and vision that are clear and inspiring and at the same time large enough to invite ecosystem innovation while allowing us to be distinctive from our competitors?
- Does our strategy process include both goals to engage in the relevant ecosystems and goals that serve the distinctiveness of our company?
Structures and processes
In the past decades, the strategic focus of many organizations has been strongly on quality and efficiency. They have built their structures and processes based on lean principles, which over time have shaped their collective mindset and actions. Ecosystem innovation requires organizations to open up their neat structures and processes, allowing for more flexibility and spontaneity. Therefore, many organizations currently try to reorganize themselves to become more agile and dynamic. However, to be both innovative and profitable, organizations need to develop structures that help them to be both – efficient and agile at the same time. This has been called a shift from static to dynamic efficiency. For example, cross-functional teams have helped organizations to become more flexible while keeping the given structures for the core business. Other, more radical structural changes, for example as in holacracy, promise more agility while often relying on quite rigid rules.
Structures and processes affect the organization’s culture because they shape the individuals’ identity within the organization (e.g., being part of a specific division, team or process) and, importantly, they provide the vessel for collaboration within the organization and across the organization’s borders. For ecosystem innovation, structures and processes need to allow for and facilitate the collaborations with the ecosystem while at the same time provide the boundaries that protect the organization’s distinctiveness. In the delicate task of adapting their structures and processes to facilitate ecosystem innovation, organizations can use this as the guiding question, together with refining questions such as:
- Do our structures and processes allow for and facilitate the collaborations with the ecosystem while at the same time provide the boundaries that protect the organization’s distinctiveness?
- Do our structures and processes allow our people to collectively embrace the constant mess, chaos and buzz of innovating while keeping up orderly processes?
- Do our structures and processes tolerate the uncertainty of experimenting and ideation while offering clear guidelines of how to do so?
The third factor that significantly influences the organizational culture is the interactions within the organization. Two aspects are especially relevant, namely leadership and networks. As in every major change in organizations, the support from the (top) management is crucial.
Only if an organization’s management believes in and supports ecosystem innovation, and as a consequence, is a role model for engaging in ecosystem innovation and showing how to integrate the cooperation with external parties with the organizations’ distinct interests, will employees adopt this mindset and behaviour, too. Further, management support makes it safe to engage in innovation activities. Our Kickstart interview partners from 2018 support this insight. For example, one of them remarked on partnerships with startups: “We really need that push from the top.” Clearly, top managers have an important role in communicating the importance of joint value creation and making courageous decisions that allow for synergies while preserving the organization’s interests. They need to role model how to reach out to others and become part of the ecosystem that drives change while staying true to the values of the company. They are required to lead and support innovation while allowing others the space and discretion to innovate within and across the organization’s border.
Opening up for ecosystem innovation means for organizations both formal and more informal connections and exchange with external parties. To orchestrate these efforts, informal networks within the organization become more important. For example, one of our interview partners explained why he was chosen as a gatekeeper for the Kickstart program:
“…because I have been with [the company] for a long time now and know many processes, many internal stakeholders so that I probably can quickly get an overview and open doors.”
Another one highlighted the importance of networks within the company:
“… it is a challenge to know the right people, it is also important to meet quickly with people who have a big network themselves, so that you can say – hey, I need something for this or that topic, do you know where this has been worked on, did you ever do anything related.”
There are many ways in which network building can be facilitated in organizations. Within the organization, for example, interdisciplinary teams, co-working spaces and mentoring programs (including reverse mentoring) help to create and sustain networks. To connect with the ecosystem and to facilitate network building within the ecosystem, programs like Kickstart, multi-stakeholder groups like digitalswitzerland and platforms like One Young World – and these are only a few examples – offer great opportunities.
Organizations that prepare to engage in ecosystem innovation while keeping their distinctiveness will need to answer the following questions:
- Is our (top) management a driver for ecosystem innovation while strengthening the company’s distinctiveness in terms of, for example, their communication, decisions and role modelling?
- Do we support formal and informal networks both within and beyond our organization’s boundaries that help to orchestrate the manifold collaborations within our company and the ecosystem while strengthening the distinctiveness of our company?
To build an organizational culture that supports ecosystem innovation means to develop a complex organizational identity that values being part of the ecosystem while being distinctive from other organizations. Organization members need to learn how to live in both worlds, how to contribute to the success of their company while joining forces within the ecosystem to allow for purpose-driven innovation. They will need to learn how to find comfort in being curious while relying on the certain, being willing to experiment while keeping the order, and being ready to share while protecting their assets.
About the authors
Jennifer L. Sparr is a senior researcher at the Work and
Organizational Psychology Chair in the Department of
Management, Technology, and Economics (D-MTEC) at ETH
Zürich, Switzerland. She received her PhD in Work and
Organizational Psychology from the University of Konstanz, Germany. She combines her experience in management consulting with her passion for research on leadership, team collaboration and organizational culture in complex, dynamic and innovative work environments. In collaboration with
Kickstart, she investigates success factors in the collaboration between startups and large organizations with regard to turning tensions and uncertainty into positive outcomes.
Gudela Grote is Professor of Work and Organizational Psychology at the Department of Management, Technology,
and Economics (D-MTEC) at ETH Zürich, Switzerland. She received her PhD in Industrial/Organizational Psychology from the Georgia Institute of Technology, Atlanta, USA. A special interest in her research is the increased flexibility and virtuality of work and the consequences for the individual and organizational management of uncertainty. Prof. Grote has been president of the European Association of Work and Organizational Psychology and Head of D-MTEC.
Nora Varesco Kager is a PhD student at the Work and Organizational Psychology Chair in the Department of Management, Technology, and Economics (D-MTEC) at ETH Zürich, Switzerland. After completing her MSc in psychology, she gained work experience in the private sector in Switzerland. In particular, she helped to develop an application to sensitize leaders and employees on the negative consequences of presenteeism in organizations. With her research interests in psychological ownership, learning and uncertainty in innovative, entrepreneurial work environments, she investigates how individuals and teams engage
in and affect their entrepreneurial venture.