It is not easy to promote innovation within the walls of your own company, so how do you create a successful innovation ecosystem across several organisations? In the context of her Master thesis in Business Administration at the University of Amsterdam, Danielle Brons explored the success factors for high-tech innovation ecosystems. She presented her findings during a Page Executive and Michael Page round table event in Hoofddorp, to an audience of representatives from national and international organizations from a range of industries.
In 2016, Danielle Brons completed her Master in Business Administration with a study into the effect of innovation in business networks. She analysed the ecosystem surrounding ASML, a Dutch company and the world’s largest supplier of equipment for the semiconductor industry, and interviewed 26 suppliers in the Brainport region. “Everyone in the ecosystem is competing and cooperating with each other,” says Brons. “Each individual partner has a responsibility to the entire ecosystem. This requires an enormous amount of adaptability from each company.”
ASML’s ecosystem consists of over 100 partner companies. 90% of the parts for each microchip machine they produce, is supplied by these external partners. “It is an extremely complex ecosystem,” says Brons, “and that is what makes it so fascinating. ASML is entirely dependent on the network and the ASML network. At the same time, they innovate at lightning speed. The production of a microchip machine takes about eighteen months, and as a result the specifications the partners are dealing with are constantly changing. As you can imagine, this is not an easy road to success.”
The business ecosystem
What exactly do we mean by ecosystem? Brons uses the following definition coined by Peltoniemi in 2006: “A business ecosystem consists of a large number of companies and other organisations. They are interlinked in such a way that they influence each other. These connections enable various interactions between the members. These interactions can be both competitive and cooperative. Together with the interconnectedness, they create a shared result for the companies. The members depend on each other and the failure of companies can result in the failure of other companies.”
Incidentally, these ecosystems do not solely consist of business organisations and their suppliers, but also of government institutions, regulators, universities and individuals. Brons interviewed respondents from all of these layers in the ASML ecosystem. This resulted (among other things) in a number of success factors, which she presented during the Page Executive Round Table event:
1. There is a ‘lead firm’
Nobody owns the ecosystem, but there must be an initiator. The ecosystem emerges around a platform to which the partners can add value. In ASML’s case, this is the microchip machine for which the partners can supply parts and technology. The lead firm must provide a clear, shared vision, strategy and goals, so that the ecosystem can develop to the next phase.
Another key success factor for the ecosystem is flexibility: the supply chain must be able to weather a crisis. ASML operates in a very cyclical market, which presents quite a few challenges. There is also a high level of investment in research & development, not just by ASML, but also by the partners. A lot of flexibility is required to keep this system alive, even during a down-turn. All of the stakeholders experienced this in the year 2000: the demand for ASML’s products stagnated, which in turn resulted in a lower demand from ASML to its suppliers. Many suppliers got into trouble, and the chain was at risk of losing a lot of knowledge and innovation. During this crisis, ASML sat down with its partners in order to deal with the situation and prevent similar scenarios in the future. The QLTC model was adopted to assess and develop suppliers in the areas of Quality, Logistics, Technology and total Cost, and to create transparency in the performance requirements and lower the risks. “This requires a solid supply of information to all partners,” says Brons. “One problem is that the partners are both competitors and collaborators. This hampers the development of mutual trust, while trust is necessary. Still, in practice this concept works because there is mutual dependency, which creates urgency. The continuity and further development of the entire ecosystem is in everyone’s interest, and in everyone’s hands.”
Efficiency is key to a timely time to market within the ecosystem, particularly in the semicon industry. How can we achieve this? Brons: “In order to achieve smooth operations, it’s important that all partners speak ‘the same language’; that they use the same databases, have access to the same sources of information and use the same certifications. A shared company culture is also important, which is why companies invest in programmes to export their culture to their partners. Moreover, it is important to limit information asymmetry. Both internal processes and product life time management must be aligned.”
In order to keep the flow of information up to date, communications must be set up in the right way. “Information is needed at different levels,” says Brons. “At the operational level, by sharing information about processes and materials used. At the tactical level, by sharing targets and agreeing on various aspects of the collaboration. And at the strategic level, by aligning ambitions for growth. If ASML wants to grow, their partner will have to increase their deliveries, and therefore also grow. ASML helps its suppliers with this.”
5. Resource allocation
If you invest in resources, you should be able to use these resources for other markets as well. After all, this will make your organisation, and your entire ecosystem, much more robust. Moreover, you can distribute partner resources across the chain to limit risk and achieve a faster time to market. However, before you enter into a long-term partnership it is important to understand the ambitions of everyone involved as well as the partner’s competencies and resources, and to agree on courses of action in case the cooperation does not work out as intended.
In order to achieve a shorter development period, higher production quality and faster time to market, it is worth involving suppliers and partners in the process at the earliest possible stage. After all, suppliers have a lot of knowledge about the parts they supply, and this knowledge can benefit the entire chain. For example, when is a part outdated? How quickly can production be scaled up? What are the exact specifications? All of these factors affect the total production time. Brons: “Suppliers are increasingly taking responsibility to promote collaboration in this area. For example, they might organise information days for their clients, or they may set up collaborations with other suppliers on their own initiative in order to provide a single automation solution for mutual clients.
Aside from that, ASML is increasingly delegating development activities to the chain. Instead of building things based on outside specifications, they are now more often responsible for the development and production of new generations of technologies or sub-modules. One consequence is that you need solid agreements about intellectual property: who owns the technology in a scenario where everyone has contributed to its development?
7. Ecosystem connector
The business ecosystem must be held together. That is why it is important that new connections are continually forged between the parts. This is not the job of any specific organisation, but a role to be taken on by anyone; companies, governments and individuals. “It is important to view the ecosystem as a holistic entity, and not just look at our own short-term interests,” says Brons. “Traditional leadership approaches do not work in this context. If you want to create relationships where people share knowledge and ideas, you have to facilitate this. This means you must give them the space, freedom and responsibility to develop their own initiatives for knowledge-sharing. This is not a new idea, but many companies still find it difficult to implement.”
Is trust a success factor in this ecosystem, or rather a requirement for the previous factors? According to Brons, it is a conscious choice for everyone involved: “It should certainly not be a one-way street. Partners must see that it is a prerequisite for a sustainable competitive advantage for the entire system. Mutual trust is vital to the ecosystem, and at the same time it is the most difficult thing to achieve in a competitive market.”
Not everyone can easily offer their partners openness, trust, or sufficient flexibility, and moreover the design of the ecosystem depends on the industry and the level of competition. However, everyone unanimously agrees that it takes courage, leadership and a sense of adventure to create a successful innovative business ecosystem. Brons concludes her presentation with an appropriate Darwin quote: “It is not the strongest of the species that survive, nor the most intelligent, but the one most responsive to change.”
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