Innovation Ecosystems: Revisiting Their Success Factors

Introduction

Innovation is a key component of organizational competitiveness and growth, as well as the foundation on which the wealth of nations is built. As a result, innovation and its enablers have become specialist research topics for several disciplines, including applied and experimental social scientists who seek to develop practical theories to understand the intricacies surrounding its value to society and how that value can be maximized. One of such scientific research topics is innovation economics, which emphasizes the role of innovation, technology management, knowledge creation, entrepreneurship, and the dynamic linkages between all these elements, as drivers for sustainable economic growth. These key dynamics therein, when combined alongside other economic elements such as job creation, market demand, supply chain efficiencies, and production economics emphasize the productivity indices of that economic system and begin to coalesce into the concept of an ecosystem with specific inputs and outputs.

Clear evidence in the validity of the previous statements is demonstrated by the 2023 Global Innovation Index (GII) ranking which placed Switzerland, Sweden, the United States, the United Kingdom, and Singapore at the top of the 2023 global innovation rankings. These positions were achieved due to their advanced innovation ecosystems and resulting abilities to maximize the practicalities surrounding their economics of innovation. The rankings also showed that a group of middle-income economies over the last decade namely Iran, Indonesia, Philippines, Vietnam, India, and Türkiye, emerged as the fastest climbers of the 2023 ranking. Once again citing their innovation ecosystem activities as the reason for this accelerated growth, the GII emphasized that their access to trusted data and information helped their policy makers craft pro-innovation policies to unleash the innovation potential of their citizens. This focus on innovation ecosystems therefore continues to attract the interest of academics, businesses and policy makers who constantly seek to create, embed, and exploit innovation capabilities for economic profit and impact.

Discussion

Innovation ecosystems are complex networks of organizations, individuals and resources that aim to collectively capture, create, and commercialize value through the links, interactions and collaborative activities that exist between them. This complex network is made up of a wide range of actors required for the successful operation of the ecosystem and includes start-ups and entrepreneurs, universities, research institutions, investors, government representatives, local community influencers and big businesses (see Figure 1). The complexities involved in this network are vast, due to the linkages between them, which are underpinned by enablers such as the digital infrastructure connecting them, their community, as well as matchmaking activities to ensure collaboration and co-creation ventures. These enablers ensure not just connectivity in purpose only, but a determination to impact the society in which the ecosystem is located and beyond.

The structure and types of these ecosystems may take different shapes such as corporate ecosystems, regional and national ecosystems and/or high-tech focused ecosystems. The underlying rationale behind these ecosystems is the belief that no one individual or company possesses all the necessary resources to innovate successfully. The belief extends further to emphasize that real value cannot be created by stand-alone individuals or firms working in isolation, but by different entities strategically combining and exploiting their varied resources, capabilities, and motives. To ensure a cohesion of purpose, communities of practice are created and nurtured within these ecosystems, where collaboration is encouraged, and critical resources are made available to those that require them. These collaborative efforts, when planned strategically, often result in knowledge creation which can then be translated into innovative products and services for onward commercialization. It must however be understood that these purposive activities are a result of careful planning, considering that the innovation ecosystems themselves, are carefully designed systems which often have a singular purpose, mission and ideology underpinning their existence. These purposes or missions may revolve around the development of business, technology, or social and commercial networks to offer their actors access to scientific and technical resources, finance, new knowledge and/or commercialization opportunities. Take well-known ecosystems such as Silicon Valley in the US, the Knowledge Quarter in London and the High Tech Campus in the Netherlands who have all built successful ecosystems consisting of universities, start-ups, multinationals, venture capitalists (VC), and research organizations. It is believed that start-ups and other enterprises located in, or closely affiliated to these ecosystems have a greater chance of success than anywhere else in the world, due to the closely knit, well planned and structured approaches of these systems to support innovation and its onward commercialization. An examination of these global success stories has identified tangible and intangible building blocks, characteristics and activities which have contributed to their successes over the years. The following paragraphs will highlight some of them.

Government policies and regulatory frameworks. Overarchingly, these are seen as the first step towards encouraging the development of ecosystems for innovation. As a result, governments and their respective departments often find themselves playing central coordinating roles in initiating the development and evolution of these ecosystems, as well as and providing both tangible and intangible resources to shore up the initial developmental stages of the systems. In the long run, governments are therefore very quick to claim the resulting benefits and outcomes from these ecosystems such as improved services to society, enhanced standards of living and economic growth. Many governments have therefore identified a focus on nurturing innovation ecosystems as part of their national industrialization strategies and economic development plans which if correctly deployed would make businesses and their respective economies more resilient by enhancing the competitiveness of their individual nations. The United Kingdom industrial strategy for instance, makes it clear that their focus is on growing and expanding their local innovation ecosystems to strengthen business growth and encourage strong local economies. As part of their strategies to achieve this, their intention is to attract skilled migrants to fill labour market and skill shortages, raise the total R&D investment to 2.4% of GDP and invest over ￡700m in innovation funding programmes by 2027. Another example is from Singapore, whose policy makers have consistently developed policies over the last 30 years to build their supply-side innovation capacity by creating mutually beneficial relationships between large enterprises, entrepreneurs, and venture capitalists. Furthermore, the Singaporean government supports high risk ventures by being early adopters of relatively unproven new technologies , thereby increasing the likelihood of start-up success. A final example of government support for innovation is from South Korea, where the 1960’s witnessed the government’s implementation of economic plans centered around supporting R&D. Today, the government invests over 4% of its GDP in R&D, enabling them play active roles in promoting technology innovation through various initiatives. These early policies which focused on R&D have built home-grown industries and have made South Korea a dominant innovation hub on a global scale.

While similar objectives and strategies are identified in policy documents from other economies, both leading and developing, the delivery of these respective policy objectives and strategies makes the difference between succeeding at developing their respective innovation ecosystem, successfully translating scientific discovery into commercially viable products and services, and not being able to properly harness the opportunities available to create a future driven by innovation and enterprise.

Resources. This includes both financial and infrastructural assets, which make up another critical element of innovation ecosystems. Financial resources for instance have always included public support initiatives, venture capital, institutional loans, and firm investments. These public support initiatives such as government grants for example, have accelerated the growth of innovation ecosystems in EU member states. Schemes such as Horizon Europe, Digital Europe Programme, EU Innovation Fund and The European Structural and Investment Funds, have over the years allocated billions of Euros into supporting EU member states, regions, and companies in their quest to improve innovation, entrepreneurship, technology adoption and their associated benefits. It comes as no surprise therefore, that out of the GII’s top 20 ranked countries for innovation, 12 are European countries who have benefited directly or indirectly, from these EU funds. Other financial resources such as private sector VC funds are also critical to the growth and success of innovation ecosystems. In the UK for example, VC funds are encouraged through schemes such as the Enterprise Investment Scheme (EIS) and the Seed Entrepreneur Investment Scheme (SEIS) introduced in 1994 and 2011 respectively. These policies offer tax benefits to investors in return for their investment in early-stage start-ups. The EIS scheme, since its inception has supported over 36,000 companies who have received investments with approximately ￡28 billion in funds raised. More recently, 2021/22 EIS figures show total investments through the scheme reaching ￡2.3 billion. The SEIS on the other hand raised ￡205 million spread across 2,270 companies in 2021/22. Historical figures show that 17,335 companies have raised ￡1.7 billion since its inception.

Other countries which encourage similar initiatives of a mix of funding from both private and public coffers include Singapore’s Residence by Investment Programme and Offshore Fund schemes and the Malaysia Debt Ventures Berhad. These examples show that it is imperative, that policy makers craft overarching policies and strategies to attract these levels of investments into their regions to fund their innovation drives.

The provision of critical infrastructure is also an important enabler in the development of ecosystems seeking to encourage innovation. Infrastructure supports networking among the actors to facilitate flows of information, knowledge and other critical resources among the actors involved in the ecosystem. These flows enhance the key relationships necessary for the ecosystem including trust, shared values, and reciprocity. Indeed, the Sustainable Development Goal (SDG) 9 which was adopted by the United Nations General Assembly in 2015, focused on building resilient and inclusive infrastructures to promote sustainable industrialization as well as foster innovation for the purpose of promoting peace and prosperity for the planet and its people, now and into the future.

Infrastructure in the case of innovation ecosystems may refer to:

(1) Standards, which constitute institutional and national capabilities to measure, regulate, standardize, and protect [newly developed] technologies and products. In this case, are there adequate rules and regulations governing the measurement, standardization and regulation of product quality, the formation and performance of contractual agreements for intellectual property rights and conflicts resolution measures for grievances between parties? These are important factors which provide the necessary incentives for the production and exploitation of knowledge.

(2) The knowledge and science base such as the educational system, public investments in basic sciences and any related facilities, the pool of highly skilled and knowledgeable workers as well as any applicable policies to facilitate private sector participation and investment in R&D. This aspect of infrastructure reveals the need for a robust science base including universities with strong science, technology, engineering and mathematics (STEM) academic and research groups, public and private research institutes and science parks that can engage in effective knowledge creation and transfer activities. Other examples, such as the facilitation of private sector participation in R&D include for instance how the UK government through their innovation agency often provides grant funds shared in a 70/30 ratio, where the government provides 70% of the funds and the start-up or SME contributes 30% as a sign of their commitment towards investing in R&D activities.

(3) Any physical infrastructure relating to digital capabilities and services, R&D facilities, production, storage, and distribution capabilities to facilitate the commercialization of the newly created innovative product or service. This refers to the underlying structures necessary such as advanced telecommunication coverage, widespread broadband and digital coverage, flexible production, storage and distribution infrastructure, and channels for physical goods and services. An example of where a country has leveraged its digital infrastructure to boost their innovation ecosystem is Estonia , which ranks 6th out of 33 participating Organization for Economic Co-operation and Development (OECD) member countries in the OECD Digital Government Index of 2023. This index surveys OECD members’ efforts to digitize their public sector, which in turn promotes economic transparency and accountability making it easily accessible to citizens as well as stakeholders who are interested in investing in the economy by starting and/or supporting innovative enterprises and businesses. Not surprisingly therefore, Estonia with a population of 1.4million, ranked 16th in the 2023 GII rankings and boasts of unicorns including Skype, Wise (formerly TransferWise), Bolt and Playtech.

Knowledge and skills. These are also major building blocks which contribute to the success of innovation ecosystems. As mentioned briefly in the previous resources paragraph, knowledge creation, training, and the development of proper educational systems to provide access to new knowledge and skills transfer opportunities between participants is key. However, while many countries are investing significant amounts and developing in-country strategies to promote the development and acquisition of skills in STEM subjects, they are simultaneously developing initiatives to attract skilled migrants, who will bring ready-made talent into the different countries for the purpose of innovation. Once again, this takes us back to the government policies discussed in the earlier paragraphs where such initiatives include skilled migrant or entrepreneurial focused visas. The United Arab Emirates for example offers a Golden Visa opportunity for foreign talents to live and work in-country long-term, valid for up to 5 or 10 years without a sponsor. With target applicants including investors, doctorate degree holders, entrepreneurs and outstanding specialized talents in sciences and engineering, the aim is for these applicants to promote diversity and innovation using their specialist knowledge. Another example from Germany, as reported by Reuters , quoted their Labour Minister who said, “securing our skilled labour base is one of Germany’s biggest economic tasks for the coming decades”. This statement was made having highlighted that the number of skilled job vacancies in 2022 was a record high of almost 2 million. Other countries such as the UK, US, Singapore, Australia, and Denmark also have skilled visa initiatives which focus on attracting engineering, ICT, hard-sciences specialists into their countries to enhance their innovation ecosystems and knowledge bases.

R&D activities. These constitute another critical factor when considering the success of innovation ecosystems. They form the basis for knowledge creation which ofttimes underpin intellectual property and new knowledge generation which can be commercialized through their transformation into innovative products and services. In this area, the importance of academic institutions, public and private sector research institutes cannot be underestimated as these entities often lead these R&D activities, which are either hindered or accelerated by their access to specialist human and physical resources. It has therefore been argued that the R&D intensity[1] of innovation ecosystems can be used as indicators of their capacity to absorb external knowledge or the degree of investment in generating new knowledge. This concept has been adopted at both firm and national economic levels. As a source of performance and competitiveness measurements, it provides empirical evidence of the ROI for innovation spending. For instance, Saudi Arabia’s recent $200m strategy to increase the likelihood of R&D activities turning into economically profitable innovations builds on the academic R&D achievements of King Abdullah University of Science and Technology (KAUST), which according to the Times Higher Education rankings of the top Arab universities for 2023, puts KAUST at the top spot. Incidentally, recent reports have also placed Saudi Arabia at the top of the Middle East tech scene with a 52%, $1.38bn share of all VC funding raised in 2023, pointing to their aggressive development and promotion of their technology ecosystems. In terms of their global outlook, the GII ranks them as one of the standout economies of the last 4 years between 2019 – 2023, for ascending the most on the rankings.

While the discussions above have highlighted the building blocks which when combined, determine the strength, successes and impact potentials of innovation ecosystems, other non-tangible or easily recognizable factors also play key roles. These include the culture of the ecosystem, collaboration platforms, active connections, communication channels and relationships which exist between the systems actors. Some of these non-tangible enablers are discussed below.

Culture. Besides assembling the actors who will participate in the activities of the ecosystem, the need to promote specific cultures which constitute attitudes and behaviours that will become characteristic of the system is necessary. Of course, there is an abundance of empirical research as well as practical industry evidence, indicating that strong links exists between organizations, their adopted culture, and their propensity for innovation. Research findings suggest that innovation culture is characterized by, but not limited to, the following key components; openness to new ideas, fostering a mindset of collaboration, continuous learning and adaptation, employee empowerment, knowledge sharing, and embedding the spirit of curiosity while embracing an experimentation attitude. Case study findings from some of the world’s most prominent ecosystems and companies such as Silicon Valley, Google, and Novartis, have demonstrated the positive outcomes that can be achieved by incorporating one or more of these key components into the culture of innovation ecosystems

Collaboration platforms and interfaces. These make up another building block that seemingly act as the lubricant for the internal engine of the ecosystem as well as the connections that are fostered between all these actors to encourage collaborative R&D activities. Again, empirical evidence from both academic and industry practitioners have demonstrated that interactions and collaborations between academia, industry practitioners and governments foster strong ecosystems leading to innovation and economic development. In the UK for example, initiatives such as the Knowledge Transfer Partnerships (KTP) programme facilitate such relationships between all three entities. This programme is a unique scheme that helps businesses innovate and grow by linking them to academic or publicly funded research organizations for a maximum of 36 months. The KTP programme started in 1975, has completed over 9000 projects, and has another 800 projects currently running. Recently, the Qatar Research Development and Innovation Council (QRDI) launched their version of a KTP programme to deliver innovation projects led by local businesses. While various similarities exist between both the UK and Qatari programmes, the difference between them is the support systems built around the KTP initiative. Having been operational for almost 50 years, the UK has built an intricate network of physical, human, and financial resources around the KTP programme which the Qatari ecosystem is currently developing.

Another example of a national programme which helps develop connections between actors in the ecosystem is the Fraunhofer-Gesellschaft from Germany where ecosystems are built by developing R&D partnerships with multiple disparate stakeholders. With some basic funding provided by the German federal government and 70% earned through contract work with both the government and industry projects, the Fraunhofer society runs 76 institutes spread throughout Germany and employs over 30,000 people. Their primary mission revolves around performing contract research for German organizations, particularly focusing on SMEs intending to translate basic research from university research outputs into commercial products and services.

Conclusion

This article has reviewed some of the important factors to consider when assessing, developing, or trying to improve innovation ecosystems. Excerpts of the actions taken by several global ecosystems have been highlighted to provide examples of best practices that have been adopted by seemingly successful innovation communities.

Other conclusions which may be inferred include the fact that successful innovation ecosystems are the result of long periods of reflection, experimentation and development indicating that there is no one size fits all framework for adoption. While there is no magic formula or ratio for ‘how many’ of each block should be included, the onus is on the leadership and drivers of these ecosystems to adopt continuous analytical and improvement activities to advance their operations and outputs. It must be remembered that each actor involved in these ecosystems has their own peculiar organizational objectives and goals, which must be considered when planning the overall vision and direction of the combined ecosystem.

Lastly, these ecosystems are carefully planned entities that are constructed to ensure maximum impact. What has not been highlighted in this article are the major phases involved when building and managing these ecosystems. The planning, cultivation, nourishing, and evolutionary stages of ecosystems all involve different sets of strategies and actions that need to be considered to ensure the judicial use of resources for both the current and future needs of all stakeholders.

Footnote

[1] Two definitions for R&D intensity exist, one for a firm and the other for a country. For a firm, R&D intensity is the ratio of R&D spending to revenues, and for a country it is the R&D expenditure as a percentage of gross domestic product.?

Note: This article is a revised version of an essay that was previously published on LinkedIn in a different format.