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 Integrating Research on Inter-Organizational Networks and Ecosystems

Andrew Shipilov

INSEAD

Boulevard de Constance

Fontainebleau 77300, France

shipilov@insead.edu

Annabelle Gawer

Surrey Business School, University of Surrey

Guildford, Surrey, GU2 7XH, United Kingdom

a.gawer@surrey.ac.uk

* We thank participants of a seminar at Aalto University Department of Industrial

Engineering and Management as well as attendees of SMS 2019 Conference in Minneapolis
for their feedback on the earlier version of this paper. We also wish to personally thank
Teppo Felin, Gary Dushnitsky, Markku Maula, David Obstfeld, and Francisco Brahm for
their feedback that helped improve the quality of this work. The first author also expresses
gratitude to the Strategy and Entrepreneurship Department at the London Business School for
providing a temporary intellectual home for this work.

1
 Integrating Research on Inter-Organizational Networks and Ecosystems

Abstract

Organizations are simultaneously embedded in inter-organizational networks and ecosystems,

yet research on networks and ecosystems developed in isolation. The aim of this partial

integration is to bring new energy into maturing research on organizational networks and

greater structure to the burgeoning research on ecosystems. In this article, we underlie

similarities and differences between networks and ecosystems; bring the ecosystems’ focus

on modularity and complementarity at the forefront of inter-organizational research while

enriching ecosystems scholarship with systematic applications of network analytic tools to

map the patterns of component interdependencies.

2
 1. Introduction

Organizations are open systems, whose success and failure depend on how they

manage dependencies with their external environment (Pfeffer & Salancik, 1978; Astley &

Fombrun, 1983). Networks and ecosystems are two distinct manifestations of how

organizations can manage this dependence. Ecosystems consist of “a set of actors with

varying degrees of multi-lateral, non-generic complementarities that are not fully

hierarchically controlled” (Jacobides, Cennamo, & Gawer, 2018: 2264). Networks are formal

and enduring inter-organizational relationships that are strategically significant for their

members (Gulati, Nohria, & Zaheer, 2000).

Research on organizational networks can be traced to the seminal article of

Granovetter (1985) which explored social embeddedness of economic action. Granovetter

(1985) emphasized the importance of social ties through which organizations manage their

mutual dependencies. The work of Powell (1990) and of Noria and Eccles (1992) developed

the concept of the “network form” of organization. In this form, inter-firm cooperation takes

place within alliances, joint ventures or buyer-supplier relationships that create incentives for

reciprocity, mutual learning and dissemination of information among independent parties.

These factors hamper opportunism and create value through collaboration. Networks research

has further benefitted from the incorporation of sociometric tools (e.g. Burt, 1992; Watts,

1999) to systematically measure the patterns of social structure that connects organizations.

Building on this foundation, scholars have generated a vast body of research on the origins

and consequences of inter-organizational relationships. For example, between 1992 and 2018,

there were 1257 papers, published in the top academic management and innovation journals,

which designated the term “alliance” in the topic field. 1

1
This list includes such journals as American Journal of Sociology, Management Science, Journal of
Management, Journal of Management Studies, Strategic Entrepreneurship Journal, Strategic Management
Journal, Strategic Organization, Academy of Management Journal, Academy of Management Review,

3
 While the presence or absence of formal inter-organizational relationships is a starting

point for networks research, “the starting point for ecosystem research is the focal offer (e.g.,

electric car, smartphone, software application), not the focal firm or the alliance. The primary

research focus is on recognizing the linkages between the activities and a set of actors that

contribute to the focal offer’s user value proposition” (Kapoor, 2018: 2). Borrowed from

biology, the term “ecosystem” can be traced back to Moore (1993). Early work focused on

describing the phenomenon, generally using the term “ecosystem” as a metaphor for the

interdependency of organizations. Most of the early literature aimed to provide strategic

advice to managers on how to manage interdependencies when the success of the

organization depends of the strategic alignment of external actors who do not necessarily fit

in the traditional category of suppliers, but rather as “complementors” (Brandenburger and

Nalebuff, 1996). Influential early work includes Gawer and Cusumano (2002) who coined the

concept of “platform leaders”, suggesting that some organizations actively encourage

complementors to generate platform-enhancing innovations. Another influential paper by

Adner (2006) and his subsequent book (2012) highlight that complementary innovation

matters to organization’s success as well as suggest that a firm’s innovation strategies should

“match” its innovation ecosystem. Between 1992 and 2018, there were 95 papers which used

the term “ecosystem” in the topic field, published in the same set of top management and

innovation journals. Of those, 26 were published in 2018.

Much of the research on ecosystems has been done by scholars studying platforms,

innovation, and standard setting (Gawer & Cusumano, 2002, 2008; Adner, 2006; Iansiti &

Levien, 2004; Adner & Kapoor, 2010; Baldwin, 2012; Gawer, 2014; Lee & Kapoor, 2017).

By contrast, research on inter-organizational networks has been done mostly by

Organization Science, Organization Studies, Global Strategy Journal, Journal of International Business Studies,
Administrative Science Quarterly, Research Policy, Industrial and Corporate Change, Journal of Product and
Innovation Management, Technovation and Industry and Innovation. Search was conducted on September 24,
2019 using Web of Science.

4
organizational theorists interested in the problems of social embeddedness of economic

action (e.g. Granovetter, 1985; Powell, 1990; Gulati, 1995; Shipilov & Li, 2008).

Unfortunately, as scholars deepen their understanding of a subject matter in a given research

tradition, they tend to engage less with scholars doing work in different research traditions.

This may be one of the reasons why research on organizational networks and ecosystems has

developed in isolation from each other.

We would like to bridge the gap between these literatures with several objectives in

mind. First, we wanted to clarify—for both readers and ourselves--the differences between

the concepts of “an organizational network” and “organizational ecosystem” as well as the

underlying theoretical perspectives. Since both perspectives invite the scholar (and the

manager) to look outside of the organizational boundaries for managing dependencies with

other entities, one could be tempted to assume that networks are the same as ecosystems. This

assumption is however misguided. Our review will highlight similarities between networks

and ecosystems, showcase their important differences and survey the main themes along

which ecosystems and networks research has developed to date.

Second, research on networks and ecosystems seems to be at the different stages of

their lifecycles in the academic world. The inter-organizational networks scholarship

represents a more mature perspective than research on the ecosystems. Networks research

flourished in 1990s-2000s while the ecosystem research seems to be on the rise now. We

believe that these trends occur because researchers are following what is happening in the

business world. Alliance research – which represents a subdomain of a much bigger

organizational networks research--became popular in part due to the rapid internationalization

of business in the 1990s, hence scholars became interested in international alliances and joint

ventures (e.g. Kogut, 1988). Given the Japanese companies’ perceived efficiencies over the

U.S. firms, there was also a lot of early work on keiretsu as a network form of organization

5
(e.g. Dyer & Nobeoka, 2000). Nowadays, ecosystems research becomes more prominent in

academia, because the concept of ecosystem is experiencing exponential growth in media

coverage. The number of articles mentioning the term “ecosystem” just in seven mainstream

practitioner sources 2 was close to 4000 in 2018, up from just 230 in 2000. By comparison,

the joint search for the terms “alliance” or “joint-venture” within the same sources would

have generated approximately 18200 mentions in 2000 and fluctuated between 14000-19000

mentions between 2009 and 2018. Hence, while the coverage of alliance or joint-venture

related topics continues to be very important, the importance of ecosystem coverage is

increasing at a fast rate.

As many scholars have noted (e.g. Amabile, 1996; Burt, 2004), creative insights arise

at the intersection of two (or more) areas of knowledge. This is what we are attempting to do

in this review: we would like to generate new insights by applying an organizational network

lens to develop a more systematic understanding (and typologies) of ecosystems. We also

want to use ecosystems’ focus on complementarities and modularity to form more robust

baseline models for organizational network research as well as to better understand where

organizational networks initially come from. While the full integration of the two

perspectives might not be possible or even desirable, partial integration can be beneficial

because it could bring more structure to ecosystem research and fresh insights into the

research on networks. In the spirit of Durand, Grant and Madsen (2017), we believe that such

approach can help identifying and promoting inter-disciplinary theoretical developments and

2
Free search text in Factiva using terms “ecosystem”, “eco-system” and “eco system” vs a free search of terms
“alliances”, “joint-ventures” or “joint ventures” on September 24, 2019. We did not use the term “network” in
the search because it would have been likely to pick up articles about social networks and social media, which
are outside of the focus of this study in particular and organizational networks in general. We searched the
following sources: Financial Times, The Wall Street Journal, publications from the Economist Intelligence Unit,
Forbes, The New York Times, Harvard Business Review and publications from the MIT Sloan School of
Management.

6
empirical analyses, thereby preventing excessive fragmentation of the strategy and

organization research.

We proceed as follows. First, we identify common threads that cut across both

networks and ecosystems research as well as identify the differences between these

perspectives. Second, we review the main themes of networks and ecosystems research,

separating theoretical ideas from data and empirical issues. Third, we review the studies that

have begun to integrate these two literatures, and suggest their possible extensions. Fourth,

we discuss how ecosystems research can benefit from a more systematic evaluation of the

structure of interdependencies among underlying technologies using the principles of graph

theory. Finally, we examine how networks research can also benefit from a more systematic

examination of complementarities among organizations as well as from looking across

industry boundaries.

2. Similarities and Differences between Ecosystems and Networks

Both ecosystems and networks perspectives assume that organizations operate as open

systems, defined as "coalitions of interest groups highly influenced by their

environments"(Scott, 1992: 26). Organizations jointly navigate economic and technological

landscapes. These landscapes contain interdependencies across different bundles of

resources, markets or technologies that are at least partially under control of other

organizations (Astley & Fombrun, 1983). Interdependencies can either be created or

enhanced as a result of organizations’ collective action or technological developments.

Interdependencies can also disappear, if the underlying resources, markets, technologies or

their combinations become obsolete. Organizations can improve their performance when they

interact with other organizations that have complementary resources, technologies or market

access; likewise, their performance can suffer when they do not pay sufficient attention to

7
these interdependencies. In so doing, organizations undergo collective (as opposed to

individual) adaptation to the external environment (Hawley, 1986) as well as shape their

environment in the process.

Networks and ecosystems highlight distinct ways in which their respective

organizational members discover and manage interdependencies amongst each other.

Returning to the terminology of Jacobides et al (2018: 2264) cited earlier, ecosystems consist

of groups of organizations that are related along “varying degrees of multi-lateral, non-

generic complementarities” coupled together with the absence of hierarchical controls.

“Multilateral complementarities” arise when the value of the output of one organization

depends on the value of other organizations’ output. For example, the value of iPhone

depends on the value of applications written by developers, and vice versa. The term “non-

generic” refers to the specific nature of complementarity between components of a product.

As Jacobides et al (2018: 2262) indicate: “A teacup, boiling water, and a tea bag may all be

needed to make a cup of tea, but the complementarities among those components are generic,

not specific”. This means that while consumers derive utility by combining these components

into a “product system” (such as a cup of tea), producers do not need to coordinate their

investments to enable such value. Finally, the absence of hierarchical control means that the

actors (e.g. organizations) are independent and they, in general, don’t own each other.

In networks research, scholars are interested in understanding how inter-

organizational interdependencies are managed within formal inter-organizational

relationships. Such formal relationships are often supplemented by a variety of informal

coordinating mechanisms: be that trust, reciprocity, fine-grained information transfer or joint

problem-solving arrangements (Granovetter, 1985; Uzzi, 1996; Kilduff & Shipilov, 2011),

and together they are used to exploit complementarities (Gulati, 1995). Alliances are an inter-

organizational relationship where two (or more) organizations pool their resources in order to

8
achieve some common objective through formal and informal coordination. Joint ventures are

a particular type of an inter-organizational relationship in which two organizations make

equity investments in a third entity (Gulati, 1995). The Renault-Nissan joint venture would be

an example of an inter-organizational collaboration between the two automakers that have

established a separate legal entity in the Netherlands to manage their relationship. Up until

recently, this was one of the most successful joint ventures in the automotive industry that

eventually came to include another partner—Mitsubishi. 3 This alliance was also strengthened

by informal connections between the participating organizations achieved through the

frequent employee exchange. Other forms of inter-organizational relationships include, for

example, underwriting syndicates among investment banks or co-investment syndicates

among venture capitalists; likewise construction industry is characterized by the creation of

consortia to build large and expensive projects. Organizations can also be connected through

patents that come as a result of joint R&D projects. In these cases, coordination between

companies is achieved either through formal or informal contracts that govern the joint R&D

activities 4.

Both ecosystems and networks differ from markets, in that the latter rely solely on

prices to coordinate activities between organizations. Ecosystems emerge from the

participants’ actions in managing non-generic complementarities. The management of non-

generic complementarities also occurs as a key task within inter-organizational networks,

3
https://en.wikipedia.org/wiki/Renault%E2%80%93Nissan%E2%80%93Mitsubishi_Alliance. See also
https://phys.org/news/2019-03-renault-nissan-mitsubishi-unveil-joint.html
4
Individual executives or employees can too establish links between firms, for example when one person sits of
the boards of multiple companies (Davis & Greve, 1997) or when employees change jobs which leads to the
formation of attention-focusing and information exchange relationship (Godart, Shipilov, & Claes, 2014). We
would not consider links formed through employee career moves to be formal inter-organizational relationships
for the purposes of this article because they don’t imply formal contracts between firms, nor do they presuppose
the existence of non-generic complementarities among them. By and large, career mobility decisions are made
by individual employees or board members as a function of their personal preferences. However, when the
board interlock coincides with the formal alliance between the firms, then one can be interested both in the
formal alliance and in the presence of a board interlock as some companies use interlocking directors to oversee
their joint ventures.

9
however this management happens mostly within relationships that are structured and

formalized through formal contracts coupled with informal collaboration mechanisms.

Let us provide some stylized examples to illustrate our definitions. Companies buy

white paper from office stationary suppliers based on market prices and there are no non-

generic complementarities between them. Even if there is a formal buyer-supplier contract

between the customer and the stationary supplier, the absence of non-generic

complementarities and of informal coordinating mechanisms will make this relationship still

a market (buyer-supplier) transaction. If non-generic complementarities arise, for example

when a customer needs to use one organization’s proprietary hardware so that s/he can

benefit from another organization’s software, then it becomes useful to identify the actors

engaged in these activities as belonging to the same ecosystem. To the extent organizations

form formal alliances or joint ventures to engage in collective R&D, which almost always

give rise to non-generic complementarities, our exchange of knowledge now happens within

the realm of an inter-organizational network. This collective R&D can either discover

interdependencies or build new ones. We summarize these differences in Table 1.

-----------------------------------------
Insert Table 1 about here
----------------------------------------

Since both networks and ecosystems help identify links between multiple

organizations, it is useful to compare and contrast the two concepts using a stylized relational

map as in Figure 1. This figure is inspired by the actual relationships among Apple, Allianz,

Cisco, Aon, Dropbox, Adobe and Microsoft as well as some other companies. In this figure,

organizations can be connected by inter-organizational relationships such as alliances (thick

lines) and with non-generic complementarities (dashed lines). Ties among Apple, Cisco, Aon

and Allianz (thick lines) are based on an announcement of a formal alliance to provide

10
cybersecurity solutions to enterprises that use Apple’s products. 5 Such an alliance ensures

that clients both have solid security solutions when working with Apple’s products and

should there be a security breach, insurance will compensate for their losses. Cisco provides

network hardware, Aon provides risk assessment services while Allianz insures these risks.

Neither of the app developers has formal alliances with Apple. The app developers’

cooperation is regulated by generic Apple’s Developer Program terms, 6 hence there are no

thick lines connecting them.

As the pattern of dashed lines illustrates, the four-way alliance among Apple, Cisco,

Allianz, and Aon is built on top of non-generic complementarities, as these organizations

need to co-specialize their technical and financial infrastructure to deliver a cyber-security

solution. Apple also has non-generic complementarities with Adobe, Microsoft, DropBox, or

miscellaneous app developers (and these complementarities are shown in dashed lines, too),

as app developers need to write their software to work on Apple’s platform while Apple

needs to optimize its iOS (and app developers’ kits) to help app developers. Taken together,

the full pattern of non-generic complementarities will map out iPad’s (iPhone’s) ecosystem.

As the last point, Office Depot probably sells paper to these companies. Yet, it

doesn’t have either solid or dashed lines to them, because it has no non-generic

complementarities nor formal or informal relationships over and above a generic buyer-

supplier contract for office stationary.

-----------------------------------------
Insert Figure 1 about here
----------------------------------------

3. Organizational Networks Research

3.1 Main Themes

5
https://www.apple.com/uk/newsroom/2018/02/cisco-apple-aon-allianz-introduce-a-first-in-cyber-risk-
management/
6
https://developer.apple.com/support/enrollment/

11
Now that we have defined networks and ecosystems, it is useful to compare and contrast

them along several taxonomic categories. Specifically, our discussion will revolve around

definitions, key research questions and units of analysis, typical variables, mechanisms as

well as data sources. We summarize these categories in Table 2.

-----------------------------------------
Insert Table 2 about here
----------------------------------------

Borgatti and Halgin (2011: 1168), suggest that “network theory refers to the mechanisms and

processes that interact with network structures to yield certain outcomes….” Specifically,

network theory is interested in the consequences of network variables, such as what happens

to an economic actor who is centrally located. By contrast, the “theory of networks”,

according to Borgatti and Halgin (2011: 1168), “refers to the processes that determine why

networks have the structures they do—the antecedents of network properties.” While network

theory is principally interested in the outcomes of network positions, the theory of networks

principally examines where network positions come from in the first place. Both theories,

which constitute inter-organizational network research, borrow heavily from graph theory—a

stream of research in mathematics that studies relationships between objects and represents

them in graphs (Wasserman & Faust, 1994).

Inter-organizational networks research operates on the level of a firm as a network

agent. Organizations build (or abrogate) formal relationships, and the organizations’

embeddedness in these relationships affects their opportunities and constraints (e.g. Powell,

Koput, & Smith-Doerr, 1996). A networks scholar can view a firm as a unit of analysis and

explore performance consequences of organizations’ network position (e.g. Podolny, 2001).

Alternatively, she can explore the origins of network positions by looking at “tie formation”

(or deletion) (e.g. Gulati & Gargiulo, 1999). In this case, the dyad (that is, the locus of the tie)

becomes a unit of analysis. Other questions can include exploring properties of entire

12
networks, and assessing how various networks differ in the production of output such as

patents (Schilling & Phelps, 2007).

When the unit of analysis is a firm, a networks scholar is typically interested in this firm’s

performance, such as profitability (e.g. Rowley, Behrens, & Krackhardt, 2000), costs

(Podolny, 1993) or revenues (Shipilov, 2006) as a function of a firm’s network position. The

presence or absence of a tie is a proper dependent variable when one is interested in factors

that drive network evolution (e.g. Gulati & Gargiulo, 1999). When one is interested in the

factors that affect features of a whole network, one is typically looking at summary statistics

that capture network characteristics, such as its overall clustering coefficient or average path

length (Kogut & Walker, 2001).

This literature has yielded powerful findings. On the one hand, relationships help

organizations because they expose them to partners with different resource bases as well as

enable trust, reciprocity, joint problem solving and fine-grained information transfer (Uzzi,

1997). On the other hand, relationships can constrain organizations: social norms and

obligations might force them to get stuck in relationships that have lost their value (Rowley,

Behrens, & Krackhardt, 2000; Kim, Oh, & Swaminathan, 2006).

Foundational work in the theory of networks started from the baseline assumption that

organizations form relationships to exploit complementarities in access to resources or to

markets (e.g. Gulati, 1995). Although organizational network scholars have talked about

complementarities in general, we believe that they referred to non-generic complementarities.

For example, it only makes sense for organizations to form a joint venture if they are likely to

co-specialize, at least to some extent.

Modularity in an industry is likely to be related to its alliance-building activities. That is,

alliances make sense when different companies contribute different modules to make a final

output; and the value is created both when the parties specialize in producing their individual

13
modules and when they can extract synergies in the creation of a more complex system

within their alliance. Schilling and Steensma (2001) tested these conjectures on a sample of

330 U.S. manufacturing industries. Modularity is likely to exist in industries with

heterogeneous inputs and customer demands, those experiencing high technological change

as well as in the presence of technological standards. Indeed, the authors have found that

companies in industries that exhibited these conditions were more likely to form alliances

relative to companies in industries lacking demand/supply heterogeneity, technological

change or standards.

In general, networks are shaped by the processes on three levels of embeddedness:

relational, structural and positional. Relational embeddedness is reflected by the properties of

individual ties. For example, some ties between partners might be new, whereas the others

can be repeated; some ties might involve little investment from the organization, whereas the

others might require substantial investment; some ties might be purely collaborative in nature

while the others could mix collaboration and competition (Hoffman et al, 2018). Relational

inertia has been frequently shown to drive network dynamics: once two organizations have

formed a relationship, for example driven by the exploitation of resource or market

complementarities, they are likely to repeat that relationship into the future (Li and Rowley,

2002).

Structural embeddedness arises from the presence of common third parties in the

relationships. That is, when a firm forms alliances with two partners, transitive pressures in a

network will make it more likely that the firm introduces these partners to each other,

ultimately forming a three-way collaboration (Gulati & Gargiulo 1999). Organizations that

resist these transitive pressures, or those organizations that form relationships with very

different partners that are likely to exist in different social circles, possess networks rich in

“structural holes” (Burt, 1992; Ahuja, 2000).

14
 Finally, organizations’ partner selection is also driven by positional embeddness, most

frequently conceptualized as a firm’s centrality in the industry network. The higher the

centrality, the more likely is the organization to be in the “thick” of information and resource

transfer at the industry level, exposing the organization to future insights into better

partnering opportunities. Central positions, especially when they involve the formation of

relationships to well-connected partners can signal the organization’s quality to its

prospective allies, further cementing the organization’s central position in an industry

network.

Podolny (2001) suggested that structural and positional embeddedness were responsible

for variations in firm performance through the “pipes and prisms” mechanism. A network

position rich in structural holes can enhance a firm’s performance to the extent it puts the

organization at the nexus of valuable and non-redundant pipes that transfer resources across

the industry. Such network can be especially valuable in the turbulent environment because it

exposes the organization to a breadth of resources and new collaborators, without forcing it to

limit its collaborations to past partners that might have lost their value (Rowley, Behrens, &

Krackhardt, 2000). A highly central network position can provide performance advantage

because, like a prism, it shapes the market participants’ perception of the organization’s

underlying quality (Podolny, 1994).

When it comes to looking at the network structure as a whole, Watts (1999) developed

mathematical formulations to explain a “small world” phenomenon: a paradoxical situation

where networks tend to exhibit high degree of clustering simultaneously with high degree of

global connectivity. In practice, this implies that even when a network has a large number of

actors (e.g. organizations), any two randomly selected network actors are connected to one

another through relatively short distances. This paradox is explained by several mechanisms.

First, networks tend to be highly clustered due to the transitivity pressures associated with

15
structural embeddedness discussed earlier. Second, ties across network actors are distributed

according to the power law: most actors have very few ties while a select few have a

disproportionally large number of ties. These well-connected organizations, also known as

the hubs, act as relays for information and resource flows across different network clusters.

Small world properties have been observed in a range of organizational networks, including

investment banking (Baum, Shipilov, & Rowley, 2003), strategic technology alliances

(Verspagen & Duysters, 2004) or patent citations (Fleming, King, & Juda, 2007).

3.2 Data and Measurement

Although theoretical questions about the social embeddedness of economic activity are

interesting by themselves, availability of longitudinal data on alliances, joint-ventures,

banking syndicates or patents has been the second driver of the proliferation of research on

organizational networks. Most of the data on alliances and joint-ventures comes from public

announcements, which get recorded and organized by different providers, for example

MERIT‐CATI, CORE, RECAP, BIOSCAN and SDC. One major advantage of these

databases is that they cover collaboration activities over a long period of time, which enables

researchers to conduct time series analysis. Data on the U.S. investment banking syndicates

frequently comes from SDC “Record of New Issues” while data on patents comes from the

U.S. Patent Office or its European counterparts. As Schilling (2008) points out, however,

there is no single alliance database that provides a population of all alliances; all of them

should be considered as samples. Furthermore, alliance data based on public announcements

tend to be biased towards English language sources and contain coverage of large companies

or small companies that are doing a lot of alliances. Hence, if alliances are not covered in

English speaking press, the probability of their inclusion in these datasets goes down and if

companies don’t announce an alliance in the public sources, then researchers would not know

16
about them. That said, Schilling (2008) was able to replicate most of the results from

Schilling and Steensma’s (2001) and from Powell et al (1996) across different datasets.

Furthermore, scholars frequently use a single database (e.g. SDC) as an initial step for

constructing their alliance data: the subsequent steps involve searches for alliance

announcements in Factiva, press releases, and listings related to alliances from organizations’

own websites, as well as the filings of SEC (Lavie, 2007).

Research on social networks also provided a lot of validated sociometric measures to

scholars of inter-organizational relationships. For example, the number of previous

relationships between individuals is a pretty robust indicator of their strength (Granovetter,

1992); and the same can be said for the number of previous relationships between companies

(e.g. Li & Rowley, 2002). Measures of network density, efficiency and constraint represent

different facets of structural holes in the networks of individuals and organizations alike

(Burt, 1992; 2005). Betweenness centrality, originally developed as a centrality measure in a

network of inter-personal communication flows (Freeman, Roeder, & Mulholland, 1979), can

be considered as a measure of a firm’s access to industry-level structural holes or its industry-

level bargaining power (Shipilov, 2009). This measure increases with an increase in the

number of network actors who would have needed to go through the focal organization, if

they wanted to send information or resources to each other in a network across existing

relationships. Finally, eigenvector centrality is synonymous with status (Bonacich, 2007;

Podolny, 2001). A firm with high eigenvector centrality tends to have many connections to

partners that, themselves, have many connections to their partners. To the extent that partners

do the “ranking” of their prospective collaborators, they would choose to work with the

organization that has been chosen by other well-connected organizations. This is because the

latter are assumed to have done their own due diligence when working with the focal partner.

Of course, every network measure has its own assumptions, but the clarity in the differences

17
between status and betweenness centrality to operationalize positional embeddedness or

differences between network efficiency and constraint to operationalize structural

embeddedness has undoubtedly helped to advance organizational networks research.

4. Main Themes in Ecosystems Research

Younger than the literature on social and organizational networks, the literature on

ecosystems is undergoing vibrant growth, while still searching for commonly-accepted

definitions. Early research advocated for the need of situating organizations within

environments larger than their industry. It focused principally on analysing how ecosystems

operated. More recent research attempts to provide more precise definitions of ecosystems,

identify what makes them distinct from other kinds of business constellations, and focus on

the conditions under which ecosystems may emerge.

The unit of analysis in ecosystems research is often either the ecosystem as a whole, or

the focal offering that is provided by the ecosystem. Originally borrowed from biology, the

term ecosystem refers to a several interacting organizations that are interdependent with each

other. The term was introduced in social science by Amos Hawley, a sociologist who defined

ecosystems as an “arrangement of mutual dependencies in a population by which the whole

operates as a unit and thereby maintains a viable environmental relationship” (Hawley, 1986:

26). In strategic management, the term was introduced by Moore (1993) who suggested that

“a company be viewed not as a member of a single industry but as part of a business

ecosystem that crosses a variety of industries. In a business ecosystem, companies coevolve

capabilities around a new innovation: they work cooperatively and competitively to support

new products, satisfy customer needs, and eventually incorporate the next round of

innovations” (Moore, 1993: 76). Within Moore’s original characterization, one finds the

different themes that ecosystem scholars went on to emphasize in developing different

18
perspectives on ecosystems: innovation, customer needs, collaboration, competition, and co-

evolution (which is a process by which entities become enmeshed in an ongoing cycle of

interdependent changes).

Management research on ecosystems can be regrouped into three streams (Jacobides et

al., 2018: 2256-2257) the “business ecosystem” stream which focuses on a firm and its

environment; an “innovation ecosystem” stream which focuses on a particular innovation or a

new value proposition and the constellation of actors that support it; and a “platform

ecosystem” stream. The latter considers how actors organize around a technological platform.

The business ecosystem stream views the ecosystem as a “community of organizations,

institutions, and individuals that impact the enterprise and the enterprise’ customers and

suppliers” (Teece, 2007: 1325). This early view adopts an expansive perspective on

ecosystems. For Iansiti and Levien (2004a: 8), “ecosystems are characterized by a large

number of loosely interconnected participants who depend on each other for their mutual

effectiveness and survival”. For Iansiti and Levien (2004b: 70) “most companies today

inhabit ecosystems that extend beyond the boundaries of their own industries”. Members of

the ecosystem share a similar fate where performance of individual members is coupled with

the performance of the ecosystem (Iansiti & Levien, 2004a). With such an expansive view,

defining precisely the scope of the ecosystem becomes almost impossible, beyond stating that

the organization’s fate depends not just on its industry but also upon the fates of the other

industries.

The innovation ecosystem stream presents a more focused view, in that it not only

acknowledges interdependence across actors but also anchors the ecosystem unto a specific

“focal offer” or “focal value proposition” which is viewed from the customer (or end-user)

perspective. For example, Adner (2006: 98) views ecosystems as “the collaborative

arrangements through which firms combine their individual offerings into a coherent,

19
customer-facing solution”. Kapoor (2018: 2) views an ecosystem as “a set of actors that

contribute to the focal offer’s user value proposition”. In this view, the ecosystem is a set of

all the organizations that provide components and complements to the focal product or

service in this “coherent” value proposition.

Adner (2017:42) develops this idea further and views an ecosystem as “the alignment

structure of the multilateral set of partners that need to interact in order for a focal value

proposition to materialise”. What is particularly interesting in Adner (2017)’s view of an

ecosystem is that the actors within the set are not those that are already linked through

existing arrangements, but those that would need to align or to coordinate for a value

proposition to get realised. This gives rise to a specific view of a firm’s ecosystem strategy

whose aim is to bring about actors and activities required for the instantiation of a value

proposition. To Adner (2017: 43), the focus on the value proposition also requires in an

ecosystem analysis to consider the extent to which there may be “divergence of interests

(traditional notions of competition and value capture)” across members, but also “divergence

in perspectives (expectations of value creation and value distribution to third parties)”.

The focus on value proposition as a defining feature of ecosystems highlights that

ecosystems cannot be reduced to a set of inter-organizational alliances or to a network of

organizations. While the latter forms focus on existing ties between actors, in a set of dyads,

they do not use as inclusion criteria any overarching purpose for the overall set of

relationships, nor do they aim to map the technical interdependence and complementarities

that are central to ecosystems. Ecosystem members may or may not have alliances amongst

themselves, but their alignment (be it expressed as a set of alliances or not) has got to be in

place for the value proposition to be realized.

The anchoring point for the literature on platform-based ecosystems is not the value

proposition for end-users, but rather the platform itself, which is a core technology onto

20
which complementors can connect their complementary products and services, often via

standardized or open interfaces (Gawer & Cusumano, 2002; Gawer & Cusumano, 2014;

Parker, Van Alstyne, & Jiang, 2017). Put differently, while scholars doing work in the

“innovation-based ecosystems” tradition would be interested in the success or failure of

products or services, such as smartphones or tires, scholars studying platform-based

ecosystems would be interested in the fate of the underlying technological platforms, such as

Wintel architecture, the iOS operating system or the technology around auto-making. When

complementors connect to the technological platform, they can utilize shared technological

assets and generate complementary innovations as well as gain access to the platform

customers (Ceccagnoli et al, 2012). The more complementors connect to the platform, the

more value the platform generates for end-users as well as for ecosystem members (Gawer &

Cusumano, 2002; 2008).

Whether ecosystems revolve around innovative offerings or technological platforms,

oftentimes there is a set of organizations that play outsized roles in the ecosystems’ growth

and stability. Such lead organizations have been labelled platform leaders (Gawer &

Cusumano, 2002) or hubs (Dhanaraj & Pharke, 2006). They ensure stability of the ecosystem

and the coherence of the ecosystem offering. Such organizations set system-level goals,

define the members’ role, and establish both standards and often interfaces through which

these members can coalesce (Gulati, Puranam & Tushman, 2012; Teece, 2014; Parker, Van

Alstyne & Jiang, 2014). In platform ecosystems for example, platform leaders ensure the

stability and the attractiveness of the ecosystem for its members by setting up a technological

direction for the evolution of the platform and stimulating innovation among complements.

They do so via a variety of managerial activities that include rallying ecosystem members

around technological standards (Gawer & Cusumano, 2002) and institutional initiatives

aimed at legitimising the platform leader as a benevolent actor that cares about the collective

21
destiny of ecosystem members (Gawer & Philips, 2013). In some cases, leading organizations

refrain from capturing too much value from complementors so that they can protect the

complementors’ innovation incentives (Gawer & Henderson, 2007).

Turning to the mechanisms operating at the level of ecosystem, Jacobides, Cennamo, and

Gawer (2018) posit that the presence or absence of modularity can determine whether

ecosystem can emerge in the first place. Modularity is a technological characteristic that

allows different components of a technological system to be designed (and made) by different

producers yet function together (Baldwin, 2000). The specifics of interconnections between

modules are codified via technological interfaces, which standardize the ways in which

producers of different components of the overarching system interact. Baldwin (2008), and

Jacobides and Winter (2005) argued that modularization by itself can lead to the emergence

of markets. Yet for ecosystems (rather than markets) to emerge “there must also exist a

significant need for coordination that cannot be dealt with in markets, but which also does not

require the fiat and authority structure of a central actor” (Jacobides et al, 2018: 2260).

Ecosystems are characterized by the multilateral nature of dependencies across their

members. For Adner (2017: 42) multilateral means “a set of relationships that are not

decomposable to an aggregation of bilateral interactions”. This means that relationships

between two parties are themselves dependent upon all other relationships within the

ecosystem. The phenomenon is therefore different from the set of dyadic relationships seen in

alliances. For example, when Nissan and Renault formed a joint venture, it focused on the

achieving efficiencies in manufacturing, R&D, marketing and sales around the world.

However, membership of this alliance in the global automotive ecosystem also required that

the cars fit certain standard specifications, such as they had to accept tires of pre-defined

sizes, their engines had to pass emissions tests, the fuel tanks had to accept pumps of certain

diameter, the cars had to adhere to government approved safety regulations and so forth.

22
While the governments and regulatory entities, tire or fuel pump makers were not members

of Renault-Nissan alliance, they were still important automotive ecosystem members and

Renault-Nissan alliance was embedded within that broader ecosystem.

Another unique feature is that, within ecosystems, groups of actors with similar types of

interdependencies with other groups of actors face similar governance rules (Jacobides et al.,

2018). As an example, consider how Apple iPhone app developers all face similar rules

(whether they are rules for accessing tools to develop apps, rules to ensure compatibility of

apps, or rules to abide by to get their apps approved by Apple). While these rules might be

enforced by the regulators, as is the case with carbon emission standards for cars, in some

ecosystems the rules are enforced by the ecosystem orchestrators, such as Apple (for iPhone),

Google (for Android) or Intel and Microsoft (for developers working on Windows

applications). 7

Partners in inter-organizational networks frequently compete in addition to collaboration,

giving rise to the phenomenon of coopetition (Hoffman et al, 2018; Pellegrin-Boucher, Le

Roy, & Gurău, 2013). The balance between collaboration and competition within ecosystems

is affected by the stage of the ecosystem’s development. When ecosystems are nascent, their

architecture (which includes the roles, the division of activities, how value is created and how

value is captured, and the technical standards) is often unclear as well as contested. Hence,

too much competition at an early stage of ecosystem development might be detrimental for

the very health of the ecosystem. As Ozcan and Santos (2015) indicate in their study of the

mobile payment ecosystem, too much internal competition may prevent the ecosystem’s

coalescence. As it grows and evolves, an ecosystem becomes gradually structured and

7
In the future, when some members of the ecosystems may not be just humans or organizations, but also
machines that autonomously communicate with one another (e.g. Rajala et al, 2018), all of the members of the
ecosystem would still need to abide by common rules imposed by some central authority.

23
stabilized through a process that can involve strong cooperation as well as strong competition

among its members (Gawer & Cusumano, 2002; Özalp, Cennamo, & Gawer, 2018).

The fact that components within ecosystems may be interdependent does not mean that

they are equally essential to each other. Components often draw on different organizations’

capabilities, have distinct economics, and exhibit various innovation rates (Casadesus-

Masanell & Yoffie, 2007). One type of component that has been identified as crucial in

ecosystems are so-called “bottlenecks”. A bottleneck is the component that limits the growth

or the performance of the ecosystem the most. This can be either due to this component’s

poor quality, poor performance or the component’s shortage (Ethiraj, 2007; Adner, 2012;

Baldwin, 2015; Jacobides & Tae, 2015). Bottlenecks have strategic implications for

ecosystems emergence and focal organizations’ ability to sustain a competitive advantage.

They can happen in different parts of the ecosystem: “whereas upstream component

challenges limit value creation by constraining the focal firm’s ability to produce its product,

downstream complement challenges limit value creation by constraining the customer’s

ability to derive full benefit from consuming the focal firm’s product” (Adner and Kapoor,

2010: 310).

Adner and Kapoor (2016) and Ethiraj (2007) suggest that bottlenecks’ location affects

where innovation should be focused. Research has identified two kinds of ecosystem strategy

that organizations can pursue: either value creation, when organizations address the

bottleneck and cooperate to assemble the ecosystem, as in Adner & Kapoor (2010), or value

capture by competing via market power, as in Jacobides et al (2016)’s study of the

automotive sector. More recent research finds that ecosystems can have more than one

bottleneck component, and that, crucially, the nature of these bottlenecks can change over

time. For example, in their study of US solar panel industry, Hannah and Eisenhardt (2018)

find that while the bottleneck in the early days of ecosystem emergence was finance, it then

24
shifted to sales. This too has implication for ecosystem strategy. Hannah and Eisenhardt

(2018) identify a new kind of ecosystem strategy which they call “bottleneck strategy”, where

organizations combine pursuing value creation and value capture and constantly shift their

focus on different bottlenecks that emerge over time.

4.2 Data and Measurement

This section indicates examples of how empirical studies in ecosystems and innovation

studies have modelled and measured key variables, such as bottlenecks, complementarities,

and their respective intensity. It also identifies which kind of data has been used in

quantitative ecosystem studies.

Ethiraj (2007) developed one of the first quantitative studies that examines how

bottlenecks in a complex product system affect inventive effort. His empirical setting is the

personal computer (PC) ecosystem. Ethiraj uses technical product reviews from consumer

magazines to identify the bottlenecks (which he calls “component constraints”). A higher

number of articles that discuss specific bottlenecks indicates its intensity. He then uses patent

count data to measure the extent to which organizations invest in technologies that address

the bottleneck components.

Adner and Kapoor (2010) identify that there can be bottlenecks in various parts of the

ecosystem. This study introduces “a sensitivity to the flow of activities within such

ecosystems, differentiating between upstream and downstream roles” (Adner & Kapoor,

2010: 328). The relative “location” of activities along a “value chain” determines different

roles for ecosystem members (suppliers, customers, complementors) on the basis of whether

their outputs become an input to the focal actor (in which case they are upstream suppliers),

or whether they use as input the focal actor’s product (in which case they are customers), or

whether they provide other offers which the customer has to bundle alongside the focal

25
actor’s product in order to utilize it (in which case these other offers are complements). Data

to identify the location of the bottlenecks came from interviews with industry experts. Just

like Ethiraj (2007), Adner and Kapoor operationalize the magnitude of the technical

challenges associated with specific bottlenecks using the count of articles in industry

journals: the more articles were written about a particular technical challenge, the more

significant was the corresponding bottleneck.

Moving from technological bottlenecks to inter-organizational interdependencies, Kapoor

and Lee (2013) operationalise the strength of complementarity between ecosystems

participants. They study, in the context of the U.S. healthcare industry, how the choice of

organizational form associated with the relationship between focal organizations and their

complementors, impact strategic investment decisions such as investment in new technology.

In Kapoor and Lee (2013)’s study, the focal organizations are hospitals which make decisions

whether to invest in new medical imaging technologies, and the complementors are

physicians. The various organizational forms reflect the choices that firms make to manage

interdependent activities with complementors, and include arm-length relationships, firm-

complementor collaborative alliances, and hierarchical relationship such as complementors’

integration with organizations. The scope of the firm-complementor alliance refers to the

extent of activities that partners jointly carry out through the alliance as compared to their

total set of activities. The primary source of data for this study was the American Hospital

Association (AHA) which since 1946 has conducted yearly surveys of all registered hospitals

in the United States, including information on the different types of organizational choices

used by hospitals to interact with physicians. The authors identify 6 different categories of

organizational form, ranging from arms’-length relationship between physicians and

hospitals, all the way to physicians being employed by hospitals.

26
 In their study of disruption in platform-based ecosystem in the videogame industry,

Özalp, Cennamo and Gawer (2018) use publicly available data on installed base and game

release quality and quantity, relying on the MobyGames online database on videogames that

has information on close to 70,000 titles. For their analysis of the technological

characteristics of the consoles’ hardware technologies, they use multiple sources of data,

including trade journals such as Game Developers and Gamasutra.com, and the RetroGamers

magazine, where each platform of the sample is described in depth through interviews with

key managers and game developers. In addition, they use interviews on the videogame

industry websites such as arstechnica.com, 1UP.com, Gamespot.com, Gamasutra.com, and

IGN.com, which help show how comparatively easy the development for console X was vs.

development for console Y.

The reliance on experts’ interviews to determine the location and the strength of

interdependencies is only practical for research focusing within a single industry. However,

one needs different methods to analyse interdependencies across multiple industries in the

context of ecosystems. One possible source of inspiration, which does not directly belong to

the ecosystems stream, may come from innovation studies that use patents to look at

industries’ potential for interdependencies. For example, Lee and Alnahedh (2016) develop a

measure of industry’s potential for interdependency based on the ease of recombination of

patent subclasses attributed to specific industries SIC codes. They use the patent ease of

recombination measure developed by Fleming, Sorenson, and Rivkin (Fleming and Sorenson

2001, 2004; Sorenson et al. 2006). If a technology is based on the patent subclass that is

always combined with the same subclasses, then this technology exhibits very strong

interdependence. By contrast, technology based on the patent subclass that is always

recombined with different subclasses exhibits very weak interdependence. The dataset comes

from more than 1.93 million USPTO technological patents granted between 1901 and 1966.

27
 5. Summary of Main Themes

Networks and ecosystems perspectives are similar because they examine how organizations

manage dependencies with the external environment. While there is little disagreement on

what inter-organizational networks are, why they are formed, what mechanisms translate

network position to performance and how to measure different facets of these network

positions (Borgatti & Halguin, 2011), ecosystems research is still in the stage of formulating

the basic definitions and drivers of ecosystem evolution (Adner, 2017; Jacobides, Cennamo,

& Gawer, 2018; Kapoor, 2018). While the unit of analysis of networks research is a firm,

relationship or a whole network, the unit of analysis for ecosystems research is a focal

offering or ecosystem as a whole. Complementarities and interdependencies exist in both

perspectives.

There are important differences across these perspectives as well. Whereas networks

research tends to be focused on relationships within a single industry, ecosystems research

tends to examine relationships across industry boundaries. Furthermore, networks research

focuses on bi-lateral dependencies, and identifies trust, social norms, information transfer and

signalling to manage these bi-lateral interdependencies. By contrast, ecosystems research is

situated in settings hosting multilateral dependencies, and has identified modularity and

governance rules as the drivers for the interplay of cooperation or competition across

ecosystem members. Furthermore, modularity and governance shape the emergence,

performance, and evolution of ecosystems.

Networks and ecosystems perspectives are inherently endogenous due to the reciprocal

loops embedded in their theorizing. That is, a network structure can be a dependent variable

in one study and an independent variable in another. Likewise, the structure of dependencies

in an ecosystem can an outcome in one study and an independent variable in another.

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 6. Sample Attempts of Integration

Given the similarities and differences between networks and ecosystems research,

let’s take a look at a few examples of earlier integrative work in this domain. This section by

no means is an exhaustive review, but rather an illustration of articles representing three

distinct research traditions: a qualitative case study, a quantitative investigation and a

practitioner-oriented article. We also provide initial suggestions for how these studies can be

extended, and then move towards a more detailed synthesis of networks and ecosystems

research.

In an in-depth case study, Ansari, Garud, and Kumaraswamy (2016) examine how dyadic

alliances with established ecosystem members have helped a new entrant TiVo to disrupt a

U.S. TV cable ecosystem. TiVo developed a Digital Video Recorder (DVR), the device that

allowed asynchronous viewing of video content distributed through the cable. Members of

the ecosystem (especially media companies and cable operators) did not want to see their

products or content work with DVR because of unclear revenue model. TiVo overcame this

resistance by forming alliances with some of the key ecosystem members, such as AOL Time

Warner, DirecTV, CBS, NBC, and Disney. Although extremely insightful, this research can

be enhanced by examining whether alliances between new entrants and incumbents lead to

the development of new non-generic complementarities or whether they continued exploiting

the original non-generic complementarities that formed the basis for the initial tie formation.

Kapoor and Lee (2013) examine how alliances among complementors (in this case,

hospitals and physicians) facilitate the organizations’ investments in new technology. The

measure of alliance scope captured the breadth of interactions between hospital and

physicians. In organizational networks terminology, Kapoor and Lee (2013) studied how the

strength of the alliance between complementors affected the propensity of hospitals to

29
innovate. They find that the presence of alliances between ecosystem members increased

their propensity to invest in new technologies. By contrast, presence of arms-length

relationships between ecosystem members did not lead to a high level of innovation

investment. Thus, the wider is the scope of the alliances among ecosystem members, the

more investments in the new technologies they made. To the extent one can draw boundaries

between different ecosystems, one could compare their performance as a function of their

members’ investment in new technologies.

Furr and Shipilov (2018) develop a typology of ecosystems as a function of

characteristics in the alliance network formed by their lead organizations (that is, the

organizations that combine inputs of different ecosystem members to an ecosystem’s

offering). Some ecosystems have a single lead organization at the core, as is the case with

Amazon’s ecosystem around Kindle. Amazon buys Kindles from Foxconn, the maker of

hardware. It also has non-generic complementarities with content publishers and authors. So,

this ecosystem is led by Amazon alone. Yet, there could be ecosystems lead by several

alliance partners. Furr and Shipilov (2018) label these ecosystems “adaptive”. Philips’

Healthsuite ecosystem is one example. At the core of this ecosystem is an alliance involving

Philips, Salesforce.com and Radbaud Hospital. This partnership is created to commercialize

wearable electronic devices that patients with chronic conditions (diabetes, cancer, etc).

Philips created this ecosystem by finding partners that normally would not work with one

another (such as Salesforce.com and Radbaud Hospital) and then connect them through a

multi-party alliance. This ecosystem also involves insurance companies, other hospitals and

manufacturers of wearable devices, but these players have non-generic complementarities

with the core ecosystem members and no formal alliances. Alliances at the core of adaptive

ecosystems are constructed through tertius iungens approach to brokerage (Obstfeld, 2005): a

broker (Philips) finds the partners that normally don’t work with one another (Salesforce.com

30
and Radbaud Hospital) and connects them instead of keeping them separate. Such ecosystems

might be more suitable in environments with extreme uncertainty, where direct collaboration

of multiple partners with very different resources is needed to create value. To the extent

there is data available across different ecosystems, future research could compare the

performance of centralized ecosystems to that of adaptive ecosystems.

Taken together, the three sample studies illustrate several possible paths for the interplay

between inter-organizational networks and ecosystems. Ansari, Garud, and Kumaraswamy

(2016) show that alliances can be used to disrupt established ecosystems. Kapoor and Lee

(2013) demonstrate that alliances can improve ecosystems’ health through building enough

trust, so that they can invest in new technologies. Finally, Furr and Shipilov (2018) show that

alliances between organizations can help them build new ecosystems. Importantly, these

studies don’t show that one research tradition is inherently more appropriate than another to

study the interplay between networks and ecosystems. Both qualitative and quantitative

approaches are possible. It is even desirable to combine the two, because researchers can

identify specific processes through which networks and ecosystems relate to one another in

the qualitative studies and then attempt to test for the cause and effect relationships involving

these processes in the quantitative studies.

7. Towards a Graph Theory of Ecosystems

7.1. The Matrix Thinking

Research on inter-organizational relationships has tremendously benefitted from the

application of graph theory to develop both the theory of social embeddedness of economic

action and the relative consensus on what different measures of social embeddedness mean.

The same can be done for ecosystems theorizing: the application of graph theoretic principles

can help add clarity for how one can describe an ecosystem, predict its evolution and even

31
identify possible structural drivers of ecosystem performance. Sociomatrices (or adjacency

matrices) are the key inputs into the theory of networks as well as into the measurement of

network positions. Such matrices capture some relationships between actors (Wasserman and

Faust, 1994), as we describe below.

Since ecosystems arise from the modularity of components and non-generic

complementarities among them, components and the precise pattern of their interdependence

can also be reflected in the matrix form. These representations of interdependences would be

similar in spirit to design-structure matrices used by Baldwin and Clark (2000) as well as by

the other scholars of design and modularity. “Design structure matrices are two-dimensional

matrix representation of the structural or functional interrelationships of objects, tasks or

teams” (De Weck, 2019: 10). 8 The rows and columns in these matrices represent components

while the entries in the cells are indications of which specific components are interdependent.

When we look at ecosystems, we are interested in the patterns of non-generic

complementarities between components, which are specific instantiations of their

interdependence.

As ecosystems’ matrices reflect complementarity between components (such as

technologies or modules), we can call them “complementarity matrices” bearing in mind that

these complementarities have to be non-generic. They can easily accommodate

complementarities among components in production as well as complementarities among

components in consumption. As Jacobides et al (2018) point out, consumption

complementarities are distinct from production complementarities. Consumption

complementarities exist between components A and B when the benefits of consuming A and

B together are higher than the sum of benefits when consuming these components separately.

8
https://ocw.mit.edu/courses/engineering-systems-division/esd-36-system-project-management-fall-
2012/lecture-notes/MITESD_36F12_Lec04.pdf

32
Production complementarities exist when “coordinated investments in both C and D yield

higher returns than uncoordinated equivalents, or yield lower costs than the sum of costs of

independent investments into C and D” (Jacobides et al, 2018: 2262). Since production and

consumption complementarities are distinct, a researcher will need to build separate matrices

to reflect each type of complementarity. If there is consumption complementarity (expressed

as a number VAB whose value lies between 0 and some non-zero positive number) between

Component A and B, then V will be the value of the matrix entry corresponding to Row A

and the Column B in the consumption complementarity matrices. Likewise, if there is

production complementarity (expressed as a number VCD) between Component C and D, then

the value of the matrix entry corresponding to Row C and the Column D will be V in the

production complementarity matrices. 9

As ecosystems often arise from complementarities of components produced in

different industries, researchers should also not limit themselves to including only same

industry components into these matrices. Instead of observing the industry boundaries,

researchers should focus on the components across different industries that collectively

produce the focal offer. Furthermore, these matrices are likely to be symmetric, such that VCD

= VDC. Intuitively, the customer derives the same value from combining an iPhone with apps

as compared to combining apps with iPhone.

The power of applying network concepts to complementarity matrices resides in the

existence of archetypical network concepts and structures that can have a useful meaning for

scholars who develop typologies of ecosystems, measure their different properties and

9
Strictly speaking, these matrices should be called “interdependence matrixes” because they should be able to
capture both complementarities (positive cell values) and substitution (negative cell values) between the pairs of
components. However, graph theoretic measures discussed in this paper are not well equipped to handle
simultaneously positive and negative relationships between actors in a single matrix. That is, it is not well
known what eigenvector or betweenness centrality mean when these measures are computed from a mix of
positive and negative values. Hence, in the current integration attempt we shall unpack the implications of
complementarities—and hence use the label “complementarity matrices”-- with a hope that future research can
also incorporate the substitution relationships in the graph theory of ecosystems.

33
perhaps even correlate these ecosystems with some performance outcomes. Let us borrow the

analogy of relational, structural and positional embeddedness from networks research and

apply these different lenses to developing possible ways of representing interdependences in

an ecosystem. This approach will also help us generate possible testable propositions. Our

objective here is not to develop specific hypotheses, rather to provide a set of heuristics about

using graph theoretic concepts to think about hypotheses’ development.

To be clear, we are not the first to propose applying graph theory to uncovering

patterns in the design structure matrixes. Collins, Yassine and Borgatti (2008) have already

showed that network analysis can help evaluate product development systems by using

network metrics to capture properties of information flows in DSM. This analysis helped

identify important product development constraints that would not be obvious through the

DSM’s visual inspection. Likewise, some design and innovation scholars have applied

network analysis to derive network measures of component modularity as well as to

understand what centrality of a component means in the context of design tasks (e.g. Sosa,

Eppinger & Rowles, 2007; Batallas & Yassine, 2006). In all of these examples, however,

design structure matrixes have been derived from the activities under the control of a single

firm, whereas we are proposing to extend the logic of applying graph theoretic tools to the

design structure matrix at the level of an ecosystem as a whole.

7.2 Strength of Complementarities.

In networks research, tie strength captures the intensity of actors’ interactions, which can be

reflected by the time they spent together or the differences in the investment that they have

made into their specific relationship, relative to the other pairs of relationships. Tie strength is

normally reflected by a higher value in the adjacency matrix and the higher value in the DSM

matrix essentially reflects the same thing (Sosa, Eppinger & Rowles, 2007).

34
 The higher is the benefit of consuming components A and B together relative to their

independent consumption, the higher should be the value between A and B in the

complementarity matrix. This will be especially useful when an ecosystem consists of

components that have varying degrees of compatibility between each other. For example,

computers built on Intel 18-core processors can run different operating systems, ranging from

Windows 7 (or earlier) to Windows 10. However, for a customer, the benefit of buying a

computer that has an 18-core processor as a component is higher when the computer also has

Windows 10 as another component as opposed to buying the same computer that has

Windows 7. Hence, if one were to build a consumption complementarity matrix for the

modern PC industry, where the rows and columns represent different complementary

technologies, one would put a higher value in the cell at the intersection of component “Intel

18-core processor” and “Windows 10” relative to cell at the intersection of “Intel 18-core

processors” and “Windows 7”. The same logic would apply to production complementarities:

the lower is the cost of producing components X and Y together than separately, the higher

should be the value at the intersection of these components. For example, Samsung can

develop features of Android operating system that are optimized to work on Galaxy phones

so that some hardware functions are executed by software and vice-versa, making the total

cost of manufacturing phones and developing software lower than performing this task

separately. Hence, the value of production complementarities between “Galaxy” and

“Samsung-enhanced Android” operating system would be higher than the value of production

complementarities between “Samsung-enhanced Android” system used and components that

represent “HTC phones”. Therefore, valued entries into production or consumption

complementarity matrices will be especially useful for depicting complementarities in

ecosystems that contain different versions of components, each of which might have different

degrees of complementarity with each other. When one is operationalizing production

35
complementarities between technologies as the frequency of joint underlying joint citations

as in Lee and Alnahedh (2016), higher value at the intersection of two cells—where each cell

represents a technology component--would imply that there is a higher number of patents that

jointly cite these technologies.

Figure 2 offers a graphic illustration of these concepts, both in the form of

complementarity matrix as well as the resulting complementarity graphs that could

characterize some part of an ecosystem (or the ecosystem as a whole). In this case, higher

values in the cells A and B than in the other cells of the matrix indicate that there is a stronger

complementarity between these two components, relative to the complementarities between

A and C (e.g. Sosa, Eppinger & Rowles, 2007).

-----------------------------------------
Insert Figure 2 about here
----------------------------------------

Once we identify strength of all complementarities in an ecosystem, we could think of

comparing them based on average strength of complementarities. For example, some

ecosystems might be based on weaker “average” complementarities than the others; some of

them might have stronger production vs. consumption complementarities or the other way

around. In general, one can predict that ecosystems with stronger average complementarities

are likely to perform better than ecosystems with weaker average complementarities because

the former will have created higher value for either producers or customers. Thus, producers

and consumers will be less likely to leave these ecosystems, which would contribute to the

ecosystems’ health. Another interesting set of questions to consider is whether ecosystem

performance is more significantly affected by strong production or consumption

complementarities. In other words, if ecosystem A has stronger average production

complementarities (relative to consumption complementarities) whereas ecosystem B has

stronger average consumption complementarities (relative to production complementarities),

36
would ecosystem A perform better or worse than B? What are the conditions under which A

would outperform B?

7.3 Hub and Spoke vs. Integrated Ecosystems.

Dyads represent building blocks for more complex structures in any network. As noted

earlier, a firm spans a structural hole between two of its partners when it has individual

relationships to each one of them, but these partners don’t have direct relationships to each

other. By contrast, the social structures in which all partners are interconnected is

synonymous with the absence of structural holes. Inter-organizational networks scholars have

used a range of related terms to describe network positions rich in structural holes: an open

network (to contrast with a closed one, in which all partners are connected) or a hub and

spoke network (to contrast with an integrated network). If we adopt the same logic to the

patterns of complementarity between components in an ecosystem, we can also talk about

hub and spoke and integrated patterns of complementarity within ecosystems. That is, three

components A, B and C exhibit hub and spoke complementarities when there are

consumption or production complementarities between A and B as well as between A and C,

but not with B and C. Conversely, D, E and F exhibit integrated complementarities when

there are consumption or production complementarities among all three components. Figure 2

reflects these patterns of complementarities as well.

Early on, Apple’s iOS ecosystem was based on hub and spoke pattern of

complementarities. That is, office productivity apps (like MS Word) and data storage apps

(like Dropbox) were complementary to iOS and to the iPhone, but to the extent there was no

opportunity to open files in Dropbox and edit them in MS Word, there was no integrated

complementarities in consumption among these three components. When iOS has started to

allow easy transfer of files between Word and Dropbox (or other ways of direct interactions

37
between data storage and productivity apps), we can talk about the emergence of integrated

consumption complementarities among these three components.

Structural holes can be unstable: when A is tied to B and C, A can find it useful to

eventually connect its partners or the partners themselves might decide to form a connection.

We can predict the same dynamics in the complementarities within ecosystems: hub and

spoke complementarities – especially when they are strong as opposed to weak-- with time

should give way to integrated complementarities. This will happen because inventors, users

or both may be looking for new ways of recombining technological components with strong

production or consumption complementarities and the combination of two components that

are already complementary with another is the easiest way to go. The example of Apple,

Dropbox and Microsoft above illustrates this point well enough: in the early stages Apple’s

ecosystem has been based on hub and spoke consumption complementarities whereas now

more and more apps exhibit integrated consumption complementarities. However, at the time

of this writing, Apple’s ecosystem is certainly far from full integration based on consumption

complementarities: there are still many apps that don’t work with one another and their value

primarily resides from non-generic consumption complementarities with iOS.

Once the three components have been integrated through the establishment of production

or consumption complementarities, a change in one component might disrupt

complementarities with other components. This way, integrated structures – once they have

formed--might become more difficult to change as it may require coordination with all

components with which it is complementary. For example, if Microsoft (and other makers of

productivity apps) would change the format of its files or the algorithm with which graphics

is encoded in the document, one would be able to open these files on iOS. However, if

Dropbox (and other data sharing providers) doesn’t have access to Microsoft’s code,

Dropbox app might crash on iPhone when the user ties to open MS Word document or the

38
user might not be able to preview the contents of this file in Dropbox window. Hence, when

companies like Microsoft make changes to its file formats, they have to coordinate not only

with Apple, but also with Dropbox (and similar companies), which would possibly create a

set of constraints of what productivity app providers can and cannot do. Likewise, when data

storage companies make changes to their apps, they have to coordinate with productivity

software makers and Apple, at least on the level of the code that can work across apps. Thus,

we would expect lower probability of radical technological changes in ecosystems that

exhibit integrated pattern of complementarities as compared to ecosystems that exhibit hub-

and-spoke pattern of complementarities. This relationship will apply both to production and

consumption complementarities.

Available research has suggested that the best performance-enhancing pattern of

relationships between organizations comprises average degree of connectedness that can be

conceptualized both in the form of social relationships and also in the form of

complementarities. That is, a firm can benefit when it spans structural holes among some of

its partners– this part of its network becomes a source for potentially radical innovation;

whereas its other partners should be inter-connected—this part of a network becomes a

source of relational stability and incremental innovations (e.g. see Burt, 2005 for the review

of the relevant articles in the networks field; Batallas & Yassine (2006) as well as Collins et

al (2007) for the application of brokerage concepts and graph theory to the design structure

matrixes more generally).

The point about superior performance of moderately interconnected systems also found

support in research on profitability of industries (and organizations) as a function of

interdependences among their underlying technologies. Specifically, Lee and Alnahedh

(2016) find that there is a curvilinear relationship between interdependence of technologies

and the profitability of industries or organizations that use these technologies. When

39
interdependence is low, “most competitors will be able to determine the most efficient way of

operating” (Lenox et al, 2010: 123) and there would be no abnormal profits to generate from

any given combination of technologies. When interdependence is high, it is hard for any

organization to discover the most efficient (or novel) ways of using technologies. Thus, poor

average performance reduces profits to capture. Moderate interdependence levels allow some

organizations to discover most profitable resource or technological combinations and hence

generate performance improvements (Lenox et al, 2010).

It is possible that the same principles apply to explaining variation in the performance of

ecosystems more broadly. When one ecosystem is exclusively based on hub-and-spoke

complementarities, it may be missing opportunities to innovate by discovering and exploiting

production and consumption complementarities between otherwise disconnected components.

When an ecosystem exhibits an integrated pattern of complementarities, innovation in

individual components might be limited due to the need to manage multiple established

complementarities that are constraining each other. However, the sweet spot for the

ecosystem performance might be somewhere in the middle: when some of its components are

already integrated whereas the others are not. Alternatively, when consumption based

complementarities represent a hub-and-spoke pattern whereas production based

complementarities represent an integrated pattern, then there maybe room to innovate by

discovering additional complementarities in the consumption-based network of

complementarities.

7.4 Discovery and Appropriation of Bottlenecks

If we plot all complementarities in an ecosystem, and apply social network analysis to

the matrix, we might discover that some components are more “central” than the others. In

this context, a component’s centrality will mean that it is complementary with those

components with which the other components are also complementary. In other words, if one

40
were to take out the focal component from the ecosystem, or this component would for some

reason perform very poorly, then many other components that depend on the focal component

would suffer. By contrast, there could be components located at the periphery of an

ecosystem’s complementarity network and their performance would affect only a subset of

other peripheral components.

A component’s centrality in a network of complementarities will correlate with the

extent to which this component represents a bottleneck for the ecosystem’s development:

peripheral components are less likely to be important bottlenecks than the central components

(e.g. Sosa, Eppinger & Rowles, 2007; Collins, Yassine & Borgatti, 2008). Figure 3 provides

an illustration of a basic pattern of complementarities in a seven-component ecosystem.

Component B will be more likely to be a bottleneck than components C and D, for example,

because one can improve performance of an ecosystem around B by improving performance

of component C or D, whereas component A (and the rest of the ecosystem) depend on the

performance of component B only.

Let’s take an example from the cryptocurrency ecosystem which is based on the

proof-of-work logic. 10 These ecosystems work by enabling different actors to trust each other

in the absence of trusted third parties or any form of reputation. When I send cryptocurrency

to another person, I have to overcome a problem of trust so that the system knows that I

indeed own the currency that I am sending and that I cannot spend the same currency twice.

The ecosystem solves these problems by using miners—entities that verify transactions.

Miners are disincentivised from cheating because they have to invest a lot of resources into

verifying transactions. In the proof-of-work based cryptocurrencies (like Bitcoin) this means

that miners download and run open source software that connects them to the other miners as

10
Proof of work is a principle that requires someone to spend significant amounts of resources (e.g. computing
power) to actively participate in an ecosystem (e.g. make changes to a ledger of transactions).

41
well as to the transactions that have to be verified. The software instructs the processor to

perform computations to solve a mathematical problem using brute force ( for example via a

random search for a specific number), incurring huge energy costs in the process. In the early

days of Bitcoin, mining was possible using PCs, now it has moved to more complex custom-

made systems. At the time of PC mining, one could have improved performance of mining

PCs (component B) by installing either a more powerful fan (C) to cool down the less energy

efficient processor (D) or by installing a more energy efficient processor and a mediocre

cooling fan. Yet, if the overall performance of a PC (B) is low, then it will slow down

performance of software code (component A) that enables this mining. In other words, the

extent to which a component becomes a bottleneck will depend on how many other

components depend on the quality of this component for the overall health of the ecosystem.

-----------------------------------------
Insert Figure 3 about here
----------------------------------------
Graph theory suggests that there are several different centralities of interest. The most

basic is a degree centrality, which increases with the number of connections that one actor

has. When an organization has alliances with three other organizations, its degree centrality is

three. In the complementarity matrix, this centrality is reflected by interdependencies which

the focal component has with other components, irrespective of the interdependencies that

these components have with other components in an ecosystem. For example, on Figure 3

component A has a degree centrality of 2 whereas components B and E have a degree

centrality of three. This means that component A is directly interdependent with fewer

components than components B and E.

In Figure 3, components A, B and E will have equal (and high) betweenness and

eigenvector centrality scores, despite the fact that component A is complementary only with

42
two components, whereas B and E are complementary with three. 11 We believe that

eigenvector centrality would be a better measure relative to betweeness to capture bottleneck

components in an ecosystem. Betweenness works best in contexts where a central actor’s

success depends on transmitting something across the entire network through shortest

distances. By contrast, eigenvector centrality is a measure of an actor’s general influence in a

network that is not linked to the transmission of anything (Borgatti, 2005). Since

interdependence of components is related to the influence that individual component has for

the success of the entire ecosystem (and nothing gets transmitted through the

complementarities’ network), we can conclude that eigenvector centrality is a more

appropriate measure of capturing bottlenecks.

One can compare different inter-organizational networks as a function of their

centralization. A network with high centralization has a highly unequal distribution of

centralities among its actors. If a network has a handful of highly central organizations and a

large number of organizations at the periphery, then this network is likely to exhibit a very

high centralization. A network with low centralization will have a more or less equal

distribution of centrality scores. This could happen, for example, when no single organization

(or group of organizations) has vastly greater centrality scores as compared to the other

organizations in the network.

The extent of centralization in a matrix of production and consumption

interdependencies can be a useful way of comparing different ecosystems. Highly centralized

ecosystems are the ones that have the most prominent bottleneck components (for example,

many components are interdependent with a single component but not with each other);

11
One can also envision further differentiating bottleneck components by analysing valued complementarity
matrices. For example, if we consider that A and B have a stronger complementarity than all other components,
then A and B may have higher centrality values than all the other components (including component E).

43
whereas less centralized ecosystems will have lower number of bottleneck components and

all of the components would be equally valuable.

Organizations can use these insights to develop their ecosystem strategies. Although prior

work on ecosystems has already recommended that organizations focus their efforts on

bottleneck components (e.g. Hannah & Eisenhardt, 2018), the application of graph theory to

the discovery of bottlenecks can provide nuance to this recommendation. That is,

organizations may extract value by focusing on more central bottlenecks (e.g. on components

A, B and E in Figure 3). Furthermore, organizations should focus on bottlenecks that arise

from stronger complementarities with other components as opposed to bottlenecks arising

from weaker complementarities. Organizations should actively monitor the evolution of

component interdependencies (both by taking into account changes in structure of

interdependencies and their strength) and may benefit from shifting their focus from one

central component to another. The more central components the organization is focusing on,

the more value will the organization capture from the ecosystem, especially when the

organization is focusing on many central components that have strong interdependencies with

the others.

The discovery of bottlenecks as a function of technological interdependencies can also

help us predict the emergence of technological platforms. As CPU is the most central

component in the PC ecosystem, relative to memory for example (Gawer & Cusumano,

2008), it is not surprising that CPU makers (most notably Intel) have turned their product into

a platform; whereas makers of memory did not do that. This principle is likely to apply to any

technological ecosystem: the higher is the centrality of a component, the more likely

organizations’ investments into this component will make it a platform.

7.5 How to Build Component Complementarity Matrices

44
 Researchers can build complementarity matrices in three different ways. The first

would be to ask industry experts to identify different components. Then the experts can

evaluate the strength of complementarities in a matrix. While this method will probably have

high face validity, it would be challenging to use it for the longitudinal studies of ecosystems

because they would have had to recall how the interdependencies have evolved over time.

The second approach would be to use patent citation networks (e.g. Lee & Alnahedh, 2016;

Toh & Miller, 2017): the greater the number of times the two different technology subclasses

are cited in the same patent, relative to the total number of patents that invoke these

subclasses, the greater is the interdependence of components that are based on these

subclasses. This approach has the obvious advantage of capturing interdependencies between

technologies over time. The third approach—which is a more fine-grained version of the

second—would be to use topic modelling to analyse the text of either patents, industry

publications or both. Topic modelling allows representation of topics in an existing corpus of

text, including from the text in the patents. This approach usually uses machine learning

algorithms that classify words into groups, and then one can rely on researchers to provide

names to these groups (e.g. Kaplan & Vakili, 2015). To the extent groups of words in patents

refers to different technology components and these components are frequently mentioned in

the same patent, one can assume that these components are complementary and the intensity

of joint mentions of these components can indicate the strength of complementarities.

8. Complementarities and Inter-organizational Relationships

There are also very important lessons that network researchers can learn from the

ecosystem scholars. This can be done in two areas. First, insights from the ecosystems

research can help build better models of network dynamics by focusing on meaningful

complementarities between organizations, as opposed to merely capturing differences in the

45
organizations’ resources. Second, ecosystems research can provide a new source of

moderating variables that could delineate boundary conditions under which the same network

position could lead to different performance outcomes.

8.1 Complementarities as Drivers of Inter-organizational Relationships

Network research tends to view social structure in an industry as a given, with little

attention to the initial conditions from which the network emerges. The nascent ecosystem

literature is interested in the origins of ecosystems (Mäkinen & Dedehayir, 2014; Ozcan &

Santos, 2015) and it could provide insights into the origins of social structures. That is, at the

onset, network evolution can be shaped by the organizations’ technological component

manufacturing decisions or by the organizations’ strategies of dealing with component

bottlenecks. Once these decisions are made, organizations form initial alliances and then the

structure of these initial alliances could shape the rest of the industry evolution.

Foundational articles on the origins of networks frequently begin with the baseline

hypotheses that organizations form alliances as a function of their resource

complementarities. For example, Gulati (1995: 622) posits that two organizations with higher

strategic interdependence are more likely to form alliances when the non-interdependent

organizations. This is indeed what Gulati (1995) finds in a study of 166 firms in new

materials, industrial automation and automotive products as well as in the extension of this

study with Gulati and Gargiulo (1999). Interdependence is computed in two steps: first, one

develops classification categories for companies as a function of their national origin and

activities in industry subsegments. For example, a U.S. based company is in a different

category based on national origin as compared to a European company; firms in discrete

automation are in a different industry subsegment category than robotics. Then researchers

construct vectors characterising organizations where 1/0 entries represent whether a given

46
organization belongs to a specific category. The second step computes differences between

the organizations based on Euclidian distance between vectors, such that a U.S. firm in

robotics sector will be less different from a U.S. firm in robotics than from a European firm

in robotics. The assumption behind these measures is that complementarities between firms

increase with an increase in their differences.

The insights from ecosystems research would suggest that although these

operationalizations of interdependencies maybe plausible in a context of a narrow set of

industries, they look at production complementarities and fail to capture consumption

complementarities. Second, and even more importantly, as researchers study companies from

a large number of industries, differences between organizations’ resources or market access

might not even imply the presence of complementarities between them. For example, a firm

in automotive industry is in a different SIC code and maybe in different geographical location

with a firm in paper and pulp industry, but companies cannot generate production

complementarities when making both paper and cars. Hence, while these companies will

exhibit differences, we should not expect that they are more likely to form alliances relative

to a pair of organizations within software sector that may have true production

complementarities despite the membership in the same SIC code.

As noted earlier, complementarities among organizations are notoriously difficult to

operationalize and researchers should resort to either expert assessments or to patent data.

Ganco et al (2019) provide expert assessment for the complementarities in the semiconductor

manufacturing ecosystem. We reproduce their Figure 2 as Figure 4 in this manuscript. 12

-----------------------------------------
Insert Figure 4 about here
----------------------------------------

12
We thank the authors for their kind permission to use their figure in our study.

47
 While the thick lines with arrows denote the flows of products, the dashed lines represent

complementarities (or interdependence) in Ganco et al (2019) terms. Lithography Equipment

and Semiconductor Manufacturing have higher centralities as compared to Lens or Energy

Source. Should a network scholar look at the alliances across organizations in the

semiconductor manufacturing ecosystem, knowing the pattern of interdependencies between

different components, she would be able to postulate that manufacturers of lenses are more

likely to form alliances with makers of lithography equipment than they are with the makers

of the masks. This statement is likely to be true even though lens makers, mask makers and

lithography equipment manufacturers are operating in different SIC codes and an

unsuspecting researcher might have assumed that they are equally likely to form alliances

based on the view that the differences between organizations automatically imply

complementarities.

Ganco et al (2019) depiction of complementarities in this industry is simple and one

doesn’t need network analysis methods to calculate component centralities: one can just look

at the picture. At the same time, this picture is just an approximation as mask making is based

on many technologies (which are based on multiple patents), some of these technologies (and

patents) are more interdependent than the others both with other mask-making technologies

and with the technologies in the energy source or lithography equipment category. Should we

map the network of interdependencies among the patents underlying the semiconductor

manufacturing ecosystem, we would then indeed need a more systematic way of identifying

different kinds of network topologies. In turn, these topologies would allow us to predict how

companies that occupy different components may form alliances both within the same

component or across different components. This can be done irrespective of whether

interdependences are captured using patent subclass classifications (e.g. Lee & Alnahedh,

2013) or doing topic modelling on the text of the patents (e.g. Kaplan & Vakili, 2015).

48
8.2 Contingencies around Performance

As noted earlier, organizational network scholars have developed a keen interest in

understanding boundary conditions translating firm network position to firm performance.

One of the longest ranging debates has revolved around the conditions under which network

positions rich in structural holes improve organization performance (e.g. Rowley, Behrens &

Krackhardt, 2000; Ahuja, 2000; Shipilov, 2009; Burt, 2005). A firm with a large number of

structural holes can benefit from information arbitrage among its unconnected partners,

generate radical innovations and play the partners off against each other to capture the value

of this innovation for itself. A firm in an integrated (closed) network is likely to benefit from

incremental innovations that are done together with its partners and the value of these

innovations is likely to be shared with the partners as well (Dyer & Nobeoka, 2000).

Given that organizations with a particular structure of inter-organizational alliance

network can own (or be active in) ecosystems where components exhibit hub and spoke or

integrated complementarities, one can think of different combinations of networks and

ecosystem structures that could affect organization performance in different ways. Figure 5

describes four possible scenarios.

-----------------------------------------
Insert Figure 5 about here
----------------------------------------

Quadrant 1 represents a scenario in which the focal organization is embedded in a hub

and spoke (open) alliance network and it is involved with the component that has a hub and

spoke pattern of interdependencies with other components in which the organization’s

49
partners are active. 13 Recall that the hub and spoke pattern of component complementarities

means that the partners’ components are interdependent with the focal organization’s

component, but not with each other. Hence, the focal organization has flexibility in changing

characteristics of its component, but it doesn’t need to worry about interdependencies across

the partner’s components. This leaves a lot more place for component innovation to create

value as compared to the scenario of integrated component complementarities. Since this is a

hub and spoke network, the organization can play the partners off against each other to

capture value from the resulting innovation. In the 1990s, Microsoft used this strategy when it

formed alliances with Intel and AMD to make sure that its different generations of operating

systems would run well on both processors. Since Intel and AMD chips were not

technologically interdependent--Intel’s processors did not have consumption or production

complementarities with AMD’s--and given that Intel and AMD did not have mutual alliances

due to their rivalry, Microsoft was able to play off these two partners for many years. As a

result, Microsoft not only continuously innovated in the operating system market but also

captured a lot of value from the development of the global PC industry.

Quadrant 4 is another extreme scenario where the organization is embedded in an

integrated alliance network with its partners. These partners are involved with components

that exhibit an integrated pattern of complementarities. Such scenario is likely to generate

incremental innovation due to the limitations imposed by component interdependencies. At

the same time, the value of this innovation is likely to be distributed more fairly across

alliance partners due to the collaborative norms (and trust) inherent within the closed

network. One would expect this scenario to play out in one part of the semiconductor

ecosystem described by Ganco et al (2019), where producers of lenses, lithography

13
If an organization is active in a single component, then its position in the network of complementarities will
be equivalent to the characteristics of this component’s network position. If an organization is active in multiple
components, then one would have to compute the average or deploy other more complicated measures of
aggregation.

50
equipment and energy sources could form R&D alliances with each other, given the

interdependent complementarities between these components.

Quadrant 2 represents a scenario where the hub and spoke part of the ecosystem could

generate radical innovation due to lack of interdependencies between two of the three

components, but the value from this innovation would be captured by all of the partners due

to their integrated alliance network. In the semiconductor-manufacturing ecosystem, one

might observe such scenario if makers of lithography equipment formed three-way

collaborations with the makers of energy sources and resist technologies.

Alternatively, Quadrant 3 represents a scenario where integrated complementarities in an

ecosystem would lead to incremental innovation, but the value from this innovation would be

captured by the broker that spans structural holes between its partners. This would happen

when a maker of lithography equipment forms alliances with the producers of lens and

energy source, conditional upon these partners not having alliances with each other.

9. Discussion and Conclusions

In this article, we attempted to integrate the literatures on inter-organizational networks

and ecosystems. When attempting to work with literature that spans multiple domains, it is

impossible to offer a full literature review within the limits of a single article. Instead, in this

paper we merely attempted to highlight key arguments to the extent that this helped us

achieve a partial integration across networks and ecosystem perspectives.

Beyond offering basic definitions, highlighting the similarities and differences between

networks and ecosystems and exploring different sources of data that are used in these

research streams, we identified several areas in which the two literatures can strengthen each

other. We believe that ecosystems research can tremendously benefit from moving beyond

the recognition that interdependencies between technological components matter. Instead,

51
scholars can start to map these interdependencies using graph theoretic methods. Borrowing

the analogy of relational, structural and positional embeddedness from networks research, we

proposed to characterize ecosystems (or at least their elements) through the strengths of

interdependencies between components, the extent to which the interdependencies can have

an integrated or hub and spoke nature and use the concept of network centrality to

conceptualize (and operationalize) bottlenecks.

Using insights from the ecosystems research, we could suggest new ways of thinking

about complementarities between technologies. This approach can help us build more robust

starting points (and baseline models) of network evolution. Furthermore, a more systematic

mapping of interdependencies can help us identify new moderators for the relationship

between network position and performance as well as delineate boundary conditions under

which certain transaction will be done inside the organization as opposed to with alliance

partners.

We believe that now is the most exciting time to do work at the intersection of these two

perspectives. However, doing so is not without its challenges. One might suggest that

ecosystems and networks are not really separable from the features of organizations that

populate them. For example, well performing organizations are likely to have many alliances

with other well performing organizations from different sectors, which tend not to work with

one another, and hence embedding the focal organization into what looks a hub and spoke

alliance network. At the same time, a poorly performing organization might be cast to the

periphery of its industry where it is forced to band together with like losers to survive,

thereby embedding it to what it looks like a closed alliance network. Likewise, a well

performing organization might find itself discovering more interdependencies with

complementors than a poorly performing organization, thereby putting the first organization

at the core of what looks like an ecosystem whereas the latter might be left to compete on its

52
own. Early networks research has sidestepped these issues altogether, assuming that networks

cause performance changes and not the other way around (Stuart & Sorenson, 2007).

Whereas later research on networks has acknowledged the endogenous interplay of

organization characteristics, firm performance and network structure (Shipilov and Li, 2008),

only recently we started to see research designs that attempt to deal head on with causality.

The easiest way to address this issue is through incorporating firm fixed effects into the

models, as they help rule out the confounding effects of stable organization-level factors on

performance when we are trying to observe network position to performance effects.

Furthermore, one can leverage shocks that are exogenous to firms’ network position. Such

shocks will introduce considerable randomness into organizations’ network ties as some ties

get randomly added while the others are randomly deleted. When shocks are coupled with

organization fixed effects, we are closer to observing the effects of, at least partially,

randomized network position on organization performance. In line with this logic, Mahmood

et al (2017) examined how 2008 financial crisis affected the relationship between

centralization of equity ties within business groups in Taiwan and these groups’ performance.

The study showed that while centralization on average was good for business groups’

performance, exogenous shocks weakened (but not totally eliminated) that effect. The fact

that exogenous shock did not completely disrupt the effect of centralization on performance,

after controlling for time invariant organization characteristics, suggested that network

position and organization characteristics are separate factors affecting organizational

performance.

Although ecosystems research has yet to develop similar research designs due to the lack

of systematic longitudinal data, we believe that this will be done very soon. As noted earlier

in this article, one can overcome the absence of longitudinal data on interdependencies

among components using patent data as well as methodological advances in the form of topic

53
modelling. We are looking forward to seeing causal studies linking a firm’s membership in

an ecosystem to performance.

However, there is already promising work showing that ecosystem dynamics have an

impact on the performance of the ecosystems’ output, irrespective of the individual

characteristics of their members. For example, Cennamo and Santalo (2019) study how

diversity of ecosystems’ output affects the satisfaction of users of the ecosystem’s products in

the context of mobile video game industry. Controlling for competition at the ecosystem

level, the authors show that early on in the ecosystem's life cycle, there is a positive effect

between diversity of the output and users’ satisfaction (as consumers value novelty in new

ecosystems) while later on the effect turns negative (as consumers want predictability within

mature ecosystems). Since the ratings are at the level of an ecosystem and not at the level of

individual companies, it seems implausible to assume that quality of all its members has

dropped when the ecosystem matured. Hence, there is something happening at the level of the

ecosystem that makes the users appreciate the quality of the output as a whole, which is not

perfectly correlated with the characteristics of their individual members.

Another empirical challenge is the definition of the boundary of an ecosystem. If we

adopt the offering-focused definition of an ecosystem (Kapoor, 2018), how far does a study

need to reach out to capture all relevant actors? For example, if we are studying

semiconductor manufacturing ecosystem, should software developers like Microsoft figure as

a part of that ecosystem? After all, software is a critical complement to semiconductors and

their value will go down if advances in software are not able to catch up. The best answer that

we have so far comes from Kapoor (2018: 2) who suggests that “for the ecosystem analysis to

be useful, the focal offer should not be too broad such that there is little overlap between the

upstream component and downstream complement offers”. By this logic, if we are studying

semiconductor manufacturing ecosystem, then software is probably not the right component

54
to consider; but when we are studying a PC ecosystem, then software is the right component

to think about. One could also use the strength of non-generic complementarities to draw the

boundaries of the ecosystem. For example, if experts are presented with ten different

technologies and they agree that there are moderate to strong complementarities among eight

and weak or no non-generic complementarities among the two (and these two also don’t have

complementarities with the remaining eight), then these two probably don’t belong to the

focal ecosystem.

We argued that interdependencies in general and complementarities in particular are

drivers of both alliance formation and of relationships within ecosystems. While researchers

frequently see complementarities in a positive light, complementarities can also have

substantial costs in the presence of asymmetric dependencies. If partner B depends on a

specific complementarity more than its partner A, then the costs (and risks) of holdup for B

will go up. This is frequently the case in relationships that involve learning races (Khanna,

Gulati & Nohria, 1998). If partner A has more options than B to deploy collectively

generated knowledge outside of their relationship, then A can decide that this relationship is

no longer critical for its success. Acquisitions can also generate asymmetric dependencies: if

firm C offers firm A essentially the same resources as firm B, then A can reduce its

dependence on the complementarities in a relationship with B by acquiring C. Under both

scenarios, even if A-B relationship exhibited symmetric dependence in the beginning, as

dependence asymmetry shifts in favour of A over time, A can increasingly attempt to extract

concessions from B. Consequently, complementarities which partner B has developed in this

relationship can generate more costs than benefits. Future theoretical and empirical research

should accommodate the evolution of the costs of interdependencies in both inter-

organizational alliances and ecosystems.

55
 Researchers developing the theory of networks and ecosystems must be very clear about

the aggregating mechanisms that translate the organizations’ positions in the networks of

relationships or networks of complementarities to the organizations’ performance outcomes.

We want to caution researchers from making strong unitary actor assumptions when studying

networks, ecosystems or both. Every time a researcher makes a statement personifying an

organization (e.g. “Firm build alliance” or “Firm manages complementary relationships with

its partners”), this assumption is implicitly made. We are all guilty of this assumption, but we

need to realize that organizations are not unitary actors with cognition or agenda, they are

coalitions of people who pursue their activities within organizational structures. Such

structures shape managerial attention, determine which individual executives allocate to

projects that involve managing external relationships and interdependencies. The more

decentralized is the organization and the more different business units manage the

organization’s interfaces with the external environment, the more difficult it will become for

a researcher to claim that the organization either sees the network of alliances (or

complementarities) and makes strategic decisions based on that vision. Lavie and Singh

(2011) in depth case study of alliance activities in Unisys has already demonstrated that many

alliances (and alliance portfolios) are born with little grand design in mind. Very often the

very executives who manage alliances or interdependencies with ecosystem components

don’t have a clear understanding of what their alliance networks or the patterns of component

interdependencies are like. While small organizations (like software start-ups) might

resemble unitary actors, large and diversified organizations like Apple, Microsoft or IBM will

not.

Of course, it is highly likely that the evolution of networks and ecosystems—and the

organizations’ positions in those structures---happens without any grand designs of business

leaders. Organizations might be simply takers of opportunities and constraints that

56
exogenously created structure provides to them in any given day and age. At any rate,

researchers need to consider to what extent unitary actor assumption is problematic in their

studies or alliances or ecosystems and formulate their theoretical arguments accordingly.

Some business leaders may foresee the emergence of ecosystem bottlenecks or could

even build them proactively. Bill Gates’ recognition that cross-platform software and not

hardware is going to be the most important bottleneck for the evolution of the PC industry is

certainly one such example. Research on interpersonal networks has already shown that

central positions help a person to improve the accuracy of her network perception (Casiaro,

1998). One can test the same relationship by surveying senior executives about their

perceptions of technological interdependencies among components of their ecosystem’s

offering as well as about the structure of alliance relationships involving the ecosystem

members. A researcher can triangulate these insights with actual interdependencies and

alliance data acquired from the archival sources. She can then examine whether senior

leaders’ perceptual errors affect their organizations’ performance, assuming again that these

people’s judgements actually matter for the network and ecosystem strategies of their

organizations.

We believe that our steps towards partial integration of organizational networks and

ecosystems perspectives will be followed by more theoretical and empirical work. Leaders in

organizations are not likely to compartmentalize their thinking about alliances and

ecosystems. Instead, they are worried about managing dependencies with the external

environment and these dependencies include both alliance ties and ecosystem component

complementarities. A further integration of these two perspectives should help researchers to

develop better models that can help these leaders as well as to jumpstart many other avenues

for theoretical and empirical enquiry.

57
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Table 1: Differences between Markets, Ecosystems and Networks

Market Ecosystem Organizational network

Mechanisms for Price Non-generic Formal contract or

coordination complementarities in the informal collaboration +
absence of full hierarchical Non-generic
control complementarities

Example Firm buys paper Firm builds proprietary A hardware and a

from a stationary hardware; independent software firms form a
supplier based on a developers write software formal alliance to engage
market price optimized for this in joint R&D
hardware. Customer
combines the two for a
final product

64
 Table 2: Key Features

Definitions Unit / level of Research questions Variables and mechanisms Data and measurements
analysis

Inter-organizational networks
research
• Inter-organizational networks are
formal and enduring inter-
organizational relationships that
are strategically significant for
their members (e.g. Gulati,
Nohria and Zaheer, 2000).
• Network theory are mechanisms
and processes that interact with
network structures to yield certain
outcomes. The theory of
networks is why network
properties have specific
antecedents (Borgatti and Halgin,
2011).
• Firm • How network positions affect
firm performance?
• Relationship
• How past network position
• Whole and/or firm characteristics affect
network future network position of a
firm?
• Do networks have universal
(e.g. “small world”) properties?
• Do universal (e.g. “small
world”) properties matter for
network performance?
• Bi-lateral dependencies • Longitudinal data on the
evolution of inter-firm
• Trust relationships (e.g. MERIT‐
CATI, CORE, RECAP,
• Information transfer
BIOSCAN and SDC)
• Joint problem solving
• Patent data
• Social norms
• Network efficiency, density,
• Signaling constraint
• Tie strength • Degree, eigenvector,
betweenness centrality
• Structural holes
• Various forms of centrality

• Network level path-length and

clustering

• Differences between firms as measures

of complementarity

• Firm market share and/or profitability

• Firm innovation output

65
Ecosystems research
• Ecosystem (general definition):
a set of actors with varying
degrees of multi-lateral, non-
generic complementarities
without full hierarchical control
(Jacobides, Cennamo, &Gawer,
2018)
• Business ecosystem:
community of organizations,
institutions, and individuals that
impact the enterprise and the
enterprise’ customers and
suppliers (Teece, 2007)
• Innovation ecosystem: a set of
actors that contribute to the
focal offer’s user value
proposition (Kapoor, 2018)
• Platform ecosystem: a core
technology onto which
complementors can connect
their complementary products
and services, often via
standardized or open interfaces
(Gawer & Cusumano, 2002)
66
• Ecosystem • Who belongs to the ecosystem?
as a whole • How do ecosystems operate?
• Focal • What are the conditions
offering required for ecosystem
emergence?
• How do ecosystems emerge?
• Does the ecosystem need a lead
firm to emerge and function?
• What is the fate of a product or
platform at the core of the
ecosystem?
• How do ecosystems evolve?
• What are the ways in which
ecosystems are governed?
• Inventive effort • Technical product reviews and
• Speed of innovation journals
• Health (or disruption) of an ecosystem • Interviews with industry experts
• Location of complementarities • Yearly surveys of companies
• Type of complementarity • Databases of products’ quantity,
quality and producers’
• Location of bottlenecks and their characteristics
severity
• Patents and interdependencies
• Modularity of the underlying technologies
• Multilateral coordination and
dependencies
• Cooperation and competition
• Governance rules
• Stage of ecosystem development
Complementarity and substitution
• Presence or absence of bottlenecks
• Design of interfaces or standards
• Customer/ user satisfaction with the
output
Figure 1: Network vs. Ecosystem

Legend: thick lines represent inter-organizational network relationships; dashed lines are non-generic complementarities.

67
Figure 2
Strength and Structure of Complementarities

68
Figure 3

Centrality and Bottleneck Components

69
Figure 4

Semiconductor Lithography Ecosystem from Ganco et al (2019).

Dashed lines represent interdependencies (complementarities) between components

70
 Figure 5

Structural Embeddedness and Component Complementarity Patterns

Hub and spoke (open) alliance network Integrated (closed) alliance network

Hub-and-spoke complementarities in Q1: radical innovation benefitting the broker Q2: radical innovation benefitting all partners

ecosystem

Integrated complementarities in ecosystem Q3: incremental innovation benefitting the broker Q4: incremental innovation benefitting all partners

71

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