Digital Business Ecosystems: Innovation & Architecture

Profiting from Innovation in Digital Business Ecosystems

• Digital transformation changes architecture influencing value creation in digital ecosystems
• In industrial era, products had modular architectures where bottlenecks determined profit
• During the digital era, products have layered modular architecture
• In the digital era, ownership of control points is important for profiting from innovation
• Product and industry architecture interplay is essential for value creation
• Effects on competitiveness and industry dynamics remain unclear
• Control points are a novel lens reflecting bargaining positions on a layered modular architecture
• Smart farming case study identifies strategic, technical, generic control points, and institutional boundaries

Strategic and Technical Control Points

• Instrumental in determining value creation and value capture positions
• Incumbents, diversifying entrants, and new entrants follow a seesaw pattern in setting control points
• A framework is proposed to analyze dynamics within digital business ecosystems
• Managerial implications are offered for firms optimizing their ecosystem strategy
• Policy makers are equipped with factors to support institutional context development

Transformation of Product and Industry Architecture

• Driven by reprogrammable, homogeneous, and self-referential digital technologies
• Modularity, convergence, and generativity alter the dynamics of control
• Modularity reduces the effectiveness of bottlenecks
• Technological solutions can now be replaced more swiftly
• Convergence decreases the value of specialized complementary assets

Knowledge Balance for Firms

• Firms need to balance the transition from analog to digital ways
• Incumbents have traditional industry knowledge and control strategic points are market-customer link
• Lack knowledge in digital technologies
• New entrants have component knowledge of digital technologies and understand value capture
• Diversifying entrants have knowledge of adjacent industries and seek to capitalize on them
• Profiting from emerges digital business ecosystems relies on controlling points of value creation
• It is moderated by ever changing component and industry knowledge

Control Points Perspective

• Positions between layers on the layered modular architecture
• Bridges components of physical products and digital functionality
• More resistant to changes in digital business ecosystems
• Appropriate lens for understanding co-evolution
• They provide value creation and capture mechanisms

Research on Control in Digital Ecosystems

• Sheds light on governance aspects, role in digitizing platforms
• It ensures generativity while maintaining control
• Control points influence value creation and capture
• How control points in value networks dynamically change over time, enabling superior profits
• How firms use control points for positioning themselves in industrial emerging ecosystems
• How firms anticipate future value creation and set control points under uncertainty

Digital Technologies and Industry Evolution

• Industries architectures changing from industrial to digital businesses affect PFI
• Strategic control was valuable, technical control points are influential in profiting from innovation
• Single-case study is conducted via agriculture case with actors affected by smart farming
• The study reveals two control points as technical and strategic which are enabled by generic and shaped by boundary conditions
• Various actors follow value creation and capture strategies
• Evolution and interplay between industry and component knowledge is unraveled
• Study contributes to extant literature in three ways

PFI in the Digital Age

• Highlights control points as a way of understanding PFI in the digital age
• Sets them apart from bottlenecks and complementary assets in the industrial age
• Explores of how industry and component knowledge affects bargaining power
• Transition to digital shows dynamics of how actors behave in ecosystem to predict actions

Digitalization of Product and Industry Architectures

• Value creation and capture require technical or product systems
• Also need understanding of the industry architecture in which system is embedded
• Innovation in products changing competitive positions of firms
• Structure and relationships of actors examined
• Rise of digital changing both product and industry architectures

Industrial Era vs Digital Era

• Digitization of physical light bulbs creates smart home systems that include sensors
• WiFi connectivity devices and digital applications remote control services
• Rendering product architectures more fluid and decreasing heterogenity of convergence into ecosystem value
• Organizations need technology to learn features and system interaction

Digital Technology

• Allows to deviate from existing path dependent behavior to create capabilities
• Digitalizing industry architectures transforms value networks into digital businesses ecosystems
• Digital architecture changes, turning businesses more heterogenous with constant customer preference change
• Learning about product and industry evolution becomes imperative

Appropriation Shifts

• Digitization Spurs complementors/partners
• It requires embellishment to framework
• Complementary and approprability determined who profits from the digital-age innovation
• Firms and users recombine digital technologies breaking digital mechanisms and appropriation
• Value Capture becomes multi level and new control is required like customer access
• See illustration of modular connections control points components incumbents differentiating entrants
• Ownership of these is key

Ecosystems and Platforms

• Literature gives insights to control
• Governance of ecosystems is crucial
• Appropriation is determined by access: focal firms/complementors benefit to innovation/challenges

Governance/Management

• Firms need what is not allowed
• How product controls play role with keeping control
• Focus need to manage creation by maintaining digital of business

Key Insights

• They are gaining control of PFI
• Control in Tele communication industry studied by MIT and coined these positions "control points"
• Data shows ecosystem involves selection selecting partners and to control and its value position
• Ecosystem strategies found in data industries that chose between interdependencies with control point

Control Points

• Control the the competition to make sure things are always aligned with it
• In other words can be dynamic including competitive dynamics that include to anticipation what needs to be accomplished
• Different ecosystems in the world lead company products with a control and they influence ecosystem
• Regulations that are in effect may or affect the results

Explore the impact of digital business ecosystems on resource valuation and the shift from industrial-age architectures. Understand key considerations for firms transitioning to digital ecosystems, particularly in sectors like agriculture adopting smart farming. Examine value creation, control points, architectural changes, and the balance of network effects in multi-sided platforms.