Innovation Ecosystems: Turning Creative Destruction Into Economic Gold

Creative destruction is happening worldwide and no one is unaffected, from university to city to country.

Key Takeaways

• Innovation ecosystems have emerged as specialized infrastructure, enabling us to deal with complex forces like digital transformation–forces that are beyond the capabilities of most individual universities, politicians, businesses or municipalities.

• At-scale businesses also find digital transformation to be too complex to manage internally. They seek partnerships where innovation ecosystems are present, pursuing long-term useful applied research, innovation, and entrepreneurial activity.

• University administrators, politicians, businesses, and municipal planners must understand that they can positively impact and guide the specialization and adaptation of their local innovation ecosystem.

• No two innovation ecosystems are alike, in the same way no two cities are alike: leadership will need to identify specific sets of local metrics.

Comparing innovation ecosystems to biological ecosystems isn’t new, but it may be the case that some of the specifics interest readers and spur new lines of thinking. My thanks to Dr. Lincoln Smith of Thompson Rivers University in Kamloops, British Columbia: his biological sciences background and current work as TRU’s Director, Research Partnerships & Enterprise Creation yielded a fascinating, helpful perspective.

Please note, any errors of fact or logic are mine alone, and I welcome suggestions and input from readers.

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Here is a familiar story. It’s the one where a local hero decides she can’t take it anymore so she’s going to change everything. She organizes the neighbourhood and, in short order, the first booth goes up in the park, the first door-to-door campaign is a success, and things begin to move. Soon, there are regular meetings at coffee shops and eateries: eventually a gleaming community center stands where once lay a bare patch of land. 

She’s saved the day and built something lasting. Everyone is happy, and the community goes on to great things. To solve the problem facing her community she designed a solution meeting their specific needs. She followed a process everyone understands: small to big, booth to community center, all in keeping with the requirements of the people and the place they live.

Intuitively, we understand why her solution worked for her community: it’s designed for them, from location and design to programming. We also understand that if we took her community center and dropped it into the next town down the road it might not work at all, entirely missing that town’s unique qualities and needs.

Evolving In Place

In the same way, Fredericton, NB, for example, and San Antonio, TX, differ in their hopes, needs and objectives. Both places are the specialized product of decades of complex social and economic interactions. In Fredericton’s case, amplified by the effects of its Atlantic Canada location and geography, for San Antonio the south Texas plains. It follows that each city a hundred years from now will be very different, due to the same processes.

The specialization of Fredericton is impacted, often very significantly, by what evolutionary biologists call the disturbance regime: outside forces affecting a given environment. In socioeconomic terms, ‘disturbances’ include forces like digital transformation and shifting global demography. Driven from within and without, Fredericton is constantly in flux: the socioeconomic change the city experiences is dynamic, interactive and multidimensional.

Within the city, these interactions combine to reward some organizations and industries and others not. Some organizations adapt to the new conditions, others do not, falling by the wayside. What is causal to successful adaptation in a digitally transformed world? Think of it this way: Fredericton is a specialized city experiencing waves of economic succession. Each wave can be influenced through skillful political, business and institutional management, creating better conditions for inevitable next wave. Successive waves make the economy more complex, more diversified in its economic activities. Diversification adds resiliency: the failure of one business or industry now has a reduced effect. 

Using Diversification and Specialization to Harness Creative Destruction

Diversification brings economic gold, a point politicians of all levels should note: “Developing the capabilities to create and produce complex products is a viable path to secure long-run growth as these capabilities tend to evolve in self-reinforcing processes of recombination.” That is, a more skills-diversified workforce is an important condition for research, breakthrough innovations, and economic growth to occur.

From all of this, entirely new organizations emerge, taking advantage of the new conditions. This is creative destruction at work, the term coined by economist Joseph Schumpeter to describe the constant process of reinvention, the new replacing the old. Creative destruction is happening worldwide; no one is unaffected, from university to city to country. It is ushering in entirely new systems of competitive thinking and socioeconomic strategy. Biologists refer to this process as succession: “the process by which natural communities replace (or “succeed”) one another over time.” (Though occasionally knocked back by disturbances.) 

Changing Perspectives Helps See Things Differently

There is a good reason to switch lenses between socioeconomic thinking and biological. An altered perspective can highlight what’s different, e.g. signals that business is no longer as usual. Thinking about innovation ecosystems as “living,” and specializing over the course of time to their location immediately brings to mind what individual innovation ecosystems specifically need to thrive–be it in Atlantic Canada or the south Texas plains.

We see more clearly that with intervention and planning we can speed the innovation ecosystem’s passage through the set stages of development for a specific region. Specialization does not need to be a passive process. And as it succeeds, the more it specializes for its environment as redwoods do in temperate rainforests, the people, processes and the built environment that comprise innovation ecosystems become more cohesive, resilient and sustainable.  For this reason, it is vital for politicians, university and research administrations, and municipal planners to do everything in their power, now, to develop sustainable innovation ecosystems fit to their region. 

The Mission: Get to Sustainability

The overarching challenge is getting to sustainability. A sustainable innovation ecosystem powers productive specialization, and the nature and rate of succession, both of which are tied directly to things that matter: high paying skilled work, happiness, a bright future. This despite disturbances and macro-factors permeating every walk of life, everywhere. 

Questions emerge: Is the local university generating enough applied research, and enough educated, talented people to supply a steady stream of innovation into the local municipality? Is the university producing enough of both to attract at-scale companies, the ones that fund research and labs but which also have an expectation that useful applied research will emerge in enough volume and/or importance to power their own innovation efforts? Does the university have the necessary infrastructure to support its research ambitions?

Politically, is there a clear understanding that applied research leads to innovation and entrepreneurialism, and that the latter is a powerful reason for skilled labour to stay? That the presence of skilled labour attracts at-scale businesses? Do they see the virtuous cycle of at-scale businesses forming relationships with universities, thereby increasing rates of applied research and the presence of skilled workers? Do politicians see the connection between the infrastructure required for innovation and the surrounding built environment? Commute times, housing, and community services are all leave-stay decision points.

A Complicated Challenge For a Complicated Time

Complicated doesn’t begin to describe the challenge; it is complicated beyond most of our capabilities. But digital transformation would not be the world-changing force it is if it were not massively complex.

Yet it is complexity where innovation ecosystems shine. Innovation ecosystem leaders are presented with a unique opportunity to transform entire communities by “creating multiple mixing and matching opportunities,” overcoming the “high coordination costs of a diversified workforce”. This sounds a bit dull–until envisioning the culture, places, education, networks, people, creativity and constant effort it takes to cultivate a sustainable social, economic and technological innovation ecosystem. 

Digital transformation is so complex that even the largest companies forge long-term partnerships with universities and specialized technology companies in direct response. They need innovation ecosystems, they need their wellspring of research, diverse talent base, and emerging technologies. They need help getting it right. Innovation ecosystems provide a local destination for applied research and emerging leaders’ prototyping and go-to-market testing needs.

What Lies Ahead

The challenges are fairly straightforward. If innovation ecosystems stand the greatest chance of becoming sustainable through specializing in their local area, which metrics should we use? Which activities lead to the greatest outcomes? Which activities should we stop doing? Where do we invest, who do we hire? Previous measures, like intellectual property, mergers and acquisitions, and jobs created don’t capture the headwaters of innovation ecosystems–applied research–nor do they measure arguably the most important  element of all, interaction effects: “a society of highly specialized individuals, one that has a greater variety of expertise, is more likely to be able to combine old ideas into new technologies.”

How then to manage this? How to compete effectively when other regions, cities or institutions have a clear head start? What of towns and cities where there is no university or college? Striking the right balance between openness and standards, implementing suitable governance models, and identifying the leadership skill sets needed to cultivate innovation ecosystem success are all complex, yet solvable challenges.

We began with a problem-solving story that ended on an obvious point: design solutions to meet specific needs. For innovation ecosystem leaders, the challenge is more complicated but the reward immeasurable: local, long term innovation and growth building a culture of resilience and happiness.