Center for Global Communications

In Japan it is widely understood that the ICT Sector has been one of the main contributors to the country’s catch-up and post-Second World War economic growth. However, it is also understood that more recently parts of this sector have been falling behind in terms of international competitiveness, an issue that has been receiving increasing attention from both the companies concerned and the Japanese government.

The aim of this article is to suggest that ecosystems thinking, and more specifically what I call Symbiotic Open Innovation, may assist in the processes of diagnosis and finding solutions.

SOCIO-ECONOMIC ECOSYSTEMS

Charles Darwin’s ideas are a good place to begin an analysis of socio-economic sectors (that in combination make up any economy)². Darwin’s ecosystem consists of populations of different species interacting in and with a changing environment. Particularly important are the interdependencies between the processes that generate variety within species and the processes that select from that variety on the basis of deemed fitness. Different species, and individual members of a species, may compete. However, cooperation (for example through symbiosis, to which we will later return) may be an important determinant of fitness.

The Darwinian system is a restless system in that it is in a constant process of change as variety is generated, the fittest variants are selected, and species adapt. Putting it this way makes the close comparison with the capitalist system evident. Capitalism is also a restless ever-changing system as new innovation-knowledge throws up new products and services, new processes and technologies, new forms of organisation, and new markets. In turn, these change the fortunes of populations of firms and of individual firms as the market and other selection mechanisms reward the fittest and punish the unfit.

For those studying the capitalist economy the Darwinian metaphor should be particularly appealing. Rather than seeing the players (firms, consumers, governments) as maximising their positions on the basis of given knowledge and settling into equilibrium – as conventional economics sees it – we have a constant stream of new innovation-knowledge that challenges the status quo, forcing the players to learn, experiment, and adapt in an attempt to survive and thrive as best they can in their changing ecosystem. Surely the latter world is the one we see around us as company employees, consumers, and members of government? Significantly, however, orthodox economics still tends to cling to the former conceptualisation.

THE NEW ICT ECOSYSTEM

Who are the main species (groups of players) in the New ICT Ecosystem (i.e. the post-Internet ICT sector)? At a high level of aggregation there are four groups of players: ICT equipment providers; network operators (e.g. telecoms, cable and satellite operators, and broadcasters); platform, content and applications providers; and final consumer-users. They are organised into a hierarchically-structured layered architecture. This is shown in Exhibit 1.

EXHIBIT 1³

The players in this ecosystem, it should be noted, may be involved in more than one layer. Furthermore, over time the boundaries between layers tend to shift (as indicated by the dotted boundary lines).

What drives evolutionary change in the New ICT Ecosystem, making it the restless system that it is? The answer is changing innovation-knowledge, that is, new products and services, new processes and technologies, new forms of organisation, and new markets. But how do these innovations happen? The answer to this question is that innovation emerges largely from the symbiotic open innovation relationships between the four groups of players.

SYMBIOTIC OPEN INNOVATION

Symbiosis comes from the Greek meaning to live together. In order to survive and thrive under the selection processes of the ecosystem firms need to ‘live together’ with their customer-users and with complementary firms. The latter include their suppliers, partners, and competitors (from whom they may learn). In the case of the New ICT Ecosystem each of the four groups of players interacts with all the others, making a total of six open symbiotic relationships. It is out of these relationships that most innovation emerges. The six relationships are shown in Exhibit 2.

EXHIBIT 2⁴

However, these six symbiotic open innovation relationships are not the end of the story. The reason, simply, is that the relationships themselves are shaped by a set of other factors that must therefore be included in the analysis. These factors include institutions which Noble Laureate Douglass North defines as the rules of the game that include, for instance, regulation and competition law. Universities and standardisation are other institutions which, although not defining formal rules, will influence the symbiotic relationships. Other determinants such as the financialecosystem will also influence the relationships (as the current global financial crisis is teaching us).

CHALLENGES FOR THE JAPANESE ICT ECOSYSTEM

Ecosystems thinking and the analysis of symbiotic open innovation relationships can be useful in Japan at both the macro and micro levels. At the macro level this analytical framework can allow both ICT companies and government policy makers to better understand some of the most important determinants of innovation. In turn, this could have a significant impact on attempts to increase productivity and economic growth. At the micro level the framework can help companies to improve the design of their innovation ecosystems.

Let us begin at the macro level. As a broad generalisation it is true to say that symbiotic relationships between complementary Japanese companies on the whole work very well. There is a large literature analysing the effectiveness of many of the long-term obligational relationships that bind Japanese companies together, for example in the automobile sector. The benefits of long-term loyalty and trust, often missing in pure short-term market relationships, have benefited many Japanese companies.

However, in a world of greater specialisation and division of labour operating at a global level it is increasingly necessary that Japanese companies form close relationships with customer-users, suppliers, partners, and competitors outside Japan. This is important to benefit from the specialised knowledge that non-Japanese companies and consumer-users may have. But how well do symbiotic relationships formed with non-Japanese outsiders work? To what extent do they contribute to innovation? How can they be improved? These are three important questions that need to be answered.

At the micro level Japanese ICT companies have a good deal to gain from re-examining the symbiotic open innovation relationships that form part of their specific ecosystems. The objective is to re-design these relationships in order to increase their effectiveness. Particularly important, as at the macro level, are the relationships that exist with non-Japanese players (including companies and non-firm players such as foreign universities) outside Japan. The same three questions asked at the macro level (see last paragraph) should also be asked at the micro level.

CONCLUSIONS

Ecosystems thinking and the related idea of symbiotic open innovation has a good deal to offer the Japanese ICT Ecosystem and the Japanese economy more generally as has been made clear in this article. However, the devil is in the detail and hard and self-critical work remains to be done in order improve the design of the innovation process in Japan.

Martin Fransman, GLOCOM Fellow

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¹ This article is based on Martin Fransman, The New ICT Ecosystem – Implications for Policy and Regulation (Cambridge University Press, forthcoming) that won the 2008-09 Joseph Schumpeter Prize.

² For those who may be dubious about starting a socio-economic analysis with a biological analogy it is worth recalling that in formulating his own ideas about the evolutionary origin of biological species Darwin himself was heavily influenced by the thinking of socio-economists such as Adam Smith and Thomas Malthus, particularly regarding the competitive struggle for survival.

³From M. Fransman, The New ICT Ecosystem.

⁴From M. Fransman, The New ICT Ecosystem.