OrganizationScienceVol. 22, No. 5, September–October 2011, pp. 1214–1223issn 1047-7039 �eissn 1526-5455 �11 �2205 �1214 http://dx.doi.org/10.1287/orsc.1100.0605

© 2011 INFORMS

Organizing Ecologies of Complex Innovation

Deborah DoughertyManagement and Global Business Department, Rutgers University, Newark, New Jersey 07102,

doughert@business.rutgers.edu

Danielle D. DunneSchool of Management, Binghamton University, State University of New York, Binghamton, New York 13902,

ddunne@binghamton.edu

For many sectors like health care, financial services, or renewable energy, new products and services are generated byan ecology of business firms, nonprofit foundations, public institutions, and other agents. Knowledge to innovate is

dispersed across ecologies, so no single firm or small group of firms can innovate alone. Moreover, many new products andservices in ecologies such as health care or energy are complex or comprise many parts with unknown interactions. Newproducts, knowledge, business models, and applications all emerge unpredictably over considerable time periods, as variousagents in the ecologies of innovation interact with and react to the actions of others. However, the existing organizingstructure in these ecologies stifles emergence and precludes much innovation, simply because theory and practice do notadequately address how to organize for complex innovation. We develop a preliminary model for organizing ecologies ofcomplex innovation. We suggest that innovations can continually emerge productively if people work locally in ecologiesto set and solve problems of orchestrating knowledge capabilities across the ecology, strategizing across the ecologyto create new businesses and applications, and developing public policies to embrace ambiguity. Using examples frombiopharmaceuticals and alternative energy, we develop specific organizing ideas that can be examined and elaborated upon.This new direction for organization science integrates existing ideas around a new kind of organizing and shows howorganization science can add real value in addressing major challenges of public welfare and safety in the 21st century.

Key words : complexity; innovation; ecologiesHistory : Published online in Articles in Advance February 8, 2011.

IntroductionOne important new direction for organization scienceis to understand how to organize ecologies of multipleorganizations, institutions, and other agents to producestreams of complex product and service innovations.Some domains of collective activity such as healthcare, alternative energy, the Internet, or financial ser-vices affect public welfare enormously, positively aswell as negatively. Ongoing innovation in these domainscan enhance public welfare by, for example, reducingthe incidence of human diseases, creating and usingenergy in ways that do not pollute the natural envi-ronment, or expanding access to credit without eco-nomic crashes. Product and service innovation involvesthe creation, combination, and recombination of knowl-edge to meet needs in new and better ways and to cre-ate new uses. However, in these ecologies, knowledgeand other resources are dispersed across many differententities, so multiple organizations must actively partic-ipate in innovation. Innovations are generated not bysingle firms but by the entire ecology. Moreover, innova-tions in these domains are complex. These new productscomprise many parts with unknown and unpredictableinteractions (Simon 1996, Anderson 1999), the prod-ucts emerge from the innovation process only after manyyears (Van de Ven et al. 1999), and each project may

require enormous investments without any assurance thatviable new products will result.

The challenge of organizing ecologies of complexinnovation concerns how to foster the necessary col-laborations among so many diverse organizations oversuch long time periods under such ambiguity. To addressthis challenge, we synthesize existing theory about tech-nology and innovation management, complexity, andinterorganizational relations into a preliminary model fororganizing ecologies of complex innovation. Organiza-tion science contains vital insights for organizing con-tinuous innovation in health, energy, and other complexecologies; however, these insights are not fully lever-aged because there is currently no coherent model forapplying them to ecologies.

A new model is needed for two reasons. First, mostapplications of organization science center on the firmand firm performance and on short-term and incrementalinnovations, and they pay little attention to the inter-actions of public and private welfare (Mahoney et al.2009). Theories of change and evolution also empha-size equilibrium rather than disequilibrium (Stacey 1995,Chiles et al. 2004, Plowman et al. 2007), so opening uporganization science to ecologies of complex innovationwill broaden the thinking. Second, these ecologies are

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now organized in ways that reinforce equilibrium, pre-venting an emergence of a new order, as examples inthe biopharmaceuticals, new energy, and financial ser-vices show. In biopharmaceuticals, the “monetization ofintellectual property” (Pisano 2006, p. 131) fragmentslearning and prevents new understandings from combi-nations. Firms in this sector are dealing with their R&Dproductivity crisis by shutting down research sites andoutsourcing work to low-cost countries, which furtherfragments work (Engardio and Weintraub 2008). Fornew energy, most technologies are in the era of fermentand are based on diverse operating principles that donot work well. Energy requires that whole systems oftechnologies be put together, but it is difficult to createworking systems with era of ferment parts, especiallywhen pricing favors the existing energy system based onfossil fuels (Totty 2010). The financial services sectorcollapses repeatedly, but theories do not accommodatecomplexity: “0 0 0 classical economics has no frameworkto understand ‘wild’ markets, even though their exis-tence is so obvious to the layman” (Bouchaud 2008,p. 1181).

New perspectives are essential for organizing theseecologies, because new products, new knowledge, andnew applications will not arise unless emergence isenabled and shaped effectively. To develop a preliminarymodel, we first summarize organization science ideas oncomplexity to highlight the dynamics of emergence thatneed to be enabled by organizing. Next, we summarizeinsights from technology and innovation managementabout what activities need to be organized. This litera-ture has already sorted out what to organize for continu-ous streams of new products, although most of the workis firm-centered. We focus on three activities: orchestrat-ing knowledge capabilities to support a variety of newproduct efforts, enabling ongoing strategizing to frameand direct new products over time, and developing pub-lic policy to ensure public safety and welfare. Innovationtheory incorporates complexity to a degree, and we buildon these ideas to suggest how to foster the dynamicsof emergence for each of the three activities. We illus-trate ideas with examples from biopharmaceuticals andalternative energy.

Complexity and the Dynamics ofEmergenceIn the introductory essay to Organization Science’s spe-cial issue on complexity, Anderson (1999, p. 216) pointsout that complexity has been a central construct in thevocabulary of organization scientists since the open-systems view in the 1960s. According to Simon (1996),a complex system comprises a large number of parts thathave many unpredictable interactions. Although thereare many theories of complexity (Andriani and McKelvy2009), organization scientists build on complex adaptive

systems (e.g., Chiles et al. 2004, Plowman et al. 2007),and we will as well. The hallmark of complex adap-tive systems is emergence: at any level of analysis,order is an emergent property of individual interac-tions at a lower level of aggregation (Anderson 1999).Order refers to social structures, knowledge, health,business strategies, and regulatory regimes. All of theseorders emerge from interactions among people and otheragents.

Emergence is a self-organizing process: system-levelorder does not arise from the imposition of an overallplan by a central authority but from the action of inter-dependent agents who are purposefully pursuing indi-vidual plans based on local knowledge and continuouslyadapting to feedback about the actions of others (Chileset al. 2004). Self-organizing is based on the idea of “dis-sipative structures.” Unlike closed systems that degen-erate to maximum disorder, a dissipative structure is“0 0 0 an organized state that arises when a system is main-tained far from thermodynamic equilibrium when energyis constantly injected into it” (Anderson 1999, p. 222).To enable self-organizing emergence, the system needsto be pushed out of equilibrium toward disequilibrium,because that sparks emergent changes. In addition, emer-gent innovative activities must continue because theygenerate the energy needed to keep the system in dis-equilibrium. In systems of innovation that are inher-ently complex such as new drugs and new energy, newproducts, new knowledge, and new applications emerge.They cannot be planned, but they will not arise unlessemergence is both enabled and shaped effectively.

Emergence is both familiar and disconcerting in themanagement of technology and innovation. Familiarexamples include technology life cycles that evolve fromeras of ferment through dominant designs into tech-nology trajectories (Dosi 1982). Brown and Eisenhardt(1998) use the idea of edge of chaos to refer to an inter-mediate zone where organizations never quite settle intoa stable equilibrium but never fall apart either, because afew simple structures generate complex, adaptive behav-ior. Schumpeter’s (1942) famous phrase about the cre-ative destruction of entrepreneurial actions is also afamiliar application of emergence. But emergence is alsodisconcerting, because what actually emerges cannot becontrolled or predicted. In the case of new drugs andnew energy systems, products may take 12 to 16 years toemerge, during which time enormous sums of money areinvested ($1.2 billion per new drug project) without anyassurance that projects will result in a workable prod-uct that generates profits. Furthermore, the knowledgeneeded to create products emerges: new understandingsof diseases emerge that transform understandings of howdrugs work, scuttling some drug projects but opening upnew approaches. Applications also emerge, so the waypeople use new products will change, which changes thekinds of innovations that can be marketed.

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Organization scholars are developing a theory aboutthe dynamics of emergence that can keep systems bal-anced in disequilibrium. We summarize three dynam-ics here. The first dynamic, highlighted by Anderson(1999), is connections: emergence can only happen ifthere are enough connections between agents—people,organizations, knowledge systems—so that new patternscan emerge. Emergence is initiated by a variety of fluctu-ations that occur outside the norm, so the various agentsneed to interact and react to feedback about the actionsof others (Lichtenstein and Plowman 2009). The seconddynamic is composed of deviation-amplifying activitiessuch as positive feedback that move the system towarda new kind of order. The fluctuations enabled by all theconnections build nonlinearly so that the emergence ofone action or event increases the likelihood that othersimilar events will emerge, amplifying and reinforcingthe fluctuations. Floricel and Dougherty (2007) suggestthat value creation can persist if organizing enables theheterogeneity of possible outputs to be created, explored,experimented with, and learned from over time. Thethird dynamic enables new orders to come into beingand comprises coordinating mechanisms that recombine,reuse, and recreate existing elements into a new orderthat increases the system capacity. This dynamic reflects“0 0 0 constructive emergence through self-organization,which occurs when the agents/resources in the systemrecombine in new patterns of interaction that tend toimprove system functioning” (Lichtenstein and Plowman2009, p. 620). This dynamic relies on deep structures,such as fundamental organizing principles, and businesslogic that structure collective action (Drazin and Sande-lands 1992). We include in this third dynamic damp-ening feedback that slows amplification and keeps thesystem from spinning out of control.

Insights from Innovation Management onWhat to Organize for Complex InnovationResearch on technology and innovation managementhas identified qualitatively distinct activities that needto be organized in their own right to continuouslycreate, develop, and launch new products or ser-vices (Clark and Fujimoto 1991, Leonard-Barton 1995).Dougherty (2001) defines these innovation activities inthe terms of social practices of ongoing problem settingand problem solving: problem setting involves defin-ing the things of the situation and framing the contextfor addressing the problem, whereas problem solvinginvolves experimenting with alternate solutions (Schon1983). We focus on three practices of problem set-ting and solving for innovation: orchestrating knowl-edge capabilities to support multiple innovation projects,ongoing strategizing to frame and direct new productsand services over time, and developing public policyfor public safety and public welfare so that safe yet

productive experimentation continues (Rosenberg 1980,Mahoney et al. 2009). Other innovation activities alsoneed to be organized; thus our model is an initial sketchof organizing ecologies for complex innovation. How-ever, these three activities are central to innovation.

These innovation practices of problem setting andsolving also reflect the practice-based approach(Feldman and Orlikowski 2010, Dougherty 2004). Theyinvolve ordinary everyday interactions among peoplewho are engaged in innovation work as they negotiatemeanings for setting problems in context, construct pos-sible solutions, and experiment with alternatives overtime. In the next three subsections, we describe eachsocial practice of problem setting and solving separatelyto detail what needs to be organized in the ecology forcomplex innovation and how these activities can be orga-nized to enable emergence. Each subsection briefly sum-marizes existing research on how to enable the particularpractice within a firm and how to enable the dynamicsof emergence for that practice. Then we extend theseideas to the ecology and suggest how to reconfigurethese firm-centered ideas to help organize the activityacross the innovation ecology. The goal is to considerhow to enable the ongoing emergence of new under-standings for new products, new business models toframe the new products, and new policies to enable safeexperimentation.

Orchestrating Knowledge Capabilities toSupport InnovationOne innovation problem to be continually set and solvedis the development of knowledge capabilities that sup-port a variety of individual projects (see the litera-ture summary in Dougherty 2001, 2006). Managerslearned that they cannot develop knowledge special-ties such as R&D, manufacturing, or marketing to sup-port innovation project by project. Instead, they hadto transform organizational knowledge specialties intolong-term capabilities that could support a variety ofinnovation projects. Organizations learned to use theirtechnology and science to create functionalities such asminiaturization, flexible materials, or enhanced speedthat could be leveraged in unique ways for differentproducts. They also learned to use manufacturing capa-bilities to enable agile production and supply chain man-agement and to use marketing capabilities to understandnew needs and opportunities. The social practice of set-ting and solving the problem of developing knowledgecapabilities for innovation required a shift in thinking,from managing knowledge specialties separately in theabstract to continually shaping knowledge specialties forvalue creation through ongoing innovation (Burns andStalker 1961, Jelinek and Schoonhoven 1990). Manytechniques have been developed to facilitate this prac-tice, such as product architectures for different markets(Sanderson and Uzumeri 1997), technology platforms

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(Meyer and DeTore 2001), and product portfolios thatdefine links among products and capabilities (Wheel-wright and Clark 1992).

The innovation literature also suggests specific waysto foster the dynamics of emergence for knowledgecapabilities. To foster the first dynamic of connections,innovative organizations link up knowledge capabilitieswith each other and with business needs so that newinsights can emerge. For example, Clark and Fujimoto(1991) describe tool-building capabilities to surfaceproblems in new automobile designs and link thesedesigns with factory designs. Leonard-Barton (1995)describes “T”-shaped skills that combine a deep under-standing of a specialty with an intimate appreciationfor how the specialty interacts with other knowledge.To foster the second dynamic of deviation amplifyingactions, researchers find that transforming knowledgeat boundaries enables people to create new knowledgethat combines separate insights into new configurations(Bechky 2003, Carlile 2004). Organizations need todeliberately develop mechanisms for knowledge trans-formation (Dougherty 1992). To foster the third dynamicof recombining and stabilizing new orders of knowl-edge, participants need to focus on the actual activi-ties of product innovation, which becomes a commonground. Knowledge capabilities are deliberately devel-oped to work in applications and to flow into productinnovation, and not simply for their own sake (Stokes1997). Focusing on the actual activities of innova-tion is a deep structure that helps diverse people tocollaborate.

Complex innovations such as biopharmaceuticals andalternative energies also require continuous developmentof knowledge capabilities such as new scientific under-standings of diseases, how to convert cellulosic fiber tobiofuels, or how to create more effective photovoltaicreceptors. However, creating knowledge capabilitiesfor complex innovations requires active participationof multiple organizations, agencies, and institutions,because any one of thousands of research labs, universi-ties, businesses, regulators, foundations, and other agen-cies around the world might have an essential clue forhow to develop a particular new product. We build onideas already developed in organization science to sug-gest how to enable the dynamics for knowledge emer-gence for new products in ecologies.

Standard setting bodies are one way to organize build-ing ecology-wide knowledge capabilities for innova-tion. Negotiating ecology-wide standards helps everyoneinnovate more effectively. Ecology-wide standards guideinteroperability among components, enable separatefirms to create their own components that can fit intothe systems shared among them, and allow for the ongo-ing evolution of the science and technology associatedwith the standards (e.g., Tushman and Rosenkopf 1992,

Dosi 1982). Standards also evolve; so rather than con-strain development, they can open new paths for knowl-edge development. Although organizing standards insetting activities is challenging, research shows that peo-ple with divergent interests can forge a consensus thatkeeps the process from being bogged down in self-interests (Jain 2011). Standards enable many connec-tions among knowledge components that can lead to newunderstandings, and they provide a common ground thatallows recombination to self-organize.

The existing energy system did not emerge in theUnited States until common standards were developed,such as a standard for alternating current that enabledlong-distance transmission (Hughes 1983). The emer-gence of new energy systems also requires new stan-dards that define common elements and interfaces. Drugdiscovery also benefits from standards, and pharma-ceutical companies are already forming consortia topool information and conduct collaborative research todevelop biomarker standards. One consortium has devel-oped biomarker standards that signal kidney injury atthe preclinical stage of development (biomarkers indi-cate that the drug binds to particular proteins; see Rai2010). This and other consortia deal explicitly withpatent rights, according to Rai (2010), and are adopt-ing some policies already developed by standards-settingbodies in the information and communication technol-ogy industries. The existing systems of drug discoveryand alternate energy can begin to move away from cur-rent equilibria because new combinations of knowledgeenabled by standards solve real problems, provide realvalue to many participants in the ecology, and open upnew possibilities for new standards.

R&D consortia that work on specific problems every-one has that inhibit innovation are another way toorganize building ecology-wide capabilities (Ring et al.2005). Various nonprofits such as the Murdock Institutein North Carolina are organizing efforts to understandcertain diseases more fully to enable drug developmentefforts. Pisano (2006) describes “venture philanthropy”that combines nonprofit philanthropy with venture cap-ital in providing funds in stages as milestones forresolving particular problems are achieved. He suggeststhat proactive management of network collaborators canfacilitate knowledge integration and sharing. Alterna-tive energy systems and other emerging complex inno-vations are also plagued by specific science and tech-nology problems that block participants from innovatingeffectively. For example, ethanol derived from biomasshas intrinsically high vapor pressure and cannot use theexisting pipe infrastructure. It has to be trucked to des-tinations, which increases costs and limits applications.The Pew Center for Climate Change describes a partner-ship between DuPont and BP on developing an alterna-tive kind of biofuel that works like gasoline.

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R&D consortia can also work on another ecology-wide problem of knowledge development: the many dis-ruptive technologies that are continuously generated inbiopharmaceuticals to create or search for new molec-ular entities, test possibilities, and measure biologicalfunctioning. Many of these technologies remain in the“era of ferment” and do not function well because theyare rushed into application (Pisano 2006). Academicstend to create revolutionary new technologies but do notdevelop them further for application, because publica-tion is central. Biotechnology firms also may not developtechnologies past the era of ferment stage because othersmall firms can easily enter the sector and compete(Sammut 2005). A collective effort to develop a fewcore technologies into the dominant design phase couldbenefit many parties in the ecology, because standardiz-ing the technologies for a period around more effectiveperformance would make them more valuable for thecompanies trying to sell them and for customers in largepharmaceuticals and hospitals trying to use them. Sim-ilar dynamics of limited technology development oper-ate in alternate energy as well and may be even worsebecause customers and applications are extremely frag-mented (Totty 2010).

In summary, we suggest a few simple ways to enableconnections among knowledge bits and agents that mightstart pushing the biopharmaceuticals, alternative energy,and similar complex innovation systems out of equi-librium and initiate the emergence of new knowledgeand understandings that can enhance particular innova-tion efforts. Standards-setting bodies, R&D consortia,and problem-solving efforts are already forming, and theneed to do so seems fairly obvious. These new combina-tions of knowledge can be self-organizing if enough ofthem are initiated among enough participants, becausethe essential knowledge these associations produce can-not be produced by a single firm or small groups offirms. Everyone in the ecology could benefit. But pres-sures for equilibrium are also strong, so the emergenceof new knowledge capabilities may need to be activelyand deliberately fostered. The failure to focus on thecommon ground of innovation is one major buffer thatdampens emergence. Ecology participants still createtechnologies and sciences for their own sakes rather thanto support innovation (Sammut 2005). Even academicinstitutions seek to protect their intellectual property togenerate income, but separate inventions simply expandthe landscape of search, according to Pisano (2006),which only makes complex searching more challenging.

This summary of ecology-wide knowledge emergencefor innovation also raises important questions for orga-nization science. For example, how does complex learn-ing unfold? What exactly are the everyday processes ofcomplex new product development, and how can they beenabled? How many “starter” standards bodies and R&Dconsortia are needed to shift ecologies such as these out

of equilibrium? How many connections of what kindare needed within and among these collective bodies togenerate the fluctuations and amplifying actions that canlead to knowledge emergence? Where are the absorptivecapacities? If the knowledge is generated by the ecol-ogy, the then absorptive potential might also exist onlyin the ecology. Knowledge transformation at boundariesis very difficult, even within firms for incremental inno-vation. How can transformations be fostered in ecolo-gies composed of disparate, competing agents? Finally,building ecology-wide knowledge capabilities for inno-vation cannot work without strategies that direct energiesand attention and public policies that foster collaborationalong with public safety and welfare.

Ongoing Strategizing to Frame and DirectContinuous Product InnovationA strategy that defines how the ecology will use inno-vation to accomplish goals is necessary to enable theongoing orchestration of knowledge capabilities forinnovation. Strategizing to frame ongoing developmentof new products and new knowledge capabilities isanother innovation problem to be continuously set andsolved. A strategy defines the goals of the enterprise,the value the enterprise will create for customers, andthe plan of action to achieve those goals over time,including redirecting action in response to changes inthe environment. Research shows that until firms’ strate-gies included innovation, they did not innovate well(Adams 2004) because short-term issues deflect atten-tion away from longer-term development. The strategymotivates innovators to keep going despite difficultiesby giving them a sense of how they can contribute tothe enterprise (Leonard-Barton 1995) and defines pri-orities among projects (Brown and Eisenhardt 1998).Furthermore, innovation enables strategizing by generat-ing insights about technologies, user needs, and applica-tions that strategic managers can use to redefine strategicdirections.

The strategy and innovation literature suggests specificways to organize the three dynamics of emergence toenable ongoing strategizing. To foster the first dynamicof many connections, managers bundle capabilities intobusinesses and match those businesses with marketopportunities. Brown and Eisenhardt (1998) suggest con-tinually connecting current and future possibilities andshifting strategic thrusts to fit with evolving technolo-gies and markets. To foster the second dynamic of devi-ation amplifying actions, strategic managers negotiatetheir strategic direction in real time by focusing on pro-cess rather than content (Stacey 1995). According toAnderson (1999), strategic managers cannot foresee thefuture or implement adaptation programs because non-linear systems react to direction in ways that that aredifficult to predict and control. Instead, managers estab-lish and modify the direction and the boundaries within

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which improvised, self-organized solutions can evolve.They set constraints on local actions, observe outcomes,and tune the system by altering the constraints. To fosterthe third dynamic for recombination and stabilization,a long-term commitment helps a firm develop complexinnovations. In a study of fiber optics and computer axialtomography scanners that were developed over manyyears, Lynn et al. (1996) describe ongoing “probing andlearning” to try out these technologies in different appli-cations, learn from trials about possible next steps forimproving performance, and rethink strategies.

Complex ecological innovations also require strategicdirection to bundle knowledge for different applicationsand provide the long-term continuity needed to allownew possibilities to emerge. But how to enable strategicemergence among various organizations and agencies islittle understood in theory or in practice. Several ideasfrom organization science can be leveraged to theorizeabout ecology-wide strategizing for innovation.

One possibility is to extend strategic alliances toinclude a larger collection of diverse for profit as wellas not-for-profit organizations to bundle separate drugstogether into a more holistic business model focusedon diseases, not just separate drugs. Many diseases arecaused by multiple genes, while infective agents canbecome resistant to particular drugs, so “cocktails” ofdrugs can better deal with these conditions. But withthe exception of AIDS, the Food and Drug Adminis-tration only now is developing guidelines that couldaccelerate testing and approval of multidrug regimens(Schoofs 2010). One new consortium is called the Crit-ical Path to TB Regimens, a group of 10 drug com-panies and several nonprofits convened by the Bill andMelinda Gates Foundation to develop medicines to fighttuberculosis. Another consortium combines Merck andAstraZeneca to jointly test two anticancer agents. Bothconsortia might lead to ecology-level business modelsthat join multiple entities to deliver holistic bundles ofvalue to markets. Lakhani and Carlile (2010) describea not-for-profit foundation focused on a symptom ofmultiple sclerosis. This foundation integrates knowledgebits from the overall ecology to address this symptomsystematically. If successful, this foundation might alsolead to other for-profit and not-for-profit collaborativeventures.

A vice president of pharmaceutical R&D we inter-viewed suggested another business model that can bedeveloped with strategic alliance ideas, network theory,and some governance innovations (Mahoney et al. 2009).He described a new drug that works very well againsta certain form of cancer. Once the company launchedthe new drug, they learned that it works only for asubset of cancer patients who have a certain geneticmakeup. Others with that cancer are not helped by thedrug. According to the vice president, other companiesusually develop versions of the successful drug rather

than create drugs for patients not helped by the exist-ing drug. He proposed that big pharma instead fill outthe disease by developing drugs that help people withdifferent genetic systems. Once a disease is managed,they should move on to another disease. However, thequestion is how to foster such a collective effort in theface of the very long and risky development cycle. Thisstrategy is too risky for separate firms to try alone. Wesuggest business alliances of drug and biotechnologyfirms, hospitals, and other institutions formed arounddiseases. Participants can agree among themselves whowill work on which particular drugs for different subpop-ulations but then share their knowledge about the diseasewith others. This ecology-level business strategy woulduse more of the drug possibilities that are now sim-ply dropped because they do not generate enough rev-enue alone, and it would open up applications for drugsthat do not fit the blockbuster model. We are proposinga kind of public monopoly that will require new gov-ernance and value-appropriating mechanisms, althoughcompetition among a few alliances per disease may benecessary.

For technology systems such as alternative energy,Gawer and Cusumano (2008) describe industry plat-forms such as “wintel” that that are foundation technolo-gies or services that underlie ecosystems of businesses.They suggest that new energy sources such as hydro-gen fuel cells or hybrid gasoline–electric systems couldalso become ecosystem platforms for powering a varietyof devices. Energy companies may be able to developindustry platform-like technologies that encourage part-ners and customers to adopt a certain technology. Aswell, enterprising utilities and oil and gas firms areworking with start-up companies, established firms, andpublic research groups to build coherent systems ofenergy creation, transmission, and application for fac-tories and other complete settings like large buildings.“Green” housing systems comprising solar panels, eco-friendly materials, and other features combine the other-wise separate efforts of architects, builders, and suppliersto integrate alternate energy ideas into working systems.A variety of housing systems have been constructed inNew Orleans (Jervis 2010) that can demonstrate howsuch housing can work efficiently.

All of these ecology-wide strategies and consortia re-quire long-term commitments from at least some of thepartners, because the new business models and appli-cations will take time to develop. One way to high-light a long-term commitment is to emphasize servicesrather than discrete products (Dougherty 2004). Ser-vices focus on ongoing relationships and customer con-nections and thus foster emergence over time as capa-bilities and applications evolve. A service approachmay be especially useful for smaller firms on complexecologies that develop discrete technologies or compo-nents. Information technology (IT) firms have learned

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to focus on services such as integrating their processesinto clients’ systems and helping to develop processes,rather than simply selling components, because the ITsystems continually emerge. In the same way, smallbiotechnology firms or public research groups that sellparticular testing systems or small energy firms that sellspecific devices can learn to sell how their solutions flowinto customers’ innovation process and add combinativevalue.

Ecology-wide strategies open up many important re-search questions. We argue that strategies need to bedeveloped among ecology participants because no oneorganization or even a small set of partners can generatethe enterprise-wide value that is needed. However, thereare many agency problems must be resolved for howfirms appropriate value. For example, large firms mighttry to grab first-mover advantages or dominate markets,which can inhibit ongoing emergence of business mod-els and applications. The challenges of long-term com-mitment are especially vexing. Strategic alliances tendto work for small numbers of partners and for rela-tively short time periods. Formal joint ventures mightwork, but for-profit firms may have difficulties com-mitting to long-term efforts. At present, not-for-profitentities are leading the efforts to build ecology-widestrategic collaborations, suggesting that for-profit orga-nizations do not see competitive advantage or have theability to form such alliances. A final set of questionsconcerns new governance arrangements and new regula-tions that enable groups of organizations in an ecologyto work together to serve entire categories of diseases orof energy needs. New business models and value propo-sitions need new public policies.

Developing Public Policy to EnsurePublic Safety and Public WelfareEcology-wide strategizing for innovation cannot existwithout public policies to enable these alliances and tohelp with value appropriation. Public policy has alwaysplayed an important role in technology and innovationmanagement for several reasons (Afuah 2003, Tidd et al.2005). One reason is that so much of the knowledgeneeded for innovation is public, so public agencies havealways struggled to keep knowledge open and availableyet appropriable to encourage individuals to keep cre-ating and applying new insights (e.g., publicly fundedresearch, intellectual property regimes). A second reasonfor public policy is to deal with the ambiguity of emer-gence over such long periods that may keep individualagents from investing in new technologies. Governmentagencies can subsidize R&D and develop the technolo-gies themselves. A third reason is that governments buildand finance the extremely expensive infrastructure assetssuch as roads, gas and water systems, dams, hospitals,and major projects such as rural electrification and the

Tennessee Valley Authority. Public agencies and poli-cies are therefore essential for the ongoing emergenceof knowledge and value creation.

To foster the first dynamic of emergence thatrequires many connections, agencies such as the DefenseAdvanced Research Projects Agency (Fuchs 2010)“re-architect” social networks among researchers, thusbuilding many connections. These agencies as well asprofessional associations can foster the second dynamicof emergence by generating the deviating amplifyingactions that allow new kinds of ideas and institu-tions to emerge (Bailey and Barley 2011). Castel andFriedberg (2010) describe the social practices of institu-tional entrepreneurship that transformed cancer care inFrance. To foster the third dynamic of emergence forrecombination and stabilization, a central role of pub-lic policy is to develop “rules of the game” (Mahoneyet al. 2009). These rules may evolve over time as thegame changes, but they stabilize the system at any onetime so that new orders can arise and become insti-tutionalized. Historically, new institutional rules of thegame for governance have emerged to enable new sys-tems to come into being, such as the limited liabilitycorporation in the 19th century and the public monopolyto enable railroads and then energy systems and tele-phones (Hughes 1983). Leveson et al. (2009) describethe roles of government regulators, industry associations,user associations, unions, and insurance companies playin providing safety for complex systems like aircraft pro-duction and operation. They point out that safety is anemergent property of the entire system.

From the perspective of organizing ecologies for com-plex innovation, however, public policy is not ade-quately integrated in organization science, as suggestedby Mahoney et al. (2009). Organization economics tendsto emphasize regulations that constrain firms rather thanshape collective action. In addition, Mahoney et al.(2009) suggest that the criteria for diagnosing and eval-uating public welfare are limited to questions of effi-cient allocation or nation-level development and do notaddress global challenges. Complex ecologies such ashealth care and finance seem to have ineffective regula-tions. One reason is that the complex politics of regula-tion involve very large, powerful industries and organi-zations. Regulatory regimes may also be limited becauseour theories do not explain the need for enabling dynam-ics of emergence or how to do so.

We speculate on three types of public policy activitiesthat can enable ongoing emergence. First, building onMahoney et al. (2009), criteria for public welfare need tobe expanded systematically, not just incentive by incen-tive, to include more performance outcomes. In the caseof biopharmaceuticals, new criteria might include devel-oping more treatment regimes and approaches, enhanc-ing heath-care services, and providing more completeofferings. These outcomes might serve as the basis for

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assigning some new kinds of monopoly rights so thatcoalitions of providers who create new holistic busi-ness models can generate profits or attract R&D fund-ing. For alternative energy systems, perhaps criteria suchas reducing pollution, preserving fragile natural ecolo-gies, and opening up new ways to use energy can berewarded, along with cost per kilowatt. Second, newapproaches for intellectual property management arenecessary. Industry observers in pharmaceuticals oftenargue that extended patent rights and more incentives toindividual firms for high-risk developments are needed(e.g., Wood 2006). Although these ideas might help, wepoint out that innovation emerges from collective inter-actions and reactions in the ecology, so ecology-levelproperty rights and regulations are needed. We do notknow what such rights might be, however, because likemost organization scientists, we know very little aboutpublic policy.

Finally, new testing regimes are necessary for drugs,energy, and finance. If safety is indeed a property of theentire system (see Leveson et al. 2009), then the currentsystem of testing drugs one by one for use by a ran-dom sample of humans does not make sense. This verycostly aspect of drug development could be changedto allow coalitions of hospitals and drug firms to carryout drug trials and test how drugs work in combina-tion with other drugs and treatments. The financial sys-tem can learn from drug discovery and energy, becausethese two systems at least scrutinize their new productscarefully. Bouchard (2008, p. 1181) argues that financialinnovations must be crash-tested against extreme sce-narios outside the realm of current finance models andapproved by independent agencies “just as we have donewith other potentially lethal industries (chemical, phar-maceutical, aerospace, nuclear energy).” Approaches forongoing safety assessments, risk determinations, assess-ing how much risk is acceptable, and figuring out howto achieve multiple system goals exist in control theory(Leveson et al. 2009). Organization science can expandthese ideas by exploring the social dynamics involvedwith implementing such complex processes.

DiscussionWe have developed a preliminary model for organ-izing ecologies of complex innovation, using biopharma-ceuticals and alternative energy systems as examples.We expect that our particular suggestions are limited andoffer them to instigate dialog about organizing complexecologies for innovation more productively. We concludewith three points: the ecology matters for innovation,complex innovation is especially important in this cen-tury and is more likely to require ecological organizing,and complex ecologies of innovation can be organizedwith straightforward, everyday social practices.

First, we highlight ecologies of innovation thatencompass the interacting organizations, groups, and

agencies that together create the knowledge needed forvalue creation in a given sector. The ecology falls intothe background in many sectors because until recently,theory has focused on incremental changes within sta-ble systems or on localized “high technology.” We hopethat we have made a convincing case that biopharma-ceuticals and alternative energy cannot be organizedfirm by firm, with regulations tossed in to police andmonitor, because the overall innovation truly swampsthese simple conceptual boundaries. The same is truefor financial systems, alternative fuels, health care, newmaterials, and many other emerging arenas of innova-tion that build on multiple sciences, technologies, andagencies. The ongoing interactions, connections, rolesand relations, social rules, and routines need to be orga-nized productively across the ecology, because the ecol-ogy generates the new products, new knowledge, andnew businesses. Pushing organization science to inter-twine disparate ideas around understanding ecologies ofcomplex innovation would help in theory and certainlyhelp in practice.

Second, complex innovations are likely to involveecologies. This means that complexity thinking needsto be taken seriously, as many organization scholarshave already argued. Emergence seems disconcerting,especially for theories and practices that are based onshort-term and incremental innovations, learning throughnegative feedback, and equilibrium. However, if someinnovations are naturally complex, organizing to elim-inate emergence will make their systems even morerisky. We need to embrace complexity and emergenceacross the entire system of value creation. Innovationmanagement and complexity thinking have many affini-ties, but the two are not well integrated now. Complex-ity work tends to be conceptual, and the few empiricalpieces do not address managing systems like innovation.Some work on complexity in innovation can be lever-aged (Van de Ven et al. 1999 and related work, Brownand Eisenhardt 1998, Leifer et al. 2000), provided thatthe ecologies are included.

Several important areas of research on complex eco-logical innovations become necessary. One topic con-cerns the everyday processes of complex innovation andlearning. Most models claim that exploitative or incre-mental innovation differs from more complex innova-tion, but exactly how and why remains unknown becausecomplex innovation processes are rarely examined. It isnecessary to articulate the actual everyday processes ofcomplex learning and innovation in particular innova-tion projects so that the ecologies can be organized todirectly support these activities. Another topic concernshow people working in very different kinds of organi-zations can transform emergent, tacit knowledge at theirboundaries so that people on all sides can appreciate thecollective enterprise of innovation, and how their differ-ent knowledge fits in. A third topic concerns how knowl-edge workers in ecologies of complex innovation can

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generate the very intense, often intuitive ways of know-ing for such long periods of time. What kinds of socialpractices, networking, and other social structuring canfoster such intense knowing? A fourth topic concerns theactual roles of the various kinds of agents in ecologies ofinnovation. For example, what values do for-profit firmsprovide if they cannot be the primary source of strate-gizing for value creation? We expect that for-profit firmswill continue to be the generators of dynamic capabili-ties for using complex knowledge generated by the entireecology.

Third, we take the next step and suggest how peoplemight carry out complex innovation across an ecology.We have identified three sets of problems of innovationto be continually set and solved in everyday social prac-tice. Organizing involves grappling with these innovationproblems heedfully and mindfully. All three kinds ofproblem setting and solving are necessary because eachdepends on the others, and each amplifies the others.For example, orchestrating knowledge resources acrossthe ecology is enhanced by ecology-wide strategies toleverage these resources, which reinforces more orches-tration. We have not detailed how the social practices ofknowledge orchestration, strategizing, and public policyinteract with specific projects, so more research on howprojects interact with the three practices is needed. Onekey idea, however, is that just like with firm-level inno-vation, it is essential to define the common problems ofinnovation, because this enables dispersed and disparateagents to come together. We suspect that innovativeorders of knowing and doing fail to emerge coherentlyin complex ecologies like urban planning and poverty,simply because people are in fact working on very dif-ferent problems.

To conclude, ecologies of complex innovation maybecome increasingly prominent in the 21st centuryas societies develop new sciences and technologiesto address ecology-wide problems in health, welfare,poverty, and climate management. All these domains ofvalue creation involve inherently emergent and complexinnovation, but these still need to be organized produc-tively. Organizing ecologies of complex innovation is anew frontier for organization science, both to demon-strate the ability of our work to help frame critical soci-etal issues and to leverage this opportunity to createbetter theory for new kinds of organizing.

AcknowledgmentsThis research has been sponsored by the Managing Innova-tion in the New Economy (MINE) Program, Roger Miller(Polytechnique Montréal) and Serghei Floricel (Université duQuébec à Montréal), principal investigator, and the Technol-ogy Management Research Center and the Lerner Center forPharmaceutical Research at Rutgers University.

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Deborah Dougherty is a professor of management in theManagement and Global Business Department, Rutgers Busi-ness School, Rutgers University, The State University of NewJersey. She earned her Ph.D. in management from the MITSloan School of Management. Her current research focuses oncomplex innovation challenges, science-based innovation, andorganizing for innovation.

Danielle D. Dunne is an assistant professor of strategy inthe School of Management at Binghamton University, StateUniversity of New York. She earned her Ph.D. in managementfrom Rutgers University, The State University of New Jersey.Her current research focuses on innovation and learning inorganizations and in alliance relationships.

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