The dynamics of innovation ecosystems: A case study of the US biofuel market

This paper extends the research on innovation ecosystems in several ways. It analyzes how the dynamics of markets affect the adoption of technology, links the evolution of the innovation ecosystem to the market dynamics, and shows how these interacting dynamics affect emergence of a dominant design. The paper starts with a review of previous work on innovation ecosystems, concluding that these analyses focus primarily on the inner workings of ecosystems and less on the dynamics of the markets in which the ecosystems exist. It then uses network mapping software to visualize the development of the US biofuels ecosystem between 1980 and 2012. Mapping shows the consolidation of the industry and emergence of a dominant conversion technology and consortium of suppliers. Next a System Dynamics model of the US biofuels market is introduced. The model is used to generate scenarios for 1995-2025 under different assumptions for management decision making and trade policies. The scenarios produce significant variations in industry performance and adoption of next generation technology. Combining the mapping and modeling highlights the effects of market conditions on the dynamics of innovation ecosystems. The paper concludes that opportunities to introduce new technologies are defined by waves of investment in biofuels production capacity. The waves of capacity investment are driven by changes in market conditions. A dominant design emerges during each wave of capacity investment. The timing of technology selection decisions is critical. Narrowing the options too early is overly constraining and may drive one down an inefficient if not wrong path. The biofuels case is quite relevant to the oil and gas sector. Both are similar open innovation systems, with long-lived conversion assets, waves of capacity investment, and cyclical utilization and margins. Both are experiencing an accelerated pace of innovation, e.g., in connection with shale gas and oil.