Systemic innovation in a decentralized organizational setting: Towards value chain orchestration

Abstract

Is systemic innovation compatible with a decentralized “virtual” organization? The current literature clearly suggests that it is not, pointing out that systemic innovation – innovation requiring coordinated adjustments throughout an entire product system – demands vertical integration, and that a decentralized “virtual” organization is the “wrong choice” (Chesbrough and Teece, 1996:65). I present a theoretical framework and empirical data that suggest otherwise. In a process I call value chain orchestration, I how a highly decentralized organization implements systemic innovation via a mechanism which involves extensive alliance and networking activities, linking the value chains of a wide set of dispersed actors to the value chain of the focal company. With this, I also illuminate the consequences of alliance and network activities, an area where researchers have long called for further studies. In sum, this study illuminates the operating mechanisms which enable systemic innovation via highly a flexible, decentralized organizational structure and illustrates the financial consequences of these intense alliance and networking activities.