Nurturing ecosystems to supercharge innovation
Transformational innovations are already shaping the future. Governments can help ensure they address today’s most pressing needs by aligning interests within innovation ecosystems.
Carey Miller
Allan Mills
Daniel Charite
Adam Routh, PhD
Akash Keyal
Innovation builds on innovation. The automobile industry sprang to vibrancy thanks in part to other inventions: refining standard grades of gasoline, the invention of the assembly line, and even vehicle safety systems. Now the automobile itself is a component of complex systems of global trade, and emissions from a thriving commercial automobile industry contribute to climate change.1 System-of-system challenges, like climate change, are so complex that successfully tackling them often requires systemwide innovations. Change on such an unprecedented scale calls for understanding complex ecosystems and developing new ecosystems to encourage the development of goal technologies just as highways and suburbs helped encourage the development of automobiles.
According to the International Energy Agency, eliminating carbon dioxide emissions from the planet by 2050 will require technologies that are currently in their nascent stages.2 Yet, these technologies are progressing. Sustained support from the public sector has spurred innovation in renewable energy development, rendering it more economically viable than traditional sources like fossil fuels.3 Wind and solar power have now emerged as the world’s fastest-growing energy sources, collectively contributing 12% to global electricity generation in 2023.4
Driving innovation to address complex problems isn’t simple. It typically requires influencing an interconnected ecosystem of disparate parties. Renewable energy systems, for example, can grow from the aligned efforts of domestic and international private sector companies, governments, research institutions, and consumers. Yet, complexity, as frustrating as it may be to research and manage, can have its benefits. Some of the best innovations emerge from the intersections of diverse perspectives.
Without leadership, managing complex, multiplayer ecosystems can be difficult to impossible. Incentives, resources, motivations, and abilities can all differ among stakeholders. Despite the growing complexity of the ecosystems producing innovation, governments often remain a central force because of their ability to lead.
As a result, some governments around the world are beginning to deploy the tools needed to not just create one innovation, but also catalyze a whole ecosystem to create 10x innovation.
The critical advantages of an innovation ecosystem became evident in 2020: The world, grappling with the COVID-19 pandemic, needed a vaccine. The US government’s Accelerating COVID-19 Therapeutic Interventions and Vaccines (ACTIV) initiative brought together federal agencies, pharmaceutical companies, academia, international agencies, and philanthropic entities. It developed vaccines in record time, thanks in part to predefined incentives and collaboration mandates.5 Innovation ecosystems are also helping nations gain strategic advantages. In the United States and Europe, government policies like the US or EU Chips Act are driving investment and industry transformation to help create markets for critical technology.
By leading innovation ecosystems, governments can help drive innovation at great scale and work to match today’s most pressing needs.
Breaking trade-offs
Historically, government often held a central role in seeding innovation, either directly through its own research and development or by targeted funding of R&D. Government-initiated projects, like GPS or the internet, often acted as innovation seeds, sprouting new life within industry.
The traditional linear path of innovation from government to academia and industry tends to be less viable today. The diminishing share of public sector R&D, when compared to the private sector, means that, often, industry seeds more innovation than government. The solutions required to address many contemporary challenges, such as climate change, pull on a complex tapestry of technology woven together across industries, governments, and communities, which can make it more difficult for government to direct.
To foster innovation at scale, one possible use of government’s authority and resources is to convene a diverse network of problem solvers. Some governments are beginning to focus their efforts on ways that can shape innovation ecosystems. By understanding and aligning stakeholder incentives spanning industry, academia, and the public sector, and establishing optimal conditions for greater collaboration, governments may be able to take advantage of complexity rather than suffer from it.
The shift from driving specific innovations to driving the ecosystems that create them can enable governments to catalyze innovation at scale.
Convergence: A key to 10x improvement in innovation
Achieving 10x advancements in innovation requires more than just establishing public-private ecosystems; it demands the dedicated nurturing of those ecosystems. This nurturing process likely hinges on public sector leaders taking proactive measures to align stakeholder incentives, thereby fostering optimal conditions for collaborative endeavors.
Governments are reimagining processes, implementing policy changes, and exploring various pathways to partnership. This can help them build and nurture collaborative, public-private ecosystems. Among other measures, governments are offering a range of incentives to the private sector, such as innovation challenges, subsidies, tax breaks, streamlining the regulatory landscape, and proactively sharing data and technical knowledge.
Essentially, the key to 10x improvement in innovation may lie in the public sector's ability to converge the varied interests within a diverse ecosystem, steering them toward a common goal. Combining different tools can help governments align diverse stakeholder incentives:
- Ecosystem mapping + network mindset + regulatory adjustments + evidence-based policymaking = Creating optimal conditions for change
- Data-sharing + shared funding + incentives + cultural adjustments = Influencing stakeholder behavior
Trend in action
Recognizing that many of today’s most pressing challenges often require new approaches, governments can rethink innovation through three main pathways:
- Shaping and working through complex ecosystems
- Understanding and incentivizing shared goals
- Setting the conditions for innovation through programs and policies
Shaping and working through complex ecosystems
Often dubbed the challenge of our collective lifetimes, addressing climate change surpasses the capacity of any single government agency working in isolation. A collaborative ecosystem of problem-solvers from the public sector, private sector, academia, and civil groups, channeling resources and sharing ideas, might be the best way to address a warming climate.
Denmark has announced plans to reduce its greenhouse gas emissions to 70% of 1990 levels by 2030, ultimately aiming for net-zero emissions by 2050.6 Recognizing that achieving these goals necessitated a large-scale and diverse array of solutions from the private sector, the Danish government divided the Danish economy into 14 sectors and invited each sector to develop industry-specific climate partnerships.7 These partnerships spanned the entirety of the private sector, encompassing fields from construction and commerce to agriculture to finance.
The invitation carried a responsibility. Each partnership was tasked with presenting a proposal outlining how their particular sector could contribute to achieving the national objective of a 70% reduction in greenhouse gas emissions by 2030.8
The proposals from the partnerships were also required to incorporate tangible recommendations for the government on how to support and facilitate each industry’s suggested green initiatives.9 It represented a green road map for the private sector crafted by the industries themselves.
While each partnership approached the process differently, each engaged in co-creation. Partnerships gathered insights from academia, relevant ministries, civil society, and each other.10 Ultimately, in March 2020, 14 climate partnerships submitted their proposals to the government, totaling 432 recommendations.11
As of 2023, approximately 80% of these recommendations have been either fully or partially implemented.12 As of 2021, Denmark has cut its annual carbon dioxide emissions by almost half—53.58 million tons in 1990 compared to 29.58 million tons in 2021.13 In 1990, Denmark represented 0.24% of global carbon dioxide emissions, compared to 0.08% in 2021. Denmark has been ranked the world’s most sustainable country two years in a row.14 Denmark is on its way to reach its climate goals in part because it engaged a dynamic ecosystem.
Understanding and incentivizing shared goals
Working through partners can be hard. Each player in an ecosystem has different incentives and fears. But embracing that messiness and understanding what drives each participant can help government leaders select interventions that will integrate with, not work against, a particular ecosystem.
Economies can be a good example of complex ecosystems where conflicting incentives can stymie government efforts. Indeed, companies themselves are a hodgepodge of incentives, each occurring in different situations, aiming to serve varied consumer goals. Driving economic change thus requires understanding how to direct interventions that serve groups with divergent needs.
The government of Georgia generated economic growth by studying its own financial ecosystem. It surveyed banks, businesses, asset managers, and the public, to learn about the incentives driving relevant portions of the banking and financial sector.15 With an understanding of that ecosystem, Georgia was able to implement several changes to create more modern, flexible capital markets. These changes included industry advocacy efforts, new regulations and debt programs, and tax incentives, which have helped drive investment into the country and broaden economic growth.16
From 2015, when Georgia first began the effort, to 2020, when Georgia implemented the new plan, Georgia's GDP hovered around US$15 billion.17 From 2020 to 2022, Georgia’s GDP grew to US$24 billion.18 A key part of that growth was attracting foreign direct investment (FDI). FDI from the European Union in Georgia increased 142% between 2021 and 2022.19 Overall, 2022 was a record year of FDI in Georgia, reaching US$2 billion—a 61% increase from 2021.20
Understanding the complex tapestry of incentives and interventions can be helpful for accessing existing innovations. An enduring challenge for militaries around the world is managing conflicting incentives between private contractors and the military. Militaries often work on longer procurement timelines and with more processes than a commercial company, which can contribute to making collaboration difficult—and costly. Often, slow procurement can mean slower innovation.
Some governments have begun setting up specific organizations, like the United States’ Defense Innovation Unit (DIU) or the United Kingdom’s jHub, to help militaries understand industry incentives and find tools to accommodate them. Both organizations have taken approaches to help ease collaboration between the military and commercial sector, like adopting new purchasing models, colocating in areas of tech innovation, and adopting organizational cultures that more closely resemble their commercial partners. Through their interventions, they’ve funneled billions of dollars to the private sector for important military innovation.
Since its creation in 2016, DIU has received more than 5,000 commercial proposals, transferred 52 commercial solutions to the Department of Defense, completed 57 projects through prototyping (of 157 prototype projects started), leveraged US$30 billion in private investment, and awarded US$4.9 billion in defense contracts to commercial companies.21 Eighty-two percent of the awards DIU has granted went to non-traditional defense companies—of the 82%, 39% were first-time Department of Defense vendors.22 DIU’s work has been focused on areas key to system solutions, including artificial intelligence and machine learning, autonomy, cyber, energy, human systems, and space.
Improving collaboration doesn’t necessarily require creating new organizations—simpler changes can help too. Changes to how militaries solicit products or solutions from industry can impact how a military encourages cooperation. If militaries used “statements of objectives” rather than “statements of work” to seek industry solutions, they could encourage industry to develop innovative ways of achieving desired outcomes while encouraging cooperation with more potential partners. Or, when procurement officers consider a broader scope of industry past performance (for example, commercial and government past performance). they can expand the aperture of possible solutions and providers, compared to if they only considered government past performance.
Setting the conditions for innovation through programs and policies
Developing and scaling innovation often requires government leaders to go beyond the perennial quest for one magic intervention and instead focus on finding the right set of interventions that will establish conditions for creativity.
For decades, the National Aeronautics and Space Administration (NASA) has fostered a network of commercial entities to whom it articulates its requirements. In turn, the ecosystem delivers by designing, constructing, and managing services for NASA. While the benefits to NASA are important, the broader space industry has benefited substantially as well (figure 2).
As part of NASA’s Commercial Crew Program, commercial companies received billions in funding and support to develop spacecraft to carry astronauts to the International Space Station (ISS).23 NASA not only saved billions of dollars in development costs, but with the cheaper technology that was developed, the space agency also saves money on each mission to the ISS.24
NASA pays approximately US$55 million per seat to send astronauts to the ISS aboard SpaceX’s (a member of the Commercial Crew Program) Crew Dragon spacecraft, compared to US$90 million for a seat on Russia’s Soyuz system, or US$170 million per seat for the US Space Shuttle—the only other spacecraft to take astronauts to the ISS.25
The program also helped to accelerate the development of important space industry innovations like reusable rockets. The follow-on impact of more affordable launch costs from the commercial space-launch sector have been significant.26 Indeed, through the Commercial Crew program, NASA tripped an important domino that helped accelerate the growth of the commercial space industry.
NASA is building on the success of its Commercial Crew Program with its Commercial Destinations in Low Earth Orbit program. Just as more affordable launches led to innovation and industry growth, commercial destinations in low Earth orbit are expected to do the same.27
Like Commercial Crew, the Destinations program provides funding for corporations to develop commercially owned and operated destinations in low earth orbit from which NASA and others can purchase services.28 While the impact of the destination program is ongoing, it has already accelerated private sector funding into development of private sector space stations.29
Both examples demonstrate the value of government setting the conditions for innovation rather than attempting to be the sole source of it. Over decades, NASA’s guidance, policy changes, and interventions have produced innovations that fundamentally changed our daily lives, including OpenStack software, the computer mouse, and cordless drills.
Setting the conditions for high-impact innovation doesn’t necessarily require funding specific programs. The request can be more open-ended, like with Impact Canada, a governmentwide effort to bring innovations to government via challenges and creative funding approaches.30 One component of the effort is outcome-based challenges. The government pays funds not for development, but when a team achieves the stated goals.
Impact Canada uses evidence-based methodologies to identify problems, assess interventions, and scale solutions.31 Focus areas include economic, environmental, and social issues.
Impact Canada has more than doubled the number of funded projects—growing in five years from two innovation pathways valued at US$375 million to more than 30 pathways valued over US$735 million.32 Program successes include a safer law enforcement tool for testing illegal drugs, more energy-efficient mining technology, novel bio jet fuel, and safe, transitional, emergency housing solutions for people escaping violence.33 The program has encouraged innovation beyond program challenge winners. Ninety percent of program applicants are still advancing their solutions outside of the program through additional R&D, prototype development, and new businesses.34
My take
Scaling innovation requires a pathway
Monica Alderette, Space Systems Command Front Door program manager, United States Space Force35
Today’s innovation ecosystem is not what it used to be. Industry drives as much or more innovation today as government. So, when Space Systems Command (SSC), the US Space Force field command responsible for delivering resilient capabilities to protect our nation’s strategic advantage in, from, and to space, was charged with finding and growing new innovations for 11 key mission areas, we knew we needed to develop an effective pathway between industry and the Space Force.
Key to a new, effective pathway was addressing the challenges that stem from different operating models among Department of Defense (DoD), government, and private sector organizations. Due to the differences between procurement processes and budgeting cycles, as well as numerous other nuances, DoD and industry collaboration can require education, trust, and a wealth of bilateral communication. If those requirements become too burdensome for industry, commercial partners become discouraged from engaging with the government. When government and industry can’t work together, it’s as if innovations sit separated by a metaphorical wall constructed out of the differences between military and private sector ecosystems.
Our solution: Create a door. A “Front Door” to establish a pathway between SSC and the private sector that makes it easy for SSC and industry to communicate, collaborate, develop trust, and learn from one another.
Front Door provides the commercial space enterprise with a streamlined user experience for approaching SSC with technology or service solutions aligned to SSC’s 11 key mission areas. It also serves as a tool that provides industry with more transparency into how their submission is being handled by SSC. Front Door’s platform is able to direct submissions to the right SSC leader, ensuring innovation doesn’t get lost or go unread. On the back end, this enables the SSC team to evaluate and track each submission while establishing metrics important for measuring success, identifying areas to improve, and offering process clarity.
While simple in theory, creating Front Door required strong leadership support from SSC’s first Commander, General Michael Guetlein, who established the effort as a priority before being appointed to serve as the second vice chief of space operations. It also required assembling the right team who understood the technology requirements along with the nuances of commercial and military ecosystems. With the organizational support and the necessary technical knowledge in place, we were positioned to develop a platform featuring a tool that worked for both SSC and our private sector partners.
The outcome has been even better than we expected. Through Front Door, we’re able to more easily source, understand, develop, and iterate on industry tools and services in ways that are transforming how SSC harnesses and scales innovation. The industry connections and innovations fostered by Front Door have been shared within the Space Force and broader US military, too. The impact has also initiated a broader conversation between SSC, the Space Force, and other US government organizations, as well as with allies and partners alike regarding the importance of collaborative innovation pathways and the nuances associated with creating them.
While Front Door may sit within SSC, the pathways for innovation created by this effort reach far across the space domain.
What the 10x future holds
More pathways for more innovation
- Problem-centric pathways: Where critical problems, like climate change, call for concerted efforts, governments can center innovation pathways on those problems and direct innovators to government organizations. Government is already familiar with organization-centric pathways. Organizing around shared government challenges could be a logical next step.
- A front door for every government department: Right now, Space Force and the State Department’s DIU each has a separate innovation pathway for military contractors. Government could instead consider having one front door for all innovators, leading inventors to any department that might need new technology. Government departments could share information to connect innovations and partners.
Smarter innovation ecosystem
- AI ecosystem concierge: Through a virtual AI assistant serving as an ecosystem manager and directory, government could more easily sense and make sense of innovation ecosystems. Just as advertisers target consumers with products or services, the AI assistant can connect government leaders with relevant innovations found throughout the ecosystem. A more sophisticated AI assistant could also be able to inform next steps, help understand incentives among actors in the ecosystem, determine interventions, and facilitate cooperation. AI is already being used to improve customer service, market sensing, and process optimization.36 Leaders could also use those tools to better understand innovation ecosystems.
- Faster innovation cycles through AI-driven connections: Not all innovations require complex ecosystems—some just require the right partners. Government could leverage AI tools to speed innovation cycles. AI can connect solution providers to suitable problem owners and connect complementary innovations, speeding up adoption and iteration of ideas.
Enduring conditions for innovation
- Long-standing governmentwide innovation challenges: Governments can create programs that provide outcome-based challenges to fuel innovation for critical needs in perpetuity. Not unlike Impact Canada, outcome-based challenges can provide a guaranteed innovation outcome that could be tailored to address changing problems.
- International innovations challenges: Governments can pool resources to incentivize innovation at scale by creating international innovation challenges. These can address cross-cutting issues, like climate change or supply chain resilience. More resources attract more organizations to compete. Through international challenges, the innovation ecosystem can become more diverse and innovative.
Steps governments can take now
Harnessing 10x innovation can have significant benefits. Government can consider these steps to put themselves on the road to capturing those benefits:
- Acknowledge the ecosystem: A first step to catalyzing innovation through an ecosystem is acknowledging it exists. Governments can use a variety of tools—from contract data to supply chain information to map the players in an innovation ecosystem and help uncover the hidden relationships that bind the ecosystem together.
- Embrace the messiness: Like natural ecosystems, innovation ecosystems can be messy. Competing interests and misaligned incentives can cause players to work against even their own stated goals. Understanding the incentives at play can be a difficult human affair. Embracing that messiness and using qualitative interviews and surveys to help understand what drives each player can be a significant step toward a positive outcome. It can also be helpful to use the messiness as a reason to try new approaches. For instance, by creating new organizations, like DIU, finding new ways to partner with industry, like NASA’s commercial crew program, or simply adjusting aspects of contracting, like switching from a “statement of work” to a “statement of objective.”
- Work toward a cascade of change: Finally, government leaders should embrace the concept “government as gardener,” setting the right conditions for an outcome to grow naturally. Using what they’ve learned about innovation ecosystems, leaders can anticipate when an intervention will produce a cascade of responses from other players, moving the entire ecosystem closer to its common goal.