What is an innovation ecosystem?

Leaders in large organizations face continuous pressure to innovate. But in today’s environment of hyperchange, few entities have the resources, time, or talent needed to keep up with the rapid advances in science and technology on their own.

Enter innovation ecosystems, geographic hot spots where varied stakeholders — research institutions, entrepreneurs, corporations, investors, and governments — form a strong social fabric of mutual interest, complementary needs and resources, and trust.

In this excerpt from their new book, “Accelerating Innovation: Competitive Advantage Through Ecosystem Engagement,” MIT Sloan senior lecturer Phil Budden and associate dean for innovation Fiona Murray describe how these sustainable communities allow organizations to share expertise, exchange resources, and evolve more rapidly.

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Most of us can name at least a few hot spots of innovation around the globe: Silicon Valley and Boston, of course, but also London and Munich, Rio de Janeiro and Cairo, Singapore and Tel Aviv, among others. 

As the power and potential of these vibrant places have permeated the public consciousness, they have become known by different labels — clusters, hubs, districts, precincts. 

We call them innovation ecosystems because, like natural ecosystems, they feature diverse but interacting actors (like species in the natural world), each with an essential role in enabling the environment to thrive and evolve and, importantly, each with a greater or lesser interdependency upon the others. 

In our decade of studying more than 60 innovation ecosystems across six continents, including our local one (Greater Boston), we have identified several attributes of these unique locations:

• They typically have an urban core, with populations in the millions, but are often not defined by traditional political boundaries.
• They usually include research‑intensive universities, especially ones designed to translate that research into impact.
• They support a high concentration of innovative activity, especially at the early, even precommercial, stages of the innovation journey.

Innovation ecosystems are full of researchers, inventors, startup founders, and other stakeholders who seek new ways to solve problems and who rely on one another for their success. 

But they are more than just places where people with ideas congregate. Ecosystems also concentrate the specialized resources that are needed to support them: expertise in prototyping, equipment for testing products, experience in developing production methods, investors who understand risk‑taking early‑stage ventures, customers willing to try new solutions, and even government policies that support new-to‑the‑world activities rather than stifle them.

Some innovators must work in proximity with one another because they require and benefit from shared physical infrastructure such as wet labs, maker spaces, and machine shops. Communications technologies allow others to operate in greater isolation or more remotely from these dense ecosystems. However, research shows that location matters regardless of what sorts of innovations you are working on.

Innovators cluster together — again, especially in those early stages — because they benefit from being close to other talented people, nearby to investors who understand the risks they take, and in easy distance to other, more experienced entrepreneurs. 

The opportunity for in‑person interaction is enough to drive them to these hot spots for the start of their innovation journeys, even when the costs of living and working in these places are higher than in more suburban or even semirural locations.

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Beyond simply putting innovators close to a wide range of useful individuals and specialized resources, proximity is the basis for building a sustainable community. People share expertise, exchange resources, learn rapidly, and try again when something fails. This sharing means that they are interdependent. 

And with this dependency comes density as innovators and their stakeholders create a culture of exchange and learning that continuously supports and accelerates the innovation process from an initial idea to the later stages of impact — for example, commercialization and global scaling when individuals, teams, and ventures branch out around the country and the world.

Finally, innovation ecosystems are distinct from corporate ecosystems, which are anchored by an established business or industry. Typical corporate ecosystems are more widely dispersed across the globe and structured around commercial relationships, such as supply chains and contracts, and so are often also called “value chains.” 

These corporate ecosystems can play a role in innovation, too, but usually to the primary advantage of the incumbent anchor, and they are more usually focused on the later stages of innovation, such as growth. They may support startups in later stages of innovation by helping them to reduce costs, drive efficiency, and expand their reach to a wide range of customers, but corporate ecosystems typically support innovators only across their specific platform or their supply chains.

Excerpted from “Accelerating Innovation: Competitive Advantage Through Ecosystem Engagement,” by Phil Budden and Fiona Murray. Reprinted with permission from the MIT Press. Copyright 2025.