How ecosystem structure affects firm performance in response to a negative shock to interdependencies

We evaluate the effects of component choices on firms' performance following a negative shock to the ecosystem's alignment structure. We advance a theoretical framework that relates three levels of ecosystem structure-local component interdependence, component clusters, and central components-to the firms' performance. In the setting of the e-commerce industry impacted by the General Data Protection Regulation, our results support the predictions that a reduction in local component interdependence and an increase in component dispersion across clusters have a positive effect on firm performance, but the impact of an increased use of central components disappears when controlling for local interdependence. These findings contribute to the literature on performance consequences of structures of interdependencies within innovation ecosystems. Managerial summary We use data on the component choices of e-commerce firms to study how the structure of the business ecosystem around these components affects firms' performance following a negative shock. We find that while firms which increased interdependence among their components may fare well in a stable environment, their performance will suffer following a negative shock relative to those that are not affected by the shock. Second, firms that draw their components from multiple component clusters perform better during a negative shock relative to those unaffected by the shock. Executives should actively manage the interdependencies among their technological components at different levels. This will help their firms to remain flexible, minimize disruption, allow for innovative recombination and prepare for future technological developments.