Purpose – The paper aims to synthesize some key insights from social network theory and systems thinking to better understand the existence and dynamics of institutional complexity – the source of institutional change and innovation – in service ecosystems.

Design/Methodology/approach – This conceptual paper integrates insights from social network theory (e.g., Burt, 1992; Granovetter, 1973) and systems thinking (e.g. Simon, 1996) to elaborate the service ecosystems perspective on institutional complexity and innovation.

Findings – S-D logic and its service ecosystem perspective (Lusch and Vargo, 2014; Vargo and Akaka, 2012; Vargo et al., 2015) imply that value is created by systems consisting of actors who fundamentally do the same thing: cocreate value by exchanging and integrating resources (Vargo and Lusch, 2011). This view results in a systemic notion of value cocreation that highlights the role of institutions as the ‘glue’ of service ecosystems that both enables and constrains value cocreation (Edvardsson et al., 2014; Vargo and Akaka, 2012). In this paper, we extend the service ecosystems perspective on innovation as institutional change in value cocreation by elaborating the dynamics of institutional complexity – the coexistence and interaction of numerous and partially conflicting institutional arrangements – crucial for agency and change in service ecosystems (Siltaloppi et al., 2014). Building on the notions of ‘weak ties’, ‘structural holes’ and ‘near-decomposability’ as well as the triadic view inherent in them, the paper argues that service ecosystems can be seen as complex systems characterized by near-decomposability. This implies that parts or subsystems of service ecosystem(s) interact with one another with varying frequency and tie ‘strengths’ resulting in inconsistencies and incompatibility of institutional arrangements between the subsystems that causes institutional complexity especially as actors can be simultaneously embedded in several subsystems and their respective institutional arrangements.

Research implications – The paper highlights the importance of 1) triads as a unit of analysis, 2) complexity in institutional arrangements, actors’ role constellations and mutual interactions, and 3) varying density of interaction between subsystems of service ecosystem for building a better understanding of institutional complexity, change and innovation in service ecosystems.

Originality/value – This paper is among the first to integrate insights from social network theory and systems thinking to elaborate institutional complexity in service ecosystems.

Key words – Service ecosystems, Institutions, Innovation, Social Network theory, Systems thinking, Triads

Paper type – Conceptual paper