The story of Blackberry underlines a new truth about the competitive landscape we live in: success or failure isn’t a function of a good product or service, or a well-run, cost effective company with a sound capital structure.
It also requires an effective strategy to manage your ecosystem.
This was Blackberry’s failure, leading it to be sold as a last-ditched effort to revive it. Things looked very different in 2007. The problem is that the company had become complacent about its remarkably loyal customers and didn’t recognise the threat posed by rival ecosystems. Like many established firms before it, Blackberry blew the opportunity to become a nodal player and leverage the energies of its complementors, in the way that Apple does with its apps.
But incumbents don’t always have to lose in the game of value capture. So Blackberry’s demise isn’t just another illustration of an industry leader eclipsed by upstarts. By playing their cards right, incumbents may be able to sustain their position and both create a value proposition that will appeal to the end customer, and keep their suppliers and complementors in check. Value migration has its own rules.
In the July 2013 issue of Harvard Business Review, Wharton’s John Paul MacDuffie and I report the results from our research on how value migrates in industry ecosystems. We consider why in sectors like the computers of the 1980s value can migrate from the former integrated firms, giants such as IBM, to the new specialists that spring up in the industry ecosystem, such as Microsoft and Intel, and see what makes the “bottleneck,” the core of the system’s value, shift around in the sector.
We then consider why other sectors, such as automobiles, despite the hype and the expectations of change and value chain reconfiguration, have been remarkably stable. Despite the massive outsourcing that has happened in cars, value appropriation (in terms of share of market capitalisation in the ecosystem) still rests with car manufacturers and not the ever-growing component makers.
Our research offers an explanation about what drives value to move or not.
We find that firms that succeed are those that proactively manage the structure of their sectors and keep a set of suppliers working for them in hierarchical, closed supplier networks. IBM made the mistake of opening up its sector through a set of standards which ultimately led to its demise, whereas today’s Apple has a carefully controlled set of suppliers and complementary players to support its value proposition.
The solution is not to be vertically integrated but, rather, to control by managing differentiability — i.e., being the actor along the value chain who guarantees the product quality and shapes the experience — as well as manage the replaceability of other actors along the value chain. Automobile manufacturers have kept the lion’s share of the sector as they managed to control the sector and shape the experience.
Bain & Company famously predicted in the 1990s that cars would soon look like computers, with giant suppliers ruling the sector. And Deloitte is once again predicting that with the advent of the Electric Vehicle, the sector will disintegrate and value will migrate.
Yet this doesn’t look likely to us. Rather than seeing the car industry go the way of the computer, as many predicted, Apple is now pushing the computer sector to increasingly resemble cars: Hierarchical, tightly managed supplier networks, a keen eye for technology integration, a focus on the differentiation in the eyes of the final customer. Apple, unlike Blackberry, hasn’t just grasped the importance of a solid value proposition; it is focused on managing the ecosystem and bringing value its way.
Of course, life always looks easier when you’re the kingpin of the ecosystem. What’s exciting is to consider not only how successful kingpins can defend their position, but also how upstarts might upset the sector.
By becoming go-to outsourcees, leveraging the need of incumbents to save on assets, and patiently moving up the food chain to become solutions providers, or by carefully managing the standards game to gain a toehold in broader markets, aspiring entrants may emulate the shift of firms like Huawei or Honhai from sub-assemblers to industrial giants.
There is no denying that strategy has become more complicated, and that it’s far easier to analyse than engage in real-time problem solution. But if we look start looking more carefully at what drives the movement of value in our industries we may be able to re-think our strategies before it gets to be too late to respond.
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