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What do we really mean when talking about business ecosystems?
Business Ecosystems. A new way to think about business, or a vacuous phrase, used so inconsistently and broadly that it is rendered as nothing more than a piece of decorative idiom? London Business School-based research suggests that the choice is ours.
There’s a reason that ecosystems have become a hot topic - the world has changed. With de-regulation opening up previously insular sectors, IT making the transfer of information nearly costless, and with modularisation and interoperability opening up the spectrum of opportunity, we see a host of combinations of services and goods once considered impracticable. But, on the other hand, ecosystems, both in practice and in academic research, appears to be a loosely used term.
In his highly cited Strategic Management Journal paper published in August 2018, Michael G Jacobides, Professor of Strategy and the Sir Donald Gordon Chair of Entrepreneurship & Innovation at London Business School (LBS), and his co-authors Carmelo Cennamo and Annabelle Gawer provide a summary and a way forward for research.
But what about practicing managers?
For business, even more than for academe, it’s important to add clarity and explode the myths and confusion surrounding the use of ecosystem as a term. That can provide a better footing to comprehend the goals and strategies that might be wrought from the concept. This is the aim of Simon Reeves, Senior Partner and Managing Director, BCG, and Director of the BCG Henderson Institute, Jack Fuller, Consultant at BCG, and Professor Jacobides, the authors of, ‘The Myths and Realities of Business Ecosystems’ (MITSloan Management Review, 25 February 2019).
“Broadly, ecosystems represents a confluence of changes that have been happening for some time. In recent years, we have witnessed the dissolution of the established company structures,” says Professor Jacobides.
“Ecosystems,” he adds, “have emerged through cooperation with a wide range of different agents, such as startups, services providers, platforms and research hubs, to name but a few.”
Professor Jacobides observes that, in the past, sectors and companies behaved in an insular manner.
“This is the result of both changes and regulation, but also changes in technology. It’s useful to think about toys that shift from being traditional toys made for a purpose to Lego bricks that can be recombined. Lego bricks need to intertwine with each other and similarly the growth of ecosystems is a change to the way that we organise ourselves in society. As we saw industrial firms grow and become the dominant way of organising a couple of centuries ago, up until a few years ago, we now see this new system of variability taking hold.”
A number of sources of misunderstandings – myths if you will – may prevent us from framing and fully understanding this new business perspective. One of the most obvious myths is that every company and every principal person must be an orchestrator within an ecosystem. For example, some companies have developed single elements of ecosystems, but lack the social and cultural energy to innovate within a network. Collaborative and social skills, creative freedoms and vibrancy, and a strategic perspective to build an innovative social environment with external players can all be missed.
While it’s costly to miss out on the shift towards ecosystems, it’s even worse to spend time and resources trying to sponsor an ecosystem that will never take off.
“One should be aware of the traps of what one might term an ‘egosystem’”, Professor Jacobides says. “The need to always be at the centre of things is probably the biggest trap, so one should more frequently be thinking more about how to be a useful and integral complementary force in another’s ecosystem rather than always assuming that one can be the orchestrator.”
Another myth is that ecosystems are continually maximally open. Indeed, discussions on ecosystems frequently emphasise openness and this can, in part, be explained by the appearance of the process of ‘open innovation’. For example, large corporations may want to interact with startups and vice versa, while innovation groups are grown within many companies that then lead to the development of collaborative links with external innovation players. Indeed, all ecosystems are to some degree ‘open’, as they involve interactions across the corporate boundary.
However, the degree and kind of openness vary and any kind of openness comes at the expense of control, and some effective ecosystems are comparatively closed with respect to either new participants or data and intellectual property.
A third myth is that an ecosystem is a supply chain. Frequently, ecosystems are thought to be a synonym for supply chains, but this ignores the fact that power no longer resides at a summit in value chains. Rather, it is at the centre of networks. As such, collaboration has become the new commercial advantage. Value is no longer a target for withdrawal, but an essential quality for connection.
In sum, when one comes to consider ecosystems, the ambition to manage in a stable manner is all but past and must instead be replaced by a readiness to manage for almost never-ending disorder and disruption.
As such, it is worth considering the hidden potential to deal with this situation lies within every company, observing that every corporate, every firm is also a social network, a body of already existing ecosystem interactions and meeting points on which companies might usefully build. This adds force to the acceptance of the fact that ecosystem work best when they draw upon and are adaptive to specific environments.
Within the context of scalability, and the changeable nature of terms and definitions when discussing ecosystems, Professor Jacobides makes an important observation: “You can’t say, ‘I’ve got my ecosystem strategy. I have a wonderful set of PowerPoints. Anyone who wants to look at them, go to the shared documents, download it and read it.’ Instead, your ecosystem needs to be adjustable because you are responding to the needs of the environment, but so is everyone else.”
Read the article, ‘The Myths and Realities of Business Ecosystems’ (MITSloan Management Review, 25 February 2019), at MITSloan Management Review.
Read ‘Towards a theory of ecosystems’ online.