“Business ecosystem” may be a relatively recent entry into our business lexicon but it is, perhaps, not an entirely modern concept. Confederacies of market participants have allied around delivering comprehensive offerings to markets across epochs. One could imagine Christopher Columbus, operating in the context of emerging western imperialism and economic competition between European kingdoms bent on establishing trade routes to access raw materials, devising a business ecosystems of sorts – ships, private equity, spice merchants - to reach the East Indies and gain a foothold in the spice trade.
That those collections of interdependent actors were not identified as a business ecosystem matters little as the basic construct existed within the business, industries and markets of their particular time. The strategic planning idea of “business ecosystem” is more contemporaneous and could be grouped with all the other management buzzwords of the recent past if its practical application in the science and process of strategy development wasn’t so damned profound.
Technology-focused organizations were among the earliest to understand that the connection and interdependence of all the actors in an industry, or sub-segment of an industry, could provide tremendous insight into market dynamics and uncover potential white space/blue ocean opportunities for their products, services and solutions. While the concept has remained resonant over the past two decades, its use has seemed to vacillate between being a primary pillar of strategic assessment or languishing on the periphery as new ideas have taken their turn at center stage. Lately, it seems to be achieving a higher profile and once again assuming, what I consider, its rightful place in the portfolio of core market and strategic planning tools.
The concept was codified in a 1993 Harvard Business Review article by James F. Moore, "Predators and Prey: A New Ecology of Competition". In that article, Moore cited the anthropological process of coevolution and the biological model of ecosystems to provide context for his definition of business ecosystems.
“To extend a systematic approach to strategy, I suggest that a company be viewed not as a member of a single industry but as part of a business ecosystem that crosses a variety of industries. In a business ecosystem, companies coevolve capabilities around a new innovation: they work cooperatively and competitively to support new products, satisfy customer needs, and eventually incorporate the next round of innovations.”
Moore expanded on the concept in his seminal book, The Death of Competition: Leadership and Strategy in the Age of Business Ecosystems. In the book, Moore did not suggest that competition was going to vanish. His thesis was that the old notion of competition, where like-minded competitors match wits in pursuit of a prospect company’s business, was no longer as viable in an increasingly connected world. As vertically integrated enterprises became less and less common and the extended enterprise business model increasingly took its place, understanding the broader environment in which the business operates became the foundation for holistic strategy development, more interdependent partnering structures and management of assets – human, intellectual, capital and financial – that cross traditional enterprise boundaries.
An important consideration here is that, for a business operating in a world of constant change, what you do is not as important as how your capabilities relate to what others are doing. In this accelerating business environment, strategy-making involves having an awareness of the big picture and finding ways to play a role in it. For some, the rise of ecosystems thinking is an opportunity to create powerful new competitive advantage.
There is a real “the whole is greater than the sum of the parts” idea at work here. Many ecosystems are created to pursue objectives that would be beyond the effective scope and capabilities of any of the individual ecosystem members. Also important to recognize and incorporate in ecosystem thinking is that business ecosystems emerge, operate and evolve over time. Key to achieving some level of success and stasis is that all members of the ecosystem either evolve or are replaced so that the ecosystem continues to deliver the value proposition(s) it was founded upon.
In the connected economy, the value of interdependent relationships – partnerships, alliances, collaborations – continues to grow and ecosystems thinking provides a discipline and framework for understanding where active and latent opportunities reside. Identifying and delivering the value proposition that addresses those opportunities can be done more effectively, efficiently and expeditiously when understanding and leveraging the power of the business ecosystem in which the enterprise finds itself.
Ecosystem thinking is also about leverage. As the enterprise better understands its role in its business ecosystem, they can more effectively integrate their operations with those of partners/allies and have more influence on how partner assets are deployed and employed to deliver a more robust solution to a broader customer base.
A recent report by Deloitte highlighted the impact business ecosystems might have as they become more recognized and utilized.
The rise of business ecosystems is fundamentally altering the key success factors for leading organizations, forcing them to think and act very differently regarding their strategies, business models, leadership, core capabilities, value creation and capture systems, and organizational models.
If you have not read The Death of Competition, I encourage you to seek it out as it remains as resonant and contemporary today as when it was first published.