< Business Ecosystems and Strategy

Curing Business Ecosystems Blindness

Evolution into business ecosystems. Image by Dion Hinchcliffe, Dachis Group.

Business ecosystems are complex and ever-changing. New companies enter, exit, and take on different roles constantly. So it’s impossible to fully map an ecosystem. However, leaders can develop insight into their ecosystems that can help them make smarter strategic decisions. To begin understanding your ecosystem, start by identifying entities.

Ecosystem entities are organizations that your company depends on in order to do its business. Entities can include supply chain partners such as suppliers and distributors. However, the ecosystem approach goes beyond the traditional supply chains to examine the more complex web in which a company operates.

To identify entities in your business ecosystem, ask these questions:

What and who does the company depend on in order to operate?

Most companies have hundreds, if not thousands, of companies, people, ideas, and materials that are critical for its operations. Start by listing supply chain partners such as vendors, distributors, manufacturers, and customers. Then consider other entities that provide critical resources, services, or ideas to the organization. For example:

  • The government recognized years ago that spouses of enlisted soldiers make up an important part of the military ecosystem. Spouses now receive job placement, counseling, and other services so they can support their enlisted partners.
  • Pharmaceutical companies require patent attorneys, researchers, and clinical trial participants in order to be successful. These groups aren’t part of a standard supply chain, but they provide critical resources, services, and ideas.
  • Hollywood’s ecosystem contains the obvious actors, directors, producers, and cinematographers who produce films. But without the media, few people would see movies.

Who must succeed in order for customers to use the company’s products and services?

In a business ecosystem, other companies must succeed in order for an organization to achieve its goals. For example, Michelin cannot sell tires unless people buy cars. Century 21 (the realtor, not the department store) can’t make its revenue targets unless banks grant home mortgages to prospective buyers.

Once you have a list of critical entities (don’t aim for an exhaustive list – it will take too much time and it will probably change before you’ve finished), look at the role each plays in the business ecosystem. (These roles were first developed by Marco Iansiti and Roy Levien in their 2004 book The Keystone Advantage.)

Keystones. Keystone organizations are the centerpieces of the ecosystem, generating metaphorical food for others. They accept a broad view of success by inviting partners to expand, grow, or innovate on their core products.

Microsoft is a good example of a keystone organization. It creates products, such as Windows and Microsoft Office, which provide sustenance and livelihood to the many organizations that have emerged to support them. For example, software companies develop specialized packages to run on the Windows operating system. Trainers, resellers, developers, and system integrators all benefit from their association with Microsoft.

Niche Players. Niche players grow in relation to the keystone organization and profit from their proximity to it. Each niche player develops a specialized place within the ecosystem, developing unique products or services that fulfill a particular need.

For example, Priceline.com carved out a specialized niche by offering online bidding for low-cost airline fares. Dependent on airlines like Southwest, Continental, and American, Priceline couldn’t exist without their cooperation. With their (sometimes grudging) support, Priceline developed a sweet spot for itself within the travel ecosystem by offering a unique service.

Recyclers. Recyclers fill a special niche that deserves mention. These companies follow larger companies and transform the remnants of their work into a viable business. An obvious example is the growing green clothing industry that transforms used soda bottles into attractive fleece jackets. However, recyclers are not always as obvious.

For many years, independent consultants were the recyclers of the management consulting ecosystem. These small boutiques, known for their capability to help people adapt to organization change, came in after large firms implemented enterprise resource planning (ERP) systems without considering the impact on employees. As recyclers, the boutiques gathered the detritus from the ERP implementation—morale issues, performance problems, resistance to change—and transformed it into thriving practices. Today, these recyclers are disappearing as systems implementers build change management skills to complement their technology expertise, opportunities for their boutique recyclers are waning.

Commodity Providers. These organizations provide simple, transactional services to organizations in the ecosystem. ADP and Aon provide payroll services across ecosystems. Companies in India, China, and other rapidly developing countries sell low-cost coding services, leaving the more complex business analysis and technological architecture functions to on-site staff. These commodity providers can face stiff competition. Yet they play a vital role to the survival of ecosystem companies. Imagine what would happen if a company suddenly lost its ability to pay employees!

Once You Can See the Ecosystem…

Michael May, who regained sight after 43 years of blindness, initially had difficulty making sense of the visual world. Likewise, leaders becoming aware of their ecosystem for the first time may initially feel overwhelmed and unable to synthesize the information.

Until ecosystem competence grows, get the habit of scanning the ecosystem for warning signs:

  • A keystone organization that is failing, facing financial crises, or changing direction;
  • A niche that is rapidly being crowded with competitors or that is becoming obsolete; and
  • A recycler that cleans up after companies that are becoming more efficient and leaving less behind.

For more on business ecosystems, check out Lessons from the Octopus: Business Ecosystems, Adaptability, and Change Leadership and What are Business Ecosystems?

Posted in Business Ecosystems Strategy on September 5, 2012 by | Comments »