A lot of business these days relies on evolutionary language – just take a read of Tim Harford’s book Adapt. I also see Eric Beinhocker’s book “Origins Origin of Wealth: Evolution, Complexity, and the Radical Remaking of Economics” also being referenced more and more. A small plug too for my own book The Elastic Enterprise, where I acknowledged the evolutionary metaphor as a great way of understanding the new ways that companies scale up their activities in new business ecosystems.
A metaphor is a good way of understanding a complex set of circumstances but it doesn’t necessarily nail down all the management issues associated with it or point innovators in the right direction. How do you manage business ecosystems? Who really knows? Yet they are very significant.
The business ecosystem
The idea of the business ecosystem took root in the early 1990s. Microsoft and Intel fashioned a powerful way of controlling the desktop PC industry from silicon through to business solutions and two academic works recorded the effects.
In The Keystone Advantage Marco Iansiti and consultant Roy Levien argued that firms now compete as networks, and in an earlier work James Moore argued that competition is dead, the future lies with collaborative firms in ecosystems.
Today’s business ecosystems are different though. They are part of the wider societal innovation around social communications and business start-up activity. The Economist, back in mid-January, called it a Cambrian moment, almost like the start of life on earth!
All innovators need to keep an ear cocked for what is going on within these ecosystems, which is why most innovation departments now have a scouting function. Business ecosystems are not just about startups. Most companies have a supplier ecosystem. But increasingly they need a co-creation ecosystem around their platforms and they need to manage or encourage innovation among upstream and downstream partners.
Ron Adner, author of The Wide Lens, argues that “over the past two decades we have seen companies shifting their focus from standalone products to integrated solutions. We see this in many industries—manufacturing, financial services, retail and healthcare…”
Basically he is saying that to companies are now embedded in ecosystems of their own making. To succeed they need the system to be successful first.
All this means we need to make a start on understanding the modern business ecosystem better.
Ecosystems come in four sizes (or types!):
Scale ecosystems – where rapid scale and flexible downsizing is the primary characteristic. Google Android would be a good example. It has cost Google relatively little to scale it up and dismantling it would also be cheap. API communities typically function this way – for example Expedia through its use of an API has scaled its affiliate networks into an ecosystem of 2,000 small business partners.
Creative commons – the CC movement has stimulated many different forms of shared IP ecosystems, even in hardware. Take Autodesk as an example. Three years ago the company decided to grow, by acquisition, a community of non-professionals, which now numbers 120 million. As a consequence, the open hardware movement has accelerated. For example, the independent community of engineers at GrabCad, which now numbers 800,000 members, make use of Autodesk tools to create a shared repository of mechanical engineering designs.
Customer ecosystems - you can see a great customer ecosystem at work around ARM Holdings, ,where ARM collaborates with customers and fabricators to continuously evolve mobile chp design. The same is true in shoes of Vibram. Watch Intel stepping out of ingredient status to get in on the act – it is trying to set up an ecosystem around wearables design.
Systemic ecosystems – systemic ecosystems include systems such as transport where roads, regulations, signalling, cars, testing, oil, etc., all have a vested interest in the system vis-à-vis competitors whether that be rail or fuel cell. In systemic ecosystems there tends to be huge inertia. The PC ecosystem suffered inertia when faced by mobile.
Okay so there are different types of ecosystems. The management of business activity, the importance of partnerships, the degree of control available to companies, differ in each type. But working that out, figuring where the innovation levers are is hard going. We don’t truly have a lot of information about how to fire up an ecosystem, how to manage one, and how to maximise or even optimize profits.
This creates big dilemmas for innovators. In an earlier post I said we have passed beyond open innovation to social innovation. The ecosystem is a good example of that. While a lot of the innovation is open in some way, its most important characteristics lie in the new social dynamics of highly scaled partnerships.
I also know from talking to many of you that it is difficult in the extreme to go into senior management and propose an ecosystem strategy – they are not well documented and old ROI calculations don’t work very convincingly in multi-partner innovations.
I’d like to start talking with you about ecosystems – anyone got time to answer a few questions?