Business Ecosystem

What exactly is a ‘Business Ecosystem’?

The network of organizations – including suppliers, distributors, customers, competitors, government agencies and so on – involved in the delivery of a specific product or service through both competition and cooperation. The idea is that each business in the “ecosystem” affects and is affected by the others, creating a constantly evolving relationship in which each business must be flexible and adaptable in order to survive, as in a biological ecosystem.

The concept first appeared in Moore’s May/June 1993 Harvard Business Review article, titled “Predators and Prey: A New Ecology of Competition”, and won the McKinsey Award for article of the year.

Moore defined “business ecosystem” as:

“An economic community supported by a foundation of interacting organizations and individuals—the organisms of the business world. The economic community produces goods and services of value to customers, who are themselves members of the ecosystem. The member organisms also include suppliers, lead producers, competitors, and other stakeholders. Over time, they coevolve their capabilities and roles, and tend to align themselves with the directions set by one or more central companies. Those companies holding leadership roles may change over time, but the function of ecosystem leader is valued by the community because it enables members to move toward shared visions to align their investments, and to find mutually supportive roles.”

The ecosystem model can also be applied to organizations such as hospitals and universities. This term is part of a recent trend toward using biological concepts to better understand ways to succeed in business. Advances in technology and increasing globalization have changed ideas about the best ways to do business, and the idea of a business ecosystem is thought to help companies understand how to thrive in this rapidly changing environment.

 

Outlines

Business Ecosystem Actors

a) Core Business:

  • Core Contributors
  • Distribution Channels
  • Direct Suppliers

b) Extended Enterprise:

  • Direct Customers
  • Customers of my customers
  • Suppliers of complementary products
  • Supplier of my suppliers
  • Standard bodies

c) Business Ecosystem:

  • Trade Associations
  • Investors
  • Government, Agencies, or other Regulatory bodies
  • Competing organizations that have shared product & service attributes, business process, and organizational arrangements
  • Other stakeholders
  • Labor unions

Sample of Business Ecosystem Flow

Life Cycle of Business Ecosystem

  1. BIRTH
    – Cooperative Challenges: Work with customers and suppliers to define the value propositions
    – Competitive Challenges: Protect your idea from others who might be working toward defining similar offers
  2. EXPANSION
    – Cooperative Challenges: Bring the new offer to a large market by working with suppliers and partners to scale up supply to achieve maximum coverage
    – Competitive ChallengesDefeat Alternative implementation of similar ideas. Ensures that your approach is the market standard in its class through dominating key market.
  3. LEADERSHIP
    – Cooperative Challenges:
    Encourages customer working together to continue improving the complete offer
    Competitive Challenges: Maintain strong bargaining power in relation to other players in the ecosystem, including key customer and valued suppliers.
  4. SELF RENEWAL OR DEATH
    – Cooperative Challenges:
    Work with innovators that bring new ideas to ecosystem
    Competitive Challenges: Maintain high barrier to entry, prevent building alternative ecosystem

Measuring The Health (Performance) of an Ecosystem

  1. Value Creation (products, profitability)
  2. Robustness (any kind of disruptive/destructive challenge such as competitor, customer doubts, regulations, trend, technology, etc. PS: it’s predictable!)
  3. Productivity
  4. Co-Evolution or Joint Learning

Ecosystem Strategic Roles

  1. PHYSICAL DOMINATOR
    Integrate vertically or horizontally to manage and control a large part of network. The presence is highly; occupies most nodes.
  2. KEYSTONE
    Actually improve the overall health of the ecosystem in doing so, benefits the sustained performance of the firm. Generally low physical presence for its impact, occupies relatively few nodes.
  3. VALUE DOMINATOR
    Extract as much value as possible from its network without directly control it. Low physical presence; occupies very few nodes.
  4. NICHE PLAYER
    Developed specialized capabilities that differentiate it from other firms in the network. Very low physical presence; individually, but constitute to bulk of ecosystem where the allowed to thrive.

Notes:

  • Keiretsu is (in Japan) a conglomeration of businesses linked together by cross-shareholdings to form a robust corporate structure. If you own a bit of your supplier, reinforced sometimes by your supplier owning a bit of you, the theory says that you are more likely to reach a way of working that is of mutual benefit to you both than if your relationship is at arm’s length.
  • A black swan is an event or occurrence that deviates beyond what is normally expected of a rare catastrophic situation and is extremely difficult to predict; Therefore, it is important for people to always assume a black swan event is a possibility, whatever it may be, and to plan accordingly.  If a broken system is allowed to fail, it actually strengthens it against the catastrophe of future black swan events.
  • Robustness Prediction
    H1 – Operational Excellence: can be predicted by Supervisor level
    H2 – Innovation: can be predicted by Manager level
    H3 – Sustainability: should be responsibility of SM, GM, board members, and CEO

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