Every week or so, I end up in a discussion about ecosystems, be it business ecosystems or software ecosystems. Interestingly, almost everyone I talk to takes a “descriptive” approach to their ecosystem of choice. They describe the ecosystem as a fact of life or a force of nature, like gravity, and often I get explained to me why the ecosystem had to turn out as it did.
The good news is that ecosystems are increasingly getting attention. Companies and the people working for these companies more and more recognize that they don’t live in a simple value chain, buying from suppliers and selling to customers. Instead, companies increasingly shift attention to the fact that they operate in multi-sided markets where influencers, saboteurs, complementors and other roles influence how the company operates.
The bad news is that many seem to assume that ecosystems are either immutable or only change by random acts of nature. My main message is: ecosystems are and can be orchestrated by putting the right incentives in place for all roles in the ecosystem. Similarly, ecosystems can be disrupted by understanding unmet needs of roles in the ecosystem and finding more effective ways to meet those needs.
So, how does one orchestrate or disrupt a business or software ecosystem? This is one of those questions that is conceptually simple and incredibly hard from an operational and execution perspective. However, it consists of the following steps:
- Model and understand the current ecosystem, the players and the drivers, both positive and negative, of the players. The focus should be on the value exchange between the ecosystem partners.
- Develop a tangible and clear view on and model of the desired ecosystem, in terms of participants, their specific role and the value exchange between them.
- Identify which roles need to materially shift between the current state and desired state.
- Select the role that is most likely to shift if offered a better position in the desired ecosystem. Even though the desired ecosystem will likely require shifts in several many ecosystem partners, we are unable to move everyone at the same time and consequently need to take one (or a few) roles over to the desired state in every state. In most ecosystems, the effects are cumulative, the benefits for the first ecosystem partners need to be sufficiently attractive without the cumulative effects.
- Experiment with each role to ensure that what you perceive as a sufficient benefit for the ecosystem partner to adopt the new role. Those that I meet that actually believe that they can create a new ecosystem or make material changes to an existing one live in some kind of la-la land. They tend to believe that people will act as they want just because they want it to be true. Although I am a big fan of reality distortion fields a la Steve Jobs, I just don’t see these fields be successful happen that often.
- Iterate until the current ecosystem role has a sufficiently appealing value proposition and then move on to the next ecosystem role and set of partners.
All this sounds like a simple recipe from a cookbook, but in practice this requires fantastic amounts of energy, time and resources as well as people that are really skilled at convincing others to at least give it a shot. In other words, it’s not easy and likely to fail, but it can be done.
The reason for discussing this topic now is that digitalisation is causing major ecosystem disruptions in many of the software-intensive systems industries. Many that I discuss this with view the shifts in the ecosystem as something unavoidable, a force majeure that just has to be weathered with the hope of survival. These people tend to take a tactical approach of small steps in response to what happens around them.
Too few view this as an opportunity to upset the status quo, design the ecosystem best for them in a strategic fashion. But the fact is that a major upheaval in the ecosystem is of course the only real opportunity that one has for a material shift in position, size and profitability. In stable markets, growth tends to match the growth of GDP.
How to go about this is a topic too long for a blog post, but there are three thoughts that I’d like to leave you with:
- Find areas where a small set of ecosystem partners has significant control. This tends to translate into significant pricing power, architectural control, etc. In this area, seek ways to adopt new responsibilities that would shift this power to you and allows for many more partners to compete. That allows you to increase your control and value capture in the ecosystem and gives you more options.
- Look for areas where customers are underserved with standard solutions and identify ways to open up for 3rd party developers to offer more variety. When opening up, however, ensure a control point and a mechanism for revenue share.
- Whenever attempting to shift around in the ecosystem, make sure to experiment in non-material markets first as most experiments may have irreversible effects in the ecosystem.
Finally, in my recent book I discuss these topics in more detail and show how to move from being an internally focused organization to a company that strategically engages with its ecosystems (as shown in the picture below).