Boost your digitalization: ecosystem dimension

Image by Gerd Altmann from Pixabay

Western civilization is built on the notion of the sovereign individual: each person is unique with his or her rights, responsibilities, dreams and fears standing separate from others. Buddhist dogma takes the exact opposite perspective: the notion of self is an illusion and the goal of meditation and other religious practices is to free yourself from that illusion. Instead, we’re all part of an inseparable consciousness and there’s no real distinction between you and others.

Companies experience a similar challenge. Everyone is concerned with the company and, especially in larger organizations, the vast majority of mental energy is spent on internal issues. The fact of the matter is, however, that we all live and operate in social and business ecosystems and that the amount of interdependencies between us and others is often much more extensive than we realize.

In a way, this is a matter of perspective and focusing on the obvious versus the deeper reality. During the weekend, I read about Aspen trees. Each tree in a grove looks like an individual tree, but in reality, a grove originates from a single seedling and contains a root system that’s much longer lived than all of the trees individually. The notion of an individual tree is actually false as all the trees as well as the root system are a single organism.

Of course, most companies do realize that they’re part of a business ecosystem, but the understanding of the ecosystem is often limited. In an earlier post, I discussed the common traps. One of the predominant ones is the “descriptive vs prescriptive” trap, meaning that many companies consider their business ecosystem to be cast in stone and immutable. Those that understand that ecosystems can be changed tend to fall into the “doing it all at once” trap, the misconception that the only way an ecosystem can evolve is by changing everything and everyone in one fell swoop.

In my view, the better way to view ecosystems is as an equilibrium of forces. The interfaces between different players exist because the various forces in the ecosystem have resulted in a dominant design adopted by all. However, by changing the forces in the ecosystem, it’s possible to reach another equilibrium that’s more advantageous for your organization.

Every ecosystem is organized around a platform of some sort that gives all the players a competitive advantage over those outside the ecosystem. The preferable role in the ecosystem, by far, is to be the keystone player who provides the platform. For any company of some reasonable size, the ambition should be to be that keystone player in your own space of functionality. In addition, positioning yourself as the preferred partner in the larger ecosystem where you’re unable to be the keystone player is key. And, finally, the idea is to pull as much differentiation toward your own ecosystem at the expense of the larger ecosystem. The more you can change the balance of differentiation versus commodity in favor of yourself, the better off you are in the long run.

As we discussed in the architecture dimension, one important change that companies implement is the adoption of a superset platform. Initially, this superset platform is used to harmonize and align all R&D inside the company, but it of course provides a basis for building and strengthening a business ecosystem around your organization. This requires three main activities: platformize, exploit network effects and create multi-sided markets.

The first step is to platformize, meaning that you provide a common interface for your entire product portfolio such that third parties and customers can extend your offerings in a controlled fashion. The challenge is to ensure that you maintain a control point in the ecosystem that you’re looking to create and expand as other companies are doing what they can to differentiate themselves and turn your platform into a commodity.

Once the ecosystem platform is established, the next step is to identify network effects within the ecosystem. Digital markets tend to have a winner-takes-all nature. Becoming the winner, however, calls for carefully designing and exploiting these network effects. Often this requires first building up the volume of participants for one stakeholder group and then, over time, bringing in other stakeholders that serve that first group. The ambition is to reach the ‘ignition point’ where new entities join the ecosystem of their own volition without you having to cajole them into it.

Once the volume of participants is significantly large and you have access to significant amounts of data generated by them, the next step is exploring opportunities to bring new stakeholder groups into the ecosystem by offering them the data from your primary participants in, typically, processed and aggregated form. When you manage to grow the ecosystem beyond the original stakeholders and exploit the network effects, truly multi-sided markets can be created that dramatically increase the ecosystem’s power and value.

We tend to think of ourselves and our companies as individuals separate from the rest of the world. And even if we realize that there’s a business ecosystem in which we operate, we tend to view it as immutable, at least by us. Instead, we should view the ecosystem as an equilibrium of forces that we can influence. Digitalization often results in a significant platformization effort within the company to support DevOps. This platform provides a great basis for creating or changing the ecosystem around us by offering an interface to others, exploiting network effects and building multi-sided markets with stakeholders that originally were outside of our ecosystem. Ignore your ecosystem at your own peril! To paraphrase Alexander von Humboldt: the most dangerous worldview is the worldview of those who do not understand their ecosystem.

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