Wolf or Caribou? Leadership in the Age of Ecosystems
By: Jonathan Chocqueel-Mangan
Tags: Innovation, Strategy, Leadership, Customer Experience, Ecosystem

(With so many books and articles promising to make our businesses better, why are we not able to implement their ideas? Until we stop seeing businesses as self-sustaining independent value chains and embrace the fact that we are always part of a wider ecosystem, we will never make progress.)

Why are aren’t our businesses better? We have so many ideas to help us make our businesses better — digital transformation, platforms, customer centricity, organisational agility, data analytics and AI. Tools, techniques, philosophies and principles abound, all backed up with case studies and enthusiastic thought leaders who can ‘prove it works’. And yet the last few months have shown us that our businesses are not as adaptive or nimble as we would like. Our ability to delight customers seems oddly constrained by our processes or agreed procedures. So, what are we missing?

In my conversations with leaders in sectors from energy to education, from software to services, there is a fundamental assumption about business that separates those who are confident about sustained performance and those who are ‘hanging in there’.

The common wisdom, prevalent for decades, has been that firms achieve market power by controlling resources, ruthlessly increasing efficiency, and fending off challenges from any of Porter’s five forces. The goal is to build a moat that protects us from competition. This is what Marshall Van Alystne and others, writing in HBR, call a ‘supply side’ approach[1].

However, it is becoming clear that external forces can be accretive to an organisation rather than a threat, whether it’s an energy company building an ecosystem with a car manufacturer and a coffee shop, a train company working with tourism app developers, or educational publishers working with assessment companies, schools and governments. Even media platforms bringing together competing content providers.

A recent study by the Center for the Future of the Organization (CFFO)[2], defines an ecosystem as “an interdependent value creation network of an organisation, that reaches beyond its boundaries. It includes customers, suppliers, distributors, technology partners, Joint Ventures, alliances, government agencies, industry associations, and others, who play a role in the overall creation and delivery of a company’s products and services.”

Ecosystems bring together producers and consumers in value exchanges, and the degree to which a company can actively shape and leverage the dynamics of its business ecosystem is a critical element of competitive advantage. Therefore, while the power of suppliers and customers can be threatening in a pipeline focused, supply side world, they are viewed as an asset when you adopt an ecosystem perspective. Understanding when and how external forces can add or extract value within an ecosystem becomes an essential element of strategy.

The idea of ecosystems is not new. The term ecosystem was coined in the 1930s by British botanist Arthur Tansley to refer to a localized community of living organisms interacting with each other and their environment[3]. But its application to businesses first emerged when James Moore predicted the ‘death of competition’ because of business ecosystems in 1996[4]. Marco Iansiti and Roy Levien also wrote about the impact of ecosystems on strategy, innovation, and sustainability in 2004[5]. Digital technologies and the push for digital transformation have moved the issue of ecosystems to the front of the strategic and organisational agenda, and much has been written about platforms and multi-sided markets in the last few years. We are now, finally it seems, in the Age of Ecosystems[6].

But I am not sure we have truly understood the implications of what this means, and therefore continue to get caught out by changes in our market, whether a pandemic or a small start-up that suddenly becomes market leader.

I have been working for the last twenty years developing and implementing strategies for all sorts of organisations, both as a consultant and a business leader. From financial services and media to healthcare and education, I have always suspected that taking a more external perspective, moving beyond traditional linear thinking, and avoiding an ego-centric perspective (organisationally) would create more strategic opportunities, and avoid being out performed by competitors. But over the last few years I have realised that, more than anything else, ecosystems require a fundamentally different mentality. The fact that our businesses sit within ecosystems is the reason why digital transformation, customer centricity, agile operating models, purpose driven organisations, and sustainability are all so important. But if we don’t have the ‘ecosystem mindset’ then all these initiatives will fail to meet our hopes and expectations.

It is clear to me that, above and beyond really understanding the differences between the pipeline driven, supply side old world and the new, networked, dynamic world of ecosystems, we need to shift our thinking in three fundamental ways:

· From resource control to resource orchestration, where the network of producers and consumers becomes the chief asset, rather than seeking to maximise the return on tangible assets, like real estate, or even intangible assets such as intellectual capital.

· From internal optimisation to external interaction, where instead of dictating ever more cost-efficient processes we facilitate value creating interactions between external producers and consumers.

· From a focus on customer value to ecosystem value, where instead of maximising the value of individual products and services, we maximise the value for all participants in the ecosystem. This may mean subsidising one type of consumer to attract another.

Of course, working as part of an ecosystem will result in changes to metrics, governance, operating models, and many other aspects of the business such as how we think about brands, technology platforms, partnership, and alliances, and so on. If we think about these aspects of our business with a pipeline, supply side mentality we will fail. Until we truly embrace an ecosystem mindset, we will continue to miss real opportunities for growth.

Research by CFFO and the Drucker School of Management[7] highlights the key inhibiting factors preventing organisations from being more successful within ecosystems. In their survey of business leaders and thought leaders, 72% report a lack of understanding of network dynamics as important or very important; 69%, a mindset of introversion/self-centricity; and 69% an inability to think beyond traditional ways to do business.

The research also concludes that a few core capabilities are needed for us to really embrace the ecosystem mentality: 96% of their respondents think a culture of learning and change is critical; 92% believe we need to adopt more flexible resource allocation; and 90% see our ability to orchestrate multiple operating models/business models as being fundamental. Developing these capabilities will require a shift in our thinking.

The ecosystem mindset is very different from what we have been brought up to believe works. The prevalence of the pipeline, supply side mentality still dominates strategy and planning practice in most businesses. But be in no doubt that until we truly understand what it is to operate in an ecosystem, how to think about our business as part of an ecosystem, we risk irrelevance.

In ‘The Death of Competition’, James Moore explains the dynamic nature of ecosystems by drawing upon the relationship between a wolf and a caribou. The wolf culls the weaker caribou, which strengthens the herd. With a stronger herd, it is imperative for wolves to evolve and become stronger themselves to succeed. So, the pattern is not simply competition or cooperation, but co-evolution. Over time, as coevolution proceeds, the whole system becomes hardier.

So, in your ecosystem, which one are you; the Wolf or the Caribou?

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Notes:

[1] ‘Pipelines, Platforms, and the New Rules of Strategy’. Harvard Business Review, Issue April.

[2] ‘Organizing for Business Ecosystem Leadership: Insights from Expert Conversations and a Global Survey’, Roland Deiser, Centre for the Future Organization/Drucker School of Management, 2020

[3] ‘On the definition of Ecosystem’, Bulletin of the Ecological Society of America, Roger D. Blew, Wiley, 1996

[4] ‘The Death of Competition: Leadership & Strategy in the Age of Business Ecosystems’, James F Moore, Harper Collins, 1996

[5] ‘The Keystone Advantage: What the New Dynamics of Business Ecosystems Mean for Strategy, Innovation and Sustainability’, Marco Iansiti & Roy Levien, Harvard Business School Press, 2004

[6] ‘Business Ecosystems Come of Age, Deloitte University Press, 2015

[7] ‘Organizing for Business Ecosystem Leadership: Insights from Expert Conversations and a Global Survey’, Roland Deiser, Centre for the Future Organization/Drucker School of Management, 2020