You’ve heard the phrase “no man (or woman!) is an island”, referring to the fact that we’re all connected to a larger community, environment or belonging. Thanks in part to the popularity of this saying, we may realize our connections and network as individuals: our neighbors, friends, partners, colleagues and organizations—but we don’t always extend this to the business world.
These connections, networks and mutually beneficial relationships exist in business, too. Your company may operate and think somewhat independently, however, zoom out just a bit and you’ll see a complex, interwoven ecosystem of vendors, integrators, customers, competitors and even companies from other industries.
While business ecosystems and collaboration have existed for centuries, it was business strategist James F. Moore in the early 1990s who created the origin of business ecosystem as a strategic planning concept.
Moore pointed out in a 1993 Harvard Business Review article, Predators and Prey: A New Ecology of Competition, that the old way of doing business was simply “battling for market share” as companies locked horns in an overly simplistic manner that often allowed giants, like IBM, to be overtaken by new market entrants.
In the old system, companies were so focused on beating a competitor or two that they lost to a newcomer and control of the market. They lost agility, scalability and resilience by going it alone. They treated their business like an island when, in fact, they were really a peninsula, connected to a much larger and complex world.
Instead of this approach, Moore suggested terms like “coevolution” and interdependence—even among competitors. He argued this collaboration would bring more innovation, customer satisfaction and prevent the volatility that disrupts industries focused too exclusively on competition.
Instead of battling for market share, businesses would work together. Relationships, partnerships and mutual benefit would combine unique strengths, diversify capabilities and even bring stability. Well-known and well-practiced in the tech community, the business ecosystem model has still not been adopted broadly or aggressively enough in many industries and businesses.
If you’re thinking about how you might join an ecosystem, here are two possible scenarios to consider.
The 2 Ecosystem Models
Depending upon the goals and industries involved, suppliers, customers, competitors, and sources of capital swirl together and connect. An ecosystem develops, typically in two ways:
- A Solution Ecosystem occurs when multiple complementary actors are organized by a single company. Think about Facebook uniting Amazon’s Alexa, Spotify, YouTube and hardware suppliers when creating their Portal device. Facebook may or may not have connections to Amazon beyond this ecosystem, however, in this instance it’s a win-win and creates innovation.
- A Transaction Ecosystem connects and centralizes product or services providers with customers. In this case, the customer is part of the ecosystem from the start, unlike a solution ecosystem. Examples of this scenario are platforms like Fiverr, Airbnb or Lyft, which directly connect service providers with customers.
Businesses may have one or both ecosystem models in their strategy; they may even have separate ecosystems across their business. Ultimately, the ecosystem may be complex and comprehensive, taking into account things like tech compatibility and legal agreements or quite simplistic, especially in startups or small businesses.
Regardless of the company or industry, there are multiple benefits companies and their ecosystem gain by being interconnected through “coevolution”.
The 5 Main Reasons Why Ecosystems Are Valuable
When you consider the amount of labor, capital and effort that goes into creating an ecosystem, you may wonder: is the upside of an ecosystem strong enough to warrant all the legal agreements, negotiations and sourcing?
The short answer is yes, but the specific answer is yes, because a business ecosystem brings critical benefits:
- Access to Diverse Capabilities: With a limited number of resources, a company has a finite amount of capabilities. However, by creating or joining an ecosystem, they immediately have access to a diverse set of skills and resources, whether that’s access to customers, innovation and research support or even physical products.
For example, it’s not worthwhile for Ford Motor Company to become a tire manufacturer when they can use Goodyear’s capabilities. Until recently, Apple did not produce its own chip for Mac products, relying on Intel until Apple found a better, faster producer to create their own M1 chip.
- Accelerating Learning and Innovation: With an ecosystem, there’s also the opportunity to learn and innovate together. By having access to multiple research teams, data sets, technology platforms, processes and diverse mindsets, teams can break the siloed learning and advancements of their own organization and help each other benefit. One of the best examples of accelerated learning and innovation is within IBM’s Watson ecosystem. Utilizing Watson, a state-of-the-art AI platform, organizations tap into an AI platform they could never build themselves while IBM gains a powerful network with partners like Volkswagen, KPMG and Korean Air. Together, they’re able to share data, optimize business processes and share insights that drive value across the entire ecosystem.
- Ability to Scale Quickly: Innovation and advancements take time. To create a strategy, raise or allocate funds, hire teams, implement processes and then make meaningful innovation progress can take years, which is a challenge at the pace technology and business advance. However, by collaborating with suppliers, researchers, universities or other businesses, a company can tap into their established innovation mechanisms and scale.
At AB-InBev, we created Z-Tech, an innovation group with a mission to “empower the small and medium-sized business to change the world through technology”, which has partnered with several companies over the past 2 years, empowering these organizations to scale.
- Flexibility and Resilience: Markets, economies, customers, regulations and competitors change quickly and dramatically. However, an ecosystem offers a support network. For example, in a challenging economic situation, an ecosystem partner may provide access to capital and financing. And by having multiple partners, each of which are leveraging data and research to spot threats and opportunities, organizations can proactively respond to change, share information and work together to survive or pivot through a new market scenario.
- Addressing Social and Environmental Challenges: Sometimes ecosystems are not only focused on growth, profit or revenue creation. In some instances, an ecosystem can address social or environmental challenges, especially those that align with customer priorities or to drive positive brand perception. Increasingly important as consumers care more and more about what companies believe in and do, brands have jumped on board and created socially and environmentally focused ecosystems. Beyond these business and financial benefits, ecosystems can also be used to address social or environmental challenges. For example, Adidas partnered with Parley to produce shoes made from ocean plastic while Target teamed up with UNICEF to fight malnutrition.
With a better understanding of what business ecosystems are, why they’re created and worthwhile, plus having a few real world examples of how these relationships drive meaningful innovation, you’ll gain clarity around business ecosystem governance and how to manage risk, create value and distribute the benefits throughout the ecosystem. All of this and more in Part 2, coming soon!
In the meantime, tell us in the comments: how have you seen business ecosystems drive innovation—and what’s your best advice to someone who is trying to start or optimize their ecosystem?