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Michael May, one of a handful of the people in world history to regain some vision from total blindness, had great difficulty making sense of the visual world when he looked around him after four decades of complete darkness. But he survived and went on to write about what it felt to confront the bright, buzzing confusion around him for the first time in many years.
Similarly, businesses often trip when their leaders feel overwhelmed by the buzzing confusion around and are unable to synthesise the information. Analysts say what has made today’s business landscape so complex is the deep connection among the various participants — while traditional business thinking pits companies as rivals engaged in a relentless battle with one another for growth and market dominance, today’s organisations operate in a more interdependent world and need each other to survive. So, from “separateness”, the operating word now is “interconnectedness”.
Now you know why management authors have been endlessly talking about the importance of the “ecosystem” and why they say it will determine the success or failure of businesses more than ever before. In fact, Carliss Y Baldwin, the William L White Professor of Business Administration at the Harvard Business School, describes the rise of the business ecosystems as one of the “most notable” recent trends in management. To use the words of Rosabeth Moss Kanter, professor at Harvard Business School and the author of Confidence and SuperCorp, “Think of it as your garden, where you need fertile soil, seeds, and other ingredients to make things grow.”
What does this new reality mean?
First, that leaders cannot succeed by simply thinking about their own enterprises; they now need to think about how they can influence the larger business environment. Second, strategy formulation and execution will never follow a linear path again. Companies today are so irrevocably connected to their supply chain partners, customers, and even their competitors that actions taken by one entity has a ripple effect across the entire chain.
Not that the ecosystem is a new introduction in the day’s management literature. This business model was first identified and written about by James F Moore, a Harvard Law senior fellow in his 1993 Harvard Business Review article, “Predators and Prey: A New Ecology of Competition”. He called it a business ecosystem because like a biological ecosystem, in which each species of plant and/or animal contributes to the overall balance of all species in the area, the success of an individual enterprise is contingent on the success of the entire network.
Moore said the business ecosystem comprised not only those elements that were always considered part of a corporation’s life – people and processes inside the organisation’s four walls plus distribution channels and raw material suppliers – they also included the extended family consisting of regulatory bodies, suppliers of complementary products and customers. The ecosystem could also include related elements that can have a significant impact on the enterprise’s performance, like trade unions, investors and the larger society.
Latter-day writers have elaborated on Moore’s idea and contributed to the evolution of the ecosystem theory significantly. Another Harvard Business Review article, “Strategy as Ecology” by Marco Iansiti and Roy Levien (2004), has taken Moore’s argument one step forward by pointing out the key elements in the chain, their specific roles, how one could ensure the health of the ecosystem and the key indicators that will create new opportunities for an enterprise and those who depend on it. A year later (in 2005), W Chan Kim and Renée Mauborgne laid out the tools to create new business ecosystems in their book Blue Ocean Strategy.
Here are two quick examples to demonstrate how companies can leverage their ecosystems to great advantage. Take Korean company Samsung, which has made its way to the top of the hardware heap by leveraging its extended business network. What it lacks in the content department it sources from its environment of third-party app developers and content providers that go into its popular line of tablets, smart phones, and so on. Tim Baxter, president of the Samsung consumer business division, says Samsung will continue to focus on producing cutting-edge devices and let the growing base of developers supply the rest. “We’re not a content company, and we do not aspire to become a content company,” he says.
Then, there is Microsoft and Nokia who have been working for some years now to bring together their primary assets – platform for the first and hardware for the second – into a productive ecosystem. These companies understand that competition among various players have reached a point where consumers will no longer accept shortcomings or sloppiness in the user experience. As always, it is the customer that has led the change.