The State of the Ecosystem
by Martin Reeves

Academics and practitioners recently spent two days in Vienna at the 11th Drucker Forum discussing the latest ideas on ecosystems theory and practice. Viewing the conference as a barometer for the state of this rapidly expanding field, here is a personal synthesis of some of the main messages.

Drucker Forum 2019

This article is one in the “shape the debate” series relating to the 11th Global Peter Drucker Forum, under the theme “The Power of Ecosystems” taking place on November 21 & 22, 2019 in Vienna, Austria.
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1. As with any new and popular managerial concept, a fair measure of confusion and over-application abounds. Ecosystems are a convenient universal metaphor for any sort of multilateral collaborative effort and we heard the term applied to families, nations, the planet and everything in between. As a result some sounded a note of skepticism towards the emerging field.

2. Nevertheless, it is clear that the term also points to a new and substantive phenomenon: 70% of the worlds largest businesses are now built on digital platforms and involve the coordinated delivery of complex offerings by large numbers of enterprises.

3. Setting aside ecosystems as a collaborative metaphor, the term points to a specific governance form, in which a dynamic group of companies delivers a coordinated offering to customers. This governance choice combines some of the flexibility of the market place with some of the coordination of the vertically integrated enterprise or the stable, linear supply chain.

4. Ecosystems are not a panacea but rather a strategic choice, contingent on business characteristics and aspirations. Ecosystems require a modular offering, so that multiple firms can contribute to its delivery and are only valuable when a measure of coordination is required, whether through common standards, interfaces or otherwise.

5. While there are a number of pre-digital precedents, like Tupperware or MasterCard, digital technology has undoubtedly driven the recent rapid rise of ecosystems, by permitting the coordination of high complexity at low cost and with broad reach.

6. Business ecosystems require dynamic and flexible internal structures, rather than static classical hierarchies. There is much experimentation to find the right form of internal ecosystem, from Haier’s micro-business units to the agile structures of Ten Cent and others.

7. Successful ecosystem implementation requires a different way of thinking compared to a classical product-centric organization. The relevant unit of analysis becomes the multilateral ecosystem rather than the individual company. Value extraction is complemented by an equal emphasis on mutual value creation: the ecosystem fail is if does not attract and retain partners. Stability gives way to dynamism, and planning to experimentation and emergence. We might label this differentiated approach, biological thinking as opposed to mechanical thinking. It is one of the major barriers for product-centric companies in embracing ecosystems, as manifest by familiar and apparently reasonable but actually somewhat inappropriate questions, like “how do you manage an ecosystem” or “how do you design an ecosystem”.

8. The rapid rise of digital ecosystems raises questions about the required skills of people. Ecosystems require on the one hand agile, granular organizations but also integration on larger scales – emphasizing the skills of strategic empathy, collaborative leadership and communication. Ecosystems leadership requires long-range communication with low control, to convince partners of the mutual value proposition.

9. Ecosystems create new social challenges alongside their obvious economic benefits, but regulation has lagged behind the rapid pace of business innovation. It’s hard to apply antitrust frameworks based on consumer harm to situations where consumers may be getting more choice, with greater convenience at lower cost. Ecosystems can also be the solution to social challenges like urban revival and urban mobility, and are gradually being embraced by local governments, leveraging their spending power.

10. The next waves of ecosystems development are likely to include new models for the internet of things, and in the industrial internet of things. Purpose-driven ecosystems aimed at solving major social challenges like elderly care are also set to grow rapidly in importance, driving also a greater involvement of the public and not-for-profit sectors.

11. Finally, practice is racing ahead of theory, and the spread of relevant managerial knowledge needs to start with the codification and analysis of the Cambrian explosion of new practices of leading practitioners. After a period of stagnation in the discipline of strategy, in which academic and practitioner interests diverged, ecosystems may offer an opportunity for a renaissance in the substance and relevance of strategy.

For all of the hype and over extension, ecosystems are here to stay and represent an exciting new area of strategy and management for the foreseeable future.

About the Author:

Martin Reeves is senior partner and managing director of BCG New York office and chairman of the BCG Henderson Institute

This article is one in the Drucker Forum “shape the debate” series relating to the 11th Global Peter Drucker Forum, under the theme “The Power of Ecosystems”, which took place on November 21-22, 2019 in Vienna, Austria #GPDF19 #ecosystems

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