Strategy as Ecology
Main considerations of developing a business are normally connected to supporting its internal activity, having a clear vision, and using appropriate competitive practices. However, the experience of some corporations proves the significance of supporting the whole business ecosystem of the company. Thus, the purpose of this paper is to analyze the article "Strategy as ecology" written by Marco Iansiti and Roy Levien that provides a deep insight on defining, developing, assessing, and managing business ecosystems.
One of the modern trends of successful companies demonstrated on the example of Wal-Mart and Microsoft is connected to managing business ecosystems. They are presented by the network of suppliers, manufacturers of the products, service providers, distributors, technology providers, outsourcing firms, and other companies that are involved in the process of creating and delivering the products to the customers.
The authors of the article state that the main idea of the business ecosystems lies in creating platforms of services, technologies, and tools that support not only the activity of the company itself, but also all the members of its business ecosystem. It allows the main company to benefit from the mended production and distribution system resulting in decreasing costs and outperforming the competitors. Smaller companies, have an advantage of using the services and technologies provided for them. Therefore, such cooperation results in establishing interdependent relationship. The experiences of Wal-Mart and Microsoft demonstrate the benefit of maintaining a business ecosystem that leads to all members becoming more productive, innovative, and efficient. The majority of companies now have their own business ecosystem, although only a few know how to manage them efficiently. Hence, Wal-Mart is described in the article since it is a great example of a business owing about a half of its cost advantage to successfully managing its ecosystem.
Iansiti and Levien mention that the framework of the business ecosystem components can be very diverse (2004). It does not only include the obvious firms that form the traditional value chain through supplying or manufacturing a product. In fact, the utility suppliers, technologies and software providers are also a part of almost every company's business ecosystem. Moreover, different ecosystems can overlap by sharing some suppliers.
Overall, the existence of the business networks enables companies to increase their level of development, use of innovations, and get a support from the strong chain of businesses working together and improving the efficiency of each others' operations. Nevertheless, the authors argue that interdependence of the companies can lead both to the success of the whole ecosystem or a failure for each member involved in the network in casse the system collapses.
Assessing the health of a company's ecosystem
Evaluating the success of a company's ecosystem requires assessing its health and determining the role of each component. Since the efficiency of the whole system depends on the health of each member, every part has to be analyzed. The main indicators that are used for assessing the overall health of an ecosystem include its productivity, robustness, and niche creation. The productivity of a business ecosystem depends on its ability to constantly create new products for a lower price by using raw materials and technology. It can be measured on the basis of the return on invested capital.
The robustness of an ecosystem can be measured by its capability to survive unforeseen disruptions in the production process. Members of a business ecosystem benefit from its robustness due to the increased level of its predictability. Additionally, the companies forming one ecosystem have well-developed relationship that are steady to external factors. The simplest measure of an ecosystem's robustness is the survival rate of its members defined during a certain period of time or in comparison to other ecosystems.
Niche creation is another indicator of the health of an ecosystem that complements productivity and robustness. Developing new functions or niches enables the members of an ecosystem to resist external shocks and create the potential for further innovations. Creation of new niches is sometimes stimulated by a low diversity of some areas of an ecosystem and must be based on a clear understanding of the overall position of an ecosystem.
One of the ways of improving a health of a business ecosystem is to use keystone organizations. The idea of keystone organizations is to simplify the complex tasks of ecosystems' members, increase the efficiency of new products creation, incorporate technical innovations, and perform other tasks in order to raise the productivity and robustness of a system. Other benefits of applying keystone organizations include encouraging niche creation within an ecosystem and supporting the viability of the entire system.
Promoting the health of ecosystems is a part of a strategy of keystone organizations that promotes their own interest. It ensures keystone's prosperity by performing a system-wide role and keeping a powerful position in different ecosystems.
The strategy applied by keystone organizations consists of two parts such as creating value and sharing the value. Value can be created in a couple of ways like creating a platform, supplying tools and technologies, and finding solutions to the issues inside an ecosystem. Sharing the value with the members of ecosystems is necessary for keystone to support its positions in the network. Keystone needs to find a right balance between sharing the value with the member of the system and keeping a part of the value for itself.
Strategy and environment
Choosing an appropriate ecosystem strategy requires identifying the kind of a company it wants to be in future and analyzing the business context of its current operation. There are three main choices to the ecosystem strategy for a company such as a physical dominator, keystone, and niche.
Niche strategy is the most common choice nowadays that is the most appropriate for the businesses that face rapid change and see a potential of narrowing its business activity to a clear segment. This strategy helps to specialize in a certain product or service and develop unique business practice that would differentiate the company from its rivals.
A keystone strategy is most suitable for the businesses that lead a complex network in a turbulent surrounding. It enables a company to capitalize on the diversity and innovativeness of the ecosystem while still sharing the wealth with business partners.
A strategy of physical domination is appropriate in the situation when a complex network works in a mature industry. Stable business environment with a low focus on innovation allows directly controlling the assets needed by the company. Additionally, a strategy of a value dominator allows extracting maximum value from a network that is not controlled by the company. This approach is quite unpredictable for the value dominator, who does not control the ecosystem, which often results in its collapse.
Therefore, the article explains the business ecosystem approach and the possibilities a company has when creating its own ecosystem. The authors use an analogy between biological and business ecosystems in order to explain some phenomena similar for both of them that will help to understand a business ecosystem better. Applying a strategy and establishing interdependent relationship within a business ecosystem can be beneficial for various businesses since it allows choosing a strategy that is most suitable for the environment the company operates in. Overall, developing a business ecosystem improves companies’ performance, helps to build stable relationship with partners, saves costs, and increases the level of income.