Chapter 1 - The concept of business ecosystems
Traditional Markets
“Market” = the place where two parties gather to exchange goods and services (buyers and sellers),
can be physical or virtual.
Traditional methods of analysing the markets
PESTLE (Political, Economic, Social, Technological, Legal and Environmental influences on the
business environment)
Porter’s Five Forces = High to low in strength of these forces on competitive environment.
New entrants, bring extra capacity and intensify competition. Rivalry amongst competitors,
existing competition, Substitutes, across industries. Power of buyers, can force price cuts
and/or quality improvements. Power of suppliers, can charge higher prices.
Porter’s Three Generic Strategies (ways an organisation can become a superior competitor).
= Cost leadership, offering products/services of same quality at lower cost. Differentiation =
charging higher prices but for more innovative products or higher perceived quality. Focus =
concentrating on a small part of the market and optimising it.
However, growth of technologies create the need for a more modern method of analysing the
market.
EFFECT OF TECHNOLOGY ON TRADITIONAL MARKETS
Impacts markets through effect on productivity, efficiency and production and delivery of new
goods/services, hence, a source of competitive advantage for organisations.
Technology enables individualised and integrated experiences for customers, but some businesses
are not able to deliver these types of experiences, hence, they face increased risk and threats. “Each
successive development lead to a decline in demand for the previous format”.
DRIVERS OF THE DIGITAL REVOLUTION
Mobile and internet penetration, increasing rate of mobile ownership and internet access.
Connected devices, growth of 27.5 bn between 2009 and 2020.
Data analytics and the cloud, increased use of e-commerce platforms, social networks, apps
etc – increased need for automated data analytics.
User interfaces, how humans interact with machines, it is quicker and more efficient to carry
out tasks with machines such as voice recognition, motion-tracking systems.
Global accessibility, rising living standards in developing economies means more access to
internet.
Increasing urbanisation, growing percentage of people living in urban as opposed to rural
areas – greater reliance on technology.
EMERGENCE OF “BUSINESS ECO-SYSTEMS”
The external competitive environment is changing rapidly, as these emerging technologies (social,
mobile, analytics, cloud, 3D printing, bio- and nanotechnology) create the following environments:
Connected and open – increased ownership of phones and interest access, new levels of
trust and accountability between partners and consumers, as they hold personal
information.
, Simple and intelligent – reduce complexity and organisations gain more information and
data to drive decision-making.
Fast and scalable – transactions increase in number and frequency, but the cost declines.
The rapid development of new technologies, greater openness and escalating customer expectations
has created the change from traditional markets (not online, i.e. radio, print, direct mail, billboards
etc) to the new “business ecosystems” – increased expectations and empowerment of consumers.
More choices available for consumers, greater influence over organisations, higher expectations of
sophisticated, integrated, and simplistic experiences, less brand loyalty as consumers are less patient
and more likely to change to somewhere else where their expectations can be otherwise met.
• 81 percent of millennial consumers demand improved response time
• 76 percent expect organisations to understand individual needs
• 68 percent anticipate organisations to harmonise consumer experiences.
To meet customer expectations, organisations must embrace data and analytics to underpin
experience and pursue social media to promote collaboration.
ECOSYSTEM – began from “Arthur Tansley”, refers to a community of living organisms interacting
together (air, water, mineral soil and other elements). They influence each other, their terrain, they
compete and collaborate, share and create resources, and coevolve, subject to external disruptions,
so they adapt to grow and thrive in the conditions. Company is not a single firm, it is a member of
a business ecosystem with participants from multiple industries. INTERDEPENDANT ENTERPRISES
that create and allocate business value.
Successful businesses must attract all resources, drawing in capital, partners, suppliers, and
customer to create a cooperative network
EXAMPLE: DIGITAL MARKETING ECOSYSTEM SEO (Search Engine Optimisation – Google, Blog,
website etc), Social Media and Target Marketing (Email, social media ads, online publicity etc).
WHAT ARE BUSINESS ECOSYSTEMS?
Suppliers, distributors, customers, competitors, government agencies etc – involved in delivery of a
specific product or service, through both competition and cooperation. Stakeholders of each other,
as they affect and are affected by each other’s actions.
“A number of interdependent enterprises drawn together in complex relationships aimed at creating
and allocating business value” mutual and multiplicative interactions between the constituents of
the ecosystem, where the whole is greater than the sum of each individual part – incentive to be
involved.
- An ecosystem can span multiple geographies, industries (public and private) and consumers.
EXAMPLE: LESS COMPETITIVE ECOSYSTEM Government, charity and a community group might
collaborate on a health or public policy, for the purposes of achieving a shared interest or goal with
no competition or profits concerned.
Participants = the individuals or organisations in the environment defined by their function, their
ability to extend activity or interactions throughout the environment and the range of activities that
they are able to pursue or undertake within that environment.
,Interactions = products or services exchanged among the participants within an environment,
defined by a set of explicit or implicit principles governing conduct within the environment, linkages
across the environment connecting elements like data, knowledge or products, and the speed and
direction at which content or value is exchanged among participants.
FUNDAMENTAL CHARACTERISTICS OF A BUSINESS ECOSYSTEM
Individuals and/or organisations involved (participants) in the environment, operate out of mutual
self-interest, who operate together to produce something of greater value which benefits all
participants. Organisations may be a part of one or multiple ecosystems, play different roles in
different ecosystems, or evolve their roles in the ecosystem as the ecosystem evolves itself.
1. Orchestration coordination of interactions or collaborations among participants within
the ecosystem – the coordination, arrangement and management of the complex
environments. Can be informal or formal. Example may be for an organisation to orchestrate
(organise and coordinate) their operating department and customers to maximise value
delivered.
2. Mutuality reflects an enhanced level of coordination with formally or informally shared
ideals, standards or goals. Perhaps to stretch services to facilitate something that many
cannot but is desired by the consumer.
GOALS OF A BUSINESS ECOSYSTEM:
Ecosystem thrives when the participants behave in a way that best streams the flow of ideas, talent
and capital throughout the system. Creates a barrier for new competition, as they have to better or
duplicate the product, but they compete against the entire system rather than individual entities.
Ecosystem helps to leverage technology, achieves excellence in research and business competence
and to compete strongly against other companies.
- Driving new collaborations to address social and environmental challenges
- Using creativity and innovation to reduce production costs and to reach new customers
- Improve learning process to effectively collaborate and share insights, skills, expertise and
knowledge.
- New ways to address human needs and desires (due to the talent and insights).
VALUE CREATION AND VALUE CAPTURE IN A BUSINESS ECOSYSTEM
What can organisations do to create value in ecosystems? How do organisations capture the value
they help to create within an ecosystem? CREATED V CAPTURED.
Value creation bringing something of value in existence. Participants can do so with product
enhancements, developments, new services, or customers experiences. Partners of an ecosystem
must collaborate to create something of mutual benefit to all participants.
Value captured act or process of appropriating or allocating value. How is that value represented
or expressed? Participants can capture value through transactions directly, or indirectly through
orchestration. A form of measuring the value created.
Difference between traditional markets and ecosystems:
In traditional markets, value creation is linear VS ecosystem where it is networked and mutual.
, Value is created through the identification of opportunities, where competencies can then be
developed and leveraged “synergies” (INTERACTION/COOPERATION OF TWO OR MORE ENTITIES TO
PRODUCE A COMBINED EFFECT GREATER THAN INDIVIDUAL COMPONENTS – The whole objective of
an ecosystem). Identify how value is created, then exploit these opportunities by acting upon them.
In order for this value creation to be possible, organisations (or participants) must be flexible in their
role within the ecosystem, and the interactions they have with other participants. They must also
leverage common synergies and complementary strengths.
Apply capabilities through the ecosystem, identify and utilise compatibility gaps and needs (pockets
of potential value creation). THE MORE ESSENTIAL AND UNIQUE THE CONTRIBUTION THAT THE
PARTICIPANTS CAN PROVIDE, THE MORE SUSTAINABLE AND SECURE THEIR POSITION AND ROLE
WILL BE. They will almost have a USP within that ecosystem – BARGAINING POWER!
DIRECT VALUE CAPTURE Captured directly through transactions occurring within that ecosystem,
an exchange of value for goods or services rendered i.e. purchase of ticket on public transport
(instantaneous).
INDIRECT VALUE CAPTURE Captured indirectly by transfer from an orchestrator (which captures
value directly from consumers) – indirectly captured from a direct capture?? Consumers will pay an
orchestrator for goods/services, and they will then allocate to participants in the ecosystem – bank
will take funds from you and pay to the payee. Or amazon sell, middleman between seller and buyer
(orchestrator), but is an incentive to keep selling with them, and the transaction occurs through
them.
THIRD – Value captured by a combination of DIRECT and INDIRECT methods. KAPLAN – transaction
is between student and CIMA, student can book exams with CIMA directly, but need KAPLAN for
tuition, and they also facilitate exam booking which is easier (KAPLAN IS THE ORCHESTRATOR).
Strategies to capture value:
Each organisation will need to pursue different actions to capture value, they will face differences
within their own ecosystem, so strategies may differ between environments. Key drivers of these
differences:
1. Complexity a function of the number and diversity of participants, sophistication of
activities and range/nature of relationships within the ecosystem
HIGH = Barriers to entry are higher and threat of new entrants is low – participants are likely to be
secure as their capabilities are difficult to replicate. & LOW = opposite
2. Orchestration extent of an organisations influence over others within an ecosystem,
formality of interactions and degree of enforceability and compliance.
TIGHT = orchestrators have a strong influence over behaviours or actions across the ecosystem. I.e.
financial services which are governed by strict rules and policies. LOOSE = no individual participant
has strong influence across the entire ecosystem. I.e. social media, may be a group of individuals
working on a project within a Facebook page, but no strict controls and there is freedom of speech
within that group. Difficult to orchestrate.
ECO SYSTEM ARCHETYPES:
Orchestration
Complexity Loose Tight
