The EFMD business magazine

The EFMD business magazine

age of ecosystems
Stuart Crainer introduces the age of ecosystems and the increasing realisation that competition of the future will be based on ecosystems rather than corporations.

From the corporate giants of the early industrial age to the contemporary tech behemoths of Silicon Valley, companies can’t help seeing the world as a place to be controlled. The mass-producing organisations of the twentieth century thrived on control, it was what they were designed to take advantage of. In the twenty-first century, the organisational dynamics are radically different. The new reality is messy and uncertain. Organisations sprawl globally. They compete in fast-changing markets against equally fast-changing competitors. They compete for people. They compete for customers. And their suppliers are dispersed worldwide.

Any feeling of control is illusory. Think of the impact of COVID-19 on the world.

So, the starting point for the future is a willingness to embrace change. ‘Rather than slowing down in the post-pandemic world, change is picking up speed and becoming a constant,’ says innovation strategy expert Kaihan Krippendorff, CEO of Outthinker. ‘New technologies are being adopted faster, and disruption – by competitors, technological innovations, or unforeseen external forces – is ever-present. To survive in the future, your organisation needs a strategy that can adapt and flex with the pace of change; one that offers creative options to keep you among the disruptors, rather than the disrupted, and that opens up space for continuous innovation and perpetual transformation.’

Response to change

In this context, there needs to be greater appreciation of the fact that change demands both a proactive and reactive response. The balance between the two is likely to be a much-discussed challenge in the years to come. In a world of low or negative growth, the organisations which prosper will be those which still possess the ability to seek out change.

The world is different and will continue to change rapidly. The onus on leaders and organisations is to embrace and understand this difference. As the wonderful Japanese novelist Haruki Murakami puts it: ‘And once the storm is over, you won’t remember how you made it through, how you managed to survive. You won’t even be sure whether the storm is really over…But you can be sure that when you come out of the storm, you won’t be the same person who walked in.’

For organisations and all those who work within them, at the heart of understanding this new reality is the concept of ecosystems. The Oxford English Dictionary defines an ecosystem as ‘a biological system composed of all the organisms found in a particular physical environment, interacting with it and with each other. Also in extended use: a complex system resembling this’.

Keywords are interaction, complex, and system

The keywords are interaction, complex, and system. Viewing the organisational world as an endless array of often interlocking ecosystems and to see an individual corporation as an ecosystem of stakeholders in various locations provides a challenging change in perspective. Henry Ford would likely have shaken his head.

The age of ecosystems we are now in alters the fundamental currency of strategy. Over the seventy years or so since the field of competitive strategy has been in existence, the unit of study has predominantly been the company. Nearly every major competitive strategic concept – from the resource-based view (RBV) to Porter’s Five Forces to Christensen’s Disruption Theory – has sought to explain why one company outperforms another company.

With the arrival of platform-based businesses such as Facebook, AirBnB, and YouTube, many of these strategic concepts were applied to advance our understanding of the competitiveness of such platforms.

The next era of competition will be the era of the business ecosystem. While business ecosystems have competed for many decades – between airline alliances, technologies (e.g., SAP v. Microsoft v. Oracle), operating systems (e.g., Android v. RIM v. iOS) – the prevalence of business ecosystems is being thrust into the foreground. The next era of competition will be defined by the ecosystem.

This raises many questions:

  • Can the principles of company-based competition be applied to ecosystems? How should they be adapted?
  • What new sources of competitive advantage are relevant to ecosystems?
  • What are the key ecosystem battles to learn from today?
  • What role will ecosystems play in the future of the global economy?
  • How can we predict which ecosystem will win?
  • How do you decide which ecosystem to align with?
  • What are the requisite foundational elements you must put in place to initiate an ecosystem that will thrive?
  • And, what skills and perspectives will individuals and organisations require to succeed?

Sharing knowledge and openness to ideas

The answers are fraught with intellectual, logistical and practical challenges. Many are only now slowly emerging. That is why it is important to bring together practitioners and thinkers to grapple with what ecosystems can mean – and need to mean – in the new competitive reality. Sharing knowledge and possessing an openness to ideas will be critical in the ecosystem era. That is the driving force behind the creation of the Business Ecosystem Alliance (BEA), a partnership between Thinkers50 and Haier.

‘Whether for business or for society, openness leads to prosperity, while closure leads to stagnation,’ observes Gary Hamel and Michele Zanini in their book Humanocracy (which draws on the example of Haier). ‘Companies should set openness as the default state, and the thick black line we drew to distinguish the inside and outside must go. Only in this way can companies have a chance to become as adaptable and resilient as the great cities.’

Haier CEO Zhou Yunjie proposes ‘an open system for win-win co-creation’ to improve innovation capabilities in four dimensions: users, employees, ecosystem stakeholders, and the organisation. Openness and ecosystem thinking are virtually synonymous in this worldview. Users, employees, ecosystem partners and enterprises are in a constantly evolving dance of value creation. ‘One way of thinking about Haier’s success in repeatedly transforming itself over nearly four decades is that its corporate DNA runs deep by replicating itself at each organisational fractal,’ says long-time Haier commentator Bill Fischer of IMD. ‘This fractal nature of Haier is a source of its strength, an alignment based on similarity of behaviours and attitudes at every level of the organisation in the way that relationships are engaged. As a result, it is entirely possible that Haier’s future lies more with its ecosystem relationships than it does with its heritage business lines.’

Ecosystems and the increased openness they require also have broader implications on how organisations are run. Hand-in-hand with the world of ecosystems must be a reinvention of governance. This is long overdue. While agile teamworking, empowering and enabling teams to solve customer problems, and so on, have emerged as management best practice, the systems and governance of global organisations have lagged behind. They would be familiar to Henry Ford!

Systems and governance of global organisations

Again, this is something which Haier has been seeking to tackle over recent years. It has, for example, been leading the way in re-inventing the nature of contracting within and outside the organisation so that contracts become more dynamic and reflective of a fast-changing reality where delivery of projects relies on an ecosystem of individuals and organisations.

Haier’s Zhou Yunjie puts a new model of corporate governance as a central pillar of the future. He directly links the need for perpetual transformation to governance. The competencies of understanding change (the ability to extract business insights); seeking change (the ability to monetise business opportunities); and adapting to change (the ability to evolve and adapt to change as a self-organisation) are directly identified as responsibilities of board members.

Traditional corporate governance takes shareholder value primacy as its mission and is based on the principal-agent risk management principle. Haier’s governance model, as described by Zhou Yunjie, maximises human value as its purpose and is based on the ‘empowerment-autonomous governance’ principle of incentive compatibility. The emphasis is on board members being pragmatic, specialised, and robust. In effect, it is applying the same expectations of behaviour and outlook to board members as to the rest of the organisation. This appears obvious and fair, but is rarely practiced.

There is increasing realisation that the competition of the future will be based on ecosystems rather than corporations. This consigns the emphasis on linear strategies and thinking, as well as the era of control, to history. It raises a host of challenges about strategy, management, governance and leadership, but at the same time the opportunities it offers are potentially enormous.

See other articles from RenDanHeYi: Pioneering the Quantum Organisation.

Welcome to the age of ecosystems

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