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The Roots of Ecosystem Advantage

THE UNDERLYING RATIONALE THAT EXPLAINS WHY YOU CAN gain a competitive edge by proactively leading your business ecosystem is simple: any company’s success depends, at least in part, on how effectively it co-opts the complementary capabilities, resources, and knowledge of the network of firms, institutions, and individuals that are around it. That business ecosystem, a term coined by business strategist James Moore in 1993, is a network of organizations and individuals that co-evolve their capabilities and roles and align their investments to create additional value and/or improve efficiency.1 Within that ecosystem, an “ecosystem leader” catalyzes its emergence and guides its development.

This is by no means an entirely new idea. The management of the Commons in mediaeval Britain was based on a network of such partnerships. Similarly, the management of water on the rice terraces in Java required collaboration in an ecosystem of peers. Such partnerships preserve individual incentives and a degree of autonomy. The system maintains flexibility while enabling parties with different, but complementary, capabilities to work together for their joint benefit.² Studies of the woolen textile cluster in fourteenth-century Prato, Italy, estimated to involve in its time some twenty-four thousand people, show how specific artisans and traders contributed to and leveraged the mutual strength of a network. Many centuries later, leveraging a similar network propelled clothing companies such as Italy’s Benetton and Spain’s Zara into the global market.

In the United States, business ecosystems have existed for over a century. One example is Maine’s “lobster gangs,” which emerged in the 1820s. A study by anthropologist James Acheson dispelled the notion that the lobster fisherman was the eastern version of the cowboy, struggling alone for survival against the elements. Instead, Acheson found him to be part of a thick and complex web of mutually beneficial relationships.3 The ecosystem of the lobster gangs was based on bringing together individuals with different skills and family ties in ways that not only ensured a continued livelihood for its members, but also conserved the limited resources from overexploitation. In any port, there was an informal, often unspoken, agreement about where each member of the fishing community could lay his traps. They would also lay the strings of their traps in one direction, such as north to south, so that they did not tangle their lines in someone else’s gear. Youngsters who wanted to enter the fishery started with a few traps or worked as a stern man, baiting traps and carting gear, for one of the established lobster fishermen. Eventually, they would be allowed to take over their own territory after an apprenticeship.⁴

These ecosystems often proved more effective than other forms of organization. In a research project by the Environmental and Cultural Conservation in Inner Asia (ECCIA) from 1992 to 1995, satellite images were used to compare the amount of land degradation due to livestock grazing in the regions of Mongolia, Russia, and China. In Mongolia, where shepherds were permitted to move collectively between seasonal grazing pastures, degradation remained relatively low at approximately 9 percent.⁵ However, degradation in Russia and China, which implemented state-owned pastures involving immobile settlements, and in some cases privatization by households, was much higher at around 75 percent and 33 percent respectively.⁶ The collaborative effort on the part of the Mongolians proved much more efficient in preserving grazing land.

Successful geographic clusters are another type of organization with a long history that embodies many of the principles that we see reflected in modern business ecosystems. Alfred Marshall already mentioned them in his seminal Principles of Economics, published in 1890, where he characterized clusters as a “concentration of specialized industries in particular localities” that he termed “industrial districts.” He argued that concentrating industries in specific regions created four types of advantages: knowledge spillovers, a skilled labor pool, development of supporting industries, and sharing of resource inputs.⁷

Urban economists have described similar benefits that firms obtain by locating near each other so that interaction is facilitated and encouraged. They call it agglomeration. In 1991, Nobel laureate Paul Krugman argued that as more firms in related fields of business cluster together, their costs of production may decline significantly: firms have competing multiple suppliers, and as a result greater specialization and division of labor.8 Even when firms compete in the same industry cluster, there may be advantages. The cluster attracts more complementary suppliers and customers than would an isolated company. In simple terms, the basic concept of agglomeration economies is that production is facilitated when there is a clustering of economic activity.

In industrial economics, the terms agglomeration and clustering have evolved and now imply the ways in which economic efficient specialization arises through clustering in a particular industry-zoned urban area. Since the 1980s, and in particular since the publication of Michael Porter’s Competitive Advantage of Nations,⁹ the term has been associated with an important element of dynamic industrial development in Central and North-Eastern Italy. There, after the Second World War, clusters of small and medium-size enterprises (SME) experienced strong growth. One of the reasons that these industrial districts thrived in Italy was because they brought together in one place different firms engaged in producing a very specialized product. Thus, the Prato district produced woolen fabric, while Sassuolo was known for its ceramic tiles or Brenta for women’s footwear. Proximity combined with focus on a common goal encouraged the players to interact and exchange knowledge, resources, and capabilities that benefited everyone within the network.

There is a long history, therefore, of different mechanisms companies and individuals have used to enable them to come together and leverage the complementary capabilities and knowledge of potential partners, to cooperate in ways that promote joint learning, and to coordinate their investments to the benefit of both the individual and the group. Some of these mechanisms, such as the mediaeval commons, were governed by a set of well-defined rules. Others relied on mutual recognition and self-organization. Sometimes partners interacted directly, but in others, such as in clusters, coordination and knowledge exchange were often indirect. The “partners” may not have even been aware of each other, but proximity allowed them to gain the benefits of being part of a network.

But if mechanisms and structures that enabled companies to gain the benefits of reaping network economies were so effective and widespread, why then did managers come to neglect them?

The Decline of Ecosystem Thinking

From the late nineteenth century, the quest to reap economies of scale at the level of corporations became the driving force for business in industry after industry. This led to three key developments that meant that the commons and clusters, and the thinking behind them, lost importance, fading into obscurity by the early twentieth century.

First, the quest for economies of scale favored the standardization of products and processes so that they could be easily controlled and repeated. The result was the vertically integrated corporation, managed by a corporate hierarchy, and its cousin the government bureaucracy. The belief took hold that coordination through formal transactions and contracts was necessary to eliminate “free-riding” because common interests could not ensure collective action and contribution to the common good.10 Thinkers such as Weber and Michels argued that it was natural that as organizations grew in size and complexity, they would tend to create bureaucratic forms and oligarchies in order to ensure reliable coordination between individuals.¹¹

The second reason was that the pursuit of growth and scale had led to the internationalization of business. As business activities spread across the globe, it became more difficult to rely on coordination through proximity, mutual adjustment, and face-to-face interactions. As a result, tighter control and formal reporting replaced the loose understandings that underpinned the informal networks of the past. Formal organization gained importance over ecosystems.

Thirdly, in the quest for standardization and economies of scale, the architecture of many products became more modular. This allowed the emergence of complex international supply chains where tightly defined interfaces between the participants enabled efficient coordination and uncertainty reduction. Given the available technology, the only viable approach to govern the interactions among participants in the chain was to use market mechanisms. These markets comprised large numbers of participants independently, and often myopically, responding to price and volume signals. Such arrangements may have been efficient for short-term optimization, but they lacked the mechanisms to promote partnerships that would enable coordination and co-evolution between participants with specialist capabilities and knowledge. In the drive for efficiency and scale economies, the downsides of decreased joint learning and innovation and reduced flexibility tended to be ignored.

At the same time, working with ecosystems, based on shared ownership and co-ordination between self-interested parties, began to get a bad name among economists. In 1968, ecologist Garrett Hardin published an influential article in the journal Science entitled, “The Tragedy of the Commons.” One of his arguments was that if all the members of a group used the common resources for their own gain and with no regard for others, then all of the common resources would eventually be depleted.12

Rediscovering Ecosystem Advantage

The argument advanced in “The Tragedy of the Commons” became widely accepted until Nobel Prize–winning economist Elinor Ostrom and her collaborators revisited it in 1999.¹³ They found that the tragedy of the commons was neither prevalent nor difficult to solve; and locals often came up with solutions to the problem themselves. In fact, other researchers have shown that in many circumstances, even self-interested individuals will find ways to cooperate, because collective restraint serves both the collective and individual interests.¹⁴

The tide thus began to turn in favor of looking for ways to cooperate that went beyond the limitations of corporate hierarchies, bureaucracies, or impersonal markets. But it was also acknowledged that pure self-organization could not always be relied upon. The simple governance structures observed by Ostrom may well work for local, tangible resources such as grazing or fisheries—but it was not clear how it would translate to the management of resources that transcended well-defined boundaries. These included resources such as the earth’s atmosphere and its implications for climate change, air pollution, or those with potential international spillovers, such as oil resources.

The management of knowledge, the essential driver of corporate innovation in the modern world, shares similar problems. Many types of knowledge are not easily contained within well-defined geographic or corporate boundaries. When new technologies or know-how are jointly created through the interaction of multiple partners, proprietary rights are unclear. Likewise, when companies or other organizations invest in so called “market making”—investments designed to stimulate the uptake of new types of products, services, or technologies—from which everyone can benefit, it is difficult to link individual contributions to returns. So, while the idea of promoting the business cooperation and resource sharing that characterized the commons and industrial districts of the past is back in vogue, it is unlikely that those benefits will be achieved if we wait for them to self-organize. Instead, the kind of ecosystems that were illustrated by Alibaba and ARM involve an ecosystem leader establishing an overall architecture and structuring the key interfaces and incentives, and co-opting a small number of strategic partners. Only then do they rely on self-organization within the network. Once a virtuous cycle is established, partners join, depart and interact between themselves without constant intervention by the ecosystem leader. In fact, in some cases, the ecosystem leader may not know the identity or even the existence of some of the partners who are co-evolving their capabilities and aligning their investments while also helping bolster the ecosystem’s competitive advantage as they pursue their own self-interest.

Therefore, what we see in the quest to rediscover the advantages of the old commons and industrial districts and clusters is the emergence of a hybrid organizational form that sits between the extremes of a corporate hierarchy and a free market.15 Traditional corporate hierarchies have the advantages of lower transaction costs; the ability to maximize alignment between different specialist activities and players and optimize the interfaces; and the ability to reduce risk, uncertainty, and variability. But they are not suited to innovating customer-driven solutions that require complex combinations of knowledge that need to be drawn from different companies and organizations scattered around the world. Nor are they suited to quickly and flexibly reconfigure in the face of a volatile environment; witness the struggles large companies face when they try to implement programs of organizational change.

At the other extreme, free and open markets excel at flexibility. Today, some markets adjust prices every millisecond. And they are highly efficient in facilitating exchange, so long as the commodity being traded is easy to price. This is the reason commodities exchanges for products like wheat or pork bellies use standardized contracts. Standardization enables these markets to sidestep the problem of pricing underlying commodities where the quality or location varies. But when it comes to exchanging messy commodities, such as knowledge or new technologies that are difficult to value and price, markets typically fail. This is because efficient markets rely on participants acting independently (and myopically) in response to price signals; they are, however, ill-suited to the challenges of coordinating diverse players and encouraging them to co-invest and share learning for the common good.

These hybrid organizational forms, such as ecosystems, can, of course, exist without a leader. But then they probably would underperform in creating innovative value for the ultimate customer. We argue that with the right leadership, ecosystems promise to deliver several of the advantages of both corporate hierarchies and efficient markets. The ecosystem leader provides some of the better alignment, coordination, simplified interfaces, and greater certainty that a corporate organization can achieve. At the same time, because the leader is unable to fully dictate who participates or impose tight control on partners, ecosystem structures are able to bring together diverse partners with some of the flexibility and incentives for entrepreneurship and innovation that are characteristic of open markets.

The Competitive Advantages of Ecosystems Are Becoming More Important

At the very time that the world is rediscovering the advantages of ecosystems as a way of organizing business activities, the global environment has been changing in ways that put a premium on the advantages that ecosystems can deliver.16 In the twenty-first century, the demands of consumers, as well as the technologies available to satisfy them, have changed dramatically. Customers increasingly demand customized solutions, rather than standardized products and services delivered in homogeneous volume. While the solutions themselves may appear to be simple, delivering such solutions often requires numerous innovations and complex coordination of different elements. Yesterday’s simple mobile phones have been replaced with smartphones that demand a range of technologies ranging from audio electronics and global positioning to photographic imaging, as well as interfaces with myriad services. In dense urban environments, cars have been replaced by services that offer transport by the hour. This requires the collaboration of rental car companies with urban authorities who provide the space where these cars can be parked, new designs for cars, new security systems, different types of insurance, new billing systems, and so on. Food now needs to be traceable in the same way as for pharmaceuticals, requiring coordination, tracking, and validation of the activities of a large number of partners operating at different stages along the value chain.

At the same time, the knowledge and capabilities necessary to satisfy ever more demanding customers no longer reside in just a few, large-scale specialist units. Instead, in more and more industries, the required knowledge and capabilities are abundant and widely dispersed. This makes it difficult to bring them together under the umbrella of a single, vertically integrated firm. Those with some of the key technologies or know-how, for example, may be unwilling to surrender their independence and become employees, they may balk at demands to relocate, and promising companies may resist being acquired. Think, for example, of all the ingredients that have to come together to create autonomous vehicles. It requires a deep understanding of pattern recognition and artificial intelligence, improved sensors, thorough knowledge of automotive design and manufacturing, changed regulations and innovations in insurance, to name just a few. None of these capabilities are currently neatly bundled inside one company or industry. In the face of these trends, the fact that ecosystem structures help diverse sources of capabilities and knowledge to come together, interact and share learning while maintaining some of their independence, makes this way of organizing increasingly attractive.

Additionally, the dramatic fall in the costs of information and communications technologies (ICT) also favors ecosystem structures. Modern ICT means that widely dispersed capabilities and knowledge can be effectively and economically coordinated without geographic co-location. The same benefits historically delivered by clusters and industrial districts can now be replicated by ecosystems that connect partners virtually across the world, rather than being restricted by proximity to a single location, such as a common, a region, or a fishery. In some cases, this coordination can be governed using open-market mechanisms. But many of today’s products and services depend on the exchange and sharing of complex, messy, and often tacit knowledge, which can’t be easily codified, and coordination, which, as we have seen, the market is ill-equipped to facilitate. Ecosystem structures provide a way of overcoming these limitations to help companies respond to customer demands for solutions and to take advantage of advanced ICT.

This presents company executives with an unparalleled opportunity: the chance to benefit from network economies by harnessing the potential of partners with different knowledge and capabilities, by allowing these assets to be focused on a common goal, and by dynamically coordinating them to drive innovation and improvement. Increasingly, therefore, innovative companies have begun to look for a more strategic approach to enhancing their own competitive advantage by leading the formation of extensive and vibrant networks of partners who can directly, and indirectly, help make their business more successful.

Ecosystem Strategies Can Contribute to Your Success in Three Main Ways

Three characteristics of ecosystem strategies make them particularly well suited to helping companies thrive in the current environment of high uncertainty, disruption, increasingly demanding consumers, new opportunities to leverage ICT and rapid change.

One, ecosystem strategies are highly effective at promoting joint learning.17 Both Alibaba and ARM succeeded by stimulating their ecosystems to generate more learning across the network of partners at a much faster speed than any single participant could achieve alone. A successful ecosystem thus brings together many partners with diverse capabilities and know-how, and helps them interact with each other. In the pursuit of their own self-interest, this interaction generates considerable learning and creates new knowledge. Some of this learning and knowledge will be captured as proprietary knowledge by companies who can use it to enhance their own businesses and open up new profit streams.

Alibaba, for example, captures the huge amounts of data that enable them to understand better the behavior of the partners in their ecosystem in China. They then use this treasure trove of data for everything from offering customized offers to potential buyers to developing improved credit scores it can sell or use to make better lending decisions.¹⁸ But much of the knowledge the ecosystem generates will become a semi-public good that can be shared between numerous partners within the network, each of whom will use it in their own way. In the process, both individual businesses and the ecosystem as a whole will become more successful. In the case of Alibaba’s Taobao, for example, interactions in the ecosystem set in train a cycle of continuous, joint learning between the parties. Sellers, website owners, and Alibaba, all benefit from it in different ways.

Two, ecosystem strategies allow a company to take leadership of a complex network of partners, making the ecosystem more efficient in innovating, delivering, and supporting products or solutions than a pure self-organizing system. A case in point would be a cluster such as Silicon Valley.¹⁹ Clusters bring together companies and other actors with diverse capabilities and know-how in the same city or region. Proximity enables them to interact easily, providing opportunities to share their knowledge, to spark innovations, to form alliances, and to construct new value chains. In the process, industrial clusters enable joint learning, much of which becomes a public good, a process that the nineteenth-century economist Alfred Marshall described thus: “The mysteries of the trade become no mysteries; but are as it were in the air, and children learn many of them unconsciously.”20 But the ability of traditional clusters to access diverse capabilities that are today scattered around the world is necessarily constrained by geographic boundaries.

The virtual cluster that results from a business ecosystem, often enabled by ICT, can generate even more learning and create still greater value more efficiently if it is catalyzed, shaped, and engendered by an ecosystem leader, rather than relying on traditional self-organization alone. The ecosystem leader acts to make sure that the investments diverse partners make are aligned so that individual investments build on each other.²¹ Alibaba’s state-of-the-art ICT systems, for example, ensure that when sellers invest in improved customer interfaces, its distribution partners align these with investments in improved warehousing and delivery facilities so that new capabilities for tracking, reliability, and speed can be leveraged for everyone’s benefit.

As partners invest, and the ecosystem grows, a positive spiral of network effects kicks in. Each new partner or customer that joins increases the value of the ecosystem to the individual participants. Economies of scale and scope are no longer limited by the size of the individual businesses but can be reaped across the scale of the ecosystem as a whole.

As we also saw in the case of Alibaba and ARM, the ecosystem leader can promote the emergence of a favorable environment for co-learning: an architecture that allows for specialized partner roles to complement each other; a technological roadmap and rules of the road that help partners coordinate their investments; and a common language, communication mechanisms, and governance structure that reduce the transaction costs associated with partner interactions. Taking advantage of opportunities to lead what could otherwise be a chaotic and wasteful evolution of the ecosystem can benefit all the partners as well as the end customer. Smart ecosystem leaders can also capture a portion of that additional value for their own bottom lines.

Three, ecosystem strategies allow a high degree of flexibility, enabling partners to constantly adjust their activities to changing circumstances. Unlike an impersonal market, however, these adjustments can be made in concert with the changes other partners are making with an eye to improving the attractiveness of the product or solution the ecosystem delivers while protecting self-interest. A vibrant ecosystem can, therefore, enable activities, assets, and capabilities to be constantly reconfigured in response to unexpected shifts in the environment. Ecosystems allow companies to break free of the inherent rigidities associated with traditional joint ventures or classic, “hub and spoke” alliance structures where the partners and their roles tend to be predetermined and set in stone.

Hence, even as ARM’s ecosystem developed, it was constantly reconfigured through the actions taken by both the ecosystem leader and other partners. New partners entered, roles changed as scale and specialization increased, and new connections were forged while old ones disappeared. In this process of flexible evolution, fresh sources of customer value were created and new revenue streams were created and captured. By fostering self-organization and adjustment within a framework promoted by the ecosystem leader, ecosystem strategies offer a way to mix the flexibility of an open market with the discipline of an internal organizational hierarchy. In that process of constant reconfiguration, you probably also improve your own internal organization and processes. You learn what you are good at, what others are good at, how you can grow in a world where digitization is impacting every industry, and how your own organization structure needs to adapt. As a result, your own value creation processes become more effective, and you can learn what it takes to be a leader in tomorrow’s world.

Successful ecosystem strategies can therefore unlock:

1. Rapid innovation: by drawing on the ecosystem’s capacity to generate faster and more diverse types of learning and knowledge than any company can achieve alone;

2. Fundamentally new sources of value: by enabling novel, but uncertain, opportunities that can be realized by bringing together a much more diverse range of capabilities and experience than exists in any single company, delivering network economies, and reaping scale economies across the ecosystem as a whole;

3. Organic flexibility: because the ecosystem can constantly evolve and restructure in response to a changing market by combining the capacity for self-organization with focus and coordination enabled by an ecosystem leader.

As we will see in chapter 3, the combination of these three characteristics make ecosystem strategies especially well-suited for twenty-first-century market conditions and the threat of disruption that more and more businesses face today.

Ecosystem Strategies Are Not for Everyone

Despite the powerful advantages of ecosystem strategies in today’s business environment, we recognize that there are other types of organizational networks that might be effective in helping companies achieve their goals. These include joint ventures, hub-and-spoke alliances, platforms, supply chain networks, agreements with complementary partners, and immersion in localized industrial clusters. But ecosystem strategies have something more to offer. As will become clear in subsequent chapters, there are distinctive advantages of ecosystem strategies that come from the fact that co-learning and innovation lie at their very core. They provide the flexibility and greater scope for experimentation needed for innovation and constant improvement combined with the focus and discipline provided by a lead player that is necessary to quickly scale-up and efficiently deliver new products and customer solutions.

Unlike traditional geographically co-located clusters, ecosystems are able to work over long geographical distances. Niklas Zennstroem, one of the co-founders of Skype, argued that co-location has lost much of its value in innovation, and that it may become a liability for companies that can benefit from operating globally. He believes that the battle between technology hubs such as Silicon Valley is a thing of the past:

While this geographic battle for supremacy is compelling, its effect is actually to make location less, not more, important. For instance, thanks largely to the Internet itself, almost everyone has access to the same information; for most people, the days of having to be close to a data centre are long gone; and investors such as us are looking globally for promising companies we can help. While every location has its opportunities and disadvantages—it is easier to find top computer scientists in San Francisco, for instance, but easier to hold on to them in Helsinki—where you start out is no longer a helpful predictor of your chances of success. Today, the truth is that great companies can come from anywhere. In a way, we have the wrong obsession with geography. In technology, as in life, it is not where you come from–it is where you are going that counts.22

Ecosystem strategies also enable a company to more effectively internalize some of the same externalities that are generated in a cluster. Rather than knowledge simply being “in the [local] air,” as Alfred Marshall postulated, the links between partners with an ecosystem make it possible for some of this knowledge to be “privatized” or shared between a limited number of parties. This provides more opportunities to capture the value for the different partners in the ecosystem, not least the ecosystem leader. In a recent study of how pharmaceutical companies internalized biotechnology in the 1990s, the ecosystem approach proved to be superior compared to in-house development. A distinctive feature of biotechnology during the 1990s was the small number of scientists and entrepreneurs who really understood its potential. For traditional pharmaceutical firms, the challenge was to get access to this limited supply of skilled people, most of whom enjoyed working in universities and start-ups in a small number of locations (e.g., San Francisco, San Diego, Boston, and Cambridge). Moving into these clusters of activity early on was therefore a good way of building capability.23

Traditional supply chain networks, like those in automotive companies such as Toyota or apparel manufacturers such as Zara, are effective for efficient production and supply of goods with well-defined specifications. However, they generally do not create much learning between partners. With the tasks of each participant in the chain tightly defined and performance focused on narrow measures such as cost, predefined quality standards and on-time delivery, there is little scope or incentive for joint innovation. The value chain leader may accumulate knowledge as it orchestrates its tightly defined supply chain and interacts with end customers and transfers this back to its suppliers. Yet, even this learning and flexibility will be constrained by straightjacket specifications, supplier contracts and narrow performance targets. These features deliver efficiency benefits when the requirements of product or service are buttoned down, but they hinder the development of new customer solutions, sources of value, or new business models and businesses where experimentation and learning are key. They are therefore less effective in coping with disruption.

Focused alliances and joint ventures may well be about sharing knowledge or even co-developing new products, but again they often live within a very structured contractual framework between a small number of partners. As a result, they are not well suited to deliver the kind of new customer solutions and business models created by Alibaba and ARM, where the roles of different partners, and even which types of partners need to be involved, is uncertain and evolving. In this case, it is almost impossible to design a focused alliance to do the job.

One could, of course, set up multiple, bi-lateral alliances with what has been termed “complementors.”²⁴ But this kind of hub-and-spoke arrangement places a significant burden on the ecosystem leader, not only because of the investment required to set up the network but also the ongoing resources required to manage it. The management of such an arrangement includes the need to act as conduit for communications, be a go-between to achieve complementarities, and act as an arbiter of disputes between every partner in the web. Recall the warning from Alibaba’s strategy director, Ming Zeng, quoted in Chapter 1: “We learned a lot of painful lessons by trying to over-control and becoming the bottleneck.”

Trading platforms for the gig economy like Airbnb, Grab, or Deliveroo enable many independent suppliers and users to come together. Partners using the platform can come and go, but the information exchanged between participants through the trading platform is limited and tends to be highly standardized. The platform leader may accumulate a massive trove of Big Data that opens up new opportunities. However, because the exchanges between other parties are very structured, opportunities for joint learning and innovation, as well as the flexibility to jointly reconfigure and evolve value propositions, tend to be shut down. As mentioned earlier, while most of Alibaba’s businesses have trading platforms at their core, it was only by adopting a broader ecosystems mind-set and working jointly with partners in creative ways around these platforms that the company could kick-start the formidable innovation engine that has been the real source of its success.

We therefore are convinced that ecosystems, a hybrid that sits between markets and hierarchies, are ideally suited to cope with disruption, be it technological or otherwise. We know they are not a panacea, and ecosystems are not the solution to cope with all forms of uncertainty. But when one needs to innovate in the face of significant uncertainty and disruption, well-led ecosystems have clearly an advantage over other organization forms.

When thinking through how to capture these potential advantages of leading an ecosystem, it is worth keeping front of mind what an ecosystem is not. This clarity is becoming ever more important as the growing popularity of the term ecosystem has led to its frequent misuse. Clearly an ecosystem is not just a complex supply chain, nor is it simply a digital platform or marketplace. Nor is it a static structure that a leader can completely manage or control. As recent research has pointed out, these kinds of misconceptions are more than semantics. They can result in many of the most important benefits of ecosystems being overlooked. At worst, they can lead to exactly the wrong kinds of decisions.²⁵ Always keep in mind that the ecosystem is a network that brings together partners with different capabilities and knowledge to flexibly innovate, coordinate and co-evolve in ways that create new value. And the role of the ecosystem leader is to catalyze and guide its development.

Having presented our core thesis on why and when ecosystems can be to your advantage, we will now examine how they can help you to create new sources of value.