EXHIBIT 9.1. Four Elements of the Mind-Set of a Successful Ecosystem CEO. Source: authors’ research.
Leading an Ecosystem
How You and Your Organization Need to Change
NEW STRATEGIES, STRUCTURES, AND SYSTEMS ARE ALL NECESSARY to build ecosystem advantage, but people, particularly the CEOs who inspire, motivate, and direct them, make it all happen. Business leaders, such as Alibaba’s Jack Ma, Dassault Systèmes’ Bernard Charles, and ARM’s Robin Saxby, galvanized their people as well as their partners to build profitable ecosystems. They guided their ecosystems from uncertain beginnings through the process of scaling up, and, in the face of a rapidly changing environment, innovated, flexed, and evolved their way to success. Their styles differ, but they share a number of common approaches and traits that we will describe in this chapter. In this way we will identify the essential characteristics of a successful ecosystem head.1 We will also see how an ecosystem leader’s organization needs to change and suggest how executives seeking to lead ecosystems need to rethink the way they measure success.
Leading an Ecosystem Begins with a Change in Mind-Set
Most management books extol the virtues of a leader who can define a clear mission for his or her company and unveil a strategy made up of detailed initiatives to achieve that goal. However, one of the powerful benefits of an ecosystem strategy is its ability to break free from the limitations of a well-defined goal and, instead, help realize an uncertain vision that creates value for customers and partners alike. Indeed, ecosystem CEOs seek to launch their businesses on another trajectory, going beyond what anyone in the company can imagine. Traditional leadership approaches based on command and control and traditional planning systems are therefore ill equipped for that challenge. A different approach is required.
Gaining ecosystem edge requires a radical change in mind-set of all, from the CEO down. In our interactions with dozens of ecosystem builders, we found that all, despite their different industries and starting points, shared four key beliefs (see exhibit 9.1) to a greater or lesser extent.
One, all had an unshakable conviction that there was an opportunity to create new customer value by creating an ecosystem. One of the most outspoken ecosystem heads is perhaps Jack Ma, Alibaba’s cofounder and executive chairman, who was certain there was an opportunity to offer China’s growing middle-class the benefits of greater convenience, more choice, and the ability to seek out the best prices by using e-commerce. Robin Saxby believed that ARM could save its customers money, offer them a wider choice of suppliers, and provide technical innovation faster, if it created the de facto global standard for RISC chips. Having revolutionized the book retail industry and then US retailing with Amazon, Jeff Bezos was convinced that there was an opportunity in offering companies infinitely scalable computing capacity and related services on a pay-only-for-what-you-use basis—an idea that became AWS. Like other entrepreneurs, these ecosystem builders were certain in their minds that they could create value even if the path to doing so was shrouded in fog. Despite numerous uncertainties, they pursued their vision with both eyes focused on the main opportunities.
The second belief the ecosystem builders share is an ever-growing conviction that no company acting alone can unlock the opportunity. All the CEOs we studied were certain that the challenges they faced could only be met by identifying, attracting, and harnessing the knowledge, capabilities, and innovation potential of partners. They also felt that the solution couldn’t be found by slotting potential allies into well-defined roles in conventional supply chains.
Such a mind-set doesn’t come naturally to most CEOs, especially in large, well-established companies. Their preference is to “do it ourselves” so that control and returns are assured. However, conventional thinking limits the benefits of the diverse mix of capabilities and knowledge that partners can bring to an ecosystem. It also squanders the opportunities for learning and innovation that are created when partners with different strengths interact with one another. Even in a young company like Alibaba, the unexpected benefits of engaging with partners have brought Jack Ma and his leadership team to the point where, rather than asking how they can do something, they now instinctively pose the question: “Who out there can help us achieve our goal?”2
EXHIBIT 9.1. Four Elements of the Mind-Set of a Successful Ecosystem CEO. Source: authors’ research.
The third dimension of the mind-set of successful ecosystem builders is an unrelenting focus on attracting, engaging, and motivating people who aren’t their employees. Every seasoned leader knows how to communicate a vision and a mission that their employees will buy into and motivate them to achieve it. However, the difference when leading an ecosystem is that most of the people you have to motivate and inspire don’t work for you! Those who aspire to lead an ecosystem must always keep in mind that their role involves leading and motivating people across the network—not just the employees of their company. Leaders building and operating an ecosystem must invest a considerable amount of time to engage with, educate, and motivate people working for their partners (a task that we will discuss a little later in this chapter). It isn’t surprising, then, that each of ARM’s executive directors has been assigned the task of working with the leaders of one of its critical partners.
The fourth, and final, belief of those successfully leading an ecosystem is their undiluted focus on growing the size of the pie. Getting the best deal for their companies from customers and suppliers helps most executives rise through the ranks. Their approach is that business is a zero-sum game: for us to get more, others need to get less. Such a mentality hinders the successful creation and operation of an ecosystem. Ecosystem builders must stay focused first, and foremost, on how to create a positive-sum game, where no one has to win at someone else’s expense. Maximizing the value that an ecosystem creates for all its participants needs to be the priority all the time.
As we mentioned several times now, the biggest benefits of ecosystem strategies are their ability to deliver more value, quicker innovation, and greater flexibility to respond to fast-changing environments than any company could attain by acting alone. The CEO needs to ensure that everyone understands that making that happen is “job one.”
As we saw in the last chapter, if you grow the size of the pie, it doesn’t matter if partners benefit even more than your own company does. In fact, that may well be a positive thing; the more success partners taste, the more you will benefit as the ecosystem leader. And there are measures you can track to judge the health, vitality, and success of the ecosystem, and the benefits your company gains as you build it. Those parameters can help develop a leadership style that looks beyond the performance of a single company and recognizes that the achievements of the ecosystem—in terms of the value it generates and the rate at which it is innovating and developing—are critical to future success. This is particularly true as the nature of competition shifts from rivalry between companies to competition between ecosystems, as we will discuss in chapter 10.
From Command and Control to Collaborative Leadership
Leadership styles that work when leading a company or a traditional supply chain, may prove to be unproductive, at best, or disastrous, at worst, when applied to an ecosystem comprising a complex network of different kinds of partners. This is because leadership is usually associated with power over people, as opposed to power with people. In traditional hierarchies, that’s achieved by formal command-and-control structures backed by a charismatic leadership style, where the leader may attract followers to execute orders as per his or her wishes. Charisma may continue to play a role, but command-and-control isn’t consistent with the fact that ecosystem builders have to rely on large numbers of people whom they don’t employ.
To master the art of leading an ecosystem, CEOs have much to learn from Mary Parker Follett, the early twentieth-century social worker and management guru avant la lettre. She described management as the art of getting things done through people, and essentially believed in the power of people working together, as a community. She distinguished between bringing about change in a coercive fashion and a co‐active manner, and saw leading a community as a creative process that could advance the group by constantly reframing the issues it faced.3
Follet’s sage approach holds important lessons for ecosystem builders as they think about the challenges they face. Managing an ecosystem, quite clearly, demands collaborative leadership: a combination of the ability to work together, to listen, to influence, and to adapt flexibly rather than depending on commands and controls.4 Leadership in an ecosystem is different from leading through power, expertise, charisma, or dogma. A leader in an ecosystem is often perceived to be the peer of those whom he or she leads, and must achieve results by stimulating collaboration with and between the company’s partners in the ecosystem.
In our view, there are four key leadership skills required to lead an ecosystem: listening, adapting, influencing, and collaborating (or LAIC, for short).
Listening
Leaders practicing collaborative leadership recognize that they are not perfect. They need a team with complementary capabilities. Such capabilities may not always be very explicit, and the leader needs to make an effort to solicit team members to come forward. So, a collaborative leader needs to monitor his or her peers, whose signals may be weak and not codified. Ecosystem builders must watch out for these weak signals, so that they are aware of what’s going on across the ecosystem.
Only leaders who take the time to get under the skin of their peers, respond quickly to their needs, and stiffen their partners’ resolve in the face of uncertainties will succeed in guiding and building ecosystems. Collaborative leadership requires the capacity to build relationships, so that partners’ CEOs can trust you, and each other, to take entrepreneurial actions in the face of change. All that requires enhancing the capacity to listen, empathize, and feel for those within the organization as well as partners in the ecosystem. The capacity to listen and hear other CEOs must be underpinned by the willingness to learn, and the confidence to accept that what others have to say may sometimes be more valuable than your own opinions.
Adapting
As we have argued earlier, companies build ecosystems because the world is becoming more uncertain and doing business is getting riskier than it used to be. There’s relatively less protection now in the form of government regulation or information asymmetries. At the same time, innovation has become more complex because sources of information are getting more dispersed. The environment in which ecosystems need to be led has therefore become less predictable.
Leading an ecosystem thus demands the ability to adapt rapidly to changing circumstances. That is why ecosystem builders must rethink the very nature of the risks they face. Most CEOs regard ecosystems, which are in a continual state of flux and evolving in unpredictable ways, as a risk that must be mitigated. However, the flexibility to respond to an uncertain environment is one of the key strengths of an ecosystem.
Leading an ecosystem, therefore, is all about encouraging and nudging the network to respond flexibly, and not always demanding an adherence to established processes or norms of doing things. The major risk that leaders needs to tackle is the ecosystem’s loss of vitality, which may cause it to stall. Effective ecosystem heads must accept the system’s capacity for self-organization and coordinate investments to successfully create and capture value.
Influencing
Given the severe limitations of command-and-control systems in a business ecosystem, CEOs need to excel at influencing people, deploying the “soft power” that comes from vision, credibility, and evidence, to bolster their cases. Like peers in social networks and most knowledge workers, ecosystem partners usually want to be convinced about what they should do, and not told what to do. Partners often have their own insights, expertise, and entrepreneurial drive, so they want to be treated as equals. By dint of size or market position, ecosystem partners often expect to be a lot more powerful than the ecosystem leader. For example, many of the OEMs in ARM’s ecosystem, such as Apple and Samsung, dwarf the company. If ARM tells them what to do, they may have good reason, data, and knowledge to disagree, especially in a world where the information that exists outside an organization is as valuable as internal data. Effective leaders in an ecosystem thus need the skills to influence partners without manipulating them, as that is bound to arouse resentment. By doing so, they can bring together a more diverse set of capabilities and experiences than exists in any company.
Collaborating
Finally, in an ecosystem, leadership is all about getting things done through a community of peers. Moving forward requires collaborating with partners to identify and unlock value, and to implement change. To be effective, CEOs must be able to promote continuous collaboration and learning between partners. They should convey an attractive vision of the opportunity that the ecosystem can grasp. Ecosystem builders cannot afford to act as brokers or go-betweens; they must put in place the structures and incentives to encourage their partners to work closely together.
These requirements mean that ecosystem CEOs must be willing to invest significant amounts of their own time in networking and promoting collaboration between other partners to create a virtuous cycle of engagement. Every engagement should stimulate and facilitate further collaboration. Collaboration is not always a natural act. Under pressure and confronted by shortages of time and budget, business leaders often prefer to isolate themselves from their networks, and implement initiatives themselves. Collaborative leadership demands that CEOs constantly guard against the temptation of going it alone.
Going beyond the Limitations of Collaborative Leadership
Listening, adapting, influencing, and collaborating (LAIC) are key leadership attributes required in ecosystems, but executives should not be blind to its inevitable limitations. Classic collaborative leadership also has downsides: listening may become dithering, influencing may become manipulation, collaboration may turn into procrastination, and adaptation may render the organization anchorless.
To complement principles of classic collaborative leadership in an ecosystem, four other leadership capabilities need to work in tandem: taking responsibility beyond your organization’s borders, building consensus, developing social networks, and confronting the dilemmas that will inevitably arise in the ecosystem.
Responsibility beyond Borders
Smart ecosystem heads understand that their domain of responsibility doesn’t stop at the boundaries of their organizations. In an ecosystem, organizational boundaries are fuzzy in terms of both authority and accountability. When an ecosystem fails to live up to the expectations of a consumer, he or she doesn’t much care which nodes in the network were at fault. Like ministers in a cabinet or directors on a board, everyone shares responsibility equally. Consequently, ecosystem leaders become accountable for not only what happens inside their organizations, but also for how their partners behave and communicate. Ecosystem leadership requires CEOs to put in place the communication channels; monitoring systems; and, when necessary, the sanctions that enable them to lead an extensive hinterland of partners beyond the boundaries of their organizations.
Build Consensus
Acting through ecosystem partners requires getting most, if not all, of them to agree and take ownership of decisions before decisions can be implemented. Listening and influencing will come to naught unless consensus is achieved. Successful ecosystem heads put levers in place that enable them to build consensus in the ecosystem on everything, from the nature of the opportunity, through behaviors and values, to key initiatives.
However, the process of building consensus carries with it a risk: it can lead to the acceptance of the lowest common denominator, and suboptimal decisions.
Building consensus in an ecosystem is rendered difficult by one of its inherent strengths: diversity. Diversity typically enhances the quality of decision-making as long as executives accept and take on the cultural and contextual differences.5 It’s not effective to cover up the differences between individuals or companies out of a misplaced sense of respect or political correctness. Hence, leaders that enable their employees to confront and address their differences perform better than monocultural groups, as they benefit from the differences that diversity offers.
Those leading an ecosystem need to build consensus in ways that bring out the differences and the tensions in their networks. That will enhance creativity, innovation, and complementarity that is the raison d’être of every ecosystem.
Develop Your Social Networks
Effective ecosystem heads must be effective networkers. Developing a wide network will significantly enhance their ability to perform; it allows them to know better what is going on in, and beyond, their ecosystem. Jack Ma, Bernard Charles, and Robin Saxby are consummate networkers, who know how to build perceptions about themselves, how to manage status and relationships in the network, and how to develop the capabilities to spot information outside the ecosystem and link it back to their networks.
To sustain ecosystems, leaders need to contribute to their social networks as well as draw from them. Becoming a trusted source of knowledge and information builds their credibility, and acts as a quid pro quo for the benefits they gain from their relationships.
Confront Dilemmas
As we have already seen in previous chapters, leading in an ecosystem is fraught with dilemmas.6 Should I keep the knowledge I learn from the ecosystem proprietary or share it with partners? Should I try to catalyze a new initiative myself or leave it to partners? When should I abandon an existing profit stream to partners and look to create a new one? The best approach is usually not “either-or” but “and-and.” Both, the ecosystem leader and its partners, must protect their intellectual property and also conform to the group while thinking out of the box. To lead an ecosystem requires a mix of formality and informality. CEOs must heed experience and, at the same time, challenge it through experimentation. They must want to make money for their own organizations, but they need to be fair in sharing value among their partners, who will compete and collaborate.
Sure, it’s uncomfortable to live with dilemmas, but there’s no choice in an ecosystem. To lead effectively, CEOs must emulate some of the characteristics of the ambidextrous CEO.7 They must embrace inconsistency by setting multiple and conflicting goals, maintain the tension between the demands for innovation and delivery efficiency, and develop an overarching identity and goal for the ecosystem while respecting the identity of every individual partner.
These characteristics add up to a very different leadership approach compared to what most business leaders are accustomed to. Not everyone can remake himself or herself in this new image. Some characteristics can be learned, developed, and amplified, based on existing leadership capabilities. Others may need to be hired into the organization so that a team that has the capabilities to lead the ecosystem forms around the CEO.
A final word of caution: the transaction costs of collaborative leadership can be high. Managing the relationships with partners often becomes a role for the ecosystem CEO. People like Robin Saxby of ARM or Bernard Charles of DS have to spend significant time on the quasi account management of the major partners in the ecosystem. That is why they need to be completely committed to the conviction that capturing the ecosystem edge is the best way to building their companies’ success. Given the amount of time you will need to invest in the ecosystem, you have to know, as the saying goes, if “the game is worth the candle.”
Restructuring the Organization
Traditionally, businesses have been designed to support a vertically integrated set of activities ranging from R&D to sales or to fit into a supply chain. Structures, processes, and even culture are honed for that role. However, that may not be the ideal organizational structure for playing the leadership role in a business ecosystem.
Our analysis points to three things that ecosystem heads must do to prepare the internal organization for the ecosystem (see exhibit 9.2). First, ruthlessly focus the organization on what it does best; second, build an organization structure that can interface effectively with partners; and third, ready employees for co-opetition decisions, such as separating the knowledge that must be shared from that which has to be kept proprietary.
Ruthlessly Focus Your Organization on What It Does Best
Business leaders routinely make decisions about what activities along the value chain should be performed in-house and what should be outsourced. The make versus buy decision is usually based on one well-defined criterion: who can do the job at the right quality for the lowest cost? That criterion to make a decision remains—what are the activities a company must keep in house, and what should it leave to its partners in the ecosystem. However, in the case of leading an ecosystem, other criteria too need to be taken into account.
Beyond the issue of whether a partner can deliver the right quality at a lower cost than your company, three additional considerations need to be weighed in an ecosystem. First, the ecosystem builder must assess whether it is important to keep an activity within the organization because it promises to be a source of knowledge or information that it needs to fuel its innovation or maintain power in the ecosystem. That is often critical to maintaining the tollgates that generate a sustainable profit stream (as we discussed in chapter 8). ARM provides us with a good example on how to make such choices. It doesn’t leave interactions with OEMs to its partners; those interactions are key to understanding customers’ road maps, which in turn guides the design of its RISC chip architectures. In the same way, AWS maintains its server infrastructure in-house partly because it can then track customers’ demand patterns and price services accordingly. At the same time, it leaves the customer acquisition, the on-boarding, and the provision of services to partners, as those activities are not core to maintaining its role in the ecosystem and its profit streams.
One potential problem that ecosystem leaders face here is that almost every unit or department in their firm is likely to claim, for one reason or another, that its activities are part of the core. To surrender that, as they see it, would tear the heart out of what makes the company great. However, an ecosystem head must rise above the internal arguments, lobbying, and pleading, and work out the activities essential for the organization to maintain its leverage and profits. That calls for a certain ruthless objectivity.
Performance measurement adds a second criterion. An ecosystem builder needs to consider how much it will cost to monitor the performance of its partners for all the activities it will require them to conduct. While performance will be relatively easy to assess in the case of some activities, others will entail significant costs in the form of employee time and effort. If the monitoring costs keep rising, a point will be reached where it may be more cost-efficient and effective for the organization to perform the task in-house.
Third, getting ecosystem partners up to speed may require a significant investment by the organization. That will depend on the capabilities and knowledge that partners already have, as well as the difficulty in coordinating their contributions with the tasks the ecosystem leader performs. To ensure effective coordination, the employees of the ecosystem leader would have to invest their time to educate partners. Again, the setup costs of partnering will rise, as will the risk of proprietary knowledge leaking from the partner. When the investments needed to equip partners to conduct an activity in the ecosystem rise above a point, performing it in-house becomes more attractive.
In deciding which activities to focus on and which to leave to partners, ecosystem builders should look for the best compromise among four opposing forces:
• Partners’ capabilities to perform the activity at an attractive cost as well as being able to innovate.
• The desire to keep the activity in-house to accumulate knowledge that can provide leverage and generate profits.
• The costs of monitoring performance if the activity is left to partners.
• The investment required to bring the partner up to speed to perform the task reliably and consistently.
Many of these costs and benefits are difficult to measure. However, the advantages of in-house control must be carefully weighed against the myriad benefits of leveraging partners. Failing to ruthlessly focus the ecosystem leader on what it is best at and needs to do to maintain its profitability in the ecosystem will result in squandering the benefits of an ecosystem strategy.
Building an Organization to Interface Effectively with Partners
An ecosystem’s productivity depends on how effectively and efficiently partners can exchange knowledge, coordinate activities, and cocreate. Having the right interfaces in place is therefore critical to its functioning. However, most organizations do not have interfaces that are suitable for orchestrating an ecosystem. In a vertically integrated company or a traditional supply chain, the roles and responsibilities needed to benefit from an ecosystem are not needed. Hence, putting them in place is a priority for most ecosystem builders.
Let us return to the case of ARM to illustrate how they built an organization that was able to manage the interfaces effectively. For them, that meant splitting the sales roles from partner management and appointing dedicated executives to engage with partners, as we discussed in earlier chapters. The precise restructuring required in every company will, of course, depend on the nature of the engagement needed to ensure the smooth working of the ecosystem.
It is useful to keep in mind some rules of thumb when thinking about how your organization needs to change. Wherever mostly tacit knowledge needs to be exchanged between the ecosystem leader and its partners, it will be necessary to set up a dedicated team. Each member will have to spend a significant amount of time every day working with partners. The team may need to be large so that each member can focus on working with a small number of partners and building a trusted relationship with each of them over time. If differences in culture or context with a partner seem likely to threaten communication, the manager responsible for engaging with that company must be co-located with it for a specific period of time. When industry-specific knowledge is key to effective engagement, the partner-management team will need managers with experience in those industries.8
Sometimes, shared experience is sufficient to facilitate effective engagement. ARM, for example, found that when it had to exchange complex, technical knowledge with its partners, staffing the interface with engineers who shared the same educational background and training as the partners; people worked well. In fact, as long as they shared similar backgrounds and ways of working, even setting up remote partner-management teams was sufficient. Similarly, in the case of partners, where it was possible to codify and document knowledge, ARM found that a light touch organization to manage them was sufficient. So, in these cases, it set up a small team to work online with partners rather than focusing on face-to-face engagement.
Readying Employees for Co-opetition
Engaging with partners in ecosystems entails elements of both cooperation and competition. It involves, for instance, sharing some knowledge with partners while keeping other data proprietary; performing some strategic activities even if this encroaches on a partner’s business; working together on an innovation, but competing to market it; and so on. The implications of co-opetition are not always easy to perceive, and even more difficult to incorporate, in decision-making. It is therefore essential that ecosystem heads who wish to gain an ecosystem edge take the time to ready employees to make the right calls in an ambiguous environment.
It starts with clearly communicating the message that cooperation and competition can go hand in hand. Surrendering potential profits to a partner or limiting the encroachment on their business, for example, might make sense if it helps the ecosystem to prosper. Faced with such choices, the ecosystem builder’s role is to help executives and managers always keep the big picture in mind.
In applying that thinking to routine decision-makings, managers are likely to need the support of guidelines and processes. Part of the organization’s internal restructuring so that it can lead an ecosystem effectively, will entail revising processes and procedures. That should include establishing “Chinese Walls” within the organization, so that information confidential to one partner does not leak to others. Similarly, it will be necessary to agree with partners in advance about how the ownership of any collaboratively developed intellectual property will be shared. Procedures for anonymizing and aggregating sensitive data may also be required.
Monitoring Ecosystem Performance
Effective leadership always requires feedback and monitoring of performance. The benefits your ecosystem delivers will ultimately show up in traditional measures of your company’s performance: revenues, profits, cash flow and shareholder value. But as an ecosystem head, you also need forward-looking measures that track the health, vitality, and success of the ecosystem. These can help you execute on a leadership mind-set that looks beyond the performance of the company alone, and recognizes that the achievements of your ecosystem in terms of the overall value it generates and the rate at which it is innovating and developing are critical to future success.
Unlike a traditional strategy, where milestones can be clearly defined, ecosystem strategies are harnessed to realize an uncertain vision. So, while the organization’s understanding of the business opportunity may remain the same, the structure and evolution of the ecosystem necessary to realize it may change quickly. It is difficult to measure ecosystem performance by confirming whether particular elements of it, as originally envisaged, are in place; the ecosystem’s evolution along a different path may well be an indicator of its success in responding to a changing environment. That is why successful ecosystem builders focus on other measures of health and vitality. If learning, innovation, or growth in the ecosystem show signs of slowing, or rigidities begin to emerge in those processes, that should trigger red flags. If the ecosystem begins to stumble in its pursuit of the opportunity, or fails to keep adapting to change, those are warning signals too.
Three sets of indicators can gauge the health and leverage available from an ecosystem (summarized in exhibit 9.3).
The simplest indicator of the attractiveness of an ecosystem to the ecosystem leader and its partners is how many companies have joined and left the network in specific time periods. If new companies are not signing up, and existing partners are withdrawing, the ecosystem leader needs to figure out why. It is of course possible that all is well with the ecosystem; strong partners may be displacing weaker ones.
However, the churn could also indicate that the ecosystem is in a state of decline. New partners bring fresh capabilities, ideas, knowledge, and relationships, and they drive scale and positive network effects that are key to sustaining the vibrancy and competitiveness of an ecosystem. If the number of partners in the ecosystem is falling, the ecosystem leader should be extremely concerned. It suggests that the partners perceive that the leader is not delivering adequate value propositions, and prefer joining an alternative ecosystem.
Interestingly, rather than working out why more companies are not interested in joining or staying, ecosystem leaders often see it as a sign that they must exert more control over the ecosystem. Doing so is likely to worsen matters. A classic example of that trap is the evolution of the well-documented Symbian ecosystem.9 In June 2008, Nokia announced the setting up of an independent, not-for-profit, Symbian Foundation, in order to catalyze an ecosystem around Symbian OS, Nokia’s operating system for mobile phones. At the network’s core was a royalty-free, open-source software platform based on code contributed by Nokia and its partners such as NTT DoCoMo, Samsung, Sony Ericsson, and Motorola. Initially the ecosystem thrived, with Symbian getting installed as the operating system in almost two-thirds of mobile phones worldwide. However, over the next few years, Nokia’s partners, such as Samsung and Sony Ericsson, started to desert the ecosystem. Nokia hadn’t caught on that its partners didn’t feel their requirements were being listened to and incorporated into new generations of the product. Nor did it realize just how fast the demands on the operating system were rising as partners added considerably more functionality to their new mobile phone designs. The Symbian had fallen behind, as it simply wasn’t tracking the right measures to assess whether the ecosystem was in good health. When, by 2010, Nokia did acknowledge the ecosystem was in severe trouble, its response was to take over the stewardship of the Symbian ecosystem.
That might have seemed like an altruistic move by the leader to save the ecosystem. In fact, it made things even worse. Nokia’s control of Symbian made collaboration even less attractive, both for existing partners as well as potential new adopters. Symbian’s global market share continued to slide, plunging below 30 percent by the end of 2010. Consequently, Symbian’s application developers began to drop out of the ecosystem rapidly. By April 2011, Nokia had ceased to source any portion of the Symbian software from the ecosystem, and had shrunk its ties to just a small group of partners in Japan. Meanwhile, Google’s Android ecosystem was developing, attracting at first forty-seven, and then eighty-four, partners, including hardware manufacturers, software developers, and applications creators into its orbit. By the end of 2010, Android had overtaken Symbian’s market share and has today become one of the two dominant ecosystems in that market.
Another way to track the health of ecosystem partners is to monitor their revenue growth, profits, profitability, and cash flows. When partners are performing well on those parameters, it is a sign that the ecosystem is in good health. Some executives, drawing on traditional supply-chain thinking, may argue that the leader has left too much profit on the table. However, ecosystem CEOs need to see the bigger picture: partners that thrive are more willing to invest, innovate, and cooperate to improve the ecosystem’s capabilities. Certainly, the ecosystem leader must ensure that its tollgates are effectively capturing a share of the profits, but the fact that partners are doing well is a sign that it can improve its own performance.
Wherever possible, it is worth tracking measures of the ecosystem’s turnover, market share, and customer stickiness. A net inflow of new customers, especially if they are loyal, is a sign that the ecosystem is delivering value.
Indicators of Learning and Innovation
The second dimension of ecosystem health is the pace at which partners are learning and innovating to enable the ecosystem to create new sources of value. While performance in learning and innovation is difficult to measure, ecosystem leaders can track some proxies. It starts with collecting statistics on the IP generated by the ecosystem, such as the number of patents approved, and the number of trademarks and copyrights registered. The key is to compute that data across the ecosystem—or the partner network—rather than the ecosystem leader alone. These indicators will be more valuable if they enable comparison with competing ecosystems.10
Other quantitative measures of ecosystem health are the different types of data generated, the insights from the analysis, and how the ecosystem leader is using the data and insights. To gain a realistic picture of the learning and innovation taking place in the ecosystem will require qualitative assessment of the knowledge being generated by it, and also captured by the ecosystem leader. Measurement will require a system that regularly assesses what the organization is learning from its interactions with ecosystem partners. That is an inexact science, but continually asking how much the ecosystem is innovating and how well the ecosystem leader is leveraging that innovation is a useful discipline.
Indicators of the Flexibility and Development of the Network
A key advantage of ecosystem strategies is their ability to continually flex and evolve with the changing market environment, so ecosystem CEOs must keep their finger on the pulse of its development. That is not always easy. The process is more art than science. Still, four qualitative indicators may help:
• The extent to which new linkages between partners, and with the ecosystem leader, are being forged.
• The extent to which engagement between partners is deepening.
• The extent to which new clusters of cooperation between partners are forming.
• The extent to which the ecosystem leader is stepping back from activities it has catalyzed, and allowed self-organization to take over.
At Alibaba, as we saw earlier, these indicators were monitored. The fact that all these indicators were trending upward by 2005 was a sign of success. After seeding the development of China’s logistics capabilities by working with partners, the company saw that logistics providers were picking up the baton, forming new linkages, improving data exchanges, and investing in new capabilities. Alibaba was therefore able to step back, and focus on its role as an enabler. Tracking these indicators also flagged areas where the ecosystem’s development had been inadequate. Hence, in the delivery of white goods such as washing machines and refrigerators, for example, Alibaba found that its partners often fell short. It then intensified its efforts in this area, forming a partnership with China’s largest appliances-maker, Haier, to develop the requisite logistics capabilities.
Gaining visibility into the dynamics of an ecosystem is more difficult than doing so in the case of a single organization, however large it may be. But despite the challenges, investing precious leadership time in constantly monitoring the health of an ecosystem will always pay dividends.
A Blueprint for Ecosystem Leadership
To ensure that a CEO is ready to embrace the challenge of leading an ecosystem, he or she must answer five questions:
1. Am I approaching the challenge with the right mind-set? Do I believe that:
• There is an enormous opportunity to create new value
• No company acting alone, including mine, can unlock this opportunity
• The key is to engage and motive people who don’t work for me. The focus should be on growing the size of the ecosystem pie, not my company’s share alone.
2. Have I honed the skills needed to successfully lead an ecosystem? These include:
• Listening
• Adapting
• Influencing
• Collaborating
3. Am I ready to go beyond the limitations of classic collaborative leadership by:
• Taking responsibility for decisions taken beyond the borders of my organization
• Building consensus
• Investing in developing my social networks
• Constantly tackling dilemmas such as what knowledge I should keep proprietary and what I share with partners.
4. Have I restructured my organization to equip it to lead an ecosystem? This can be done by:
• Focusing it only on what it does best (or needs to do to maintain its leverage over the ecosystem)
• Establishing interfaces with partners
• Equipping employees to embrace co-opetition.
5. Are we able to monitor the ecosystem’s performance by using metrics? These would be:
• The number and significance of partners joining and leaving the ecosystem
• The rate of innovation in the ecosystem
• The flexibility and evolution of the ecosystem, including the quantity, quality, and density of the linkages between partners and with the ecosystem leader
• The ability of the company to step back into an enabler role over time
