Part II: Think like a startup! Applying a formal ecosystem framework to mature business sectors

Business Ecosystems
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Contributed by:
Dr. William Benton, Ph.D.
Part I | Part II | Part III | Part IV
What is this whole ecosystem thing, anyway and why is it important to create acceleration?
 
By now, you’ve probably heard of business ecosystems, maybe someone has confidently announced that you’re part of one.
 
For many firms, this is about as far as the concept goes. For startups, ecosystems are crucial, because new firms tend not to have a lot of internal resources.
 
In mature industries, the concept may seem less crucial.
 
We believe that there is real power in understanding and acting at the sector ecosystem level of complexity.
 
But first, what are we talking about, exactly?
 
In business thinking, the term ecosystem is often used to describe many arrangements of firms, but a few are particularly salient in understanding how mature sectors can be transformed: Hub and Spoke, Distributed Network, and Bucket, to name a few commonly found models.
 
This often leads to the suspicion that ‘ecosystem’ is more of a faddish buzzword than a useful concept.
 
Breaking down what the different models are will give a sense of the larger domain that they capture. It will also show how a genuine and robust ecosystem can help everyone who takes part in building and maintaining it.
 
  • Hub and Spoke: A central firm that can formally or informally direct contractors, is only an ecosystem so long as there’s a limit on how many contractors are out there for each specific demand the hub firm has on the firms it deals with.

    The relationship of Apple’s App Store to individual app studios is close to this model, having a central platform on which many app development studios sell their products allows Apple to set terms for an entire industry. Apple is technically dependent on the thousands of studios whose products they put in front of iPhone users, but there is no comparable degree of organization between a trillion-dollar corporation and thousands of dispersed development studios.

    In this model, the actual dynamics of an ecosystem are weak, which is ultimately damaging to both the hub and all the edge nodes. Epic Games’ current lawsuits against Google and Apple on the claim that their sales channel restrictions are unfair may change this relationship, but as it stands, there is real power in the sales platform.

  • Distributed Network: Includes resources being committed in complex patterns with lateral feedback, is probably the closest thing to an ecosystem as found in nature.

    The Italian textile, clothing manufacture, and design industry is an example of this, with many competing and collaborating firms all working with common up-chain and down-chain providers.

    These relationships are often described as a “cluster” but as this describes both coordinated and non-coordinated firm groups, there is a meaningful distinction to be made between the two types of organization.

  • Bucket: When there are many competing firms offering the same services, with little coordination on common resource arrangements, there is real potential to grow a more robust set of connections, often across sectors.

    Food and beverage, for instance, is a global industry, but at the level of a metro region typically has a tremendous number of largely uncoordinated owner-operated restaurants.

    Individual restaurateurs might know each other, and most might have contracts with the same national restaurant equipment and supply providers (like Sysco), but there is neither hierarchy nor coordination between these firms. Like the Hub and Spoke, the “Bucket” has great potential to grow into a dynamic ecosystem, but it takes coordination between individual firms.

Each of these has distinct opportunities and challenges, as we explore in Part III: Think like a startup! Building competitive advantage in the age of WFH and customer disruption.
 
The Hub and Spoke model needs engagement thresholds and caps with a focus on problems, Distributed Network needs clarity of interface, and Bucket needs networking and agenda-setting.
Part I | Part II | Part III | Part IV

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