Since James F. Moore introduced the concept of “Business Ecosystems”, social and technological changes have dramatically transformed the environment in which companies struggle to grow. This article aims to update its definition presenting the major drivers of change.
The Origin: Value Chains
With the spectacular advances of the last decades in the field of transportation modes and information technology, the movement of goods, people and ideas has experienced an unprecedented increase in its reach and speed.
These advances have allowed companies to fragment and manage their production processes in different segments, assigning them to those agents that can perform them more efficiently, thus increasing profits and being more competitive. In this way, productive systems have gradually acquired a structure based on complex networks of companies and other agents.
One of the main consequences of the fragmentation of production is the distribution of the value of products and services among the different agents involved in their production. So, for example, the value of a smartphone purchased in a store in California belongs only partly to the business that designed and branded it. Most of the value is shared between Chinese assemblers, the microchip manufacturer located in Israel, the German screen manufacturer etc.
An updated definition of Business Ecosystem
A business ecosystem (BE from now on) can be described as a structured, complex, dynamic, adaptive and self-organized economic network of companies and other agents whose aim is to combine their different capabilities to increase the value offered to customers through goods and services. Ideally, the participation in a BE benefits all its members through cooperation and, at the same time, the satisfaction of their own individual interests.
Let’s take a closer look at some features of BEs.
Despite their fluid nature, the BEs are structured, i. e. their members maintain more or less stable relations between them, which can be regularised and even institutionalized.
BEs can be differentiated according to their structure. In some cases, it may acquire hierarchical structures in which one or more companies directly control the behavior of other members, while in other cases relations between members are more balanced.
A BE is a complex network because its behavior goes beyond the sum of its connections. It acts as an actor-network, that is to say, it has a dual nature: it is an actor and a network simultaneously. At the same time, the agents belonging to a BE often hide another group of entities that only become visible when conflicts arise within them.
Adaptive and dynamic
A BE is adaptive because it responds to the changes in the environment and within the ecosystem itself. It is dynamic because its members can participate into different BEs at the same time, constantly joining or disassociating from them, bringing in new agents, modifying the role within the BE, etc.
BEs are self-organized because they are usually created spontaneously, usually under the leadership of one or more companies.
Traditionally, the members of a BE have been considered to be companies directly related to the production of a product or service, i. e. the manufacturer, suppliers, and distributors. More recently, other agents relevant to the sector, such as public authorities, universities and research centers, consumers (although with a rather passive role) and even things, have joined the analysis. The latter two will be discussed in the following section.
Global trends that are disrupting BEs
The changes that are affecting the BEs most radically in recent years, and that still have to continue to modify their structure, are originated by two macro trends: digitalization and the 4th Industrial Revolution.
Digitisation of the economy
If we are currently talking about BE, it is largely due to digitization. The exponential digitization of all aspects of society has had an unprecedented impact on BEs. First of all, it has made them more broad, fluid and complex, thus consolidating their importance.
Digitisation has allowed agents on the periphery of BEs to suddenly assume a central role. These are companies, and even individuals, capable of constructing their offer from the infrastructures of larger agents. These are generally digital business models, capable of exploiting data originating from businesses and consumers.
The other major impact of digitization is consumer empowerment. Far from being passive agents who merely use products and services, their influence on production is increasing thanks to the democratization of access to information. Companies, either because they want to take advantage of this new asset to increase their value proposition or because don’t want to be bypassed, are transferring part of their power to consumers, transforming them into co-designers.
The 4th Industrial Revolution
The 4th Industrial Revolution (4IR) distinguishes from the previous ones by a series of technological advances, all of them influenced by digitalization: mobile connectivity, Artificial Intelligence, next-generation robotics, 3D printing, advanced materials, and nanotechnology.
Undoubtedly, the 4IR is transforming and enabling new production models, but the aspect that has the greatest influence on BEs is the collaboration between people and things. Through the 4IR technology, things are becoming an agent of the BE network. Its growing capacity to learn, evolve and interact autonomously with people is placing “intelligent things” on an equal footing with other agents.
Power asymmetries within the BEs
The fact that the concept of BE was originally borrowed from biology has led to a rather neutral analysis of the relationship between the system’s members, with little (or inexistent) attention paid to its hierarchical structure resulting in power asymmetries.
As we have seen previously, BEs need to organize themselves on the basis of a structure in order to have a minimum of stability that will allow them to endure and establish lasting connections between their members. However, this structure is not entirely balanced, but it rather establishes more or less hierarchical relationships that determine and constrain the behavior of its members.
As a result of power asymmetries between agents, this structure establishes a hierarchy in the control and access to connections. The origin of these asymmetries may depend on different factors, such as the evolutionary stage of the BE, the characteristics of its leaders, etc. In any case, it is clear that greater asymmetry and hierarchy results in a reduced fluidity and adaptability.
The basis for a sustainable BE
As a result of what we have seen in the previous section, we could define the characteristics that define a sustainable and “healthy” BE.
- Efficiency: the ability to create products and services with value for the consumer.
- Diversity: the variety of agents participating in a BE.
- Interconnection: the degree of bilaterality in relations between agents.
- Fluidity: the ability to modify its structure to adapt to changes.
- Innovation: the ability to respond to changing consumer needs and habits.
Why companies need a paradigm shift
Following all of the above, the conclusion we can draw is clear.
Business leaders must stop acting and analyze their environment from the traditional economic perspective based on a linear model of supply and demand. Businesses cannot survive in isolation; they need to evolve into open models capable of capitalizing on the effects of digitization and technological advances of 4IR.
In a BE-based economic environment, traditional dominant actors lack the capacity and sensitivity to changing consumer needs. More flexible and open companies from other sectors are breaking into this new scenario and positioning themselves to assimilate the spaces that other companies are neglecting.
Companies that do not understand that they are nodes in a broad network of connections risk being shifted to the less attractive part of the value chain.