Ecosystems-based strategies now
dominate the Fortune 500
In the business world, the ecosystem also reigns supreme but in different ways. Traditional ‘Harvard-based’ business strategies offer two highly distinct and segregated confines for a business to operate within – the cost leadership regime or the differentiation regime. The general assumption underlying either of these two strategic principles was that a company could either do one or the other successfully – but not both. A business entity could either be a cost leader like Walmart, or a differentiator like Apple. There was no strategic ground in-between – no formulaic combination of both strategic spectrums that would yield any success in the form of above average business returns.
Furthermore, business strategy in the past has also heavily relied on the siloed view of the organization as various value generating entities or functions, classified into primary activities and secondary activities.
Traditional Function-Wise View of a Business Organization
|Primary Activities||Secondary Activities|
Marketing & Sales
Human Resource Management
From this view point, the sum-total of the functional groups of an organization act like a funnel or a pipeline to take goods and services from inception to creation, and finally to the marketplace.
In today’s age, this is an extremely disconnected view of the business organization that invites segregation, silo-thinking, and introduces fundamental barriers to innovation, collaboration, and ultimately teamwork. This outmoded view of the organization takes no advantage of the power of ecosystems. Today’s most successful global organizations have all adopted ecosystem-based business strategies – fundamentally distinct and unique from any traditional successful business strategies in the past. Indeed the best companies around the world recognize the power of ecosystems in organizational culture and management as well – adopting highly integrative agile team-based work environments based on the benefits of collective intelligence.
The shift towards an ecosystem based business strategy is one that can encompass a lengthy discussion, but the point of this discussion is to recognize that ecosystems are extremely powerful entities. In the past, businesses ran on an ‘us vs. them’ philosophy gauging the competition as the ‘enemy’, and providing a clear division of those constituents inside the organization versus those constituents outside the organization. Company secrets were fiercely guarded since they were relied upon for value generation in terms of sales of either goods or services per unit. Supply-side economies of scale dominated. However, just in the last few years, business strategy has changed so overwhelmingly towards ecosystems, network effects, and demand-side economies of scale. This massive shift has been powered by exploiting new and existing communication pathways between a company and the broader ecosystem that the company is a part of.
Businesses are ecosystems today, and are powered by the proliferation of communication pathways, analogous to the natural ecosystem and digital ecosystems already mentioned before. Today, the most successful businesses will recognize that the more communication pathways they create, the more interconnectedness they achieve, the more they open up their business to the external world, the more network effects the business will instill – the more new and powerful value generation and sales pathways they will be able to create.