Strategic Management Of Ecosystems

Introduction

Ecosystem, a term highly used in biology for describing the various relationships among all the living and non-living elements in the environment, is widely used in the business world in somewhat similar context. This era of digitization has made a huge impact in every aspect of life including the understanding of the business and economic environment. The dynamic nature of the industries or enterprises (Teece, 2007), which has become increasingly developed, largely influences the study of ecosystems. It helps to explain the reason why continuous research is required to understand the key changes that influences the roles of the involved elements or agents. The roles of these agents and their respective relationships have been evolving and it is important to study the changes in the pattern in order to strategically manage them. The paper intends to explain the current theories and the relationships of the different elements.

Keeping the research question in focus, this paper begins with defining ecosystems through the aid of previous research and explaining the key impactful elements which have caused different approaches in defining it. Next, it explains the major characteristics of ecosystems and the strategic management of ecosystems in the current business environment. Finally, the findings have been summarised and some suggestions for future research are mentioned which are not fully explored in this paper.

Definition of Ecosystem

Several approaches have taken place to define ecosystems with one or more similar elements. One aspect of this research considers relations of various elements in a business industry such as suppliers, customers, buyers, government institutions etc. to explain their mutual relationships of supporting each other towards a common goal and also talks about the necessary leadership conditions in a dynamic environment (Moore, 1998; Teece, 2007). Another approach talks about the technological advancement in the Industry and the role of ecosystems affecting necessary strategic changes due to the efforts of external innovators (Adner & Kapoor, 2010). Ecosystem is seen as a platform in one of the study which talks about the interdependence of all the major platform financers and their relations with all the supporters (Ceccagnoli, Forman, Huang, & Wu, 2012). While another study focuses on the relationship of various elements due to the uncertainty, complexity and ambiguity in the ecosystem (Stefano, 2013).

While all these concepts talk about one or more important element that comprises the core of a business ecosystem. They are limited to not been able to completely capture the major players which could help explain the dynamics of ecosystem. After deep analysis, a somewhat appropriate definition which talks about the nature of ecosystems, the different elements in accordance to the changing dynamics and the contributing factors which specifies a unique complementary aspect was found. The authors say, “An ecosystem is a set of actors with varying degrees of multilateral, nongeneric complementarities that are not fully hierarchically controlled”(Jacobides, Cennamo, & Gawer, 2018, p. 2264). This approach sees the ecosystems not as a result of some generally specific or similar elements but talks about some specific, uncommon and unique factors that influences the mutual relationships which results in mutual benefits. It also talks about the role of hierarchies and how the change could be affected by the newest of entrants and have somewhat limited influence on the overall dynamics of the Industry.

Characteristics of Ecosystem

Based on the chosen definition, one crucial aspect of business ecosystem is the unique factor which is responsible for distinguishing it from other agents in the entire industry. This allows the firms to become an important part of the group which provides mutual benefits. Such benefits are relatively unique and would not necessarily be available for the firms operating independently in the industry.

Another important feature of business ecosystem is the network dynamics among various agents or participants. There are big and small players in the industry based on size, uniqueness of resources etc. which are interconnected for the accessibility of common advantages. Such a relation may cause some informal authority of strong and influential players on the overall setup but there is no formal authority which could dictate all the terms, Such decisions are taken by joint agreements and the structure have given rise to the concept of meta-organisation (Gulati, Puranam, & Tushman, 2012). All the entities in an ecosystem are autonomous and their interconnectedness determines the overall rewards to be shared by all the beneficiaries. Hence, this characteristic again summarises the key aspects of the chosen definition as the network would involve agents with unique capabilities. Also, the firms are not fully hierarchically controlled since the entities are legal autonomous bodies while there could be some informal authoritative relationships based on powerful influence.

The level of control present in the ecosystem is a characteristic which also helps in explaining the need for firms to become a part of an ecosystem. In the context of business ecosystem, it’s not about firms having authority over other firms but it is related to the overall management and continuous control over the entire industry for their survival. The control over the most unique resources and the cooperation among the participants allows the existing members to exercise a certain level of control when it comes to entry barriers, use of resources and competition (Smith, 2013). Such important relationships may also give rise to co-dependence and the inter-connectedness could result in control over price apart from the entry barriers thus minimising risk for the current firms in the industry (Smith, 2013). An ecosystem thus allows firms to maintain a certain position for a long period of time and reap benefits due to the protective cover of control over key resources.

While control is there in a business environment, it might suggest that the innovation is somewhat restrictive in an environment which looks to keep things stable. Innovations, however, are an important characteristic of a business ecosystem as they allow the firms to keep focus on the requirements of the industry. Based on the current trends and need, the entities may concentrate their efforts towards working for the kind of innovation which caters to the demand of all the member organisations. They may also decide not to indulge in research and innovation activities due to high investments or huge risks of disrupting the entire ecosystem. All the new research and advances could be aligned with the objectives of the industry to better serve the needs without disrupting the current flow of the existing process. Keeping in mind the requirements of the ecosystem, new entrants could also align their disruptive innovation and save themselves from the dilemma of whether they will be able to gain the support of the respective incumbents in the industry (Ansari, Garud, & Kumaraswamy, 2016). By keeping the objectives and the requirements aligned, the firms ensure protection from the disruptors as the ecosystem participants keep an eye on them by predicting the nature and long-term sustainability of the industry.

Ecosystems provide a platform for the firms engaging in similar business. The complementor firms can participate and reap the benefits through their uniqueness and superior performance for a long period of time (Kapoor & Agarwal, 2017). This platform allows firms to develop their product and use their unique advantage. Ecosystems provide an opportunity to develop the network and sustain the long-term position by keeping a stable market for the product. It enables the firms to easily access the pool of network for the required resources and allows firms to predict the future path.

The presence of easily available data and sharing of knowledge is highly sought after in an ecosystem. Using Open Data based Systems, an ecosystem allows various firms to access the required knowledge regarding product, services, customers, emerging technologies etc. to better equip themselves with all the industrial challenges (Immonen, Palviainen, & Ovaska, 2014). The ecosystems ensure the reliability and quality of data and requires all the participants to actively create the appropriate processes for better clarity.

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While defining the ecosystems, it was noted that ecosystems consist of several elements which are somehow interconnected, interlinked and sometimes interdependent. In the same manner, all the characteristics of ecosystem influences each other. Network dynamics helps in creating strong networks which results in getting a platform of knowledge and data sharing. Through reliable data, firms may predict the market forces and the need for innovations.

Strategic Management of Ecosystem

It is important to understand the strategic management of ecosystems as there had been constant changes due to the emergence of digitization. For instance, the definition of ecosystems has constantly evolved with many authors trying to cover all the major aspects of it. Based on new research and findings, they have updated their understanding and have tried to explain it for the current industry.

Appropriate strategy is required to deal with the dynamic nature of ecosystems where competitiveness may overcome the rewards of cooperation. Firms are organised in a way to look for the most sustainable option for their business. However, due to the complementary activities in a business ecosystem, it is hard to make a decisions relating to technology investments (Kapoor & Lee, 2013). It is important for a firm to grow individually and they are autonomous bodies, but the benefits of ecosystem put them in a dilemma of whether to be the early entrant or investor of a certain technology (Kapoor & Lee, 2013). The need to strategically manage these changes both for the individual firms and the industry therefore becomes very significant.

To deal with such disruptions, a firm should display the required strategic behaviour. One alternative which has the potential and is significantly prevalent in an ecosystem are emergent strategies (Mirabeau & Maguire, 2014). They usually are generated after the commencement of a project but a certain strategy to deal with the uncertainties of the industry helps in the long-term strategic planning of a company.

In order to make a sound strategy for a company to cope with the requirements of an ecosystem, it is very important to initially determine the nature of the industry itself. If an industry is somewhat like the case of Boeing and Airbus where most of the market is influenced by two companies, then the business environment would be more stable. Such an industry which involves huge investments, would see major disruptive innovation in a decade and the firms operating in this ecosystem can sustain their competitive advantage for a long period of time. This allows the influential firms in this ecosystem to exercise control and their strategy would involve keeping their position stable. The dominant firms can influence the prices and keep them in check to avoid competition and reap the benefits as other subsidiary firms also revolves around them. On the other hand, an industry with huge number of competitors and low investments would require a different kind of strategy to maintain their position. Based on the demand from consumers and the supply of resources, they need a strategy to maintain their sustainable competitive advantage (Adner & Zemsky, 2006). They need to keep their competitive advantage as long as possible and an ecosystem helps to ensure the balance in the supply of resources. Hence, the strategic management of an ecosystem would involve a detailed analysis of an industry and the various dynamic elements.

Each firm creates their own business model which would involve the best use of resources for value creation purposes. In co-evolving ecosystems, the ideas of value co-creation and co-capture emerges as important elements which should be integrated in the business models of the individual firms (Iivari, Ahokangas, Komi, Tihinen, & Valtanen, 2016). These elements influence the design of an individual firm´s business model to effectively create value for all the members of an ecosystem. This co-ordination also helps to explain the emergence of cooperative strategies. These strategies are made by different firms in an ecosystem for the purpose of mutual gain and improves value-added efficiency of the firms in various circumstances and environment (Nielsen, 1988). Hence, all participants in an ecosystem should indulge in the creation of sound cooperating strategies for the accomplishment of group objectives apart from individual gains.

An ecosystem has its advantages, but it is difficult to align the competing firms to work for the benefit of the entire industry as any rational firm would want to think about their own profits rather than the industrial gain or benefits of all the firms. This, however, could be overcome by the heterogeneity or uniqueness of firms. On a subcommittee level, Firms with broader array of complementary products tends to show less support in comparison to firms with unique selling attributes (Ranganathan, Ghosh, & Rosenkopf, 2018). In order to create the technology standards and cope with the deficiencies, the firms tend to collaborate to improve the networks leading to a greater acceptance of the emerging trends (Ranganathan et al., 2018). Hence, the firms indulge in strategies to support the long-term position and collaborate with other firms to overcome the technical difficulties.

Based on all the findings, a firm needs to have their individual business strategies to deal with their internal processes and an external strategy to deal with the volatility of the business ecosystem.

Conclusion

It can be concluded from the literature review that the ecosystems have evolved and there have been visible changes. For companies to survive and benefit from these changes, it is important to strategically manage them. This change could first be observed by the analysis of the meaning and definitions of ecosystem and how various authors are still doing a lot of research to better explain the changes by revisiting the previous literatures. The characteristics, in accordance, includes a lot more than what existed 20-30 years ago and still many factors are yet to be considered for a better understanding of the subject. For instance, the features may differ based on different industries and a separate study which involves several different types of industry could help to explain the common and the distinguished ones. For this literature, the characteristics of uniqueness, network dynamics, control, innovation, platform and data, and their inter-relationships are explained in detail.

The strategic management of ecosystem summarises the ways in which industries can cope with the rapid changes in the ecosystems and how the nature of the industry influences decision making. They need to maintain their competitive advantage for a long term stable and sustainable position. The study of business ecosystems is essential for new entrants as well to create a better impact and easily find their foot in the industry.

The study explains the relations between various elements of an ecosystem and how firms cope with different changes through their strategies. For future research, the limitations of business ecosystem could be better explained with case-based theories pertaining to a specific industry