Seizing the potential of ecosystems

Ecosystems have gained substantial popularity in business. In fact, since 2015, more than 300 startups that mainly build their business model on ecosystems have reached a unicorn valuation of more than $1 billion.[1] But what are ecosystems, really? And how can you unlock the value creation potential they entail?

Pia Kerstin Neudert, Doctoral Candidate and Research Assistant at our partner organization EBS Universität für Wirtschaft und Recht has co-authored a white paper together with researchers from FIR at RWTH Aachen and the IWI at University of St. Gallen that answers exactly these questions (and more).

By Pia Kerstin Neudert, EBS Universität für Wirtschaft und Recht

Ecosystems are novel forms of creating value based on a diversity of partnerships and cooperative agreements. In a joint white paper, Ruben Conrad, Gerrit Hoeborn, Christian Betz, and I illuminate the nature of ecosystems along three layers and nine characteristics. Additionally, the white paper features testimonials from seasoned executives on how to operationalize the nine characteristics of ecosystem in practice.  

One of the aspects that we point out in the white paper is that firms need to be flexible and ready to adapt. But why is the capability to learn and adapt key for succeeding in an ecosystem world?  

To start with, let’s make a short deep dive into the economic foundations of ecosystems. Ecosystems thrive on the principle of “non-integration.” Firms thus decide to stay autonomous while offering their products and services jointly to customers.[2] Hence, neither do corporate hierarchies exist, nor do firms follow specific buyer-supplier-relationships. Instead, one or more focal firms interact with “complementors,” which offer solutions that enrich the core product of the focal firm(s). Customers are usually not obliged to buy products from each complementor but can choose which complementary solutions they consume.  

For example, when creating an online store via e-commerce builders like Squarespace or Wix, the respective sellers can enhance customer experience and backend functions by adding complementary software, such as maps, event viewers, analytics tools, and book-keeping programs. However, the sellers don’t have to buy all these complementary products and services—instead, they can choose among them freely, thereby benefitting from an ecosystem approach. Likewise, the complementors freely decide upon offering the products and services in a focal firm’s ecosystem. Consequently, also competing complementors may become part of an ecosystem, leading to an increased choice for customers but also potential competitive tensions among the complementors.  

As can be recognized from this example, the principle of non-integration leads to increased flexibility—but also increased risks.[3] Complementors can simply decide to leave a certain ecosystem and either switch to a different ecosystem or create their own ecosystem. This is where the capability to learn and adapt comes into place. In order to successfully access complementary resources (e.g., products, services, skills, technologies), firms operating in ecosystems must be ready to adjust their incentive schemes and interfaces for complementors so as to stay competitive with regard to other ecosystem orchestrators.  

However, learning how to leverage resources on an ecosystem level, among a variety of (potentially competing) firms, doesn’t come straightforward. For instance, entrepreneurs who want to position themselves as complementors in emerging ecosystems must develop skills to recognize specific niches and to identify the respective opportunities for value co-creation with other firms.[4] Likewise, incumbent firms often have to juggle multiple modes of inter-organizational value creation at the same time: managing classical dyadic alliances and buyer-supplier relationships while, simultaneously, opening their boundaries to different forms of ecosystem engagement.[5]  

One way to overcome these challenges is to start with a minimum viable ecosystem (MVE). This means that one or multiple firms work out an initial value proposition, which alludes to “the smallest configuration of elements that can be brought together and still create a unique commercial value.”[6] This minimum viable ecosystem does not have to be fully functional; instead, it should demonstrate the value co-creation options so that complementors are inclined to join the growing ecosystem. A malleable value proposition during ecosystem formation encourages firms, lead users, and freelancers to join the ecosystem because they still see potential to form the ecosystem according to their preferences.[7]   

If this little snippet has caught your interest, feel free to learn more about the fascinating characteristics of ecosystems in our white paper: https://seizing-ecosystems.fir.de/white-paper/

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[1] Pidun, U., Reeves, M., & Zoletnik, B. (2022). What is your business ecosystem strategy? BCG Henderson Institute. https://www.bcg.com/publications/2022/what-is-your-business-ecosystem-strategy 

[2] Jacobides, M. G., Cennamo, C., & Gawer, A. (2018). Towards a theory of ecosystems. Strategic Management Journal, 39(8), 2255–2276. https://doi.org/10.1002/smj.2904 

[3] Adner, R., & Lieberman, M. (2021). Disruption through complements. Strategy Science, 6(1), 91–109. https://doi.org/10.1287/stsc.2021.0125 

[4] Khurana, I., & Dutta, D. K. (2021). From latent to emergent entrepreneurship in innovation ecosystems: The role of entrepreneurial learning. Technological Forecasting and Social Change, 167, No. 120694. https://doi.org/10.1016/j.techfore.2021.120694 

[5] Altman, E. J., Nagle, F., & Tushman, M. L. (2022). The translucent hand of managed ecosystems: Engaging communities for value creation and capture. Academy of Management Annals, 16(1), 70–101. https://doi.org/10.5465/annals.2020.0244 

[6] Adner, R. (2012, p. 198). The wide lens: A new strategy for innovation. Penguin. 

[7] Malherbe, M., & Tellier, A. (2022). Explaining the nonalignment of ecosystem partners: A structuralist approach. Strategic Organization, 147612702210842. https://doi.org/10.1177/14761270221084224