In explaining how better developed sectoral ecosystems will help create more substantial businesses, we need to understand how a concept from the study of nature wound up in the business world.
The concept of ecology – that different species relate to each other and change over time as a result of that relation – comes from the late 19th century, as field biologists scrambled to understand what Darwin’s discoveries (published as On the Origin of Species, 1859) of change in species and even the emergence of new species meant.
Almost overnight, relationships between species and landscape seemed as important as the form of a single species. People had formerly assumed an orderly world of unchanging species and their relationships, a new, complex world of continually shifting fitness landscapes came into view.
It became clear scholars and observers in economics and sociology began to describe society and markets in the same way.
Everything interacting, with each interaction impacting future interactions.
This was a vast and fascinating discovery, and we are still learning about the sciences of system and complexity. Recognizing that there is significant complexity but that it emerges from relatively simple interactions is not new.
Adam Smith (in The Wealth of Nations, 1776) wrote about economies functioning as if there were an invisible hand guiding them. What has developed since is a more precise understanding of the “hand” – the interfirm guidance that can be shaped and tuned for collective benefit.
In the middle of the twentieth century, researchers and managers began thinking about designing complex systems, and cybernetics grew up as a field. Their vision, like that of corporate management imagined by Chandler (1977) in The Visible Hand, was of firms as complex, internally regulated systems – a box that took in inputs and produced outputs at a profit.
As it became clear that many organizational problems are too uncertain, too open to the future to be described like an electrical engineer’s circuit diagram, the ecosystem concept came back into fashion.
The rise of the information technology industry was a massive driver of “ecosystemic” thinking, as companies grew up atop the products of existing firms. This significant industry trend continues to this day.
James Moore’s work (The Death of Competition, 1996) captured this emerging trend, noting that the fundamental dynamics of conglomeration and competition common in the decades after World War II were now being complemented in new industries by strategic collaboration.
There are no wholly verticalized IT firms, a reality that might baffle a 19th-century titan of industry. Now that software has “eaten the world,” as Marc Andreessen put it, we are in a position where the strategic sharing of information and coordinating action is more valuable than fighting for the same chunks of a market.
Business operation problems that once consumed rooms of accountants and entire careers of managers are baked into enterprise resource management platforms. Some of the basic firm-level understandings of business operation and strategy are still stuck in that previous era.
A crucial insight of business ecosystem modeling is that each firm already has a piece of other firms’ organizational and strategic real estate. Ecosystem thinking just takes this reality as a central opportunity instead of an edge/boundary problem to be defended.
Seeing the potential for collaboration is often not intuitive, and the opportunities that develop are often outside the standard thinking about firm growth and project development.
We call this series “Think Like a Startup!” for a reason; the very nature of survival for startups is supported by a formal support network of Incubators, Accelerators, Venture Capital, Corporate Entities, Professional Services, and many others.
All of it designed and choreographed to give fledgling companies the best chance to succeed.
With our work with startups, we see tremendous opportunity for all companies to exploit this underleveraged model, especially in the wake of COVID-19.
The Rocket Factory has a vision for how ecosystems can be utilized with great intent to help struggling industries trying to come back from the brink of collapse.
Or for mid-sized companies who have been thrown a wrench with the changing ways people work or the sudden acceleration of the disruption in customer buying behavior, the opportunity to gain competitive advantage and “share to load” with entities reliant on one another has never been more significant.
We will explore the benefits of ecosystem models at greater length in Part IV of our series.
Chandler Jr., Alfred D.The Visible Hand: The Managerial Revolution in American Business. United Kingdom: Harvard University Press, 1977.
Darwin, Charles., Beer, Gillian.On the Origin of Species. United Kingdom: OUP Oxford, 2008.
Moore, James F.The Death of Competition: Leadership and Strategy in the Age of Business Ecosystems. United States: Harper Paperbacks, 2016.
Smith, Adam.An Inquiry Into the Nature and Causes of the Wealth of Nations. United Kingdom: University of Chicago Press, 1976.