Strategy in an Age of Increasing Interconnectedness – Taking Stock (Part 1)
The growing trend towards networking [26], which has been further intensified by the far-reaching technological developments in the context of digitalization [6], is leading to increasing complexity at all company levels: existing IT architectures must be increasingly opened up and prepared for increasing interaction with external partners, in the best case with an accompanying reduction in complexity [2]. Processes are often no longer limited to a single organization, but value creation increasingly takes place within entire systems in which different parties participate [22]. Strategic decisions can no longer be based solely on the information of a single company, but must be made in dependence on other actors, taking into account the well-being of the entire network [10]. These and other challenges affect both individual companies and entire network structures, such as ecosystems. Ecosystems are dynamic structures of different autonomous but interdependent actors that coordinate their activities around a common goal to jointly create value [8]. The strategic decision-making process in ecosystems is challenged by the fact that by definition not all resources are controlled by a single organization, but rather by the individual actors [17]. The term ecosystem strategy is very present and highly relevant in science and practice, and numerous strategic recommendations for action can be identified, e.g. for taking on certain roles. However, a uniform understanding of the term or a comprehensive approach to building up or positioning oneself as part of an ecosystem is not yet available. In this paper I try to approach the topic by identifying four prerequisites for the success of an ecosystem and by investigating the extent to which an ecosystem strategy differs from a classical corporate strategy. In today’s instalment, besides the potentials of ecosystems, the first success factor of an ecosystem strategy can be found already, the remaining ones will follow in the second part.
Potentials of ecosystems
The competence center has been dealing with the phenomenon of ecosystems for years[1]. We understand ecosystems as dynamic structures that form around a central core value proposition or a common purpose [11]. The central assumption is that all parties, manufacturers, orchestrators, contributors and users, actively participate in the creation of value or contribute its resources and capabilities [9] and that participation can only be guaranteed if there is sufficient motivation [5, 15]. And many companies seem to have understood this motivation or the significant potential, because successful companies today are increasingly consciously positioning themselves as ecosystem players and participate in such networks or even orchestrate them [10].
This potential can be excellently observed in practice. The IPO of Alibaba in 2014, for example, was at the time the largest IPO that had ever taken place [13]. Since then, the company has grown steadily. The effects of an ecosystem strategy on the growth of a company can also be demonstrated well with the example of Amazon: In 2018, the company offered more than 560 million different products in its US online store [28], compared to an average of 140 thousand products in a physical Walmart superstore [32]. Due to the massive partner network of suppliers and resellers that Amazon maintains, there is still a huge difference in the availability of different products compared to Walmart. The economies of scale, on the other hand, can be easily observed when looking at Airbnb. The company’s founder and CEO, Brian Chesky, twittered in January 2014: “Marriott plans to add 30,000 rooms this year. We will add this in the next 2 weeks” [12]. Marriott represents one of the largest hotel groups in the world with more than 1.3 million rooms available [29], but Airbnb is succeeding in developing a far greater number of available and marketable rooms. In 2020, Airbnb recorded more than 7 million entries of available accommodation worldwide [30].
Dimensions of an ecosystem strategy
The term strategy can be defined in different ways. Mintzberg, for example, provides a very broad definition: strategy in general and the realized strategy in particular are defined as patterns in the sequence of decisions [20]. This definition considers strategy as a process of successive and (ideally) consistent decisions and explains strategy retrospectively as the sum of its actions. Michael Porter defined strategy as the development of a general formula for how a company will succeed in competition, which goals it should set itself and which measures are necessary to achieve these goals [25]. However, for complex ecosystems, problems arise when using classical strategic models. For example, the analysis of the five forces that determine industrial attractiveness [25] cannot be carried out easily, because ecosystems are by definition cross-industry constructs, which consist of complementary services from different domains [23]. A competitive advantage, as for example through the analysis of the value chain [24], cannot only be attributed to a differentiation or cost leadership strategy, since cost/benefit considerations are more complex in a multilateral network of relationships than in a linear value chain [14] and the configuration of the offer in an ecosystem is much more complex than in a classical context. This raises the question which existing approaches or strategic concepts help companies to deal with strategic decisions in times of complex value creation in ecosystems.
Partnerships seem to be a decisive lever when it comes to the strategy of value creation in ecosystems. The right choice of complementary partners and services is often mentioned as a key strategic decision [1, 5, 19, 27]. Partnerships are a fundamental component of ecosystems, where the right partners must be brought together to shape ecosystem services. This may seem intuitive, but the concept of coopetition is less so. Ecosystems often consist of allies and competitors [5, 21] and true ecosystem players not only respect the business of their partners or even competitors, they promote it [10]. For example, with the introduction of iOS 14, Apple has made extensive support available to help competitors such as Spotify or Netflix address the end customer even better (e.g. through extensive APIs or new developer frameworks). In addition, it is often necessary, especially for so-called orchestrators, to define suitable pricing models or even share revenues with other parties. Sometimes large orchestrators such as Uber, Spotify or Airbnb bet for years on increasing revenues and a growing network, while they themselves are in the red.
Have you become curious about which other issues need to be considered when formulating an ecosystem strategy? Then come back tomorrow when the second part of the article “ Strategy in an Age of Increasing Interconnectedness – Taking Stock” will be published or subscribe to our blog and be notified directly about new blog posts.
[1] See, among others, our (german) blog posts on the ecosystem approaches of various consulting firms, on positioning options for financial institutions or on open banking.
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