Understanding business ecosystems

Moore uses the biological metaphor of looking at business relationships as an ecosystem to examine a new paradigm for understanding competition and the effects of competitive forces. Rather than focus on downsizing and cost reduc­tion as the default response to a hostile business environment, managers should attempt to create market opportunities. These opportunities often come through innovation and a new way of viewing the marketplace - seeing the market from the perspective of those who can change the competitive terrain. Often, change comes by working more closely with customers and suppliers to jointly create the future. Even the term industry might be obsolete in that it presumes an eas­ily delineated business area in which a fixed set of firms compete. One need only look to the convergence of voice, data, and video technologies to appreci­ate the difficulty in defining the scope of competition in this burgeoning indus­try. Partners compete with partners in one part of the market and cooperate in other parts; ventures are started and disbanded at a moments notice; and the technology changes daily. There is an element of complexity reflected here that is unparalleled in recent business history. Survival is based on an ability to trans­form and adapt to new business conditions—similar to evolution in the biologi­cal arena. One consulting firm estimates that by 2004, close to $42 trillion in revenue will be generated by firms working collaboratively. However, close to 60 percent of these relationships will be plagued by underperformance. As these constellations form, much learning is needed to shed past behaviors and attitudes.

The business ecosystem evolves from conversations with suppliers and cus­tomers and is not limited to more traditional analyses that compare competitors head-to-head regarding their skills and competencies. The objective here is to cast a wide intellectual net and see where it is possible to change the rules of engagement and to develop a sustainable value proposition at the same time. If you go beyond the term as first defined by Moore and think about an ecosystem as an entire networked system that creates value, the nature of interacting with customers has changed profoundly. Companies are now symbiotically linked to provide value; information about customers is shared openly across all inter­faces; customer relationships are not owned by a firm since the ecosystem is responsible for customer service/care; and all parts of the system must act in sync since the customer expects nothing less than seamless delivery.

THE INTERNET

As we reflect on the hype that accompanied the rise of the Internet, both its power and its flaws strike us. The advantages of the Internet and the ability to transcend both distance and time have proven to be effective for linking people and companies across the globe in real time. Virtual communities of interest meet to discuss topics of common interest, and companies have been built on a business model that defies traditional logic. This technology has made it possible to develop collaborative relationships and build effective cross-company teams to develop new products in record time with higher quality and lower costs dian the vertically integrated model could. These Web-based technologies facilitate a firm s ability to reengineer all of its business processes, including product design, supply chain management, and sales and distribution relationships. However, the Internet has, in a number of instances, not lived up to its potential. The failure of many dot-corns has focused inquiry on the causes. While there is no single explanation, it appears that failure can be attributed to execution of the business plan. It seems that there were ineffective communications – an inability to interact with customers, not fully understanding their needs and not fully meeting their expectations. The level of cash burn was not the reason for failure, but rather a measure of ineffective strategies put into place. In other instances, people began to believe their own press, and overcapacity doomed the telecom craze as markets and customers never materialized.

IMPLICATIONS

As we embark on a new century, it is clear that the criteria that defined business in the past century are less relevant. The present generation of managers has wit­nessed changes in how firms are managed and how they are defined. Terms like economic value added (EVA), brand equity, and lifetime value of a customer have changed the metric by which firms are evaluated. Exhibit 1.1 compares the mar­ket values of Bethlehem Steel and Nucor. You can infer from this exhibit that Wall Street's perception of the value inherent in integrated steel mills has decreased over time. In the early 1900s, vertical integration was a sign of market strength and dominance. Even today, some firms struggle to let go and rely on others to complete the value chain. Wal-Mart, a nonmanufacturing firm, has become the largest firm of the Fortune 500. Enron, a company that has fallen from grace, became one of the world s largest energy providers not because of the size or efficiency of its generation capacity but because of its knowledge of energy futures.

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