Business Ecosystem

Dr. S.Balasubrahmanyam (Strategy)

Indian Institute of Management Kozhikode
PGP-II (SAJVA)

Dr. S.Balasubrahmanyam, IIMK

9/20/2014

Beyond a single firm

& a single industry value chain
No longer possible to design or even conceive of a product in

isolation
Products exist in the context of other products
Boundary-blurring, Mergence of functions with Common
interfaces
Challenge to leverage external capabilities (available in the
ecosystem)
Product NOT as a stand-lone entity
Product as a PLATFORM that other products or services
might be able to exploit
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Dr. S.Balasubrahmanyam, IIMK

9/20/2014

Introduction to Business Ecosystem

Includes the Sum Total of:
Companies to which a firm outsources its business functions
Institutions that provide financing to the firm
Organizations that provide the firm with the technology
needed to carry its businesses
Makers of complementary products and services
Competitors and customers, when their actions and feedback
affect the development of a firms own products or processes
Other interdependent players within and beyond the
traditional value chain of suppliers and distributors
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Dr. S.Balasubrahmanyam, IIMK

9/20/2014

Members of a Business Ecosystem

as Stakeholders in a larger context
Health of a Business = f(Health of its Ecosystem)
Health of a Business Ecosystem = f(Health of its Members)
Competing firms are NOT negative stakeholders, as is

commonly thought

Win-win philosophy critical for sustainability of profitable

business growth NETWORK BENEFITS

Dr. S.Balasubrahmanyam, IIMK

9/20/2014

Strategy as Ecology

A Firms Success f(Its Stand-alone Strategies)

A Firms Success = f(Collective Health of Orgns in BES)
A Firms Success = f(Symbiotic Relationships in the BES-VC)
(Ecosystem VC) >>>> (Traditional Industry VC)
(Networked Environment of Interdependent Firms)
(Sustd Sup Perf of WM & MS) = f(Interdeps of BES Partners)

Unusually Productive & Innovative Business Networks

Unusual Scale of WM & MS = f(1000s of firms in their BESs)
Wal-Marts Good Quality Products at Lower Prices
Microsofts Wide Array of New Computing Features

Future Competition:

NOT between individual firms (e.g., Microsoft Vs IBM)

Between respective business ecosystems (e.g.,= MS-BES Vs IBM-BES)

Dr. S.Balasubrahmanyam, IIMK

9/20/2014

Wal-Marts Business Ecosystem

Wal-Marts Procurement System (Platform):
Offers its Suppliers:
Invaluable Real-time Information on:
Customer Demand
Customer Preferences
Provides Retailers with:
A significant Cost Adv (over its competitors)

Partners Systems integrated with Wal-Marts:

E.g., P & Gs ERP System integrated with Wal-Marts System

(>1/2 WMs Cost Adv) = f(Mgmt of ES of Bus Partners)

Good Quality Products at Lower Prices
By sharing information, WM is better able to:

Match demand and supply (across the entire ecosystem)

Increase productivity and responsiveness (for itself & its partners)

Dr. S.Balasubrahmanyam, IIMK

9/20/2014

Wal-Marts Ecosystem Edge

Dr. S.Balasubrahmanyam, IIMK

9/20/2014

Microsoft and its Ecosystem

Dr. S.Balasubrahmanyam, IIMK

9/20/2014

Matching Strategy with the Environment

Dr. S.Balasubrahmanyam, IIMK

9/20/2014

Firms adopting Keystone Strategy

Create a stable & predictable set of Common Assets (e.g., Wal

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Marts Procurement System; Microsofts Windows OST)

Ecosystem Productivity, Complexity of connecting network
participants, Efficiency of 3rd Parties in the creation of New
Products
Reliable Anchor of Reference by constantly incorporating
technological innovations (in conditions of uncertainty
Keystones Survival & Success = f(Its Ecosystems S &S); MetaAltruism
Microsofts Revenues & Employees = 0.05% of the total
Ecosystem figures (though Market Capitalization = 0.4%)
Value Creation (Platform) & Value Sharing

Dr. S.Balasubrahmanyam, IIMK

9/20/2014

Keystone Strategy
Value creation in numerous ways
Creation of a Platform, an asset in the form of services, tools, or

technologies that offers solutions to others in the ecosystem

Physical Asset (e.g., Efficient Mfg Capabilities that Taiwan

Semiconductor Mfg offers to member firms that design computerchips)

Intellectual Asset (e.g., Windows Software Platform)
Sharing of much of the value they have created throughout the

ecosystem, balancing their generosity with the need to keep some

of that value for themselves)
Need to ensure that (V/C) as (No. of Ecosystem Members)
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Dr. S.Balasubrahmanyam, IIMK

9/20/2014

Keystone Strategy - eBay

Developed State-of-the-Art Tools (that productivity of NW

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members and encourage potential members to join)

Tools: eBays Sellers Assistant (its Turbo Lister Service) Bulk
Listings on Home Computers
Performance Standards in Place
Peer Rating amongst Sellers & Buyers
Built-in Incentives & Penalty Checks PowerSeller Status
Shares the value it creates with members of the ecosystem
Charges users only a moderate fee to coordinate its trading
activities
Much of control delegated to members (Need to maintain
expensive centralized monitoring and feedback systems dispensed
with) 7% as against typical 30%-70% margins charged by retailers

Dr. S.Balasubrahmanyam, IIMK

9/20/2014

Dangers of Domination
Physical Dominators: integrate vertically / horizontally (to

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own a large proportion of a network directly

Solely responsible for Value creation and capture
Little opportunity for the ecosystem to emerge
IBM in the Computing Ecosystem (Heydays of Mainframes)
Failed when PC Ecosystem emerged (Open & Distributed)
Value Dominator: Enron (Vs. Keystone: eBay)
Traditionally fragmented markets (Win-Lose Vs Win-Win)

Dr. S.Balasubrahmanyam, IIMK

9/20/2014

Niche Strategy
Nvidia Designer of Graphics Accelerators (Intgrd Circuits)
Foundation for Video Games & Multi-media Applications
Leverages Manufacturing platforms of:
Taiwan Semiconductor Manufacturing
IBM

Leverages Intellectual Assets of:

Artisan Components (Library Providers)

Synopsis (Design Tool Providers)

Possible conflicts with other niche players and keystones

Differentiators like Intuit Vs Microsoft (FM Software)
Rescue: emerging Loosely Coupled Technology Interfaces (e.g.,

XML that interoperability, Switchover Costs) when

Keystones turn into Value-Fizzlers or Value-Suckers

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Dr. S.Balasubrahmanyam, IIMK

9/20/2014

Managerial Implications

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Firm Performance = f(Assets outside its direct control)

Integration challenges (Firm-addressable Resources)
Scattering of Innovation across the ecosystem
Technology Evolution = f(Diversity of firms)
Understanding of the ecosystem context is indispensable (e.g.,
eBay,Yahoo and AOL)
Long-term Collective Performance >>>>> Short-term
Individual Performance
Multiple / Dynamic roles for firms (spatially across domains and
temporally)
Dynamic Ecosystems
Harmonious Co-evolution is the Key for sustainable success and
profitable growth of businesses

Dr. S.Balasubrahmanyam, IIMK

9/20/2014