FLP – Organisation Ecosystems Notes

The Nature of the Ecosystem

  • A business ecosystem is a network of interdependent enterprises and relationships aimed at creating and allocating business value. Ecosystems span geographies and industries, including public/private institutions and consumers.
  • Formal definition (Marshall, Harmer & Davidson): "An ecosystem is a complex web of interdependent enterprises and relationships aimed to create and allocate business value. Ecosystems are broad by nature, spanning multiple geographies and industries, including public and private institutions and consumers."
  • Key differences from traditional markets: mutuality, orchestration, and value creation.

What Makes Business Ecosystems Different from Traditional Markets

  • Mutuality: ecosystem participants cooperate to deliver more value than solo efforts.
  • Orchestration: a central actor coordinates relationships and activities.
  • Value creation: new services, improved customer experience, and product development arise from collaboration.

Value Creation in Ecosystems

  • Traditional market value creation: participants trade services/products across markets, driven by self-interest (e.g., supplier → manufacturer → retailer → consumer).
  • Ecosystem value creation: value is created by collaboration and new service development that benefits multiple participants.
  • Example: Bob’s Lunchbox in town (traditional market) vs. FoodFast-enabled delivery (ecosystem).
  • Value capture options:
    • Direct: pay-for-service at the point of sale (e.g., Bob’s sandwich sale).
    • Indirect: orchestrator collects and distributes payments (e.g., consumer pays FoodFast; FoodFast pays Bob minus commission).
    • Mix: a combination of direct and indirect captures.

Orchestration

  • Orchestration is the orchestrator's influence over ecosystem participants, enabled by technology (e.g., FoodFast app coordinating diners, restaurants, and cyclists).
  • The orchestrator can capture value for participants by coordinating transactions and flows.

Mutuality

  • Mutuality links to increased coordination and delivering greater value collectively than individually.

Example of an Ecosystem: Bob’s Ecosystem

  • Participants include:
    • Suppliers
    • Customers
    • Legislators ( regulation and tax)
    • Competitors
    • Landlords
    • Software developers (e.g., FoodFast apps)
  • This illustrates a simple ecosystem with multiple stakeholder roles.

Participants in Bob’s Ecosystem

  • Suppliers: ingredient sources (wholesalers/independent producers).
  • Customers: shop customers and app users.
  • Legislators: environmental and tax regulations.
  • Competitors: other sandwich shops and eateries.
  • Landlords: premises owners.
  • Software developers: app ecosystem contributors (e.g., FoodFast).

Different Types of Ecosystems

  • Four types are created by two factors: Complexity and Orchestration.
  • Complexity levels:
    • High complexity: many participants, sophisticated central orchestrator, high barriers to entry (e.g., Amazon, drug manufacturers, deep-sea drilling).
    • Low complexity: few participants, low barriers to entry (e.g., street food).
  • Orchestration levels:
    • Tight orchestration: strong central coordination and value capture across the ecosystem (e.g., regulated financial services).
    • Loose orchestration: little central coordination; participants capture value themselves.
  • Matrix of types:
    • Shark Tank = Low Complexity, Low Orchestration
    • Lion’s Pride = High Complexity, High Orchestration
    • Hornet’s Nest = High Complexity, Low Orchestration
    • Wolf Pack = Low Complexity, High Orchestration

Strategies for Each Ecosystem

  • Jump with the sharks (Shark Tank): high competition; continual innovation required.
  • Roar with the lions (Lion’s Pride): maintain leadership position; ensure ongoing relevance of leading factors.
  • Fly with the hornets (Hornet’s Nest): niche specialization to maintain major position.
  • Dance with the wolves (Wolf Pack): orchestrator coordinates to achieve mutual benefit for all.

Exercise (Industry Classifications)

  • Large coffee chains: Hornet’s Nest
  • Small coffee shops: Shark Tank
  • Game consoles: Hornet’s Nest
  • Operating systems (e.g., Windows): Lion’s Pride
  • Real estate agencies: Shark Tank
  • App marketplaces (e.g., Google Play/Apple Store): Wolf Pack

Porter’s Five Forces

  • Purpose: assess profitability and competitive intensity in an industry.
  • Forces:
    • Competitive rivalry: high with many competitors or little product differentiation; high exit barriers reduce industry profitability.
    • Threat of new entrants: high when barriers to entry are low; high entry costs and intellectual property raise barriers.
    • Buyer power: high when buyers are large or can switch easily; affects profitability.
    • Supplier power: high when few substitutes or switching costs are high; affects margins.
    • Substitutes: high when alternative products/services meet the same need; lowers profitability.

The PESTEL Framework

  • PESTEL analyzes external macro-environmental factors:
    • Political: government intervention, tax policy, trade restrictions, stability.
    • Economic: growth, interest rates, exchange rates, inflation.
    • Social: demographics, culture, attitudes, safety.
    • Technological: IT, Internet, automation, security, pace of change.
    • Environmental: climate, sustainability, natural events.
    • Legal: discrimination, consumer, employment, health and safety laws.
  • Example: Blackberry’s decline due to failure to adapt to social/technological changes (smartphones, apps).

Enterprise Risk Management (ERM)

  • Definition: a structured risk management methodology to detect and manage risks across an organization; links risk awareness to strategic planning.
  • Notable caution: Nokia’s decline illustrates failure to integrate risk management with strategy and R&D after disruptive threats (e.g., iPhone).

Risk Treatment/Management (TARA)

  • Four major categories:
    • Transfer: share or insure risk; outsource the risk; e.g., insurance or contracted work.
    • Avoid: stop the activity to eliminate risk (but may miss opportunities).
    • Reduce: implement controls to lessen severity or likelihood (e.g., sprinklers, locks).
    • Accept: retain the risk when costs of control exceed potential losses; budget for it.
  • Additional concepts:
    • Risk retention: retaining small risks where insurance is not cost-effective.
    • Diversification: spread risk across products, markets, currencies to reduce exposure.
    • Pooling: group risks together to balance positive/negative risks.
    • Risk management plan: assign owners, schedule controls, obtain management approval.

Risk Heat Maps

  • A analytical tool mentioned but not covered in depth in the syllabus.

SWOT Analysis

  • Purpose: corporate appraisal to identify internal strengths/weaknesses and external opportunities/threats.
  • Internal factors: strengths and weaknesses ( controllable).
  • External factors: opportunities and threats ( external environment).
  • Use: shape strategy, exploit strengths, mitigate weaknesses, seize opportunities, and defend against threats.
  • SWOT grid helps compare with competitors and identify strategic options.

Environmental and Horizon Scanning

  • Techniques to monitor changing external environment to identify opportunities/threats early.
  • Not covered in depth in the material.

Scenario Analysis and Scenario Planning

  • Scenario analysis: examine different possible futures by varying PESTEL/Porter’s forces; helps define strategies to reduce risk.
  • When to use: assess macro and industry conditions under different futures (recession, new entrants, exchange rate shifts, etc.).
  • Scenario planning: six-step model:
    1. Identify drivers for change (external analysis: PESTEL, Five Forces).
    2. Bring drivers together into clusters.
    3. Produce initial mini-scenarios (7–9 groups).
    4. Reduce to two or three scenarios (optimistic, pessimistic, most likely).
    5. Write the scenarios for management use.
    6. Identify issues arising and develop strategies to mitigate crises.
  • Example: BigValueCo scenario planning for Chiway JV with GoodPrice (drive changes via PESTEL; cluster scenarios; develop contingencies; exit option considered; formulate on-ground market analyst support).

Ecosystem Participants and Dynamics

  • Participants: interacting organizations/individuals (customers, suppliers, competitors, etc.); broader than traditional stakeholders.
  • Three key questions for each participant:
    • What is the role of the participant?
    • What is the key value proposition (capability) the participant provides?
    • What is each participant’s reach (scope to scale/expand)?
  • Example: FoodFast ecosystem
    • Participants include: self-employed delivery cyclists, restaurants, customers, IT staff, app developers, etc.
    • Roles: cyclists deliver, restaurants supply, FoodFast orchestrates; value propositions include fast delivery in urban areas and access to broader customer bases.
    • Reach: cyclists are local; scalability requires multiple local cyclists or alternate delivery methods as markets expand.

Dynamics (Ecosystem Adaptation and Change)

  • The ecosystem requires ongoing coordination and adaptation to technological, regulatory, and market shifts to maintain value delivery.
  • The orchestrator’s role is critical in maintaining alignment and ensuring continued value capture across participants.