Innovation ecosystems and how they change Business

If you are innovating, working with start-ups or are generally open minded regarding the evolution of business practices, I am sure you’re familiar with the idea of ‘ecosystems’. It’s been one of the major buzzwords in recent years. For good reasons: Sooner or later digitalization transforms every industry as well as its customer expectations; and ecosystems can be a great strategy to face that change and make the most of it.

In this episode of the Sparkr Podcast it was my pleasure to talk to Dr. Bernhard Lingens from the Institute of Technology Management and the Helvetia Innovation Lab at University St. Gallen in Switzerland – a leading business and management school. Bernhard and his team are conducting research as well as industry collaborations in the context of business model innovations in ecosystems.

We talked about the strengths, benefits and risks of ecosystems, why they matter, how organizations can tap into the potential of ecosystems to increase revenue, enter new markets and more. While this article is a summary of our conversation, you get more details and examples as you listen to the whole episode of the Sparkr Podcast.

Innovation Ecosystems

The Buzzword "Ecosystem"

With all that buzz circulating around the term ‘ecosystem’, let’s take a step back first and get things straight. Generally speaking each ecosystem is about collaboration and creating value at least for all its members and sometimes even beyond.

It makes sense to differentiate between three types of ecosystems, explains Bernhard. They are knowledge ecosystems, technology platform ecosystems and business ecosystems.

The knowledge ecosystem is all about the exchange of information among its members. Good examples might be communities such as a start-up hub or a regional cluster where start-ups, public officials, corporates etc. all allow information to flow as easy as possible and therewith create access and opportunities for the members of that ecosystem.

We all have used ecosystems related to tech platforms like Apple, Amazon or Google when we download an app on our smartphone or buy something on Amazon. These tech platforms ecosystems contain app developers, (small) businesses and more.

In this article and episode of the Sparkr Podcast we focus on the third type – business ecosystems – since this is the expertise of Bernhard and his team at University St. Gallen and the Helvetia Innovation Lab. Business ecosystems align multilateral (business) partners along a value proposition. Now, why is this a big deal?

Innovation Ecosystems

Why Business Ecosystems Matter

“In traditional management theory, such a thing like an ecosystem should not exist” says Bernhard. But digitalization is a game changer and “it’s an enabler as well as a driver of ecosystems”, Bernhard adds.

Digitalization is an enabler because it’s the modern internet and communication technologies that reduce the friction – or transaction costs – of collaborating with external partners.

The digital transformation is also a driver since it requires every organization to learn and acquire new skills that are often foreign to the traditional core business. A car manufacturer for example has great expertise when it comes to building cars, but they have no clue how to program an artificial intelligence that makes their car autonomous or they have no expertise how to create new business models with self-driving vehicles in the future. In an ecosystem, this car manufacturer can partner with start-ups, researchers, other corporations etc. to create innovations that save or even improve their business. With the right ecosystem, the car manufacturer can gain a competitive edge, create a superior customer experience, reach new markets and more as Bernhard explains in this episode of the Sparkr Podcast.

In a sense, ecosystems shift business focus from internal resources to external demand and from a single product to a customer journey as ecosystems allow companies not only to work with the resources they have themselves but also with the resources other members of the ecosystem contribute. Successful ecosystems are beneficial to all members because in such an ecosystem the sum is greater than its parts.

Innovation Ecosystems

What Makes a Great Innovation Ecosystem Orchestrator?

For ecosystems to do their magic they typically need an orchestrator that creates the alignment among all its members around a common value proposition. In case of the car manufacturer who joins a mobility business ecosystem, the value proposition could be to provide customers with all the benefits of individual travel but without all the hassle and inefficiencies of owning a vehicle. For that value proposition to work, you need not only cars but also a digital platform that manages access, pay-per-use insurances who cover accidents etc. In other words: Multiple partners with different needs, agendas, capabilities, resources and mindsets need to be aligned and orchestrated so that they share a common vision and value proposition.

The orchestrator of such an ecosystem needs to be trustworthy to all members and for that it helps when the orchestrator is neutral, interdisciplinary, has no hidden agenda and is specifically designated to do the ecosystem curation. That way ecosystem partners can be sure that the orchestrator has the interests of all players in mind – and at heart.

It was interesting to see the research observations of Bernhard and his team corresponding with Sparkr’s practical experience as such an orchestrator of ecosystems.

Innovation Ecosystems

Exploration and Exploitation – There’s an Ecosystem for that

With all that talk about orchestrating one could get the impression that an ecosystem is like a classical music orchestra with a conductor in front and multiple musicians around the conductor that all align to play a specific piece of music. This metaphor might be accurate in cases where businesses want to exploit an idea that already exists. Just like the orchestra knows what piece to play, the members of the ecosystem in this case know what value proposition to work towards to as a group. In other words: An exploitation ecosystem typically needs a dedicated conductor to align many partners with their resources and capabilities. The conductor therewith increases efficiency for reaching a known goal.

But sometimes there’s also the need to explore new ideas. When it’s not clear where you want to go, just increasing efficiency won’t help. In the case of exploration, the classical orchestra won’t be suitable anymore and it’s time to join an improvising jazz quartet. In this constellation, there’s no single conductor but all the band members listen carefully to what the others are doing so they can improvise and come up with new pieces of music as soon as they emerge – sometimes from the pianist, sometimes form the drummer, you never know where it might come from.

Improvising might be feasible with a couple of talented, well-trained, flexible musicians, but not with a large orchestra of guide-less players. In short: When you explore new ideas, aim for a smaller but flexible and mostly self-organized ecosystem. And manage your expectations: Exploration is always less efficient than exploitation.

Innovation Ecosystems

Machines and Organisms

While we’re at it, let’s stay with the metaphors for a second. Since Bernhard has an academic background in mechanical engineering but the term ‘ecosystem’ comes from ecology, I wondered whether he looks at ecosystems more as machines or as organisms. Bernhard argues that ecosystems combine characteristics of both.

Ecosystems are like machines because they need to be designed and because they consist of equally important parts. No matter how small the gear you take out of the machine, when a piece is missing, the whole thing stops working. It is the same with ecosystems: All members are equally important for success, no matter whether it’s a multi-billion corporation or a three-people-and-a-dog start-up. In consequence that means that the ecosystem – just like the machine – can only be as strong as the weakest part of the system. If one gear breaks, if one start-up goes bust, the whole system suffers.

While an organism doesn’t have a designer, the organism metaphor holds true regarding the complexity of ecosystems. Since every player in an ecosystem has his own will, you can be sure to get some surprises every once in a while. In that sense, an ecosystem is a living organism and not a machine with only dumb parts.

All that said, when working in ecosystems you should be humble, appreciative of your partners and also care for them if needed since they are crucial to your business success. The ecosystem will likely reward your business in terms of a better customer experience, more revenue and other benefits.

Innovation Ecosystems

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