April 2008

"Business ecosystems surround, permeate, and reshape markets and hierarchies. Managers establish business ecosystems to coordinate innovation across complementary contributions arising within multiple markets and hierarchies."

James F. Moore

On March 28, 2008, Tony Bailetti, Director of Ontario's Talent First Network, launched Carleton University's TIM Lecture Series with a presentation entitled Ecosystem Approach to the Commercialization of Technology Products and Services.

The TIM Lecture Series provides a forum to promote the transfer of knowledge from university research to technology company executives and entrepreneurs as well as research and development (R&D) personnel. This conference report presents the key messages and insights from the three sections discussed during the inaugural presentation.

Key Problems Faced by Technology Companies

Section 1 of the presentation discussed common problems faced by all technology companies when attempting to profit from the commercialization of their technology products and services. These are not new problems and are not unique to companies engaged in open source. However, we are searching for a new way to address these three key problems. The three key problems discussed are: i) managing interdependencies; ii) accelerating adoption; and iii) creating and appropriating value.

It should be noted that a technology company is part of an ecosystem, whether it chooses to recognize it or not.Managing interdependencies is important as every company depends upon the deployment of suppliers' and complementors' offers, any of which can close a window of an opportunity. For example, if each of five suppliers has an 80% chance of being ready at time T, the chances of all five being ready at that time are .33% (0.8 * 5). This formula also applies to interdependencies among companies as well as interdependencies among functional groups within a company. For example, it is possible for the joint probability of functional groups being ready at the same time to be less than the joint probability of the company and its external partners being ready at the same time.

Fundamentals of Business Ecosystems

Section 2 contrasted the three approaches to address the three key problems: market, hierarchy and ecosystems. The market approach focuses on the transactions of goods and the hierarchy approach focuses on the control over activities that produce goods. The lecture argues that the ecosystem approach is the better approach to solve the three key problems identified in section 1.

A business ecosystem is defined by James F. Moore as "an economic community supported by a foundation of interacting organizations and individuals--the organisms of the business world. This economic community produces goods and services of value to customers, who are themselves members of the ecosystem. The member organizations also include suppliers, lead producers, competitors, and other stakeholders. Over time, they co-evolve their capabilities and roles, and tend to align themselves with the directions set by one or more central companies. Those companies holding leadership roles may change over time, but the function of ecosystem leader is valued by the community because it enables members to move toward shared visions to align their investments and to find mutually supportive roles."

To exist, a business ecosystem requires leadership, alignments with a vision for the future, and the creation of benefits for customers. Creating value for customers is at the centre of an ecosystem. An ecosystem is a community comprised of companies, organizations and individuals that interact to deliver products and services that their target customers value. In an ecosystem, the community is anchored around a foundation platform. Over time, members' capabilities and roles become mutually supportive. Members align themselves with directions set by organizations in leadership positions.

An agreed-upon foundation platform is required to keep the costs of coordination low. The foundation platform is the combined base of: i) technologies; ii) architectures, designs and assets used to build market offers; iii) components, products and services; iv) contracts; and v) processes that anchor the economic community. Leadership structures for ecosystems are materially different from business clusters, networks, associations, alliances, and outsourcing. At one end of the spectrum is the leadership structure that focuses on serving the public, such as seen with Linux. At the other end of the spectrum is the leadership structure that focuses on serving paying members; an example is the SCOPE Alliance.

It was noted that a business ecosystem anchored around an open source project is more than the community of developers who contribute code. This business ecosystem includes the customers, intermediaries, and the complementors that use the open source asset as well as the dynamics of how these players interact with one another.

Other section 2 key messages included:

  • an ecosystem enables trust among members as trust is the foundation of members' commitment to the ecosystem
  • to succeed in today's economy, a company must coordinate innovation across diverse companies globally on a continuous basis
  • ignore the business ecosystem of which you are a part of at your peril

Ecosystem Approach to Commercialization

Section 3 discussed how solving the three problems identified in section 1 requires a company to compete for leadership positions, draw on a global talent pool, and develop its capability to collaborate. A company must earn the right to join an ecosystem. It is not like a cluster membership where a company simply pays its annual membership fee to be part of some organization. For example, the Eclipse ecosystem is a meritocracy with a documented process new members must follow in order to become contributors.

Other key messages from section 3 include:

  • the ecosystem has to trust you and you need to trust the ecosystem
  • each member must ensure they decrease the coordination costs; if the cost of interacting with your company is too high, you will be ignored you do not have to create a new ecosystem; instead, improve the ecosystem that exists
  • two sets of activities must be defined: i) activities that the company undertakes to create value in the ecosystem; and ii) activities the company undertakes to appropriate a portion of the value created
  • giving assets or information away for free is a strategy which decreases customers' willingness to purchase from your competitors and increases your position within the ecosystem

Invitation to Participate

OSBR readers are encouraged to contribute key messages and insights, references and suggestions for making the TIM Lecture Series world class. Readers in the Ottawa area are encouraged to register and attend future lectures in the series.

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