There is a lot of “bubbling” in the world of ecosystems. And conceptually, the term is being used here and there and everywhere. From leadership and management point of view, ecosystems appear difficult to lead – and no wonder. Most people mix ecosystems with related concepts like networks and platforms.
When launching the Ecosystem Handbook, I wrote a blogpost titled “Ecosystem or Network?”. Now, about six months later, I conclude that it was a good initial view. Therefore, here comes a little bit more elaborated thinking reflecting 120+ scientific articles as well as numerous discussions with inspiring leaders that we have had lately, in the form of a new version of the “positioning ecosystems, networks and platforms” picture and a short explanation about how value creation moves from loosely defined development to hard currency (in this case EUR).
The “bubbles illustrate four different entities: Social Networks, Business Networks, Ecosystems and Platforms. In addition, there are many arrows in the picture. They connect the “bubbles” and go both ways. The arrows illustrate dynamics or transitions that are essential for understanding how value creation happens and what is the lead time to value measured in EUR.
Social (Industry etc.) Networks are open or closed structures, where the primary motivation is “belonging to something”. Value creation happens through social relationships, which however, very rarely can be measured in EUR. Therefore, it is essential to understand that there is a lead time to value creation. Social relationships, once formed, need to transition to a different structure depending on the nature of the social connection made.
Business Networks are closely knit around supply, distribution or outsourcing contracts between partners. The lead time to value creation is short, as the network agreements are typically specific – partners agree to quantity, quality and/or service level of some sort. Network agreements typically include pricing and specific terms and conditions. However, even though value creation in a network is primarily measured in business value (EUR) they are often a springboard to innovation or co-development efforts – i.e. ecosystems.
Ecosystems of different kinds (business, innovation, knowledge) are focused on development. The partner organizations commit to investing resources (time, money, competencies) to co-create and co-develop solutions to jointly identified problems. As the problems that ecosystems are solving differ, the timeline for monetization is longer term. There is often an overlap between knowledge, innovation and business ecosystems. To simplify the difference between them simplification is in order. Knowledge ecosystems are typically led by research organizations and focused on creation of new knowledge formalized as scientific publications. Innovation ecosystems work on problems, where customer or business model is not 100% known, and differ from business ecosystems which typically work on solving known customer problems.
Platforms benefit their partners as they provide a way to present partner offering to a larger audience, typically with a revenue share. Platform providers also often provide innovation tools, technology development and community benefits for their partners. They are related to network as they are based on clearly defined boundaries and agreements defining for revenue share and other terms and conditions (data privacy etc.). Platforms take time to build (hence the positioning in the timeline). Value is created to the partners every time their solutions are sold to platform’s customers.
Ecosystem Value Creation: Understanding the positioning – and change
In order to create value, there needs to be a way to commercialize the output. In that sense networks and platforms are a lot simpler than ecosystems. There is a clear commercial structure with pricing related to terms and conditions. And this is where ecosystem designers often struggle. Ecosystems are looser, their focus is in the longer term. Their primary purpose is to solve problems than any single organization cannot solve alone. However, to create value, ecosystems need to transition to a more closed structure to commercialize their output. The alternatives for making the transition are the following:
- Renewal: Each participating organization commercializes the ecosystem development results in the context of their own business. This requires active mapping of opportunities to leverage new knowledge, innovation or business development outputs within a single organization.
- Integrator: If and when ecosystem output is a solution to a complex problem it is likely that the commercialization requires that one of the ecosystem or an external neutral player takes ownership of the solution, manages customer relationships and assumes responsibility of the commercial risks related to it. The integrator model, however, requires a transition to a network or platform -type of structure with solid contract framework.
- New entity: Sometimes, especially if the solution is disruptive in nature, there is a need to establish a new entity in order to commercialize the ecosystem output. Again, there is a need to transition from a loose ecosystem structure to a more closed and well-defined structure.
Why the focus on value creation and ecosystem definition? Simply, because the topic is hot. There is a lot of public funding geared towards ecosystems, often followed by the discussion about how the ecosystems commercialize the solutions that they develop. Simply put they don’t. In order to commercialize a solution, there needs to be a customer. After my 20+ years of solution selling there is one thing that I know. Customers want to know what they are buying. They want to know that the seller entity is reliable. And they want to know how much they are paying for the solution. That’s why, in order to commercialize their offering, ecosystems need to transition to networks or platforms.
Note: The arrows work both ways too. Networks and platforms can be a great breeding ground to business, innovation and knowledge ecosystems that are needed to solve customer problems and the wicked problems of our time.