business ecosystems Flashcards
business ecosystem
a set of actors whose products and services jointly create value by offering a solution for customer job to be done
companies that are part of a business ecosystem should pay attention to:
the management of their relationships with their ecosystem partners
risks of business ecosystems
initiative risks
integration risks
interdependence risks
initiative risks
internal challenges to innovate in an innovation project
initiative risks emerge from
from a company’s internal processes or from its relationships with external partners, such as suppliers
integration risks
availability of an integrated solution for customers
integration risk question
will there be a meaningful offering to customers that bundles the focal company’s innovation with complementary products?
interdependence risks
availability of complementary products
question of interdependence risk
will there be adequate complementary products to the focal company’s innovation?
assessing interdependence risk
based on the probabilities of estimated delays caused by complementary innovators
causes of delays by complementary innovators
internal development challanges
regulatory delays
incentive problems
financial difficulties
leadership crises
for a company to create value in an ecosystem the following needs to be in place:
its suppliers need to be able to provide necessary inputs reliably
its complementors need to be able to develop complementary products needed by the customers
importance of interdependence risk
particularly important to manage because relationships with complementors and suppliers can severely affect value creation
effect of innovation challenges of suppliers
innovation challenges of suppliers can enhance value creation through the development of vrin knowledge with its suppliers and vrin relational assets with its supplier in response to cooperation to find a solution
effects of innovation challenges with complementors
Innovation challenges of complementors reduce value creation, as customer demand can decrease due to unavailability of complementary products
governance of ecosystem transactions
Governance form of transactions affects a firm’s ability to generate a coordinated response to changing technology and market conditions
two factors affecting the type of governance
adaptability of coordination
cost of coordination
adaptability of coordination
how easily can a firm influence the activities within its ecosystem to generate a coordinated response to changing technology and market conditions
factors affecting the adaptability of coordination
ability and willingness of interdependent parties to adopt their activities and undertake non-contractable investments during periods of change
stronger coordination forms allow better adaptability because they give coordinating parties more authority in responding to changing conditions
cost of coordination
How costly is it for a firm to influence the activities within its ecosystem to generate a coordinated response to changing technology and market conditions?
factors affecting the cost of coordination
the intensity of incentives reflecting the extent to which parties are compensated for their contributions toward firm performance and the bureaucratic costs associated with governance and decision-making
forms of governance
market (low costs, low adaptability)
alliance (low to medium costs, medium to high adaptability)
hierarchy (high cost, high adaptability)
market governance
simple buy-sell transactions (arm’s length buy-sell transactions)
characteristics of market governance
low costs of coordination (market forces (price system) takes care of coordination)
low adaptability (lack of control over market forces makes coordination difficult)
hierarchy governance
carrying out transactions internally (internal r&d or acquiring complementors)
characteristics of hierarchy governance
high cost of coordination (inertia causes inefficient coordination)
high adaptability of coordination (authority is a powerful management tool (superior communication channels, coordination routines, and allocation of decision rights)
drivers of high costs of coordination of hierarchy governance
impairment of incentives (difficulties mimicking high-powered incentives of the market)
absence of disciplinary forces (additional bureaucratic costs from procurement practices that favor internal units and general politicking underlying firms’ operating and investment decisions)
alliance governance
contractual collaboration agreement between a focal firm and its complementors
characteristics alliance governance
medium cost of coordination (alliances encourage cooperation by aligning incentives)
medium to high adaptability of coordination (communication channels and coordination routines)
alliance scope
the extent of activities that partners jointly carry out through the alliance as compared to their total set of activities
effect of alliance scope:
greater alliance scope–>higher organizational adaptability and greater incentive alignment –> greater potential value from investing early in new technology –> greater likelihood for firm to invest in new technology
transaction cost theory
the boundaries of firms are determined by assigning transactions to governance structures in a way that minimizes exchange hazards associated with each transaction
exchange hazards
are the possibility that a transaction partner will request a better contract than originally negotiated
drivers of exchange hazards (leverage)
existence of specialized assets (lead to outsourcing)
technological uncertainty (difficulty specifying the conditions of the exchange transaction)
which factor determines the level of protection against exchange hazards?
the adaptability of coordination
optimal governance form when exchange hazards are low
market because it is the least costly
optimal governance form when exchange hazards are moderate
alliance because it provides more protection than markets and is less costly than hierarchy
optimal governance form when exchange hazards are high
hierarchy, provides the best protection (everything is internal)
alliances with complementors
firms that coordinate with complementors through alliances are more likely to make risky investment in new technologies
