concept of business ecosystems Flashcards
how can markets help coordination?
reduce cost and risk of carrying out transactions
encourage business development
changing markets provide new opportunities/threats
what is a business ecosystem?
network of organisations to include suppliers, distributors, customers, competitors, government agencies involved in the delivery of a specific product or service through both competition and cooperation
who first used ‘ecosystems’ in business sense?
James Moore - 1993. companies shouldn’t be viewed in isolation
what are the two components of ecosystems?
participants and interactions
what defined participants in an ecosystem?
function, ability to extend activity through environment, range of activities they can pursue
what defines interactions in a business ecosystem?
principles governing conduct, connections across environment, speed and direction value is exchanged
what is different between a market and an ecosystem?
market linear and sequential, each org adds value incrementally
ecosystem non-linear collection of collaborating/competing orgs. products and services emerge from various parts of ecosystem and are consumed/combined by orgs or end customers
why do orgs want to be in ecosystems?
benefit from synergies - whole more than sum of parts
how should a business define its strategy to capture value?
level of complexity and extent or formality of orchestration in/around ecosystem
what is orchestration?
coordination, arrangement and management of complex environments.
specifically, informal (norms)/formal (rules, presence of an orchestrator) coordination of interactions and collaborations
what is mutuality?
enhanced level of coordination with formally or informally shared ideals, standards or goals. ecosystems comprise entities that operate out of mutual self interest, made of sets of individuals who operate together to produce something of greater value for mutual benefit of org and ecosystem as a whole.
what are the benefits of participating in business ecosystems?
strong barriers to entry
provides mechanisms to leverage technology/research/effective competition
new collaborations can address social and environmental challenges
how is value creation different in mkt vs ecosystem?
in a traditional market, value creation is linear and incremental. in an ecosystem, partners collaborate to create/deliver something of a mutually beneficial value to all ppts
what is value capture?
appropriating or allocating value. ppts can capture value directly through transactions or indirectly from an orchestrator
what impacts potential for value capture?
complexity of ecosystem and extent/intensity of orchestration
how to ppts in an ecosystem capture value directly?
transactions that occur within the ecosystem, in which ppts facilitate an exchange of value for goods/services. value capture instantaneous and happens alongside the individual transactions
how to ppts in an ecosystem capture value from an orchestrator?
consumers pay for access to and engagement with the ecosystem. orchestrator allocates payments to ppts within the ecosystem to incent them and continue ppting. — example of this is expedia, can be used for airline tickets/hotels/cars etc., make one payment to expedia and they share the value among relevant ppts.
what are the two ways ppts in an ecosystem can capture value?
directly or through an orchestrator
who are the ppts in an ecosystem?
economic community that produces goods and services of value to customers, who are themselves members of the ecosystem.
what are the three key factors wrt each ppt in an ecosystem?
precise role they play, their reach through the ecosystem, their capability/value proposition
how can a ppts role in an ecosystem impact an org’s strategy?
what is the ppt bringing? it may be cloud computing capacity, distribtion capability, unique software skills or access to certain mkts through licenses. makes sense that all ppts are present for ecosystem to create value.
how does ppt’s reach in an ecosystem affect an org’s strategy?
ability to extend activity or interactions through the environment. can the ppts operate on a global or just local level and deal with consumer and industrial mkts?
how does an ecosystem ppt’s capability/value proposition impact an org’s strategy?
understanding the key value each ppt is able to deliver and understand what activities they should undertake
what are the three key aspects to the interactions between ppts in an ecosystem?
- what are the rules governing the ecosytem? are they explicit or implicit?
- what are the connections between the ecosystem elements?
- What is the course of the interactions? how quickly is content or value exchanged between the ecosystem’s participants and in what directions?
what changes are business ecosystems bringing about?
importance of collaboration/networks/alliances is increasingly significant
increasingly possible for firms to deploy and activate assets they neither own nor control, to engage and mobilise larger and larger nos of ppts
allows ppts to create, scale and serve markets beyond the capabilities of any single organisation
everyone contributes, and everyone benefits, enhancing longevity and durability of the ecosystem
what is complexity in terms of business ecosystems?
complexity is a function of the number and diversity of ppts, the sophistication of activities within the ecosystem and the range and nature of relationships
what is a high complexity business environment?
environment in which barriers to entry are high and threat of new entrants is low. suggests ppts role is relatively secure, as what they do are typically difficult to replicate.
what is orchestration in terms of business ecosystems?
extent of one org’s influence over others within an ecosystem, the formality of ecosystem interactions and the degree of enforceability and compliance. can have more than one orchestrator, but rare
what is tight orchestration in a business ecosystem?
reflects an environment in which the orchestrators typically have an ability to influence behaviour or actions across the entire ecosystem. consider regulated industries like financial services, in which transactions are facilitated through multiple orgs, governed by stringent rules around privacy, security and compliance. interactions tend to be rules-based, with the orchestrators able to enforce their will over others.
what are the 4 ecosystem archetypes and what are their factors?
shark tank - loose orchestration low complexity
lion’s pride - tight orchestration high complexity
hornet’s nest - loose orchestration high complexity
wolf pack - tight orchestration low complexity
what are the factors of a shark tank ecosystem?
no strong orchestrator, each ppt fends for themselves.
must capture value directly
continual threat from new entrants
consumers not loyal, switch between suppliers with low switching/search costs
what are the features of a lion’s pride ecosystem?
formal orgs, orchestrator monitors operation and distributes value
orchestrator defines goods/services to be delivered
orchestrator seeks out new ppts, but threat of new entrants low bc activities complex
risk another major ppt may overthrow orchestrator and take control
what are the features of a hornet’s nest ecosystem?
most or all value transferred directly. if there’s an orchestrator they are passive
significant barriers to entry but orgs/individuals also tied together by informal norms within ecosystem
e.g. media
what are the features of a wolf pack ecosystem?
low barriers to entry, individual activities are simple but overall environment sophisticated
no single ppt has strong power but lots of orchestrators
goods/services similar to those in lion’s pride (sophisticated)
ppts may change frequently but turnover may be hidden from consumers
why do ecosystems need regulating?
constant high impact innovation is a prominent new feature in industries that used to advance only incrementally. existing regulation, based on the market model and slow to change, cannot keep pace with the way ecosystems develop.
in fast-changing environments like this, regulations have enormous potential for both good and harm. the challenge is to exercise due caution on behalf of the public while minimising any adverse effects on flexibility and innovation.
what are the ways regulatory frameworks are being challenged?
speed of change - regulators must understand products/services, and consequences.
innovators find loopholes - regulation then has to be rethought to ensure consumer safety and social benefits
ecosystems evolve - diversity of competitors also complicates, hard to keep level playing field when entities less and less comparable
innovations cross lines of jurisdiction - hard to tell which agency/authority should be regulating what
what is the main impacts of tech on the business ecosystem?
Tech impacts markets through its effect on productivity, efficiency and the production and delivery of new goods and services. As a result, it has been and is a source of competitive advantage for firms.
why are orgs often faced with customer anger in terms of tech?
customers have begun to find compelling, individualised and integrated experiences in some areas such as telephony and are now expecting similar experiences across all interactions. most orgs are not set up to deliver this, at the same customers know that there is tech available to make such experiences possible.
what has driven the rate of change in tech?
- orgs adopting tech that enables them to transform the experience that customers can enjoy
- the expectations of the customers themselves are changing at a much faster rate.
- present and future consumers, who have been born and raised in a digital world, embrace new tech more quickly and expect that they will be able to have improvements in their lives as a result. this means orgs will always find it harder and harder to surprise them.
what kind of environment is emerging tech creating?
- connected and open - new levels of trust and accountability with partners and consumers
- simple and intelligent - as advances in tech continue to reduce and mask complexity and orgs leverage analytics and insights to drive decision-making
- fast and scalable - transactions increase in number and frequency and cost of collaboration continues to decline
what are the 7 drivers of the digital revolution?
mobile and internet penetration
connected devices
data analytics and the cloud
user interfaces
global accessibility
AI
increasing urbanisation
what 7 things does the digital customer want?
contextualised interactions (tailored)
seamless experience across all channels
any time any where - inventory, delivery, tracking
great service
self service
transparency - before they buy
peer review and advocacy
what are the possible solutions to let businesses keep ahead of the digital customer and mitigate obsolesence?
design thinking - deliver many experiences to one customer (amazon)
experienced pilots - continuously innovate,
prototyping - release in beta and test reactions
brand atomisation - design for wide distribution and be part of platform offered by others (e.g. spotify)
what new challenges does the new world of business ecosystems create?
blurring boundaries means collaboration needed as well as competition.
value capture becoming more challenging. strategy must be flexible and have clear objectives. develop essential capabilities to achieve. consider relationships outside firm
new alliances can generate real social value, need stakeholders who want to achieve social goals and work effectively with externals. investors who are open and gov leaders who will spur innovation
regulation issues
what are the two models of value capture?
direct and through an orchestrator
what is the main difference between the traditional and modern view of business models?
modern view looks at how to create value but ALSO delivering, capturing and making decisions that underpin value creation
what are the four key aspects of the modern view of business model?
- how we define value
- how we create value
- how we deliver value
- how we capture residual value
How is shared value becoming more important?
Nestle now produces shared value reports annually, acknowledging that value is co-created by stakeholders. therefore, symmetry needed in value exchange between them. shareholder value can be optimised in long run if other stakeholders given appropriate incentives to co-create value.
what does the change in relative proportion of book value to market value in recent years show?
value and drivers of value can be tangible or intangible, especially after info economy move
how is value found in past, present and future activities of an org?
past = value in reporting
present = operational mgment
future = investment appraisal
what is the four step process for orgs deciding who they create value for/with, and why they do this?
- identify stakeholders for/with whom they want to create value.
- prioritise and rank stakeholders
- establish and identify needs of highest priority stakeholders
formulate value propositions that meet needs of highest priority stakeholders
how can orgs prioritise/rank stakeholders?
- based on power, legitimacy (rights, contractual and normative), urgency (need for immediate action in event of a stakeholder claim)
- using mendelow’s matrix according to power over decision making process and interest in decisions being made
what are the four strategies in mendelow’s matrix?
minimal effort: low interest/low power stakeholders
keep informed: low power/high interest, keep them away from powerful
keep satisfied: high power/low interest, assure them of likely outcomes in advance
key players: high power/high interest, affect decision making and usually involved in decision making process
How do Cyert and March suggest stakeholder conflict should be managed?
satisficing: negotiation, aim to keep most if not all happy
sequential attention: give stakeholders turns at realising objectives.
side payments: compensation for not addressing particular stakeholder’s objective
exercise of power: deadlock generally overcome by most powerful stakeholders forcing their view
what are the 5 elements that must connect/align to create value at an appropriate cost?
partners - access to resources/mkts/activities
resources - critical resources need long term availability
processes - provide infrastructure to turn resources into goods/services. VfM metric = efficiency
activities - bring processes to life. effective workflows enable streamlining, avoid gaps or duplication
outputs - to meet value proposition for different segments
what tools/techniques can be used to create value?
process mapping/mgment
value chain analysis
supply chain analysis
VfM analysis/audits
costing techniques e.g. ABC
lean production
quality mgment tools
what customer segments be to be effective?
meaningful, mutually exclusive, measurable, substantial, stable and easy to understand
Kotler says segments = customers who can be treated similarly for mkting purposes
what makes an effective channel?
integrated, multi-channel models that deliver value and return on investment. Increases in engagement with the consumer, and providing a unified consumer experience, can increase advocacy. This leads to significant returns to the bottom line.
when is value captured?
value captured when customer receives utility of ownership/consumption. hopefully price paid by customer and revenue earned from delivering exceeds costs of creating value. size of this surplus depends on mkt conditions, decisions made when defining value and success with which firms execute those decisions.
what are the three main considerations when capturing value?
cost model - efficiency of processes, levels of activity, resources consumed, price paid for resources
revenue model - align pricing policy to customer segments, pricing and collection policy/terms of trade are affected by mkt conditions, and pricing can be affected by regulation.
distribution of surplus / sharing residual value - priority of stakeholders depends on environment firm operates in. e.g. gov important because of taxes, shareholders want dividends, incentives for executives, while trying to keep some retained income for investments. key bases for decision making: tax strategy, dividend policy, desired capital structure, investment opportunities.
what is the overview of the business model?
revolves around value.
define value based on stakeholders and prioritisation
create value with partners, resources, processes activities and outputs
deliver value through segments and channels
capture value using cost/revenue model and share surplus
what is a business model vs competitive strategy?
a business model is a description of how your business runs, while a competitive strategy explains how you’ll outperform rivals. advantage can be gained by offering a better business model, or offering a the same model to a different market.
what are the two interconnected parts of a business model?
strategic: defining value /and/ capturing/sharing/reinvesting residual value
operating: value creation and delivery
these two must connect, and both must align with the operating environment. different levels of org engage with different parts so should relate to each other well.
