Tag Archives: markets

Your Strategy Must Reach Beyond Markets to Ecosystems

Your Strategy Must Reach Beyond Markets to Ecosystems

GUEST POST from Greg Satell

In the 1960s and 70s, Route 128 outside of Boston was the center of technology, but by the 1990s Silicon Valley had taken over and never looked back. As AnnaLee Saxenian explained in Regional Advantage, the key difference was that while Route 128 was a collection of value chains, Silicon Valley built an ecosystem.

Clearly, ecosystems are even more important today than they were back then. In fact, a study by Accenture Strategy a few years ago found that ecosystems are a “cornerstone” of future growth and that 60% of executives surveyed viewed ecosystems as a way to disrupt their industry. A similar number saw them as key to increasing revenue.

The problem is that competing in an ecosystem environment is vastly different than a traditional value chain strategy. While a value chain is driven by efficiencies, an ecosystem is driven by connections in a network. So we need to do more than adapt our strategy and tactics, we need to learn how to play a whole new game. The first step is to learn the rules.

First, Start Early

One of the key aspects of ecosystems is that they don’t seem all that important at first. By the time it becomes clear that a change is underway, it is often too late to adapt. The demise of Boston’s technology companies is a great example of how that can happen. Dominant firms such as DEC, Data General and Wang Laboratories found themselves irrelevant so quickly that they never recovered.

Network scientists call this an ‘instantaneous phase transition’ and it happens because connections tend to form slowly. They start as isolated clusters that, even taken in sum, don’t seem to amount to much. However, when those clusters connect, a cascade ensues and what once seemed inconsequential suddenly becomes predominant.

That’s why it’s so important to become active in an ecosystem before those clusters connect, when things are moving relatively slowly, everybody wants to talk to you and the price of admission is still fairly cheap. Once an ecosystem begins to thrive, things move much faster and costs for entry raise exponentially.

Consider the automobile industry, which is now spending billions to set up research centers in Silicon Valley. Just think of how much cheaper — and more effective — it would have been for those companies to have started 20 or 30 years ago.

Not Just Spinning Out, But Spinning In

A typical strategy for an enterprise looking to leverage an ecosystem is to spin out a division to focus on activities that are relevant to it. These spinoffs tend to have a lot more in common with the ecosystem firms than the parent company and therefore are much more able to connect. However, because links to the parent company become more tenuous over time, benefits are limited.

A potentially more successful strategy is to spin ecosystem firms in. For example, the National Labs have set up programs like Cyclotron Road, Chain Reaction and Innovation Crossroads that invite entrepreneurial firms to come work at the labs, make use of the scientific facilities and be mentored by top scientists.

In the private sector, corporate venture capital operations, as well as incubators and accelerators, can be a great way to connect with small entrepreneurial companies early in the ecosystem lifecycle. Beyond the actual investments made, these programs give you the opportunity to connect with hundreds of small firms, some of which can become important partners, suppliers and customers later on.

What’s crucial is that you are not seen as an interloper, but a true source of value, whether that value is in actual monetary investment, access to facilities and expertise or connection to points of market access. What may be insignificant to your company may be incredibly valuable to a small, entrepreneurial firm.

Maintaining Open Nodes

One of Saxenian’s most interesting findings in Regional Advantage was how differently the Boston technology firms treated outsiders compared to the Silicon Valley companies. The Boston firms were vertically integrated and sought to keep everything in-house. The Silicon Valley companies, on the other hand, thrived on connection.

For example, in Silicon Valley if you left your employer to start a company of your own, you were still considered part of the family. Many new entrepreneurs became suppliers or customers to their former employers and still socialized actively with their former colleagues. In Boston, if you left your firm you were treated as a pariah.

When technology began to shift in the 80s and 90s, the Boston firms had little, if any, connection to the new ecosystems that were evolving. In Silicon Valley, however, connections to former employees acted as an antenna network, providing early market intelligence that helped those companies adapt.

So while it is necessary to reach out to evolving ecosystems, it is just as important to ensure that there are also paths for small entrepreneurial firms to engage within your enterprise. Ecosystems thrive on personal connections. Those may not show up on a strategic plan or a balance sheet, but they are just as important as any other asset.

The New Competitive Advantage

Ever since Harvard professor Michael Porter published his seminal book, Competitive Strategy in 1980, strategists have sought advantage through driving efficiencies in order to maximize bargaining power against customers, suppliers, substitute goods and new market entrants. By doing so, they could achieve higher margins and invest in greater efficiencies, creating a virtuous cycle.

Yet today things move much too fast for that kind of chess game. To compete in a networked world, you must constantly widen and deepen connections. Instead of always looking to maximize bargaining power, you need to look for opportunities to co-create with customers and suppliers, to integrate your products and services with potential substitutes and form partnerships with new market entrants.

Power no longer resides at the top of value chains, but rather at the center of networks and collaboration has become the new competitive advantage. Value is no longer merely a target for extraction, but an asset for connection. You need to be seen to be adding value to the ecosystem in order to get value out.

The truth is that we can no longer manage for stability, we must manage for disruption. We can’t predict the future, but we can connect to it, nurture it and profit from it. Yet to do so requires far more than a simple shift in strategy and tactics. It requires a fundamental change in mindset.

— Article courtesy of the Digital Tonto blog and previously appeared on Inc.com
— Image credits: Pixabay

Subscribe to Human-Centered Change & Innovation WeeklySign up here to join 17,000+ leaders getting Human-Centered Change & Innovation Weekly delivered to their inbox every week.

Speed of Change

Speed of Change

Are You Innovating at the Speed of Change?

The world is changing all around us at an increasing rate, and individuals (and yes organizations too) are struggling to cope with this ever increasing pace of change.

In fact, over the last 50 years the average lifespan of a company on the S&P 500 has dropped from 61 years to 18 years (and is forecast to shrink further in the future).1

Innosight Average Company Lifespan

Nobody of course wants to be one of those organizations that goes out of business, but the fact is that if your organization can’t innovate and change at the speed of change of its customers’ wants and needs, and the pace of geopolitical, social, and economic change in the world around it, then it will likely have to change its sign from open to CLOSED, permanently.

Your organization may indeed be doomed to fail if it develops on or more of the following change gaps:

  1. Your speed of hiring is slower than the speed of your growth
  2. Your speed of market understanding is slower than the pace of market change
  3. Your speed of insight dissemination and acceptance is slower than the pace of market change
  4. Your speed of idea commercialization is slower than the pace of market change
  5. Your speed of innovation is slower than the competition’s speed of innovation
  6. Your speed of internal change is slower than the rate of external change

The last one is of course the largest and the most important, and the most complex, being composed of your speed of:

  • Market Analysis (gathering of insights and inspiration)
  • Invention (creation of innovation source material)
  • Design (building a potential solution around an invention)
  • Development (taking the design and creating a scalable, launch ready solution)
  • Test (Evaluating with customers whether the solution works as designed and scales as intended)
  • Evolution (Launching the solution into the marketplace with open eyes and ears, pivoting/improving as necessary)

While it is possible to enter a market too early, you can survive this tactical error if you enter in a small way instead of committing to a global launch with grand customer promises. However, much more damage comes to organizations that enter too late. So, as an organization we must be constantly striving to get faster at discovering new market insights and adapting and aligning our organization to fulfill newly discovered market needs more quickly than our competition, otherwise we might find ourselves locked out of our customers’ top consideration set tier.

Consumption Spreads Faster

What other change gaps do you see as you look at your business or that of your competition?

This is the first of many articles that I will be writing in the run up to my second book (to be published by Palgrave Macmillan), in which I will explore the importance and implications of change in the ongoing success of organizations, along with building up a concise set of best practices and next practices for change.

To help kick off this journey I will be conducting a FREE webinar with my friends over at CoDev, focusing on how Innovation is All About Change. This exclusive sneak peek and Live Q&A will take place from 12:00-1:00pm ET on January 15, 2015, and will feature a quick introduction to a new visual, collaborative change planning toolkit that I’ve developed and am ready to share with the world. Click here to register (link expired).

I hope you’ll come join me on this journey to improve the pace of change in our organizations!

UPDATE to banner: You can now access a free recording of this webinar using PASSCODE 1515 here (link expired)

1. Innosight/Richard N. Foster/Standard & Poor’s
2. Image Source: Wikipedia


Build a common language of innovation on your team

Subscribe to Human-Centered Change & Innovation WeeklySign up here to get Human-Centered Change & Innovation Weekly delivered to your inbox every week.