February 2017Strategy

Managing Your Ecosystem: No Company Is an Island

Managing Your Ecosystem: No Company Is an Island

Most leaders think about growth and strategy in terms of their own capabilities and customers: what do we have the ability to offer that can better meet our customers’ needs? Wharton management professor Rahul Kapoor says that perspective, while pervasive, is much too narrow. It can, at the least, cost resources that would have been better deployed elsewhere, and can, at the worst, mean getting overwhelmed by your competition.

“It’s very important to move away from a focus on the firm or a specific partner to a broader ecosystem for creating value,” says Kapoor, who has been researching ecosystems for over a decade. He stresses that this alternative way of thinking about growth and strategy may not seem intuitive, but is in fact critical for growth and, ultimately, survival. As he writes in a recent article, “you’re only as good as your ecosystem.”

Kapoor teaches a day-long session on leveraging innovation ecosystems in the executive education program Driving Growth through Strategic Partnerships. In it, he shows participants how to identify and map the ecosystems their companies are a part of, understand the inherent challenges of those ecosystems, and learn tools and frameworks for working within them to maximize growth potential.

“This view goes beyond customers,” says Kapoor. “You are embedded in an ecosystem of partners, suppliers, and complementary services and remaining a passive participant isn’t a sustainable model. You need to navigate and even orchestrate the ecosystem.” He says developing an “ecosystem lens” makes these interdependencies more explicit. “The success of any growth initiative is often dependent on other initiatives in your external environment. No firm is an island.”

But, he stresses, creating a “laundry list” of those in your ecosystem isn’t necessary, or even helpful. “Identify the critical players and interdependencies and determine why they are so important. Those are where the value lies.”

Kapoor says the ecosystem lens can help you better understand your competition and make wiser decisions about where and when to deploy resources. “It is as important as your growth strategy. You can’t just focus on your own challenges for growth. Understand the challenges that lie beyond your firm. What are the potential roadblocks to success, and where are they? How can you work to navigate and manage them to insure that your strategy has a greater chance for success?”

If you are a traditional firm working on an established initiative, you’re also keeping an eye on disruptive ones, which threaten companies in nearly every industry. Instead of looking at the individual firm that’s working on the disruptive initiative, look to its ecosystem — the technologies, service, standards, and regulations it needs to deliver on its value proposition. If it looks like that value proposition can be delivered, the question becomes: when? If the initiative is not dependent on complementary technologies (or its dependence is very low), that initiative has the potential to take over the market quickly. But if it’s high, it could be years or even decades before it becomes a viable competitor.

Kapoor cites an example of low-dependence technology: a new light bulb that can be plugged into an existing socket. “It’s literally ‘plug and play,’” he says, “with virtually no bottlenecks from production to consumer.” But HDTV (which looks to be disrupted soon itself by HDR, or high dynamic range) took three decades to take over the market. It needed the successful creation of an ecosystem that included high-definition cameras, new broadcast standards, and updated production and postproduction processes. In other words, no matter how much better the viewing experience it offered, HDTV could not take over the market quickly.

The ecosystem view has implications not only for incumbent firms working on more traditional growth initiatives, but also for those working on disruptive ones and for investors who are looking at who will grow and when. Initiatives that are highly dependent on an ecosystem that is relatively new or yet-to-exist give incumbent firms time to make incremental improvements and create a strategy for long-term survival.

“This is a very different way of thinking about growth and strategy,” says Kapoor. “What I want participants in Driving Growth through Strategic Partnerships to come away with is a holistic assembly of ecosystems that they are a part of. Then, be clear about the growth challenges of those ecosystems, and use the tools we provide to help navigate and orchestrate them.”