Business ecosystems have become, in effect, the operating model everywhere, not just in the IT industry. The reasons are many: global expansion, volatile consumer preferences and demand, need for more organizational agility, and so on. All these call for a model in which business innovation takes place in a more decentralized fashion, paving the way for brining products and services faster to market.

1. - Dr. Martin Lockstrom
Ecosystems and Innovation
INSIGHTS

2. Introduction
From an innovation perspective, business
ecosystems are a classic example of
disruptive innovation in the sense that
a) they are not perceived as threats by
incumbents,
b) they give rise to new market
segments, and
c) they grow in a subtle, almost
stealthy fashion in the early stages
before taking off and overtaking
the incumbents.
Furthermore, it is worth noting that many
of the most successful business ecosystems
today came into existence through the
process of emergence, rather than through
deliberate market launch.
There is a logical reason for this: As is often
the case with innovation, especially the
disruptive type, you cannot go out and
ask customers whether they want for
instance, an app ecosystem instead of a
better handset, when they have no idea
about the former. Another analogy is the
famous quote by Henry Ford, who said:
“If I would have asked my customers what
they wanted, they would have responded‘a
faster horse’“.1
What’s more, benchmarking
and customer surveys won’t help; such
approaches can merely prevent competitive
disadvantage rather than create competitive
advantage. Steve Jobs never tried to make
consumers as happy as possible, but instead
tried to make the best product possible
[10] – this enabled Apple to become truly
innovative, although not in a co-creative
environment, until more recently.
The Competitive Advantage
of Business Ecosystems
There are many reasons why business
ecosystems have become the key unit of
competition. First, decision making can
be decentralized according to a simple
set of rules and guidelines such as risk
and reward sharing; this takes significant
overhead and administrative burden off
the ecosystem partners’shoulders. This
is of paramount importance in today’s
marketplace, where shrinking product
lifecycles and increasing technology
churn makes centralized decision making
decreasingly viable. Secondly, the
ecosystem implies that the lion’s share of
customer value is created by peripheral
ecosystem partners and not the channel
partner; this creates a tremendous
leverage effect as each ecosystem partner
1
It is not verified whether this is truly a quote from Henry Ford or his grandson.

3. is no longer constrained by its own
capabilities. Third, every ecosystem partner
is incentivized to innovate, meaning
that the traditional channel master can
constantly deliver value in ways which are
in tune with current customer preferences.
Finally, by focusing on the ecosystem as
a platform, where a company like Apple
provides the brick-and-mortar platform,
the other ecosystem partners provide
customization, meaning that Apple can
keep organizational (especially supply
chain) complexity low – despite two
colors and three memory sizes of the
iPhone, each and every device owned by a
consumer is unique in its configuration of
apps and other contents.
Similar stories apply to other companies
such as Facebook, whose very existence
hinges upon its enormous user and app
developer base. Other notable examples
are Amazon.com, Groupon and Thomson
Reuters, all of which compete through
multi-party ecosystems. From a product
perspective, another striking example
is the mobile phone industry, where
competition today is not so much about
the handheld devices, which have become
quite commoditized, but rather about
ecosystems enabled by the underlying
operating systems; here the big battle is
between Apple’s iOS and Google’s Android.
In other words, customer value is not
primarily delivered through the functions
of the operating systems, but through
the ecosystem partner involvement they
enable, and the many apps that are offered
to consumers as a result of this.

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Author Profile
Dr. Martin Lockstrom
Principal Consultant, Building Tomorrow’s
Enterprise, Infosys Labs
Martin is a specialist in Supply Chain and
Operations Strategy, Outsourcing/Offshoring
and International Management. During a
six-year stint in China, he established the
research and education activities at the SCM,
Sustainability and Automotive academic centers
at China Europe International Business School,
Shanghai.
He established the first endowed chair
for Purchasing and SCM in China at Tongji
University, Shanghai, and was also responsible
for setting up Supply Chain Management
Institute China, an international network of SCM
research and education hubs.
Martin co-founded Procuris Solutions, an IT
company specializing in SCM-related solutions,
offering consulting services to companies like
Accenture, Ariba, BMW, Clariant, Dell, Dow,
Ernst & Young and Intel, among others.
He has a Ph.D. in Supply Chain Management
from European Business School, Germany, a
bachelor’s and master’s degree in Industrial
Engineering and Management, from Chalmers
University of Technology, Sweden. He speaks
Swedish, English, German and Chinese, has
published over 50 articles and papers and
presented at more than 60 conferences.
Summary and Conclusion
Today, business ecosystems have
become a de facto operating model,
and not only in the IT industry.
The reasons are manifold: global
expansion, volatile consumer
preferences and demand, combined
with a need for more organizational
agility has called for a model in which
innovation can take place in a more
decentralized and autonomous
fashion. Only in this way, can
companies win the race of bringing
the best products and services to
customers in the fastest time possible,
without adding excessive complexity.