David Ing

IBM Business Consulting Services, 3600 Steeles Avenue East, H7, Markham, Ontario, Canada, daviding@ca.ibm.com, and Helsinki University of Technology, Department of Industrial Engineering and Management, Espoo, Finland

The idea of business ecosystems has become increasingly popular over the past decade. Reframing business in an ecosystem perspective has encouraged executives and managers to rethink industry-aligned and internally-focused orientations, in favour of open innovation and cross-industry collaborations.

Within the science of ecology, business researchers have highlighted aspects of coevolution within ecosystems. Coevolution emphasizes the primacy of biology, specifically as population ecology and community ecology. The metaphors of predator and prey, and of keystone species, have opened up the mental models of reflective business practitioners. The layman, however, may misperceive that ecology is only about animals and plants in our world.

Within the systems sciences, proposals have been made for more unifying approaches to ecology. While population ecology is centered on animals, and community ecology is centered on plants, ecosystem ecology models the flows of energy and material across living and non-living systems. In business, technologies are non-living landscapes that represent major investments in shared infrastructure. Embracing ecosystem ecology enables business researchers to include both organizational and technological parts within their models.

To make ecosystem ecology more natural to a business audience, the equivalency between capital and energy needs be clarified and illuminated. Capital should be understood as the energy within business ecosystems. This definitional work is relatively straightforward, drawing on theories and illustrations already available within the systems sciences.

A strong linkage between the domains of business ecosystems and ecosystem ecology enables researchers to access a rich set of frameworks and principles established within the systems sciences. Constructing these bridges has allowed a viewpoint where some promising directions for further development can be seen.

Keywords: business ecosystems; ecosystem ecology; capital; energy

« Describe the sections that follow »

« Acknowledge the existing body of work into business ecosystems, but reorient towards ecosystem ecology. »

Moore, Bateson?

Iansiti

The health of a ecosystem draws out the influence of environment on an organization, but keystones species are controversial even in biology

Allen

Organization and technology: Schumpeter?

There's a misconception that human beings are not a natural part of the ecosystem.

Decision-makers need to appreciate both “laws of nature” and the features of human will and social choice.

The challenge is in separating out directions that are motivated only for the personal gain of the few to the long-term detriment of the many, versus misguided action due to bad science.

Introducing the word “ecology” into a business conversation can lead business practitioners to think that the issues will lead toward tree-hugging environmentalism. This is not necessarily the case. The motivation here is to bring a greater understanding from the natural sciences to the management sciences. The linking of capital to energy is integral to this new understanding.

This is not always the case, but there are some encouraging forays.

Information provides fungability.

Money flows in the direction opposite to capital.

From Marx, through social capital

Need a closer reading of Marx

Bourdieu and Stewart are good.

Less compatible with ecosystem science is Lin

Georgescu-Roegen Boulding

The full applicability needs to be further developed, but here are some promising hints.

Avoid collapse

Lhotka

Can't completely remove a function from a system, in favour of relying on another.

K.C. Wang

Bad science may be rooted in philosophy, or just a misspecification of the world.

The proposition that business models cna be improved by better science does not deny that there is an art to managemetn. The alternatives of superstituion and ignorance present worse directions.

Gharajedaghi and Ackoff

Emery

The definition of business – particularly when both organizational and technological parts are included – can be improved with concepts from the domain of systems science. In particular, the science of ecosystems can lead us to a greater understanding of business models and business designs.

The term “business ecosystem” has entered the business vocabulary without much hard thinking. A search on the phrase “business ecosystems” turns up 70,000 hits in Google, including an entry in the Wikipedia.

Unfortunately, the use of the phrase can not always be taken literally. In many cases, writers don't have a strong definition for using the phrase. In others, they try to connect their ideas to science, but unfortunately result in misguided metaphor and/or models.

The most cited work related to business ecosystems by James F. Moore in 1993. More recently, Iansiti and Levien have updated the literature.

Moore suggests the idea of a business ecosystem, in contrast to the traditional industry view.

To extend a systematic approach to strategy, I suggest that a company be viewed not as a member of a single industry but as part of a business ecosystem that crosses a variety of industries. In a business ecosystem, companies co-evolve capabilities around a new innovation: they work cooperatively and competitively to support new products, satisfy customer needs, and eventually incorporate the next round of innovations. (Moore, 1993, 76)

Moore cites foundations in systems science in Bateson.

In essence, executives must develop new ideas and tools for strategizing, tools for making tough choices when it comes to innovations, business alliances, and leadership of customers and suppliers. Anthropologist Gregory Bateson's definition of co-evolution in both natural and social systems provides a useful starting place. In his book Mind and Nature, Bateson describes co-evolution as a process in which interdependent species evolve in an endless reciprocal cycle – in which “changes in species A set the stage for the natural selection of changes in species B” – and vice versa. Consider predators and their prey, for instance, or flowering plants and their pollinators. (Moore, 1993, 75)

However, Moore seems to lean more on the biology of Stephen Jay Gould.

Another insight comes from biologist Stephen Jay Gould, who has observed that natural ecosystems sometimes collapse when environmental conditions change too radically. Dominant combinations of species may lose their leadership. New ecosystems then establish themselves, often with previously marginal plants and animals at the center. For current businesses dealing with the challenges of innovation, there are clear parallels and profound implications. (Moore, 1993, 76)

The emphasis in Moore's work is more evolutionary, however.

Every business ecosystem develops in four distinct stages: birth, expansion, leadership, and self-renewal–or, if not self-renewal, death. In reality, of course, the evolutionary stages blur, and the managerial challenges of one stage often crop up in another. Yet I've observed the four stages in many companies over time, across businesses as diverse as retailing, entertainment, and pharmaceuticals. What remains the same from business to business is the process of co-evolution: the complex interplay between competitive and cooperative business strategies …. (Moore, 1993, 76)

Iansiti and Levien similarly look beyond the single business ecosystem, and past its industry, to a larger world.

Your own business ecosystem includes, for example, companies to which you outsource business functions, institutions that provide you with financing, firms that provide the technology needed to carry on your business, and makers of complementary products that are used in conjunction with your own. It even includes competitors and customers, when their actions and feedback affect the development of your own products or processes. The ecosystem also comprises entities like regulatory agencies and media outlets that can have a less immediate, but just as powerful, effect on your business. (Iansiti and Levien, 2004, 69)

They take a step forward by emphasizing that the health of the ecosystem, as a whole, relies on the health of its parts.

For an ecosystem to function effectively, each domain in it that is critical to the delivery of a product or service should be healthy; weakness in any domain can undermine the performance of the whole. (Iansiti and Levien, 2004, 69)

Iansiti and Levien focus on measuring health.

There are three critical measures of health-for business as well as biological ecosystems.

Productivity. The most important measure of a biological ecosystem's health is its ability to effectively convert nonbiological inputs, such as sunlight and mineral nutrients, into living outputs-populations of organisms, or biomass. The business equivalent is a network's ability to consistently transform technology and other raw materials of innovation into lower costs and new products. There are a number of ways to measure this. A relatively simple one is return on invested capital. (Iansiti and Levien, 2004, 69) [….]

Robustness. To provide durable benefits to the species that depend on it, a biological ecosystem must persist in the face of environmental changes. Similarly, a business ecosystem should be capable of surviving disruptions such as unforeseen technological change. The benefits are obvious: A company that is part of a robust ecosystem enjoys relative predictability, and the relationships among members of the ecosystem are buffered against external shocks. (Iansiti and Levien, 2004, 70) [….]

Niche Creation. Robustness and productivity do not completely capture the character of a healthy biological ecosystem. The ecological literature indicates that it is also important these systems exhibit variety, the ability to support a diversity of species. There is something about the idea of diversity, in business as well as in biology, that suggests an ability to absorb external shocks and the potential for productive innovation.

The best measure of this in a business context is the ecosystem's capacity to increase meaningful diversity through the creation of valuable new functions, or niches. (Iansiti and Levien, 2004, 70)

Iansiti and Levien clarify their use of the word “ecosystem”, admitting that in the science of ecology, “community” is a better categorization.

[Our] use of the term “ecosystem” is probably closer to the biological term “community.” We follow others in choosing ecosystem, rather than the generic-sounding community, because it clearly signals that we are discussing a complex system and that we are working with a biological analogy. (Iansiti and Levien, 2004, 72)

Iansiti and Levien go a bit far, however, in looking at keystone species.

Modern business networks and biological ecosystems also are characterized by the presence of crucial hubs that assume the keystone function of regulating ecosystem health. An example of a biological keystone is the sea otter, which helps regulate the coastal ecosystem of the Pacific Northwest by consuming large numbers of sea urchins. Left unchecked, sea urchins overgraze a variety of invertebrates and plants, including kelp, which in turn support a food web that is the engine of near-shore productivity. The decline of the sea otter population in the nineteenth and twentieth centuries, when they were trapped for their fur, had a profoundly negative impact on a wide variety of coastal fish and other organisms.

Like keystones in business networks, sea otters represent only a small part of the biomass of their community but exert tremendous influence. Note, too, that, as in business ecosystems, some individual members of the community – the sea urchins that get eaten by the otters – suffer as a result of the keystone's behavior, but the community as a whole benefits. (Iansiti and Levien, 2004, 72)

As much as Moore, Iansiti and Levien have popularized the idea of ecosystems in business, there have been some deeper research published. Trist's work over 30 years ago, as well as Gharajedaghi and Ackoff more recent research, follows from larger bodies of work.

The philosophy of business ecosystems would seem to follow that developed by Emery (1973), over 30 years ago, in the following way:¹⁾

Ackoff & Gharajedaghi on type of systems

There are three basic types of systems and models of them, and a meta-system; one that contains all three types as parts of it (see Table 1).

Table 1: Types of systems and models

These three types of system form a hierarchy in the following sense:

animated systems have deterministic systems as their parts. In addition, some of them can create and use deterministic systems, but not vice versa.

Social systems have animated systems as their parts.

All three types of system are contained in ecological systems, some of whose parts are purposeful but not the whole. For example, Earth is an ecological system that has no purpose of its own, but contains social and animate systems that do, and deterministic systems that don't. (Gharajedaghi and Ackoff, 1996, p. 14, editorial paragraphing added)

Older foundations, newer research

Idea of capital has evolved

Founding of ecosystem ecology

Unified Ecology

Long history

Read Marx

… capital is not the accumulated stock of assets, but the potential it holds to deploy new production. (de Soto, 2000, 42)

As Adam Smith pointed out, money is the “great wheel of circulation”, but it is not capital because value “cannot consist in those metal pieces. (de Soto, 2000, 43)

Capital, like energy, is … a dormant value. Bringing it to life requires us to go beyond looking at our assets as they are to actively thinking about them as they could be. (de Soto, 2000, 45)

Thomas Stewart

Schumpeter

Georgescu-Roegen

Geoffrey Hodgson

Nan Lin (wrong direction)

A stronger foundation in science

Look up David Hawk

Allen & Hoekstra

Don't know

Odum

Jacobs, Nature of Economies

Little citation work Systems scientists can help

Business is based on psychology, sociology, and the “dismal science” of economics.

Schumpeter

<ul> <li>Ackoff, R.L. and Gharajedaghi, J. (1996). "Reflections on Systems and their Models", <cite>Systems Research</cite>, 13(1):13-23.</li>   <li>Iansiti, M. and Levien, R. (2004). "Strategy as Ecology", <cite>Harvard Business Review</cite>, March 2004, 68-77, Reprint R0403E.</li> <li>Moore, J. F. (1993). "Predators and Prey: A New Ecology of Competition", <cite>Harvard Business Review</cite>, May-June 1993, 75-86, Reprint 99309.</li> <li>Parhankangas</li> <li>Trist, E.L. (1973). "Task and Contextural Environments for New Personal Values" (Chapter 14) in <cite>Towards a Social Ecology</cite>, (F.E. Emery and E.L. Trist, eds.), Plenum, location?</li> </ul>