Good Vibrations 4: The Modern Arena
January 6, 2015 | 2 min read
As noted correctly by Wharton professor Rita Gunther McGrath, the markets have been transformed into arena's (see earlier blog post). In economic terms, we refer to them as ecosystems. This term is derived from the biological sciences. An example.
When wolves were reintroduced to Yellowstone after seventy years, they affected the behavior and composition of the fauna. The deer began to avoid spots that made them easy prey, such as valleys and ravines. The vegetation returned. In some locations, the trees grew up to five times higher than before! Beavers again began to appreciate Yellowstone as an attractive habitat. The growing vegetation strengthened the river banks, dampening the rivers' tendency to meander. The wolves were hunting coyotes, allowing the population of mice and rabbits to expand. This created a delightful buffet for birds of prey.
Replace 'wolf' in the above section by Apple, Facebook, Walmart, SAP, Microsoft, Amazon or LinkedIn and you can identify the changes in the respective arenas yourself. The marvels created by Apple are useful only due to the apps available for them. The fight for dominance of the ecosystem is in full swing. The term Big Four no longer refers to the largest audit firms that record the past, but to the companies organizing the social world (Amazon, Google, Facebook, Apple).
At the rise of the Internet two decades ago, you could divide the arguments for a digital strategy into four categories: cost reduction, market expansion, disintermediation, and diversification.[i] These arguments are still valid. The disintermediation is even more intense than ever before. Contrary to before, it is however no longer the intent to completely eliminate the intermediary. The attempts of many companies to eliminate the intermediaries at the beginning of the new millennium so as to directly serve the customers, have turned out to be fruitless.
However, players such as Ebay and Coursera do strive to take control in retail and university education, respectively. Power, a core concept in much of the scientific retail research, has returned in full force. Who claims the end-customer? These players create pressure on the value chain. The employees of Coursera were very transparent concerning the consequences of their initiatives: "Coursera forces universities to fundamentally reassess their value proposition. This becomes a challenge for average universities."
Ecosystems create possibilities for creative entrepreneurship. After all, entrepreneurs often use more resources than they possess themselves.[ii] Naturally, we are all in awe of the successful entrepreneurs who have created an ecosystem that constitutes an economic empire. Yet, there are only a few players that manage the cornerstone (cf. infra).The benefits might be smaller for the many niche players that are part of this ecosystem, but their risks are also more limited.[ii]
Above all, we tend to conveniently forget that ecosystems can delay. Diego Miralles, the research director of the Janssen West Coast Research Center in San Diego, confirms [liberally translated]:"How can we move towards a business model in which hospitals are paid to remain empty? While this is not unfeasible from a technical perspective, society is not ready for this. A British politician asked me: 'But what would we do with the buildings in that case?' Fear is the game played by the dominant players. Make sure that you offer a solution for problems with little complexity and low risk. And do so in a manner that is non-threatening to the physician."
[i] Moenaert R., Robben H. & Gouw P. Marketing strategy & organisation. Building sustainable business. Leuven: LannooCampus, 2011 (2nd edition).
[ii] Jarillo J.C. “On strategic networks”, Strategic Management Journal, jg. 9 (1), p. 31 - 41, 1988.
[iii] Ron Adner. The wide lens. Portfolio Penguin, 2012.