Overcoming a crisis by teaming: the business ecosystems

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We are facing a period of many market changes, activating an ecosystem strategy that combines multiple players with a specific purpose can be the winning choice. We will explain what exactly an ecosystem is, its characteristics, the type of leadership that distinguishes it and the challenges it poses to the entrepreneurs who are part of it. The word "ecosystem" appeared 130% times more than it did ten years ago in the business reports of S&P 500 companies. Why has the corporate strategy taken this word from ecology? What can we learn from the environments that appear in nature? Talking about ecosystems means talking about one of the most innovative and analyzed issues of a corporate strategy.
In this article, you will find:

From biological ecosystem to business ecosystem 

If you are wondering why an article on business strategy begins with the definition typical of biology term and why the new conversations about the future of companies have taken this word, I tell you that the immediate answer is one: the survival.

The evolution of current global dynamics has led more and more companies to ask themselves how, if and how long they would have survived the rate of technological and cognitive evolution that the market feeds and requires.

Biologically speaking, an ecosystem is:

“The set of living organisms and non-living substances with which the former establish an exchange of materials and energy, in a delimited area”.

Trying to analyze the concept we can add that it is:

“An ecological unity constituted by the balanced condition of the relations between living beings and the chemical-physical environment where they live”.

There are mainly four elements we need to focus on: balance, relationships, environment, exchange.

The business ecosystem: definition and types

Let’s try to recap and give a definition of the concept.

A business ecosystem is a group of companies that, like a biological ecosystem, have created a balance and are independent of each other. They belong to different but highly complementary sectors. They are balanced by competition and mutual collaboration.

The goal is working together to bring innovations in a market, eventually, also creating a new business model. The consequence is the creation of a network that allows companies to cooperate, without any more individual focus.

For example about international relations: in an ecosystem, we will confront each other as an organized set of companies, each one with its own skills!

It is this point that in moments of crisis is crucial.

A multi-company organization allows you to share assets and resources to be stronger together, to not compensate and to overcome the negative period with new growth prospects.

An ecosystem stands out for:

  • the absence of hierarchy among the companies: they are all independent, but interdependent
  • the contribution of companies to the ecosystem has no fixed rules, but rather is specific to the ecosystem to which it belongs
  • any company in the ecosystem has relationships with the others. There are not only bilateral relations like partnerships
  • the companies are all coordinated with each other and frequently they need to have programming and communication systems that allow coordination even at a distance

From industrial districts to Alibaba: when a small ecosystem beats Microsoft or IBM

This type of business is not completely modern but derives from district forms. Italy has interesting cases. The Italian textile and footwear industries, in fact, are composed by companies in the supply chain almost entirely located in a specific area such as Tuscany and Marche.

The individual companies of the ecosystem, on the other hand, do not need to be geographically close. Indeed, distances can be overcomed by using technology: business models based on digital or purely offline businesses that use technologies to communicate, organize and manage organizational flows.

Jack Ma, referring to this concept, stated that “Alibaba’s philosophy is to be an ecosystem. Our philosophy is to support other companies to sell even if considering that other businesses are stronger than we are. With our technology, our innovation, our partners – ten million small vendor companies – everyone can compete with Microsoft or IBM ”.

The classification of these new systems involves two categorizations:

Solution Ecosystem

Casa study: Credit cards

  • Several economic players
  • Extreme coordination
  • Consumers have a great impact
  • If only one is negatively affected by an external factor, all the others are influenced by it

Transaction Ecosystem

Case study: food delivery platforms

  • Only two economic players: producers and consumers
  • Reduction of the production chain
  • Useful platform for coordination and communication

Compete and cooperate

Let’s face it, in addition to trying to get hold of a noble and positive term in biology, there is a business strategy phenomenon that affects companies with the highest growth rate of the S&P 500.

Basically, it is a new multi-company approach that dynamically organizes the interdependent activities of companies.

Why are ecosystems so popular? The fact of being able to go beyond their habitual operative boundaries and assimilate new technologies, skills and partners also facilitates medium-sized companies to compete and not be oppressed by the innovations of their market.

Sharing part of their know-how with a potential competitor allows them to acquire more skills and more potential earnings compared to the risk of losing current market share.

What are we willing to give up to gain the ability to respond to market changes?

An anecdote that can answer to this dilemma and, make you understand that the concept of ecosystem, is actual and ordinary. It is the challenge between PayPal and X.com in the early 2000s. Peter Thiem and Musk were battling to lead the online payments industry during the beginning of the new economy. The headquarters of the two companies were less than four blocks away in Palo Alto and both declared that the point was not working to win the market, rather their aim was to replace the competitor.

After a long time working over 100 hours weekly, in March 2020, they met and decided to do a 50-50 merger.

Why did two of the greatest economic minds of our time decide to give up the fight and merge into a single business?

The answer is in the fear of the explosion of the tech bubble in the same year, which actually put a strain on the market, but allowed them to survive and become what is today the most used online payment platform.

The point was not limited to “if you can’t beat them, join them”, both Thiem and Musk knew they were redefining not only a market, but also a system of technologies and skills. There could be only one leader in that new ecosystem and both were willing to give up some of their know-how to sit with the winners.

The two managers went on fighting in other industries, but that’s another story, other ecosystems.

The typical features of an ecosystem

If you decide to be part of an ecosystem, you need to balance the degree of involvement and the flexibility: a company can be focused on the development of a particular new transversal technology or launch a pilot project with other partner companies.

Everyone decides how and whether to participate in this new work environment, but it is important to realize that it is not a verticalized work process or a supply chain, but a new strategic approach that does not necessarily have at its center the own company.

On this point, Gary Hamel suggests that:

“What it matters is not where your company is located in the ecosystem of your industry, nor how much it is vertically or horizontally integrated. What matters is the added value for the customer that you are really able to share through the product or service placed on the market and what is the relative cost of producing that value “.

Hamel suggests that we need to focus on what it really means to be part of this mechanism in terms of value for our customers and cost for us. With this term, he means not only the value of the investment but above all its opportunity cost.

The question is: what would it involve not being part of it? And if we were part of it, what kind of situation will we have to face?

To this last question, we can try to provide answers and guidelines common to different ecosystems.

Here they are:

  • Dynamic: the relationships within the system evolve according to the developments of the project. At different stages of development the player can also change 
  • Collaborative: the output can be the result of projects designed jointly also by partners who compete in their domestic market
  • Based on mutual influence: it is a project decided unanimously by all those belonging to the environment
  • Indirect: the monetization system of the investment is rarely in the hands of the company and it will be the responsible of the player or a subparts partner to share profits
  • Emerging: being a process and often an innovative output, the evolution of scenarios and choices is unpredictable. New scenarios are always emerging
  • Network-oriented: the value chain is not linear, it is not a linear passing of the baton between companies, indeed very often there are overlaps in this process
  • Focused Outside: Companies are often focused and focused on activities that go outside their normal boundaries

One point that is good to consider is that it is not always necessary to create an ecosystem or be part of it, sometimes it is not even convenient.

The fact is that belonging to this environment is not casually or spontaneously, it is a choice. An educated decision.

The degree of flexibility and innovation also at the organizational level required to be part of an ecosystem strategy is remarkable.

Apparently, it may seem like a difficult and demanding choice to insert within a productive structure. It is also about deciding which members of the organization will be engaged and how within the ecosystem structure.

However, there are conditions where it is almost the only real feasible choice to be part of it:

  • Destroy the dynamics of an entire industry
  • Implement new technologies that involve multiple players in your industry: autonomous vehicle driving for example
  • Create a more effective new market access channel or destroys an existing monopoly
  • A massive economic crisis

And here we come to why we decided to discuss business ecosystems right now and how they can be created to allow more companies in a non-optimal situation to survive and reinvent themselves to respond to a market that has significantly changed their requests.

Leadership in business ecosystems

Like any organization, whether small or large such as an ecosystem, the role management is crucial. Leader or participant?

Frequently it is not an explicit choice, but it is a creation of a natural balance on which the ecosystem is based.

It works the same as for individuals! The leader tends to be the company that proposes the business model and involves others, but not limited. It can be the one with greater awareness and a stronger brand.

Let’s say that a company can set up and become an ecosystem leader if it knows how to seize one of these opportunities:

  • Aggregation: when a company, represented by a platform such as Ebay, manages to match demand with supply.
  • Innovation: an aspect hard to neglect. Apple is an innovator in the IT industry because it understood the needs of consumers and encouraged engineers, programmers and developers to find innovative solutions.
  • Planning: when a company creates a new consumer experience cooperating with companies. It is Philips that has applied digital technology to the Health Care industry, for example with the introduction of the electronic health record (EHR)

What about other companies? In addition to the leaders, there are the participants. They bring value to the ecosystem like the leaders, but in a different way.

Are they less important? No, because they actively participate in the ecosystem to achieve goals. They are a kind of assist-company because, even if they are not the ones who win, they support all the possibilities to do so.

However, the role is limited to a specific ecosystem, but companies can be leaders or participants of many ecosystems. It depends on the goal or resources such as Google, which is a leader for the Android ecosystem, but a participant for the BigTable database system.

Ecosystems: how to join forces to fight a crisis

If we are facing an ecosystem that requires a player, it is good to remember that he / she must perceive the value produced by that environment first. Of course, the satisfaction of the customer and of all the other economic factors are essential, but who is responsible for the new environment is the same who bear the greatest economic-reputational risk as well.

An ecosystem is operational when those at the top of the chain are at least a little satisfied.

There is not this type of figure in the case when all the participating companies have used the same means and efforts to develop a platform. This is definitely less common, but one that brings undeniable advantages if justified by the purpose and market to which the companies belong. 

Now perhaps is clear why we talked about business ecosystems right now and how they could be a winning choice to develop a strategy that can be useful for many small and medium-sized companies typical of the Italian and European scenario.

It is true that we are being tested, it is also imperative to have an innovative and proactive approach to respond to a challenge that none of us expected.

In the next article, we will show you how an ecosystem is built in reality and how to approach it strategically to implement it in the best possible way within your organization.

Last but not least. Cristina, Edoardo and I would like to convey to all of you is that Covid can give the idea of having won this battle, but we will never allow it to win the war.

We are by your side.



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