From firms to ecosys­tems

The Smart Manager - - Contents - RALPH WEL­BORN IS CO-AU­THOR OF TOP­PLE.

How to look at our changed com­pet­i­tive land­scape through the lens of busi­ness ecosys­tem? asks Ralph Wel­born, co-au­thor of Top­ple.

In a VUCA world, where value is cre­ated and de­stroyed in sur­pris­ing ways in ev­ery in­dus­try, many or­ga­ni­za­tions re­spond by in­vest­ing in new tech­nolo­gies only to keep up with the com­pe­ti­tion. Ralph Wel­born, co-au­thor of Top­ple—The End of the Firm-Based Strat­egy and Rise of New Mod­els for Ex­plo­sive Growth ar­gues that what has made busi­nesses ef­fec­tive to­day will not work to­mor­row. He pro­poses that in­di­vid­u­als (or or­ga­ni­za­tions) need to an­swer the ‘new strate­gic ques­tion’ and un­der­stand its im­pli­ca­tions on what they do, how they do it, and with whom they do it so they can iden­tify and cap­ture new sources of value.

Your book pro­poses that the new com­pet­i­tive land­scape will be shaped less by firm-spe­cific strate­gies and more by new busi­ness mod­els, pow­ered by ecosys­tem-cen­tric strate­gies...

Here is what is ev­i­dent: fewer than 15 per cent of firms re­al­ize ap­prox­i­mately 85 per cent of eco­nomic profit in just about ev­ery in­dus­try. Much talk is made of the usual cul­prits here—Face­book, Ama­zon, Net­flix, and Google, but there are oth­ers too—Ten­cent, Tesla, Ap­plied Ma­te­ri­als, Mi­crosoft, or any num­ber of other com­pa­nies. Be­sides cap­tur­ing a dis­pro­por­tion­ate amount of eco­nomic profit, these and oth­ers are the ex­plo­sive growth mod­els to learn from. While dif­fer­ent in size, in­dus­try, and geog­ra­phy, many of them share a com­mon­al­ity that be­gins to high­light a stark dif­fer­ence be­tween the growth mod­els of yes­ter­day and those of to­mor­row.

The dif­fer­ence? They share an ecosys­tem-cen­tric strat­egy. But how did they come to this? Sim­ply, they re­al­ized that a new com­pet­i­tive land­scape re­quired ask­ing, and an­swer­ing, new strate­gic ques­tions: where is value be­ing cre­ated and de­stroyed in the ecosys­tem and value chains in which you are en­gaged? What role do you play within it? With what set of (new) ca­pa­bil­i­ties to do so?

And here it gets par­tic­u­larly com­pelling.

How can or­ga­ni­za­tions take ad­van­tage of busi­ness ecosys­tem so that they can iden­tify and cap­ture new sources of value in new ways? It re­quires four steps:

ask (and an­swer) the new strate­gic ques­tions

Ask­ing these ques­tions leads to look­ing at your com­pet­i­tive land­scape from an ecosys­tem per­spec­tive, rather than that of your busi­ness and even your in­dus­try. Do­ing so log­i­cally leads you to ask: what is my ecosys­tem? How is it chang­ing? What are the spe­cific clus­ters of ca­pa­bil­i­ties (skillsets and tech­nol­ogy as­sets) cat­alyz­ing those changes? And then, how will dif­fer­ent types of tech­nol­ogy im­pact our busi­ness over time, with what im­pli­ca­tions on our fu­ture work­force? These have be­come the crit­i­cal ques­tions and re­quire an ecosys­tem per­spec­tive to an­swer if you want to drive ex­plo­sive growth, which leads to the next step.

plant a flag on a prob­lem to own, and own it

Ex­plo­sive growth has al­ways come from iden­ti­fy­ing points of fric­tion, non-con­sump­tion, or mar­ket break­down. Tack­ling these is the key to fig­ur­ing out what flag to own.

Note: plant­ing a flag has lit­tle to do with re­fin­ing your ex­ist­ing set of prod­ucts and ser­vices—which is an in­side-out per­spec­tive. In­stead, it re­quires start­ing from an out­side-in view­point and work­ing from the crit­i­cal points of fric­tion or mar­ket break­down and what is re­quired to tackle those. Then, and only then, fig­ure out what prod­ucts and ser­vices are needed, in­clud­ing the ones you have to­day.

Where you plant your flag will de­ter­mine new sources of value to de­liver, which has very real im­pli­ca­tions on how you en­gage with cus­tomers, the prod­ucts, and ser­vices you de­liver, and how you both ex­tend and cre­ate new rev­enue streams.

The first two steps help you fig­ure out ‘where to play’ in a changed com­pet­i­tive world; the fi­nal two help you to ‘ex­e­cute’.

clar­ify—and mo­bi­lize around—your new 20 per cent

Ca­pa­bil­i­ties (your skill sets, be­hav­ioral pro­files, and tech­nol­ogy as­sets) are the in­fra­struc­ture of ex­e­cu­tion. No ca­pa­bil­i­ties, no ex­e­cu­tion. No ex­e­cu­tion, no cus­tomers. No cus­tomers, no busi­ness. Pretty straight for­ward—un­til it is not. As much as 20 per cent of any or­ga­ni­za­tion’s ca­pa­bil­i­ties drive roughly 70 per cent of the value it de­liv­ers. A changed com­pet­i­tive world re­quires a new 20 per cent of ca­pa­bil­i­ties crit­i­cal to cap­ture the 70 per cent of new value. The ques­tion be­comes: what is that new 20 per cent, and what do you do about it? This takes us to the fourth step.

or­ches­trate your ecosys­tem

Or­ches­trat­ing your ecosys­tem in­volves know­ing what is the new 20 per cent—not only yours, but those of your part­ners—and fig­ur­ing out how to har­ness or or­ches­trate all of these ca­pa­bil­i­ties to cap­ture new sources of value in new ways.

“Ex­plo­sive growth has al­ways come from iden­ti­fy­ing points of fric­tion, non­con­sump­tion, or mar­ket break­down.”

Could you ex­plain the idea of ‘the new 20 per­cent’?

What made or­ga­ni­za­tions suc­cess­ful in the past is not what is needed to be ef­fec­tive in the fu­ture. A se­nior ex­ec­u­tive of a na­tional in­sur­ance com­pany re­al­ized this, trig­ger­ing an ‘ah-ha’ mo­ment for him. The core as­set (his 20 per cent) of an in­sur­ance com­pany has been how it prices risk. “What hap­pens,” he asked, “when our core as­set shifts from pric­ing risk to pre­vent­ing ac­ci­dents?” He ac­knowl­edged, “What has al­ways driven our value to our cus­tomers will change… be­cause the ca­pa­bil­i­ties needed to price risk are com­pletely dif­fer­ent from those to pre­vent ac­ci­dents.”

One quick point to take away from this anec­dote— do­ing more of the same, just faster and cheaper, is not go­ing to work over time. The key ca­pa­bil­i­ties that un­der­lie your busi­ness—that shape how you do what you do— are chang­ing. There has al­ways been roughly 20 per cent of ca­pa­bil­i­ties that drive 70 per cent of the value an

or­ga­ni­za­tion de­liv­ers to its cus­tomers. The re­al­ity is, there is now a new 20 per cent needed to cap­ture the new sources of value cat­alyzed by a changed com­pet­i­tive land­scape. The ques­tion be­comes: what is that new 20 per cent and what do you do about it? At CapIm­pact, we have built a pre­dic­tive an­a­lyt­ics plat­form to help or­ga­ni­za­tions ask, and an­swer, that ques­tion.

Will eco­nomic moat (in­stalled by, and around an in­di­vid­ual or­ga­ni­za­tion) still be rel­e­vant when value is driven not by firm-spe­cific strate­gies but by an ecosys­tem-cen­tric busi­ness model?

Of course, but the moat will not have been dug by an in­di­vid­ual com­pany, but by the or­ches­tra­tion of dif­fer­ent com­pa­nies in ser­vice of which­ever flag they mo­bi­lize around. The key word here is or­ches­trated, rather than con­trolled. The ques­tion be­comes, then, is there a con­duc­tor driv­ing this or­ches­tra­tion for which they re­al­ize ex­tra­or­di­nary value? Yes, but value ac­crues to ev­ery­one in a ‘ris­ing tide raises all boats’ way. For ex­am­ple, Ama­zon Web Ser­vice and Mi­crosoft’s new plat­form strate­gies are premised on en­abling oth­ers to build what­ever it is they want to build. A moat ex­ists, but value is re­al­ized by all.

Dif­fer­ent or­ga­ni­za­tions take dif­fer­ent pa­ram­e­ters into con­sid­er­a­tion while de­cid­ing ‘cur­rency’. Are there any ba­sic pa­ram­e­ters that are com­mon to all?

Yes. But let us set the stage first: dif­fer­ent stake­hold­ers of­ten care about, or are mo­ti­vated by, dif­fer­ent def­i­ni­tions of value. We de­fine these dif­fer­ent def­i­ni­tions of value as cur­ren­cies—units of value that mo­ti­vate the be­hav­ior of dif­fer­ent stake­hold­ers.

Why does this mat­ter? Be­cause dif­fer­ent stake­hold­ers are mo­ti­vated by dif­fer­ent def­i­ni­tions of value. For ex­am­ple, ex­ec­u­tives re­spon­si­ble for en­ergy sus­tain­abil­ity will be mo­ti­vated— and in­cen­tivized—by how much they re­duce their car­bon foot­print; oth­ers by driv­ing NPS (net pro­mo­tor score); some oth­ers by brand eq­uity; and some, par­tic­u­larly in the pub­lic sec­tor, by cit­i­zen re­spon­sive­ness. The de­fault cur­rency in the pri­vate sec­tor re­mains prof­itabil­ity (or other mea­sures that drive share­holder value).

How­ever, an ecosys­tem-cen­tric model en­gages dif­fer­ent types of ac­tors around a com­mon prob­lem to solve, with dif­fer­ent types of val­ues that mo­ti­vate them. (This will be­come more and more im­por­tant as we tackle harder, in­ter­con­nected prob­lems over time.)

If we are go­ing to tackle di­a­betes, for ex­am­ple, how do we get dif­fer­ent stake­hold­ers who care about dif­fer­ent cur­ren­cies—from pa­tient out­comes to pill prof­itabil­ity—to work to­gether? Build­ing mech­a­nisms to al­low those with dif­fer­ent cur­ren­cies to have an equal say at the ta­ble is crit­i­cal to har­ness­ing the power of ecosys­tem­cen­tric busi­ness mod­els.

So, the pa­ram­e­ters iden­tify what mo­ti­vates the be­hav­ior of dif­fer­ent stake­hold­ers; de­sign a shared value frame­work of those cur­ren­cies so that ev­ery stake­holder traces back ca­pa­bil­i­ties they bring to the ta­ble; de­velop a way to sim­u­late—by play­ing what-if sce­nar­ios—the im­pli­ca­tion of de­ci­sions made and ac­tions taken and how these dif­fer­ent cur­ren­cies and fo­cused projects will be im­pacted un­der dif­fer­ent con­di­tions. This is one way to build trust, trace­abil­ity, and ac­count­abil­ity in these new growth mod­els.

(As told to Ashutosh Go­tad)

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