What’s all that fuss about business ecosystems?

Magnus Hellström, Åbo Akademi University, Sari Mäenpää, Tampere University of Technology & Katri Valkokari, VTT

What is a business ecosystem?

In the outcome economy, the success of your innovation crucially depends on other actors in your business ecosystem and competitive advantage is built on the capabilities a company can access through it. Therefore, it is important to align the interests and the activities in the ecosystem.

The difference between a business network and a business ecosystem is rather vague, and perhaps more a question of different contexts and schools of thought. Typically, an ecosystem is understood as a broader entity, connecting a larger variety of actors and crossing industrial boundaries. In an ecosystem the actors concurrently both collaborate and compete with each other. That increases the dynamics of an ecosystem.

What are the basic elements of an ecosystem?

From a practical point of view, there are some salient aspects of an ecosystem:

  1. There has to be a holistic aspect to it (i.e. the system value is larger than the sum of its parts). This means that by organizing and doing things differently, an ecosystem can create more value based on the same input, be it through producing more innovations, competing with each other, or working more efficiently.
  2. This ecosystem level outcome entails increased interaction and interdependence between the involved actors. That is, firms are ever more dependent on each other to be successful. This means the firms ought to be viewed as a system of interacting parts rather than as individual entities.
  3. Ecosystems often span conventional industrial boundaries. Hence, they provide a cross-sectoral view to value creation rather than the narrower sectoral view that still dominates the economic debate today.
  4. Like in its biological role model, an ecosystem is dynamic and undergoes constant co-evolution and change from intentional and emerging actions of ecosystem actors. A business ecosystem does so to better fit in its environment.
  5. The existence of a unifying platform and even the absence of a clear focal company is a common condition for ecosystems.

The common notion that competition is moving from the firm level to the ecosystem level builds on these insights. In short, by acting or organizing differently, for example by establishing new connections or by deepening the collaboration between certain parts of the ecosystem, or by making greater use of digital technologies, things can be done better than in other competing ecosystems.

How does a business ecosystem operate in practice?

In the DIMECC REBUS program, business and innovation ecosystems have been studied from a number of different perspectives, which all illuminate the above five and some further aspects of business ecosystems. The case of the Baltic Sea logistics system highlights the need for data transparency in ecosystems and how an electronic marketplace constitutes a unifying platform. The case of Tieto examines different strategies for data integration platform and IT company’s roles and positions in a changing ecosystem. Seaside Industry Park case pinpoints the need for an external party supported systematic approach for co-innovation and knowledge integration through increased interaction. The information-sharing platform developed by Wärtsilä is showcased in boosting digitalization in an industry characterized by vertical fragmentation and vulnerable information logistics. Common to all of them is the importance of sharing knowledge and enabling the integration of knowledge from different sources, and organizations, in an effective and efficient way.

The fuss about ecosystems is strongly connected to the outcome economy and we urge more companies to think about which ecosystems they are involved in and how their innovations could benefit from and change that system.

Do you want to learn more?

More detailed stories on these cases and other results regarding the physics, chemistry and biology of business ecosystems can be found from the DIMECC REBUS final publication:

http://hightech.dimecc.com/results/final-report-rebus-towards-relational-business-practices

Welcome to REBUS final seminar 30th May at the MPD2017 days to hear more and participate to discussion!

https://www.dimecc.com/events/revolution-business-highlights-dimecc-rebus/

What managers really think about networks?

by Katri Valkokari & Tiina Valjakka

“Business relationships are neither bright nor dark, but rather represent a combination of the two”*

Business networks as well as other collaborative settings, such as partnerships and alliances, are characterized by the co-existence of negative effects (several tensions, uncertainties and opportunism) and positive elements (trust, commitment, win-win).

We were interested in managers’ perspectives related to these advantages and disadvantages of relational business practices associated with the operations in business networks. Thus, we built and tested a set of metrics through interviews, thematic group discussion, and a pilot survey with 22 companies participating in an industry academia research program that develops relational practices in business networks in the context of the manufacturing industry. (see REBUS). The survey questionnaire, with 18 statements presented below, was designed based on the preliminary data and the research framework.

Positive Negative
Performance of network 1) strengthen growth of business and profitability

2) enhance access to new markets

1) increase the risks of our business

2) increase the expenditures of our business

Practices – networks as goal oriented entities 1) enhance an effective division of labor with our partners

2) increase available resources and capabilities

3) enable more flexible contracts

1) hamper new business ideas and innovations

2) decrease willingness to renew and develop

3) increase dependency on network members

Information – networks as knowledge creating platforms 1) enhance integration of ICT systems with our partners

2) enhance access to knowledge that is critical to our business

1) lead to the concealment of information and information-dependency

2) cause  knowledge leaks and the risks thereof

Socialisation – networks as controlled social systems 1) increase mutual trust in our business relationships

2) enhance comradery with our partners

1) hamper our independent decision-making

2) weakens our position in business relationships

Business networks was defined in the survey as “a set of companies and potentially other organisations (a minimum of three network actors) connected to each other for the purpose of doing business on a relational basis” (e.g., Halinen and Törnroos, 2005).

The networks are considered an especially important means to access new markets, knowledge and resources

Based on the answers, it can be concluded that the respondents have distinctively positive view on networks and their effects on business performance. In the positive statements the average value of all the respondents’ answers was over 4 (agree), in 1-5 Likert scale whereas in the negative statements the average remains under 2,5 (between 3= don’t know and 2= disagree).

scale

The three most supported statements were positive statements: business networks 1) enhance access to new markets, 2) enhance access to knowledge that is critical to our business, and 3) increase available resources and capabilities.  This support a more general conclusion that potential drivers of networking – based on relational practices – lie more in intangibles, i.e., the effects on future competitiveness. The technical or tangible enablers in turn, are assigned lower importance by the respondents. From the negative aspects side, the results indicate that managers, while believing in the growth-boosting effects of networks, also acknowledge that this may be associated with specific costs of ‘losing’ something valuable. However, networks do not seem to weaken a firm‘s position or the ‘incentives’ for business development

When comparing the negative and positive statements, it can be concluded that the respondents consider knowledge and resource sharing an important reason for operating in business networks. On the other hand, the risks related to knowledge leaks were considered an important issue, which also highlights the importance of joint rules for knowledge management practices in business relationships and networks. While the respondents in our case recognized the potential hazards, they clearly have a positive view of the influence of networks on business performance, i.e., the managers perceive the overall outcome of networks and relational business practices as clearly positive.

*Abosag I., Yen, D.A. & Barnes, B.R. 2016. What is dark about the dark-side of business relationships, Industrial Marketing Management, Vol. 55, May 2016, pp. 5-9

Valkokari, K., Valjakka, T., Viitamo, E. & Vesalainen, J. Management over boundaries in the network era – what do managers really think about networks? 32th Annual IMP conference, “Change and transformation of markets, networks and relationships, 30 August – 3 September 2016, Poznan, Poland, IMP Group.

 

 

 

Lost in Network? Network picturing as a tool in dynamic network management

By Tiina Valjakka and Katri Valkokari

This post illustrates how picturing networks from different actors’ perspectives affects the network management and facilitates the building of new connections. It is based on a paper we presented last month in the IMP 2015 Conference in Kolding, Denmark. The aim of the paper is to extend understanding of strategic management in dynamic business networks, especially from the viewpoint of SMEs operating in a B2B context.

moniverkosto

Firms are simultaneously acting in various networks in different roles (see picture above).  Each of the actors has its own perception of the network and its position within it. Managers’ understanding of perceptions across boundaries is a key to a firm’s success in networked business ecosystem, where knowledge and resources are dispersed and value co-creation requires integration of resources. Drawing from the management point of view, our preliminary research question was: How to picture and combine the different network perspectives in order to better manage the business network?

Network pictures can be seen, and utilized as:

  • Business actors’ subjective mental frameworks of their surroundings, and thus as sense-making tools that underlie decision-making in networks
  • a tool used by researchers and practitioners to grasp actors’ understanding of their surrounding business network(s)
  • boundary-spanning mechanisms which serve as an interface between different organizations

In our case study, we utilized network picturing as a tool for strategic management in a SME. We first draw two focal company perspectives; factory and sales, identified their most important connections, and described the roles and content of interaction with these first-level partners. The other network perspectives depicted were end-users’ network pictures from different customer segments. These network pictures, snapshots from different network actors’ perspectives, were then utilized for drawing the network management perspective. Network picturing resulted in the identification of new relevant network actors and needs for building connections to them.

The managerial challenge is to guide the development within business networks. Often, companies anchor themselves to a single vision of their customer needs and network structures, which may preclude considering the viewpoints of other network actors. Many businesses have a complex nature, and network picturing gives a possibility to see beyond the most obvious and traditionally closest actors. Our study highlighted that in order to act as a change driver in their business environment, a SME must have broader connections than the relationships with the direct customers and suppliers.

Reference

Valjakka, Tiina; Valkokari, Katri; Kettunen, Outi. 2015. Utilizing network picturing in the management of dynamic networks. IMP Group. 31th Annual IMP Conference and Doctoral Colloquium 2015 “Organizing Sustainable BtoB Relationships – Designing in Changing Networks”, 25 – 29 August 2015, Kolding, Denmark.

How SMEs Can Manage Their Networks – Lessons Learnt from Communication in Animal Swarms

By Katri Valkokari and Pasi Valkokari

Ants, wasps and bees are known and studied because of the amazing efficiency of their collective efforts. Therefore, the current debate on business ecosystems inspired us to question if network management could learn from the ‘swarm intelligence’-based activities of animals. The interaction between business organisations is at the heart of the network approach as well as interaction of individuals in animal swarms. The fundamental managerial issue in building and renewing business networks is how to operate as a network, i.e. how small and medium-sized enterprises (SMEs) can ensure that all network actors do their best for the network and not only for themselves.

SME cannot manage the network like the alpha male or the queen bee, which controls the swarm and expects other network members to follow their given roles. There is still an opportunity for the SME to manage the network as a swarm of equals and to communicate its visions of the common best in order to commit to the other network members. Our recent research suggests that different managerial tools – such as network mapping, business models, partner evaluation and LCC tools – can be utilised as communication means also by SMEs (Figure). In other words, these tools serve as boundary-spanning objects supporting shared sense-making between network members.

Framework_blog

In line with the lessons learnt from the collective efforts in animal swarms, we suggest that SMEs can manage their business networks through communication, which is based on understanding of interests and expectations of other network actors. Anyhow, the question considering network level common evaluation still remains unsolved and we hope that our study will encourage further empirical research on applying new thinking to business networks and their management.

Reference:

Valkokari, Katri & Valkokari, Pasi (2014) How SMEs Can Manage Their Networks: Lessons Learnt from Communication in Animal Swarms, The Journal of Inspiration Economy: An International Journal. Vol. 1, No: 1, pp. 111 – 128 Link: https://journal.journals.uob.edu.bh/Article/ArticleFile/844