How to build and

manage an Ecosystem
for Innovation

Arnoud De Meyer
University Professor
 • …had Amazon Web Services (AWS) a
dominant market share of 32% in
Cloud Services in 2018?
• .. Did London Stock Exchange offer
US$ 27B for Refinitiv, formerly part of
Thomson Reuters
• …has the UK based newspaper The
Guardian been able to build a
Why…? successful global news website (#10
on the eBiz|MBA rank ahead of WSJ
and BBC)?
• …was Rolls Royce able to build up
quickly a supply of skilled employees
when it launched its manufacturing
site in Singapore in 2010
 • … was the Cambridge headquartered
producer of risc processors ARM sold for US$
31 B to Softbank in 2016, when it had only
slightly more than 4000 employees
worldwide?
• …has the share price of the French PLM
software producer Dassault Systemes been
multiplied by more than 7 times between

Why…? 2005 and 2019?

• …can Alibaba Group have annual revenues in
2018 of about US$800,000 per employee,
while Amazon does US$ 360,000 per
employee?
• …did Elliott Management and Veritas Capital
offer in October 2018 US$5.7 B for
athenahealth, a US provider of network-
enabled services for healthcare and point-of-
care mobile apps?
 (partially)
because When confronted with a high degree of
they uncertainty, ecosystems may well be the
best form of organization to innovate and
innovated create new value and improve efficiency
in value delivery
through
ecosystems
 The currently prevailing model of the multi-
divisional firm is a creation of the late 19th century,
in order to cope with the growing scale of industrial
firms in the pursuit of economies of scale

But many other forms existed and continue to exist:

Current professional partnerships, temporary associations,
bureaucracies, markets, etc.
organisational
forms are not
universal or Simplifying one can say that organisations exist to
solve the issue of specialisation and coordination (or
perennial – a differentiation and integration)
bit of theory
Firms exist to avoid high transaction cost of
coordination; markets are supposed to create an
optimal production and allocation
Practice is often
different
 We are more and more moving to a knowledge intensive
economy. Contrary to other production factors knowledge
gains in value the more it is used. It is like a public good.

Agility and speed have become more important for an

organisation than stability, predictability and control

ICT now enables instantaneous worldwide coordination and

Organisations interaction
need to
change in the The nature of work is changing due to automation, AI,
machine learning
21st century
In an aging society the composition of the workforce is
changing

Customer activism and government regulation will render

customer focus more important
 Generally speaking, I expect organisations to
become more focused, smaller and adopt more
matrix structures. That does not imply that less
people will work for a brand or a product
portfolio, but they may not be in the same
organisation

Some Jobs will be redefined and recomposed in bite

expected sizes. As a consequence we will see more

platform based organisations and human clouds
(e.g. the gig economy)
changes
An older form of organisation, the community,
may make its comeback
 Remember the three fundamental ways of
solving the problem of specialisation and
coordination

Markets Hierarchies
Coordination Price Authority
mechanism
Disadvantage Transaction costs Production and
social allocation
Coping with Trade off Ineffective for
information as between non-routine tasks
production production and
factor social allocation
 Remember the three fundamental ways of
solving the problem of specialisation and
coordination

Markets Hybrids e.g. Hierarchies

communities
Coordination Price Trust Authority
mechanism
Disadvantage Transaction costs Stability & Production and
sustainability social allocation
Coping with Trade off between Enlarges the scope Ineffective for non-
information as production and of knowledge routine tasks
production factor social allocation generation and
sharing
 • “A business ecosystem is a network of
organisations and individuals that co-
evolve their capabilities and roles and
A special form align their investments so as to create
of additional value and/or improve
communities: efficiency”

ecosystems for • (Moore, J.H., “Predators and Prey: A

innovation New Ecology of Competition”, Harvard
Business Review, May/June, 1993.)
The Basic Idea of Ecosystem Advantage is Simple

Creating a Network of Partners That Help Make Your

Organisation to be more Successful

Apple was a late convert:

Apps:
>2 million Apps in Q4 2018
170 billion downloads since 2010

“Apple lives in an ecosystem. It

needs help from partners. And it
needs to help other partners”
Steve Jobs 2007
“ And it has become a popular concept:

In annual reports, the word “ecosystem”

appears 13 times more than 15 years
ago!
“
(BCG Henderson Institute, 2019)
 The • Joint Learning by bringing partners
together with diverse capabilities
Benefits • Enabling the ecosystem leader to take
leadership in Innovation
of an • Fostering flexibility thus enabling
partners to adjust their activities
Ecosystem quickly to changing circumstances
Our case
studies

• Alibaba Taobao
• Thomson Reuters
(Refinitiv)
• The Guardian
• Amazon Cloud
Services (AWS)
• Rolls Royce Singapore
• Athenahealth (Veritas
Capital)
• ARM (Softbank)
• Dassault Systemes
• … and many other
smaller case
examples
Our organisations exist in a context, and
operate in one or multiple ecosystems --
perhaps unconsciously. The challenge is
how to optimise the use of these
The
ecosystem to innovate and create and
deliver value in the face of increasing
Challenge
volatility, complexity and uncertainty
 Overview of the
discussion topics
How to create value with an ecosystem

Kick-starting the ecosystem

Growing the ecosystem

Stimulating innovation and learning in the ecosystem

Enhancing productivity

Monetising value in the ecosystem

Leading the ecosystem

Evolving the ecosystem and spawning new ecosystems

 In discovering value you as
the ecosystem leader should:
Cast your eyes on what is going on outside your company, starting with potential customers or
Cast users

Have a fundamentally different mindset: focus on maximising the overall value created by the
Mindset ecosystem, as opposed to maximising your own share of it

Stimulate Stimulate new connections to discover new sources of value to be delivered by the ecosystem

Search Search for the value created by network effects in the ecosystem

Attract Attract a more diverse set of partners into the ecosystem

Promote Promote value discovery by initiatives that improve the quality of interactions between partners
 Demonstrate
Demonstrate that you really
believe in the ecosystem
Co-opt
Co-opt foundation customers

Six Steps to Develop and

Kick-Starting share Develop and share a roadmap for
the the ecosystem
Development Communicate
Communicate the value of joining
of your
Ecosystem Shrink
Shrink the entry barriers

Look
Look for partners that bring their
own ecosystems
 Attracting new Partners

Explain in simple terms the value proposition to

prospective partners.

Clarify the expectations of partners and help equip

appropriate partners to fulfil different roles

Lower the barriers to joining the ecosystem

 Designing interfaces for improved
productivity
• Write contracts that focus on high level outcome, leave room
for flexibility, are perceived to be fair across the ecosystem and
are clear about dispute resolution
• Create portals to smooth the path of data exchange between
the ecosystem leader, its partners and among its partners,
without trying to control all these exchanges.
• Develop a set of systems and organisational solutions to
manage the exchange of complex know-how
• Codify some of the complex and tacit knowledge so that it can
be exchanged more efficiently
• Encourage mechanisms that help build trust between partners
• Agree on governance standards within the ecosystem
• Penalise bad behaviour
 • Enable the ecosystem to draw in new
knowledge from outside which it can use
How to to fuel innovation
• Leverage the knowledge generated in the
stimulate ecosystem to enhance your own
innovation activities
Learning • Encourage learning and innovation among
partners in the ecosystem
and • Orchestrate the accumulation of
“ecosystem goods” that can benefit the
Innovation whole ecosystem without disadvantaging
individual participants
in the • Strike the right balance between sharing
knowledge with the ecosystem to help it
Ecosystem innovate and keeping some knowledge
proprietary to underpin your own and
profitability.
 • Your strategy must ensure that the
ecosystem delivers more value to the
end user than any company can
single-handedly provide.
• You need to identify a keystone: some
element of or activity in the
Monetising ecosystem that you can own and
control, and on which the ecosystem’s
Value ability to create value for customers
depends.
• You must set up the right tollgates, in
the right places, through which you
can collect a share of the customer
value that the ecosystem creates
Designing Tollgates
• Choose the best mix of:

• License fees – simple to implement, but may

discourage partners from joining
• Royalties and transaction fees – embody a powerful
proposition: “the more you earn, the more I earn” but
partners may worry that the total costs may become
huge over time
• Selling value-added services – helps to keep down
costs of joining, but dissuades partners from
deepening their involvement in ways that could be
valuable
• Using data and knowledge to create new profit
streams – mostly pure upside, except for potential
competition with partners
 Belief that there is an opportunity to
create new value for potential
customers
Elements
of the A deep conviction that no single

mind-Set company can unlock the value

opportunity acting alone

of a
successful A focus on attracting, engaging and
motivating people who are not

ecosystem necessarily their employees

CEO
A relentless focus on growing the
size of the overall ecosystem pie
 Listening or the capacity to listen, both to
those within your own organisation and
to weak external signals and messages
from partners

Key Skills Adapting or encouraging and nudging the

ecosystem to respond flexibly to
required uncertainty

by the
Influencing or deploying your soft power
Head of an that comes from vision, credibility and
respect and evidence to bolster your case

Ecosystem with partners

Collaboration or getting things done

through a community of peers
Going Beyond the Limitations of
Classic Collaborative Leadership
• Lead beyond your organisation
• Build consensus and ensure that a wide
group of peers take ownership of most
of the decisions you will make
• Be an active networker, becoming a
trusted source of knowledge and
information that others in the
ecosystem haven’t yet spotted
• Embrace diversity and dilemmas, while
at the same time develop an
overarching identity and goal for the
ecosystem