The ecosystem that nurtures giants

They are obsessed with customers’ needs, innovation and agility is crucial and they both compete and collaborate within. Companies working as market-oriented ecosystems have their own dynamic – and can grow into large dominators like Tencent, Amazon and Facebook. Here’s how it works.

We are living in an ever-changing and self-reinforcing cycle of technological development that continuously raises the bar for customer expectations. This in turn fuels the relentless forces that rapidly shape markets. From a macro perspective, this dynamic results in some interesting movements. We see a concentration of:

• Infrastructure providers that offer highly scalable and far-reaching networks that deliver standardized services.
• Aggregation platforms and marketplaces that enable connections among fragmented players.
• Agent businesses that serve as trusted advisors to consumers across the growing numbers of fragmented niche products and services companies.

As a large company, and especially if you are an incumbent in your current market, your likelihood for continued large-scale success relies on your ability to either become a dominant platform, infrastructure or trusted advisor company. If not, you should expect to be outperformed by smaller, faster and more innovative competitors empowered by the platforms.

Create and capture customer value

In an attempt to understand how some of our most successful companies have prospered in these hyper dynamic markets, we have, however, found another compelling path – to transform your company into a market-oriented ecosystem that thrives by being both highly explorative and scalable at the same time. Becoming a company that inhabits the previously incompatible strengths of both mature companies with a culture of exploitation and start-ups with a culture of exploration.

Market-oriented ecosystems’ ultimate purpose is to create and capture customer value. Typically, this is achieved by bringing together multiple players of different types and sizes in order to create, scale, and serve markets in ways that are beyond the capacity of any single player.

Ecosystems are empowered by enhanced and simplified connectivity that enables the participants to discover and develop new products, services and business models. Discoveries that would not be possible without the access to the full spectra of the ecosystem’s capabilities, especially the collective ability to learn, adapt, and innovate together. The sustained success from market-oriented ecosystems is achieved through both competition and collaboration. In some ways it is like a thriving bazaar where you both can compete with your neigh­bors’ shops but also collaborate to achieve your mutual goals.

Based on a common platform

Studies show that companies operating as market-oriented ecosystems thrive and consistently outperform other types of companies when competing in hyper-dynamic markets. The most famous examples include Tencent, Amazon, Supercell, Alibaba, Didi, Facebook, Google, Huawei and Haier, that together nurture some of the world’s most well-known brands.

The operating model of a market-oriented ecosystem is based on a common foundation or platform that all teams use and rely on in their daily work. This foundation consists of four components:

• External services: Purchased on demand from market leaders (cloud storage, productivity tools, etc.).
• Internal services: Aims to solve highly differentiated needs that cannot be solved by external services. These internal services are always operated by a dedicated and customer-centric team. Ideally no difference exists between operating a team that is focusing on an internal or external customer.
• Exchanges: Transactional systems that minimize barriers of cooperation that drive value creation within the ecosystem.
• Functions: Supports platforms, teams and functions on specific topics (HR, finance, legal, communications, marketing, etc.).

The key ingredients of the ecosystem are the teams that offer services and products to other teams within the ecosystem and/or to end users. Teams operate like small startups but have full autonomy to develop, prototype and test ideas with support from the entire ecosystem. Accountability is created by having clear, agreed upon objectives and measurable targets. As they fail or succeed, the teams are readily started, stopped, split or merged in order to maximize learning and success rate for the ecosystem as a whole. The accountability, clarity and flexibility make teams truly committed to achieving customer value by being close to the market and being able to quickly shift focus in changing market dynamics.

Leaders nurture culture

A relatively small leadership team exists with the main purpose of nurturing a common culture for the ecosystem, decrease barriers of cooperation by developing governance and to set a compelling vision and strategic priorities that align the ecosystem. Examples of governance mechanisms on which market-oriented ecosystem leaders outperform are performance accountability, idea generation, talent pipeline, information sharing and overall collaboration.

Over time as companies develop into market oriented ecosystems, they begin to exhibit four common essential capabilities: Outstanding external sensing with strong focus on market dynamics, an almost religious customer obsession with a relentless focus on solving customers’ jobs to be done, continuous innovation throughout the ecosystem, including an ability to always question the status quo, and finally agility everywhere that allows the whole company, even at a massive size, to quickly adapt to changing dynamics.

It is clear that companies that have been founded during during the digital era of the last two decades have a clear advantage when nurturing market-oriented ecosystems. However, there are examples of older companies and parts of larger companies that are transforming themselves into market-oriented ecosystems.

How do they do it? There are three key ingredients: establish a bold yet compelling long-term vision, transform step by step, and always act with a generous mindset. The journey will be long, revealing and tough, but the good part is that you will harvest the low hanging fruits along the way and find plenty of value while doing so.

Want to learn more about market-oriented ecosystems? We recommend two books that offer detailed introductions into the operating model: ”Reinventing the Organization” by Yeung and Ulrich (2019) and ”Future Legends” by Krings-Klebe, Heinz and Schreiner (2017).