A little over a year ago, I was in a board meeting of a large consumer-based financial services firm. The CEO was sponsoring a workshop on the future of payments – its dizzying array of emerging new standards and technologies as well as the dark horse disruptive potential of blockchain technologies. He recognized that the “same old, same old” methods of engaging with his customers were changing. He was passionate both to catalyze and to align his board around a new direction, embedded in a much broader business ecosystem with the implications of re-thinking what he needed to do and how to do it. He wanted to start with a re-think of his 3-5 year strategic vision which framed the company’s intent of how they engaged with customers, stakeholders and markets. “Fine,” said one of the non-exec board members, “but do it quickly because, after all, the vision is all semantics anyway.”
Well, that got my attention. After all, I reminded them all that, “semantics are all we’ve got.” As I’ve written about it previously with a friend (Vince Kasten) in the book “Get it Done: a Blueprint for Business Execution“,
a fundamental challenge many face in attempting to drive execution is getting the “semantics” aligned across different stakeholders who may use the same “words” but understand, mean and execute on them very differently.
No surprise. How many times have you observed, or uttered, the importance of “building a shared language” among your teams not only to be aligned in terms of “what” to do but also in “how” to do it. (Reminds me of the sage saying, “the more things change, the more they stay the same.”)
The impact of my interruption?
When we explored, and demonstrated, that every word had different operational – and frankly, financial – implications, we took the time to unpack each word that made up the vision to ensure that the whole team was aligned.
We ended up spending the next several hours re-casting the “semantics” in a way that drove alignment around how both to “make sense” and a framework to “take action” on new challenges and opportunities that the emerging payments ecosystem will bring to pass.
As the board member at the end of the session put it, it was important that we had gone slowly… to enable us to go faster by being more effectively and pragmatically aligned.
The same lesson is valid, I believe, for any attempt to build a new and shareable, language. And, as many of us know, one of the most important, emerging “memes” around our quickly shifting competitive landscape is that of business ecosystems.
With that in mind, the purpose of this post is crisp: to re-state the definition of a business ecosystem – and unpack each of the key words within the definition. Why? Because words matter. And getting clarity, and a shared understanding, of how to “make sense” of them – as many of us have experienced time and time again – will result in us being able to “take action” on them more effectively and consistently.
We’ve already observed that tomorrow’s competitive landscape will be framed less by industry giants than among ecosystem-centric business models. So, again, what are these ecosystems? They are methods to orchestrate capabilities from diverse organizations to capture new sources of value.
Let’s not skim over this definition. Instead, let’s unpack the key words or phrases within it to suggest the richness of the definition and the relevance it has on businesses who seek to identify and capture new sources of value, recognizing that there exists a new competitive logic based on the interplay of digital technologies, consumer expectations, regulatory shifts and business model innovation.
Business ecosystems are methods to orchestrate capabilities from diverse organizations to capture new sources of value.
Now, let’s deconstruct this definition:
- “Methods to orchestrate capabilities” This phrase refers to the observation that different types of business ecosystems exist. Business ecosystems are similar in principle. But, to paraphrase what Tolstoy once said about families, they are similar in unique ways. It is critical to understand what makes them different. They are all centered around capturing new sources of value. As we’ve described elsewhere, explosive value has always and will always coming from overcoming marketplace friction (e.g., resulting in extra-costs or inconvenience), breakdown (e.g., the costs – whether economic, social or political – are too great to be borne by any particular organization; this is where public goods requires private sector innovation), or non-consumption (e.g., whether the result of insufficient alignment between economic return and demand or mis-alignment between offering and relevance). However, the interesting issue is *how* they overcome friction, breakdown and/or non-consumption. What their revenue model is, how they allocate value, how risks are managed and the degree to which the various organizations that make up an ecosystem are “locked-in” provide a structured way to frame what these differences are and which may or which are definitely not relevant to you. So, the upshot here is that patterns of business ecosystems exist; insight into what these patterns are and what shapes the different business ecosystems that reflect them, are important to figure out which are or are not relevant to you.
- “Capabilities” Capabilities consist of assets, processes, or skill-sets that create the value that you realize. Many of us know the classic Pareto 80-20 rule applied to various aspects of business. Well, it nicely “fits” with what we call the “new 20%” – whereby 20% of a new set of capabilities will be critical to capture 80% of your new sources of value. The point? This 20% will likely be different than those capabilities that have the foundation for your current sources of value. So, this part of the definition unpacks into a rich set of discussion and critical question of what *are* or *will be* your “new foundations of value” – as a CEO of a major insurance company put it once – your new 20%? Quick hint: It will *not* be the same as your existing 20% – raising real considerations of how to migrate to your foundations while mitigating the risks while doing so.
- “New sources of value” We know that different types of stakeholders care about – or value – different things, both within and outside your business. Just to take one example, executives in charge of sustainability – whether at Nike, Boeing, CitiGroup, Caterpillar, or wherever – tend to define value in terms of reducing a company’s carbon footprint, among other sustainability-sensitive ways. Executives responsible for public relations and marketing tend to define value in terms of brand equity and customer satisfaction. Other executives, from other industries, such as healthcare, define value other ways: in terms of clinical outcomes or population health measures, for example. Each and all of these motivate people to act in ways that align with what matters, and how they define value; after all, as the adage goes, you get what you measure. And, each of these *is* measurable. All of these reflect a type of value that motivates behavior of the folks who care about them. Each of these reflects a different unit of value – let’s call it a “currency”. Consequently, each of these reflect a different type of value – or currency – that is meaningful (important to people), material (can be measured) and motivational (gets people to act in certain ways). As we have written elsewhere, If motivation is driven by different types of value that matters, then don’t we need to have a common way to figure out: a) what *does* matter and b) how to get more of it to those who care about it? Ecosystems inherently require the orchestration of different types of organizations to capture new sources of value. Well, many of these different types of organizations are motivated by different types of “value.” Hence, figuring out how to align different types of folks requires insight into what matters – what different folks value.
In short. Business ecosystems has a simple definition, but one with profound implications as you unpack what the key terms and phrases within it mean, and some of the implications they entail. The lesson? Going slow over what this definition strategically means and operationally entails will help you go fast after you wrestle through the implications that it tees up.