Networks and ecosystems are key cooperative strategies in business. Networks involve formal partnerships between firms to deliver value, while ecosystems are broader, more fluid communities of players interacting around shared innovations. Both enable firms to focus on core strengths while accessing complementary capabilities.

These structures drive innovation by facilitating knowledge sharing and co-creation. Focal firms often control platforms that underpin ecosystem interactions, while niche players and complementors fill specialized roles. Effective management requires assessing positioning, orchestrating relationships, and adapting as conditions evolve.

Business Networks and Ecosystems

Defining Networks and Ecosystems

• Business networks are sets of connected firms that form cooperative relationships to efficiently deliver value to end customers
  • The network members work together in a coordinated fashion
• Business ecosystems are broader than networks and include firms, customers, complementors, suppliers, and other stakeholders
  • These players interact in a dynamic way around a shared set of technologies, knowledge, or skills
  • Ecosystems co-evolve capabilities around innovations
• Networks tend to have more defined, formal structures while ecosystems are more fluid, self-organizing communities

Comparing Networks and Ecosystems

• Networks are typically more narrowly focused on delivering specific products or services through formal partnerships
  • Example: An electronics component manufacturer may have a network of suppliers, assemblers, and distributors to produce and sell its products
• Ecosystems are more expansive, encompassing a wider range of players and interactions beyond direct partners
  • Example: The Android mobile operating system ecosystem includes Google, device manufacturers, app developers, mobile carriers, advertisers, and users

Value Creation in Networks and Ecosystems

Enabling Focus and Access

• Networks allow firms to focus on core competencies while gaining access to complementary assets and capabilities of partners
  • This enables delivery of higher value to customers
  • Example: A fashion brand can focus on design and marketing while partnering with manufacturers and logistics providers
• Ecosystems provide access to a broad range of resources and knowledge that a single firm may not possess
  • Firms can tap into the capabilities of complementors and customers to drive innovation
  • Example: Apple's iOS ecosystem gives it access to millions of third-party app developers who expand the functionality and appeal of iPhones/iPads

Driving Innovation and Learning

• Innovation spreads more rapidly through networked firms who learn from each other
  • Knowledge sharing and technology diffusion is enabled by network connections
  • Example: Toyota's supplier network facilitates sharing of production best practices and quality improvement techniques
• Ecosystems provide an environment for co-innovation and co-evolution of capabilities around new products and services
  • Firms develop new offerings in conjunction with complementors
  • Ecosystems enable faster innovation by distributing costs/risks and providing access to diverse knowledge bases
  • Innovations can be rapidly scaled through ecosystem adoption
  • Example: The Internet of Things (IoT) ecosystem brings together firms in semiconductors, sensors, networking, analytics and more to create smart, connected products

Players in Networks and Ecosystems

Focal Firms and Keystones

• Focal firms (or keystones) are central, influential players in networks/ecosystems
  • They provide key assets, set governance rules, and shape evolution of the system
  • Examples include Walmart in retail, Microsoft in PC software, Apple in smartphones
• Focal firms often control "platforms" that underpin ecosystem interactions
  • Platforms are foundational products, services, or technologies (operating system, marketplace, payment network, etc.)
  • Examples: Amazon's e-commerce platform, Visa's payment processing platform, Google's Android OS

Niche Players and Complementors

• Niche players leverage competencies of focal firms to develop specialized capabilities and offerings
  • They fill important roles but have less influence over network/ecosystem direction
  • Example: A small precision machining shop in an aerospace manufacturer's supply network
• Complementors provide products/services that expand the value of focal firm offerings
  • Examples: App developers in mobile OS ecosystems, third-party sellers on Amazon, accessory makers for game consoles
• Complementors rely on focal firm platforms but also help increase value and lock-in of those platforms for users

Suppliers, Distributors, and Customers

• Suppliers provide raw materials, components, or services to firms in the network/ecosystem
  • Their performance is critical to the overall functioning of the system
  • Example: Semiconductor suppliers to the electronics industry
• Distributors and resellers help transfer products to end customers and provide customer access/support
  • They expand reach for focal firms but may also wield power through customer relationships
  • Example: Mobile phone carriers that distribute handsets and connect customers
• Customers provide the ultimate demand and revenues that sustain the network/ecosystem
  • Their needs and feedback guide ecosystem evolution and innovation
  • Example: Enterprise IT departments that drive requirements for tech vendor ecosystems

Managing Networks and Ecosystems

Assessing Power and Positioning

• Firms should assess their centrality and power in networks, using positioning to gain access to knowledge flows while protecting core assets
  • Central firms have more influence and ability to orchestrate the network
  • Peripheral firms may have access to more diverse knowledge but less control
• Measures of centrality include degree (number of connections), closeness (distance to all others), and betweenness (serving as a bridge/gatekeeper)
  • Example: A firm with high betweenness centrality can control information flows and potentially isolate competitors

Orchestration and Governance

• Effective network orchestration requires defining roles, stimulating knowledge sharing, and coordinating activities of partners
  • Relationship management is critical to build trust and maintain cooperation
  • Example: Toyota orchestrates its supplier network through association structures, supplier support centers, and learning groups
• In ecosystems, firms must decide whether to develop closed, proprietary platforms or open, shared platforms
  • Open systems tend to attract more participants and innovation but offer less control
  • Example: Apple maintains a closed iOS ecosystem while Google has a more open Android system
• Ecosystem leaders must carefully manage tensions between cooperation and competition
  • Attracting complementors while capturing value requires balancing openness and control
  • Example: Amazon must convince third-party sellers to use its marketplace while also competing with them through its own offerings

Monitoring and Adaptation

• Firms need to actively monitor ecosystem evolution and adapt roles and strategies as conditions change
  • Power dynamics may shift and new competitive threats or opportunities emerge over time
  • Example: IBM's role in the computer industry shifted from dominant mainframe producer to IT services provider as the PC and networking grew
• Ecosystem strategies may need to evolve in response to technological disruptions, shifting customer needs, or regulatory changes
  • Firms may reposition in the ecosystem, build new partnerships, or exit
  • Example: Netflix shifted from DVD-by-mail to streaming video as broadband diffused, forging new content partnerships
• Scenario planning and ecosystem mapping are tools to help firms prepare for alternative futures
  • Identifies uncertainties, plots actor moves, and explores potential responses
  • Example: A financial services firm may map fintech ecosystem scenarios to guide partnership and acquisition strategy