We have a bad habit of saying “take a look at what Google or Facebook are doing” and trying to do the same thing, which is very bad advice.
For our latest “What I’ve Learned…” interview at OpenChannel, we sat down with Michael G Jacobides, the Sir Donald Gordon Chair of Entrepreneurship & Innovation at London Business School, where he is Professor of Strategy. He is Academic Advisor to the Boston Consulting Group, Visiting Scholar at the New York Fed, and a Visiting Fellow at Cambridge. A frequent keynote speaker, at events such as TEDx and the Global Drucker Forum, he advises start-ups and established firms across Europe, the US and Asia. Michael provides thought leadership with consultants such as McKinsey, IDEO, Accenture, PwC and Deloitte with corporations such as Santander, Helvetia, Zurich, CS, Airbus, Lufthansa, Vodafone, Nokia, DeBeers and Burberry. He has worked with the UK parliament (on the future of financial services), the European Council (on innovation in Europe) and has spearheaded RedesignGreece. Further, he served on the Global Agenda Council of the World Economic Forum, where he is the Academic Lead on the Digital Ecosystems project, and has presented in the Davos Annual meetings. Michael’s ecosystem strategy leadership is sought after around the world, and he sat down with us to share what he’s learned along the way…
OpenChannel: How does ecosystem strategy differ between large incumbent enterprises and smaller growing companies? Do the same principles apply?
Michale Jacobides: If you look at large incumbents, their challenges are often bigger than the challenges at smaller companies because large companies can lack the ability to reorganize easily and being nimble. On the one the hand, some large firms are very sophisticated and may be able to take advantage of their established position.
So the irony is, being an incumbent with existing structures is something that can slow you down, while at the same time can provide significant advantages.
An advantage for larger organizations is that an ecosystem is driven by a company’s ability to provide something of value to outside partners. That can be a customer relationship, a suite of products, or anything that partners will value.
In exchange it allows an organization to expand by getting additional business from their existing customers, leveraging existing data or customer insights, and ultimately leveraging the access and trust they already have with customers. This is what gives large incumbents an advantage.
On the other hand, if an incumbent has customers that are unhappy in the relationship, for example of the customers feel “locked in”, that’s not good news. An incumbent must not only have they relationship, they have to have some goodwill in order to leverage that relationship
Sadly, some large companies don’t understand where they really have an advantage versus where they have customers that are locked in, and the moment those customers have the choice of moving elsewhere, they will.
OC: How does a company know if their ecosystem strategy should be more open, managed, or closed?
MJ: It’s important to understand that a company’s choice is going to change over time. Usually, what companies do is keep an ecosystem open because they want to attract a lot of partners.
There’s a lot of rhetoric around “open”, and I think that to some extent it’s PR rather than reality. Open ends up not exactly being open, where there’s a combination of things that are open and things that are closed.
There’s almost a over-optimism and excitement with anything open, and if you look at the evolution of ecosystems that are truly open, it’s often not the right way to organize. It has advantages, but unfortunately structure is often required to decide which way and company’s technology goes.
So there are two separate problems that exist when things are entirely open. One It is that if you are a company that can decide to have things truly open, you relinquish control. The other is, even if you forget about control, the direction of technology can become difficult when there’s no single captain of the ship.
Most ecosystems related to structures that are modular, which means that there is a need for deliberate choices to be made. Without that effective governance, it’s going to be difficult to have a consistent direction.
I think that you will find most communities are managed in some way. Ecosystems tend to be much less open than they are advertised to be. There’s a good survival reason for this and it’s not just because enterprises want control, but in technology driven markets, you need a way of establishing direction.
OC: What are the most common mistakes you see companies making when transitioning the ecosystem economy?
MJ: One of the things I think is a mistake is, we have a bad habit of saying “take a look at what Google or Facebook are doing” and trying to do the same thing, which is very bad advice.
This is mixing up cause and effect. The very fact they are Google or Facebook allows them a leeway that others do not have. This should not be the basis of a strategy that is going to work for any other company that is struggling to figure out how they should grow.
There is an overuse of examples and sometimes, people don’t even know what the right analogies are. That is because they lack an understanding of why they want an ecosystem in the first place?
For instance, the excitement with Uber is saying it’s the new Facebook. But we didn’t realize that there are very low switching costs for both drivers and customers. As a result, if Uber doesn’t make money now, it is doubtful that it is going to be making money in droves later on.
I see the wrong analogies, wrong stories, wrong motivating factors, and a general lack of understanding of the different types of platforms and ecosystems, and how these can be connected to success.
OC: What ecosystems or platforms are you impressed by?
MJ: One example fresh in mind is a large and growing Telco in Europe, I was working with them last week in Madrid. Their ambition is to become the digital hub for their customers, and it is refreshing to see how a growing Telco is reimagining what the role of the Telco firm can be.
Their ecosystem strategy is providing customers access to all of the different content that they want, regardless of what the device is, and then being able to manage the interface between the customer and the content. This makes the Telco a true aggregator of experience, and through that experience they can become a digital hub for the home and more.
Then you see firms that are able to broker new ecosystems, for example mobility companies like Velocia, a company that works with a number of different players accross different cities to promote the right type of mobility, or automobility, to transform our daily experience.
New ecosystem in general are going to be a fun area to watch. There are going to be things that work, and there are going to be things that don’t work, and we’re also going to see some extraordinary people who help revolutionize the way we consume products and services.
Understand Your Ecosystem Strategy
We want to thank Michael for taking the time and sharing his deep expertise. If you want to learn more, you can check out Michael on Linkedin, Twitter and we highly recommend reading his publications.