Industry Ecosystems
“Ecosystem” is a funny word to use when talking about strategy. Historically, the term has been used to talk about natural ecosystems. So how can we use that understanding for a better sense of how our strategy can work?
In nature, one of the key concepts we can use to understand ecosystems is a dynamic model of flows.
Small creatures eat plants and other small creatures. Bigger carnivores eat those creatures, and so on. Every bit of the ecosystem is somehow connected to other bits and captures energy and transforms it into life.
In business, we also see these types of flows.
Suppliers feed downstream customers, who may in turn have other customers, and so on. At times, we don’t always think about how the little bits add up to success or failure for the whole system. We are appropriately thinking about optimizing the effectiveness of our part of the system. We can, however, step back and look at the bigger picture, and gain some very useful insights.
Taking a step back from most industries starts with recognizing the need being served.
By need, I don’t just mean desire – I mean the functional or psychological reason why customers require a product or service. The need for petroleum is not gasoline or even fuel, it’s energy. Similarly, the need for telephone service is communication. These needs are important because without them, your product or service cannot exist. They are also important for understanding why your product or service is chosen to serve a particular need.
For example, we use oil for fuel to get energy not because it’s so much better than, say, honey.
We use oil because it’s fundamentally cheaper to obtain and convert to a usable form for energy production. If you are in the oil business, you are obtaining and converting oil into a convenient source of energy. When that becomes less convenient or more expensive, you’ll see a fundamental shift in your markets, as customers adapt.
This is exactly the sort of thing we see in natural ecosystems.
Where I live, as the weather gets cold, mice seek any warm space they can squeeze into. If you have an older house – as I do – this means cold weather seems to produce an explosion of mice. The natural consequence of this is my household is a bonanza of mice for my cat. He loves this time of year, because the new mice are naturally less clever about hiding in a house. That makes them easy prey.
If that sounds like your industry, there’s a reason for it.
Rising oil prices, tariffs, or falling capital costs may cause your market to experience new infestations of unfamiliar competitors. But, just like the mice, they may be easy pickings for a prepared player. I’ve seen such changes cause waves of new players, and often, the carnage is just as spectacular as that caused by my cat.
The interesting thing about this industry ecosystem analogy is that it points to workable strategies that lead to success and survival.
First, swarming into a market with lots of other new players is more dangerous than you might think. It pays to look about for a niche to occupy to survive and thrive in the initial spasm of growth and failure that often occurs. Second, success is often easier for the more adaptable players, those who learn to shift to advantageous markets when things get difficult. Third, it’s worth asking who the predator may be in these situations, for two reasons. For one thing, maybe YOU can be the predator. We’d all rather be the cat than the mouse, in this analogy. On the other hand, being aware of the predator – if it isn’t you – really helps you to avoid becoming prey.
What does your industry ecosystem look like?
Are there mice swarming into part of it, only to be eaten by waiting cats? When you think about big changes going on in your industry, it might pay to take a few minutes to look at the big picture you’ll wrestle with in your strategic planning.
If you’d like help understanding how to use this analogy with your industry, get in touch and we’ll help you lay out a terrific map to success in doing so. Consider holding a one-day workshop on Simplified Strategic Planning.
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Robert Bradford is President & CEO of the Center for Simplified Strategic Planning, Inc. He can be reached at rbradford@cssp.com.
M. Dana Baldwin is Senior Strategist with Center for Simplified Strategic Planning, Inc. He can be reached by email at: baldwin@cssp.com
Co-Author, M. Dana Baldwin
Co-Author, Robert Bradford