Ecosystems have become the hottest new idea in managerial conversations today. While the previous favorite, “disruption,” posed problems and suggested despair, ecosystems are all about solutions and hope. For this reason, alone, is it important that leaders in the twenty-first century become well-versed in what ecosystems offer, and what they could mean for leadership practices in the future. Recently, four astute experts on innovation got together for a discussion about what leadership might look like in an age of ecosystems. The session was convened by Professor Annika Steiber, a noted researcher of Silicon Valley and Chinese organizational and leadership practices, and the Director for the Rendanheyi Silicon Valley Center, at Menlo College. She was joined by John Hagel, who has forty years of experience in Silicon Valley innovation, is a consultant to leaders around the world, an author, former chairman of Deloitte’s Center for the Edge, trustee of the Santa Fe Institute and founder of Beyond Our Edge LLC; Professor Marshall Meyer, Tsai Wan-Tsai Professor Emeritus of the Wharton business school, and long-time student of Chinese business practices; and Kevin Nolan, CEO of GE Appliances. What follows is the essence of what was discussed and the conclusions that emerged.
Ecosystem as the new black!
Bill Fischer (BF): Annika and John, you’ve suggested that Ecosystems are “the new black,” representing the next big fad in management conversations. Tell us more, and is it only a fad, or could it be more enduring?
Annika Steiber (AS): It does seem as if everyone today is talking about ecosystems, but, I believe, and we concluded, that it’s more than a passing fancy; there are still significant ecosystem opportunities that have not yet been addressed.
BF: Why are ecosystems such a hot topic today?
John Hagel (JH): Companies are under increasing pressure from investors to deliver greater growth, but most companies still view growth as a choice between growing internally or growing through acquisition. They miss the third option – leveraged growth through ecosystems. Leveraged growth involves connecting with and mobilizing a growing number of third parties to deliver increasing value to customers. A company can capture some of that value for itself and generate growth in revenue with far fewer resources and far more quickly than either of the traditional growth options. This growth opportunity can be generated by downstream ecosystems, covering a larger share of users’ needs, or by value generating upstream ecosystems.
Value-chains and Ecosystems
BF: Isn’t this what value-chains already do? How do you see ecosystems differing from value-chains?
AS: On the upstream side, ecosystems can create significant additional value. Most businesses today rely on internal R&D and supply chains. As the term chains implies, supply chains tend to be rigid. In a rapidly changing world with greater uncertainty, we need to focus on creating larger and more diverse supply networks that can provide much greater flexibility without sacrificing specialization. Also, on the upstream side, there is considerable potential to be gained by creating a broader network of third parties to help develop new products, and even new businesses, as product life cycles continue to shrink.
JH: Most business ecosystems today could be viewed as static, meaning that they focus on accessing existing resources through short-term transactions. There is an untapped opportunity to shift from static ecosystems to dynamic ecosystems. Dynamic ecosystems are driven by a very different goal: creating an opportunity for all participants in the ecosystem to accelerate their performance by learning faster together. The most valuable learning in a rapidly changing world is learning in the form of creating new knowledge, not just sharing existing knowledge. New knowledge can be created most rapidly through action together with others.
BF: Admittedly, “learning” is not the first thing that is mentioned when managers speak of supply-chains. What is it that ecosystems have that make this an almost instinctive characteristic of them?
JH: Achieving collaborative learning, or “scalable learning,” requires building deep and enduring trust-based relationships with others. Few companies have yet embarked on the effort to design and deploy dynamic ecosystems even though they have the potential to unleash exponentially expanding opportunities.
Companies that lead in an ecosystem age
BF: Can you give us some examples?
Marshall Meyer (MM): One high-growth ecosystem company that’s not quite a household name is Sonos. Sonos connects users with thousands of digital music sources globally via its proprietary platform that is integrated with other platforms like alarm.com. Sonos can then direct different streams of music to each Sonos-capable device in the home or the business facility. Multiple inputs, multiple platforms, and multiple partnerships embedding Sonos technology in ceiling panels, furniture, and multiplex distribution are defining their ecosystem.
BF: Was becoming an ecosystem, Sonos’s original intention, right from the start?
MM: Not exactly; Sonos began as a tech company; but, it also had an explicit goal of leading growth by using an ecosystem of music. Haier is a great example of a more traditional company that has strategically moved in the direction of ecosystems for growth. Haier’s vision of the Internet of Clothing (IoC) aims to do for clothing what Sonos does for music—to tag clothing with digitally-readable tags, and then to digitally track this tagged clothing, from its design through manufacturing, distribution, utilization, care , and ultimately disposal, with potential benefits for almost all players involved: suppliers, consumers, but especially society. The company’s ecosystem strategy has been under development for years, but an ecosystem strategy can be challenging to communicate, and easily confused as a traditional diversification strategy. A few weeks ago, Nikkei Asia ran a story under the headline, “Chinese home appliance makers focus on diversification,” which offered Haier’s “Mr. Cleare” laundry service as an example. “Mr. Cleare” is a commercial laundry business, but it also retro-fits clothing with smart tags for digitalization. It opened in December 2019, and is an integral part of Haier’s IoC ecosystem strategy. Clothes brought to “Mr. Cleare” receive digital tags to ensure they are laundered properly, allowing the new generation of Haier home washing machines to read these tags and ensure proper laundering of garments. Smart closets can also read these tags in order to organize clothing digitally. Such actions go well-beyond mere diversification, and also speak to enlisting co-creating partners to strengthen and expand the core, illustrating that ecosystems are more than mere diversification.
BF: what about mature, manufacturing businesses? Can they also build ecosystems?
AS: An excellent example of a mature, manufacturing business moving to an ecosystem strategy, as part of its business transformation, is GE Appliances. But, it is better than Kevin Nolan, GEA’s CEO, tells us the story.
Kevin Nolan (KN): In 2016, GE Appliances (GEA) became part of Haier. As a result, GEA began to practice a new management principle of establishing zero distance between our organization’s employees and our users. To make this a reality, we first had to break down the existing large organization, originally built for scaled efficiency, into smaller, user-focused units. In doing this, we also had to redistribute power from the C-suite, and be serious about sharing it with these smaller businesses, now called microenterprises. The microenterprises were then encouraged to be highly entrepreneurial and to find opportunities for growth, and truly achieve zero distance to their users. We called this first phase, the ‘microenterprise phase’, because of the internal reconfiguration that was necessary. By 2021, we were ready to enter a new phase, which we refer to as the ‘ecosystem phase’, in which we have begun to actively build external opportunities for co-creation. At this point, we are on our way to becoming the leading ecosystem player in our industry!
BF: That’s all about intentions, but what does it mean in practice?
AS: For GEA, this new phase means that the company has to learn new ways of partnering, both upstream and downstream; and, this requires a cultural transformation.
KN: We now need to better understand what arenas we wish to play in, and what our users will expect from us and our offerings. We also have to consider what ecosystems we are already involved in, perhaps without even realizing it, how we might become better at generating additional value from these relationships. On the basis of such understanding, our partnerships can be revitalized so that they, and we, can deliver a higher value to the users than ever before, in a true win-win fashion. We already see positive results from our on-going transformation and, as a result, GEA has grown more during the past five years than it did during the previous 25 years. For us, the company now competes, and leads, its industry, as we all go into an ecosystem age.
BF: John, your latest book, The Journey Beyond Fear, suggests that leadership with a positive mindset, which searches for collaborative, ecosystem partnerships, will prosper in a future where so many rivals are paralyzed with fear. How do you see this playing out?
JH: We are definitely in the age of ecosystems, even if most firms haven’t realized this yet. Ecosystems will be an important key to develop prosperous companies in the future.
AS: I agree, and few traditional firms have currently transformed their business models, or strategies, in ways that are fit for this new age. Players such as Sonos, Haier, and now GEA, are taking market-share based on strategies powered by new leadership mindsets that reflect the possibilities of emerging ecosystems. I would like to stress the importance of such top executive mindset shift. After studying GEA for one year, I concluded that the company achieved a tremendous cultural transformation between 2016 and 2021. Comparing GEA at those two time periods was as if I was observing two, very different, companies. I am convinced that this mindset shift was beneficial for the company to be able to enter the ecosystem phase of its strategic development. This would suggest that boards and top executives reading this blog need to reconsider the assumptions that they rely on for best leading their companies, formulate the new guiding principles for how work should be organized and managed, and then initiate an ecosystem approach that is based on these reconsidered principles.
Bill Fischer has an ongoing consulting relationship with the Haier Group, owner of GE Appliances.