Everybody’s talking about … Business Ecosystems

6 June 2014 by Rebecca in Business and finance

We all know what business is and most of us have at least a vague ‘High School Biology’ idea what an ecosystem is but is there any merit in putting them together or is it just another example of a lame metaphor being stretched, pulled, plucked and pinned to make it applicable to business?

Where did it come from?
The term business ecosystem was coined by James F Moore in an article titled ‘Predators and Prey: A New Ecology of Competition’ which appeared in the Harvard Business Review in 1993.

The article won the McKinsey Award for best article of the year, no doubt encouraging Moore to write a whole book on the subject – The Death of Competition: Leadership and Strategy in the Age of Business Ecosystems.

But what does it mean?
According to Moore a business ecosystem is, ‘an economic community supported by a foundation of interacting organizations and individuals – the organisms of the business world. The economic community produces goods and services of value to customers, who are themselves members of the ecosystem. The member organisms also include suppliers, lead producers, competitors, and other stakeholders.’

A biological ecosystem is made up of various species, the relationship between those species, the health of the species and how they interact with and affect each other, as well as how they are affected by the environment etc. Business ecology is supposedly similar, only the species are customers, markets, products, processes, businesses, stakeholders and governments.

However, as with most business jargon when you really think about the phrase or term it almost always states the obvious. Business by definition is a collection of people, processes, resources and other businesses that come together to create value and deliver a product or service. Sure, it may be marginally similar to a biological ecosystem which explains a community or network of living organisms and non living components that interact as a system but it’s tenuous at best.

Moore does his best to extend the metaphor by urging business to seek ‘symbiotic’ relationships and to ‘coevolve’ both in terms of their capabilities and roles but also in terms of their environment and other businesses. He stresses that, ‘the particular niche a business occupies is challenged by newly arriving species.’ Well no shit Sherlock!

Where can I find a business ecosystem?
Initially you could find this little nugget of wisdom in mainstream business but numbers of executives willing to look like a muppet are dwindling. Today the term has retreated to the rarefied atmosphere of IT where the term itself has coevolved and become widely adopted by the high tech community. A shift greatly assisted by economics professor J Bradford DeLong’s explanation that ‘business ecosystems’ describe ‘the pattern of launching new technologies that has emerged from Silicon Valley’.

He went on to define business ecology as ‘a more productive set of processes for developing and commercializing new technologies’ that is characterized by ‘rapid prototyping, short product-development cycles, early test marketing, options-based compensation, venture funding, early corporate independence’.

On one hand this redefined interpretation of business ecology is certainly more definite and potentially useful to at least some parts of business but what the new definition of business ecology actually has to do with the accepted understanding of either business or ecology is less obvious.

Are there any ways I can make use of the term?
Not many! Because of the change in meaning over time it’s probably safer not use it at all. Besides it’s just pretentious!

Business by definition is the coming together of suppliers, distributors, customers and processes as well as the navigation of competitors, regulators and governments to deliver value. Most people in business already know that so giving that a new name beyond ‘business’ seems completely unnecessary.

That said, if your ethical compass is more than marginally off true north and you want your business to look a little ‘greener’ that it really is then it may be a useful phrase to hijack!

While some environmentalists have used the term as a way to talk about business sustainability and the environmental impact of business rather than a metaphor to describe the increasing complexity of relationships inside and outside business other environmentalists believe the use of the word ecosystem is just a smokescreen and a copout. Instead of taking environmental concerns seriously many believe that the use of ‘business ecosystem’ simply allows business executives to pretend they lie awake at night worrying about the polar ice caps when all they are really doing is cashing in on the environmental and sustainable gravy train.