The Keystone Advantage: What the New Dynamics of Business Ecosystems Mean for Strategy, Innovation, and Sustainability [Hardcover]

Both "of these firms understand that their fate is shared with that of the other members of their business network. Rather than focussing primarily on their internal capabilities (as many of their competitors did), they emphasize the collective properties of the business networks in which they participate, and treat these more like organic [in italics] ecosystems [end italics] than traditional supply chain partners. They understand their individual impact on the health of these ecosystems and the respective impact of ecosystem health on their own performance...[For that reason] "a new, holistic approach to strategy is critical to an increasingly broad range of firms in our economy as they face the new set of challenges and responsibilities created by competing in business ecosystems."

How? Given the evolution of business ecosystems which are analogous to biological counterparts, organizations today, regardless of their size or nature

(1) must decide if they are a keystone or niche "player" (Please see Part I)

(2) then formulate strategies appropriate to that role (Please see Part II)

(3) and finally, establish and build on one of three "foundations of sustainable performance in a business ecosystem" (Please see Part III)

"Keystone" companies such as Microsoft, Wal-Mart, Dell, and eBay create value within their respective ecosystems which is shared with other participants in that system. More specifically, they create high-value, sharable assets; leverage direct customer connections; create and manage physical and information hubs; support uniform information standards; create, package, and share state-of-the-art tools and building blocks for innovation; establish and maintain performance standards; build or acquire financial assets for operating leverage; reduce uncertainty by centralizing and coordinating communication, and reduce complexity by providing powerful platforms.

Obviously, few organizations can be (or should even attempt to be) a "keystone" or "dominator" company. According to the authors, keystone wannabes tend to pursue two quite different: "hub landlords" (e.g. Enron) extract as much value as possible from an ecosystem or ecosystem domain without integrating forward to control it whereas "hub dominators" (e.g. Apple) integrate vertically or horizontally to manage and control an ecosystem or ecosystem domain. Most organizations will correctly a strategy as a "niche" player by specializing in capabilities which differentiate them within an ecosystem domain. "Niche players are naturally dependent on other businesses. The essential step in defining a good niche strategy is therefore to analyze the firm's ecosystem and map out the characteristics of its key stone and dominator players." (Please see Chapters Six and Seven for a complete explanation of all this.)

All organizations involved in a given ecosystem must, of course, rigorously monitor but also take an active role in nourishing that system's health so as to promote and facilitate the leveraging of an enduring and evolving core. However, it remains for keystones to provide both the vision and the leadership needed, especially in response to market design, operation, and competition. They must also facilitate and support integration, innovation, and adaptation within their ecosystem. "This is the price that keystones must pay for their privileged position at the hub of a business network and as owners of enduring assets: Keystones [in italics] must [end italics] manage the health of their ecosystems as a key business strategy. The challenge for each niche player is to decide in which ecosystem to become actively involved with which keystones to be associated in a strategic alliance.

I wholly agree with Iansiti and Levien that "We are bound together by the nature of the relationships among products, technologies, markets, and innovation. Leveraging these relationships is critical to enhance firm productivity, to protect organizations from disruption, and to enhance their ability to innovate, evolve, and adapt. This means that no firm, product, or technology can be an island: No firm can afford to act alone, and no products can be designed in isolation." Those who share my high regard for this book are urged to check out Christensen, Anthony, and Roth's Seeing What's Next: Using the Theories of Innovation to Predict Industry Change as well as Kaplan and Norton's The Strategy-Focused Organization: How Balanced Scorecard Companies Thrive in the New Business Environment.

But if you want to understand the fundamentals of WHY this metaphor works, and HOW to choose which strategy will be best for your particular business, you need to read "The Escher Cycle".

Marco Iansiti and Roy Levien describe examples of how companies have used different strategies to achieve success in the modern business ecosystem. "The Escher Cycle" explains from first principles (not just a metaphor) HOW that ecosystem came into being.

Iansiti and Levien focus on the impact that Information Technology (IT) can have on business performance. But IT is just one of the ways in which performance can be improved.

"The Escher Cycle" identifies the key activities that deliver strategic success. It shows layer upon layer how to improve skill at carrying out those activities (one means of which is through IT). And it shows how different businesses interact together to form the ecosystem that Iansiti and Levien describe.

Finally, "The Escher Cycle" shows how a business can imitate the natural flows of information and capability that circulate within the business ecosystem. It shows how a business can accelerate its own 'Evolution' within that system, and so create the ultimate competitive advantage.