Business Ecosystem: Fundamental Rethinking of Economics

The topic that is fairly unexplored and requires further investigation is competition between ecosystems. The earlier traces of the topic have links with Moore’s article under the title of “Predators and Prey: A New Ecology of Competition”. In 1993 Moore compared ecosystems in biology to ecosystems in business to claim that companies do not operate in an empty space, but in a more complex environment (ecosystems). Moore emphasizes that there is a need for competition between business ecosystems, similar to ecological ones. Fittest survive in both biology and business (Moore, 1993). This topic explores what the business ecosystem is, how it can help businesses to improve performance and what type of strategic models and theoretical considerations are required to understand the concept of business ecosystem.

Understanding the difference between ecosystem and business ecosystem

The term Ecosystem first appeared in 1935 when Tansley used the term for the first time to highlight ‘vegetational’ concepts. Tansley discusses different uses and abuses of the term in different contexts. The author portrayed ecosystems as a coherent whole that interact through energy flow and material circulation, and then maintain a relative equilibrium for a long period with little variation (Tansley, 1935). However, in 1993, “ecosystems" entered the realm of social sciences when Moore (1996) a renowned economist, published "Predators & prey: A new ecology of competition" in the Harvard Business Review. The use of the term was examined by researchers within the context of different fields to determine its relationship with humans and their associated work. He applies the biological ecosystem approach to the business sector and defines the business ecosystem as an economic unit and an organism in business that is based on the interaction between individuals and organizations (Moore, 1996). However, some of the researchers argue on these notions to limit the term to business fields only. Hakansson and Snehota (1995) believe that there is no clear boundary or center to a business ecosystem. Many small businesses are part of a business ecosystem. Thus, it becomes a unique and larger ecosystem. Its boundaries can be determined based on the context it is either referred to or used for. Hence, the discussion indicates that this definition is not binding because a company can exist in multiple business environments simultaneously.

The concept of a business ecosystem

In 1993, Moore critically examined the role of the ecosystem in the business context comprehensively and brought different considerations into notice that are still debatable in business circles. Moore expanded his views and explained the concept of the Business Ecosystem. He used the term as an umbrella to associate different aspects of business management. The application of the term enabled researchers to examine various business factors in association with this term. According to Moore, a business ecosystem includes "risk-takers", financial institutions, trade unions, and governments. It can also include direct suppliers, production businesses, sales channels, and customers. The support system, which includes investors, government departments, and research institutions as well as associations representing consumers or suppliers, can be broken down into a core ecosystem (Moore, 1996).

Moore further discussed that the business environment developed using the natural ecosystem model transcended industry boundaries. The overall system development model is for win-win purposes. The purpose of the business ecosystem model is to maximize the benefits for all the companies in their concerned business fields. It can include internal business activities or a group of businesses (Moore, 1996). Similarly, Iansiti and Levien (2004) further discuss the parameters and benefits of using a business ecosystem to determine the scale of innovation, sustainability, and improved business strategy for long-term benefits. The expansion of the term and its applicability in a wider spectrum opens new doors to apply the term ‘business ecosystem’ in almost every business field to maximize business productivity.

The concept of a digital business ecosystem

Power and Jerjian (2001) emphasize the importance of the Internet. The global network of businesses that interconnect using the internet can be identified as a new form of the business ecosystem. It is composed of non-biological elements in the environment. Prencipe, Corallo, and Passiante (2007) argue that the business ecosystem can also be described as a collection of entities with different interests. These entities can exist together in a community that serves their interests. Similarly, Power and Jerjian (2001) define business ecosystems as a system that reflects the characteristics of natural ecosystems. This means that the World Wide Web is an organic habitat and virtual residence on which many commercial ecosystems depend. An internet site is the expression of the entire business ecosystem. According to Power and Jerjian’s understanding, the value network has had significant success in terms of speed and quality of value creation.

Business ecosystem and industrial integration

Porter (2009) believes that industrial integration is defined as the geographic concentration of an industry and the vertical or horizontal interconnection among enterprises. An industrial cluster is an association of companies or institutions that are related and located within a given geographic area. Hakansson and Snehota (1995) note that this is the case for the Detroit automobile industry cluster in the United States, Toyota's automotive industry cluster in Japan, Silicon Valley's high-tech industry cluster in Silicon Valley, and the semiconductor industry cluster in London's biomedical cluster, etc. The business ecosystem does not have a clear center or boundary.

Haier Group, an ecological brand of Internet of Things, established R&D centers, industrial parks, manufacturing centers, and sales centers in over 30 countries. It also built a localized network. Xiaomi Technology Co., Ltd., a rising star, established the largest consumer IoT platform. It has now reached more than 100 countries. Zhong and Cui (2009) stated that the business ecosystem is more compatible with modern business characteristics and more conducive for the improvement of modern businesses than the value networks and clusters perspective. The link between the natural ecosystem and business ecosystem as Tian (1997) argues is similar to each other. In other words, it can be clearly stated that the characteristics of a business ecosystem are very similar to natural ecosystems.

The business ecosystem is a concept of adaptability that can be used in any field where it fits in. Real and Brown (1991) argued that complex adaptive systems also include global economic systems, human brains, and ecosystems. This means the integration of material and cognitive concepts to improve the economic system. The business ecosystem contributes to the development of particular human psychology that plays a significant role to identify business risks to improve economic productivity. However, this whole process is complex and requires careful consideration. Mitleton-Kelly (2003) discusses these concepts comprehensively and points out that, complex adaptive systems have ten basic characteristics. These characteristics include; Coevolution, Exploration-of-the-space-of-possibilities, Historicity, far from equilibrium, Feedback, Path-dependency, Association Connectivity, Interdependence, Emergence, and Self-organization.

Seven-dimensional business ecosystem framework

Moore (1996) proposed the 4P3S seven-dimensional analysis framework in 1996. This framework analyzes seven aspects: people, place and product, process structure, shareowner, social environment, structure, shareowner, and structure. This framework as Mitleton-Kelly (2003) note is the first to analyze business ecosystems. Many scholars offer their opinions in this context. For instance, Anggraeni, Hartigh, & Zegveld (2007) suggest that the characteristics of a business ecosystem should be studied from six perspectives: corporate characteristics, corporate roles and network structure, dynamics, performance, and governance. Similarly, Tian et al. (2008) proposes a unique business ecosystem model that mainly includes seven elements comprising resources, activities, decisions, standards, roles, and business entities, as well as business models.

Systematic measurement of business ecosystem effectiveness

Iansiti and Levien (2002) were the first to suggest that the business ecosystem model should enable organizations to understand "the productivity that measures the effectiveness of the company ecosystem's transformation into innovation into a product or service". Both the writers believe this will help organizations to "measure the robustness and resilience of the organization to deal with environmental disturbances". Iansit and Levien (2004) argue that the three dimensions of "niche creative to create new niche markets for the company ecosystem" and the "niche imagination" are used to assess the health of the ecosystem. The evaluation index system of the health and well-being of the business ecosystem must be based on data collected from companies.

Hartigh, Tol, and Visscher (2006) correctly adjust the measurement indicators that Iansiti and Levien specify to shift productivity away from asset accumulation and network resources. According to Hartigh, Tol, and Visscher (2006), the analysis of the robustness of a company is done by using different dimensions involving liquidity, bankruptcy, connectivity, centrality, and connectivity. Two aspects of diversity or solvency are used to analyze niche creativity. The analysis of the five aspects of partner and network health includes the ratio of assets, solvency, and total asset growth rates. Similarly, the three aspects that include market predictability, partner diversity, and return on assets, are more beneficial to evaluate the health and well-being of the business ecosystem.

Understanding and monitoring market economy

Rothschild’s (2004) ‘Economy as business ecosystem’ calls for fundamental rethinking of economics. Rothschild argues that the best way to understand a market economy as a living and evolving ecosystem is to view it in its existing form. Hartigh, Tol, and Visscher (2006) present a health measurement tool for business ecosystems. This instrument is demonstrated in the Dutch IT sector and allows managers to monitor financial and network health in their business ecosystem. It can track the performance of different cross-sections of the ecosystem as well as individual ecosystem partners. It is useful in benchmarking and improving the performance of business ecosystems, as well as in partner engagement and business ecosystem governance.

Corallo, Passiante, and Prencipe (2007) break the boundaries of conventional theories by combining elements from a radical new approach for the firm. This approach is based on the ecological metaphor of the ecosystem. It demonstrates how modern businesses can compete in a highly competitive market and within a technological environment. It also demonstrates how companies can influence this environment through their investments and deliberate actions.

Razavi, Krause, and Strommen-Bakhtiar, (2010) emphasize that the concept of digital business is essential to understand the improvement level in businesses. These authors attempt to give a brief overview of Business Ecosystems and to focus on the benefits and reasons for a transition towards Digital Business Ecosystems. According to these writers, it is convenient to understand growth and fall of a business using digitized process of monitoring.

Business ecosystem as a collection of businesses

Teece (2017) describes an ecosystem as an interdependent group of firms that provide goods and services to customers through a business ecosystem that uses common standards. Effective engagement of ecosystem participants is dependent on some level of ecosystem management. This includes rules and participation by other firms. The health of each firm within the ecosystem depends upon the vitality of the others. The system must be able to adapt to changes in business environments through the coordinated efforts of entrepreneurs and managers.

Deren, Gorski, and Agnieszka (2018) examine the complexity of efficiency in the business ecosystem. The writers attempt to identify the dimensions of organizational efficiency within the business ecosystem. Both writers argue that a business ecosystem is a collection of businesses that interact with each other by creating different relationships and correlations of a symbiotic nature - from cooperative to competing.

Strategic integration of the business ecosystem

Kimura and Reeves (2019) unravel the myths and realities of ecosystems. The ecosystem approach to business, despite the myths and confusions surrounding the use of the term, has led several firms to position themselves to design strategies effectively in business ecosystems. Reeves et al. (2019) denote in “How Business Ecosystems Rise” (and often fall) that often successful ecosystems fall due to their dynamic nature. Due to this reason, it is important to continuously re-assess and update strategies as ecosystems evolve.

The concept of a business ecosystem is wide and complex as Shipilov and Burelli (2020) argue that there is a need to understand the difference between platforms and ecosystems. The report suggests that businesses can choose to be one or both. Gao (2021) believes that many scholars have examined the business environment in-depth to understand its accurate application in a business environment. However, it is essential to know that the successful implementation of a business ecosystem requires an understanding of its structure and characteristics to evaluate the prospects for the future.

Experts at BCG (2022) suggest that digital platforms and business ecosystems will become increasingly popular, so they will be competing based on their governance. To help companies build their platform or ecosystem, the frameworks in this article can be used to help them systematically consider the various options and building blocks of ecosystem governance. This will allow organizations to choose the best model for their environment. The frameworks can be used by companies interested in joining an ecosystem to complement or supply. Organizations will analyze the governance model of the ecosystem and determine its effectiveness, consistency, fairness, flexibility, and ability to meet their specific needs.

Bithas (2021) characterizes modern business operations by relationships, networks, and interactions. Business ecosystems, which are a way to deliver innovation in a dynamic and highly competitive environment, are being increasingly sought after by both academic and business communities. These are collaborative networks of resource-integrating stakeholders that work together to create value and new business models. Reeves et al. (2019) argue that understanding strategic options and strategic business needs means improving the overall business ecosystem. This means one step ahead, aware of, and keeping track of the correct metrics and possible drawbacks from others who are not using business ecosystem. These initiatives help leaders either avoid or deal with probable pitfalls in the phases of ecosystem development.

Implementation and evaluation of the business ecosystem

Denning (2021) argues that there is need to know how to implement a digital ecosystem. The writer believes that this is a way to extend the boundaries of a company to include additional producers that can provide greater value to customers, and make customers active partners. Similarly, Joshi, Khan, & Rab (2021) suggest that it is essential to develop an agile and flexible operating model capable of managing all aspects of ecosystems. This includes not only the ability to continuously roll out new solutions but also the management of the entire portfolio by addressing any failures, expanding into new areas, and pivoting the focus. This requires cultural shifts.

Kukushkin (2021) examines the economic characteristics of business-ecosystems using the methodological tools of the theory market controversy. Inter-sectoral structures such as business ecosystems can sometimes cross market boundaries. However, the behavior of structural elements and participants in the business ecosystem follows certain economic rules that cannot easily be explained using other theories.

Borini and Farago (2021) contributed to the creation of an ecosystem capabilities management framework. Borini and Farago identify and map the capabilities that can be applied to managing business ecosystems. It has a dynamic capability that acts as a link between companies and the ecosystem for alignment and growth.

The theoretical concept of business ecosystems

Kukushkin (2021) examines business-ecosystems from the perspective of the theory on transaction costs. Initially, the term "ecosystem" was used to describe an environment that allows mutual existence between different biological beings. Later it was used for depicting the environment of business organizations. This is a certain environment where many antipodes interact and exist. Kukushkin believes that neo-institutional theory proves that the business ecosystem meets all classical canons; therefore, it functions as a classical business organization with similar goals and relevant tools.

Kanda, Hjelm, and Geissdoerfer (2021) denote that circular ecosystems are a better concept to describe the high degree of coordination among different stakeholders required to implement circular systems. Makarenko et al. (2021) argue that a well-developed small business ecosystem can be more resilient to external shocks and challenges; especially, in falling income cases. The presence of business ecosystem enables organizations to take advantage of development opportunities. The writers believe that the small-business ecosystem will allow a single, small form of successful small business to create new business structures that reflect all economic actors. This will increase the economic viability of small companies and maximize synergies by creating value for customers.

The meaning and scope of business ecosystems have evolved over many years. It is a ripe topic of discussion that has recently gained a lot of attention (Shin, Jung, & Rha, 2021). Refer to Figure 2 to understand the number of research articles published in Scopus indexed journals on the topic of business ecosystems by year. Studies on business ecosystems have been constantly increasing since 2005. This implies that researchers have more and more interest in business ecosystems due to globalization, increased complexity, and the digitalization of business environments. Table 2 shows the rate of journals publishing articles on business ecosystems, revealing that a variety of journals have published articles on business ecosystems (Shin, Jung, & Rha, 2021).

Meyer and Williamson (2020) emphasize the importance of strengthening ecosystems to sustain competitiveness. Meyer and Williamson characterize leveraging multi-company ecosystems as one of the new imperatives of competition. However, a contradictory view point also appears among academics and business professionals. Kimura and Reeves (2019) argue that multiple business ecosystems are blurring the boundaries between competitors and collaborators, and between producers and consumers. They emphasize that the combination of business ecosystems, big data, machine learning, and automated decision-making can help companies learn competitive advantage.

Summary

The discussion on the ecosystem in the context of business indicates that professionals have identified and emphasized its importance for business continuity, sustainability, and growth. Technological advancements have provided chances to business organizations to make a unique business ecosystem model that can help to measure their performance and competitiveness. A business ecosystem is not related to a single aspect of a business but it involves every possible part of business performance. Renowned business companies from automotive to software development industries are using business ecosystems. This suggests that the business ecosystem and industrial integration have benefited these organizations to continue this process of integration. It is productive to follow a business ecosystem framework that organizations can alter as per their business needs. The presence of a business ecosystem model ensures that organizations can continue systematic performance checks. The presence of a business ecosystem model helps organizations to understand the market economy and evaluate future changes that can affect businesses. The integration of the business ecosystem model into strategy will prove productive as researchers believe it will enable organizations to critically evaluate various aspects of the business environment.

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Business Ecosystem: Fundamental Rethinking of Economics