The Ecosystem Era: Beyond Markets and Hierarchies
For decades, business strategy has been viewed through the lens of a firm vs. industry battle or a buyer vs. supplier negotiation. However, as digital platforms and complex global networks take center stage, these traditional models are proving insufficient. A foundational study in the Strategic Management Journal, “Towards a theory of ecosystems,” by Michael G. Jacobides, Carmelo Cennamo, and Annabelle Gawer (2018), provides a new framework for understanding the ecosystem—a distinct organizational form that sits between the open market and the rigid hierarchy.
What is an Ecosystem?
The researchers define an ecosystem as a set of actors characterized by multilateral, nongeneric complementarities that are not fully controlled by a central hierarchy. Unlike a traditional supply chain where a lead firm (like an automaker) dictates exactly what every supplier must do, an ecosystem allows independent firms to coordinate their efforts through shared rules and standards while maintaining their own autonomy.
The Three Pillars of Ecosystems
- Unique Complementarities: These occur when components essentially require each other to function or maximize value, such as a specific app requiring a specific operating system.
- Super modular (Edgeworth) Complementarities: These occur when more of ‘A’ makes ‘B’ more valuable. For example, as more developers build apps for a platform, the platform becomes more valuable to users, which in turn attracts even more developers.
Managerial Implications: How to Win in an Ecosystem
- Choose Your Governance Wisely: Managers must decide whether to rely on the open market, build a vertical supply chain, or cultivate an ecosystem. The right choice depends on the level of coordination needed. Ecosystems are best when you need partners to innovate around your core product but don’t want the burden of managing them as employees or captive suppliers.
- The Recruiting Conundrum: Success in an ecosystem requires recruiting high-quality partners. However, the study identifies a strategic trade-off: the more you “lock in” partners with non-fungible investments, the easier it is to align their efforts—but the harder it will be to recruit them in the first place, as they may fear being trapped.
- Balance Control and Autonomy: Hub firms must learn the art of “smart power”—managing the standards and interfaces without stifling the entrepreneurial energy of their members. If a hub exerts too much control, the ecosystem risks becoming a rigid, less innovative supply chain.
Conclusion: A New Strategic Canon
The work of Jacobides, Cennamo, and Gawer (2018) moves strategy from a focus on owned resources to a focus on orchestration. In a modular world, wealth is created not just by what you own, but by your ability to design a structure where diverse partners can find value in working together. By understanding the psychological and structural mechanics of ecosystems, leaders can build organizations that are as resilient as they are innovative.
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