What Is a Business Ecosystem and How Does It Operate?

What Is a Business Ecosystem?

A business ecosystem is a group of organizations that participate in the delivery of a particular good or service through both competition and collaboration, such as distributors, distributors, customers, competitors, government agencies, and so forth. The idea is that each entity in the ecosystem affects and is affected by the others, creating a constantly evolving relationship in which each entity must be flexible and adaptable in order to survive as in a biological ecosystem.

KEY TAKEAWAYS

•A business ecosystem is the network of organizations—including suppliers, distributors, customers, competitors, government agencies, and so on—involved in the delivery of a specific product or service through both competition and cooperation.

•The idea is that each entity in the ecosystem affects and is affected by the others, creating a constantly evolving relationship in which each entity must be flexible and adaptable in order to survive, as in a biological ecosystem.

•Ecosystems create strong barriers to entry for new competition as the ecosystem already consists of the players that allow it to function.

•The theory of business ecosystems was developed by business strategist James Moore in 1993.

Understanding a Business Ecosystem

In the 1930s, British botanist Arthur Tansley introduced the term ecosystem to describe a community of organisms interacting with each other and their environments: air, water, earth, etc. In order to thrive, these organisms compete and collaborate with each other on available resources, co-evolve, and jointly adapt to external disruptions.

Business strategist James Moore adopted this biological concept in his 1993 Harvard Business Review article "Predators and Prey: A New Ecology of Competition", in which he paralleled companies operating in the increasingly interconnected world of commerce to a community of organisms adapting and evolving to survive. Moore suggested that a company be viewed not as a single firm in an industry, but as a member of a business ecosystem with participants spanning across multiple industries.

Like natural ecosystems, the firms involved in business ecosystems compete for survival with adaptation and sometimes extinction.

Advances in technology and increasing globalization have changed ideas about the best ways to do business, and the idea of a business ecosystem is thought to help companies understand how to thrive in this rapidly changing environment. Moore defined the business ecosystem as follows:

In effect, the business ecosystem consists of a network of interlinked companies that dynamically interact with each other through competition and cooperation to grow sales and survive. An ecosystem includes suppliers, distributors, consumers, government, processes, products, and competitors. When an ecosystem thrives, it means that the participants have developed patterns of behavior that streamline the flow of ideas, talent, and capital throughout the system.

Ecosystems and Competition

Ecosystems create strong barriers to entry for new competition, as potential entrants not only have to duplicate or better the core product, but they must also compete against the entire system of independent complementing businesses and suppliers that form the network.

Being a part of a business ecosystem provides mechanisms to leverage technology, achieve excellence in research and business competence, and compete effectively against other companies. Some other goals of a business ecosystem include:

•Driving new collaborations to address rising social and environmental challenges

•Harnessing creativity and innovation to lower the cost of production or allow members to reach new customers

•Accelerating the learning process to effectively collaborate and share insights, skills, expertise, and knowledge

•Creating new ways to address fundamental human needs and desires

It is for these reasons that in today's rapidly changing business world, a company creates its own ecosystem or comes up with a way to join an existing ecosystem by providing an advantage that is currently lacking in that ecosystem.

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