The idea was introduced in the 1990s by James Moore as a new concept in strategic planning. It has since taken on a life of its own, largely driven by the early adoption of technology firms.
What makes the idea profound is that it suggests a new way of organizing economic activity—other than the construct of a firm and an industry. It represents an imperative to think completely differently about strategy.
Why business ecosystems matter?
Their importance has increased dramatically over the last few years, leaving many asking: why now?
Many talk about the impact of digital, which certainly plays a role. But digital is enabling and accelerating the shift, not causing it. The deeper reason has less to do with technology and more to do with economy.
The nature of the firm and, as a result, its structure and that of the industry, is to minimize transaction costs. The term “transactions” encompasses a wide range of activities needed to source, produce, distribute and sell goods and services, together with the administration and coordination required to undertake them efficiently.
When doing so becomes expensive and cumbersome, it makes more sense to conduct these activities within the firm — concentrating resources, owning the means of production, standardising processes, establishing value and supply chains, and developing the competencies needed to do the work as efficiently as possible.
Looking back, it is easy to see why organizing into firms has long been the most sensible thing to do.
It’s expensive to produce and distribute complex products at scale. It’s hard to orchestrate all of this activity efficiently, especially when the expertise needed to do so is rare.
Looking ahead, it’s clear this is no longer the case. Transaction costs for a surprising range of activities are dropping fast. This is where advances in digital technologies play an undeniable role.