From systems to ecosystems

by eskokilpi

In the past, the influence of external forces on business was not significant. The industrial factory was a fairly simple, isolated machine. The rest of this system was designed around the machine with tightly integrated supply chains and optimized use of coupled resources insulating the machine from shortages and stock-outs. Being efficient and productive inside the system was enough to prosper.

The assumptions of industrial management are not suited to today’s business environment. In contrast to the industrial era, when value was added primarily in the repetitive manufacturing processes, value is today created elsewhere, outside of the old industrial system. Value is co-created in the context of usage through customizable, reconfigurable and more or less unique solutions aggregated by the customer, not the manufacturer. There are no consumers any more!

The new environment is marked by conflicting constraints, variables that shift very rapidly and value creating relationships that change constantly. Linear methods of management are not effective in a complex environment.

The ecosystems approach to efficiency is not designing processes but recombining successful elements to create new versions, some of which may thrive. Global coordination arises, unplanned, from the local, responsive interaction of the elements.

The traditional management approach was to require each worker to assume a predetermined responsibility for a specific role in the process sequence. The ecosystem approach represents a different logic of organizing based on neither the traditional market nor the process. Whereas processes involve relations based on dependence and markets involve relations based on independence, ecosystems involve relations of dynamic interdependence.

Minimal hierarchy, organizational diversity and responsiveness characterize ecosystems. Ecosystems are a response to the increasing complexity of strategic horizons and short half-life of designs. To cope with the uncertainties firms see themselves and the world around them as ecosystems, where every unit, every node in the network, should engage with learning. Instead of centralized design and planning, the activities of exploration are the responsibility of the whole network. Because of greater complexity, coordination and communication cannot be planned in advance, controlled or managed hierarchically.

Authority needs to be distributed; it is no longer delegated vertically but emerges horizontally in the networked ecosystem. Under distributed authority work teams and knowledge workers need to be accountable to other work teams and other knowledge workers instead of a single boss. You need to have many “bosses”. Success at ecosystems depends on learning by mutual accountability and responsiveness. This is much more than matrix organizations or internal markets.

Management and strategy used to be about rational choice between a set of known options and variables. Under circumstances of rapid technological change, the challenge is to create openness to possible options. Management of ecosystems is about facilitating continual renewal. Organizing in ecosystems is not something you do before you can work, but work is organizing. Success is based on continuous redefinition of the organization itself. It is about recombining options and contributions in a competing and collaborating environment.

The industrial model was based on thinking alike and subscribing to the same goals. The ecosystem model is based on diversity. New forms can emerge only if the nodes of the network differ from each other enough.

Instead of focusing on whether some managers institute more efficient processes or design the division of work better than others, ecosystem theory suggests that the properties of communication and connection between people are the causes of success. What the ecosystem becomes, emerges from the relationships of its members.

Value creation cannot be understood as industrial systems any more, but as continuously developing, complex, responsive ecosystems of connected people.


Discussions around the Nokia / Microsoft ecosystem: TechCrunch. GigaOM. Scobleizer. The official Nokia blog. GigaOM. The Intel opinion. The Wall Street Journal. Asymco on the Burning Platform Strategy.

More on the subject: Consumer innovation by Eric von Hippel. Blog post by Stowe Boyd. The connected company by Dave Gray. From products to ecosystems by John Steen. Blog post by Michael Anton Dila.