Ecosystem Value

Why Ecosystems Will Be More Powerful than Value Chains

Just as mechanisation changed the operational structure of businesses, so too is digitalisation. However, many companies are not grasping the full extent of the changes required to create the greatest value going forward.

Currently, most operational designs are based around Michael Porters Value Chains, first introduced in his book ‘Competitive Advantage’ in 1985. However, as found in research digitalisation is best leveraged through an ecosystem operational model.

The key distinctions between the two that I find most notable are that:

  • Value chains operate vertically; ecosystems operate horizontally
  • Value chains connect with customers at the end of the process; ecosystems connect at multiple points from start to finish

The article focuses on two dimensions: knowledge of the end customer and business design, combining to form four business models for creating value: Suppliers, Multi-channel Businesses, Modular Producers, and Ecosystem Drivers, describing them as:

  • Suppliers – have little direct knowledge of the preferences of their end customers, and may or may not have a direct relationship with them.
  • Multi-channel Businesses – have deep knowledge of their consumers because they enjoy a direct relationship with them.
  • Modular Producers – have little direct knowledge of the end customer, and continually find ways to enhance the range of offerings.
  • Ecosystem Drivers – have the best of both worlds: deep end-customer knowledge and a broad supply base.

Whilst with the right strategy for the operational model can support a viable route to enduring success, the research claims that the prospect for creating value is greatest for companies that operate in ecosystems rather than in value chains.

However, its not about one model being the best for all companies – as the article suggests, its more about being very clear about which model you are seeking to be. This is critical to aligning to the right strategy. So as the article states: be very “sure you know your destination before setting out”.

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