Interesting article about the Rise of [Eco-systems] to create [Competitive Advantage] from Julian Birkinshaw, who is Deputy Dean and Professor of Strategy and Entrepreneurship at the London Business School.

New Rules: Ecosystem Thinking

The rapid growth of business ecosystems in recent years challenges this ‘Deep Moat’ -thinking. Most of the ecosystem orchestrators, like Google, Alibaba, and Uber, don’t make the things they sell; they exist to link others together, and this makes the old positioning-based logic less relevant. And, of course, they don’t have many assets, either. They create value through relationships and networks, not through physical goods or infrastructure, so arguments built around asset ownership are equally challenging. These firms are also looking to grow the market — by increasing the flow of people and goods — rather than to capture as much of the existing market as possible.

The Old and New Rules of Competitive Advantage

Old Rules: Deep Moats

The moat is what protects the business from competitors. Sometimes it is based on access to a scarce resource or ownership of a patent, sometimes it is based on customer loyalty and a strong brand, and sometimes it is an artifact of government regulation.

Some advice for what to focus on

1. Keep customers flowing in - You need to give people a reason to participate in your eco-system

2. Give people a reason to stick around - A vibrant ecosystem is one where participants gain value in multiple ways

3. Don’t steal your partners’ business - Operate as an ecosystem where all participants have an opportunity to prosper

4. Keep evolving - One huge benefit of being an ecosystem orchestrator is privileged access to information about the entire ecosystem. The smarter approach is to use this information to keep things moving — to open up new markets, and to do this quicker than your competitors.

Ecosystems challenges

This ecosystem-based approach to strategy isn’t for everyone.

As a way of working, it is inherently more stressful and chaotic than the more traditional moat-based approach.

It attracts a lot of challengers.

The split between the worlds of moats and turnstiles isn’t absolute