David McMillan l Palladium - Jul 25 2022
Your Business Ecosystem Explained

For some, the notion of ecosystems is very familiar. But at a recent training for leaders of a half dozen community-focused utility cooperatives, I asked the group “has anyone ever heard the term ‘ecosystem’ used in a business context?” and there was an uncomfortable silence.

The silence continued when I showed them an ecosystem map.

Given the core focus of these organisations on serving their communities in a way that results in margins and sustainable financial footing, I found myself wondering how many organisations have yet to be exposed to ecosystem thinking – what it is, why it is better, and how to develop that understanding of their organisation’s sphere, operations, and influence.

Ecosystem Defined

An ecosystem is an interconnected network of relationships. Many may remember studying ecosystems in biology class. We learned that ecosystems were places where interrelated factors – vegetation, wildlife, climate, soil, water, etc. – all worked together in relative harmony.

We also learned that when even just one of these factors deviated, it could have a devastating effect on other aspects of the ecosystem. As I hail from Northern California, the Napa Valley comes to mind. Why are the wines from Napa so popular? It’s a mix of factors like the nutrients in the soils, the quality of vine genetics, the way the marine fronts come in from the Pacific Ocean, and the historically moderate temperatures.

As climate change continues, Napa has been losing its primacy as a wine growing location. The climate is simply getting too warm, and the wildfire risk has increased significantly. But recall that learning about ecosystems was preceded by the simpler concept of the food chain, an end-to-end flow of nutrition from soil to the animal no others would hunt.

Like ecological ecosystems, business ecosystems are complex and go beyond an end-to-end value chain. They include suppliers and customers, but also include industry influencers, regulators, sources of capital, community organisations, and other stakeholder groups.

Using electric utilities as an example, their strategy could be built based on their value chain – how an electron is set in motion in a generation facility to the use of an electron by a customer’s appliance including all the various capital infrastructure in between. But we know that the industry is not that simple and that an electric utilities’ strategy should factor in the full ecosystem – the utility regulators, utility boards (where separate), community groups seeking carbon reduction, the electric vehicle industry, energy efficiency advocates, linemen training organisations and other talent pipeline stakeholders, and more.

Why Ecosystem Thinking Matters

In a world where organisations focus only on customer experience and shareholder profit, value chain-thinking was enough – the focus was a linear flow from raw materials through to product consumption and disposal. A food company needed to know its input suppliers, its transportation providers, its retailers, and its customers.

Thankfully, we no longer live in a world where these are the only expectations of organisations. We expect companies to be good citizens and governments to create sustainable solutions.

Why isn’t value chain thinking sufficient for a more sustainable strategy?Because the material issues organisations are grappling with are larger than what they can impact independently. What if that generic food company were a chocolate company? Society not only wants the company to make delicious treats, but also want carbon neutrality, no child labour or deforestation, soil health, responsible and safe use of pesticides, and cocoa farmers that can support their families with a living wage.

"Like ecological ecosystems, business ecosystems are complex and go beyond an end-to-end value chain."

As we know from several of Palladium’s projects, these are complex requests that encourage companies to go beyond knowing how to buy cocoa from commodity markets to actually knowing farming communities, the local economics they face, the banks that lend (or don’t lend) to them, the incentives created by government to preserve forests, and the farmers’ suppliers and post-harvest handling entities.

A value chain isn’t enough to identify barriers and opportunities to deliver on society’s expectations.

How to Map It

For those pursuing innovation, shaping or even re-shaping an organisation’s strategy, the first is to be able to define your organisation’s ecosystem.

Working to map it visually can be quite instructive. Here are a few steps to get you started:

1. Start by visually arranging the entities within your traditional value chain from raw materials through consumption to disposal

2. Add other stakeholders that influence actors along the value chain; this step can become overwhelming, so keep your organisation’s material issues (those sustainability issues of importance to your organisation and your key stakeholders) in mind as a lens for how key each stakeholder is to your ecosystem

3. Draw connections between all the entities; using colour coding and different connector types can visually denote the difference in relationships (e.g., flow of product, flow of resources, influence, and regulation)

4. The resulting diagram can become the basis for communicating ecosystem opportunities by denoting broken or suboptimal relationships within the ecosystem map

To see it in action, Syngenta recently published the results of a series of discussions with the beef and dairy ecosystems that includes examples of ecosystem maps on page 14.

In our increasingly complicated and interconnected world, the ‘old’ ways of managing supply chains and customer satisfaction are no longer enough, but it doesn’t mean that it’s impossible or worthwhile. Shifting towards ecosystem thinking isn’t just good for society and value chain partners, but also for sustainability of business and, accordingly, the bottom line.