What is Your Ecosystem? The Ecosystem Architecture Modeling Framework
Product innovation usually causes a change in your ecosystem. When music became downloadable, this disrupted the market for CDs and DVDs and created a new ecosystem for downloadable music dominated by iTunes and Amazon. The current move from combustion engines to electric vehicles reconfigures the ecosystem of car manufacturers, as new suppliers become relevant for software and electric motors. Manufacturers of gearboxes may lose their established market.
Today, most innovations are digital. Wireless networks, mobile technology, sensor technology, the Internet of Things, AI, autonomous vehicles, robots, blockchain, and 3D printing may cause similar upheavals. Innovations based on digital technology are never constrained to your own company but change your ecosystem or may create a new one. To manage these innovations, you need to revisit the business model of your entire business ecosystem.
However, current business modeling methods like the Business Model Canvas focus on only one company and its context. In this blog, I present a method to model your entire ecosystem, called The Ecosystem Architecture Modeling (TEAM) framework.
But first, what is a business ecosystem?
James Moore defined a business ecosystem as a collection of companies that work cooperatively and competitively to satisfy customer needs. Using insights from Brandenburger & Nalebuff’s book on coopetition, we can distinguish three groups of participants in an ecosystem: players, rule makers and associations.
- From the point of view of one company, the players are this company, its customers and suppliers, and its competitors and complementors. A complementor is a company whose products makes your product more valuable for customers. For example, an insurance company can provide a complement to a travel agency by offering insurance to travelers who book with the agency. Together, the players are involved in a game of supply, demand, competition, and complementation, called co-opetition by Brandenburger & Nalebuff.
The players in the ecosystem form a so-called value network.
- Rule makers are governments, regulatory agencies, standards bodies and other parties who may influence the rules of the game. By drawing up contracts, the players themselves may also change the rules of the game.
- Associations are labor unions, trade associations, conferences, fairs, and other formal and informal associations where information is exchanged and interests are shared.
Rule makers and associations are part of an ecosystem because they determine how the game can be played and how players coordinate.
The Ecosystem Architecture Model (TEAM)
The following diagram shows questions that will guide you when making a model of an ecosystem architecture, and questions that will guide you in playing the game of coopetition, or the coordination game as it is called more neutrally here. The questions are divided into three abstraction levels: strategic modeling, value modeling, technology requirements.
Value proposition. Each ecosystem offers a core value proposition, such as music, mobility, or health. What is the core value proposition that is offered? What are the complementary value propositions?
Participants. The value proposition offered implies what suppliers you need to assemble your product, who your competitors are (who offer a similar product) and who could be your complementor. The ecosystem as a whole will also have rule makers who create norms and standard applicable to the value proposition, and associations through which the players in the ecosystem communicate.
Value activities. Each player in the ecosystem will add value to the system by producing goods or services needed by some other participant. All participants should contribute to producing the customer value proposition. Your company should have an added value too.
Strategic coordination. To coordinate with other participants of the system you need to be aware of the coordination paradigm. Is the ecosystem a market where participants coordinate on price only? Or is there a tradition of shared norms and values, and are relations among participants important assets to be maintained? What is the relative power of the players? What is the source of legitimate authority: the law, contracts, tradition, or power? How are conflicts resolved, and what contracts are in place? How easy is it to switch to another supplier? For example, are interfaces standardized? How loyal is the customer?
Reciprocity. Players in the ecosystem form a value network in which they exchange objects of value, such as goods, services, information, experiences (e.g. music) or money. For the ecosystem to be viable, these exchanges should be reciprocal. Each party in a transaction should receive something in return for what it gives.
Cash flows. Using the e3value software tools, the cash flows in the ecosystem can be estimated, which futhwe rther adds to the assessment of commercial viability of the ecosystem. In the long run, all players should have positive revenue.
Risks. The e3value tools also allow the assessment of sensitivity to market assumptions about the number of consumer needs and the price of products. And they can generate fraud scenarios. For example, what is the impact of nonpayment, and what happens if two players collude? Which players do you trust? Assessment of these risks may lead to a redefinition of the value network to make it more robust.
It is important that each player of the coordination game in the ecosystem perceives the distribution of costs, benefits, and risks across the players to be fair. Each player can construct a value model of the network and make this assessment.
Data sharing. Today’s ecosystems are IT-enabled, and all participants will need some IT to be able to participate. One requirement on the IT infrastructure will address the question of which data will be shared with whom. What is the shared semantics of this data? Are there ontologies that define a shared meaning? What are the confidentiality, availability and integrity requirements? Which privacy regulations are applicable?
Coordination processes. Participants in the ecosystem coordinate their activities. They engage in automated transactions. Activities have to be performed in a sequence. Do you trust a supplier to deliver the goods after you pay? How do physical goods and digital bits travel from sender to receiver? Should you define and automate a complete coordination process?
IT requirements. If your IT interoperates with other participants, then you will define shared interfaces, interoperability and security requirements.
Technological coordination. Coordination all of this requires agreements on technical standards and, for example, agreeing about update procedures for software. In any specific case, there are probably other technical issues to be coordinated as well. At this level, we are in familiar territory and can use relevant parts of enterprise architecture frameworks such as TOGAF.
Advantages of the TEAM Approach
The TEAM framework is based on more than 20 years of research and experience using the e3value method for networked business modeling. We extended it with a strategic layer based on Moore’s business ecosystem approach, an analysis of coordination paradigms and Brandenburger & Nalebuff’s co-opetition guidelines. To play a game of coopetition according to Brandenburger & Nalebuff, you ask who the players are, what their added value is, what are the rules of the game and if you want to change these. Game tactics are based on an assessment of the perception of other players, which is based on a player’s perception of the costs, benefits, and risks of other players. You may also want to change the scope of the game by bringing in other players or other value propositions.
The advantage of the TEAM approach is, first, that it directs attention to the entire ecosystem and its strengths and weaknesses. This is useful when you want to implement a digital innovation, because this may affect the architecture of your ecosystem.
The TEAM approach will give insight into your ecosystem architecture and quantify this insight in terms of cash flows, investments, cost, and revenue. It will help to understand the opportunities and risks of a digital ecosystem. This, in turn, allows you to create more value from investment in technology, or simply to cut cost by optimizing your ecosystem.
Last but not least, the e3value tools allow quick simulation of the impact of an innovation on your ecosystem, which facilitates short design cycles and allows you to quickly pivot to other markets or even other product architectures.