The result? What was once complex, hard and rare is becoming simple, easy and abundant. Firms no longer need to consolidate resources, own the means of production or lock up scarce expertise in long-term employment contracts. These things can now be accessed, acquired and coordinated within the business ecosystem.
Uber can sell rides while owning neither cars nor drivers. Airbnb can rent rooms without owning hotels or the staff needed to maintain them.
This is testimony to how much digital advances have lowered transaction costs.
Business ecosystems are about strategic choice
Whether a business sets itself up as a vertically-integrated firm or distributed network and whether it owns things or rents them is, once again, a choice.
Importantly, it’s a strategic choice, not just a technological one.
Though discussions about ecosystems may start within digital tribes, they should be advanced by the C-suite. The consequences of choosing to own versus access a service will have a profound impact on long-term profitable growth and competitive advantage, not just the cost of operations.
It will also become a more urgent choice, confronting more and more business executives. The pace of digital adoption is accelerating, not slowing down.
Over time, it’s inevitable that transaction costs will continue to drop. 2 This makes it increasingly possible to assemble amazing capabilities on an as-needed basis and reconstitute the shape of the organization as circumstance demands.
Optimizing the enterprise will become a dynamic and ongoing effort, not something that happens once in a market cycle. Perhaps most importantly, it’s a choice that most leaders and firms need to analyze very carefully as making the right choice will have serious long-lasting business implications.
Overcoming the challenges ahead
The management discipline of deciding which activities to own versus those to access is complex and depends on far more than just cost. It’s a heady mix of distinguishing the levers that can be used to create value, enable competitive advantage or accelerate market velocity, among other factors.
These factors are not static. They change depending on how players in the ecosystem evolve, how often and how new players enter. This discipline is far from common practice, it’s only just starting to take shape even for competent ecosystem players.
Another challenge is that most executives aren’t likely to approach these choices rationally. They are, quite understandably, biased by two established practices: