At a recent Thinkers50 Business Ecosystem Alliance event, Alok Agrawal, CSO of Celestica, commented that since the electronics hardware industry was highly consolidated, the only opportunity for further scaling was via partnerships and ecosystem development.^[1] He knew that an ecosystem spurs life and drives value for all the participants and was a likely route to rejuvenate the industry—the obvious unspoken corollary was that ecosystems will be a focus not only for the electronics industry, but for every other industry.

Ecosystems can both be real or virtual, but we will restrict our focus to virtual ecosystems. Real refers to habitats on earth like the cities and villages, while virtual covers man-made environments like economic markets, cooperatives and trading blocs. Virtual ecosystems transcend supply chains. Businesses so far have learnt how to control their supply chains well but are still struggling to gather a hold around their ecosystem. This is because ecosystems are self-balancing and as more players join it, the chances of it reaching a balanced state or equilibrium quickly are higher. At this state, no single entity has a tight ownership over the ecosystem, and everyone becomes just a participant with varying degrees of influence over it. Thus, as businesses grow, their ecosystems expand rapidly, and equally swiftly do they lose control over it. So how do organisations reap the benefit from an ecosystem that they seeded, but have now been relegated to being just a player exercising tight control over its direct supply chain and very little beyond that? The answer lies in stepping beyond exhibiting competitive pipeline behaviour; the answer lies within the folds of the STA triangle.^[2]

The STA Triangles

The STA-Triangle (space-time-action) is a powerful model that captures the reality of business environments and allows for devising, formulating, and adjusting business strategy in real time. The combination of space, time and action has been pervasively fundamental to human thinking, and they find their earliest documented existence in Aristotle’s “three unities” constructed for writing drama—the unity of space, time and action. It was Herbert Spencer, the nineteenth century meta-physicist, who first postulated that time, space and force drive outcomes; so did Einstein and Henri Lefebvre. A similar strategy is used in the game of chess too.

Most simply put, business outcomes are a result of actions (or inaction). There are only three types of actions—create, sustain or destroy. Successful businesses spend most of their life in sustenance mode, continuously improving and reinventing themselves. Since time is the cause of perpetual degradation, this is not always easy. Space represents markets and could be operated/owned, adjacent/known or unknown. Since markets are continuously evolving, firms need to continuously innovate too. Thus,

a) Time strategies would require a firm to manage speed, rhythm, and opportunities.

b) Space strategies to manage deployment of optimum resources, fire power and staying power.

c) Action strategies mean driving innovation, sustenance, and simplification.

Mapping Ecosystems on the Three STA Axis

The Space axis directly mimics the precincts of a virtual ecosystem and the three states on space axis can be mapped as the direct supply-chain participants, the expanded ecosystem participants, and the extended ecosystem participants. 

The supply chain is the formal value chain of an organisation. It includes their direct suppliers and distributors over whom they have high operational control. These supply chain participants have, in turn, their own supply chains and as such tiers deepen, the parent organisation exhibits lesser and lesser control over these entities.

Ecosystem expansion occurs when the value chain is expanded beyond the traditional supply chain boundaries, usually, by reducing barriers to entry or friction and driving higher collaboration. Take for example, in India, nearly 80% of two-wheeler vehicles are serviced outside of the OEM (original equipment manufacturer) dealerships in private garages—and the OEMs have little or no control over this market while at the same time the garages have a poor access to OEM spare parts. The private garages form part of the expanded ecosystem and such inclusions in the aftermarket ecosystem help drive better collaboration across the ecosystem for everyone, including end-customers.

Ecosystem extension is when a vertical ecosystem spawns and connects into another ecosystem, usually, by the dictates of cooperation. Think of two-wheeler auto dealers having a number of unsold vehicle inventory. If this can be connected to last mile delivery logistics providers, the auto ecosystem has been extended to the logistics ecosystem. It is important to identify that the dealer’s non-moving vehicle inventory is an unplanned downside of his business; he wants this inventory to be consumed while the last mile logistics can consume such vehicles—of course it is a windfall for both.

The Time axis represents industry trajectory as it traverses through growth, stability, and consolidation (similar to a company going through expansion, stable and recession business cycles). A vibrant growth phase indicates a vibrant startup ecosystem supported by investments, disruptive innovation and capital. When industry enters a stable phase, demand grows due to sustained adoption and cross-application via sustaining innovation, add-on research—‘new and improved’ is the catchphrase here. Finally, consolidation occurs when the big becomes bigger and there are a few very large firms that supply to a very stable demand. Usually, the middle-sized firms have been acquired up by the larger ones. Let us exemplify this cycle by tracing the history of semiconductors. It was in the late forties when Shockley and his team invented the transistor at Bell Labs. Intel rose to the forefront of the semiconductor revolution and Gordon Moore’s famous observation—‘every 18 months the power of the chip doubles and the price halves’—became a law. At least, until now. Reminding that chips are made of transistor gates that act as electrical switches allowing or disallowing passage of electrons, as miniaturisation of chips nears the size of electron itself, Moore’s law is staring at its complete disintegration. The industry has truly achieved its consolidation phase, although specialised research for autonomous cars does continue amongst a very few startups. However, Tata’s foray into semiconductor industry recently is not to drive continued research, but to ward off the shortage of chips that many of its group companies need.

The Action axis represents an approach to network effect with standard actions states— creation (or innovation), sustenance, simplification. The action axis represents lifecycle and simplification is just a euphemism for death. We speak of transformations often very loosely, but the most accurate definition is “rebirth after death” (sometimes figuratively). It is important to note that living beings can only be transformed and not innovated for if something never existed, it cannot be transformed. Geoffrey West’s extensive research^[3] proves that firms and cities, both behave as living beings, albeit very differently. Thus, companies too can only be transformed, never innovated. In our example of semiconductor industry, the fear of hitting-the-wall of maximum miniaturisation has spurred the new science of quantum computing. This is truly a transformation.
 

Mapping Ecosystem on Strategy Triangles

On the STA diagram, three usual triangles get formed and the core strategies adopted in the three triangles for industries and organisations are:

• The Inner Triangle or Triangle of Dissolution (formed when supply chain, contraction and simplification are connected on space, time and action axis, respectively) corresponds to consolidation phase or tight business environments where industries (or companies) are defending their markets, customers and competitive advantage. Strategies are either competitive or combative in nature in this triangle. This is fully applicable to pipeline businesses which thrive in driving efficiency and reducing costs across their supply chains to increase their profits or reduce prices. This also supports the efficient market mechanism. Most economic theories are predicated on competitive strategies, and during supply shortages (or demand increase), surge pricing is deemed smart and obvious. India saw the ugly side of distributive bargaining power by ambulances, medical shops, oxygen cylinder providers and even some of the hospitals, being applied to hapless families and dying patients. This is also the cross-roads where the electronic hardware industry is at today.
  
  
• The Middle Triangle or the Triangle of Evolution (formed when ecosystem expansion, stability and sustenance are connected on space, time and action axis, respectively) corresponds to business environments when industry expands via sustaining innovation, alliances and collaboration. Here, there is a thaw in the competitive die-hard approach and is adopted by groups that are interdependent with shared vision and values. Collaboration implies increased communication and sharing of data or symbiotic platforms that can drive such ecosystem expansions. This is the place when all the participants within the ecosystem become equal and no one exhibits any undue control. Everyone benefits with more and more participants joining in and as the ecosystem reaches a stable state, participants generate more data that can be collectively utilised by everyone within the ecosystem. This is akin to integrative bargaining and is a win-win for everyone in the group. The Human Genome Project, the European Union, and what we at Istakapaza are doing for auto aftermarkets is the creation of self-thriving extended ecosystems that are no more utopian; they are symbiotic and retard bad behaviour.
  
  
• The Outer triangle or the Triangle of Revolution (formed when ecosystem extension, growth and creation are connected on space, time and action axis, respectively) corresponds to business environments in hyper growth. Strategies here are based on disruptive thinking, attitudinal economics, experimentation, and also on cooperative principles that empower, drive prosperity and reduce wastage. Even within competitive environments many companies have shown their bias towards cooperation, termed as ‘attitudinal economics’. Examples are open-source movement or what Netflix did—created microservices and the code for Chaos Monkey and put it on the internet for other companies to use freely.
  
  Cooperative networks are built on respect and shared norms, but the members are completely autonomous. They work in support of another’s goals usually for their good. Cooperative networks catalyse ecosystem extension and are highly inclusive; there may not be any formal agreement but there is a clear intent to support. Cooperative strategies are at the extreme end of integrative bargaining with an attempt to increase wealth and prosperity of the less fortunate. However, we did show above that it is also noticeable within competitive markets. For example, connecting non-moving inventory holders of two-wheelers (dealers) to a last mile logistics company or establishing a cooperative of small farmers and connecting them to an exporter.

Formulating Elastic ‘Ecosystematic’ Strategies

A very careful look at the narratives above will highlight that pipeline businesses imply highly controlled environments; the ecosystem expansion is a platform where only governance is centrally controlled, while ecosystem extensions imply that even the governance is decontrolled, left to the individual participants to decide. In general, ecosystem fosters reduced entropy and friction, disintermediation of those who are errant, sustaining the entire supply chain at the same time. Ecosystems garner their power from being diverse, inclusive, and sustainable.^[4]

The three nominal strategies that arise out of the STA triangles given above help in modelling the power of ecosystems. But the story does not end here. The STA triangles do allow for 27 elastic ecosystem strategies with varying degrees of risks, controls, ownerships, and outcomes. Here is a summary for top nine critical ones out of those 27 strategies that can be used. The rest are equally easy to fathom, and I will leave it for another day.