Tuesday 8 October 2019

Creating a Market Oriented Ecosystem (MOE)

This is my third post on Arthur Yeung and Dave Ulrich’s new book, Reinventing the Organization.

My insights in my last two MOE related posts do create a few issues with Arthur and Dave’s suggested framework or process for designing a Market Oriented Organisation (MOE) which is shown above. (But please note that my posts always criticise rather than endorse, particularly as I use my blog to develop my own thinking, and therefore tend to focus on things I disagree with, or don’t understand, in order to work out what I do believe for myself. So like most of my reviews, this one will read more negatively than it should. Reinventing the Organization a great book, and if you’re interested in new opportunities in organisations reinvention, you should definitely read it.)

I think the first issue arises from studying three digital companies in Silicon Valley and four near equivalents in China (as well as Supercell). There’s a definite opportunity to use network effects to gain a monopolistic advantage in digital technology and the use of digital platforms lie at the heart of these easily scalable exponential organisations. But is that what we really want to recommend? Becoming a monopoly is a sensible commercial objective but it’s not going to provide a wonderful result for the global economy or society as a whole.

A second issue results from extrapolating the above examples to various other sectors and geographies. The extended, non-digital model will still work best for companies with lots of similar operations, eg retail stores like Walgreens. Platforms work best for relatively simple work which can be divided into tasks rather than more complex work which needs to pull people together into organisations. IT is a great example of this of course, which is why digital platforms work best of all.

Network effects also doesn’t work in the quite the same way outside technology. Competitive advantage is not going to automatically follow a MOE strategy, especially if a company’s competitors are also developing as MOEs. Where network effects don’t apply, more boringly traditional competitive advantage comes from choice and differentiation.

Plus there’s not that much room for that many ecosystems to exist. And even if ecosystems become the prevailing economic model, most companies are going to be ecosystem participants rather than orchestrators. There’s going to be a lot of wasted effort if every company now starts to develop their own ecosystem from scratch.

And there is still lots of valid choice:
  • Eg, I still think internal ecosystems can provide a lot of the benefits of their multi-organisation counterparts.
  • Or there are other options for developing more decentralised ecosystems that don’t depend on a platform, or where the orchestrator’s platform is a basis for a distributed ecosystem, but where the orchestrator doesn’t play a role in the ecosystem itself .
  • Or perhaps for becoming a blockchain based digital autonomous organisation (DAO) which if some predictions become true could blow the platform based organisation apart.
  • Or in lots of areas, hierarchical functional organisations can still rule!

For all these reasons, I think an evolved organisation design process needs to enable an organisation to choose the form it should take, rather than starting from the premise that it needs to be a MOE. So, for me, the sequence in any OD framework should read as something like:
  • Environment - all sectors and geographies are different - what is going on that your organisation needs to respond to, and if possible, inform? (“Create the future by anticipating what the market will be”)
  • Strategy and capability - these should both go together still for me. The capabilities need to support the strategy, but ideally needs to inform it too. Eg if you are, or are going to be a MOE, then your existing capabilities will indicate whether you are likely to be most successful as a creative, technology based or efficiency oriented one. This also provides the opportunity for creating value (“Strategy follows people”).
  • These then impact the nature of the potential ecosystem, and of the systems and structure of the ecosystem and your particular organisation.

It’s the selection of the right capabilities and principles, linked to the environment and strategy, which provides basis for choice in organisation design as well as the opportunity for more traditional competitive advantage. And information, customer, innovation and agility are clearly going to be useful capabilities but they may not be the right capabilities for your organisation. (Just as Amazon actually focuses on customer obsession, Tencent on user experience and Google on technology based innovation.)

In addition, these are all capabilities required by the ecosystem rather than capabilities required by the organisations participating in an ecosystem. I’d actually suggest the main capability required by any participant, including the orchestrator, is likely to be cooperation and collaboration. These are partly provided and automated by the platform, but they also always needs to be embedded in the people and their relationships, which is why I focus on social capital in The Social Organization (TSO).

Collaboration and other more human centred capabilities also have an important advantage alongside market orientation or other work based capabilities. Innovation doesn’t just originate through better alignment with external opportunities - it also comes from developing the inherent potential of people working for the business. Together with the two-way links between the environment and the strategy, and the strategy and capability, this also helps the MOE to create value.

For example, another type of ecosystem (perhaps not a market oriented one, and perhaps not even one operating a very technologically based platform) might include communities alongside horizontal teams in order to build relationships and insights and support the people involved.

However, even with these changes I still worry slightly that this MOE creation process looks a bit like strategic planning, whereas Arthur and Dave suggests MOEs need to develop strategic agility instead. I agree, although actually, I think strategic planning can still be performed within organisations, as long as it’s done at a high enough level and with a sufficiently inclusive approach. But I don’t think this will work for a whole ecosystem. Developing this has to be an incremental and emergent approach.

This is about making external connections with other organisations which might become partners later even if you can’t see exactly how. And it’s about preparing your own organisation to be more open to working with others, and more cellular and platform based internally too (through the use of horizontal teams, communities and networks, as in TSO). So designing your organisation and designing potential interfaces with other organisations rather than designing the whole ecosystem. I still think this fits with Arthur and Dave’s suggestion to “see the whole, but get started on only part of the transformation” too. And it works for any organisation, regardless of whether you want to, or are able to become the ecosystem orchestrator or not.

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