The Strength of Business Ecosystems

As introduced in a previous article, Business Ecosystems are the “dark matter” usually not considered while designing a winning Company Strategy.
The Company Centric vision - where the focus is on the Company “within a Market and against Competitors” – should be instead altered by that of “an Ecosystem where other Companies live, competing but also coexisting and – possibly – fitting together”.
The single Customer need which a Company would fulfill through its product/service requires to be seen as one of a Chain of Needs which are the reason for a Business Ecosystem to exist.
The two visions – Business Ecosystems and Chain of Needs – are complementary and cannot be faced with separately as they clearly affect each other.
Having such a Strategic paradigm in mind, which are the two key questions that require to be taken into account while designing an effective Strategy?

Which is the extent of the Chain of Needs that a Company contributes to satisfy?
Intuitively, a Chain of Needs with one need only is the typical approach where a Company competes in the Market trying to pursue a unique position, introducing barriers to incumbents and gaining/conserving as much competitive advantage as possible. One need only brings to the underlying image of a set of Companies which compete for a single Market resource and the behavior of such system is clearly explained by the Lotka-Volterra equation (you may refer to a previous article - Preys, Prayers and Market Behaviors - for an extended analysis). Questions are: does the “one need only” model really exist in a real Chain of Needs? Or is it the consequence of overlooking/underestimating the underlying complexity within a Market?

Given a Chain of Needs, which are the “adjacent possible” which might be perceived by Customers as more attractive?
The concept of adjacent possible is that of an Ecosystem which slightly differs from the one a Company is aiming to tackle. Crossing many “adjacent possible” Ecosystems might lead to a brand new Ecosystem able to satisfy a more appealing Chain of Needs. Truth is that a Business Ecosystem – as any living system – is always “evolving” towards new directions: small changes – accumulated over time – may lead to an abrupt change where Companies could appear completely out of focus, being now part of a Chain of Needs which is destined to extinction.

Strategy and Business Ecosystems

The classic foundations of Competitive Strategy are all focused the way a Company is organized and operates in a Market: specifically, what a Company does (and not does), the unique position the Company wants to pursue, how its activities fit together and self-reinforce within the Company.
This approach – absolutely consistent and full of good sense – gives the idea of a Company Centric approach, where the focus is on the Company “within a Market and against Competitors”.
Truth is that a Company works within an “ecosystem” where other Companies live, competing but also coexisting and – possibly – fitting together (and this way a Company behaves as any other living system).
This extended vision becomes extremely clear when thinking to the Customer needs, which are – in fact – not a single “need” but more “a set of needs which are necessary to fulfill a more articulated process”.

The Water Case
For instance, water is a commodity, meaning that it is widespread, is made of the same substance and is – de facto – not easy to be differentiated (the proof is that these days water differentiation is based on the saline content, that was a brilliant idea for five minutes, after which all the producers did the same reducing the differentiation to pure advertising presence and no more real content).
But if water is a commodity “per se”, the Customer set of needs might be richer. If you were a producer of water you might be willing to position your product as something to be served at high level restaurants. In this case, the bottle has to be beautiful; the logo clear, readable and easy to remember; the size appropriate to fit with any table. Maybe glasses might be sold either with the same brand; other producer’s forks and knives could be of an aesthetic which fits with the bottle; a special pouch to conserve water at an appropriate temperature could be part of the offering, possibly produced by others but with an exclusive design for that specific bottle of water; and so on…
If such an “ecosystem” of products, which are meant to recall each others, should establish on the Market, then for a competitor it might become difficult to enter into Top Restaurants Chains as it should not simply replace an object/need but also break a system that would surely be resilient to these attacks and for that reason more robust.
The Strategy focus – in this case – would reach a second level which is that of the Ecosystem, which is more subtle to be understood and governed. Successful Companies should focus at this level all the time.

A Theoretical Italian Airline Company

I started to be interested into Airline Companies – and the way they compete with each other – when I realized that most of the times to make a personal choice I was used to focus on a few key indicators only: flight price and flight schedule.
In fact there are some others “relevant” indicators that typically Airline Companies submit to customers in terms of Questionnaires: truth is that since these Key Performance Indicators are consistently used by most of the Companies, these finally benchmark with each other converging towards the same Market Arena.
When this phenomenon occurs, either a Company invests into Marketing and creates the so called “Marketing Obfuscation”, proposing packages apparently not comparable with each others, or moves towards the frontier of Operational Effectiveness trying to squeeze costs as much as possible.
The latter operation – when done from the very beginning – may lead towards a Market Segment called “low cost” (which most of the time is not even synonym of “low service”, once again showing that standard services are not strategically relevant).
The former operation allows instead some companies to survive for a longer period: when finally the Operational Costs vs. Revenue ratio no longer justifies the presence within the Market, only three are the most relevant alternative scenarios:

1. End of the Company
2. Buyout of the most relevant assets (e.g. for an Airline Company the slots to fly and the presence on key airports)
3. Merge with another Airline Company in good shape to absorb Operational Inefficiencies in the short term and invest into Operational Effectiveness in the long term

Alitalia – One Year Later
The latter two points, mixed together, were the recipe through which one year ago the former Alitalia Company was somehow re-branded and repositioned within the Airline Market. One year later, the relevant question is: did something really change in terms of Market Positioning?
When I made the simple exercise to access the web site and look for a flight, the perception I had – as a final Customer – was that nothing really happened: if I had not known from newspapers and media, I would have not be in the position to sense it.
Why is that? The key point is that the Company did not position itself in terms of Strategic Approach but just in terms of Operational Effectiveness, a move not particularly visible by the final Customer (apart, maybe, flight ticket prices which are now lower than before, since they do not have to cover a relevant debt exposure).
But was this the only way this NewCo could approach the Market starting from anew?

How a Theoretical Italian Airline Might Look Like
As said in one of the previous articles, it is always possible to work on a Theoretical Strategy, meaning a Strategy that should work fine as a model first and then proved through a specific – and as complex as necessary – Business Plan.
An interesting Theoretical Strategy for a Company focused on Italy would be just that of focusing on Italy. As a Country, Italy is known to be the place with the 60% of the World Art, as the “Bel Paese” where living well is a must, where cooking and eating are a pleasure, where Tourism is so various in terms of offering to fulfill any request.
Such a Country (that from the description I’m giving might sound to be a “Theoretical Country”, while it is not) joined together with an Airline Company whose mission and position would be that of bringing people in and help them enjoy their staying, might be an incredible barrier, allowing to create a new “Customer Questionnaire” tailored on a brand new Market Segment.

Just some quick hints:

• Strategic Alliance with Inland Transportation to bring the Customer in the most relevant places, creating a unique experience, with a great variety of choices
• Strategic Network to access the most relevant “events of the period” to make them accessible, reachable and appealing
• tailored – unique – way to map together the outcomes of such Strategic Alliances to allow a tourist to have a single – not repeatable – experience
• a way to show to foreigners how these unique experiences – in small scale – might happen also in their own Country, counting on a set of Business Processes and Skills which at this point would become unique into the Airline Market

Is there anyone out there brave enough to accept such a challenge?