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By Alok Sinha, Founder and CEO, Istakapaza |Nov 01, 2021
Ecosystems are indiscriminatingly nurturing, both in real and virtual worlds. An organisation looking to be close to their customers needs to transcend beyond their traditional supply chains into their ecosystems. Given that no one owns an ecosystem, and everyone is just a participant, then how do businesses reap the benefit of their very creation? Alok Sinha, Founder and CEO, Istakapaza, explores the answer that lies within the folds of the space-time-action (STA) model—something very pervasive to human thinking that can help unlock this network-effect value.
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-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.
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 helps 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.
On the STA diagram, three usual triangles get formed and the core strategies adopted in the three triangles for industries and organisations are:
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.
Combined Time-Space Equivalence |
Engagement Environment |
Action Strategies |
||
---|---|---|---|---|
Create |
Sustain |
Reduce |
||
Consolidation + Supply Chain |
Competitive, with tightly controlled decision- making |
Big becomes bigger and the smaller ones disappear |
Sustaining innovation, ‘New & Improved’ tagline |
Invest in captive capacity, spur transformation/ ecosystem. Or die |
Stability + Ecosystem Expansion |
Collaborative, with centralised governance |
Partnerships/ collaboration, extend to the excluded or fragmented non-participants |
Joint Invest in new areas of common interest |
Connect to other ecosystems |
Growth + Ecosystem Extension |
Cooperative with decontrolled governance or self- governance |
Vibrant startup ecosystem, cooperation, insights & capital |
Increased prosperity, reduced entropy/friction via unconditional support |
Attitudinal economics, reuse and don’t recreate |
[1]The Power of Ecosystems: Introduction by Stuart Crainer, Thinkers50 in partnership with Business Ecosystems Alliance, (2021, August). https://thinkers50.com/power-of-ecosystems/
[2] Sinha, K.A. (2020). Achieving Successful Business Outcomes: Driving High Performance & Effective Transformations in a Continuously Evolving Business Environment. New York: Taylor & Francis.
[3] West, Wiedenfeld & Nicolson (2017). The Universal Laws of Growth, Innovation and Scale – Sustainability in Organisms, Economies, Cities and Companies.
[4] Business Ecosystem Alliance. ECOSYSTEMATIC: A Multidimensional Process to Navigate, Learn and Shape the Future by Christian Sarkar at the Thinkers50 Forum. https://business-ecosystem-alliance.org/2021/03/24/ecosystematic-a-multidimensional-process-to-navigate-learn-and-shape-the-future/
Alok Sinha is Founder and Chief Ecosystem Officer (CEO) at Istakapaza, a blockchain-based ecosystem-commerce company. An active investor, he held multiple CxO positions in global tech companies. Sinha’s book on business strategy, Achieving Successful Business Outcomes: Driving High Performance & Effective Transformations in a Continuously Evolving Business Environment © was termed as “the missing manual for CXOs” by Steven Sonsino, London Business School. An electrical engineer from PEC, Chandigarh, and an MBA from XLRI, Jamshedpur, Sinha hosts 'Guts, Glory & Story', a chat show with CEOs, authors, thought leaders and entrepreneurs.