The Keystone Advantage

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The Keystone Advantage

by Marco Iansiti and Roy Levien.

The New Dynamics of Business Ecosystems

Harvard Business School Professor Marco Iansiti and business leader Roy Levien believe that strategy is not just crucial to a company’s success, but also for the success of entire networks of companies. The authors have written The Keystone Advantage to describe a better way for organizations to understand how complex business networks behave, and explore the possibilities for strategy formulation, innovation and operations management. Using the analogy of biological ecosystems to describe the inner workings of business networks, the authors show how companies such as Wal-Mart, Microsoft, Li & Fung, and eBay deploy “keystone strategies” to shape their business ecosystems in ways that are similar to the ways “keystone species” play central roles in their own ecosystems.

Three Company Roles

After 10 years of research and practical experience in a wide range of industries, the authors have identified three specific roles that firms play within business ecosystems. These include:

• Keystones. These companies improve ecosystem health and, in doing so, increase their own operational performance.

• Landlords and Dominators. Firms with these types of network operating strategies occupy a network hub.

• Niche Players. These organizations do not occupy one of the network hubs.

By laying out a framework any company can use to assess the characteristics of its own business ecosystem, the authors help company leaders re-evaluate their technology and operations strategies, and create specific strategies for gaining sustainable competitive advantage.

The authors write, “Wal-Mart, like Microsoft, is successful because it figured out how to create, manage, and evolve an incredibly powerful business ecosystem.”

Interconnected Players

To help readers appreciate the power of a highly networked system, the authors explain that biological systems provide a rich context filled with interconnected players. They write, “From the networks of energy flow and predation in ecosystems to the feedback loops that control gene expression to the checks and balances that regulate the efficient distribution of foraging honeybees among patches of flowers or set the thermostat in a termite colony, webs of interdependence shape collective success and drive the achievements of biological systems from genes to societies.” With an appreciation for the complexities of nature’s interdependencies, the authors describe how the knowledge we have about natural systems can help us become more successful when managing networked business systems.

Three Predictions

Business networks and biological networks, the authors explain, are governed by a shared fate. They have based several predictions on the features that enable stability, longevity and productivity in biological systems that can be found in business networks. These include:

• We should expect to see far more robustness in the face of external shocks than is generally assumed in existing frameworks for thinking about business networks. Although targeted damage or damage to critical members produces widespread collapse, most problems are absorbed by the system.

• We should expect to see a capability for creation of novelty, linked with a specialization of network members. The capacity for natural systems to combine robustness and persistence with the creation of novelty is the driving force behind the creative process of evolution.

• We should expect a heterogeneous structure, with different firms adopting dramatically different roles that influence different aspects of the stability and productivity of the network. Natural systems usually evolve a structure in which some members acquire highly influential positions, while many others do not.

Throughout The Keystone Advantage, the authors explore the validity of their predictions and develop the implications their predictions have for management practice. They also explain that they view the network as a source of company renewal rather than an external threat, and believe that it is important to develop ways to characterize the collective health of entire business ecosystems and to understand the ways in which firms can influence and respond to this collective health. ~

Why We Like ThIs Book

The Keystone Advantage not only offers a solid analogy that describes the complex connections within business networks, but it also provides many examples of connections between companies to highlight the importance of these networks in the strategy creation process. By pointing out the importance and pitfalls of networks, the authors provide organizations with the tactics they will need to face the future.
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