The Death of Competition - Leadership and Strategy in the Age of Business Ecosystems

"Every day in my work I observe companies that are drastically affected by the changing ecology of business competition and that seek ways to understand and shape the transformations engulfing them. I tell them about the death of competition.

Not that competition is vanishing. In fact it is intensifying. But competition as most of us have routinely thought of it is dead - and any business manager who doesn't realize this is threatened. Let me explain. The traditional way to think about competition is in terms of offers and markets. Your product or service goes up against that of your competitor, and one wins. You improve your product by listening to customers, and by investing in the processes that create it.

The problem with this point of view is that it ignores the context - the environment - within which the business lies, and it ignores the need for coevolution with others in that environment, a process that involves cooperation as well as conflict. Even excellent businesses can be destroyed by the conditions around them. They are like species in Hawaii. Through no fault of their own, they find themselves facing extinction because the ecosystem around them is itself imploding. A good restaurant in a failing neighborhood is likely to die. A first-rate supplier to a collapsing retail chain - a Bradlees, Caldor or Kmart - had better watch out." (p. 3)

So what Moore is saying, in fact, is that competition is not really dead, it just must be viewed within a larger context. Or, rather, that the traditional view of competition no longer holds; the new approach sees competition as one perspective on how business works, with cooperation between businesses and their suppliers and customers being another equally important perspective. (This is the thesis of another recent and influential book - Co-Opetition by Nalebuff and Brandenburger.)

Central to this new perspective is the notion of a business ecosystem, which Moore defines as:

"An economic community supported by a foundation of interacting organizations and individuals - the organisms of the business world. This economic community produces goods and services of value to customer, who themselves are members of the ecosystem. The member organisms also include suppliers, lead producers, competitors and other stakeholders. Over time, they coevolve their capabilities and roles, and tend to align themselves with the directions set by one or more central companies. Those companies holding leadership roles may change over time, but the function of ecosystem leader is valued by the community because it enables members to move toward shared visions to align their investments and to find mutually supportive roles." (p.26)

Examples of business ecosystems which Moore discusses extensively in the book include:

• Wal-Mart
• IBM
• AT&T
• Intel
• Microsoft
• the automobile industry

Moore maintains that there are four stages to the development of a business ecosystem:

1. the 'pioneering' stage, where the key leadership and strategic challenge is to create superior value through a new product or service - this new value must be a dramatically superior way of doing business (such as Wal-Mart inventing a new system of retailing or Intel inventing a new form of microchip)
2. the 'expansion' stage - in time, more players are lured into the network to be suppliers, customers, or competitors as it becomes apparent that the new product or service being offered in going to become the standard, replacing the previous product or service - the key leadership and strategic challenge in this stage is to ensure that the ecosystem reaches the sort of critical mass that is required in order to become the new paradigm - this requires enlisting the support of many other players
3. the 'authority' stage - after 'critical mass' is achieved, and there are many players in the game, there will inevitably be a 'shakeout period', where the roles and dominance of players in the ecosystem become established, depending upon the capabilities of the players, the relationships established, the luck of the draw, and many other factors - "A central challenge facing business strategists in maturing ecosystems is how to maintain their authority and the uniqueness of their contribution to the community while also encouraging communitywide innovation and coevolution." (p.77)
4. the 'renewal' stage - over time, new business ecosystems will develop that are related to (possibly directly competitive with) the established paradigm - these will offer superior value in their own areas and will eventually challenge the dominance of the established ecosystem - the leadership challenge in the established ecosystem is to ensure that continuous improvement processes are established and that the system continues to deliver value, rather than become obsolete

The leadership and strategic challenges can be summarized as shown below:

Stage of development of the business ecosystem	Overall leadership challenges	CO-OPERATIVE CHALLENGES	COMPETITIVE CHALLENGES
Pioneering	Value	Work with customers and suppliers to define the new value proposition and a paradigm for providing it that is dramatically more effective than what is available	Protect your ideas from others who might be working toward defining similar offers
Expansion	Critical mass	Bring the new offer to a large market by working with suppliers and partners to increase supply, and to achieve maximum market coverage and critical mass	Defeat alternative implementations of similar ideas; ensure that your approach is the market standard in its class through dominating key market segments; tie up critical lead customers, key suppliers and important channels
Authority	Lead coevolution	Provide a compelling vision for the future that encourages suppliers and customers to work together to continue to improve the ecosystem	Maintain strong bargaining power in relation to other players in the ecosystem - including key customers and valued suppliers
Renewal	Continuous performance improvement	Work with innovators to bring new ideas into the existing ecosystem	Maintain high barriers to entry to prevent innovators from building alternative ecosystems. Maintain high customer switching costs in order to buy time to incorporate new ideas into your own products and services

(from p. 83 of the book)

The bulk of the book is devoted to an in-depth exploration of this framework, examining the strategic challenges faced by a business ecosystem (and more particularly a leader in a that business ecosystem) in each of the four stages. Moore examines these according to what he calls the 'seven dimensions of competitive advantage' which are:

1. customers
2. markets
3. products
4. processes
5. organizations
6. stakeholders
7. government and society

These seven areas thus present a comprehensive framework for the discussion of how an ecosystem grows and develops at each stage.

The Death of Competition is an interesting example of a series of business books that have emerged in the nineties that postulate this concept of a 'business ecosystem', drawing upon examples from nature and ecology of an interacting web of producers, consumers, and influencers (see for example, in addition to the aforementioned Co-Opetition, Rothschild's Bionomics.) It is a very interesting perspective with much to commend it, insofar as it looks well beyond the traditional perspective of business existing to merely clobber the competition, and addresses more the question of the role of business in society overall.

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