The recent news that Blackberry is "exploring options," possibly including a sale of the business, underlines a significant transformation in our competitive landscape. Success or failure isn't just about having a good product, or a well-run, cost-effective company with a sound capital structure. It also requires an effective strategy to manage your ecosystem -- and this is where Blackberry failed. The firm lapsed into complacency about its customers, and didn't realize that rival ecosystems were gradually eating into its user base, who were remarkably attached to it for its ease of use for business. As a result, it missed the opportunity to become a nodal player, at the center of an attractive ecosystem and leverage the energies of its complementors, as Apple does with third-party app developers.
Blackberry faced the predicament of many established firms who see the world around them changing, undermining their position of strength. But incumbents don't have to lose the game of value capture and value migration, especially when the attack comes from a different ecosystem. By playing their cards right, they can sustain their position and create a new value proposition that appeals to their end customer, while keeping their suppliers and complementors in check.
In an article in the current Harvard Business Review, Wharton's John Paul MacDuffie and I report our research on how value migrates in industry ecosystems. We consider why, in sectors like the computer industry of the 1980s, value can migrate from integrated firms such as IBM to new specialists such as Microsoft and Intel. We also look at what makes the "bottleneck", the core of the system's value, shift around in the sector. We then consider why other sectors, such as automobiles, despite much-hyped and expectations of value-chain transformation, have turned out to be remarkably stable. Despite the massive growth of outsourcing, value appropriation (in terms of share of market capitalization) still rests with car manufacturers rather than component makers.
Our research asks why this might be the case, and when we might expect to see value migration or value stasis. We find that the most successful firms are those who proactively manage the architecture of their sectors, and maintain its suppliers in hierarchical, closed networks. IBM made the mistake of opening up its sector through a set of common standards, ultimately leading to its demise. In contrast, today's Apple has a carefully controlled set of suppliers and complementary players to support its value proposition. Vertical integration isn't the solution, but rather to keep control by managing differentiability -- in other words, by being the actor along the value chain who guarantees product quality and shapes the end user's experience. It's also important to manage the replaceability of other actors along the value chain.
Comparing cars and computers throws up many ironies. During the 1990s, Bain Consulting predicted that the auto industry would soon look like the computing sector, with giant suppliers ruling the roost. Today, Deloitte consultants are predicting that electric vehicles will prompt the sector to dis-integrate, allowing value to migrate. But this doesn't look likely to us. Instead, we see the converse happening. Apple is driving the computer sector to resemble cars: hierarchical, tightly managed supplier networks; a keen eye for technology integration; a focus on differentiation in the eyes of the final customer. Unlike Blackberry, Apple hasn't just grasped the importance of a solid value proposition - it's focused on managing the ecosystem and bringing value its way.
But things always look rosy from the top of the tree. What's exciting is to consider not only how successful kingpins defend their position, but how upstarts try to upset the sector. By becoming go-to outsourcees, leveraging the need of incumbents to save on assets, and patiently moving up the food chain to become solutions providers, or by carefully managing the standards game to gain a toehold in broader markets, aspiring entrants may emulate the transition of firms like Huawei or Honhai from sub-assemblers to industrial giants. And opportunities aren't restricted to manufacturing: As industries from healthcare to financial services see their boundaries redrawn, opportunities abound to change sector architectures and grab value.
There's no doubt that strategy has become more complicated, and it's far easier to analyze than to solve problems in real time. But if we start looking more carefully at the dynamics of business ecosystems and how value is distributed, we can rethink our strategy before -- as Blackberry is discovering -- it's too late to act.