Business Ecosystems: Constructs, Configurations, and the Nurturing Process

Business Ecosystems

Constructs, Configurations, and the Nurturing Process

Ke Rong

Bournemouth University, UK

and

Yongjiang Shi

University of Cambridge, UK

© Ke Rong and Yongjiang Shi 2015

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First published 2015 by

PALGRAVE MACMILLAN

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ISBN: 978–1–137–40590–6

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A catalogue record for this book is available from the British Library.

Library of Congress Cataloging-in-Publication Data

Rong, Ke, 1984–

Business ecosystems : constructs, configurations, and the nurturing process / Ke Rong, Yongjiang Shi.

pages cm

ISBN 978–1–137–40590–6 (hardback)

1. Industrial management. 2. System analysis. 3. Business planning. 4. New products. I. Shi, Yongjiang. II. Title.

HD31.R654 2014

658—dc232014025131

Contents

List of Figures

List of Tables

Acknowledgements

List of Abbreviations

1 Introduction

1.1 New industry frontier: from supply chains towards business ecosystems

1.2 Business ecosystems: from a fantastic metaphor to scientific understanding

1.3 Aims and characteristics of the book: explorations of the system and methodology

1.4 Structure of the book chapters: a research journey

Part I   Background Exploration of Business Ecosystem

2 Industrial Challenges

2.1 Introduction

2.2 Industry background review

2.3 The mobile computing industry brief review

2.4 Exploratory case studies: key players in the mobile computing industry

2.5 Key industrial challenges: uncertainty

2.6 Key industrial challenges: interoperability

2.7 Conclusion

3 Literature Review

3.1 Introduction

3.2 Manufacturing system theories of industrial challenges

3.3 Review of business ecosystem theories

3.4 Identification of theoretical and practical gaps in the business ecosystem literature

3.5 Conclusion

4 Research Design

4.1 Introduction

4.2 Research framework and objectives

4.3 Overview of research methodology

4.4 Conclusion

Part II   Case Observation of Business Ecosystems

5 ARM Nurtures the Business Ecosystem from the Beginning

5.1 Introduction

5.2 Project 1a: mobile phone (ARM7 and ARM9)

5.3 Project 1b: Leader Partners’ Strategy (LPS) for new product development

5.4 Project 1c: ARM IP categorisation

5.5 ARM’s evaluation and its business ecosystem development

6 Intel Re-Enters the Mobile Computing Business Ecosystem

6.1 Introduction

6.2 Project 2a: the PC industry

6.3 Project 2b: Xscale

6.4 Project 2c: Atom-based

6.5 Intel’s evaluation and its business ecosystem development

7 MTK Enhances the Business Ecosystem Efficiency

7.1 Introduction

7.2 Project 3a: VCD and DVD market

7.3 Project 3b: Mobile 2G

7.4 Project 3c: Smartphone

7.5 MTK’s evaluation and its business ecosystem development

Part III   Theory Construction of Business Ecosystems

8 The Business Ecosystem Life Cycle and Its Phase-Ending Status

8.1 Five phases, identification

8.2 Phase-ending status

8.3 Discussion of life-cycle study

8.4 Conclusion

9 Business Ecosystem Constructive Elements

9.1 Introduction

9.2 Data analysis

9.3 Constructive elements by phase

9.4 General constructive elements of a business ecosystem

9.5 The natural metaphor

9.6 Discussion on constructs study

9.7 Conclusion

10 Business Ecosystem Configuration Pattern

10.1 Introduction

10.2 Dimensions for identifying ecosystem pattern

10.3 Configuration pattern identification

10.4 Configuration pattern evolution along business ecosystem life cycle

10.5 General path of ecosystem pattern evolution

10.6 Discussion on configuration pattern study

10.7 Conclusion

11 Business Ecosystem Nurturing Process

11.1 Introduction

11.2 Three cases’ typical nurturing process analysis

11.3 General nurturing process along the business ecosystem life cycle

11.4 Nurturing process for industrial practice

11.5 Discussion of the nurturing process

11.6 The key constructive elements during the nurturing process

11.7 Conclusion

12 Conclusion and Discussion

12.1 Research findings

12.2 Implication to theory

12.3 Implication to research methodology

12.4 Implication to practice

12.5 Research limitation

12.6 Future research opportunities

Appendix

Notes

References

Index

List of Figures

1.1 Section and chapter structure of the book

2.1 Semiconductor supply chain

2.2 Roadmap of semiconductor industry

2.3 Two architecture choices for chip design

2.4 The convergence trend in the mobile computing industry

2.5 Key players in the mobile computing industry

2.6 Exploratory cases’ position in a typical mobile computing supply chain

3.1 The relevant theories to business ecosystem

3.2 GMVN life cycle

3.3 Conclusion of literature review

3.4 The whole picture of a business ecosystem

3.5 Road map of business ecosystem literature since 1993

3.6 Research gaps of business ecosystem

4.1 Research process framework

4.2 Conceptual framework of the business ecosystem

4.3 Data collection protocol

4.4 Overview of procedure

5.1 ARM’s nurturing process of their business ecosystem

5.2 ARM’s first mobile project with NOKIA and TI

5.3 ARM’s leader partner strategy for new product development

5.4 ARM’s offer for industrial concerns

5.5 ST Micro-controller unit road map with ARM’s Cortex M3

6.1 Intel’s nurturing process of their business ecosystem

6.2 Intel’s business ecosystem product: Aigo MID P888

7.1 China’s unique semiconductor value chain

7.2 MTK’s nurturing process of their business ecosystem

7.3 MTK’s start point in different markets

7.4 Turnkey solution development

8.1 Phase-ending status of the business ecosystem life cycle

8.2 The business ecosystem life cycle and phase status

9.1 Integration of business ecosystem constructive elements

10.1 Configuration pattern classification

10.2 Conclusion on business ecosystem configuration pattern

10.3 Main cases’ pattern evolution

10.4 Pattern evolution along business ecosystem life cycle

11.1 Methods of developing nurturing process

11.2 ARM’s pattern to nurture business ecosystem

11.3 Intel’s pattern to nurture business ecosystem

11.4 MTK’s pattern to nurture business ecosystem

11.5 Detail nurturing process of each phase

11.6 Business ecosystem life cycle and its nurturing process

11.7 Three patterns of nurturing process for practical use

11.8 Key elements during the nurturing process

12.1 Conclusion about the configuration pattern

12.2 Research findings integration

12.3 Research limitation and future research opportunities

List of Tables

2.1 Players in the mobile computing industry

2.2 List of current solutions for the mobile computing industry

2.3 An example of P/Book product detail

2.4 Comparison of different architectures

2.5 Different companies’ strategies

3.1 Theories on industrial challenges

3.2 Overview of the business ecosystem definitions

3.3 Overview of the business ecosystem (BE) study since 1993

3.4 The evolutionary stages of a business ecosystem

3.5 Evolution of life-cycle study: product, industry and business ecosystem

3.6 Comparison of the biology ecosystem – related theories

3.7 The key areas for network study

4.1 Selective criteria for main cases’ studies

4.2 Main cases’ projects list

4.3 Data collection of research questions

4.4 Data analysis methods

5.1 ARM’s product evolution

5.2 ARM’s market share

5.3 ARM’s business ecosystem development by phase

6.1 Defining the different devices in the mobile computing industry

6.2 Intel’s business ecosystem development by phase

7.1 MTK’s business ecosystem development by phase

8.1 Cross-cases analysis for phase identification

8.2 Comparison between different life-cycle studies

9.1 Constructive elements from the analysis of ARM case

9.2 Constructive elements from the analysis of Intel case

9.3 Constructive elements from the analysis of MTK case

9.4 Cross cases analysis

9.5 Concept of each constructive element along phase status

9.6 Solution platform classification

9.7 General constructive elements of business ecosystem

9.8 Definition of constructive elements

9.9 Comparison between business ecosystem and natural ecosystem

9.10 Construct study evolution

10.1 Relationship among drivers, requirements and constructive elements

10.2 Configuration pattern classification

10.3 Configuration pattern evolution from main cases perspective

11.1 ARM’s nurturing process

11.2 Intel’s nurturing process

11.3 MTK’s nurturing process

11.4 Nurturing steps identification

11.5 Different patterns of nurturing process

12.1 Theoretical and practical implication

Acknowledgements

Many thanks go to the industrialists who provided access to their companies and allowed us to participate in the cases and research.

List of Abbreviations

1

Introduction

1.1   New industry frontier: from supply chains towards business ecosystems

The mobile phone industry has experienced dramatic changes in the last five years. In the West, while Apple has dominated the industry and Samsung has risen in popularity, previously established players such as Nokia, Sony-Ericson and Motorola have almost disappeared. In the Chinese market, the new smartphone company Xiaomi sold almost 19 million smartphones in 2013, up from only 400,000 in 2011. By taking advantage of established manufacturing resources and integrating them on its business platform, Xiaomi successfully imitated Apple’s business model, tailoring it to the Chinese mobile phone market. It co-opted the Chinese mobile phone ecosystem into its value-creation network, delivering unprecedented rapid growth and creating the most popular Chinese domestic mobile phone brand within two years.

Xiaomi’s success may demonstrate the end of an era when the vertically integrated firm has been the dominant mode of industrial organisation in the emerging and fast-growing phases of industry development. Its alternative model illustrates that collaboration among complementary organisations, diversified resources and skill sets are essential for nurturing new firms, supply chains, value networks and industries.

A second example of rapid change is that the mobile phone industry has also converged with the personal computer (PC) industry to form a new mobile computing industry, potentially improving the performance for portable devices. Two groups of companies have been engaged in developing potential end-user products in this emerging industry. The mobile phone group produces a portable device used for daily communication while the PC group is normally involved in data processing or entertainment. However, consumers have an increased expectation to be able to carry out various simple computing operations while they travel, and mobile computing functions such as easy access to the Internet, long standby time and simple computing have become very appealing. To meet these expectations, the mobile phone group has devoted more attention to smartphones or MIDs (Mobile Internet Devices) than to the 2G phone in order to add more computing functions to enable users to carry out simple computing tasks while travelling, while the PC group seeks to make the notebooks much smaller in size, portable and with long standby times, so that the product can perform more functions without being recharged.

However, the convergence of these two industries is not straightforward. Products of the mobile computing industry are still in flux, although iPad dominates the market. Each group hopes to retain its advantages to form new generations of products. They cannot reach an agreement in the design of end-user products. More critically and interestingly, the industrial structures and the business models in the two groups are very different. The PC industry has been dominated by the Win-Tel system for more than 30 years while the mobile phone industry is mainly enabled by ARM IP architecture and more diversified networks domination. The serious competition between these two groups inspires and forces many firms to concern themselves deeply with their selection of business ecosystems (Moore 1993). The new competition in the emerging industry has been transformed from the traditional levels between firms and supply chains towards a new level between Win-Tel–based and ARM-based ecosystems.

The third example has nothing to do with mobile phones but goes back to China again. The Chinese central government has invested a huge amount of money in renewable energy vehicles in the last fifteen years (from its 9th to the 12th Five-Year-Plan periods). Strategically it intends to find new ways to develop the family transportation industry and to solve two longer-term issues. First, although China has emerged as the largest producer and market in the automotive industry, the Chinese government has been convinced that its state-owned car producers have become Chinese subsidiaries of foreign, multinational corporations (MNCs). They are weak in innovation and high-value–capturing capabilities. Secondly, the fusel fuel combustion engine automotive industry is almost towards its own end, and China has yet to develop its own renewable energy vehicle industry. The politically motivated investments have, unsurprisingly, not brought on any significant industrial breakthroughs. However, the grass-roots entrepreneurs, aligning with their local governments in the Shandong Province (located between Beijing and Shanghai), amazingly created a very successful but quite low-end and largely ‘illegal’ electric vehicle (EV) industry (it is also called micro-EV) in the last ten years. When its market size almost reached 200,000 units in provincial annual EV sales in 2010, the Chinese central government forbade the EV productions based on Chinese established regulations and policies in the automotive industry.

The serious arguments and thoughts are that, although there are very strong and increasing demands for the low-end EVs from the rural market and even stronger supply capabilities from the province and global industry supports, it is useless unless the automotive industrial policies, regulations and legislation are able to be adapted according to the new development requirements. The emerging EV industry must be the best example to demonstrate the increasingly critical challenge for an industry development. For the Chinese grass-roots EV manufacturing companies and their local and global collaborators, it is not the most serious challenge to understand the increasing demands for the EV, or to set up a supply chain or value network to co-develop the EVs to satisfy the targeted markets, or even to identify the complementors, such as electric charging service providers and their underlying renewable energy infrastructures. It is so essential that all parts – demand, supply, intermediary sides – work together. In the Chinese Shandong EV industrial development case, the intermediary part is obviously the most significant bottleneck.

As a result of the above three examples, industries are facing emerging challenges in order to cope with the dynamic changes and uncertain business environments as well as the fast emergence and transformations of new technologies and market demands. These challenges may not come mainly from an individual firm or supply-chain levels but from a more complex, dynamic and much wider range of business contexts and systems together. Industrial people adopted ecological metaphors and gave the new challenging totality a very imaginable terminology: business ecosystem (BE).

There is no doubt about the BE existence and its strong impact on industrial development and global competition. However, industry also asks, if the business ecosystem is so powerful and critical,

• what a business ecosystem is, and what key building blocks organise a business ecosystem;

• and how a business ecosystem should be nurtured.

1.2   Business ecosystems: from a fantastic metaphor to scientific understanding

Although academics have paid close attention to business environmental changes and features for a very long time, the concept of a ‘business ecosystem’ was only formally proposed in 1993. James Moore developed a theory to explore and explain the interactions and co-evolutions between firms and their business environment (1993). He defined the business-related firms and their environments from a totality named a business ecosystem. A business ecosystem contains opportunity space, supply-chain–related companies and different levels of organisations, such as industry associations, competitors and policymakers. These organisations have a big impact on the development of an industry, especially when that industry is experiencing rapid change. A business ecosystem has a life cycle of four sequential phases: birth, expansion, authorities and renewal. Moore’s theory inspired firms with the importance of co-evolution, highlighting cross-industry activity and blurring industry boundaries (Moore 1996).

After Moore’s paper, about 350 academic papers have been published in the last 20 years. So far the main contributions of business ecosystem literatures were from five bodies of knowledge, including strategic management, organisation and network studies, operations management, digital industry and, most recently, innovation management. These academic disciplines have taken business ecosystem as a unique lens through which to review their established boundaries and to identify emerging issues. It is obvious that many disciplines have realised that the new concept not only brings an attractive metaphor but also opens a much wider territory for exploration.

However, the research and related theories specifically targeting business ecosystems and their behaviours are still very rare, especially lack of systematic observation and analysis (Peltoniemi & Vuori 2004). In the academic world there seems to be still no consensus towards recognising the business ecosystem as an emerging research arena that can be fundamentally helpful to business and management.

Currently the industrial challenges from many emerging industries such as the Internet, mobile computing, renewable energy and 3D printing, as well as the digital economies with uncertain product and complex collaboration, have highlighted the importance of business ecosystem utilisation. This phenomenon indicates a good opportunity to study the business ecosystem more deeply.

Business ecosystem of course can be an excellent metaphor to help the imagination of the business environment, targeting its latent resources, leveraging a better position strategically and forming a unique value-creation network more effectively.

However, it is much more critical for academics to realise the business ecosystem as an emerging and essential body of knowledge and a rich research arena. Therefore it is worth thoroughly exploring and understanding the attributes and behaviours of business ecosystems.

1.3   Aims and characteristics of the book: explorations of the system and methodology

This book seeks to explore the basic characteristics of business ecosystems and to capture some practical experiences to nurture an ecosystem for business transformation. In order to comprehensively study business ecosystems, a systematic investigation has been conducted to build the theories relevant to the business ecosystem’s concerns.

During globalisation, the manufacturing industry has been fundamentally transformed from the traditional, single-site factory- or firm-based system into multiple levels of networks, including intra-firm (international manufacturing) networks, inter-firm (supply chain, industry cluster, business) relationships, as well as the international and inter-firm (international alliance, global manufacturing virtual network, open innovation) networks (Shi & Gregory 2001). The globalised transformations also change the business ecosystems. Evolutionarily the business ecosystem can also be recognised as a further extension of globalisation and transformation. It is a critical part of studying business ecosystem to deeply understand the transformation process, especially to capture the journey of emerging industry along its whole life cycle.

By learning from the research background, the main research objectives are to understand the business ecosystem as a whole, and to specifically:

1) identify key constructive elements of a business ecosystem

2) explore the evolutionary path of a business ecosystem

3) summarise typical patterns of a business ecosystem with adaptive strategies

4) develop a firm-based business ecosystem nurturing process

1.4   Structure of the book chapters: a research journey

As shown in Figure 1.1, this book consists of three main parts and 12 chapters.

Chapter 1 introduces the background and an overview of the book.

Following the research journey, the main body of the book is comprised of three sections between the introduction and the conclusion: