Business Ecosystem Design: Value Extraction & Diffusion
By Justin Jarvinen, Global Head of Ecosystems, Strategy & Ventures
Two of the most powerful benefits of a well-designed business ecosystem are extracting value and adoption of new ideas.
If you missed my presentation on business ecosystems last week, you can view it here. While many of us have been hearing more about ecosystems, it’s likely you’re learning about them in marketing speak. The fact is, ecosystems have become an unfortunate new term that, in practice, look and function just like social networks or Rolodex’s. However, for ecosystems to deliver the power they’re capable of, you need a whole new set of tools. An ecosystem isn’t some fancy new business term: it’s a living, breathing collection of value driving agents that serve a purpose and I’ll touch on just a few elements here that, according to The World Economic Forum, will drive more than $100 Trillion in new value by 2025.
In the future, all value will be created — and consumed — from within ecosystems.
I’ll spend most of this short post on Extraction and Diffusion. But to understand how these benefits are made possible, here are 3 soft attributes required for your ecosystem.
- Purpose — Your ecosystem must have a well-defined purpose so that all agents are aligned. This alignment is particularly important as you seek to gain traction for new products or businesses where all the agents willingly embrace the objective. At Salt Flats, our purpose is delivered via what we call Value Systems.
- Motivation — An alignment of incentives rewards agents for participating in value creation. While one of the primary benefits ecosystems provide is increased business process efficiency (speed, cost, etc), you won’t last long creating value for yourself without delivering equal or greater value back to the value creators — the agents. At Salt Flats, we’ve tokenized this process which enables our ecosystem agents to participate directly in the outcomes. The outcome payoff is the reward for creating value and it’s usually pegged to a new product or business we launch.
- Diversity — Essential to ecosystem design, particularly on the extraction side of the equation, is diversity. A diversity of people, experience, expertise, geography, ethnicity: Groupthink kills properly functioning ecosystems. Conversely, diversity challenges prevailing assumptions and forces the collective to consider information it didn’t already have.
The Collective Intelligence that’s intrinsic to your ecosystem is vastly greater than any intelligence derived by yourself or your company. What you don’t know is likely known within your ecosystem. Extracting knowledge, unique perspectives…. data from your ecosystem is called Value Extraction and when purpose and motivation exist, generating new ideas happens naturally.
One way we engage our ecosystems for new ideas is via a variety of workshops. One workshop format is called Co-Invention: we bring multiple corporations together to generate new business ideas that solve common problems and benefit them financially. In these sessions, we may have 20 or more participants from each corporation. From the 40 – 60 people in attendance, we’ll generate 200 – 300 viable ideas from which we can begin to process, score, and experiment.
Using Collective Intelligence and other tools like it, we’re able to extract value from our ecosystems with a speed and rate of success unmatched by more traditional means.
Value Diffusion is the rate at which new ideas spread — or propagate — across and through a network. In our case, this is an ecosystem.
The opposite but complementary means of value creation in an ecosystem is through a process known as diffusion. In ecosystems, diffusion happens at a highly accelerated rate (via a via traditional business building techniques) when purpose and motivations area aligned.
Customer interviews — “If the product looks like x, would you buy it?” — administering product testing and collecting critical user data, conducting pre-sales, igniting social media, generating influencer interest, user onboarding and referrals are all elements of diffusion that have a dramatic influence on the eventual success of your new product or business. Engaging your ecosystem throughout the process of business design engages your agents along the way and ensures higher adoption rates when compared with more traditonal funnel-and-spend techniques.
Well designed and executed Ecosystem as an Operating System businesses benefit from the ability to tap an aligned network of ambassadors, each motivated and incentivized to actively participate in your stated purpose.
Ecosystems will be responsible for vast wealth creation over the coming years and decades. A great place to start the process of designing your ecosystem is to recognize some of the core benefits you’ll derive. Speed to market and cost reductions (and all the myriad other benefits) are by-products of what happens naturally: Value Extraction and Diffusion.
Next up, I’ll write about measuring the potential value of your ecosystem and touch on Network Effect and some of the benefit forward-looking companies can derive as their ecosystems begin transacting business with each other.
In March, we’ll be hosting a live session on IP hosted by our own CTO, James Barkey. Event details and tickets to be released soon.