Leadership in the 21st century: from Business CEO to Ecosystem Mayor
By Greg Bernarda
In the mid 2000s, when Taobao was starting to grow exponentially, Jack Ma was asked what talents were at the top of his recruiting strategy. His answer puzzled people. It was not MBAs or tech whizz, but psychologists and sociologists.
Why? Because Jack Ma realized Taobao was not a traditional business, it was an ecosystem. He needed people who understood human and social behavior and who were adept at writing policies much in the same way national leadership governs a country.
Taobao grew to become one of the most successful business stories of the early 21st century. And it is also one of the clearest examples of a company with an impact larger than business.
During the first eight years of its existence, it is credited for creating 18 million jobs in China (directly or through its platform and value chain), the building of a digital infrastructure of digital payments and express shipping, and the integration of rural villages into the modern economy.
Taobao, like Tesla, Amazon, Airbnb and many others have revolutionized entire industries because they have taken the responsibility to innovate beyond their traditional boundaries.
Let’s put this in perspective. We can think of value creation happening at three distinct levels: the individual, the organization, and the system. In business, we call these: the value proposition, the business model, and the ecosystem.
Most companies who successfully create value from their ideas, assets, and technologies focus on product innovation (value proposition, level 1). A smaller group accompanies product with business model innovation, changing the formula about how value is created, distributed and captured (level 2). An even smaller group is focused on transforming or creating entirely new ecosystems (level 3).
Ecosystem innovation is not for the faint of heart: it’s typically a long-term game, with delayed profits, and lots of uncertainty. But with success also comes the opportunity to shape a sector anew, with large rewards and transformative societal impact.
What is an ecosystem and what’s the leader’s job description?
So what are ecosystems, how do they work, and how to lead in them? In nature, an ecosystem is often described as a biological community of interacting organisms and their physical environment. Let’s adapt this definition to the business world: a business community of interacting actors and their physical (or digital) environment.
Ecosystem leaders shape ecosystems by creating a new web or relationships and a new coherence -a new home- for actors and their environment.
To understand better, let’s take the metaphor of a village to illustrate our three levels of value creation. In a village, goods are exchanged (level 1: value propositions). Different kinds of producers get organized to create and deliver these goods (level 2: business models). Both of these things take place and have to adapt to the rules, culture and infrastructure of the village (level 3: the ecosystem).
The leader of an ecosystem is akin to the Mayor of the village. She doesn’t just worry about good products or the functioning of factories. The Mayor takes responsibility for the entire village. This includes maintaining the roads, building schools, and ensuring villagers get along with one another.
This is exactly the kind of perimeter that the likes of Jack Ma or Elon Musk take on: they don’t just change the product or the business, they change the entire environment as well.
How exactly is their thinking and acting different from traditional CEOs? Here are five shifts that set them apart.
1 - Embrace a societal, not a business vision
Changing an ecosystem requires departing from how business has been done in the sector and asking ourselves what people might want and need, and how our world might look like. These questions don’t get answered through the narrow lens of the business strategy. It’s an act of the imagination that demands of us to connect with our best version of the future.
This future will then define a perimeter that will be different and larger than that of our current business and likely of our industry. This perimeter touches a multitude of stakeholders -including non-business stakeholders-, all of whom need to be inspired and convinced to join. Again, the typical business approach doesn’t cut it here. What is needed is a vision others can imagine playing a role in.
The overarching objective of Jack Ma and his founding Taobao team was not selling subscriptions, or increasing the volume of transactions. It was job creation. An objective aligned with the necessities of the country at the time.
In its very first public articulation, Elon Musk’s strategic plan wasn’t about building fancy electric cars, it was to ‘transition to an electric economy’.
Take-away: it’s difficult to disagree with a societal vision, and that’s the point. The framing in societal terms makes it easier for all who need to support it to actually do.
2 - Redraw boundaries with unusual partners
Having a societal vision frees us from the current constraints of how things are done and who is involved. Next we can draw new contours for the ecosystem, involving the actors who are most needed to contribute to making the societal vision happen. Often at least part of these actors are different from the usual suspects of the previous ecosystem.
Tesla partnered with competitors Toyota and Mercedes Benz at the start, to bring about a critical mass to the electric car industry and with battery maker Panasonic to build a critical aspect of the technology (batteries). Not the regular partners of the auto majors at the time.
Taobao worked with banks to create digital payment systems, facilitated the emergence of logistics providers, and brought in all sorts of service providers (from app developers to fashion models) to develop its e-commerce platform.
Xiaomi invested into IoT startups and enabled them to access the market through its mobile platform and the power of its brand under a promise to bring a connected lifestyle to all.
Take-away: thinking freely about who can help deliver the societal vision leads to creative connections that redefine what the ecosystem looks like and who plays in it.
3 - Take care of the infrastructure
Just like a village mayor and her team needs to build or maintain the roads, the sewage system and the electric network, leaders need to figure out what infrastructure their ecosystems runs on.
In most cases this infrastructure doesn’t exist, or needs to be drastically upended to support the vision. This is one distinguishing feature of innovation at the level of the ecosystem: to truly bring about something new requires a whole new foundation.
For a standard business (active at levels 1 and 2), a missing infrastructure would be enough reason to say the world is not ready for the idea. Not so for ecosystem pioneers, who take it upon themselves to plug the holes, wherever they might be.
It’s a big responsibility, and comes with a requirement for patience and large pockets. But if successful, it can establish new standards and protocols. In other words it doesn’t just bring new things, it installs a whole new way of doing things!
Infrastructure can be physical (Tesla charging stations), digital (Airbnb marketplace), and even organizational (Open Handset Alliance1). It is not necessarily owned by the ecosystem leader. Sometimes, the most efficient and most legitimate way of building an infrastructure is to do it in partnership with others. Roche Canada co-created a not-for-profit organization with other pharma companies, academia and non-governmental organizations to collect and manage patient data. It would have been unacceptable for Canadian society to leave this kind of personal data in the hands of pharmaceutical companies. Roche needed access to data for its vision around a personal health ecosystem to work, but it didn’t need to own it. Looking for creative win-win formulas is a key aspect of the job description.
Take-away: paying attention to what kind of infrastructure is required for the ecosystem to run on, what aspects of it might be missing, and what actors should be involved in building and owning it are part of the questions to address in order to create the foundations for the ecosystem vision to become reality.
4 - Optimize collective performance
Another item on the Mayor’s job description is to ensure the village as a whole is healthy, thriving, and lives up to its potential. The Mayor doesn’t just care about how great the town-hall looks, if its goals are met, and its employees are happy. Fundamentally, the Mayor’s job is outwardly focused and aimed at delivering value to its constituents.
The same is true for ecosystem leaders. They take responsibility to maximize the potential of the entire ecosystem, not just their part in it.
The story of chip manufacturer Intel is instructive. In the eighties, Intel was a thriving business, selling chips to computer manufacturers. But at the time, computers were not as ubiquitous as they are now and PC manufacturers didn’t really see a need for exponentially more powerful micro-processors. Intel already had 80% market share so growth had to come from a different place.
Intel started to embrace an ecosystem strategy and created the Architecture Lab, a special outfit focused on two missions:
- The first: to create a vision for what personal computing could do in the future. They explored applications like video-conferencing and connected home appliances. This started to embolden PC manufacturers, who could now imagine new markets and appreciate the value for more powerful chips.
- The second: chips were powerful, but the architecture of motherboards did not allow to transfer this power to the other components in the system (modem, video, sound cards) so it could ultimately power new applications. So Intel created the PCI bus, the missing link to connect the power of the chip with the rest of the components. They made it available for free and it became a standard for the entire industry.
This ‘plugging the holes’ at a very technical level is a great metaphor for what ecosystem leaders do when they see a missing link in the environment that prevents the full realization of their vision.
Of course Intel benefited from it. As computer applications developed, manufacturers asked for more powerful microprocessors and in more quantities and Intel remained the leader for several decades.
Take-away: spot subpar performance in the ecosystem and take responsibility to remove obstacles. The point is to enhance performance of the whole, not just the part one is directly accountable for.
5 - Help others make the transition
Even if an ecosystem looks great on paper, it is not guaranteed that the required stakeholders will join. It may be too expensive. It may require a transformation of their business model which risks upsetting partners. Or they may not feel ready to succeed. Reasons are aplenty.
Making it easy for all needed stakeholders to join is another activity ecosystem leaders think about. One more time, this is about going beyond the typical responsibility of an organization.
Three tactics are popular here.
Enabling others: this is about transferring assets to others in the ecosystem, without which it would be very hard for them to join. Elon Musk famously gave Tesla’s patents away for free to competitors. Why? Because without other auto manufacturers joining, the electric auto industry would not have reached a critical mass to survive. For those on the fence, patents lowered the barrier of entry. The ‘pie’ grew for everyone, and instead of 100% of a small fledgling market, Tesla would end up with a smaller share but of a much larger market.
Upskilling: very often people don’t have the skills or the knowledge to participate in a new ecosystem, even if it is in their interest. When Taobao saw users flock to its platform, it quickly started to teach them business skills so they could become successful entrepreneurs. This indirectly contributed to the growth of users and the volume of transactions on the platform.
Subsidize: another ecosystem tactic is to subsidize the actors for whom it’s otherwise not worth or too expensive to join. When Amazon launched its Kindle and digital books business, publishers resisted. Even though the prospects of a new channel were attractive, the economics didn’t add up. Indeed, a 50% margin on a digital book sold at USD 9.99 was much lower than on a printed book sold at UD 25 or 30. Amazon made the decision to forego their part of the profit and pass it on to publishers. The benefit of leading the digital books revolution and connecting it to other businesses in its portfolio was greater than the immediacy of making profit.
Take-away: thinking only about one’s interests is too narrow a strategy in the ecosystem game. Helping important stakeholders succeed is just as critical.
Long and short-term thinking
Most of these things are not your business-as-usual strategy. They require a different outlook, a different sense of responsibility, and they also require a different time horizon. Indeed an ecosystem gets transformed over a ten to fifteen-year period. This kind of long-term thinking can appear a luxury for most CEOs in today’s environment of quarterly performance reports. Ecosystem leaders deal with it by holding their societal vision loosely in their minds while taking a very pragmatic approach to get there.
Consider how far Tesla has come on its plan to facilitate the transition towards an electric economy. And then consider the path the team has taken to get there. Partly it has been about navigating the ups and downs inherent in the journey, but partly it has been intentional, as is clear in Elon Musk’s own words, written all the way back in 2006:
“In short, the master plan is:
Build sports car
Use that money to build an affordable car
Use that money to build an even more affordable car
While doing above, also provide zero emission electric power generation options
Don't tell anyone.”
The promise of the ecosystem approach is one of aligning the practice of innovation with the level at which societal change needs to happen. It’s time to encourage more leaders to put on their Mayor’s hat and get on with the business of visionary transformation.
1 The Open Handset Alliance is a consortium of 84 companies who came together to develop open standards for mobile services, with the open-source Android platform being their chief achievement. The Alliance, largely led by Google (Alphabet Inc), was a response to iOS, Apple’s own mobile operating system. This is an example where the kind of infrastructure needed to support the functioning of the ecosystem is not physical or digital, but a set of rules, agreements and a legal structure to operate the collaboration.