On Tuesday, I shared a discussion with famed Harvard Professor, Marco Iansiti, where he describes business ecosystems. I am continuing the discussion with his co-author, Roy Levien, who provides details about the model for successful businesses. As a side note, you will notice that Roy is an inventor with Intellectual Ventures – a somewhat super secret organization working with the best talent on the planet generating patents and new ideas.
Here is part 1 of this discussion.
Roy Levien is an inventor at Intellectual Ventures, an intellectual property fund, and the Manager and Principal of Keystone Advantage LLC, a strategy and technology consultancy. His recent works have generated considerable interest including, “The Keystone Advantage: What the New Dynamics of Business Ecosystems Mean for Strategy Innovation, and Sustainability” (with M. Iansiti, Harvard Business School Press), and the article, “The Ecology of Strategy” (also with Prof. Iansiti, Harvard Business Review). The New York Times was particularly impressed with the “admiring stir” that “The Keystone Advantage” was causing in among those who study innovation, competition and corporate strategy.
Q: Roy, considering your tight schedule as an internationally renowned expert, we are very fortunate you had the time to do this interview. Thank you!
A: It’s always a pleasure to share ideas. Thank you.
Q: Contrast and then detail your association and history with Aldaron, Intellectual Ventures, and Keystone Advantage.
A: Aldaron is a private umbrella for a variety of undertakings, including my writing, while Keystone Advantage has, of course, a consultancy built around the core set of ideas discussed in my recent book with the same title. I find that these are merging now into a consultancy that takes a biological view and looks towards the future in a wide variety of domains of which business is just one. My work at Intellectual Ventures (IV) is unrelated. My role is as an inventor working on new ideas and shaping them into valuable intellectual property. IV has been covered recently in the press, both in a feature in Newsweek and MIT’s Technology Review, and frankly, I can’t say much about what goes on there, except that it’s a lot of fun. I work with the smartest and most creative people I know in an environment that’s a combination of being in Buckaroo Banzai or U2, and the early days at Microsoft. Strange but true.
Q: Keystone Advantage has two categories of clientele. Can describe these two groups and how you address their needs?
A: Generally I look for companies that can benefit from a rethinking of their place in their network. While they could be divided into two groups, firms that are smaller and trying to understand how they fit in to their ecosystems, and firms that are larger and have more influence on their systems and hope to get better at it, I don’t see them as that distinct. Both groups face opportunities and challenges that overlap. Another thing that unites the kind of firm I look for is that they eschew the conventional consultancy model in which armies of junior analysts bill hour after padded hour to work out and “operationalize” all kinds of fantastic plans that they present in endless PowerPoint. My model is that a day of intensive brainstorming with the right people is your best value. Beyond that, the client either has the capacity to run with it pretty much on their own, or there’s really not much hope in the first place.
Q: Whether it’s colonial empires, biological systems, or businesses such as eBay with their small number of engineers, there are hubs or smaller number of entities influencing larger networks. Can you discuss your concepts of sharing value, innovation, business ecosystems, and keystones?
A: This is the core of the argument we develop in the book. In a nutshell the idea is in almost all complex networked systems that evolve over time – whether they are biological ones, like ecosystems, evolving through a process of natural selection, or man-made, like firms, governments, cities, empires or other institutions – they share features in their structure and dynamics. One of these is that, when you look at them as networks consisting of nodes and connections between those nodes, certain nodes are inevitably much more richly connected than others. These hubs have a disproportionate influence on how these networks function – far beyond any measure of their physical presence in the system. They shape the way the system works. Firms that do this right, which I call “keystones” in analogy with their biological counterparts, have the potential to increase the stability and productivity of these systems by facilitating the flow of value though the system. Their privileged position lets them control how much value they extract for themselves, and how much they leave for the other members of their network. If they balance this right, they can enable and sustain a large and dynamic system that lasts a long time. And there are specific things they can do to achieve this. One of the most important is the creation of a platform – a set of tools, technologies, and standards – that makes it easier for other members of the system to participate and share the value they create with other members of the system.
Microsoft is an excellent example. They have a huge influence on how the computing ecosystem works that is far out of proportion with any measure of their physical presence – number of products, revenue, number of employees. They achieve this through careful management of their position in the network of firms and technologies that constitute that ecosystem. Thinking about Microsoft in this way requires some refocusing, we are accustomed to seeing it as an ever-expanding dominating firm that crushes competitors that get too close to it, so it’s initially difficult to think of it as a small part of a much larger network. But if you take your eyes off the handful of firms near the core of the network that have been swallowed or crushed by Microsoft, and direct your attention to the fringes of the network you can see a pattern: for each firm that is crushed, many new opportunities are created elsewhere. This happens because Microsoft absorbs the functions of the eliminated firms into an expanding and increasingly capable platform on which others can really expand.
This is the same process that goes on in biological evolution: its capacity to build increasingly complex systems through integration. One living system absorbs and incorporates functions from others and thus gets more capable. That’s an important innovative process in evolution – at least as important as mutation, which generally gets all the attention. If there had been conventional anti-trust regulators around billions of years ago to cry foul when plant ancestors acquired (perhaps enslaved is even the correct term) chloroplasts, or when animal ancestors acquired mitochondria, then we’d live in a much simpler and less interesting world (actually “we” wouldn’t exist at all) – though perhaps a “fairer” one from the perspective of chloroplasts and mitochondria!
This process of evolution through incorporation (in addition to mutation) has parallels in business networks: integration in addition to invention. Integration is a critical part of innovation in such networks. That’s why it’s unfair to knock Microsoft for not being innovative. They may invent less than people think they should, but they innovate through integration, just as Nature does. This is a process that may not produce optimal or aesthetically pleasing results – Nature is full of “good enough” solutions – but it works and leads to rapid advance.