Moving from Porter's Five Forces to Ecosystem Mindset for Competitive Advantage

Introduction/ Problem Identification
Over the last 30 years, primarily driven by technological innovations and increasing
connectivity, the economy has been shifting from strictly defined industries formed around
large, vertically integrated, “independent” organisations. As a result, “the business
environment has become a jungle rather than a gladiator arena”(James et al., 2012).
The emergence of ecosystems has transformed the competition between incumbents
and new entrants.For example, the 7-year-old start-up Airbnb is valued at $7 billion more
than the 97-year-old Hilton Worldwide (Adi, 2015). “Ecosystem” should not be overlooked,
the idea is becoming widespread. Businesses poorly understand ecosystems; therefore, many
continue to adopt the traditional business mindset. However, the ‘old economy’ is not
comparable to the ‘new economy’ and the old-fashioned mindset, based on the application of
Porter’s Five Forces Model, is no longer leading to competitive advantage (Gaubinger, 2015).
The Relevance of Porters Framework
Porter’s traditional framework is an important tool for understanding the forces that
shape competition within an industry (Figure 1).
Figure 1: Porter’s Five Force Analysis
Model
(Source: Barrick et al., 2015)
The application of Porter’s framework

enables organisations using the traditional mindset of business and product categories to
reorganise and apply effective business strategies that will enhance their competitive power.
However,this model outlines a picture of a comprehensive industry based on past operations
and it cannot be used to assess the current business ecosystems (Kumar et al, 2015).
1. Organisations are ecosystems, not value chains
In the ‘old economy’ it was best to adopt the traditional linear model of distributors and
suppliers by focusing on core competencies and keeping everything in-house, however, this is
unlikely to make you competitive in the future (Cuervo‐Cazurra, 2017). The traditional
product mindset limits strategic thinking. Ultimately, another organisation can do what you
do better so instead look for complimentary services and form alliances.
2. Markets and competitors are more dynamic
Ecosystems do not use industries as a basic unit of analysis. Instead, industry boundaries
blur; rivals can challenge virtually and physically from anywhere in the world, and other
sectors. This enables adjustments to a firm’s product range over time, as well as recognising
interdependencies between organisations that often cross industry boundaries. Today,
competitiveness is achieved through the ability to out-think rivals (Dayan, Heisig & Matos,
2017).
3. It is not about being the biggest
The framework has an implicit assumption that companies succeed through scale; the
bigger the company, the bigger the revenue, the bigger the power. Many companies focus on
being big in order to generate revenue that would cover the capital cost of big factories. They
approach homogenous markets with undifferentiated services and products; this thinking is

outdated. Today, organisations succeed through better ideas and visions, executing them
better than rivals.
Therefore, in the current business climate those who continue to use the Five Forces
Model will become marginalized while members of their ecosystems defect to those offering
better value (Reeves et al., 2016).
Solutions
The future of ecosystems has a profound impact on the way managers need to
strategically think in order to obtain competitive advantage. They must move from a
traditional business mindset towards an ecosystem mindset. Solutions are provided to
overcome this.
1. Ecosystem based on nodal advantage
In the current interconnected world, a web of entities rather than a particular company
coordinates with a set of activities which offers utility to the mutually associated consumers
which develops ecosystems. Ecosystem based production along with consumption
environment considers it vital to develop new set of factors which facilitates in determining
the business success or nodal advantages for organizations (Laszlo & Zhexembayeva, 2017).
It is vital to make a transition from the notion of organisation based competitive
advantages to ecosystem based nodal advantages through which products, services or
processes attained by a particular company that affects one or more ecosystems those are
exploited individually to enhance businesses (Sölvell, 2015). For example, initially, Samsung