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

The emergence of ecosystems has transformed the competition between incumbents and new entrants. Porter's traditional framework is an important tool for understanding the forces that shape competition within an industry, but it cannot be used to assess the current business ecosystems. Learn about solutions such as nodal advantage and strategic alliances to obtain competitive advantage in the current business climate.

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

limited the compatibility of its smartwatch, to its smartphone, theGalaxy S3, in order to
develop the Samsung mobile ecosystem (Dobbs, 2014).
A nodal advantage can be achieved by inventing and coordinating a set of activities
that provide relevant products and services to associating customers, therefore, establishing
ecosystems (Shaughnessy, 2016). Based on the current business environment, business can
shift from the traditional way of performance by participating in such innovating entities. In
most instances, the appropriateness of these initiatives is usually fostered by the presence of
technological businesses.
2. Allying
Strategic alliances have become a central part of most multinationals, as well as small
businesses, in attaining competitive edge and expansion methods through access to
knowledge and information (Kale & Singh, 2009). One of the benefits of strategic alliances is
that it allows companies to strengthen the positioning of their brands by enhancing
efficiencies, their market power, accessibility to new resources, and markets (Rothaermel &
Boeker, 2008). Many large companies in the world today have had at least 20% of their
capitals and more than 30% of their yearly expenses tied up in one or more strategic alliance
relationships (Ghosal, 2015).
The increasing growth of alliances between corporations has become an outstanding
platform to improve competitive advantage (Altman, 2016).Alliances and partnerships have
become formal associations in which one or more different firms agree to collaborate to
exchange, share or develop capabilities or resources to mutually achieve certain benefits
(Laszlo & Zhexembayeva, 2017). Approaches to the formation of successful alliances under
ecosystems are outlined.

i) Building a bridge to “Our Way”
Strategic managers must understand the reason why they are forming an alliance and
what the other firms expect from them through scanning of the potential business ecosystem
between the firms in the new relationship. Given that every employee in an alliance team has
to develop new expertise and work in a different way than they do when concentrating within
their firms, executives should not be rigid to change (Hsieh et al., 2010). Rather than “my
way” or “your way” alliances must strive to build a bridge to “our way.” Building a strategic
relationship found on such a concept permits managers and employees to focus their energies
and synergies towards its success and creating an ecosystem that encourages achievement of
objectives.
Example:
Safaricom is the leading mobile operator in Kenya and is partially owned by Vodafone.
Safaricom has successfully provided the services of M-PESA (mobile money). The strategic
managers from both Companies proposed an initiative of allying that will revolutionize
mobile money. The alliance led to the introduction of MPESA mobile money system. This
service has been recognized as the global leading mobile money service. The system of
MPESA operates under the principle of understanding the sub-cultures of Kenyan people.
This concept was based on the fact that millions of people living in Kenya possess mobile
phones, hence, the introduction of this service will obtain more customers.
Given that the ecosystem as a perspective highlights the alignment of each partner, it
introduces a new dimension of consideration for the traditional approach (Adner, 2016).

Noteworthy is those alliance procedures that worked well for other firms does not necessarily
suggest that it will be effective in another association.
The limitation with the suggested solution is that it makes partners place more value
on the informal culture than formal. For instance, if a firm has established a formal
philosophy that empowers employees in decision-making while the informal culture seeks the
approval of multiple levels of management, staff face challenge to get things done right.
ii) Developing a shared vision
In an atmosphere of growing connectivity, aggressive encounters are common multi-
dimensional and wide based but rewarding within and among ecosystems that are large rather
than amid organisations that compete for a share of the market. For instance, Walmart
ecosystem competes with that of Amazon. Firms establishing strategic relations need growth
and expansion derived from the undertaking. Alliance cohorts have equal power and
responsibilities in the activity unlike in subcontracting engagements. Each of the members is
a separate entity having its guidelines, goals, and missions. As a result, to be effective,
partners must put into consideration some of the questions such as “What is it for them?” and
“What is in for me?” Providing answers to such questions depend on the understanding of
their respective mission, vision, and strategies of both firms combined.
In the process, shifting the emphasis from compactly bracketed sectors and
accounting for the multifaceted network of conjointly interrelated nodes among para-
industrial bodies, consumers, and businesses (Kumar, Dass & Kumar, 2015; Dass & Kumar,
2014). The approach is beneficial to companies because it supports the building of trust

which is practised at suitable levels of the partnership. Although attributes such as
commitment, complimentary, and compatibility are crucial to the success of an alliance,
emerging studies have demonstrated that strategic managers ought to acknowledge the
conditions under which some of the characteristics are effective. Partner complementarity
appears to have a strong role in a strategic relationship when one cohort is comparatively
younger than the other (Rothaermel & Boeker, 2008).
However, commitment remains crucial where partners have recognised particular
benefits they anticipate to gain by establishing an association. The commitment of a cohort is
essential because firms allying must be ready and willing to dedicate their material and
intellectual resources as well as pledging to even when they experience various cultural
differences.
Example:
Apple Pay and MasterCard shared a vision of engaging in a strategic alliance. MasterCard is
recognized as the second largest credit card Company in the world. This is a market
positioning strategy adopted by Apple pay in order to advance the processing of arena among
other commercial provisions. As a global strategy, MasterCard will obtain the benefit of
emerging as the first means of payment accepted by Apple pay. This alliance relationship will
not be exclusive because MasterCard is more powerful than Apple Pay. Both companies have
a shared vision of increasing their competencies and a comparative advantage. The operating
alliance between MasterCard and Apple pay is consistent with AA strategies (Figure 2). The
principle of aggregation and adaptation has been adopted to give the Companies economies
of scale, hence improving their revenues with a high margin.

Figure 2: AAA Framework
(Ghemawat, 2007)
Recommendations/ Next Steps
An ecosystem is a challenging place to navigate, especially for organisations
operating under an interconnected strategy. In Porters approach a firm’s capabilities to tap
into the location advantages of other nations are viewed as limited (Husted, Allen & Kock,
2015). Therefore, firms should utilize The Global Advantage Diamond (figure 2) to gain
competitive advantage through platforms and alliances to overcome the issues with the
traditional business performance framework.

Figure 3: The Global Advantage Diamond
(Source: Kamau & Kagiri, 2015)
To enhance the competitive advantage of an organization, the global advantage
diamond encourages leadership to focus on market access, resource access, network
coordination and local adaptation.
Outline your global objectives in relation to the environment of the organization and
after understanding this segment, you should establish a set of initiatives to expand the
market and offset the incidence of the dynamic environment especially if your business has
an alliance through:
Enhancing the go-to-market approach- This system can be achieved by improving
status of the current marketing and sales forces.
Improving the manufacturing facilities- This can be achieved by establishing
competitively complex system of manufacturing facilities to stand-out and produce quality
products in the market

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