Business ecosystems for sustainability: why and how firms and public partners share ecosystem leadership?

Anne-Lorène Vernay^1,* Carine Sebi¹, Nuria Moratal-Ferrando²,

¹Grenoble Ecole de Management; ²Nantes Université;

*[email protected]

Abstract

Systemic innovation that aims to tackle complex societal problems require multiple actors to coordinate their efforts and materialize through business ecosystems for sustainability (BMfS). BMfS aim to combine both market and environmental logics. We discuss what their distinctive characteristics and analyze how they influence the difficulties ecosystem leader encounter to be able to manage ecosystem coordination problems. This paper aims to discuss the importance of public actors in helping overcoming these coordination challenges by helping access bottleneck resources. It identifies a number of roles public actors can play and discusses the need to implement a hybrid leadership between public and private actors to enable the emergence and growth of business ecosystems for sustainability.

Keywords 

Business ecosystem; systemic innovation; public organizations

Introduction

The ecological transition is one of the greatest challenge our contemporary society is facing, and asks for innovation covering multiple dimensions: technological and social; political and economic; from production to consumption; at local and global scales; etc. Tackling this challenge requires systemic innovation that radically transform our modes of production and consumption. Systemic innovation calls for changes not only in single technological components but of entire value chains (von Pechmann et al., 2015). The transition to clean mobility for instance requires not only the development of clean vehicles but also the construction of refuelling infrastructure, the production of clean energy to fuel these vehicles, the development of digital solutions to optimise their integration in existing energy systems and to imagine better incentives to foster collective rather than individual modes of transportation. As such, the materialization of systemic innovation depend on the emergence of business ecosystems in which multiple participants coordinate their efforts (von Pechmann et al., 2015). Moreover, to be able to contribute to the ecological transition, these ecosystems have to create environmental and/or social value alongside economic value. Systemic innovations that address complex societal challenges materialize through what we propose to call business ecosystems for sustainability (BEfS).

Business ecosystems are defined as “the alignment structure of the multilateral set of partners that need to interact in order for a focal value proposition to materialize” (Adner, 2017). To emerge, business ecosystems generally require one or more leading actor that organize the coordination between the inter-dependent set of partners (Jacobides et al., 2018). Business ecosystems have become an important subject of study in the last decade. Scholars have sought to understand how they emerge (Thomas et al., 2022), what are the main tensions that arise in such governance structure, how these tensions can be dealt with (Dattée et al., 2018; Wareham et al., 2014). Research also considered the importance of ecosystem leadership, i.e. the capability to solve ecosystem-wide coordination and cooperation problems and sustain itself over time and (Foss et al., 2022; Linde et al., 2021).

Existing research focuses on business ecosystems that are driven by a commercial market logic where the main objective is to generate financial return for shareholders (Thornton et al., 2012). Little attention has been paid to business ecosystems that contribute to tackle societal grand challenges and where an environmental logic plays a role alongside a market logic. Besides, scholars mostly analyzed business ecosystems where private actors coordinate their efforts. Few publications consider business ecosystems comprised of both public and private actors (Linde et al., 2021; Oskam et al., 2021; Visnjic et al., 2016) and this research tends to focus on the case of smart cities. Yet, we argue that local public organizations are likely to play very crucial roles in the emergence of BEfS even when required transformations transcend the scale of a single city or region.

To conclude, we posit that more research is needed that specifically addresses what hinders and what enables the emergence of BEfS that combine market and environmental logics. This paper contributes to filling this gap by asking the following question: which difficulties do ecosystem leaders face when trying to develop BEfS and which roles do public organizations fulfil to help overcome these difficulties? The contribution of this research to the business ecosystem literature are twofold. First, it shows that BEfS have distinctive characteristics that require specific capabilities to solve ecosystem-wide coordination and cooperation problem. Second, it shows that a single private firm may not be able to develop the capabilities required to provide adequate ecosystem leadership. Instead, private firms may have to share ecosystem leadership with public actors. Finally, this paper also contributes to rethink the role that public actors can and maybe even should play in enabling the emergence of BEfS.

Literature Review

Business ecosystem

We are interested in sustainable innovations that are of a systemic nature: they involve multiple components – each with their spectrum of skills and expertise – and therefore require a high level of coordination and cooperation between involved actors (Teece, 1984). To understand how such innovation can materialize, we argue that it is necessary to take an ecosystem perspective (Adner, 2017; Iansiti and Levien, 2004). Borrowed from biology, the term ecosystem refers to a group of interacting actors, generally firms, which depend on each other’s activities (Jacobides et al., 2018). Ecosystems appear when no single actor has the necessary assets, expertise and skills to offer a product or a service for the end-user and the market structure does not allow for enough coordination for the joint value proposition to appear (Jacobides et al., 2018). Literature highlights that there is generally an actor that bears the responsibility to coordinate ecosystem actors. This actor is often referred to as the focal firm (Adner and Kapoor, 2010), the orchestrator (Lingens et al., 2021), or the keystone (Iansiti and Levien, 2004). In this paper, we refer to this actor as ecosystem leaders.

Ecosystem literature has focused on understanding how interdependent players interact in order to create value and commercialize new products or services that will benefit the end-customer (Baldwin, 2012). For these new products or services to materialize, ecosystem leader needs to achieve alignment on: (1) the activities to be performed and their distribution between ecosystem participants, (2) each other’s position in the ecosystem and how this is reflected in how value is distributed between ecosystem participants (Adner, 2017: 40). Because of the lack of market structure, alignment requires mutual agreement among the members of the ecosystem regarding their respective positions and flows.

As they emerge and grow, business ecosystems are faced with a number of coordination problems. To begin with, while each participants joins the ecosystem for its own self-interest, the ecosystem still needs to develop a common understanding of what the collective value proposition is (Wareham et al., 2014). Moreover, ecosystem leader needs to find the right incentives to make sure participants commit resources to the ecosystem (Wareham et al., 2014). Besides, the leader needs to find the appropriate balance between controlling what participants do and ensure coordinated actions while leaving them enough autonomy to fulfil their own objectives (Wareham et al., 2014). Finally, the ecosystem may be faced with a number of unforeseen issues (Foss et al., 2022) resulting for instance in the inadequacy of the collective value proposition or the ecosystem’s inability to materialize the joint value proposition. Ecosystem leader needs to have the capability to ensure the ecosystem is able to renew itself.

For the ecosystem leader, addressing these coordination problems is crucial to ensure the alignment of ecosystem participants. (Kapoor, 2018). Previous literature found that ecosystem leaders should develop dynamic capabilities to be able to orchestrate the emergence and stabilisation of the ecosystem (Foss et al., 2022; Linde et al., 2021). Building on the dynamic capability theory, Foss et al. (2022) describe three coordination problems and formulate six propositions about what ecosystem leaders should do to solve them (see table 2 below).

Business ecosystem for sustainability (BEfS) – when market and environmental logic meet

While business ecosystem generally operate based on a market logic, we argue that tackling societal grand challenges will require the emergence of business ecosystem that combine market and environmental logics. Institutional logics are socially constructed “rules of action, interaction, and interpretation that guide and constrain” organizations within an organizational field (Thornton & Ocasio, 1999: 804). Institutional logics influence the both goals that are considered worthy or attention and the means actors mobilize to achieve these goals (Thornton, 2002).

Business ecosystems that follow a pure market logic have as main objective to increase efficiency in order to maximize profit for shareholders that are driven by their own self-interest and hold the main source of authority (Thornton et al., 2012). As they aim to contribute to tackle societal grand challenges, BEfS attempt to combine two very distinct and seemingly incompatible logics (Pache and Santos, 2010) a market logic and an environmental logic. This implies that BEfS will have distinctive characteristics that differentiate them from other business ecosystems.

First, BEfS aim to materialize a joint value proposition that ambitions to generate environmental benefit alongside economic benefit. Second, BEfS are to generate value not only for their participants but also for society at large. Finally, these ecosystems demand that at least some members are not purely driven by self-interest and that they accept to commit resources to the ecosystem despite a long discrepancy between value creation and value appropriation. Table 1 summarizes three core differences between business ecosystem and BEfS.

Because of these characteristics, we posit that public actors are very likely to play a major role in the emergence of BEfS. Indeed, while environmental challenges are global problems, they are visible and materialize primarily at the local level (e.g. air pollution or freshwater shortage). As such, local public actors will have a stake in resolving these problems and may be natural participants in these ecosystems. Moreover, public actors do not operate based on a market logic and may be more receptive to initiatives that have an environmental logic and where value appropriation spans over long periods. Finally, BEfS may be based on new and possibly disruptive or immature technologies and face technical and market uncertainties. These BEfS will depend on the availability of public sources of funding to create conditions for private actors to undertake bearable financial risks (von Pechmann et al., 2015). This means that public actor are key for the ecosystem to access bottleneck resources (Gueler & Schneider, 2021).

Table1: comparing distinctive attributes of business ecosystem and business ecosystems for sustainability.

Methodology and data

We conduct a theory-building case study (Eisenhardt and Graebner, 2007) and we rely on qualitative data coming from semi-structured interviews, as well as data coming from desk research (policy and institutional reports in addition to other kinds of archival data).

We have chosen to analyse the emergence of business ecosystems around two pilot projects (proof of concept). The first one is an autonomous building – hereafter mentioned as ABC- (among the first to testify the nZEB French label “E+C-“). It has been initiated by a large international construction and real estate corporation in close cooperation with the Grenoble city and its related services (e.g. the local social housing association and the local energy utility). This business ecosystem ambitioned to develop a building that would be 70% autonomous in energy and water therefore having a low environmental footprint during its use.

The other is a refuelling station for green hydrogen mobility – hereafter mentioned ZEV – located in Chambery (a French Alps city). It was initiated by two private firms (a major French energy supplier and a major international actor in mobility) with the regional authorities that created together a Joint Venture (JV) in charge of the deployment of the infrastructure in the region Auvergne-Rhône-Alpes (in total 20 stations as Chambery’s one are expected). The Chambery hydrogen refuelling station was the first of the regional infrastructural project and for which the local authorities of town played a decisive role in its realisation. This business ecosystem ambitions to contribute to the development of a low carbon mobility solution in its area and beyond.

For both cases, we interviewed employees from each of the organizations participating to the ecosystem. These were either decision makers (ex. the president of the joint-venture; founders of start-ups involved, elected officials) or employees involved in the daily operation of the ecosystem (e.g. head of project for the municipality). The interviews had two major objectives. The first one was to understand the specific challenges that the ecosystem faced and how all the members, particularly the leader, faced those challenges. To do so we asked each actor about the sources of fear and uncertainty of the project and which reasons were determinant to finally decide to participate. The second objective of the interviews was to understand the decision-making process and to do so we asked about the problems that emerged, how were agreements made and which was the specific role of the leader in this agreement. While studying the role of public organisation was not the initial objective of the study, their importance clearly emerged out of the first interviews. That is why in follow up interviews we probed interviewees to explain and detail the role played by public actors. In total, this paper is based on 38 interviews (9 interviews for ABC and 29 interviews for ZEV).

To analyse the data, we first proceeded inductively by coding all the difficulties encountered during the emergence of the ecosystem. We then classified those codes according to which of the three coordination problems identified by Foss et al. (2022) these difficulties related to. Foss et al. (2022) also propose six capabilities the leader should have to manage these coordination problems. We identified whether the leaders in our two cases had these capabilities. We coded instances where orchestrator did show these capabilities but also found many instances where the orchestrator was unable to perform these tasks alone. We created first order codes that reflected these difficulties and merged them in second order codes that mirrored the coordination problem they relate to (see table 2 column 3). We also coded all the actions taken by public actors be them a regional authority, a local municipality, a public company or a public agency. These actions may have been mentioned by the public actor themselves or by other members of the ecosystem (ex; the leader or complementors). We then analyse whether and how each of these actions contribute to help the leader overcome the difficulties in managing aforementioned coordination problems (see table 2 column 4.

Preliminary findings

A summary of our preliminary results is available in Table 2. This table introduces the three coordination problems identified by Foss et al. (2022) based on the dynamics capability theory and presents their six propositions about what ecosystem leaders should be able to do. Based on our empirical evidence, and building on the main distinctive characteristics of business ecosystems for sustainability, we first highlight difficulties a private company may face in exercising ecosystem leadership alone. We then show the role played by public actors in the two pilot cases we investigate and how they contributed to help overcome these difficulties.

The presentation of the result is organized following the three coordination problems that leaders of BEfS face.

Coordination problem 1:
Developing mutual understanding of value proposition, participant’s role and capabilities interdependencies, etc.

Foss et al. (2022) highlight that there needs to be a leader who “Is able to adopt a wide lens and form an ecosystem-level vision that accounts for and provides responses to coordination and cooperation problems among prospective ecosystem participants”. Our empirical evidence suggests that while ecosystem leaders are able to do that when it comes to complementors (ex. equipment manufacturers; car dealers), it is unable to do that for end-users as well. In the first case, end-users (the tenants that will live in the building) are co-creator of value because their energy and water consumption behavior will have a strong influence on how much autonomy the building can obtain. Yet, the ecosystem leader does not have direct access to them. In the second case, the limited refueling infrastructure available makes the ecosystem attractive only to local pioneers that are willing to be early adopters. Similarly, the leader is unable to identify who these pioneers may be alone. In both case we found that local public actors played a key role in mobilizing their network and actively working to align these pioneers to the ecosystem.

Foss et al. (2022) also propose that there should be a leader that “is able to engage in strategic and persuasive communication towards other prospective ecosystem participants”. In our two cases, we found that the leaders did communicate a vision explaining the raison d’être of the ecosystem. However, public actors were very important in giving credibility to these very long-term objectives. They did this by becoming ambassadors of this vision themselves as this gave political credibility to the project. They also did that by implementing regulatory standard that creating market demand for the solutions proposed by the ecosystem.

Coordination problem 2:
Need for commitment: make ecosystem-specific investments and accept common rules and agreements

The third capacity of ecosystem leaders is to “able to signal commitment and hence credibility to other prospective ecosystem participants”. Leaders in our two cases committed important financial and human resources to the ecosystem. However, the interviews also revealed that the commitment of public actors was also required for the ecosystem to gain credibility. Indeed, public actors committed important financial resources and interviewees highlighted that this was necessary to enable financial risk-taking by the ecosystem leader. However, the commitment of public actors went much beyond this. In the ABC case, the public actor imposed to the local utility and its social housing corporation to accept the role assigned to them in the ecosystem. In the ZEV case, it committed important human resources and two civil servants mere missioned to animate the local network around potential hydrogen users.

Fourth, there should also be a leader that “employs capabilities for crafting mutually acceptable agreements and achieving consensus”. Our data suggests that public actors play an important role in making it possible for ecosystem members to accept ambitious environmental performance targets. This proved especially salient in the first case study where the city authority allowed reaching more ambitious agreements by using the regulatory sandbox.

Coordination problem 3:
(Partly) unforeseen problems and inability of rule and agreements to satisfactory deal with them

Foss et al. (2022) posit there should be a leader that “has system-wide knowledge of incentives, capabilities, technology and customer needs”. In our two cases, we observed that the leader experienced difficulties understanding customer needs and aspiration. For the ABC project it was difficult for the leader to identify the wants and wantsnot of tenants and to identify which innovation would be institutionally feasible. For the ZEV project, it was similarly difficult to assess what motivates local pioneers to adopt hydrogen vehicles. In both case the leader relied on public actor to open access to the local social fabric and

Finally, the authors also argue that there should be a leader that ” employs ecosystem-level problem-solving capabilities and engages others in and leads joint problem-solving efforts”. Empirical evidence from the second case show that when the ecosystem experienced problems – notably as it discovered that the joint value proposition it aimed to develop was not sufficiently aligned with the demands from the market – the leader was unable to redine the value proposition on its own. Instead it realied heavily on the perspectives and interest of public actors to become the ecosystem’s main customer target.

Table 1: Role of ecosystem leaders and of public actors

These findings show that public actors are key to help the ecosystem leader gain access to bottleneck resources the ecosystem needs to emerge and grow. Public actors may do that either directly (by contributing resources or becoming the ecosystem’s main customer target) and indirectly (by implementing enabling regulatory frameworks). It is necessary to highlight however that public actors only contribute to such ecosystem when the societal objective the ecosystem aims to resolve is aligned with their own political agenda and/or if the ecosystem can provide them leverage to respond to their own regulatory constraints

Preliminary discussion and conclusion

This paper provides preliminary discussions of the difficulties faced by leader of BEfS and suggests that ecosystem leader has to proceed differently to overcome the coordination problems it faces. The paper aims to discuss the importance of public actors in helping overcoming these coordination challenges by helping access bottleneck resources. It identifies a number of roles public actors can play. The paper intends to discuss the need to implement a hybrid leadership between public and private actors to enable the emergence and growth of business ecosystems for sustainability.

From this analysis, we can highlight a number of weaknesses faced by BEfS. Their dependence on the active involvement of public actors puts them at the mercy of changing political agendas. Besides, these ecosystems may only be able to emerge in geographical areas where public actors have the competences and means to contribute to such ecosystems and where the entrepreneurial fabric is rich. This might lead to territorial inequalities regarding sustainability transitions.

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