Download Introduction - Digital Ecosystems

Business Networks and Ecosystems:
rethinking the biological metaphor
Angelo Corallo and Stefania Protopapa
e-Business Management School – ISUFI
University of Lecce
http://www.ebms.it/
[email protected], [email protected]
Introduction
Driven by technological and market changes organizations compete and cooperate, and bring
firms to experiment alternative coordination mechanisms that lead to intermediate or hybrid
forms of organization. During the 90s, Powell and Castells argued that networks are
distinctive form of coordinating economic activity and made sense to classify as “business
network” any organizational structure adopting such a coordination mechanism.
Although research has made important contributions towards the understanding of business
networks, further theoretical and empirical research is required to develop a better
understanding of the processes underlying the structure and evolution of them.
Renewing the expectation of Marshall (1948) several authors look for inspiration in
biological science, electing “the theory of ecosystems” and “the evolutionary theory” as the
main biological research fields affecting social and economic science that provide innovative
perspective and theoretical models.
In this work, we look forward to rethink the biological metaphor in order to explain the real
relationship between business network and ecosystem in an evolutionary perspective.
1. Business Networks as Business Ecosystems
Castells (1996) proposed the concept of the networked enterprise as the organizational form
that a firm would adopt to fit the conditions of uncertain and unpredictable environments.
According to the same author, the strengths of the networked enterprise lie in the shift from
vertical bureaucracies to horizontal enterprise enabled by the use of digital technology to
connect and relate dispersed organizational nodes. In the networked enterprise, components
are both independent of and dependent on the network organization and can also be part of
several other networks. A network organization combines the advantage of bureaucratic
organization with a structure that supports innovation.
Networks (Quinn et al. 1998) could be shaped by pointing out the nodes where knowledge is
created and detained, the nodes where it is used to implement solution, and the kind of
relationship that links together the different nodes. Taking into account both firm and market
perspectives, the new organizational problem of the firms seems to be no longer that of
granting alignment among different department objectives, but of coordinating networks of
knowledge-owning firms to create added value products and services.
Inside clusters, a co-evolution process is emerging; it develops between the networks of
localized knowledge and the trans-local knowledge networks (Doz et al. 2001), based on
digital information exchange. These inter-organizational structures, defined as virtual
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clusters, are characterized by collaboration and complementarities and by the exchange of
mainly digital knowledge. The concept of space is therefore crucial.
We may extend the concept of ‘actor agglomeration’ from industrial district to business
network, as the generalization of any agglomeration structure that is represented by a set of
firms, linked by some sort of spatial proximity (geographical, technological or institutional).
Economists belonging to any school of thought have discussed similarities between
biological evolution and economic development for more than a century (Hodgson, 1998).
Basing on the premise that "human beings exist wholly within nature as part of the natural
order in every respect", Jacobs (2000) argues that the same principles underlie both
ecosystems and economies. In particular, the author investigates the hypothesis according to
which economic life obey the same rules as those governing the systems in nature, arguing
that economic life is ruled by processes and principles that people do not invent and can not
transcend.
Two serious drawbacks have always constrained the rigid application of biological
metaphors to the study of economic development. The first is that evolution involves no
intentionality toward a specific goal, whereas economic development is driven by the
satisfaction of human wants. The second is that, with the exception of the smallest levels of
complexity (such as genes and microbes), different biological species do not interbreed,
while human beings produce new things by relentlessly combining artefacts, skills and ideas
(Basalla, 1988; De Gregori, 1985; Mokyr, 1990). In this sense, economic development is the
result of individuals trying to solve problems affecting them by combining heterogeneous
facts, ideas, faculties, and skills on a scale that is unparalleled in the rest of nature (Jacobs,
2000).
Even if any comparison between economic and ecologic realms has to be careful, biological
ecosystems seem to provide a powerful metaphor for understanding a business network. As
biological ecosystems, business networks are communities of agents with different
characteristics and interests, bound together by different mutual relationships as a collective
whole. Species within ecosystems are related and interact with each other as much as firms
play a specific role in a business network. The fate of each living organism in the ecosystem
is related to the fate of the others; cooperation and competition, as much as in a business
network, are considered ecosystem characterizing phenomena.
Tansley (1935) firstly defined an ecosystem as the whole system represented by both the
biological organisms and a complex set of physical factors and he correlated the ecosystem
with a network of relationships. Starting from the definition by Tansley, Lindeman (1942)
developed the modern approach to the ecosystem by adopting Elton’s food web model and
Lotka’s thermodynamic approach (Elton, 1927; Lotka, 1925) .
The first approach to business ecosystem is due to Moore (1993) who argued that a firm is
not just a member of a single industry but a part of a business ecosystem that crosses a
variety of industries. In a business ecosystem, firms’ capabilities co-evolve around new
innovations that characterise the ecosystem itself, as the locus around which species coevolve by exploring innovative evolutionary path.
Extending Moore’s biological metaphor and emphasizing the keystone metaphor, Iansiti and
Levien (2004a) identified in keystone firms the leader and the centre of the ecosystem. They
support two basic items: that the food web model is useful to describe systems of
organizations as a network of mutual relationships, and that the new form of competition, the
need for collaboration and the process of market co-evolution are simply explained as a
results of the biological metaphor adoption.
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Anyway we believe that biological metaphor proposed by Iansiti and Levien is hard to be
used as an instrument of analysis for the business ecosystem for some reasons. First, it uses
both thermodynamic and network theory in order to model interaction among populations
and environment, while the business ecosystem perspective is not able to model the
environmental conditions and can’t leverage the thermodynamic theory to build a business
ecosystem theory. Second, the concept of community, as defined in biological science, is
proper to define Iansiti’s own approach than the ecosystem one, since community takes care
about populations relationships and evolution, and excludes environmental interaction.
Third, Iansiti identifies the role of leader in keystone species that seem to have a role that is
closer to the Iansiti artificial ecosystem than to the natural ones.
As a consequence, the key question is: how could we design, or at least support the creation
and growth of natural business ecosystems? Although a business ecosystem may evolve
toward centralized structures, moving toward what Tapscott et al. (2000) define as an
aggregator model, a business ecosystem theory needs to be quite general in order to explain
it as a kind of self constructed and auto organized business network. In such a context, we
focus on the understanding of the rules that govern natural biological ecosystems and, as a
consequence, natural business ecosystems.
2. The Evolutionary Perspective
Evolutionary perspective is the common ground for a theory of organizational change,
capable of explaining the evolution of organizational models in terms of emergence and
selection of new species.
Organisms play two roles in evolution. The first is the basis for most evolutionary theory and
it consists of carrying genes; organisms survive and reproduce according to chance and
natural selection pressures in their environments. However, organisms also interact with
environments and modify at least some of the natural selection pressures present in their
own, and in each other's, local environments. This second role for phenotypes in evolution is
not been subject to a great deal of investigation: it is called "niche construction" (OdlingSmee 1988).
Niche construction should be regarded, after natural selection, as a second major participant
in evolution. It is the process whereby organisms, through their activities and choices,
modify their own and each other's niches. By transforming natural selection pressures, niche
construction generates feedback in evolution in a manner that alters the evolutionary
dynamic. Odling-Smee et al. (2003) developed a new approach to evolution that treats niche
construction as a fundamental evolutionary process in its own right: it is called extended
evolutionary theory.
In this new perspective, culture adds a second knowledge inheritance system to the
evolutionary process through which socially learned information is accrued, stored, and
transmitted between individuals. Tylor (1871) defined culture as “that complex whole which
includes knowledge, belief, art, morals, custom and any other capabilities and habits
acquired by man as member of a society”, so how could such an inextricably interwoven
complex of ideas, behaviour, and artefacts evolve?
3. Evolutionary Theory and Organizational Change
The first and most influential biological metaphor applied to socio economic science was
Darwinian selection on the population ecology by Hannan and Freeman (1977), that takes
from the biological perspective the suggestion of the emergence of new species of
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organizations that compete for resources. According to Hannah and Freeman, each
organization is defined by its technology, structure, products or services, objective and
people. These elements cause the organization’s survival in the environment or make it
disappear because of environmental selective pressure.
The attempt to adapt the evolutionary theory as a metaphor for explaining business
perspective has a strong limitation in the lack of a unit of analysis for the evolution process,
as gene for biological evolution. As a consequence it is difficult to create a model describing
the emergence of organizational phenotypes in the evolution processes and their fitness
respect to the environmental conditions.
Nelson and Winter (1982) suggested an evolutionary model, mainly based on the parallelism
between genes and routines. The Nelson and Winter Evolutionary Theory of the Firm
focuses the attention on organizational routines as unit of knowledge. They consider routines
as behavioural patterns that workers use during their activities, which make different one
firm from the others. Partly driven by his attempt to show that Universal Darwinism
(Dawkins, 1983) provides a suitable framework for evolutionary economics (Hodgson and
Knudsen 2006), also Hodgson suggests that routines are like genotypes (Hodgson 2003,
Hodgson and Knudsen 2003).
The routine approach can be extended separating the perspective between behaviour and
thing: according to Fontana (1998) behaviour is not a thing but it is property of a thing. As a
consequence, the organizational routines could represent the functions and the dynamical
principles that govern the interactions among the parts of the organization. In this
perspective Nelson and Winter routines became the phenotype of more complex genotypic
elements that Padgett defines logic of identity.
According to Padgett (2001), organizations - social or biological - are developmental
products of these founder logics, interacting with the inherent properties of the social or
biological raw materials being assembled. In economic organization, these raw materials are
in large part the social networks of business interaction partners, selected through trading
and personnel flows.
Social and political networks have the two-fold roles of generation and regulation of
markets. Recombination and refunctionality are the key elements through which
organizational ideas and models are transposed from one domain to another. Social and
political networks operate through negative feedback as a regulatory mechanism for
transposition and reproduction, granting stability and equilibrium to the systems (Padgett
and Powell, 2003).
4. Final Consideration
In the attempt to review the biological metaphor overcoming the limitations highlighted
before, we considered the promising perspective come out from the studies of Fontana and
Padgett.
The Fontana analysis about the relationships existing between phenotype, genotype and
populations gives the opportunity for a deepeening about organizational genotype,
relationship about organizational genotype and phenotype, environmental influence on the
emergence of organizational population.
The Padgett analysis focuses the attention on the systematic relationship between processes
of organizational birth and the surrounding social and economic contexts, out of which
organizations are constructed. This perspective fits organizational emergence in respect to
the surrounding social, economical and political environment.
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Padgett logic of identity and multiple dynamic networks represent two key issues that enable
further research on business ecosystem theoretical foundation and give a fundamental
contribution in order to develop an evolutionary model for business network.
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