On The Horizon Weekly – MVE and Six Contexts

Minimum Viable Ecosystem | VUCA | Bezos | Opening and Closing

image by Samuel Zeller

New York NY 2019-07-30 – We’re pretty familiar with the lean startup concept of a minimum viable product, but how about a minimum viable ecosystem? VUCA is an old War College acronym that is a good framework for the modern business environment. Meanwhile, Jeff Bezos may not use the term, but he’s eloquent on the subject of platforms.

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Minimum Viable Ecosystem On The Horizon founder Stowe Boyd follows some threads of conversation centered on the Internet of Things and extending the lean startup concept of Minimum Viable Product to ecosystems.

I don’t think minimum viable ecosystem is at all limited to the IoT context, just as minimum viable product isn’t limited solely to lean startups, which was the context that Eric Ries was thinking about when he introduced that term, originally.

Stowe extends the thinking of Gaye Soykök, Head of Emerging Technologies at Legal & General.

What he is getting at is that you need to pull together the smallest working model of an ecosystem — with the fewest possible participants, interdependencies, interactions — that validates the premises about delivering value to all participants, starting with (but not ending with) the end user.

…to get to a broader definition:

The minimum viable ecosystem is the least complex ecosystem that allows participants to learn about a more complex, future ecosystem with the least effort.

This includes learning about the interdependencies and interactions between ecosystem participants, like customers, partners, and governments, and specifically, how value should be shared.

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Innovating in a VUCA World: The Six Contexts Model Stowe reviews a year-old but still valid article on the global white goods company Haier Group in the California Management Review. VUCA is a military education term that has gained wider use in describing the forces on business: volatility, uncertainty, complexity, ambiguity.

The authors believe it may be difficult for other companies to adopt Haier’s context-specific management innovations, partly due to its long-gestating culture of experimentation. However, the six-context model remains a useful framework for thinking about modern organizations.

The authors break down three categories of environmental context (competitive, technological, and institutional) and another three of organizational context (structural, leadership, and resource). Of these, leadership was the most critical for

Leadership context — Confronted by a VUCA world and the growing inflexibility that comes with company size, [Haier CEO] Zhang believed the company needed to adopt innovative management practices to spread entrepreneurial thinking and an obsession with the user. At first, Zhang looked to Western companies and consultants, but the results were disappointing and did not lead to ‘Zhang’s vision of empowering every employee’. Specifically, he thought that no Western company had cracked the code on a radically different way to run a business like Haier. He responded by weaving together threads from ‘traditional Chinese writings, management gurus such as Peter Drucker, and new concepts such as quantum theory and “maker” culture’. Ultimately Zhang pushed through the various phases of Rendanheyi experimentally, incrementally working toward increasing autonomous operating units (microenterprises, or xiaowei), which make decisions independently, and who are driven by their own entrepreneurial goals.

Stowe summarizes the four key lessons from their analysis:

  1. Management innovation, done well, is a good response to the challenges of a VUCA world. This is as true in a traditionally slow-moving, low-profit sector like white goods as it is in Silicon Valley or the biotech sector.

  2. Haier’s story shows clearly how critical a cycle of experimentation is for management innovation, and as Zhang’s example shows, this is most likely with managers who are capable of learning from the experiments made.

  3. The six contexts model used in the research is a tool that others can apply to other instances of management innovation, and the complement of environmental and organizational factors is critical. As Zhang said, ‘both matter . . . the first big transformation of Haier was based on external factors, as we knew that the market was going to become much more competitive, but the next transformation was based on a fear that we had, or would, become much too bureaucratic, and so we needed to combat the internal tendency’.

  4. Managers should seek to incorporate other lessons from other management innovations, ones that are not necessarily carbon copies of Rendanheyi. The models worth emulating are those with a high degree of experimentation — unsurprisingly — and have to be tempered with an understanding of what is possible in their own organizational environment.

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Platforming | What Jeff Bezos Thinks Although Amazon founder doesn’t use the term platform in his annual letter to shareholders, Stowe notes that Esme González Pillardo correctly points out that it is a guidebook for ecosystem-building.

And in fact, Amazon seems intent on building technologies to support other companies creating new ecosystems relying on the same technologies that Amazon is using. Bezos adds to that mix an operating manual for doing that, and a peek into the mindset needed to balance incremental and revolutionary innovation, customer obsession and radical vision, and relentless experimentation and a willingness to fail big. And of course, building a culture around ‘builders’, and allowing them room to grow, and thereby grow the business.

Growing the ecosystem is good for Amazon: the company’s third-party merchants now outsell its own retail business.

Bezos realized, perhaps from the very start, that providing an ecosystem platform to others — based on the innovations he pioneered for Amazon’s own commerce business — would allow Amazon to grow exponentially faster than if he poured all the company’s energy and capital into simply growing a larger ecommerce business. He understood that in a long tail world the ecosystem of millions of small vendors would expand to occupy much more of the market than Amazon could do on its own. And the interchange and innovation with those vendors — making the tools better, sharing analytic and marketing tools — would increase the competitive advantage of Amazon significantly faster than going it alone.

Bezos distinguishes between customer-driven innovation, which is generally incremental, and revolutionary breakthroughs, which come from an idealized vision. AWS has a lot of features that are customer-driven, but the very idea of Amazon offering companies a cloud-based infrastructure of IT services came from within Amazon.

Stowe concludes with Amazon’s continued investment in people:

Jeff Bezos is well known for his concept of the two-pizza rule: no team should grow so large that two pizzas won’t feed the group at a lunch meeting. But the deeper meaning is manifested by supporting small, independent teams, who are allowed to make their own decisions regarding their project. Behind all the discussion of various bets, experiments, visions, and listening to customers is a culture of builders.

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Opening and Closing Ecosystem Markets Stowe contrasts how Beijing-based Didi Chuxing opened up its ride-hailing platform to smaller suppliers while Uber is experimenting with a subscription plan that includes rides, bikes, scooters, and food delivery.

Stowe sees Didi’s strategy as “an innovative move to retain and capture market share under new pressures.” There are tons of new entrants in Didi’s markets, and he expects:

[…]My bet is that auto manufacturers, who are arriving late to the ride-hailing world, will find it better to join established ecosystems, like Didi and Meituan.

Meanwhile, Uber’s initiative is aimed at locking competition out:

This tactic by Uber plays to its strengths and undermines possible discounts by Lyft and Postmates. Uber may be creating a monopolistic advantage similar to Amazon’s in ecommerce, and close competition down cold.


Elsewhere

Amazon as experiment Ben Evans of Andreesen Horowitz takes a look at Amazon, particularly its focus on buying rather than shopping. For instance, its Four-Star Stores - “Is this a new discovery model? A different way to change how people think about purchasing? Well, it’s another experiment.” He sees Amazon doing a lot of experimentation around logistics, but not very much around other elements of the buying experience. He reasons that Amazon’s focus on the parts that scale may hold it back on delivering the best, personalized experiences. I’m not sure I buy that, but it’s provocative thinking.

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The CEO of eBay explains how offering its own shipping service will be a profitable way to fight Amazon Business Insider describes eBay’s Managed Shipping service for merchants. It makes use of third-party shipping and logistics, eBay boxes for branding, and isn’t aimed at same-day delivery.

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In more delivery discussion, Grocery Dive looks at the grocery cooperative Wakefern, home of ShopRite and Inserra Supermarkets in Wakefern will test micro-fulfillment for 10 stores. It’s using Takeoff Technologies’ robot-powered warehouses in New Jersey.

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The Department of Justice announced it will examine big tech players for antitrust issues. It doesn’t say which players exactly: “The Department’s review will consider the widespread concerns that consumers, businesses, and entrepreneurs have expressed about search, social media, and some retail services online.”

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And the Federal Trade Commission a day later described its $5 billion fine of Facebook for breaking its promises on user data privacy. Facebook also broke the news on its earnings call that the FTC was actively investigating it for antitrust – that’s different than the potential DoJ look.

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Australia is in the action, too. The Australian Competition and Consumer Commission made 23 recommendations on Google and Facebook in its 600+ page report, addressing consumer privacy and competition with media.


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