Introduction
How can firms transform carbon-intensive industry structures to tackle climate change? What hinders them from scaling low-carbon innovation ecosystems? A recently published research article provides new insights into these questions. It is neither a simple story of disruption nor incumbent transformation. Instead, it requires incumbents and new entrants to experiment with different technological interfaces and strategic relations around novel climate innovations (i.e., ecosystem realignment). The article presents three forms of ecosystem realignment: an incumbent-led digital platform realignment, a device complementor and customer-enabling realignment, and a new orchestrator realignment. Importantly, this is not an easy fix. Scaling ecosystem realignment is contingent on overcoming the strategic resistance of incumbents and capabilities to attract third-party complementors.
In this blog post, as one of the authors, I elaborate on the key findings and managerial takeaways of this research paper recently published in the Journal of Product Innovation Management, a leading academic journal on technology and innovation topics. The study investigates how incumbents and new entrants can transform carbon-intensive industries through ecosystem realignment and is based on a 4-year research project in the electricity industry. The article is open-access and available here.
Firms’ Responsibility in the Fight against Climate Change
In a world where the urgency of addressing climate change is paramount, the role of businesses cannot be understated. Climate change has emerged as one of the most pressing global challenges, demanding concerted efforts to achieve net-zero carbon emissions by 2050. Firms, both established incumbents and innovative new entrants, play a crucial role in driving the race to net zero. The intersection of climate action and business innovation is where managers and management consultants can make a significant impact. In this blog post, we delve into the transformative power of ecosystem realignment and its potential to unlock climate impact, based on recent research.
Understanding Ecosystem Realignment as Strategy for Unlocking Climate Impact
Climate change mitigation is not solely a responsibility of governments or environmental organizations; it requires a collaborative effort from businesses across various sectors. Ecosystem realignment emerges as a key strategy that businesses can adopt to align their operations with climate objectives. Ecosystem realignment refers to the strategic transformation of an industry's structure, roles, and relationships, often facilitated by digital technologies, to drive climate impact. This concept highlights the interplay between incumbent players and disruptive new entrants, with the common goal of achieving net-zero carbon emissions.
Three Templates of Ecosystem Realignments for Climate Impact
Research has identified three distinct ecosystem realignments, each with its unique mechanisms for unlocking climate impact. Let’s explore each one:
Ecosystem Realignment 1: Leveraging Digital Infrastructure for Efficiency
In this realignment, incumbent players take the lead in transforming the industry by digitalizing their infrastructure and offering a digital platform to third-party software complementors. This collaboration enhances resource efficiency by optimizing data collection and analysis. For example, utilities can collect data on electricity consumption and production, sharing it with third-party providers who use advanced analytics to offer energy management solutions. However, incumbents must be capable of attracting third-party complementors to ensure the success of this realignment.
Ecosystem Realignment 2: Empowering Customers for Flexibility
Here, incumbents collaborate with third-party complementors who provide hardware devices for customers to interact with the digitalized infrastructure. This realignment enhances the resilience and flexibility of the existing infrastructure. For instance, customers can optimize their electricity usage based on changing prices and carbon intensity. To scale this realignment, startups need to overcome incumbents’ resistance, while incumbents must attract third-party device complementors.
Ecosystem Realignment 3: Disruptive Digital Platforms
In this realignment, startups disrupt the industry by introducing new digital platforms that connect customers, enabling resource and information sharing. The startup becomes the orchestrator, managing relationships between incumbents, customers, and other actors. This realignment emphasizes the importance of startups’ capabilities in rapidly implementing innovative business models. However, the involvement of incumbents is still crucial, even though their role shifts to that of a complementor.
Boundary Conditions for Scaling Climate Impact
The successful scaling of these ecosystem realignments is contingent on the strategic support and resources allocated by incumbents. A post-hoc analysis emphasizes the influence of incumbents’ strategic decisions on the viability of ecosystem realignments. Realignment 1 is less likely to scale if incumbents struggle to attract third-party software complementors. Similarly, realignments 2 and 3 face challenges when incumbents resist the entry of third-party device complementors or new orchestrators.
Conclusion: A Strategic Framework for Consultants
As Managers of incumbents or startups, understanding the dynamics of ecosystem realignments is crucial for advising businesses on their climate action strategies. By recognizing the importance of collaborative efforts, businesses can leverage the strengths of both incumbents and new entrants to drive climate impact. Managers and consultants should guide firms in identifying the most suitable ecosystem realignment strategy based on their industry context and capabilities. In doing so, businesses can contribute significantly to the global endeavor of mitigating climate change while maintaining profitability.
Incorporating these insights into your management or consulting practice can enable you to guide businesses in reimagining their roles within their industries, fostering collaborations, and driving innovation that aligns with climate objectives. Ecosystem realignment isn't just a theoretical concept – it's a practical avenue for businesses to transform themselves, make a positive environmental impact, and thrive in a changing world.
For more details and insights feel free to download and read the original article via this link, send me a message at l.a.falcke@vu.nl, or get in touch via LinkedIn.
About the Author
Lukas Falcke is an assistant professor at the KIN Center for Digital Innovation, Vrije Universiteit Amsterdam. His research focuses on collaborative innovation in the context of emerging digital technologies and climate change. He has collaborated with firms across different industries on digital innovation and climate strategies in his prior roles as a Research Associate at the University of St Gallen, Fellow at ETH Zurich, Visiting Researcher at the Stanford GSB, and during short industry stunts at UBS and McKinsey.
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