The Next Evolution
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The Next Evolution

Community-centric Ecosystems Make Business More Resilient

Co-authored by Danielle Stanko

A community-centric ecosystem embodies the symbiotic relationship between business and community and represents a more purpose-led, resilient, and adaptable business model.

We’d like to acknowledge the Corporate Rebels for their work around community capitalism and for inspiring this article.

The COVID-19 pandemic that has forced communities worldwide into lockdown is creating a period of extreme uncertainty that is unprecedented in our lifetimes. While businesses must adjust their strategies for the current economic environment, there is also an opportunity to prepare for and adapt to a post-pandemic world that is increasingly volatile, uncertain, and complex. As businesses in every industry prepare for a new normal, one thing is not new: businesses have always depended on the well-being of the communities whose needs form the foundation of their existence. In that sense, business resilience is interdependent with community resilience. This symbiotic relationship between business and community has never been more important than now. We foresee this pandemic catalyzing the emergence of more purposeful, resilient, and adaptable business models that emphasize communities. This article explores how a relatively new research field validates the need for businesses to focus on communities now.

To illustrate how this is playing out today, we will share examples of leading companies, such as Haier Group, the world’s largest appliance manufacturer; Shopify, the rapidly rising retail ecosystem; and Chobani, the leading yogurt brand in the United States. These companies have focused on communities, creating resilience in different ways, but aligning with a community to move forward together.

Flow networks: How complex systems persist

To demonstrate how businesses can become more adaptable, build resilience, and sustain themselves, we must first recognize that a business is a participant in a complex socio-economic system that encompasses economic actors, communities, and the environment. Within that context, we can apply universal principles that govern resilience in all complex systems to understand how business can build resilience through its interdependent relationship with community.

The Energy Network Sciences (ENS), which studies the dynamics of complex systems, makes this interdependent relationship clear by demonstrating how all complex systems that persist — living, non-living, natural, and human — adhere to universal principles.¹ Those principles that govern the flow of resources, information, value, and energy throughout a system, include:

  • Balancing the need for large efficient components and small, diverse components
  • Organizing as a flow network to ensure interconnectedness among efficient and diverse components
  • Operating in self-feeding return loops that govern how flow circulates throughout the network to keep each participant and the whole system healthy

These principles can be seen repeatedly in nature’s systems, which operate as flow networks that balance efficiency and diversity in self-feeding return loops. For example, a tree is a flow network that balances a few, highly efficient, large conduits (i.e., trunk and lower limbs) with successively more diverse, less efficient, smaller conduits (i.e., upper limbs), because this optimizes the flow of water and nutrients from roots to limbs in one direction and maximizes the roots’ exposure to sunlight in the other direction. Likewise, a tree also operates in the self-feeding return loop of plant growth where death and decay of leaves and limbs become nutrients for future plant growth. The branching structure of trees and other healthy natural systems is known as a fractal and is seen repeatedly in nature because it optimizes flow. In fact, fractal structures indicate a system is healthy and resilient. Other examples of fractal structures include broccoli, human lungs, river networks, and lightning, where branching structures optimize the flow of nutrients, oxygen, water, and energy.

Fractals in nature
Figure 1 — Fractals appear throughout nature in living and non-living systems.

Human systems, community, and flow

Applying flow principles to human economic systems, Science Advisor to the Capital Institute Dr. Sally Goerner summarizes:

“Economic flow networks form a society’s metabolic network: an interconnected web of individuals and businesses that turn resources and information into the energy and products a society needs to thrive, while constantly distributing these products via a mutually-nourishing, circulatory flow. [ ] The big discovery here is that many of the same physical laws that govern health and development [i.e., resilience] in [nature’s] ecosystems and living systems are common to all flow networks — and therefore apply equally to human networks such as economies and societies.”

Our economic flow networks have historically been structured as competitive industries to globally maximize efficiency and scale value propositions. This has created industries dominated by a few large, efficient entities that manage linear global supply chains. As a result, flow becomes imbalanced and favors efficiency over a diversity of smaller parts. This can cause what is known as the Walmart Effect, seen in local communities where a large entity establishes outflows of value and resources from the local economy that represents the smaller branches of the fractal. To the people experiencing it, their local businesses and communities suffer the eroding economic consequences of a large company driving smaller competitors out of business and replacing good jobs with lower-paying ones that dampen demand, effectively pruning the branches of the fractal until the entire system becomes too unhealthy to operate (e.g., the large entity relocates). In fractal terms, this looks like a forest of a few giant trees with dying branches.

Platforms, pandemics, and flow

The emergence of ubiquitous digital and connected technologies is accelerating this destabilizing dynamic. Platform-enabled ecosystem models that are highly efficient at removing market friction but neglect to develop robust feedback loops accelerate the Walmart effect and threaten socioeconomic systems’ health. These models focus on generating network effects around platforms as the means to non-linear growth at zero marginal cost. While these platform-centric models have powered the rise of seven of the top ten most valuable companies in the world², their effect is accelerating an imbalance in markets where the asymmetric flow of resources and information accumulates power and value with the platforms at the expense of ecosystem participants. In this case, the system’s flow becomes constrained by the platform. Just as a river constrained by a rock will adapt its path to flow, so too will ecosystem participants that are constrained by asymmetric flows.

This fragility from overemphasized efficiency has also been exposed by the COVID-19 pandemic as global supply chains that lack diversity have struggled in responding to communities’ basic health needs. Our shortages and inability to quickly respond to them are linked to the Walmart Effect taking place globally. Manufacturers forced to compete globally on prices gradually moved manufacturing to the cheapest locations, weakening demand for goods manufactured elsewhere. This has caused many factories in all but the most efficient locations to close. Then, when ties to those far off manufacturers were broken with travel and export restrictions³, there have been few local producers ready to ramp up in their place.

Using ENS to frame business and community as part of an intertwined socioeconomic system helps us identify vulnerabilities and transition towards a healthier and, therefore, more resilient future. By recognizing that our efficiency-driven models demonstrate constrained flows with weak feedback loops, we can better understand how to make them more resilient. Community-centric ecosystems are models that better align to the three universal principles of long-lived natural systems by rebalancing large efficient organizations with smaller ones, and thus, restoring important flows to the community in appropriate amounts to promote sustainability. This approach improves the health of business and, at the same time, the health of the whole.

How companies build resilience through community-centric ecosystems

This section presents three examples that counterbalance efficiency-driven markets by emphasizing diversity and resilience and highlighting the shift toward community-centric ecosystems. These companies demonstrate increased circulation that further spreads energy, resources, information, and value into the communities that provide talent, supply, and demand.

Before looking at these examples, here are a few definitions. First, we refer to a platform as a business, software application, device (e.g., iPhone), network, or marketplace that enables a community to interact. An ecosystem comprises community participants that come together for mutual benefit, often centered around a platform. A community-centric ecosystem facilitates flows of energy, resources, information, and value among interdependent individuals, groups, organizations, and the environment so that everyone and everything can benefit and sustain itself. With that in mind, let’s look at the examples.

A platform is a business, software application, device (e.g. iPhone), network or marketplace that enables a community to interact. An ecosystem is composed of community participants that come together for mutual benefit, often centered around a platform. A community-centric ecosystemfacilitates flows of energy, resources, information and value among interdependent individuals, groups, organizations and the environment so that everyone and everything can benefit and sustain itself .

Figure 2 — Platform-centric ecosystems generally accrue energy, resources, information, and value to the platform owners, while community-centric ecosystems recirculate energy, resources, information, and value among the participants.

Shopify: From platform marketplace to merchant community

In 2004, entrepreneurs Tobias Lütke, Daniel Weinand, and Scott Lake were looking to create an online store for their Snowboard Shop. Dissatisfied with the e-commerce products available, they built their own e-commerce platform and opened their online store.⁴ In 2006, they made their platform available to others, launching as Shopify. By 2009, Shopify had launched an API and App store, allowing anyone to innovate on and offer services around its platform. Since then, merchants’ and brands’ enthusiasm has rapidly grown as Shopify’s model empowered them to maintain independence from centralized marketplaces like Amazon, eBay and Etsy. Shopify’s model represents a shift toward decentralization and diversity in a retail industry that had tilted in the direction of hyper-efficient centralized trading platforms. Shopify is curating an ecosystem of merchants who no longer want to cede control of their data and customer relationships to Amazon to access its market channel and e-commerce services. In other words, they want to be part of a system with stronger self-feeding loops where the customer relationship, data, and more money from sales are returned to them. Shopify’s model emphasizes the diverse provider community as the primary source of value in the ecosystem, rather than the platform.

By creating a cooperative marketplace that features over 2,400 independently created apps and services, Shopify empowered independent merchants to share efficiency-driving digital tools for going direct to the consumer. However, the proliferation of independent merchant websites meant it was more cumbersome for consumers to find products, and providers often saw a drop in sales. This is now complemented by Google’s recent offer⁵ of free Google Shopping listings and blockchain e-commerce markets like OpenBazaar. Both provide a more efficient shopping interface for customers but do not impose onerous fees or restrictions like Amazon. With Shopify supporting their storefronts and options like Google Shopping or OpenBazaar increasing market reach, merchants can maintain autonomy while efficiently reaching customers.

This market evolution illustrates an industry oscillating between efficiency and diversity to find an appropriate balance and establish stronger self-feeding loops within the eCommerce environment. We anticipate this dynamic evolving in any market where a dominant platform begins constraining resources, information, and value flows.

Figure 3 shows how the retail industry is oscillating between efficiency and diversity as it heads towards a sustainable balance.

Chobani: From manufacturer to community enabler

When Kraft Foods closed its yogurt plant in South Edmeston, New York, and laid off its employees, it devastated the upstate New York community. What Kraft viewed as a disposable business asset, entrepreneur Hamdi Ulukaya saw as a community of people with potential. He purchased the decommissioned factory after seeing the resilience of the workers left to tear it down. He saw building a new yogurt business as synonymous with reviving the community. He hired back almost all of the previous employees, and together they set about making Chobani, the United States’ #1 Greek yogurt brand. Chobani is purpose-driven in that it identifies as a food-focused wellness company that cares for the community. In fact, as Chobani has expanded its operations, it has continued investing to strengthen communities. Although analysts warned against the prospects of locating a plant in Twin Falls, Idaho, Chobani invested in the community, which now hosts the largest yogurt manufacturing location in the world⁶. During another expansion in Utica, an upstate New York community populated by immigrants that others warned would not be employable, Chobani’s founder saw simple solutions. He hired translators for non-English speaking employees and provided transportation, knowing that many did not have cars⁷. Lastly, when Chobani went public in 2016, they distributed 10% of their shares to all employees⁸, making several millionaires, to thank them and allow them to grow with the business⁹. Putting that money into employees’ pockets was more likely to circle back into the local community with local purchases than if it were distributed to global shareholders. This feedback loop strengthened employees, which then further strengthened the local community.

While this example may not sound like an ecosystem, it clearly embodies our community-centric ecosystem definition. Chobani recognizes the interdependent nature of its relationship with the community. By expanding its scope of concern when allocating time, energy, and resources, Chobani’s operations strengthen and feed into the larger flow of energy occurring within the communities in which it operates. In this way, Chobani goes from viewing itself as a manufacturer to a community-centric ecosystem enabler and platform for community resilience.

Haier Group: From corporate hierarchy to entrepreneurial community

When Zhang Ruimin took over Haier Group in 1984, it was a nearly bankrupt refrigerator maker with a single factory. He set out to transform Haier into the world’s largest appliance manufacturer and smart home business. Zhang’s RenDanHeYi philosophy, which translates roughly as zero distance between employee and customer, has guided Haier’s 35-year transformation from a traditional hierarchical corporation into a loosely coupled community of entrepreneurial micro-enterprises.

Today, every organization within Haier operates like a start-up with founders, funding rounds, and rapid iterative product development cycles. Any employee can pitch an idea and found a micro-enterprise. Each micro-enterprise operates autonomously with its own P&L and is empowered to partner inside and outside Haier in customers’ service. Most recently, Haier created ecosystem micro-communities (EMC) to more tightly integrate the activities of micro-enterprises whose products/services overlapped around a customer experience. For example, in a smart kitchen where appliances now collect granular customer data to improve insight into the customer’s needs, several Haier micro-enterprises self-organized as a community to ensure that their products worked together to create one kitchen experience with a holistic set of data. To balance the added complexity of thousands of micro-enterprises with the need for efficiency, Haier developed a blockchain-based smart contracting platform. This platform allows Haier to run thousands of sub-groups without thousands of middle-managers by providing trusted, self-serve contracting to start and partner with other micro-enterprises.

The EMC model embodies a healthy community-centric ecosystem’s principles in that it creates a highly collaborative and diverse structure with dedicated groups and platforms to maintain efficiency. The self-feeding cycle generated by the direct correlation of individual compensation to customer satisfaction triggers enthusiasm and creativity within the entrepreneurial community. The change-driven culture enabled by interconnected micro-enterprises allows resources, energy, and information flow fluidly across teams within and outside of Haier to create a highly adaptable and resilient ecosystem beyond Haier’s walls.

Key focus areas to build community-centric ecosystems

Our examples have shown how companies demonstrate flow principles by focusing on their communities and building community-centric ecosystems. So, how can leaders interested in building resilience in community-centric ecosystems get started?

Figure 4 — Key characteristics of community-centric ecosystems.

The following are the key areas that underpin them:

Ecosystem culture — Building resilience through community-centric ecosystems starts with establishing an ecosystem mindset and culture. Try to see your organization as a member of something larger than itself that works with others toward an important purpose that benefits everyone. Start by understanding your organization’s role in concert with others to enable/enrich/empower people’s lives. Think of your role as a facilitator of an organic unfolding of value that arises from community interactions. To fulfill that role as facilitator, rather than driver, the following practices can underpin and solidify an ecosystem culture:

  • Share information, resources, and value down to the individual level. Provide global access to knowledge while encouraging contextualized insights to develop at the local level.
  • Ecosystems are in a constant state of change. Make change-seeking a desired attribute of progress.
  • Encourage and nurture entrepreneurial/innovative activities — ecosystems enable rapid, continuous innovation.

Structure — If you want to reap community-centric ecosystems’ benefits, you have to do more than leverage ecosystems. You have to become an ecosystem. This means organizing your business as a community of entrepreneurial micro-enterprises, letting go of control, and allowing value to emerge where ingenuity meets a need. While not an insignificant undertaking, structuring all your activities into a network of autonomous, interdependent teams empowered to create value for customers maximizes motivation, innovation, and adaptability. Follow these practices to become an ecosystem:

  • Fund teams as entrepreneurial ventures.
  • Make a direct correlation of success to individual compensation.
  • Underpin internal and external value exchanges with contracts.
  • Continuously redeploy resources from unsuccessful ventures.

Benchmark, measure, and model flow — The power of ENS applied to business is the ability to more analytically measure and monitor complex systems. Shifting the business perspective from being a linear profit-making process to being a flow network makes new tools available to measure health, success, and gauge resilience. The first step in understanding your flow network is to benchmark how flows move within your system. Is it a highly linear, Walmart effect situation, or are there rich circulating flows that reinvest in employees, the community, and natural support systems? Without spending too much time, the movement of value, information, resources, and energy can be drawn on paper to see their shape. Places where reinvestment and self-feeding loops are lacking show opportunities to create resilience and health at the foundational, community layer of your business.

The first step in understanding your flow network is to benchmark how flows move within your system. Is it a highly linear, Walmart effect situation, or are there rich circulating flows that reinvest in employees, the community, and natural support systems? Without spending too much time, the movement of value, information, resources, and energy can be drawn on paper to see their shape. Places where reinvestment and self-feeding loops are lacking show opportunities to create resilience and health at the foundational, community layer of your business.

After benchmarking and identifying opportunities, consider whether you contribute more to efficiency or diversity in the system and if there is a lack of either across organizations, employees, or basic infrastructure. Consider drawing the mixture of large, medium, and small participants in the system and drawing lines where they connect. The closer it looks to a fractal pattern, the more resilient the overall system will be. If there appears to be an imbalance, just like in the retail example, it highlights a need to create the next big market shift. It could be a more efficient platform, better interconnections between currently uncoordinated ecosystem participants, or the need for more alternatives to avoid fragility.

Technology — Given the three previous actions a business leader can take, the final one is to adopt technology to make the added complexity manageable. While businesses have embarked on digital transformations, now accelerated amidst the global pandemic, a new technological transformation is afoot — ecosystem integration where the prerequisite is being digital. Ecosystem integration allows organizations, governments, nonprofits, and communities to easily connect to simplify information flow, value, or resources amongst the socioeconomic system’s related parts. This enables the new structures and models mentioned above so business ecosystems more closely mimic healthy, complex systems.

Technologies that will be the most important in ecosystem integration include cloud, APIs, and blockchain. Cloud creates a dynamic source of instantly accessible information available to anyone across the globe. At the same time, cloud services are accessible with simple setup, low costs, and no technical expertise required. It is the infrastructure for shared communication, documentation, and collaborative editing required for people to work together across organizational and geographical boundaries. APIs are the connective tissue between digital systems that open up paths for flow. They establish flexible links that allow business ecosystems to grow and change over time with old partners leaving and new ones joining.

Even with APIs and cloud, connecting organizations is hard to scale and raises privacy concerns. Blockchain is the privacy and consensus layer between linked systems that make many-to-many integrations feasible. Situated between siloed systems and APIs, the blockchain keeps integrated systems in sync by preventing the need for reconciliation and strictly governing who can access and view information. Beyond its role in system integration, blockchain can be architected as an ecosystem application intended to help organizations and communities to stay coordinated with shared processes. Because tokens and smart contracts are native to blockchain, the technology is well suited for finance and governance applications, also demonstrated in the Haier example.

Technologies that will be the most important in ecosystem integration include cloud, APIs, and blockchain. Cloud creates a dynamic source of instantly accessible information available to anyone across the globe. APIs are the connective tissue between digital systems that open up paths for flow. Blockchain is the privacy and consensus layer between linked systems that makes many-to-many integrations feasible.

Summary: The evolution to community-centric ecosystems

As the COVID-19 pandemic has demonstrated, highly efficient global supply chains can quickly become fragile if they lack sufficient local diversity to withstand disruptions. As platforms and ecosystems proliferate, the risk that markets become too efficient and lack diversity threatens all ecosystem participants’ resilience. Community-centric ecosystems show how leading enterprises view their businesses as part of a complex socio-economic ecosystem. They create cooperative branches and feedback loops between their business and community to ensure the entire system’s collective health. They create high levels of community engagement and trust by investing in enriching community support systems and emphasizing the community’s solidarity. When both a community and business realize their interdependence, they advocate for each other to continue moving forward. In each of the examples we’ve shared, the companies placed the utmost value on the role they play in their community. Their process and relationships are invariably enabled by platforms of many kinds. Yet, the platforms are not the essence of their business models. Their success comes from a commitment to their community’s success and the resilience of the entire system.

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David Kish

David Kish

Toward regenerative ecosystems that enable everyone to thrive. | @iamdavidkish | www.thenextevolution.com

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