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The term ecosystem, or business ecosystem, has now emerged full-blown in CEOs’ minds, in-boxes, and social media feeds. James F. Moore originated the concept of a business ecosystem in the early 1990s. It is generally defined as a network of people and organizations firms, customers, distributors, suppliers, and government entities interacting to deliver a specific product or service. Moore pointed out that leaders must look beyond their provincial views and understand these as complex networks or systems. One of the defining strategic trends and challenges facing CEOs is the emergence of digital transformation. Enterprise digital transformation powered by the 4th Industrial Revolution the confluence of ubiquitous digital access, low-cost sensing enabled by the Internet of Things, advances in artificial intelligence and machine learning, robotic process automation, and more is driving a revolution in business information intelligence and models. Digital transformation initiatives start in the ecosystem where a leader’s enterprise, another system, is immersed. Given the ecosystem’s influence and digital transformation trend, this article will delve into three operative concepts systems, ecosystems, and leading in them.  

Context - The Importance of a Systems Perspective  

A leader must understand the system context in order to understand leadership in all its manifestations. Barbara Kellerman wrote about the tripartite relationship among context, leadership, and followership and the primary importance of context as a defining input into leadership and attendant followership. She noted that the context in which leadership is practiced shapes the character of that leadership. In the case of an ecosystem, the context for the enterprise the leader is leading is the business ecosystem, and the context for the leader is the enterprise system she is leading. Given that the leader is entangled in two dynamics systems, it seems wise to explore the term systems more closely. Many leaders use the term system easily, but most have never studied systems thinking, systems dynamics, or systems engineering, and so miss many systems’ dynamics and subtleties.  

The context in which leadership is practiced shapes the character of that leadership. In the case of an ecosystem, the context for the enterprise the leader is leading is the business ecosystem, and the context for the leader is the enterprise system she is leading.

This article will use Donella Meadows’ sparse, simple, yet robust definition of a system (2008). 

A set of elements or parts coherently organized and inter-connected in a pattern or structure that produces a characteristic set of behaviors, often classified as its “function” or “purpose.” 

This definition of elements, interacting, on purpose - encompasses almost all human activities. The reader will quickly recognize that the business ecosystem involves elements interacting with a purpose, as does the enterprise the leader is leading. Further, every enterprise within that ecosystem is a powerful system, a system of systems, and everything in it is intimately connected.  

Both are CASTs  

Both systems, the business ecosystem, and the business unit, also fit the description of a complex adaptive, socio-technical system, a CAST system. This is a meaningful connection, as CASTs are notoriously hard to understand, manage, and lead. As Mobus and Kalton have indicated, this is because the CAST elements are characterized by networks of relationships that emerge and develop complex dynamics that are not always obvious as to source and reason. This is especially true in the business ecosystem, where external dynamics may differ between agents and disparate elements. For example, a new regulatory regime may only affect one member of the ecosystem directly, but the impact will be felt by all the elements of the ecosystem due to the interconnected nature of such systems.

Systems thinking offers a powerful tool for getting oriented to complex adaptive systems

Second, CASTs are constantly adapting through the interactions of “intelligent” agents. People and entities within the CAST are adapting, but the level of knowledge varies dramatically. Each agent, element, or actor can and will develop its unique perspective on the system. The collective views may, however, differ, leading to elements of the CAST being at cross purposes a common state in business ecosystems. This knowledge variability means that the CAST elements evolve and develop at different rates and scales, leading to potential friction and turbulence. A second-order effect of this phenomenon is that transfers of information among and within the CAST and the encoding of knowledge occur at different rates and times, further complicating the dynamics. 

Finally, these differing dynamics drive different levels of energy and passion within the CAST, leading to variable emotional states. Eventually, ecosystem elements may come to be at cross purposes over time, leading to damaging dynamics. The two CASTs, the individual business, and the business ecosystem, are inexorably intertwined. The leader must understand this.

Prof Willy Donaldson discusses Systems-Thinking with DLQ editor, Roddy Millar

Types of systems  

Michael Jackson, a British systems scientist, provides a helpful distinction concerning systems used in this article. Jackson classifies systems as bounded unitary, pluralist, coercive and unbounded human-made, and natural. The critical insight for bounded and unbounded systems is that governance becomes the dominant determining input. 

In a bounded system, a clearly defined governance mechanism board, association, union, etc. Steers the purpose and influences the system’s leadership. Note: this does not mean that governance is of good quality! There is, however, no governance structure when dealing with an unbounded system; one can only hope to coordinate a systemic response to its dynamics. In short, you and your enterprise cannot control or govern the ecosystem.  

Systems thinking offers a powerful tool for getting oriented to complex adaptive systems

And here is where leadership and followership enter the picture. Leadership and followership are the defining activities that shape or manage the human-made versions of these systems (systems-of-systems really) or decide the enterprise’s response to the dynamics unleashed by unbounded systems. 

Leaders reading this will quickly grasp that while you may be leading the enterprise you are ostensibly running, you may well be a follower in the ecosystem, i.e. unable to lead and govern the system but merely be able to influence.  

So, what should you do?  

First, change your focus. Leaders can be tempted to look inward and downward, concentrating on orchestrating the symphony of followers to affect the proper response to one’s context. This activity is still critically important, but system thinking teaches us to adopt a both/and stance regarding the ecosystem both your system and the ecosystem are critically important to focus on. Leaders in an ecosystem must also learn to focus outward and forward. Being focused outward and forward means having a mindset oriented toward the future and external opportunities and challenges rather than being stuck in the past or overly focused on internal concerns. Here are a few ways this can manifest: 

1. Forward-thinking: Being focused outward and forward means constantly looking ahead, planning for the future, and anticipating changes and trends in your industry or market. 
2. External awareness: It also means being aware of the external factors that can impact your organization, such as changes in customer needs, technological advancements, or shifts in the political or economic landscape (See section on PESTEL analysis below). By staying attuned to these factors, your organization can adapt and thrive in a changing environment. 
3. Openness to new ideas: Being focused outward and forward also means being open to new ideas and perspectives, whether they come from within your organization or outside of it. This can help you identify new opportunities and solutions you might not have considered otherwise. 
4. Agility: To be focused outward and forward also requires agility, or the ability to adapt quickly to changing circumstances. This might involve experimenting with new approaches, pivoting your strategy when needed, and being willing to take calculated risks. 

Overall, being focused outward and forward means having a growth mindset and a willingness to embrace change and uncertainty. By cultivating this mindset, you can position yourself and your organization for success in the future.

Second, get yourself oriented to each system. John Boyd, through his classic OODA loop (Observe, Orient, Decide, Act), insightfully pointed out that if you do not observe carefully and critically and get yourself oriented to the context for your decisions, there is a danger of being disoriented and that is a terrible place from which to make decisions. 

Systems thinking offers a powerful tool for getting oriented to complex adaptive systems, and that tool is causal loop diagramming. Causal loop diagrams (CLD) map the dynamic flows through a complex system and add critical directionality and causation. Causal loop diagrams are what we in the systems community call rich picture diagrams that will help you and your team get oriented to the ecosystem. Developing your version of the CLD with your team is a powerful team learning experience. 

Rich picture diagrams help to understand complex ecosystem dynamics. Ecosystems can always change in various ways, depending on the factors that are driving the change, and the CLD helps track and understand those changes. Here are a few examples of how ecosystems can change based on the classic PESTEL strategic analysis framework: 

1. Political
2. Economic   
3. Social
4. Technical
5. Legal
6. Environmental

Even tiny changes in PESTEL factors can significantly impact an ecosystem but may be unequally impactful, leading to new and varying dynamics within the ecosystem. The critical insight is that each of these dynamics may affect elements of the ecosystem differently, and the other leaders of the ecosystem elements may also react differently, contributing to the uncertainty. Overall, ecosystems are polycentric, complex, and dynamic systems constantly changing in response to various factors. Understanding the drivers of change can help you better manage and protect these systems for the future.  

What can you do as a leader?  

In anticipation of uncertainty, leaders should strive to create an environment that fosters collaboration, innovation, and growth in an ecosystem. Here are a few things that leaders can do to achieve this: 

1. Foster a culture of collaboration: Encourage ecosystem members to work together and share their ideas. By creating a collaborative culture, leaders can facilitate sharing of knowledge and resources, leading to better outcomes for everyone involved. Here is an opportunity to lead, but only through influence, not coercion. 
2. Encourage innovation: Leaders should encourage their ecosystem members to think creatively and outside the proverbial box. This spirit of creativity can lead to the development of new ideas and products that can help drive the whole ecosystem forward. 
3. Build partnerships: Leaders should seek partnerships and collaborations with other organizations within the ecosystem. Organizations can leverage each other’s strengths and resources to achieve common goals by working together.
4. Embrace diversity: Leaders should recognize and value various perspectives, backgrounds, and experiences within their team and the ecosystem. By embracing diversity, leaders can foster an inclusive environment that welcomes and celebrates different viewpoints and ideas.  

What can you do as a follower?  

In an ecosystem, followers should actively participate and engage with the community to help achieve the collective goals of the ecosystem. Here are a few things that followers can do to contribute: 

1. Collaborate: Followers should be willing to work with others within the ecosystem to achieve common goals. Followers can help drive progress and innovation by sharing their expertise and resources. 
2. Provide feedback: Followers should provide feedback and suggestions to help improve the ecosystem. This might involve providing feedback on products, services, or initiatives within the ecosystem. 
3. Embrace change: Followers should be open to change and adapt to new circumstances. By embracing change, followers can help drive progress and growth within the ecosystem. 
4. Build relationships: Followers should build relationships with others within the ecosystem. This can help foster a sense of community and collaboration and lead to new opportunities and partnerships. 
5. Stay informed: Followers should stay informed about the ecosystem’s latest trends, developments, and opportunities. This can help them identify new opportunities and stay ahead of the curve. 

Overall, followers in an ecosystem should be active, engaged, and committed to the community’s success, without assuming that only leaders need to do so. By doing these things, they can help drive progress and innovation within the ecosystem and contribute to a thriving community.