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Back to the good old days

Professor Peter WilliamsonLoosely coupled networks, like those used in medieval Britain and 14th century Tuscany, are increasingly being adopted by leading modern companies

Modern, 21st century companies are learning from the loose networks used in a 14th century Italian textile industry or even earlier, to manage Britain’s medieval ‘common’ land.

These ‘loosely coupled networks’ or ecosystems are becoming increasingly widespread and are used by market leaders and household names alike including Apple, Google and Cambridge’s ARM.

Professor Peter Williamson, Honorary Professor of International Management at Cambridge Judge Business School, has been researching best practice and examining case studies from a number of companies. He says that more companies have not reverted to those centuries-old ‘loosely coupled networks’ as the meet today’s demand for complex integrated solutions.

He says that fundamentally the idea is common sense but today companies have a great desire for control through line management, and probably do not feel comfortable if they are working with partners who fall outside the management system and where they have to think about building an ecosystem.

“It may be that we have passed the point of economies of scale into diseconomies of scale, and these organisations have just become too big, too inflexible and too difficult to manage.

“An ecosystem is way to get some of the benefits of being big by coordinating lots of people but actually having each of the cells focusing on what they are good at doing and being able to flexibly reconfigure the whole organisation in a way which is not really possible in a large bureaucracy.

“Many companies today are facing a very fundamental tension through their need to reduce complexities and simply focus on what they are really good at. On the other hand customers often ask for a wider and wider bundle of things. So there is a tension between customers asking for more and the economics indicating that we should do less and focus.”

Professor Williamson uses ARM of Cambridge and Apple as two examples of companies who are using ecosystems to great advantage in today’s environment.

He posits there are six keys to create an ecosystem advantage:

  1. clarity around the creation of added value
  2. definition and creation of partner roles
  3. stimulation of complementary partner investments
  4. the need to reduce transaction costs
  5. stimulation of co-learning in the network
  6. creating effective value capture mechanisms