This article is based on Jay Nakagawa’s brilliant talk at the #Demand24 Summit in Denver. Members can enjoy the complete recording here.

Ever wondered why some companies dominate their industries while others fade into obscurity? 

I’m Jay Nakagawa, Director of Competitive Intelligence at Dell Technologies, and I’ve seen how ecosystems can make or break a business. So, in this article, we’ll explore how to leverage ecosystems for maximum growth and success. Here’s a peek at what we’ll cover:

  • The fundamentals of ecosystems: Why they matter and how they’ve evolved beyond traditional competitive models.
  • Key case studies: Lessons from Zume Pizza, Kodak, Apple, and CVS to uncover what works – and what doesn’t.
  • Practical insights: Tips for building and managing ecosystems that generate value and avoid common pitfalls.

Whether you’re building partnerships or reinventing your business, these insights will help you navigate the challenges and opportunities of ecosystem strategy. Let’s jump in!

The traditional approach to value creation

Let’s start with the basics – how do you create and capture value? For anyone who’s been to business school, the diagram below might look familiar. For those of us who zoned out during those classes (myself included – I was too busy playing music all night!), let me break it down.

Diagram of the Porter's Five Forces model, represented by five circles. The middle circle is labeled "competitive rivalry". Arrows point out from this circle to four other circles, labeled "threat of new entrants", "bargaining power of buyers (customers)", "threat of substitutes", and "bargaining power of suppliers".

Traditionally, value creation revolves around managing key forces, as outlined by Michael Porter’s model. The idea is to balance your suppliers, buyers, substitutes, new entrants, and competitive rivalry to determine the intensity of competition in your industry.

For instance, in the airline industry, suppliers are limited to Boeing and a few others. Airlines, as buyers, don’t have endless choices either. Similarly, substitution options are limited; you can’t exactly replace a 737 Max with a smaller plane without losing capacity. 

High barriers to entry, like massive startup costs,  also make it tough for new players to join the market. These factors create an environment where only a few players compete fiercely.

Let’s take the gaming world as another example. If Xbox improves its functionality, the perceived value of PlayStation goes down, and vice versa. This rivalry fuels competition, but it’s a zero-sum game – one’s gain is the other’s loss.