Chapter 3

Systems Advantage

Martin Reeves and Alex Bernhardt

Our competitors aren't taking market share with devices; they are taking market share with an entire ecosystem.” Stephen Elop, Nokia's president and CEO, offered that insight in 2011 to explain the rapid and disruptive rise of Apple's iPhone and Google's Android operating system in the global smartphone market.

According to traditional strategic paradigms, this swift and sizable competitive shift should not have happened. Nokia once had the advantages of being an early mover and market leader with a strong cost position. If the experience curve were the key driver of success, the company would have continued dominating the smartphone market. Yet Nokia was attacked by an entirely different kind of competitor: an adaptive business ecosystem. It was not simply Apple and Google, but their systems enlisting hundreds of component suppliers, multiple telecom partnerships, and innumerable independent application developers that proved so powerful. The ability to bring together the assets and capabilities of so many entities allowed these smartphone entrants to leapfrog the experience curve and become market leaders in record time.

Nokia's experience offers three lessons for today's managers. First, competitive shifts can occur with blistering speed. Second, when market and technology shifts accelerate, positional advantage becomes less durable, and the value of adaptiveness increases. Third, a multiplayer ecosystem can be a highly ...

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