The Ecological Niche Concept Is it a useful model to think about businesses and products?
The Debate Motion The ecological niche concept with all its connotations is a useful model to think about businesses and products.
What is an ‘Ecological Niche’? • Multidimensional Space or Hypervolume • Functional position of a species in an ecosystem • Coordinates of this position include all the resources required by the species, such as: • Geographical Environment (space, habitat) • Physical & Chemical Environment • Food Sources
Concepts linked with the Model • Competitive Exclusion • Interference or exploitation competition arising from niche overlaps • Physiological vs. Ecological Optimum • Fundamental, Realized or Empty Niches • Broad Niche (Generalist) vs. Narrow Niche (Specialist)
The Proposition’s Case • The ecological niche model (ENM) is indeed a useful model to think about businesses and products • Why is the model useful to think about businesses and products? • What is a useful model?
Why is the ENM a Useful Model? Argument 2 Argument 3 Argument 1
Proposition Argument 1:Strong Explanatory Power • Useful for explaining possible business phenomena • Businesses can use the model to explain trends, business behaviors and business outcomes of their decisions • This will be illustrated using a case as an example: Ryanair
Ryanair Case: ENM Parameters *Ecosystem being the European airline industry during that period
Ryanair Example: Niche Overlap British Airways and AerLingushad a certain degree of niche overlap in that they served a couple of similar routes (hence not a complete overlap) Legend British Airways AerLingus Ryanair Resource Use Ryanair had almost a complete niche overlap as its main route was London-Dublin, causing it to compete in many coordinates of its position NicheDimension
If Ryanair applied the ENM ex-ante, it would have seen that… • It was going to rely heavily on the London-Dublin route for revenues • The route was dominated by a duopoly between British Airways and AerLingus at that time • Clearly a large niche overlap indicative of intense exploitation competition • Although it was entering with lower prices and similar services, there was a high risk of becoming a victim of competitive exclusion
If we applied the ENM ex-post, the outcome can be explained… • British Airways and AerLingus adapted by slashing prices to stay competitive • Because Ryanair failed to compete profitably, it faced bankruptcy – indeed becoming a victim of competitive exclusion • Its conversion to a budget airline was evidence of niche separation: Ryanair found its realized niche and ecological optimum in the “no frills”, budget airline market
The Opposition’s Case The ecological niche model (ENM) is NOT a useful model to think about businesses and products
Why is the ENM Not a Useful Model? Argument 2 Argument 3 Argument 1
Counter Argument • ENM is able to analyze past data but what is more essential is its predicting tomorrow
Opposition Argument 1:Weak Predictive Ability Examples: - Government bailouts - Parent company support for subsidiary
Failure to Account for Direct Intervention:Government Bailouts Recent Global Financial Crisis • Fate of banks across the globe • How did the governments intervene • Banks Bailout, Nationalization, Credit Lending Schemes • ENM • Only efficient species survive, inefficient species will perish According to ENM, where should these banks be? Can the model take into account superior species or laws of nature to help weaker species to survive in times of crisis?
Failure to Account for Direct Intervention: Parent Company Support for Subsidiary Parental Financial Support • Wal-Mart & Seiyu • Wal-Mart majority shareholder of the Seiyu group since 2005 • Recently increased its stake to 100% in 2008 • Seiyu posting consecutive losses since 2002 • ENM would predict that Seiyu would be competitively excluded and pushed out of its niche
Failure to Account for Direct Intervention: Parent Company Support for Subsidiary Parental Financial Support • Why is Seiyu surviving? • Financial backing of parent company Wal-Mart • Both are ecologically independent & paths shouldn’t cross • Seiyu unable to survive in its own ecological niche • Survival due to direct intervention of parent from different system Can an American lion fly half way across the globe to help a Singaporean lion who is unable to find food?
Counter Argument • No model is flawless • Model unable to consider statistically improbable events • ENM serves as a useful tool in explaining business phenomena • Widely applicable in many different markets and competition types
Widely Applicable:Monopolistic Competition • Mobile industry
Widely Applicable:Mobile industry • Niche products • Product differentiation: functional features, design, materials… • Nokia: durability • Samsung: design • Sony Ericsson: sounds and audio • Apple: application Service surrounding sale of a product
Widely Applicable:Mobile industry • Niche products • Retail location strategy • Samsung: creates branded identity for its shops worldwide through staff, color, scent, interior design • Motorola: prioritizes customer convenience
Pepsi vs. Coke: Niche separation • Customers • Pepsi shifted its focus to the growing American teenage market in the 1990s • Coke continued to target baby boomers • Strings of niche products • Coke: Vanilla Coke, acquisition of Odwalla, Planet Java • Pepsi: Mountain Dew, Pepsi One, Pepsi Blue, etc. -> spatial preemption to keep out 3rd competitor
Widely Applicable:Untapped Markets 6-time increase in interest rate Early 2000 Internet based companies Low interest rate 1998-1999 Advent of Mosaic web browser
When the empty niche becomes overcrowded … • ENM • Only efficient species survive, inefficient species will perish • Facts • A vast number of companies with same business plan • Survival due to rapid customer base expansion • Google created more powerful capacity for search engine • Amazon.com focused on public awareness campaigns
Counter Argument Biology Business Concept of Consumer Power Can I have a Tiger to eat me instead?
Opposition Argument 3:Complexities of Human Dynamics ENM lacks the ability to take into account the complexities of inter-human interactions and dynamics
Complexities of Human Dynamics Ecological Niche Model does not take into account human interaction like working cultures
Complexities of Human Dynamics Ecological Niche Model does not take into account human interaction like feelings of patriotism, or emotions.
Opposition 2 Summary • ENM not useful as relationships are not parallel • Parameters in each models are not analogous
Counter Argument • Useful analogy in nature of relations • Gives good indicative intuition • ENM still holds if variables are well defined • Similar relationships exist in ecology
Proposition Argument 3: Practical business/product decisions reflect many ENM expectations and vice versa, thus is relevant and useful!
Relevance of Empty Niche • Investment Decisions • Venture Capital – Niche discovery
Niche Expansion • Competitive Dynamics • M&A • To compete, collude or integrate? • Operational Streamlining • GM Motors • Moving from integration to outsourcing • Bank Acquisitions • Horizontal Expansions
Finding a Niche • Marketing & Branding • Finding an optimal position • Product differentiation in finding specialized niche
Proposition Argument 3: • Model is able to: • Be consistent with many business decision tools • Accommodate adjustments to variables • Hold despite external interventions
Counter Argument • The opposition agrees that the model • Is highly flexible • Can be used in many situations
Opposition Argument 3:Poor Definition of Variables • Concepts Loosely Defined • Define roles in a way that can simply fit the outcome. • Range of variables too large: high chance to make mistakes when modeling