A colleague has just forwarded the brilliant ‘burning platform’ memo from Nokia CEO, Stephen Elop. If you haven’t read the entire memo to Nokia employees, you can link to a report here. It’s a brutal self-assessment that could be a turning point for Nokia. Learning often starts with a statement of “I don’t know” and the memo is not only an ‘aha’ moment for Elop but also an insight for the future of competitive strategy.

Elop talks about Nokia’s misguided focus on a product, which has resulted in them being outcompeted by entire ‘ecosytems’. These are value-creating networks of buyers, suppliers, related businesses and even competitors.

The battle of devices has now become a war of ecosystems, where ecosystems include not only the hardware and software of the device, but developers, applications, ecommerce, advertising, search, social applications, location-based services, unified communications and many other things. Our competitors aren’t taking our market share with devices; they are taking our market share with an entire ecosystem. This means we’re going to have to decide how we either build, catalyse or join an ecosystem.

It’s not about the product, it’s all about being part of a rapidly evolving ecosystem. This game is won by having the fastest-growing ecosytem. Traditional strategy theory talks about an internal focus on products with barriers to competition. Elop has defined the nature of 21st century competitive strategy. He talks about the Apple ecosystem, but there is a warning here for Apple as well. Apple lost its first ecosystem game with the PC and Apple software and history may yet repeat itself.

For example, there is intense heat coming from our competitors, more rapidly than we ever expected. Apple disrupted the market by redefining the smartphone and attracting developers to a closed, but very powerful ecosystem.

The new game of ecosytems in this industry could be won by Android. Elop highlight how their ecosystem has delivered rapid and profitable growth.

And then, there is Android. In about two years, Android created a platform that attracts application developers, service providers and hardware manufacturers. Android came in at the high-end, they are now winning the mid-range, and quickly they are going downstream to phones under €100. Google has become a gravitational force, drawing much of the industry’s innovation to its core.

I don’t think the ecosytem game is restricted to the telco industry. It reflects a trend away from the vertically integrated behmoth firms of the 20th century towards more nimble value-creating networks. What industries, do you think, could compete on ecosytems?

(Note from Tim: Esko Kilpi has an excellent post on a similar topic, including further links – I recommend checking it out.)