Metrics for Sustainable Ecosystems
We talk a good deal about ecosystems in the education sector. Indeed, the use of the term has become common parlance over the last ten years. It can apply to an individual school, in terms of the school being its own ecosystem. Likewise, and more aligned to what one might call a business ecosystem, there are membership associations, which are groups of independent organizations (schools) that choose to work together in order to create and deliver coherent solutions to the members of the association.
There has been some fascinating research on business ecosystems over the years, and one might argue that much of that research applies to membership associations, which frequently receive far less attention than schools when it comes to being relevant. The authors of a 2019 article ("How Business Ecosystems Rise (and Often Fall)") found that fewer than 15% of business ecosystems are sustainable in the long-run. Interestingly, they discovered that design faults, i.e., blunders in the actual design of the operating model, were the culprit, but that they weren't noticed for years. In fact, six of seven unsustainable ecosystems ended up that way because of design faults.
Ecosystems, like many (most) organizations, follow a lifecycle. It is the work of the ecosystem leader -- and, in the case of membership associations for independent and international schools, the board (in partnership with the leader) --to assess the health of the ecosystem throughout the lifecycle. One fault that often occurs in monitoring these systems, though, is the application of backward-looking performance metrics. How many members did we have this past year? How many social media mentions did we have? How many people attended a professional development workshop? These questions are examples of such metrics; everything is measured by looking backward, and then assessing whether the ecosystem itself was successful. Are these effective metrics, relative to the health of the ecosystem; or, instead, are they powerful--yet deceiving--vanity metrics?
To have a healthy ecosystem, leaders and boards need metrics that indicate performance and potential at the system level, as well as at the level of the individual member schools (as well as affiliate members) that participate in the ecosystem. Are all parts healthy? What about the ecosystem leader? That individual needs to be able to ascertain growth in terms of participation in the ecosystem, as well as in the operating model. For those ecosystems that are undergoing ecosystem change, whether voluntarily or in response to market conditions, a knowledge of the lifecycle phases and how to interpret 'success' at each phase is critical in determining the sustainability of the ecosystem.
Recent research by Ulrich Pidun, Martin Reeves, and Edzard Wesselink (Boston Consulting Group) has identified four distinct phases of the ecosystem lifecycle: launch, scale, mature, and evolve.
(1) Launch. "Establish the ecosystem in the market, introduce it to users, and prove the viability of the concept."
(2) Scale. "Increase the amount of platform activity, expand the operating model, and grow toward profitability."
(3) Mature. "Consolidate and defend the ecosystem's position."
(4) Evolve. "Continuously adapt, advance, and reinvent the ecosystem."
If you're in the independent or international school space, it would be surprising if you could not think of almost a dozen ecosystems rather easily. [Sidebar: there is a separate discussion as to whether there are too many ecosystems, creating an increasingly probable scenario of multiple ecosystem failures in the near future. See 'red flags' under Mature Phase, farther down.] Holding those in your mind, you can imagine where they are in their lifecycles. Accreditation bodies (e.g., Middle States, NEASC, WASC, state/regional accreditors) would tend to fall in the third phase, and may (or may not) be flirting with the fourth. Newer ecosystems that provide digital course solutions for middle and high school students, such as Global Online Academy or One Schoolhouse, are most likely in the second or third phase, if not firmly ensconced in the transition from two to three as they reach ten years of existence. Curriculum and examination providers (e.g., College Board, IB, and the like) are in phase three (perhaps four, but unlikely), whereas something like Common Ground Curriculum is firmly in stage two. Ecosystems just now coming into existence around DEIJ principles are in stage one. International school membership associations and independent school membership associations (regional, state, etc.) are firmly in phase three. And so on. Do note, however, that not all mature ecosystems are in phase four.
The aforementioned researchers have formed four probing questions that leaders and boards can ask during any of the four phases, in order to consider the health of the ecosystem:
(1) What is the definition of success? "What are the primary milestones that you need to achieve to master the current life cycle phase and enter into the next phase?"
(2) What do you need to get right? "What are the key factors that make the difference between success and failure in this phase?"
(3) What are key success metrics? "Which numbers should you track to assess the performance of your ecosystem in this phase?"
(4) What are red flags? "What are early warning indicators that signal that your ecosystem may not be on the path to success, that you may have to change your initial design, or that you should shut it down?"
Allow me to translate each phase's metrics and red flags for context in educational ecosystems (membership associations).
LAUNCH PHASE
a. Key success metrics: number and engagement level of high-spend schools; number and engagement levels of low-spend schools; member feedback on quality and word-of-mouth promotion
b. Red flags: influential schools do not join; your value proposition is subverted by at least one group; opinion- and thought-leaders leave the ecosystem; you frequently change your offerings.
SCALE PHASE
a. Key success metrics: number of new active members, both high-spend and low-spend; number of new active partners; number of successful monetary transactions; sustainable cost structures per transaction
b. Red flags: ecosystem growth reduces value for at least one active member type; increasing numbers of members misuse the ecosystem; quality indicators begin to decline; complexity of the operating model begins to increase
MATURE PHASE
a. Key success metrics: churn rates of member schools (all levels of spend) and affiliate members (attrition); revenue per member; contribution margin per offering (profitability of each offering, and how much that offering contributes to overall revenue generation); retention costs for members; acquisition costs for new members
b. Red flags: decline in the engagement level of school or affiliate members, irrespective of their level of spend; early ecosystem adopters begin to leave; aggressive niche competitors emerge; affiliate members or other members begin to create competing platforms (ecosystems) of their own; successful ecosystems from other sectors expand into your field
EVOLVE PHASE
a. Key success metrics: share of revenue from new products or services; member satisfaction; partner satisfaction (if you have partners who help to deliver on your value proposition to members)
b. Red flags: the ecosystem employs substantial aggressive price increases on a yearly basis (usually accompanied by forced participation in one or more ecosystem programs); partners (if applicable) engage in opportunistic behavior (they create similar businesses with different names, and approach your competitors as willing partners); negative coverage in social media or other media begins to accumulate; legal actions against the ecosystem accelerate
Do understand that the key success metrics and the red flags are those indicators that are relevant to seeing an individual phase accurately; it doesn't necessarily render any earlier success metrics or red flags unimportant. Rather, it is about what it takes to lead each phase successfully. For instance, if one knows where to look and how to look at any number of ecosystems, it can become readily evident that some who would identify as being in the Mature or Evolve phase are exhibiting red flags from an earlier phase. For instance, I can think of several ecosystems that I would identify as Mature whose opinion- and thought-leaders left some time ago; these ecosystems have been changing their offerings over the past five years, yet their success waned long ago. Many of these Mature phase ecosystems ought to be in the Evolve phase, but are not. Inadequate leadership, benign neglect on the part of the board or key partners, or pure myopia and hubris tend to be the culprits. Whereas they should be offering new products or services, they are suffering death by a thousand cuts: an increase in their churn rate, declining contribution margins, the degradation of the value proposition to the degree that certain types of schools no longer find any value in them, and cannot afford to keep paying the membership rates due to internal downward budgetary pressures.
INCREASING THE ODDS OF SUCCESS AND SUSTAINABILITY
In many ways, increasing the odds of success and sustainability is not rocket science. Leaders need to recognize which phase of the lifecyle the organization is in, and work with boards to educate them and address the trend. Each phase requires something different from the leader, as well as from the board. Incorporating the aforementioned metrics is a sure start, as is keeping a risk register that takes into account the red flag items. If the ecosystem is performing poorly on one or more red flag items, work to identify the driver(s) behind that falling performance and address it (them) as soon as is practical. The goal is to stop the damage and prevent any further damage, while the partnership of leader + board identifies a strategy to remedy the situation.
Sustainable ecosystems take focus, and in today's fast-paced environment, it takes leadership that knows what to look for, in terms of diagnosing how sustainable the ecosystem is right now. To be sure, there are basic hygiene factors such as loyal members and a strong value proposition, but even those basic hygiene factors do not make themselves, and without attention, they can degrade more quickly than one might believe.
Remember that only 15% of ecosystems are truly sustainable in the long run; should you believe willingly that the 85% is some other ecosystem's problem, not yours?