Modularity, Adaptation Problems, and the Governance and Problem-Solving Capabilities of Core Firms in Ecosystems

Abstract

Building on transaction cost economics and the literature on capabilities, we provide a new, integrative lens on core firms in ecosystems. Specifically, we characterize ecosystems with core firms as a hybrid governance structure and describe the externally-oriented capabilities of core firms as means to reduce ecosystem-level transaction costs. The starting point for our analysis is the identification of three adaptation problems that stem from limitations to modularity in ecosystems (interoperability, customization, and availability), and we argue that each is associated with observable characteristics of the technology prevalent in an ecosystem. Thus, the core firm's externally-oriented capabilities are geared towards solving the respective adaptation problems. We further distinguish between governance capabilities, which serve to influence other ecosystem participants in ways that mitigate the above-mentioned adaptation problems, and problem-focused capabilities, which are targeted at making sure that adaptation problems are solved or do not arise in the first place. Overall, our focus on adaptation problems and transaction costs allows us to provide a theoretically unified view on core firms in ecosystems while simultaneously showing how their capabilities systematically differ in different types of ecosystems.