In part 1 of this series, I gave a brief overview of the complexities of platform strategy and introduced regenerative thinking as a means to enhance the longevity of platforms and ecosystems. In part 2, I explored the role that intent plays in establishing and sustaining ecosystems. In this post, I’ll share how viewing an ecosystem as a flow network helps maintain the health of participants and the whole system.
Part 3 — Ecosystem Flow
Most innovators underestimate the value of measuring ecosystem flow.
So far in this series, I’ve been sharing things that many platform innovators are aware of but underestimate as factors in determining the longevity of ecosystems. For this post, it’s likely that innovators are not aware of the universal phenomenon referred to as flow, nor how it applies to platform ecosystems. So, to begin with, I’ll share some context.
When we think of ecosystems, we tend to think of them as platform marketplaces that transform value chains and facilitate economic exchanges in efficient and convenient ways. So, that’s what we measure to assess their performance. But ecosystems are fundamentally communities made up of people who do more than trade with each other when a common interest binds them together. There are many things happening within communities that are hard to measure but are intuitively valuable. Things like sharing ideas, mutually supportive relationships, and collective learning.
I hope to show that these things that are commonplace within ecosystems are instrumental to their longevity and can be measured. I hope to demonstrate that the longevity of an ecosystem is as dependent on the health of its community as it is on how much economic activity occurs within it.
What is Ecosystem Flow?
Her post described organizations as living systems composed of various kinds of flows. Not only obvious flows like resources and money, but also flows of energy — like power & authority, ideas, information, relationships, learning, and change. Because these flows were all interrelated, she advocated for optimizing organizations as flow networks, and her imperative was as clear as it was concise:
“In organisations, as with natural systems, when flow stops, so does life. It is, therefore, imperative for organisations to optimise for flow to remain vital.”¹
Describing an organization as a network of tangible and intangible energy flows intrigued me and fueled my imagination. I had been writing about and working with ecosystems for years, and I suddenly saw them from a new perspective. What if one could characterize an ecosystem by its energy? How would one define an ecosystem’s energy? What does an ecosystem that’s flowing look like? Could one actually observe, measure, and model an ecosystem’s energy flow?
I was immediately curious to learn more, and to my surprise and delight, I learned that flow is not just a concept. It is a universal phenomenon observed throughout nature that is explained in physics by the constructal law. The constructal law states that:
For a system that moves (e.g. — a river system) to persist or last, it must have the freedom to change, adapt and flow more easily in ways that provide more access to the thing(s) that flow through it.²
The universal law of flow is what governs the design of all self-organizing systems. That is why when you see branching patterns (referred to as fractals) throughout nature, for example, a tree, river, lightning bolt, or the human lungs, you are seeing the result of a self-organizing system optimizing its flow.
So, how does flow apply to human systems? Again, to my surprise, I found that the application of flow to human systems has been studied extensively as part of a new set of sciences referred to as the Energy Network Sciences (ENS). ENS applies flow in developing principles for regenerative economics.
“Regeneration refers to the self-feeding, self-renewing processes that natural systems use to nourish their capacity to thrive for long periods of time and their ability to adapt to unexpected, sometimes threatening circumstances. No system can sustain itself over the long term if it is not designed to continuously regenerate. Regenerative development uses the universal laws of systemic health and self-renewal to show how we can develop durably vibrant socio-economic systems as well. It uses the empirical study of flow-networks to make this idea precise.”³
ENS emphasizes the importance of the underlying human and environmental networks that support a market. ENS views human economic markets as metabolic networks rather than mechanical systems characterized by rational actors and general equilibrium theory.
“In this metabolic view, economic vitality rests first and foremost on the health of the underlying human networks that do all the work and underlying environmental networks that feed and sustain all the work. In other words, systemic health depends largely on the care and feeding of the entire network of interconnected socioeconomic systems, including: individuals, businesses, communities, cities, value-chains, societies, governments, and the biosphere, all of which play critical roles in production, distribution, and learning.”³
ENS defines flow broadly as anything tangible or intangible (energy, resources, information) that moves and emphasizes circulation as crucial to the vitality of self-organizing systems.
“A flow network is any system whose existence arises from and depends on circulating energy, resources, or information throughout the entirety of [its] being.”?
To summarize, ecosystem flow is how self-organizing ecosystems regenerate themselves as energy, resources, information, and value continuously seek to circulate freely and robustly among all participants in the system.
Therefore, ecosystem flow is foundational to organizational emergence, growth, and development because it dictates an ecosystem’s ability to adapt and endure over vast timescales.
Applying Ecosystem Flow To Platform Ecosystems
In this section, I’m going to share a framework for incorporating ecosystem flow into how we measure the performance of platform ecosystems.
To date, platform ecosystems have mostly focused on economic outcomes enabled by a platform. By incorporating an understanding of ecosystem flow, innovators have a robust way of monitoring an ecosystem’s ability to endure over time.
The framework utilizes the ancient philosophy of yin and yang that I used to depict the interdependent relationship between platforms and communities in part 2 of this series. Figure 2 depicts a balanced approach for measuring flow in platform ecosystems.
Measuring Platform Flow
Platform flow relates to the growth of a platform marketplace. As part of their series on the new growth landscape for platforms, Boundaryless has released a framework for measuring platform and marketplace strategies. In it, they share three main aspects of growth for platform marketplaces.
- Reaching Liquidity and Delivering Engagement
- Increasing Retention
- Platform Economics and Sustainable Business Growth
These main areas are important because they measure the ongoing viability of a platform model. If the platform is not relevant for a large number of users, it will not succeed.
Liquidity measures whether a marketplace gets traction. Metrics relate to a minimum required flow of exchanges (minimum order flow) and utilization of assets (utilization rate) that result from how well the platform facilitates matching demand and supply (unsuccessful matches, search/time to fill).
Retention measures whether a marketplace maintains momentum by continuing to engage users. As new cohorts of users are onboarded to the platform, retention concerns itself with how many users remain after a given period of time (user retention), the number of paying users (dollar retention), how many users participate in the platform’s core experience (core experience retention) as well as direct and indirect user feedback (net promoter score). While tracking retention, marketplaces must also be cautious to avoid concentrations of suppliers that can indicate that the marketplace value proposition is not widely valued.
Platform economic metrics measure whether the marketplace continues to grow. These metrics track things like the total value of exchanges (gross merchandise value) and net revenues and the cost to acquire customers, and the value they generate (i.e., Customer Acquisition Cost, Lifetime Value measure).
Measuring Community Flow
While platform flow measures the ongoing viability of a platform model, community flow is concerned with the health of individual participants and the whole system. Community flow measures the dynamics of the environment within which the platform operates and whether that environment enables a community to sustain itself over the long term.
In this section, I’m going to stand on the shoulders of giants. The principles and measures I summarize here are taken directly from Brian D. Fath, Daniel A. Fiscus, Sally J. Goerner, Anamaria Berea, and Robert E. Ulanowicz, whose groundbreaking work in regenerative economics has inspired this post. I summarize their principles into four main themes and discuss how they complement platform flow metrics.
If you want to go deeper into the principles and metrics, I share more detailed descriptions, including mathematical equations where applicable in the Appendix at the end of this post. (Warning: The Appendix may be quite technical for those without an affinity for network analysis and mathematics!)
From a community perspective, an ecosystem is flowing in a way that facilitates its longevity when:
- Its structure includes multiple scales (i.e., a mix of small, medium, and large entities) in the ecosystem that act to balance efficiency (throughput) and diversity (resilience).
- Energy, resources, information, and value circulate robustly across the scales so that growth becomes inclusive.
- The system values mutualism and activities that build capacity rather than extract resources from it (i.e., the system limits passive/speculative investments).
- Learning is collective and supports the ecosystem’s ability to adapt to changing circumstances.
Building Blocks of Community Flow
Community flow consists fundamentally of things moving to and from the participants in an ecosystem. Flows can be any form of energy, resources, information, or value such as money, data, designs, ideas, learning objects, intellectual property, commons assets, shared infrastructure, or any other mutually beneficial tangible or intangible asset that one can imagine. Participant inflows and outflows include both those coming from within the community and to/from external sources. The community’s total flow can be calculated as the sum of inflows and outflows for all participants in the community. Once these basic building blocks are monitored, many other community flow measures become possible.
Let’s look at the macro-areas for measuring community flow and their related metrics:
- Relationships & Values
- Collective Learning
One can observe healthy structure in communities by measuring the mix of participant sizes, the balance of efficiency vs. resilience, and the amount of diversity that exists in the community.
The healthiest structure that optimizes community flow is a mix of small, medium, and large participants. This ensures that flow is both efficient and diverse. Large entities provide scale and resources for throughput and distribution, whereas small and medium entities provide a consistent stream of new ideas, enthusiasm, and innovation. In this way, the community balances efficiency and resilience.
ENS uses an understanding of power laws (scale-free distributions), long tails, and fractals (structures that are self-similar at every scale) to measure community structure empirically, and again you can explore these further in the Appendix, but for our purposes here, maintaining a mix of participants sizes is important, so that value and resources do not become concentrated with larger entities to the detriment of the whole system.
Structure metrics include:
- Mix of Participant Sizes: This metric measures the mix of participant sizes, resources, or incomes to ensure the system serves needs at different scales. Because flow in complex systems has been found to follow a power-law distribution of small, medium, and large entities that form a fractal (branching) structure, this measure seeks to emulate the healthy fractal/power-law balance of organizational sizes in nature’s systems.
- Efficiency and Resilience — The mix of participant sizes also affects how efficient and resilient a system is. It is important to maintain a balance between the efficiency of large participants (e.g., high-capacity, streamlining) and the resilience that comes from small participants (diversity, dense connectivity). A system that becomes too efficient can become brittle, while one that becomes too diverse can stagnate.
- Sufficient Diversity — This metric seeks to ensure a sufficient number and diversity of specialists serving critical roles in the ecosystem. Sufficient diversity is crucial to the long-term health of systems because it increases resilience, helps to serve niches, and promotes creativity and innovation.
One can observe circulation in communities by measuring the extent to which flow circulates and cycles within the ecosystem and the impact that system outputs have on future inputs.
Circulation metrics include:
- Cross-scale circulation — Circulation is concerned with how much a unit of flow that enters an ecosystem circulates throughout participants before exiting the ecosystem. The more flow circulates within the ecosystem, the healthier participants become.
- Regenerative Reinvestment — The longevity of any system depends on the building and maintaining of internal capacities upon which the system depends. Internal capacities include infrastructure, participant well-being, institutional integrity, and supporting ecosystem services. Regenerative reinvestment measures the extent to which participants reinvest their outputs (i.e., cycle) back into the ecosystem.
- Reliable Inputs and Healthy Outputs — These two measures complement each other by measuring the relationship between the availability of critical resources upon which an ecosystem depends and the impact that system outputs have on the accessibility of those critical resources. The classic example is how renewable energy doesn’t produce climate externalities that threaten the future of critical resources like water (climate-induced drought from fossil fuel emissions). The extent to which critical inputs circulate among participants and produce healthy outputs that are reinvested determines how healthy an ecosystem becomes and how likely it is to endure.
Measuring Relationships and Values
One can observe relationships and values in communities by measuring how mutually beneficial direct and indirect relationships in an ecosystem are, and the extent to which the system promotes constructive activities over passive investments.
Relationships and Values metrics include:
- Mutually Beneficial Relationships — measuring the extent of mutually beneficial relationships ensures that an ecosystem does not become characterized by imbalanced relationships that result in flow concentrating with specific participants.
- Promoting Constructive Activities and Limiting Passive Investments — this metric measures the extent of constructive activity within an ecosystem that builds internal capacities, such as infrastructure, productivity, and learning. In contrast, passive investments can create the illusion of ecosystem health based purely on speculation. By prioritizing constructive activity and limiting passive investment, ecosystems more accurately reflect the health of the ecosystem’s participants and the ability for it to maintain capacities and sustain participation.
Measuring Collective Learning
Collective learning in communities measures the extent to which an ecosystem is learning as a whole and how adaptive it is. Collective learning determines an ecosystem’s ability to adapt to novel and changing circumstances and determines how resilient and sustainable it is. It is the cornerstone of its longevity.
- Collective Learning — ENS recommends identifying the learning needs of an ecosystem within a context of an adaptive management cycle of growth, conservation, collapse, and reorganization. It offers little guidance on how to systematically measure collective learning in a platform ecosystem other than recommending measuring learning outcomes related to jobs, education, healthcare, environment, and community programs. This area requires more attention and experimentation to determine the best ways to measure how adaptive and regenerative an ecosystem is. It is so important that I will dedicate Part 4 of this series to it.
Innovating Ecosystems That Flow
Throughout this post, I have tried to show how valuable and groundbreaking ecosystem flow can be to guide the development of platform ecosystems. I have shown that flow is a real phenomenon supported by science and that it underpins all complex systems. I’ve shared how measuring community flow in addition to platform flow provides innovators with another tool to assess the health of an ecosystem.
The metrics and equations that appear in the appendix are admittedly complex to digest. If, however, they were automated and embedded within the analytics engine of a platform, they would provide innovators with a way to measure how regenerative a platform ecosystem is, and how likely it is to endure.
Imagine the ability to measure how mutually supportive an ecosystem is, how much sharing and co-innovation occurs within it, how well it builds and maintains capacity, or how well it learns and adapts. These forms of flow are not adequately accounted for by our current economic-oriented measurement systems. Yet, they have been proven time and again to be the cornerstones of longevity in nature’s ecosystems.
The opportunity exists for innovators to go beyond traditional economic metrics and measure systemic health holistically as a combination of platform and community flow. Investment is needed to experiment with these metrics and embed them into the practice of shaping and guiding regenerative platform ecosystems.
In the final part of this series, I’ll share the last of the three areas platform innovators underestimate in their initiatives — collective learning.
You can read Part 1 of this series here.
You can read Part 2 of this series here.
2. Paraphrased from Constructal Law Explained
Foundational Measures (Building Blocks)
The foundational units of flow in a network include inflows to and outflows from each node and the total amount of flow within the network. These flows can be any form of energy, resources, information, or value such as money, data, designs, learning objects, intellectual property, commons assets, shared infrastructure, or any other mutually beneficial tangible or intangible asset that one can imagine. If a platform facilitates the exchange of these resources, one can see how measuring community flow becomes possible.
A node’s inflow can be calculated as the sum of inflows from outside the network and inflow from other nodes on the network:
Node Inflows = External inflows + Internal inflows
where zi represents inflows to the node from outside the ecosystem and fji represents inflows from other nodes within the network.
A node’s outflow can be calculated as the sum of outflows to outside the network and outflows to other nodes on the network:
Node Outflows = External outflows + Internal outflows
where yi represents outflows from the node to outside the ecosystem and fij represents outflows to other nodes within the network.
Total System Throughflow
The network’s total flow can be calculated as the sum of inflows and outflows for all nodes on the network:
Total System Throughflow = Sum of All Node Flows (in and out)
where Ti represents node flow (in and out)
Community Flow Measures
With these foundational building blocks in mind, let’s look at the macro-areas for measuring community flow and their related metrics:
- Relationship & Values
- Collective Learning
Balance of Sizes
What does it measure? Because the science of flow is universal, flow follows a power-law distribution that results in fractal structures that can be seen everywhere in nature. These fractal structures indicate that energy and resources are flowing through a balance of small, medium, and large entities in a way that benefits all participants.
Why is it important? Because platforms and digital marketplaces follow power-law distributions with a few very large participants and a long tail of smaller participants, it’s important to maintain a balance of participant sizes, so that value and resources do not become concentrated to the detriment of the whole system.
Metric: Flow-network data can be plotted using a weighted distribution of stocks and flows, compared against power-law distributions found in nature to check for imbalances. More work needs to be done here to apply the power-law distributions found in long-lived natural ecosystems to human systems.
Balance of resilience and efficiency
What does it measure? This metric measures the balance of efficiency and resilience that exists in the ecosystem.
Why is it important? A system that becomes too efficient can become brittle, while one that becomes too diverse can stagnate. It is important to maintain a balance between the efficiency of large participants (e.g., high-capacity, streamlining) and the resilience that comes from small participants (diversity, dense connectivity).
Metric: The balance point between efficiency and diversity is measured by using the Window of vitality.
Detailed calculations related to the Window of Vitality can be found here.
What does it measure? This metric measures the amount of diversity that exists in an ecosystem.
Why is it important? Diversity increases resilience and helps create niches that serve unique and specialized needs. The bigger an ecosystem becomes, the more unique needs will arise, requiring “a village” of diverse specialists.
Metric: Sufficient diversity can be assessed by measuring the number of roles in a network. The number of roles represents the number of specialized functions within a network. A specialized function is a group of nodes that takes its inputs from one source and passes them to a single destination. Hence, its flows are unique. The number of roles (specialized/unique functions) in a network can be derived by dividing the number of nodes on a network by the weighted average number of flows per node.
Detailed calculations related to the diversity of roles in an ecosystem can be found here.
Maintaining cross-scale circulation
What does it measure? Cross-scale circulation measures how flow enters and circulates within an ecosystem.
Why is it important? When energy, resources, information, and value become concentrated and do not reach the smaller entities within an ecosystem, aggregate participation declines. If unchecked, it can threaten the viability of the system.
Metric: Cross-scale circulation is the ratio of Total System Throughflow (TST) to the total input into the system, also termed Network Aggradation.
Cross Scale Circulation = Total System Throughflow / Sum of Node External Inflows
What does it measure? Regenerative reinvestment measures how flow cycles within an ecosystem. Cycling is the extent to which system outputs are reinvested back into the system (rather than extracted).
Why is it important? The longevity of any system depends on the building and maintaining of internal capacities upon which the system depends. Internal capacities include infrastructure, participant well-being, institutional integrity, and supporting ecosystem services.
Metric: Regenerative re-investment can be measured as the percentage of resources the system invests in building and maintaining its internal capacities using the Finn Cycling Index.
Regenerative Reinvestment = Sum of Node Cycling / Total System Throughflow
Where TCi is the cycling (i.e., reinvestment) within a node on the network.
Node cycling is the extent to which a node reinvests its outputs back into the ecosystem.
Maintaining Reliable Inputs and Healthy Outputs
What does it measure? These two measures complement each other by measuring the relationship between the availability of critical resources upon which an ecosystem depends and the impact that system outputs have on the accessibility of those critical resources. The classic example is how renewable energy doesn’t produce climate externalities that threaten the future of critical resources like water (climate-induced drought from fossil fuel emissions).
Why is it important? Maintaining reliable inputs and healthy outputs is important because flow in healthy ecosystems is cyclical and circular in nature. The extent to which critical inputs circulate among participants and produce healthy outputs that are reinvested determines how healthy an ecosystem becomes and how likely it is to endure.
Metric: Measuring reliable inputs and healthy outputs will depend on how each ecosystem defines critical inputs, but they may include things like money, creativity, opportunity, entrepreneurship, trust, learning, and governance processes. Hence, the ecosystem’s environment and outputs (e.g., profit distribution, intellectual property management, decision processes, etc.) should be designed to facilitate rather than discourage ongoing participation. More work needs to be done here to identify a standard for platform ecosystems.
Relationships & Values Measures
Promoting mutually-beneficial relationships
What does it measure? This metric measures the extent to which direct and indirect relationships in an ecosystem are mutually beneficial.
Why is it important? An ecosystem that exhibits too many one-sided relationships can lead participants to seek alternatives and undermine the viability of the entire system.
Metric: By assigning (+) values to mutualistic relationships and (-) values to exploitive, exploited, and competitive, one can determine when it is more beneficial for a node to participate in a network. See the appendix to reference the detailed methodology to measure the degree of mutualism in an ecosystem.
Detailed calculations related to mutualism in an ecosystem can be found here.
Promoting constructive activity and limiting passive investment
What does it measure? This metric measures the extent of constructive activity within an ecosystem that builds internal capacities, such as infrastructure, productivity, and learning. In contrast, passive investments can create the illusion of ecosystem health based purely on speculation.
Why is it important? By prioritizing constructive activity and limiting passive investment, ecosystems more accurately reflect the health of the ecosystem’s participants and the ability for it to maintain capacities and sustain participation.
Metric: This can be measured as the ratio of value-add and capacity-building activities to extractive ones. One is looking for autocatalytic (closed-loop, self-sustaining) cycles that indicate the ecosystem’s constructive activities are sufficient to sustain it.
More detail on measuring constructive activity in ecosystems can be found here.
Collective Learning Measures
What does it measure? Collective learning is perhaps the most important of all of the indicators of a healthy ecosystem. It measures the extent to which an ecosystem is learning as a whole and how adaptive it is.
Why is it important? Collective learning determines an ecosystem’s ability to adapt to novel and changing circumstances and determines how resilient and sustainable it is. It is the cornerstone of its longevity.
Metric(s): ENS recommends identifying the learning needs of an ecosystem within a context of an adaptive management cycle of growth, conservation, collapse, and reorganization. It offers little guidance on how to systematically measure collective learning in a platform ecosystem other than recommending measuring learning outcomes related to jobs, education, healthcare, environment, and community programs. This area requires more attention and experimentation to determine the best ways to measure how adaptive an entire ecosystem is. It is so important that I will dedicate Part 4 of this series to it.