3 approaches to ecosystem governance

Sometimes organizational goals depend on the actions of other organizations in an ecosystem. By identifying and applying the right type of governance, ecosystem participants can address shared challenges and access common resources and expertise.

Effective ecosystem governance is the key to creating trust among participants and growing value, according to Gayan Benedict and Ina Sebastian from the MIT Center for Information Systems Research. Governance sets priorities, ensures that organizations act in the interest of all participants, clarifies decision rights, and guides acceptable behavior.

In a new research briefing based on ecosystem research and a poll of executives, Benedict and Sebastian outlined three approaches to ecosystem governance:

1. Alpha governance

With alpha governance, a single leader takes primary control over decision rights, controls most of the data created by the ecosystem, secures and operates the platform, and chooses who participates in the ecosystem.

This is the most centralized form of ecosystem governance, and an approach often taken by platform businesses. To succeed, ecosystem participants have to trust the dominant organization. More than half of the executives the researchers interviewed said their organizations experience this type of governance.

An example of alpha governance is Salesforce’s AppExchange ecosystem, which offers apps to Salesforce customers. Salesforce decides which businesses can join the ecosystem and has invested in the security and operation of the underlying platform.

2. Representative governance

With this type of governance, ecosystem participants establish a governing authority and entrust it with accountability.

This federated style of governance is experienced by about 18% of the organizations whose executives were interviewed.

Organizations choose this approach when several stakeholders want to participate in setting a direction and controlling data. To succeed, the governing authority must commit to prioritizing the purpose of the ecosystem over the ambitions of individual participants.

An example of representative governance is a consortium of financial services institutions in Australia that created a not-for-profit organization to govern the design and implementation of a new payment platform.

The MIT researchers write that representative governance is currently “the best approach to solve shared industry problems.”

3. Liquid governance

Liquid governance features consensus on strategic direction, and disagreements are resolved with Web3 technology. Specifically, liquid governance uses decentralized autonomous organizations, or DAOs. These Web3-based governance entities solicit proposals from ecosystem participants, find consensus using digital voting tools, and execute approved proposals as smart contracts, which have terms that are transparent to all parties. Participants can also retain control of their own data.

This, the most decentralized option, was used by about 9% of organizations in the poll.

For example, computing technology company Wolfram Research participates in the Cardano Web3 ecosystem, which gathers expertise and resources for developing generative AI capabilities. Wolfram Research submits proposals to the Cardano DAO, and all of the participants vote on whether to fund the proposals and incorporate them into the platform code.

Read the research briefing: Designing ecosystem governance to grow value