Review status
This summary is based on the full article text.
The DOI and source URL have been verified through the official SAGE article page.
The article is a conceptual theory article published in the Journal of Management. It integrates transaction cost economics, capabilities theory, modularity thinking, and ecosystem research. It does not report an empirical sample, statistical test, regression model, survey, interview study, or case-study dataset.
Research question
What do core firms do in ecosystems, why are they needed, and what capabilities allow them to reduce ecosystem-level coordination and cooperation problems?
More specifically, the article asks how core firms help solve adaptation problems that arise when modularity, standards, and design rules are not sufficient to coordinate legally independent but interdependent ecosystem participants.
Hypotheses
Not specified.
The article is a conceptual theory article. Instead of testing hypotheses, it develops a set of theoretical propositions about adaptation problems and the externally oriented capabilities of core firms in ecosystems.
The article develops nine propositions.
Proposition 1a states that in ecosystems where a value-chain logic is prevalent, a core firm’s governance and problem-focused capabilities are primarily geared toward solving or preventing interoperability problems.
Proposition 1b states that in value-chain ecosystems, governance capabilities reduce transaction costs by selecting and evaluating suppliers of components that are likely to cause interoperability problems.
Proposition 1c states that in value-chain ecosystems, problem-focused capabilities reduce transaction costs by combining system-wide knowledge with component-level knowledge and by maintaining routines for solving interoperability problems.
Proposition 2a states that in ecosystems where a value-shop logic is prevalent, a core firm’s governance and problem-focused capabilities are primarily geared toward solving or preventing customization problems.
Proposition 2b states that in value-shop ecosystems, governance capabilities reduce transaction costs by selecting, evaluating, and working closely with suppliers of components that are likely to cause customization problems.
Proposition 2c states that in value-shop ecosystems, problem-focused capabilities reduce transaction costs by combining customer-problem knowledge and technical knowledge, including project management and ad hoc problem-solving capabilities.
Proposition 3a states that in ecosystems where a value-network logic is prevalent, a core firm’s governance and problem-focused capabilities are primarily geared toward solving or preventing availability problems.
Proposition 3b states that in value-network ecosystems, governance capabilities reduce transaction costs by granting and restricting access to specialists, setting requirements, adjusting incentives, and providing resources.
Proposition 3c states that in value-network ecosystems, problem-focused capabilities reduce transaction costs by anticipating how changes in standards affect participation, ensuring platform-wide variety and functionality, and selectively integrating into undersupplied core components.
Method
The article develops a conceptual framework rather than an empirical research design.
The authors integrate several theoretical perspectives. Transaction cost economics provides the logic for why ecosystems need governance structures that reduce coordination and cooperation costs. Capabilities theory explains how core firms can reliably perform ecosystem-level functions. Modularity theory explains why standards and design rules reduce coordination costs but also have limits. Ecosystem research provides the setting: legally independent but interdependent actors whose complementary investments must come together for a joint value proposition.
The article defines ecosystems as groups of mostly legally independent but interdependent economic actors that invest in complementary and possibly ecosystem-specific assets and follow mutually agreed-upon rules and agreements so that an innovative joint value proposition can materialize.
The authors argue that ecosystems with core firms should be understood as hybrid governance structures. They are not fully vertically integrated firms, because many ecosystem participants remain legally independent. They are also not pure markets, because a core firm often performs coordinating, regulating, and problem-solving functions.
The framework starts from the limits of modularity. Modularity, design rules, standards, interfaces, and routines can reduce transaction costs, but they cannot fully eliminate adaptation problems under uncertainty, technological change, heterogeneous customer needs, and changing ecosystem participation.
The article identifies three adaptation problems.
First, interoperability problems arise when technological change or unexpected interdependencies compromise how well components work together. These problems are especially relevant when a product or platform architecture depends on multiple components supplied by different specialists.
Second, customization problems arise when heterogeneous or idiosyncratic customer needs cannot be satisfied simply by mixing and matching standardized modules. In these cases, components must be tailored, integrated, or co-specialized for a specific customer problem.
Third, availability problems arise when the ecosystem needs suppliers or complementors to participate, innovate, or remain committed, but incentives are insufficient to attract or retain them.
The article then distinguishes two externally oriented capability types.
Governance capabilities influence ecosystem participants by selecting participants, regulating access, devolving decision rights, controlling activities, setting requirements, adjusting incentives, or enforcing standards.
Problem-focused capabilities address adaptation problems more directly. They involve anticipating problems, understanding how they may be solved, and solving them when they arise. These capabilities require a broad ecosystem-level view, knowledge of the ecosystem architecture, and at least some knowledge of participants’ technologies and capabilities.
The article maps these adaptation problems and capability types onto three value-creation logics.
A value-chain logic applies when firms are connected through input-output relationships similar to a traditional value chain. Examples include cars, industrial equipment, airplanes, and airplane engines.
A value-shop logic applies when firms combine specialized capabilities to solve idiosyncratic customer problems. Examples include construction, business services, manufacturing outsourcing, and oilfield exploration.
A value-network logic applies when a platform mediates among different user groups, suppliers, or complementors and depends on direct or indirect network effects. Examples include smartphone ecosystems and commercial software platforms.
Results / key findings
The article’s central argument is that modularity is powerful but incomplete.
In a fully modular ecosystem with stable standards, clearly defined interfaces, and predictable interdependencies, independent firms could coordinate mostly through arm’s-length transactions. In that ideal situation, a core firm would not be needed because standards and design rules would already solve the main coordination and cooperation problems.
But real ecosystems face uncertainty, technological change, customer heterogeneity, and participation dynamics. These conditions create adaptation problems that modularity cannot fully solve. The core firm exists because it can reduce the transaction costs associated with those problems more efficiently than either full vertical integration or a fully modular ecosystem without a core firm.
The first major finding is the identification of three adaptation problems: interoperability, customization, and availability.
Interoperability problems occur when components must continue to work together despite innovation, technological change, or unexpected interdependencies. For example, adding digital control systems to cars can create new interdependencies among components that were previously more separable.
Customization problems occur when customer needs are too specific to be satisfied by a simple recombination of standard modules. In these cases, customers need tailored solutions, not just interchangeable components.
Availability problems occur when value creation depends on enough high-quality suppliers or complementors joining and remaining active in the ecosystem. This is especially important when network effects are present.
The second major finding is the distinction between governance capabilities and problem-focused capabilities.
Governance capabilities make the core firm an ecosystem regulator. The core firm selects who can participate, controls participation, sets rules, enforces standards, devolves decision rights, adjusts incentives, and constrains or enables ecosystem participants.
Problem-focused capabilities make the core firm an ecosystem problem solver. The core firm anticipates adaptation problems, understands the system-wide causes of these problems, and helps solve them directly when they arise.
The third major finding is that the dominant adaptation problem depends on the ecosystem’s value-creation logic.
In value-chain ecosystems, the dominant problem is interoperability. The core firm must ensure that components supplied by different specialist firms work together in a final product. This is especially important in complex physical products such as cars, airplanes, and industrial equipment. The core firm often needs to know more than it makes: it may outsource production but still maintain deep knowledge of suppliers’ technologies to anticipate and solve system-level problems.
In value-shop ecosystems, the dominant problem is customization. The core firm acts more like a systems integrator for customer-specific projects. It must combine customer-problem knowledge with technical knowledge, select and manage suppliers, and coordinate project-based problem solving. The core firm’s capabilities are therefore closely tied to project management, solution design, and ad hoc coordination.
In value-network ecosystems, the dominant problem is availability. The core firm must ensure that complementors continue to participate and provide enough variety and quality. This is especially important in platform ecosystems such as smartphone operating systems or commercial software platforms. The core firm must balance openness and control: too little control may reduce quality, but too much control may discourage complementors.
The fourth major finding is that capabilities with similar labels can look very different across ecosystem types.
For example, “governance capabilities” in a value-chain ecosystem may involve selecting a small number of suppliers, writing long-term contracts, enforcing product specifications, and coordinating technical interfaces. In a value-network ecosystem, governance capabilities may involve app-store access rules, software development kits, API restrictions, revenue-sharing rules, and complementor incentives.
Similarly, “problem-focused capabilities” differ across contexts. In a value-chain ecosystem, they involve system-wide engineering knowledge and joint problem-solving routines. In a value-shop ecosystem, they involve customer-problem diagnosis and project-based solution integration. In a value-network ecosystem, they involve platform evolution, backward compatibility, interface upgrading, and selective integration into undersupplied functionalities.
The fifth major finding is that core firms are endogenous to ecosystem governance. They do not simply appear because someone labels them “orchestrators” or “platform leaders.” They become core firms because they can develop and deploy externally oriented capabilities at lower cost than other actors. These capabilities are often co-specialized, based on specific investments, and subject to economies of scale and learning, making it efficient to concentrate them in one or a few firms.
The article’s figures and tables support this conceptual structure. Figure 1 illustrates how modularization can reduce cross-module interdependencies, but also shows that interdependencies are not fully eliminated. Figure 2 presents the basic theoretical model: technology shapes the dominant adaptation problem, and the adaptation problem shapes the governance and problem-solving capabilities of the core firm. Table 1 distinguishes governance capabilities from problem-focused capabilities. Table 2 compares value-chain, value-shop, and value-network ecosystems across interoperability, customization, availability, and example industries. Table 3 maps each value-creation logic to the relevant governance and problem-focused capabilities.
Overall, the article provides a unified theory of core firms in ecosystems: core firms matter when they reduce the transaction costs created by unresolved adaptation problems.
Practical implications
For managers, the article’s most useful message is that ecosystem leadership is not one generic capability.
A firm cannot manage every ecosystem in the same way. The right role for a core firm depends on the dominant adaptation problem in the ecosystem. Managers should therefore first diagnose whether the ecosystem mainly faces interoperability, customization, or availability problems.
In a value-chain ecosystem, managers should focus on interoperability. This means selecting suppliers carefully, writing contracts that anticipate technical interdependencies, maintaining deep architectural knowledge, and building routines for joint technical problem solving. Automotive, aerospace, and industrial-equipment firms should not assume that modular outsourcing eliminates the need for system-level knowledge. The core firm may still need to understand technologies produced by suppliers.
In a value-shop ecosystem, managers should focus on customization. This means building strong project-management capabilities, understanding customer problems deeply, integrating multiple specialist inputs, and forming multidisciplinary teams quickly. Construction firms, business-service firms, systems integrators, and outsourcing providers need capabilities that combine technical expertise with customer-facing problem diagnosis.
In a value-network ecosystem, managers should focus on availability. This means attracting, retaining, and motivating complementors while maintaining enough control to protect quality and ecosystem coherence. Platform leaders must design access rules, incentives, APIs, software development kits, and governance policies that encourage participation without losing control of the ecosystem’s direction.
The article also warns managers of specialist firms to understand the trade-off of joining an ecosystem with a core firm. A core firm may reduce uncertainty, provide tools, solve compatibility problems, and create market access. But participation also means accepting rules, constraints, dependence, and possible competition from the core firm.
For core firms, the managerial challenge is to build the right externally oriented capabilities rather than simply impose authority. Core firms cannot rely on managerial fiat because ecosystem participants are legally independent. They must persuade, incentivize, constrain, enable, and coordinate other firms without owning them.
The article also helps managers avoid a common mistake: treating ecosystems as if they were only platforms. Some ecosystems are platform-like value networks, but others are value chains or value shops. The governance problem in an automotive supply ecosystem is not the same as the governance problem in an app-store ecosystem. The capabilities required from the core firm differ accordingly.
For practitioners, useful diagnostic questions include:
- What is the dominant value-creation logic in the ecosystem: value chain, value shop, or value network?
- Is the main adaptation problem interoperability, customization, or availability?
- Are standards and interfaces enough, or is a core firm needed to reduce coordination costs?
- Does the core firm need deeper component-level knowledge to solve system-wide problems?
- Does the ecosystem require project-based customization capabilities?
- Does the ecosystem depend on attracting and retaining enough complementors?
- Are governance mechanisms enabling specialists, constraining them, or both?
- Are specialists becoming too dependent on the core firm?
- Is the core firm solving real ecosystem-level problems, or merely extracting value from participants?
Theoretical implications
The article contributes to ecosystem theory by explaining why core firms exist and what they do.
Much ecosystem research uses labels such as orchestrator, keystone, platform leader, hub, or systems integrator. Schmidt and Foss provide a more unified theoretical explanation: core firms exist when their externally oriented capabilities reduce ecosystem-level transaction costs created by adaptation problems.
The article also contributes to transaction cost economics. It extends TCE beyond the classic comparison of markets, hybrids, and hierarchies by showing how ecosystems with core firms can function as hybrid governance structures. These structures combine modular standards and market-like coordination with core-firm governance and problem-solving.
The article contributes to capabilities theory by focusing on externally oriented capabilities. Traditional capability research often focuses on what firms do internally. This article highlights capabilities that are directed outward: selecting participants, controlling participants, anticipating ecosystem problems, and solving ecosystem-level problems.
The article also links technology and governance. The dominant technology or value-creation logic shapes the dominant adaptation problem. The adaptation problem then shapes the capabilities that a core firm must build. This creates a more predictive theory of ecosystem governance.
The framework also clarifies why core firms differ across ecosystems. Boeing-like systems integrators, construction project coordinators, and Apple- or Google-like platform leaders may all be core firms, but they solve different adaptation problems. Their capabilities should therefore not be collapsed into one generic concept of ecosystem orchestration.
The article also contributes to modularity theory. Modularity reduces coordination costs, but it does not eliminate them. When new interdependencies, customer-specific integration needs, or participation problems arise, modularity reaches its limits. Core firms become important precisely at those limits.
Limitations
The article is conceptual and does not test the propositions empirically.
The framework applies mainly to ecosystems that have a core firm with externally oriented capabilities. The authors explicitly note this as a boundary condition. Ecosystems without such a core firm may require a different explanation.
The article focuses on transaction cost reduction. This is theoretically useful, but ecosystems are also shaped by power, legitimacy, regulation, competition, identity, trust, and political conflict. These factors receive less attention.
The three value-creation logics are ideal types. Real industries may combine value-chain, value-shop, and value-network logics at the same time. For example, smartphones involve both a physical product ecosystem and a software platform ecosystem.
The article does not provide empirical measures for the capabilities it identifies. Researchers still need to operationalize governance capabilities, problem-focused capabilities, interoperability problems, customization problems, and availability problems.
The article gives illustrative examples from industries such as automobiles, airplanes, construction, business services, smartphones, and software, but these examples are not systematic evidence.
The article focuses more on established ecosystems than on ecosystem emergence. It does not fully explain how core firms initially gain legitimacy, bargaining power, or authority.
The framework assumes that concentrating externally oriented capabilities in one or a few core firms can be efficient, but it does not deeply analyze cases where collective governance, standard-setting bodies, alliances, or distributed governance may be preferable.
Future research
Future research could empirically test whether different value-creation logics predict different core-firm capabilities.
Researchers could develop measures of interoperability, customization, and availability problems and examine whether these problems predict the emergence or strength of core firms.
Future studies could compare ecosystems with and without core firms to test whether core-firm capabilities reduce transaction costs and improve ecosystem performance.
Another useful direction would be to study the microfoundations of externally oriented capabilities. Researchers could examine the roles of boundary spanners, project managers, platform architects, supplier managers, developer-relations teams, and ecosystem strategists.
Future research could study how core firms balance enabling and constraining ecosystem participants. This is especially important in platform ecosystems where too much openness can reduce quality, but too much control can discourage complementors.
Researchers could also examine overlapping ecosystems within the same industry. For example, the automotive industry increasingly combines a traditional value-chain logic with software-based value-network logics.
Future studies could investigate competition between ecosystems. Competing platform ecosystems, automotive ecosystems, or industrial ecosystems may solve similar adaptation problems in different ways.
Another research direction is the emergence of core firms. Scholars could study why some firms become core firms, how they build externally oriented capabilities, and how bargaining power develops over time.
Future work could also examine governance alternatives to core firms, such as standard-setting bodies, open-source foundations, consortia, alliances, and public regulators.
Finally, researchers could apply the framework to contemporary transformation contexts such as electric vehicles, AI platforms, cloud ecosystems, industrial IoT, digital health, renewable energy, and software-defined manufacturing.