Earlier this year, when Daimler AG, the parent company of Mercedes-Benz and BMW Group announced their partnership to create a new mobility services provider, they sparked sentiments from mild curiosity to concern. Industry watchers and analysts questioned why two companies that have always competed had now turned collaborators.
Statements from Daimler AG and BMW Group leaders make the purpose of this strategic partnership clear: become the leading global player providing sustainable urban mobility for customers. The new cooperation comprises five joint ventures: REACH NOW for multimodal services, CHARGE NOW for charging, FREE NOW for taxi ride-hailing, PARK NOW for parking and SHARE NOW for car-sharing. With plans to invest over $1B in the new company, Daimler AG and BMW Group could soon fill the mobility business value chain end-to-end: from finding rides to get people on trains and buses to parking and charging their cars.
This isn’t the story of just two companies or one industry sector. In an age of continuous innovation and constant disruption driven by digital technologies, traditional enterprises are undergoing a sea change as boundaries disappear and businesses converge. The change isn’t motivated by the need for survival alone. In the 20th century, companies grew through proprietary knowledge – whether it was a method of production or an exclusive product or service. But with the rapid evolution of digital technologies, the emergence of new players and digital natives, the need to deliver “value” to customers has trumped conventional business practices of the last century.
Not only are digital technologies driving the creation of ecosystems, they are often the foundation on which ecosystems are built.
Whether it is the collaboration across airlines, car hire firms, hotels and other services that are seamlessly and securely linked, making travel experiences delightful or care providers assessing health conditions even before patients reach the clinic, cutting waiting times, companies globally are transforming their businesses through digital ecosystems.
This collaboration is the foundation of growth and innovation, and success depends on ecosystems that bring together customers, employees, partners, vendors, academia, governing bodies, regulators and even competitors to deliver value through new capabilities, products, and services.
The breakdown of traditional dividing lines is accelerating. By 2025, it’s likely many industries will be replaced by a host of large ecosystems, redefining the shape of business, according to forecasts from management consulting firm McKinsey.
Why digital ecosystems will define the future
Ecosystems can be designed around the creation of efficiencies, and the common business outcomes they enable for clients or partners. Until now, this process was often led by digital natives. But now is the time for existing players to take stock of their opportunities and build the ecosystems that deliver more value for their customers and stakeholders, aligned with their purpose.
Digital technologies are the backbone of this change. From the cloud, which enables systems to be rapidly integrated, to the blockchain, which serves as a system of trust and record and is powered by insights from analytics, they are providing the foundation for collaboration and innovation.
Change and C-Suite priorities
As businesses around the world try to stay ahead of the curve of disruption, CEOs face a host of challenges. To ensure their companies continue to innovate, they must stay connected.
For CEOs, the challenge is to talk less and listen more, according to Natarajan Chandrasekaran, Chairman of Tata Sons. And speakers at Tata Consultancy Services’ North America Summit agreed, highlighting the importance of drawing on the knowledge and specialisms within a business’s ecosystem.
Even so, it’s not just down to the C-suite. Ecosystems often bring in new working models, eliminating or realigning traditional organization boundaries and decision structures. How an enterprise participates in an ecosystem often determines the role it plays: an anchor, responsible for identifying the right partners and the purpose of the ecosystem; a contributor that offers specific capabilities, assets or data; or a financer that owns the responsibilities of funding.
Beyond aligning on outcomes and working models, participants may require new commercial and contractual arrangements that govern provision and access to ecosystem data. But antitrust legislation may need to be updated to allow them to flourish.
The digitization of these relationships will also reduce transaction costs, making it possible for the companies to bring in more partners and drive even more innovation. Data has a key role to play too, helping businesses understand and anticipate customer needs in order to define where they are going and set about building the ecosystem to deliver it.
Losing data inhibitions
Often, the catalyst in the emergence of ecosystems can be an external force, for instance, investors. In Australia, for example, collaboration among fintech companies has been driven by venture capital firms. Professor James Hutchin of Flinders University, Adelaide says collaborative fintech innovation is flourishing in Sydney and Melbourne.
As well as a growing appetite among funders, increasingly entrepreneurial graduates are choosing startups over traditional careers. Equally importantly, Australia’s banks “have shed their inhibitions” about sharing ideas with startups and technology companies.
In the Netherlands, shipbuilder Damen Shipyards has created completely new business models by working with its ecosystem.
An average 10,000 Internet of Things sensors are installed on each of its vessels. Some of these are embedded in the ships’ hulls to monitor everything from GPS position to the degradation of the paintwork – which can increase drag and lower fuel efficiency. A paint supplier in Damen’s ecosystem developed sensors to monitor this issue.
And the company is collaborating with other European shipbuilders to share data and insights.
For retailer Marks & Spencer, embracing the future was a matter of survival. Three years ago it embarked on a radical transformation programme, with the company’s CIO Carl Dawson saying: “Unless we change, in decades to come, there will be no M&S.”
The business looked to its ecosystem, which includes an investment firm specializing in retail startups, to help in developing fresh ideas. It has taken bold commercial steps, too, such as buying a 50% stake in internet food retailer Ocado.
Business model disruption
Intuit, a provider of accounting software, has joined forces with banks and other software companies to integrate customer accounts with its products. This makes it easier for users to carry out transactions and manage their money digitally.
As well as helping individuals and businesses work seamlessly with their accountant, Intuit is now offering banks new ways of complying with regulations, such as Know Your Customer due diligence.
SoftBank of Japan has taken the concept even further. It created an ecosystem of digital businesses to develop new connected services through its $100 billion Vision Fund. Its strategy is to create a “cluster of number ones” with a network of affiliated and portfolio companies, with a whole that’s theoretically greater than the sum of its parts.
So far it has brought AI developers, microchip makers, and robotics companies into its ecosystem with the goal of becoming the world’s largest corporate group. It’s quite an achievement for a firm that started out distributing PCs in 1981.
While ecosystems can bring a big boost to business, they’re at the forefront of driving change for the wider world, too.
China’s Ping An Good Doctor is one example. The AI-enabled healthcare provider has partnered with Grab, Southeast Asia’s largest mobile technology company that connects millions of consumers to millions of drivers, merchants, and businesses to give people in Southeast Asia access to artificial intelligence-assisted online medical consultations and appointment bookings.
By using Grab’s geolocation platforms to accelerate initial patient triage and screen patients while they are travelling to see the doctor, the firm says the tie-up will help improve outcomes for patients and allow doctors to see more people.
Travelport, meanwhile, is creating a more seamless experience for travelers. A digital wallet, it brings together everything needed on a trip, from airline reservations to car hire and hotels. It’s using blockchain to allow the traveler to securely validate and use their reservations on the move.
The ecosystem behind it includes 450 airlines, 650,000 hotels and 80 car hire firms, and the information is distributed to more than 68,000 travel agencies.
French rail operator SNCF is using a blockchain-based ecosystem too, building a process to ensure its stations are kept clean and waste is handled correctly to minimize environmental harm.
All waste movements, from cleaning to collections and on to disposal and recycling, are recorded, giving SNCF assurance that the process is working. The company says it also helping to minimize waste from its stations.
Although they vary in nature, these ecosystems demonstrate how, driven by digital technology with purpose, the traditional idea of what constitutes a business is changing – creating new products and services with the customer at their heart. These emerging ecosystems are helping companies build networks of value that transcend the traditional boundaries of an organization or industry. Undeniably, we are on the brink of a new era – powered by convergence and disruption where competitors turn into collaborators, fostering change, positive value for all stakeholders and greater innovation.