From the latest coffee machines to voice assistant-enabled smart speakers, the impact of ecosystems is all around us. Look behind every disruptive new business and more likely than not there will be a digital ecosystem powering it.
But what is a digital ecosystem? Put simply, it is a group of businesses joining forces to innovate using digital platforms. It is the technology with a purpose – and it is shaping our world.
Gartner defines a digital ecosystem as “an interdependent group of actors (enterprises, people, things) sharing standardized digital platforms to achieve a mutually beneficial purpose.”
It’s a paradigm shift in how business is done, according to Professor Michael Jacobides of London Business School. Writing in Harvard Business Review, he says traditional strategies and structures are of no help when it comes to ecosystems. Companies need to think about how they can help others create value, rather than focusing on beating their competitors.
It’s easy to view ecosystems as a nebulous nice-to-have concept. But in fact, they are an intensely practical solution to the challenges of today’s digital world. Delivering positive change and business impact, they are powering Business 4.0.
Here are the three critical components of a successful ecosystem.
1. Shared purpose and outcomes
A clearly defined enterprise purpose allows companies to find and collaborate with others who not only have similar values but are willing to share the outcome of their work together.
It starts with a mindset shift, according to Rajesh Gopinathan, CEO of Tata Consultancy Services (TCS), and leaders of businesses with successful ecosystems have moved from a product-centric to a value-centric approach. “The customer is not bothered about what we do,” he says. “The customer is bothered about what our product does for them.”
Shared purpose can extend to include not just customers, but other stakeholders that companies in an ecosystem have in common. The focus on outcomes could be led by customers, employees, partners and even the communities in which they operate.
2. A culture of collaboration and focus on innovation
A business can be an anchor, a partner or a financial contributor in an ecosystem. The ecosystem approach is not encumbered by the traditional enterprise or even industry boundaries but thrives on a culture of collaboration and the consistent focus on harnessing innovation for the benefit of all its stakeholders.
The anchor, as the name suggests, is responsible for defining the ecosystem, bringing in partners that share purpose, values, and objectives and building the framework for collaboration. Anchors are often responsible for the infrastructure on which the ecosystem operates, taking the lead in coordinating the efforts of the other partners.
Often, the infrastructure can include the company’s own technology investments such as enterprise applications or more often, cloud-based services that offer the scale, flexibility, speed and innovation demanded by the ecosystem.
To be the anchor, a business needs a differentiated product or service. This means a combination of IP protection, a large network of users, and strong branding. Nestlé patented both the capsules and delivery mechanisms for its Nespresso coffee makers. But it selected partners to build them, licensing its proprietary IP.
Apple owns the iPhone IP, has a globally recognizable brand and is, of course, a powerful corporation. By opening up its ecosystem, it has allowed thousands of app developers to flourish by serving its huge customer base, while Apple takes a share of the revenue.
Toyota, meanwhile, has taken an interesting approach, becoming a partner in the ecosystem of Singapore-based technology company Grab, whose business includes ride-hailing, food delivery, and payment apps. Being part of Grab’s ecosystem will give it unique insights into vehicle usage patterns – and contribute to the company’s growth plan.
3. Staying ahead on digital investments
Agility, adaptability, and innovation are the keys to success in today’s economy, and it is vital to have the right digital investments to deliver innovation. These could come from across a business’ ecosystem.
Amazon invests $23 billion a year in digital developments, including its in-house innovation hub Lab126, which created the Echo smart speaker and its voice assistant, Alexa. The ecosystem Amazon then built to enable its devices to become the hub of a smart home included working with Philips on its Internet of Things-enabled Hue lightbulbs. It is this partnership that has allowed customers to ask Alexa to turn down the lights.
Boston Consulting (BCG) says the more partners in an ecosystem, and the wider the spread of industries they come from, the better that ecosystem will fare. While the average is 27 partners, the most successful digital ecosystems have about 40.
Amazon has 67 core partners, according to BCG’s analysis – roughly double that of its e-retail peers. BCG research shows that 90% of ecosystems involve participants from more than five countries, and 77% span both developed and emerging markets.
Ant Financial, a leading Chinese fintech firm, announced last year that it would invest $146 million to create new mini-apps. Alipay, the world’s largest mobile and online payments platform were developed by bringing global partners into its ecosystem. Its USP is to enable Chinese tourists to make payments abroad – so it was vital for the company to have foreign partners to deliver the service.
Professor Michael Jacobides, Sir Donald Gordon Chair of Entrepreneurship & Innovation at London Business School, says that, in order to build an ecosystem, you need to decide carefully where and how to open up and do so in a way that both fits your competitive environment and aligns with your purpose. For the progressive leaders of today, the purpose of technology investments is just that: propelling growth through ecosystems founded on collaboration, innovation, and shared values.