Digital transformations can quickly consume executives and their companies’ energies and resources. There must be a strategic review of the data the company must collect and how to manage it. Another must: deploying advanced analytics to turn insights into actions and to automate processes from the back office to the factory floor to the loading dock to the store shelf, to launch disruptive new products and services, as well as create new business models. And don’t forget the need to identify the relevant skills your business will need today and tomorrow, and either train for them internally or hunt for them externally.
With an initiative as important as a digital transformation, it’s critical that one begin the right way. Because, if one gets on a train at the wrong station, every stop thereafter will take you further from your destination.
Based on our research and experience, we believe that journey should begin by defining your digital ecosystem and developing a strategy to leverage it.
Why is Your Digital Ecosystem the Place to Begin?
The soul of digital transformation is interconnectedness, and that includes connecting with every stakeholder and partner with whom you do (or, can do) business. Digitization has erased boundaries both inside and outside the enterprise, driving value creation through collaboration and cooperation.
Whatever can be digitized is being digitized, and that means it’s available to be shared with other, digitally-enabled companies. This sharing – for example, Google Maps sharing its location data with retailers, service providers, food service operations, and others – leads to increased business for everyone.
If your business is not participating in a digital ecosystem, you will find yourself on an island, with constrained opportunities, a limited customer base, and rapidly shrinking horizons. Today, no business can survive as an island.
How to Develop an Ecosystem Strategy
An ecosystem strategy begins by analyzing growth opportunities in existing, emerging, or newly envisioned ecosystems with an opportunity to deliver differentiated value propositions. These propositions require multiple stakeholders across many domains. Ecosystem strategy includes activities like Identifying stakeholders, determining ecosystem roles, establishing ecosystem governance, and developing monetization strategies.
A robust platform facilitates collaboration and cooperation and represents an enormous engine of growth and profit; platform strategy is therefore a critical component of ecosystem strategy. Leading digital companies invest far more in them than do incumbents.
Perhaps the best example is Amazon Web Services (AWS), the retail giant’s public cloud business that allows hundreds of businesses to tap into its compute power, and enables Amazon to expand into new businesses, from groceries to IT services to entertainment. It’s no surprise that AWS alone generated $25 billion in revenue for Amazon in 2018.
Or, consider Ping An. Once a Hong Kong-based insurance company, Ping An leveraged its technology platform to offer new services to adjacent business partners: facial recognition to banks (to fight fraud), an online automobile marketplace (to facilitate commerce), and a service to connect doctors to patients, among others. As its platform expanded, Ping An’s revenue rocketed from $29 billion in 2010 to $145 billion in 2017.
As with any business initiative, changing one’s mindset (in this case from a stand-alone operating model to finding your role in a digital ecosystem) is hard. But executing that change is even harder. Leaders must ensure that present operations are optimized while they invent new business opportunities to maximize value-creation in the digital era. That will be difficult without an ecosystem strategy that’s clearly and comprehensively defined and then communicated at every level of the organization.
Indeed, without such a strategy, executing your digital transformation will be more than difficult; it will be impossible.
Frank Diana is Managing Partner, Tata Consultancy Services, and co-author of “Defining Your Digital Ecosystem: The First Step in a Machine-First Transformation” in Volume 12 of the TCS Perspectives management journal.