The role of ecosystems in today’s Digital Business climate

Companies that succeed in today’s digital economy use scale, scope, and speed to their advantage. That’s hard for a company to do on its own, which is why collaborating with other companies is so important. In industrial-age economies, the leaders were the companies with the best vertical integration. For example, a manufacturer owned its suppliers and its distributors. In today’s digital economy, the leaders are the companies with the best virtual integration. Those are companies that assemble and manage the best network of products and service providers.

Here’s an important distinction. With vertical integration, suppliers, manufacturers, and distributors act independently. A supplier contributes its products and services to a manufacturer and earns profits from that sale. It repeats that process with other manufacturers but has no special interest in the final product or in consumers’ experience. With virtual integration, companies are interdependent and connected. Together, they create and nurture products and services that give all of them a competitive advantage. They aim to increase the value of the products and services so that each of them can claim a larger part of that profit. That’s the value of working in ecosystems.

In ecosystems, companies are defined by their business model. Each model represents distinct expertise and delivers unique value. And ecosystems that comprise a range of companies — and a good mix of business models — are powerful and vibrant. There are four archetypical business models:

a) Product: These are the tangible items such as computers, washing machines, and light bulbs. Today, these products ideally are fitted with sensors and software to capture data and link them to other products and services.

b) Service: These are the intangible actions that are performed to fill a need or satisfy a demand, such as Education, Banking, Travel, Lodging, and Consulting. In the digital era, they are supported, shaped, and delivered by digital technologies. The services should get smarter as the data about them gets richer.

c) Platform: These are the computer operating systems, smartphones, and search engines that connect companies transacting with customers. As platforms connect more individual companies, the value to consumers of their products and services is increased. Why? Because they gain scale, scope, and speed together that none of them could achieve on their own.

d) Solution: These are customizable products, or a mix of products and services, that solve specific problems through data and analytics. As the machines get smarter, they observe, understand, and make recommendations. Whereas the number of players drives a platform, the relevance of those players drives a solution model.

Every ecosystem has a hierarchy. The followers are called participants and the leaders are known as orchestrators. Every company, in every phase of transformation, can benefit from orchestrating or participating in ecosystems. It’s important for business to decide when to participate in an ecosystem, and when to orchestrate one.

So how do we do determine which ecosystems make sense for our business to either lead or participate in?

1. Identify the relevant set of ecosystems. Identify which ecosystems might provide valuable opportunities for your business to participate or even possibly lead. Some might bring measurable value to customers now, while others could provide learnings for the future.

2. Decide your appropriate role in each ecosystem. It probably won’t make sense to always be a leader of an ecosystem or on the flip side, always be a participator. Plot the relevant ecosystems on a grid that cross-references strategic importance against orchestration or participation. How does the balance of each compare with other competitors? How will it help with transformation?

3. Examine the dynamics of these ecosystems. With the speed of digitization, ecosystems are constantly evolving. Companies must keep re-evaluating the relevance of each ecosystem to their business. Are there new opportunities to orchestrate? Are there new ecosystems that have become relevant to participate in? Similarly, is it time to leave previously valuable ecosystems because they are no longer useful for the business?