The Worldview of Business Ecosystems
Success in the digital era will come from the connected and collaborative efforts of business ecosystems more than from the controlled efforts of individual companies. Managers don’t need to acquire new capabilities or resources or technologies to start ecosystem building, but they do need to adopt an ecosystem mindset first to make their efforts authentic and their success more likely.
Companies have, of course, always been part of value chains, with their own supply and channel partners, but they have largely maintained a worldview based around themselves as individual and independent business entities. Going it alone in the digital age, however, is no longer a strategy for success. “If the old world was about keeping things proprietary and closed off, the new world is about engaging with an ecosystem of partners and vendors. This approach can help accelerate access to markets, talent, capabilities, and technologies...and help businesses get smart quickly about how to ‘do digital’.” (“A CEO guide for avoiding the ten traps that derail digital transformation”, McKinsey & Co, November 2017)
There are major advantages to building an ecosystem, even for those companies who aren’t platform businesses, but building an ecosystem doesn’t just happen. It takes planning, patience and a lot of hard work on the part of a lot of people (see my previous post here for advice on taking the first steps). In my experience, the most difficult part of building an ecosystem is the very first part, making the shift from the dominant mindset of individual companies towards the new and emerging mindset of ecosystems. Here are five mindset shifts that managers need to understand, make and assimilate fully as a prerequisite to successful ecosystem building:
From Independence to Interdependence: while we have all grown up in a culture that rewards individual achievement, ecosystem companies are achieving unprecedented success by enabling others to be successful. It’s easy to forget that the iPhone was originally designed as closed system but was opened up to others via the App Store in 2008 and an explosion of ideas and new apps followed. Within a decade, third party developers were being paid over $26.5bn and the App Store has developed into the company’s fastest-growing and highest-margin significant business.
From Controlling to Collaborating: Companies typically drive new product development with their own people, in full control of process, and with complete ownership of emerging concepts. GE Appliances upended this model with Firstbuild, a standalone innovation lab with a mix of employees and community members. They design and build innovative home appliances on an open source model, prove initial market demand, and then enter revenue sharing agreements with any products that GE itself chooses to scale. Founded in 2014, Firstbuild now has a community of over 12,000 members and is set to become financially independent in 2018.
From Protecting to Sharing: Organizations the world over vigorously protect their brands, their intellectual property and their data from outsiders. But some see greater value in sharing. Goldcorp, a Canadian mining company, had spent years unsuccessfully looking for the exact location of gold deposits that their tests had flagged. They published all their geological data on the web with $575,000 in prize money for anyone who could help them find it the missing gold. And the quality and value of the responses shocked them, leading to 60 new drilling sites, 8 million ounces of gold, a 2-3 year reduction in exploration and a surge in revenue from $100M to $9B.
From Linear to Interwoven: Innovation within a typical company, and even within a typical supply chain, is like a relay race. You do your part and then hand off the baton to the next in line and hope that no one drops it. An ecosystem can accelerate time to market by working on product development and other innovation together when possible and in parallel when not. GlaxoSmithKline for example are partnering with scientists, researchers, field workers and relief agencies in order to accelerate the fight against Malaria. They have published data on 13,500 compounds in their chemical library and shared them with 160 research groups around the world to inform and assist in parallel efforts.
From Company size to Membership size: in the ecosystem worldview, growth - in capabilities, resilience and success - comes from increasing the number of network members, or “nodes”, not from increasing the size of any single member. Comparatively small companies and even individuals can have outsized impact when they can build or connect to a large enough ecosystem. A seven year old “influencer” can now build a Youtube community around his toy reviews and make $11 million per year from the companies that would once have sought control but now see the value from being a supporting ecosystem node.
Success in building a vibrant business ecosystem will be the difference between prospering and being marginalized in the digital economy. Shifting existing mindsets is never easy but is an essential first step in that process.