From Controlling to Connecting: Building 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. To stay competitive and relevant, companies need to transform their relationships with their various partners and providers to become highly functional ecosystems.
Companies have, of course, always been part of value chains, with their own supply and channel partners, but have maintained a worldview based around themselves as individual and independent business entities. Table 1 shows the main differences between company and ecosystem worldviews:
|Company View||Ecosystem View|
|Linear (Value Chains)||Interwoven (Value Webs)|
|Company Size||Membership Size|
Ecosystem members enjoy relationships that are more interwoven, dynamic, collaborative and inclusive. They work together to build solutions that empower and facilitate mutual success, even when they may have little or no control, or ownership of the solutions. This is true whether those solutions are open, like Linux for example, or proprietary.
For example, the million plus members of the Salesforce Success Community, including developers, administrators and integrators as well as business users from hundreds of different companies, work tirelessly to make the company’s CRM platform as effective as possible for everyone who uses it. They answer 4,000 platform-related questions each month - in a traditional company the job of a call center - develop and share apps on the AppExchange, make significant contributions to the three annual releases and invest their own time in training other community members. In turn, their contributions increase their own reputation and value in the Salesforce economy, enhancing their career prospects both within and beyond their current employer and role. This interdependency and mutual value of Salesforce and its entire business ecosystem, known affectionately as the Ohana (the Hawaiian word for family) cannot be overstated. While the company itself is estimated to reach $20B in revenues by 2022, it is also expected to account for an estimated $859B in GDP impact and an estimated 3.3M Salesforce-related jobs in the same timeline.
IDC, October 2017 “The Salesforce Economy Forecast
Ultimately of course, the reason to care is the business success that ecosystem companies enjoy. A recent report by McKinsey makes that very clear:
“With vast scale from placing customers at the center of their digital activity, ecosystem leaders have captured value that was difficult to imagine a decade ago. Seven of the top 12 largest companies by market capitalization—Alibaba, Alphabet (Google), Amazon, Apple, Facebook, Microsoft and Tencent—are ecosystem players.”
McKinsey Quarterly, January 2018 “Why Digital Strategies Fail” https://www.mckinsey.com/business-functions/digital-mckinsey/our-insights/why-digital-strategies-fail
Building an ecosystem doesn’t just happen. It takes understanding, intentionality and patience. From our own innovation and transformation experience here are five foundational practices to help managers set initial conditions for their own ecosystem success:
Change Your Mindset: Develop an ecosystem worldview (Table 1 above) to reveal new opportunities that emerge from working in a connected system rather than as an independent operator. It isn’t enough for leaders to acknowledge the shift objectively, they must also believe deep down, with conviction, that the company’s future success depends on this new way of acting and behaving.
Use Your Imagination: Create and craft an initial vision for your ecosystem by imagining its potential impact 5 or 10 years from now. It should not be complete, detailed or data-driven at this stage, since you will want the final vision and strategy to be co-created and co-owned by the ecosystem members as a whole, but it does need to be a compelling story that you can pitch to other potential stakeholders and founder members.
Think Big but Start Small: Take a cue from Agile development and secure support and approval internally from the smallest possible number of leaders. Similarly, focus on building a minimal viable ecosystem to avoid the perception that your effort is distracting or interfering in day-to-day operations. Not everyone will be convinced by your vision, and most will likely be skeptical, but persevere until you have found a small group of like-minded members. Even when you have found promising new ways in which to collaborate, keep the ecosystem small until you have evidence that the effort is working and that you have established a viable new way of working and acting.
Build Engagement and Excitement through Co-creation: Do not rush to get to action and shortchange the “forming” effort as it will pay dividends later on. Instead, yield ownership and control of the vision to all the co-founders. Discuss shared points of view, goals, objectives, work styles and preferences, and give members equal opportunities to contribute and be heard. It’s also important to agree upon the sharing of information and intellectual property in the ecosystem. Don’t over-engineer this last point as it will slow everything down but instead agree on some basic rules and let them evolve along with the ecosystem.
Act Experimentally: Handle your first ecosystem as an experiment or series of experiments that are separate from daily operations of the core business. As part of the experiment push imaginations to a point of discomfort, make trying, learning and pivoting everyday practices. Experiments not only help foster innovation and creativity but they also help minimize the risk of scaling untested concepts.
Ecosystems are redefining core business practices. For many leaders these dynamic and loosely-controlled, symbiotic communities are challenging long-held institutional habits and orthodoxies which were once the foundations for success but are now holding businesses back.
Shifting existing mindsets and working in new and sometimes uncomfortable ways is never easy but needs to be embraced by the senior leaders of companies and spread throughout the company all the way to frontline employees. Success in building a vibrant business ecosystem will be the difference between prospering and being marginalized in the digital economy.
Co-authored with Steve Wilt