The Future Belongs To Industry-Busting Ecosystems

Dan Wellers and Timo Elliott

The digital revolution has returned nearly absolute power to the customer – and that’s upsetting not simply legacy corporations, but long-held notions of business models, competition, and industry boundaries. As companies examine their customers’ journeys, they are realizing that they alone are not capable of optimizing them. The customer experience today transcends corporate and industry borders – and in order to transform them, companies must work with a much wider range of players than ever before. And, thanks to the advance of digital technologies that dramatically reduce the cost and effort required to connect and collaborate, they can.

Digitally native companies have been the first to explore this new world, where industry limitations serve little more purpose than maintaining an increasingly insignificant status quo. As pointed out in a recent McKinsey Quarterly article on the topic, one would be hard pressed to put a company like Amazon or Japan’s Rakuten Ichiba in a single industry box. After all, neither is simply an online retailer. Amazon is a cloud computing provider, a consumer electronics company, a grocer – just for starters. Rakuten Ichiba is a financial services company, a travel website, a social media provider, and a gaming company.

But legacy organizations, too, must look beyond their own walls – even beyond their own industries – to co-create their futures or risk losing market share to the other companies that do. They will have to take fuller advantage of digital advancements to combine the capabilities of multiple entities to develop not just new products and services, but new business models. A recent article in the Harvard Business Review says this shift is not only possible, but necessary, calling collaboration “the essential new secret sauce for startups and industry leaders alike.” A whitepaper sponsored by the World Economic Forum (WEF) goes a step further, arguing that “only operating models that support partnerships and platforms will survive in the future.”

A mere 3% of corporate leaders say their organizations have completed digital transformation projects across the enterprise, according to a recent survey of 3,100 global executives from the SAP Center for Business Insight. It may well be that the disruptive transformation required to meet ever-increasing customer demands is something companies simply cannot accomplish alone. The select few digital transformation leaders identified in the survey have successfully connected their customer-facing efforts to business processes across the enterprise and extended them to partners and suppliers. As a result, nearly all (92%) of have derived significant or transformational value from digital transformation in customer satisfaction and engagement, compared with 22% of others.

“By understanding the network-multiplier effect of platform-driven ecosystems, companies can digitally tap into the many networks of people who are working toward the same goals. They can then leverage these networks to drive sustainable growth in faster and economically smarter ways,” says the WEF report. Indeed, 81% of respondents to an Accenture survey believe that industry boundaries will dramatically blur as platforms reshape industries into interconnected ecosystems. By 2018, more than 50% of large enterprises – and more than 80% of the Global 500 – will create or partner with industry platforms, according to IDC.

Beyond partnerships to ecosystems

We will see the increasing formation of horizontal ecosystems built around experiences, such as wellness, mobility, or community, for example. Partnerships have long been an essential component of business. But when we’re talking about ecosystems, we’re talking about something more.

British ecologist Arthur Tansley first used the term “ecosystem” to describe the relationship between organisms and their environment in 1935. Nearly 60 years later, in a 1993 Harvard Business Review article, business strategist James F. Moore co-opted the word to describe the interconnected business world. “Innovative businesses can’t evolve in a vacuum,” he wrote. “They must attract resources of all sorts, drawing in capital, partners, suppliers, and customers to create cooperative networks.” Moore suggested that companies were not members a single industry but part of a business ecosystem in which they co-evolve “cooperatively and competitively to support new products, satisfy customer needs, and eventually incorporate the next round of innovations.”

Moore was ahead of his time. But the complex and multi-faceted nature of digital disruption and transformation highlights the appeal of business ecosystems today. “Business ecosystems are not just the province of the digital businesses,” said Marc Strohlein, adjunct research adviser with IDC’s Research Network. “Traditional businesses can adopt ecosystem thinking to evolve partner networks into powerful systems that increase the breadth and value of products and services, grow audiences, build strong competitive strengths, and deliver continuous innovation.”

Customer-centric transformation

Digital transformation is really about providing new and better customer experiences. However today’s complex customer journeys are not easily optimized – spanning not only devices and channels, but also businesses and industries. Taking them to the next level requires the input, innovation, and cooperation of ecosystem partners. Consider the experience of travel, which takes consumers through a series of interactions with multiple entities across sectors – airlines, airports, ground transportation, retail, hotels, government entities – each with different approaches and incentives and few working in collaboration to improve the customer journey. In the future, these entities might band together to innovate and deliver an improved customer experience across those touch points.

Ecosystems can deliver products, services, and experiences that would be difficult, costly, or even impossible for individual businesses on their own. It’s their differences – and their combined ability to learn, innovate, and execute – that make them successful. And in a world of commoditization, that network effect can prove invaluable.

China’s Ping An insurance company is aggressively expanding beyond its sector under a CEO who says the company’s role is not simply to provide insurance products, but help customers improve their lives. Some 89 million people are using Ping An Good Doctor, a platform to connect with doctors not only for online appointment booking but to receive diagnoses and suggested treatments – complete with the ability to share pictures and video.

Roche Diagnostics is innovating in the connected healthcare ecosystem by partnering with SAP to develop not just another blood glucose monitor, but a diabetes management platform. The Accu-Chek View offering integrates a blood glucose monitoring with a wearable fitness tracker and a mobile app so that a diabetes patient’s vital signs and blood sugar level are not only monitored remotely but can be analyzed in relation to their physical activity. The app and its connectivity to caregivers can encourage better lifestyle choices and empower individuals to take an active role in their disease management, improving outcomes.

Tire maker Michelin has created an ecosystem involving training, telematics, and electronics providers to sell not wheels, but a mobility service to help fleet managers control costs and environmental impact.

The CEO of Japan’s Softbank has stated that, “by providing all manner of services and content on (our) platforms, we are aiming to create a comprehensive ecosystem that other companies will never be able to rival.”

Customer co-innovation

Companies are beginning to explore the benefits of business ecosystems, from smart city consortia to mobility efforts, and borders are sure to be redrawn. That’s also true for the boundaries between businesses and their customers. As businesses and the ecosystems they create and participate in deliver more complex and customized products and services, the customer will take a larger role in their creation.

The $20 billion dollar online gaming business not only connects customers with each other, but involves them in continuous development of their products. In 2014, Coca-Cola rolled out its do-it-yourself soda fountains, which enable customers to mix their own beverage concoctions, and has since launched countertop versions and a mobile app.

It’s not just happening in consumer goods, but in the B2B space as well, with organizations working ever closer to provide complex, customized solutions developed with – rather than simply for – customers. Home appliance and electronics maker Haier turned itself around by focusing on customer-driven innovation. The company even created an open innovation platform that enables 670,000 users to communicate with suppliers and other customers searching for new business opportunities. Packaging provider Weig has transformed itself from a product-centric industrial company to a digital industrial service provider that’s integrating partners into production. Weig’s customers are increasingly working with the company to co-invent the perfect materials for their needs.

How to build an ecosystem

Transcending historical conceits and constraints won’t happen overnight. It will demand new mindsets and capabilities, more open corporate cultures, new business processes to support sharing, and technology infrastructures to underpin new cross-business and cross-industry networks. But it’s clear that business ecosystems will be the sources of new value and disruptive innovation in the future.

Company leaders who want to be a part of this collaborative future should start by taking a hard look at the end-to-end customer experience, including the aspects that aren’t controlled by the company’s own organization. Such customer journey mapping can help identify other members of the ecosystem with whom the company might want to collaborate or partner. Future planning and foresight exercises can enable companies to determine not just who the key players are today, but where the valuable partners will be in the future and where it’s best to buy, partner, invest, or incubate.

Technology will play a significant role in enabling the ecosystems of the future. Companies that want to spearhead or join such ecosystems will aggressively adopt systems that encourage open collaboration among stakeholders and iterative innovation such as cloud technologies, APIs, and micro-services. They will also want to create or join the kinds of platforms that will underpin ecosystem development.

Finally, embracing the ecosystem approach to value creation will require new mindsets and disciplines. Many corporate leaders have gotten to where they are because they excelled at coloring inside the lines. Companies will need to make sure those in strategic positions have the requisite creativity, open mindedness, and experience with more disruptive development approaches such as design thinking to re-imagine business models, customer experiences, and corporate value.

Read the executive brief The Future Will Be Co-Created.



About Dan Wellers

Dan Wellers is the Global Lead of Digital Futures at SAP.

Timo Elliott

About Timo Elliott

Timo Elliott is an Innovation Evangelist for SAP and a passionate advocate of innovation, digital business, analytics, and artificial intelligence.