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.”
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.