Dynamic ecosystems for future success
Three strategic approaches to consider
Many business leaders are considering ecosystems as an opportunity for new competitive advantages. But “ecosystem” is a term that is used very loosely as we hear about startup ecosystems, innovation ecosystems, supplier ecosystems, and business ecosystems. On top of this, not all ecosystems have the same structure and benefits. This makes it key for executives to understand the characteristics of highly valuable ecosystems and to explicitly consider what opportunity they would like to gain from an ecosystem approach.
Maarten Oonk & Robert van der Heijden - 22 december 2015
The greatest value comes from dynamic ecosystems
It is important to be clear about the different types of ecosystems in business. At the Deloitte Center for the Edge, we have identified at least twelve types in our research, from centralized to self-organized ecosystems. One critical distinction to consider here is the difference between static and dynamic ecosystems.
Most ecosystems today are static ecosystems. Static ecosystems focus on efficiency by aggregating and coordinating a fixed set of resources, e.g. capital, customers, or ideas. Participants in these ecosystems recognize that they need to connect to an expertise and capability beyond their company. This need is given and does not change and the only question is to identify and mobilize the need. Take for example startups connecting to venture capitalists or a company connecting to suppliers. These ecosystems should not be ignored, but it is important to note that they do not create the greatest value.
The greatest value comes from tapping into dynamic ecosystems. Dynamic ecosystems focus on creating environments where the participants can learn faster to get better by working together. Furthermore, dynamic ecosystems focus on building deeper trust-based relationships and create incentives to join. By using new technologies and online platforms, these ecosystems are highly scalable and facilitate interaction between participants. So, in addition to general network effects, dynamic ecosystems can benefit from a second order effect as the participant performance improvement accelerates with each new participant.
At the moment, very few companies are pursuing dynamic ecosystems but examples can be found in open source software development and in online gaming communities. These ecosystems clearly require a different mindset than the more traditional static ecosystems, as illustrated (see figure). However, dynamic ecosystems will very likely become more important as they present new opportunities.
Opportunities of dynamic ecosystems
It is important for business leaders that will devise ecosystem strategies for future success to align strategic choices with the opportunity they would like to pursue. Some dynamic ecosystems will be more relevant than others, depending on the emphasis placed on the following opportunities.
1. Distributed innovation and accelerated learning
The imperatives for businesses to learn, and to translate learning into innovation, have never been greater. Therefore, some organizations use ecosystems to get access to sharp minds and smart resources of third parties for new ideas and problem-solving. We are all familiar with the successes of crowd sourcing and investing in startups, but these approaches tend to be static and transactional. Learning is a social event, while innovation is very often the result of integration and connection across different fields of expertise and domains of knowledge. Both are accelerated in the fluid, exchange-oriented, and co-creative communities of dynamic ecosystems. Take for example, the SAP community network where over 2 million developers help each other find solutions, in average within 17 minutes. An example of dynamic ecosystems that has recently been initiated is FirstBuild. FirstBuild, a partnership of GE and Local Motors, engages a community of industrial designers, scientists, engineers, makers and early adopters to address some of the toughest engineering challenges and innovations. FirstBuild will then manufacture those designs in its micro-factory for rapid product introduction and iteration.
2. Leveraged growth
Most organizations consider two options for growth strategies: 1) internal growth and 2) acquisition. But there is a third path to growth that is rarely recognized: leveraged growth. It involves connecting with other players in the ecosystems, often niche operators, and mobilizing their capabilities to add more value to customers. So instead of adding people to an organization, add participants to the ecosystem to realize growth. If you create the right mutual beneficiary relationships, all partners can grow faster in terms of performance, and deliver more value to the marketplace. Leveraged growth can be an appealing and efficient growth path, requiring much less investment and yielding much shorter lead times to generate revenue. This approach is particularly relevant for scale-and-scope operators that are changing their business models from “product to platform” and “ownership to access.”
3. Shaping strategies
Very ambitious executives may turn to mobilizing large ecosystems for a shaping strategy – restructuring a market or industry and capture more value by doing so for all participants. The start of the credit card represents one example of a shaping strategy. Banks were persuaded to rely on a shared utility for processing transactions and were able to turn their money-losing, new product into a profitable business that restructured the industry. More recently, Spotify is also pursuing a shaping strategy, mobilizing and orchestrating global ecosystems around its vision to transform the music industry (find the case study here). Although a shaping strategy is a very challenging approach, it can be very effective in our rapidly changing world as the shaper mobilizes investments by a broad range of participants rather than investing only its own money.
The power of platforms for dynamic ecosystems
For corporates that want to tap into the opportunity of dynamic ecosystems, it is important to first devise a clear strategic intention. Only then, a corporate can assess which ecosystems are relevant, be it with ventures, suppliers or competitors. Next, it can decide to either enhance its existing ecosystems or adopt new ecosystems and start using key management practices to continually improve the ecosystem. While there are inherent risks and trade-offs in using dynamic ecosystems, organizations failing to do so risk being left behind. In our next blog, we will discuss how platforms can act as fertile ground for ecosystems, helping business create and capture value through shared learning and community.
Read also: The evolving power of learning platforms - Thriving in an ecosystem world
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