Tuesday 18 April 2023

Digital ecosystem

To succeed in the digital economy, organisations must leverage scale, scope, and speed to their advantage. Just as in the pre-digital age, this can prove to be quite the challenge for all but the largest of industrial giants. During the industrial-age, it was common for industry-leaders to have the strongest vertical integration within their market. In today's digital economies, the leaders are the organisations with the best virtual integration. Companies which assemble and manage the best network of products and service providers.

An important distinction between traditional verticals and integrated ones is that suppliers, manufacturers, and distributors act independently, when not integrated. A supplier contributes its products and services to a manufacturer and earns profits from that sale. It repeats that process with other manufacturers but has no special interest in the final product or in consumers’ experience. With virtual integration, companies are interdependent and connected. Together, they create and nurture products and services that give all of them a competitive advantage. They aim to increase the value of the products and services so that each of them can claim a larger part of that profit. That’s the value of working in ecosystems.

There are four primary digital business models:

Product: These are the tangible items that we know from the industrial era, such as computers, washing machines, and lightbulbs. In the digital era, these products are fitted with sensors and software to capture data and link them to other products and services.

Service: These are the intangible actions that are performed to fill a need or satisfy a demand, such as education, banking, and hotel accommodation. In the digital era, they are supported, shaped, and delivered by digital technologies. The services get smarter as the data about them gets richer.

Platform: These are the computer operating systems, smartphones, and search engines that connect companies transacting with customers. As platforms connect more individual companies, the value to consumers of their products and services is increased. Why? Because they gain scale, scope, and speed together that none of them could achieve on their own.

Solutions: These are customizable products, or a mix of products and services, that solve specific problems through data and analytics. As the machines get smarter, they observe, understand, and make recommendations. 

Every ecosystem has leaders (orchestrators) and followers (participants). Companies of all sizes and phases of transformation can benefit from participating in or orchestrating digital ecosystems. The first step to success is knowing when to participate and when to orchestrate.

Participation means contributing something important to the ecosystem that makes it unique. To participate successfully, a company must identify its core strength and what business model drives value for the company. By allowing others to link to create greater value, a company can learn from other members, observe competitors, and stay current with new technologies.

Orchestration means bringing together companies with different strengths and connecting them across traditional boundaries. Digital giants may have an initial advantage due to their size, but all companies can earn the right to orchestrate. The key is to start by creating mini-ecosystems within a larger one or partnering with a digital giant to bring unique value to the group.

Orchestrators need to meet six criteria to earn the support of participants: 
  • Vision: compelling vision to solve important customer (or societal problems
  • Distinctiveness: unique critical capability required by participants and by customers 
  • Complementarity: ability to attract a diverse range of partners that enhance the value of the ecosystem
  • Respect: ability to co-opt and retain the confidence of participants during periods of uncertainty
  • Governance: ability to consistently apply the stated rules and to manage conflicts fairly and transparently
  • Dynamics: ability to keep pace with digital developments, adapting the vision of the ecosystem and leading change as necessary
Failing to meet these expectations can result in losing the support of participants.