If ecosystems are the answer, what is your strategy? - Adapting strategy work in the age of ecosystems
New technological possibilities are tearing apart industry boundaries that have grown over decades. Established companies must assert themselves in a new market environment or against rapidly growing competitors who are attacking their business model. The ecosystem economy makes it possible to serve customers with a new value proposition. At the same time, new rules are initiated for strategy work.
Digitization has been stirring up one industry after another, tearing down industry boundaries and creating a tremendous dynamic of change for several years. The pressure on the business environment requires the acquisition and coordination of different and novel skills. One of which is the ability to create and operate an ecosystem or participate in an existing one.
An ecosystem is a network of actors which, by joining forces, makes the best possible use of the market performance and value added of each company as a consistent, customer-oriented overall solution. Ecosystems enrich the offerings of a single company by creating new connections between partners and customers, thereby increasing the reach for all stakeholders. By merging previously separate offerings, the value proposition becomes more interesting and diverse for the customer.
Positioning in the ecosystem
In order to benefit as much as possible from the ecosystem, it is crucial to answer the right questions through your strategy before starting: How should your company position itself? What role should it play in future ecosystems? Due to the termination of industry boundaries, companies are usually active in several ecosystems at a time.
In general, there are three main positioning strategies:
Orchestrator: Usually there is a leading company in the ecosystem, often called orchestrator. This company provides the infrastructure or platform on which the ecosystem is built, defines the degree of openness and sets the rules of interaction.
Partner: The partners are those actors who contribute their contents, products and services to the ecosystem. They extend the value proposition of the leading company in different areas.
Supplier: Being a supplier is another strategy to position in the ecosystem. The suppliers tend to act in the background, adding technological components to the platform. For example, an ecosystem supplier could provide a payment platform, a shop system or other technologies that the ecosystem needs in order to provide its services.
Companies that are active in different ecosystems may as well have a varying positioning strategy in each one.
A common assumption is that any company can successfully position itself as an orchestrator. However, this is only partially true, as being an orchestrator requires exceptional prior existing assets. These include a strong brand, an existing platform or the ability to build a platform, a large customer base as well as the ability to take advantage of economies of scale. In reality, only few companies are truly capable of doing this. Orchestrators need the ability to quickly respond to new challenges, an understanding of their customers' needs and the vision to inspire partners and suppliers. Daimler and BMW, for example, have decided to jointly build a mobility ecosystem called "Your Now" to defy vendors like Uber and Lyft. Now they are trying to use the strong brands Mercedes and BMW as well as their existing platforms (Drive now, car2go, myTaxi) to attract suppliers (e.g. for parking technology, Google as map provider) and partners (e.g. taxi drivers, start-ups, etc.).
Characteristics of strategy work in the ecosystem economy
In order to make the ecosystem economy work for the company, an orchestrator must move away from a static business-oriented perspective, towards a new way of thinking. Different rules apply to strategy work:
Future Horizon: In contrast to strategies that are designed for five to ten years and assume a linear future, an ecosystem must be designed for the eventualities of multiple future scenarios. Strategy work in the ecosystem economy must therefore avoid working with one possible future scenario and instead prepare for multiple possibilities. Regardless of whether sharing models or private helicopters or completely different means of transportation will prevail in the future - people's need to get from A to B will remain. With the "Your Now" platform, it is possible to react flexibly to these eventualities.
Superior value proposition: In order to be successful, an ecosystem must first and foremost address an overarching customer need and translate this need into a strong value proposition. The latter is the basis of the ecosystem's overall vision. Which value proposition is the right one, can be derived from the existing and future capabilities and assets of a company. The value proposition also gives partners guidance on the value they can add to the ecosystem and how different services fit together to form a greater whole. In the mobility ecosystem, the value proposition to customers is to bring them from A to B by their desired means of transport. Based on this promise, partners such as car manufacturers, public transport and sharing providers can now piece their specific offerings together.
Value creation: In an ecosystem, added value must be created for all actors. For this reason, the thought process must be customer-centric, as well as partner-centric. Only if an advantage is created for all partners, will they participate in the ecosystem. In addition to purely monetary aspects, this may, for example, involve access to data, customers or the brand of the other participating companies. In our "Your Now" example, the partners benefit from the prestige of the Mercedes and BMW brands. Furthermore, they gain access to customers of the existing car sharing service "Share Now" and the taxi platform "Free Now", while Mercedes and BMW benefit from increased reach and new markets.
Monetization of the ecosystem: The ecosystem economy is no longer about creating a (physical) product or service and selling it for a certain price. For this reason, new monetization opportunities are created for all partners that contribute added value to the ecosystem. These range from license fees, performance related renumerations or commissions on transactions to a share of the revenue from the products and services delivered by the other partners. Within the framework of "Free Now" – the platform for taxis – BMW and Daimler do not provide any services other than the provision of their platform. In return, each taxi partner is required to contribute a percentage of the revenue per passenger. By participating in the platform, the taxi partners can provide better customer service, for example by simply paying via an app. Thereby they increase their number of trips.
Influence: Ecosystems can only be controlled centrally to a certain extent. By providing infrastructure such as a platform, both supply and demand in the ecosystem are regulated. Rules for usage and quality standards are often defined by the leading ecosystem company. The extent to which the processes in the ecosystem are controlled, must be decided on a case-by-case basis. In order to participate in the mobility ecosystem "Your Now" as a taxi driver or private driver, users must go through the provided legitimation procedure. Moreover, they agree to follow the regulations of the platform. This includes, for example, ceding part of their income, having passengers rate them using a star rating system or accepting the app as a payment method.
In the ecosystem economy, strategy work is not getting any easier. However, despite their complexity, ecosystems offer numerous new opportunities for companies, as they potentially create added value for their customers and uncover new revenue streams. Thus, they help established companies to survive in an increasingly dynamic market. To cope with complexity, companies must leverage their existing assets and gradually build new capabilities.
Outlook: Omnichannel strategy – “Let’s go digital, let’s go omnichannel”
In our next article, we will discuss the fact that nowadays it is not only important to make use of digital channels; physical channels are becoming more important again. Thereby, we focus on the clever interaction of the various channels.
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