Accelerating and disruptive technological change, geopolitical power shifts and trade disputes, climate change and increased public scrutiny of business…. These are the signs of our times – making the business environment more volatile, uncertain, complex, and ambiguous – or VUCA – than ever before.
In such an environment, businesses need to become agile and more resilient. To not only survive but thrive, they will need to increase their rate of organizational learning and innovation. But, most importantly, they will need to foster meaningful collaboration, both internally within their organization and externally with other organizations.
In our increasingly interconnected and networked world, your organization’s success will depend more than ever on its ability to develop meaningful, value-creating networks – both internally, among colleagues and co-workers, and externally, with customers, partners, suppliers, and competitors within a broader business ecosystem.
What is Network Equity, and Why Does it Matter?
This ability to build “network equity”, as I call it, is proving to be more valuable than ever, since it results in the formulation of new ideas and the creation of value in the form of new products and services.
Your organization’s ability to build network equity is an essential skill in today’s business environment.
What is different today is that digitization is permeating every facet of our lives, giving way to hyper-connectivity and interconnectivity at increasing speed. It allows for and facilitates collaboration and the exchange of information across borders and industries, and thus is radically changing the competitive landscape.
Competing today is increasingly about identifying new ways to connect and collaborate to meet new and emerging needs of the customer. Meeting these needs is being achieved through ecosystems powered by digital platforms. This allows for a new set of products and services to be offered by a variety of companies in one integrated customer experience.
As networks, business ecosystems have some powerful attributes, so-called “network effects”:
- They tend to concentrate around a few dominant players
- Concentration increases over time to the dominant player, usually the ecosystem orchestrator
- The bigger the network becomes, the more valuable it is for all participants
Consumer (B2C) ecosystems tend to concentrate on needs such as shopping (Amazon), travel & hospitality (Airbnb), housing (Zoopla), entertainment (Netflix), and financial services (Adyen). B2B ecosystems tend to revolve around business functions, like sales & marketing (Salesforce), talent management (Workday), procurement (GoDirect Trade by Honeywell), or ERP and finance (SAP). (Note that the companies listed are notable, if not dominant players in their ecosystem, not the name of the ecosystem itself.)
It will happen that as clusters of companies are formed, a blurring of the lines between industries and between retail and institutional markets will result. At the same time, it opens a whole realm of possibilities for value creation and opportunities for growth.
How to determine your ecosystem strategy
With all the hype surrounding the business ecosystem these days, it is important to realize that it is a relatively new organizational construct and only a means to an end. It is not panacea.
However, every business in every industry, whether operating in B2B or B2C, should be thinking about new ways to create and deliver value.
Designing your ecosystem is not straight forward. It is a complex undertaking and requires systems thinking. Above all, it requires a mindset of collaboration, not competition.
To get you on your way in determining your firm’s ecosystem strategy, and whether to pursue it or not, follow the steps below:
1. Identify opportunities to create value.
What is the new or emerging need of the customer, and what is the problem and challenge that must be addressed to meet that need? Is the problem significant enough and worthwhile pursuing?
2. Identify the needed capabilities.
Who are the players that have capabilities you do not possess to meet the need? Do they share a similar purpose and values? By working collaboratively, how can you create and capture value?
3. Determine your respective roles.
What are your respective positioning options? What role plays to your unique strengths and capabilities? Businesses have 3 basic choices, ultimately determined by their interface with the final customer:
- Orchestrator: offers products and services to final customers through a B2C digital platform, e.g. Amazon retail and marketplace.
- Activator: provides ancillary products and services to final customers, e.g. Amazon Prime, Kindle, third-party sellers, ….
- Enabler: supports Orchestrators and Activators with products and services, possibly by way of a B2B digital platform, e.g. Amazon logistics & fulfillment, delivery & pick-up services, financial services, AWS, ….
4. Determine the governance model.
What should be the rules of the game so that all players can benefit from taking part? Should access be open to anyone? Should it be managed, based on specific criteria and guidelines? Or should it be closed, subject to a formal process? Does the Orchestrator have sufficient credibility and legitimacy to play the role of arbitrator, to introduce and enforce the rules in a fair way, while at the same time motivate all players to coevolve through continuous innovation and sustainable value creation?