Tapping ecosystems to power performance
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Seize the value upside
Given the head start that top-performing companies are developing, others would be smart to revisit their own ecosystem plans with urgency. Our research identifies three actions to help teams begin grappling with how to seize the full potential of ecosystems.
1. Strategize and then focus. Just as companies have corporate and M&A strategies, they also need a clear ecosystem vision and strategy that address the classic where-to-play and how-to-win questions. Yet clear answers may seem elusive, as disruptive technologies blur industry boundaries and customer wants and needs shift. Senior executives need to start with a clear-eyed examination of where the company creates unique value and how it contributes this to the ecosystem. This latter point is crucial: companies that focus only on the value they create, and not the value they bring, will set themselves up for disappointment.
Once armed with clear ideas around value creation, leadership teams can tease out the implications for the company’s ecosystem model, and choose a role that best fits their situation. That may be as an orchestrator—at the center of the ecosystem, enabling others to collaborate—but more likely as an ecosystem partner or participant. For example, in Beyond Digital: How Great Leaders Transform their Organizations and Shape the Future, PwC’s Paul Leinwand and Mahadeva Matt Mani note that, in addition to the orchestrator, ecosystem roles include:
- platform providers, such as Microsoft or the New York Stock Exchange
- solutions providers, such as Hitachi
- aggregators, such as Walmart, which provide the convenience and simplicity of one-stop shopping.
Finally, a word of caution. Don’t fall into what strategy and entrepreneurship professor Ron Adner calls the “ego-system trap,” which occurs when executives misjudge their starting point as well as the capabilities and investment involved to play the orchestrator role. The number of companies positioned to succeed as orchestrators is lower than you might guess.
2. Address capability gaps. It is one thing to articulate a sharp ecosystem value proposition but carrying out the related business model is another. As companies focus on the new business models necessary to participate in ecosystems, many of them will find capability gaps and blind spots relating to everything from people skills to technology. These shortfalls may present themselves in any or all of the organization’s core functions and across a range of both differentiating and non-differentiating processes. They might involve more familiar areas, such as digital tools, but also less intuitive ones, such as governance and decision-making. What many of these gaps will have in common is the human factor. Success arises not just from having the right technology platform and tools for your sector, for example, but from how you and your people use them.
Anticipating—and filling—capability gaps is vital, and that’s where there’s an important lesson from top performers: don’t go it alone. Leading companies are more than seven times as likely to use service partners to keep pace with technology changes and to close capability shortfalls in their operating models.
No matter the gap you’re trying to close, though, you may need to address what author Cass Sunstein calls the “sludge” in your organization. Sludge manifests as high transaction costs, a defining characteristic of too many organizations. Unless checked, sludge is liable to hamstring a company’s ecosystem plans. In contrast, our research found that top-performing companies are 1.2 times as likely to use a digital operating model to reduce transaction costs.
Why does sludge matter? Because getting things done in ecosystems requires being nimbler and more responsive to everything from customer needs to managing tricky relationships with partners that might otherwise be competitors. Sludge is the great enemy of nimble responsiveness. Among other things, it can impede decision-making and resource reallocation, making companies slower at closing capability gaps and reducing their speed-to-market. In addition to sluggish resource reallocation, warning signs of sludge within companies also include failures to move data cleanly and easily from one part of the company to another.
3. Look to the future. Many of the unresolved challenges the world faces, such as climate change or healthcare access, are so big and complex that no one company on its own can solve them. They can be addressed only by networks of companies and institutions working together toward a common purpose and making the most of new business models and technology. That’s because no single company has the resources to develop the capabilities required, nor could it scale them as quickly as a dynamic world demands.
Even as society benefits, companies and customers benefit, too. Komatsu’s construction ecosystem, for example, helps address serious labor shortages in Japan’s construction industry by digitizing construction sites and enabling customers to use less labor than in the past. And as companies grapple with how to handle their environmental, social, and governance (ESG) risks, meanwhile, they’re partnering in ecosystems to access the sustainability capabilities they need—and contributing to carbon reduction.
Similarly, in precision farming, companies have come together to combine remote sensing, IOT-enabled agricultural equipment, and other technologies to collectively help their customers use farmland more cost effectively and with less environmental impact. Here, as with all ecosystems, a winning customer value proposition requires a range of complementary services that no single company can provide or scale alone.
To be sure, competing in ecosystems won’t come easily to top leadership teams that are used to static industry boundaries and traditional, zero-sum-game forms of competition. But they had better learn fast. As ecosystems become more of a differentiating factor that separates out high performance, companies that already have an edge will be well placed to extend it. To improve their odds, companies should clarify their ecosystem strategy, identify and develop the necessary capabilities, and start looking for opportunities through a long-term, societal lens—before others beat them to it.
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