Digital business ecosystems and platforms: 5 new rules for innovators

Just as there’s a dominant technology platform for digital business, comprised of a set of foundational emerging and disruptive technologies, there’s also a dominant new business model emerging in the form of digital business ecosystems.

In fact, digital business ecosystems and platforms are fast becoming the go-to business model for the digital economy. According to Accenture, “Ecosystems are the new bedrock of digital” and “The top 15 public platform companies already represent $2.6 trillion in market capitalization worldwide.” 

Examples include Alibaba, Alphabet, Amazon, Apple, Facebook, LinkedIn, Netflix, Salesforce, Tencent and Twitter. Companies from non-tech sectors are rapidly building platforms as well. Examples include those of Bosch, Disney, GE, Merck and Schneider, to name just a few.

These ecosystems are driven by customers demanding more intuitive, real-time, integrated solutions and services whether in financial services, manufacturing, transportation, healthcare, entertainment, public sector or any other industry vertical.

By addressing a continuum of needs along the customer journey, companies operating as part of a business ecosystem can expand their addressable market and simultaneously deliver greater value in terms of the digital customer experience and overall value proposition.

Business ecosystems are no aberration

According to Ralph Welborn, CEO at Imaginatik, an innovation software and services company, “Business ecosystems are no aberration; nor are they a surprise. They represent an inevitable, adaptive response to changes in the types of value that folks care about and the interplay of technology innovation, behavioral expectations, regulatory changes and novel business models.”

By 2018, IDC predicts that more than 50% of large enterprises — and more than 80% of enterprises with advanced digital transformation strategies — will create and/or partner with industry platforms.

All this leads to a number of important considerations in terms of how organizations need to think about strategy and innovation in the years ahead.

On the strategy side, the questions and considerations are numerous:

• What percentage of investment should go into ecosystem business models?
• What types of ecosystems should be considered?
• When should an organization choose a hub vs. spoke strategy?
• What is an appropriate pricing strategy which will spur growth of the ecosystem or platform? 
• Should an organization hedge its bets by playing within competing ecosystems?
• What sustainable competitive advantage and differentiation can be gained from an ecosystem model versus a traditional value-chain oriented business model?

The implications on strategy and execution also ripple back to corporate innovation. Just as corporate strategic planning will need to respond to the new environment (i.e., the growing ecosystem and platform economy), so too will corporate innovation programs.

5 new rules for innovators

Here are five new rules for innovators:

Rule No. 1: Incorporate ecosystems into market and competitive research

Market and competitive research in support of strategy and innovation needs to go beyond traditional competitors, and their products and services, to identify and evaluate the increasing number of business ecosystems and industry platforms that are rapidly maturing.

Find out who the ecosystem and platform players are within your industry, but also which players may come in from other industries, such as high tech, to potentially disrupt your business model and traditional value chain.

In addition, it’s worth thinking about how you plan to classify the various types of ecosystems and platforms in the market. For example, the recent publication from The Center for Global Enterprise, entitled “The Rise of the Platform Enterprise,” classifies four types of platform as transaction, innovation, investment and integrated.

Rule No. 2: Take an ecosystem view of the customer experience to enable cross-industry thinking

In the world of digital business ecosystems, you may no longer be playing solely in your traditional markets. Organizations need to think about the end-to-end customer journey in specific scenarios and the discrete value propositions that can be aggregated together via the ecosystem or platform.

In air travel, this might involve thinking about the overall passenger experience that cuts across airlines, airports, car rental agencies and hotels. In the automotive world, this might involve thinking about the future of self-driving cars and implications on road-side service, insurance, and other traditional services which can be re-imagined and re-designed.

As an example, the RAC is the U.K.’s leading motoring services company. Its recent acquisition of vehicle diagnostics specialists Nebula Systems shows it’s thinking about next-generation services for motorists that extend its business model from a reactive, labor-based model, to a more proactive, digitally enabled “predictive breakdown service.” By acquiring and partnering with high-tech companies, the RAC is enhancing its ecosystem to react to the evolving needs of its members.

Rule No. 3: Support and foster intra-ecosystem innovation to move beyond traditional R&D

Traditional innovation processes were organized around internal R&D, to develop new products and services from raw ideas, with the occasional “open innovation” techniques to pull in ideas from outside the organization.

As companies devote a larger percentage of their efforts and investments toward ecosystem and platform-oriented business models, these ideation (idea generation) and innovation processes will need to change to support and foster intra-ecosystem innovation in terms of continuous and collaborative innovation with ecosystem partners.

Rule No. 4: Build the capability to dynamically pull in new partners for co-innovation, beyond your traditional set of business partners

Just as digital business necessitates organizations to be highly agile and become masters of how they rapidly design, develop, deploy, manage and continually evolve their digital services, the same dynamic approach will be needed in terms of finding, selecting and co-innovating with appropriate digital partners for ecosystem business models.

Organizations will need to move from a static set of business partners for R&D to be able to dynamically pull in new partners for co-innovation. This will initially require manual, human effort to identify potential partners and open lines of communication, but over time we may start to see more innovation software vendors providing this kind of functionality beyond today’s matchmaking.  

Rule No. 5: Incorporate ecosystem metrics into your innovation dashboard

Traditional innovation dashboards tend to look at three basic areas of measurement: 1) innovation input and mix (what’s going into your innovation pipeline in terms of the types of innovations in the queue), 2) innovation health and efficiency (the flow-rate through your pipeline and the amount of funding being applied), and 3) innovation outcomes (the measure of your return on innovation in terms of the number of innovations that have made it through to commercialization and have captured revenues or other strategic or financial objectives).

These dashboards will need to be revised to report on ecosystem metrics in terms of the percentage of ecosystem-related ideas in the queue, the flow-rate of these ideas through the pipe, and the return on ecosystem investment compared to the flow-rates and returns of the more traditional products and services in the queue.

In summary, just as digital business is requiring corporate innovation programs to fine-tune their sights toward a new set of target business objectives, the growing ecosystem and platform economy will undoubtedly necessitate changes in innovation program design and operation as well.