Being part of an ecosystem is essential for businesses to innovate. The emergence of ecosystems has changed the game for brands in terms of establishing alliances, understanding sector boundaries, and redefining business models. Now more than ever I believe companies need to understand how to operate as an ecosystem to succeed — which is to say, to survive at a time when you either grow or you die.
Gartner defines ecosystems as “Interdependent groups of enterprises, people, and things that share a platform for a mutually beneficial purpose such as commercial gain, innovation, or common interest.” A more direct definition might be this: ecosystems consist of partnerships and capabilities needed for business growth.
Look at Apple, a company cited in “Management’s Next Frontier: Making the Most of the Ecosystem Economy,” written by Jürgen Meffert and Anand Swaminathan for McKinsey Quarterly. In the 1990s, Apple nearly died until it built a partnership with Microsoft. Apple released an updated Mac version of Microsoft Office (something Apple resisted doing because Microsoft was viewed as an archrival), and Apple even accepted a $150 million investment from Microsoft, which was not a widely-praised deal. Today, Apple:
- Makes its Operating System and augmented reality ARKit available to outside developers, building on a best practice from the release of the first iPhone
- Is building an ecosystem in healthcare by collaborating with medical providers to develop wellness care and clinical applications Apple’s healthcare development platforms through the Apple Watch. In doing so, Apple is expanding into health – and helping healthcare providers save themselves by building their own ecosystems with Apple
I thought of the power – and necessity – of business ecosystems as I read Meffert and Swaminathan’s article. By now Apple has become a poster child for surviving through an ecosystem, but what’s changed since the 1990s is that disruptions as Apple experienced are the norm. So, embracing adaptable business models such as ecosystems should be standard operating procedure.
IKEA, for instance, realized that meeting the needs of its customers meant helping them with product assembly, certainly one of the most undesirable aspects of buying furniture. But IKEA lacked the capability in-house, so it looked outside to Task Rabbit, which IKEA ultimately acquired and will operate as an independent business. Another example is Netflix, which needed Amazon Web Services to shift its model from mailing movie rentals to streaming them. And now Netflix needs to work with entertainment studios and a host of other businesses to create original content.
A Natural Evolution
At Moonshot, we see ecosystems as a natural evolution of digital products and experiences. The success of an ecosystem is more than just the enabling technology or the experience they have/feel. Ecosystems are determined by:
- all the touchpoints between the business and the consumer
- the business model
- the systems of people and processes that run the business model
- the outcomes they drive
We believe the most successful ecosystems emphasize experiences, technology, data, and operational capabilities in balanced doses. Such ecosystems are driven by the following commonalities. They:
- trend towards network effects
- are built on trust and transparency
- bring efficiencies to previously inefficient markets
- drive non-linear growth
- rely on communities for heavy lifting
But here’s the problem: businesses don’t always know how to get started operating as an ecosystem. To that end, Meffert and Swaminathan’s article should help. They cover a lot of useful ground for operating as an ecosystem, such as the factors to consider when choosing business partners, and the capabilities a company needs to manage an ecosystem that encompasses everything from product development to project management. The authors make important points that resonate for me:
- Ecosystems are the next frontier for value, lovability, and competitive differentiation for brands
- They mark a shift in how brands need to manage relationships with customers and partners
- They require a mindset shift from the enterprise “siloed” thinking of today/the past
To achieve that mindset shift, I believe large enterprises need to resist the inclination to view their size as a shield. Large companies are prone to the fallacy of looking only inside their four walls for sources of value. Instead, enterprises should start by looking at the customer as the source of value and then ask what lovable products need to be created to delight that customer as opposed to what lovable products can be built inside the organization to delight that customer. The first question then forces the businesses to ask, “If we don’t have the means to build this product in-house, what relationships do we need to have?”
How to Get Started
Applying product development techniques such as design thinking and lean innovation can then help the business create the necessary ecosystem to build the lovable product. At Moonshot, we apply a methodology known as FUEL to help companies test product development ideas while mitigating the risk and cost of doing so. A business can apply FUEL for developing a business ecosystem, too.
FUEL consists of two components:
Design thinking for ideation: Through design thinking, businesses identify the right problem to solve by gaining empathy for the user, create and consider many options, refine selected directions, create prototypes, and validate the prototypes through user testing.
Lean innovation for development: With lean innovation, cross-functional teams collaborate on holistic product design in an iterative, agile fashion. The outcome is a real product for commercial application.
Here’s how a business might apply FUEL to map out an ecosystem:
Let’s say your company is a freight distribution company trying to tackle a major business decision – perhaps wanting to provide tools to drivers to ensure safety of trucks, shipments, and drivers themselves:
- What kind of user problem am I trying to solve? Perhaps the root problem is unclear expectations of driver tasks and inefficient (paper-based) processes to support the driver to carry out their main objective: getting shipments from location A to location B in a timely, safe manner.
- How might we use telematics data to predict and prevent unsafe situation? The answer might be to identify and take action on potential unsafe situations before they occur (e.g., driving for too many consecutive hours without a break, excessive speeding, etc.).
- Is the aggregation of telematics data our core business? If the answer for this company is no, they could leverage an ecosystem to partner with such a company that could complement their vision and solve a real user problem.
With design thinking, you would use a design sprint to test the development of your product, resulting in a prototype. As part of that process of testing the viability of that prototype, you would examine all the elements required to conceive of, create, and develop that app. (You might use tools such as the business model canvas to do so.) You wouldn’t just ask, “What elements in-house are required” but “What elements are needed whether I have them or need to look elsewhere?” And here you would need to identify your ecosystem, which might include an emerging digital startup, third party data sources, and other resources you might lack in-house.
With lean innovation, a cross-functional team would collaborate across product, design, and engineering to move into the product blueprint into delivery. Then, as the product takes shape and is positioned for market, the lean innovation process would ensure that the product is set up for success by surrounding it with the right people, processes, and governance. You would assemble all the parts of your ecosystem using the kinds of approaches described the McKinsey article. Consequently, you would be in a position to you scale your idea to a digital product and, as appropriate, platform and ecosystem.
What Not to Do
What you don’t want to do is wait until you are in crisis mode (“we need to pivot now!”) to start building an ecosystem. You should be developing relationships with businesses adjacent to your business as a matter of course – even competitors to your business. I am reminded of a Chinese proverb:
“The best time to plant a tree was 20 years ago. The second-best time is now.”
We find inspiration and value in building relationships with startup ecosystems like 1871, consisting of emerging digital startups, technology capabilities, and venture capital.
Moonshot helps businesses set themselves up for growth by developing breakthrough products. We use approaches such as workshops to help businesses tackle those initial questions that so often stymie a company from moving forward. Contact Moonshot. We can help.