Digital Ecosystems – Because the Customer is Always Right

It is ironic that the business idea that opened my eyes ­to the core of the wave of disruptive change, was a lipstick shop. This store was located in a non-assuming corner in Soho, New York, and had no technological marvels or analytics. Rather, their product was very simple: The customer could come in and show a color – any color.

The shop I am referring to would make a lipstick to exactly match that color, with a selection of taste and some other variables. In a way, they tailor the simple product to match the customer’s need, right when the customer needs it.

Changing Needs in Every Industry

The essence of the massive, disruptive change we are seeing is not in technology, but in changing customer needs and market realities. Accustomed to the global marketplace, customers want a service that is customized to their needs. It should be delivered at the moment they walk in through the door. This creates challenges and opportunities for companies regardless of their industry, as there is an increasing pressure to retain every customer in both B2B and B2C markets through enhanced, tailored services.  An Avanade Global Survey from 2015 [1] states that 81% of B2B buyers would choose a supplier with consumer-like experience over an equally priced competitor.

Buy or build?

Various methods have been touted as silver bullets to address this change: service design thinking, piloting / prototyping, agile, and lean. All of them are good and valuable tools to improve the speed and impact of company services. These trendy terms however never capture the more strategic question behind the trend: What business should the company focus on? Should we buy or build capabilities to provide the services? Can our company afford to lose a customer, if we tell them that we do not provide the services they ask for?

Age of Ecosystems

It is rather reassuring, that in the age of digital ecosystems, the question of providing or not providing a service is not black and white. Modern companies utilize various methods to jointly market and deliver their services with their suppliers, partners, start-up networks and even customers and competitors. This is especially beneficial for companies dealing with digital and connected products, where the larger spread of the product or service amounts to increased network reach, which, according to Metcalfe’s law, exponentially increases the value of that network.

Platforms and Information

According to Gartner [2], a digital ecosystem is defined as “an interdependent group of enterprises, people and/or things that share standardized digital platforms for a mutually beneficial purpose”. Platforms are then again defined as “A plug and play business model that allows multiple participants (producers and consumers) to connect with it, interact with each other and create and exchange value” [3]. The main difference between the two is that in ecosystems there are various entities interacting with each other in various ways, whereas a platform is most often formed around the interests of one company.

Here are a few methods (some of which are overlapping) that are leveraged to create or extend ecosystems:

1. Digital platforms

A company creates a joint, open platform to combine data assets, resources and customers around a new business and operating model. Best and classical example is Apple. Apple has managed to build both a physical and digital platform out of their phones.

2. Embedded ecosystem services

A strategy where the company offers their service through various other (often digital) platforms, without influencing the platforms themselves. An example of this is Spotify, with a range of brands (e.g. Sonos, Ford, Samsung TV) offering them as a built-in service. Also called brand atomization in some texts.

3. Platform on a platform

Companies can utilize established platforms to create and expand their own platforms. Example of this is e.g. BMC Remedy on the Salesforce.com platform.

4. Aggregation

By aggregating and enriching partner services and combining them with own products and services a new, unique value proposition is created for the customer.

5. Open Data ecosystem

Making data available that is collected by the company as a main or by-product of regular operations an information driven ecosystem can be created that opens up new revenue and value streams. Good example of this is Finnish railway operator VR, who is sharing train related information and has allowed a set of applications to flourish close to their ecosystem.

Methods #1 and #2 are focused more on a co-branding activity without deep cooperation across the organization. Models #3 – #5 require an open business architecture and a stronger cooperation within the ecosystem to maximize the value for the company and its ecosystem partners.

Planting your own ecosystem

How to get started with building an ecosystem? Here are a few concrete steps to follow:

  1. Find an underused asset in your organization that could be harnessed to create valuable information. (e.g. be delivery cars driving around the city)
  2. Identify the value of that information and a method of monetization. Make sure to consider also e.g. brand value and long term customer value.
  3. Find potential partners and identify a method for connecting and sustaining them to your ecosystem. (e.g. contractual partnership, financial benefits, brand visibility, access to new market)
  4. Consider how to address competition from competing services or ecosystems, paying especially attention to GAFA [4]
  5. Ensure your organization is internally capable of delivering the services required by the ecosystem. Enable rapid adjustments if the needs of the customer or the ecosystem change.
  6. Launch service and enjoy the ride!

The future is defined by the strength of the company ecosystems, not only by the companies themselves.

As published in maintworld, 19.4.2017: http://www.maintworld.com/News/Digital-Ecosystems-Because-the-Customer-is-Always-Right

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