Business ecosystems have become “the topic on almost every corporate board’s agenda”, according to the World Economic Forum. They are both the present and the exciting future.
But what exactly are business ecosystems and why have they grown in such prominence today?
What is a business ecosystem?
Investopedia defines a business ecosystem as a “network of organizations – including suppliers, distributors, customers, competitors, government agencies, and so on – involved in the delivery of a specific product or service through both competition and cooperation”. In other words, it’s a group of individual organisations working together to create and provide value.
One could argue that businesses have always functioned in an ecosystem – a company that makes tyres, for instance, needs a car to sell their product and a car manufacturer needs a dealership… You get the idea. But the business ecosystems of today are both defined and transformed by digital technology. Digital technology forms the underlying mesh upon which these ecosystems are built. Because technology facilitates communication and offers more data with greater speed, companies are more interconnected than ever.
According to McKinsey & Company, there are three essential qualities to a business ecosystem:
– Ecosystems offer single access gateways. This means that a consumer only has to access a single gateway to avail of a host of services. A good example of this is Kayak, a platform that allows you to search hundreds of travel websites at once to book flights and hotels, rent cars, look up guides for the areas you’re visiting and you can even have the platform create your trip for you, depending on what you’re looking for.
– Ecosystems integrate data from all partners, which allows them to leverage it to their advantage.
– Ecosystems have data that allow them to utilise the “network effect”. This means that they can provide your data to you, as well as allow you to compare data across all its users. Net Promoter Score, for example, helps you gauge how healthy your company customer experience is; it also publishes a newsletter each month with Net Promoter scores for new companies, so you can measure yourself against the competition.
Benefits of a business ecosystem
The increase in business ecosystems that we are currently seeing, is a response to our changing world. Not only has digital technology changed the way we do business, but consumers today are becoming more demanding. They expect glitch-free service, minimum hassle, and speed – and companies that fail to provide these are falling behind.
Business ecosystems make it possible to be competitive in this economy. They leverage technology and interconnected services to maximise the value and services they provide to the consumer. While simultaneously reducing the effort and possible frustrations a customer might experience when using multiple companies. In turn, this creates loyalty and customer retention.
These ecosystems are also diverse – typically operating in several geographies and across many sectors. This allows the ecosystem to scale better than a single organisation, and provide more global value to a customer. Ant Financial, for example, realised its Chinese customers wanted to access payment options abroad and so established partnerships with the Singapore tourism board, Starbucks, and Finnair (a Nordic airline).
Ecosystems can also drive social and environmental change. Global Food Safety Initiative is a non-profit with a range of leading food producers, distributors and retailers as members. This non-profit helps maintain global health standards through a collaborative network. Many of its members compete in their respective markets, but also then collaborate to ensure consumers receive safe and hygienic food.
In the area of Procurement, members of a business ecosystem can benefit far beyond what would have been possible without such collaboration. The Renault–Nissan–Mitsubishi Alliance is a high-profile example. Alliance members have retained their individual corporate identities, cultures and products, while economies of scale are achieved in areas such as Procurement and Logistics. Larger volumes have led to lower unit costs and annual savings of more than EUR 200 mill have been achieved by sharing various forms of logistics infrastructure.
Challenges of business ecosystems
But if ecosystems are the way of the future, they are also currently a brave new world – and the rules are up in the air. Companies are struggling with how to craft an ecosystem, how to function within one and, indeed, how to manage one.
In their article, “What Management Needs to Become in an Era of Ecosystems”, the Harvard Business Review explores the challenges companies face as they step into the future. Businesses can no longer operate as individual entities, carved out from the rest of the environment. Rather, they must operate as part of a more complex machinery or an interconnected web – and that creates all sorts of questions about hierarchy, competition and leadership styles.
The Boston Consulting Group believes that leaders, to truly make the most of ecosystems, need to see themselves more as “orchestrators” rather than lone-wolf leaders. The nature of collaboration has changed; there are far more partners spread out over different geographies and services in a business ecosystem, and the style of leadership must transform to reflect this.
Together, business ecosystems can harness collective creativity, intelligence and skill to create better value. To discover how your company might operate in this changing landscape, get in touch with our Managing Director, Armand Brevig, today.
More articles…
Free assessment: Unlock more business value and optimise costs – Procurement Cube
Great leaders know that their businesses need to continuously improve to thrive. However, with more and more demands on your time, it’s easy to miss opportunities for improvements and value generation. So, how do you avoid missing out on opportunities to create or enhance competitive advantages?
