Building Profitable Ecosystems: Business partnerships in the digital economy

“Anything that can benefit from a connection will have one in the networked society” -Hans Vestberg.

Yes, this is yet another article about the importance of technology and digitization of businesses.

Recent advancements in technology have triggered digital transformation in businesses across industries worldwide. The organizations leading the charge recognize that scale advantages come from partnerships in ecosystems, where partners play complementary roles.

In this article, I will take you through the dynamics of business partnerships in the digital economy, while providing actionable steps to begin your own journey towards future-proofing your organization.

First, let’s set an understanding of the terms digital transformation and digital economy.

Digital transformation simply put, is the adoption of digital technology by businesses to modify existing (or create new) business processes, culture, and customer experiences to meet changing business and market requirements.

Digital economy is then, the network of economic activities that result from billions of everyday online connections among people, businesses, devices, data, and processes. It is shaped by cloud computing and inter-connectivity.

Whether or not you have started the digital transformation process, Your organization is already digital! If in doubt, ask yourself “Is any part of the industry being affected in any way, by digital products and innovation?”

If the answer is yes, there’s no better time than now, to begin your transformation journey.

Why do Successful Businesses Die?

Before I delve into the juicy deets on digital ecosystems, it’s important that you understand the traps that cause successful businesses to fail.

The Competency Trap

The classic false belief that the same principles, ideas, models etc. that led to past success will result in a future one. It locks organizations into a particular way of doing things simply because they are already skilled at doing it that way. They rely on familiar tools, skills and routines without measuring their effectiveness over time. Employees begin to lose their ability to innovate.

The Ecosystem Trap

This occurs when businesses are unwilling to change their network of relationships (supply chain, marketing partners, research and development etc) because they have been built over time through trust and compound negotiations. Many businesses even develop specific organizational processes to maximize these relationships. They devote no time to exploring other options that might bring greater value, because they could disrupt or challenge the existing arrangements.

The Metrics Trap

This one is quite lengthy but stick with me.

Thriving businesses are often driven by quantitative measures of efficiency, quality, cost, and profit margins. These focus on short term performance like market share, sales / unit etc. The metrics trap happens when businesses define success by the same metrics year-on-year.

Understanding that the needs of the market evolve continuously, it’s important that organizations constantly revisit their key indicators of success. Market share for example is a great metric, however, customer satisfaction should be prioritized. Consider this:

A customer who wants to hang a diy book shelf will assemble tools for the job. One of these could be a drill bit to make holes in the wall to screw the shelf supports. However, the customer does not want a quarter-inch drill bit, but a quarter-inch hole. The drill is merely a way of delivering that benefit (the hole) and will only be the solution until a better method or solution is invented.

What does the impending new invention mean for the drill bit manufacturer who focuses on market share than customer satisfaction?

The Talent Trap

Successful businesses invest in acquiring, nurturing, and managing the best human talent to serve the demands of the current business expertise. This causes companies to hire staff for existing roles instead of recreating profiles of talents that might be needed in the digital future. They also pay little attention to nurturing digital business literacy, and employing staff with the vision and technical skills to implement new processes that enable digital transformation. This goes hand in hand with the competency trap.

Try not to get caught in any of these traps.

So how do you go about building an ecosystem that will profit your business?

How to Adapt to the Digital Economy by Forming the Right Partnerships

First, you’ll need to conduct an analysis of the industry in which you operate. There are 3 key categories of industry players to look out for.

3 Types of Industry Players

Digital Giants

Industry leaders who have successfully integrated technology to transform business processes at the nexus of scale, scope and speed. Amazon and Alphabet are great examples.

Traditional Incumbents

Historical traditional competitors, conventional in their operating models and processes. For example, Toyota facing disruptions from Tesla and Waymo.

Tech Startups

They are relatively new and disruptive, challenging the norm in operations and customer satisfaction. Netflix and Kuda Bank are good examples.

The players leading disruptions in industries are typically the digital giants and tech startups. The purpose of digital transformation is to secure a spot for your organization in thriving digital ecosystems, to sustain (or increase) your share of the market as the industry evolves.

Companies that fail to evolve alongside the needs and demands of their customers may find it hard to stay afloat.

An example of evolving market needs in the auto industry, is the shift from car ownership to accessibility — led by Uber, DiDi and Waymo One.

There are 3 key areas to consider in your analysis.

• The ways in which the three different players are responding to the changing needs of the market.
• The activities of competitors in other industries, to examine how they affect yours.
• The ecosystems that currently exist and the values that each partner (contributor) provides.

After a thorough industry analysis, the next step is to decide whether to create an ecosystem of your own or participate in existing ecosystems.

Creating and participating in profitable ecosystems.

Ecosystems are made up of creators and participants; where the creators are the orchestrators, and the participants are the followers or contributors. An example is the auto industry value chain where various components go in to create the finished product. The owner of the brand is this creator and suppliers, tech partners, retailers are all participants.

The industry leaders in the digital age are the creators that have the best virtual integrations, allowing them to control and manage the best network of product and service providers.

As a traditional organization, deciding whether you should create or participate depends on your current skill sets, organization goal, and passion/social cause.

If tech giants already exist in your industry, and you have no chance of competing, you should participate instead. The only exception, is if you are working on your own competing platform; which you will need participants for.

Will those participants choose your platform over that of the tech giant?

In most cases, it is advisable to participate.

After identifying ecosystems you’d like to be a part of, examine the unique abilities of all players within the ecosystem; against the backdrop of the customer demands that the ecosystem as a whole aims to meet.

Then look inward, while considering these 5 points:

1. What unique capabilities do you have that can add value to the established ecosystem?
2. Can you develop competencies substantial enough to get you a good share of the revenue generated
3. How relevant will those competencies be in the future?
4. What key relationships and digital partnerships do you currently have?
5. What is your transformational path/strategy?

…but also, what if you‘d prefer to start small, growing strategic partnerships towards building a thriving ecosystem of your own?

Collaborating to Co-create New Capabilities

It is advisable to start by participating in existing ecosystems within your industry to learn and strategize your own platform.

After strategizing, you should then begin to seek collaborations with an aim to enlarge the value pie by pooling the capabilities of different organizations. Here, 1+1=3.

Try not to limit your scope of potential partners with the erroneous belief that business is always competitive. An organization can be your competitor in one market and complement your business in another. Such relationships are known as coopetitive relationships. Apple and Microsoft are co-creators of the iPhone.

Differentiating Competitors From Complementors

If a partner complements your business, customers value your product more when they have the other partners product. i.e The partnership will increase the value of your product.

If a partner is your competitor, customers value your product less when they have the other partners product.

To create additional value for all partners, it’s important that the digital technology used in delivery, collects useful data from multiple touch points that all partners can use to optimize their products and offerings.

Adapting to digital ecosystems can be challenging at first for traditional organizations; but it is definitely worth the move. All stakeholders and business unit heads, need to be aligned for this process to be successful.

Regardless of your job title, you can play an important role in the transformation of your company by being passionate about taking advantage of the power of emerging technologies; and seeing your larger purpose as guiding the company through this transformation.

All The Best,

Folahanmi Esan.

References

[1] Venkat, Venkatraman. The Digital Matrix: New Rules for Business Transformation Through Technology. LifeTree, 2017.

[2] Graham, Hooley, et al. Marketing Strategy and Competitive Positioning. Pearson, 2017.