Digital Ecosystems
INTRO
We can define innovation as innovative changes or new inventions made on products, processes or business models that increase productivity or produce new value as a result. How do we design our ecosystem in a way that supports and encourages innovation efforts? The answer to this question is largely hidden in the business partnerships we will establish. What should we do to create an innovative digital ecosystem?
In order to create an innovative ecosystem, we need to (1) develop new business partnership models, (2) encourage our business partners to work together, and (3) be ready to collaborate with new business partners in different disciplines. Before going into the details of innovation, let's examine the features of the ecosystem we will establish. Basically, we can say that there are 2 different business ecosystems. These; central ecosystems and adaptive ecosystems.
In centralized ecosystems, sector boundaries are defined and it starts with a specific commercial problem, such as the problem of establishing an online book selling ecosystem. The central business brings all its business partners together and enables them to work together to create additional value for the business. Business partners are the business's suppliers and business partners in its current business model. Traditional business relationship strategies and business models apply. The impact on your business often results in the emergence of limited innovative business models.
CENTRAL AND ADAPTIVE ECOSYSTEM COMPARISON
We are not here to say that one is superior or gives better results than the other when comparing 2 types of ecosystems. The important thing is to determine your ecosystem management style according to the dynamics of the sector you are in. Professional managers will benefit greatly from using adaptive ecosystem features in new sectors and economies where business conduct and rules have not yet been established. On the other hand, it is generally accepted that managerial approaches belonging to the central ecosystem bring success in sectors that have settled and have reached a certain maturity.
8 DIMENSIONS OF COMMERCIAL ECOSYSTEMS
Digital leaders need to think about strategy, relationships and value exchange when evaluating digital ecosystems. Your dynamic business ecosystems can sometimes even consist of competing partners. The digital business is causing dramatic changes in the ecosystems of organizations, making them larger and more complex. In this case, digital leaders should focus on their organization's strategy and its implementation within business ecosystems from an outside-in perspective. For this, they must change and expand their mentality and approach. We think digital leaders should consider the following 8 dimensions when making strategic decisions about how and when to change tactics:
Ecosystem Strategy
Every organization exists in multiple business ecosystems. These business ecosystems are dynamic networks of assets that interact with each other to create and exchange sustainable value for participants. The challenge is deciding how to survive and thrive in your organization's ecosystem. Know that ecosystems can arise organically or organized. Organic business ecosystems are created based on evolving industry, government and market trends. Organized business ecosystems can emerge in a more planned way. For example: Amazon's ecosystem of sellers, buyers, advertisers and collaborators. Decide what role your organization will play in these ecosystems: leader, disruptor, niche player, orchestrator, or something else.
Openness Degree
The degree of openness in ecosystems is determined by strategies, common goals and common interests. An ecosystem can be public, private or hybrid. Many organizations are actually in a mix of public and private ecosystems. The openness of an ecosystem has two consequences. The degree of change depends on whether new players will enter the market and how much the current value of disruption and business relationships has changed. Openness defines the nature of the relationships in the ecosystem and how they are formed and maintained, as well as affecting the relationships of cooperation and competition.
Interaction of Different Participants
With increased connectivity, organizations will need to figure out how to integrate things like smart advisors and artificial intelligence into their ecosystems. CIOs need to understand that the diversity of an ecosystem and the roles that people, businesses and things play will change and evolve depending on the situation. For example, the primary person in an ecosystem might be a business customer, and then suddenly an intelligent advisor takes over. This constant situational change will determine how solutions are defined and supported.
Relationship Types
In our world, 8 billion people and more than 40 billion devices connected to the internet have created a large ecosystem. Digital platforms, to which participants with different goals and objectives are connected on a commission basis, are the way most companies mediate relations in ecosystems. The platform provides basic integration, implementation and management services for participants.
Form of Change in Value
In addition to monetary-based exchange of value, ecosystems can dynamically leverage information, reputation, services, and other non-monetary forms of value. Boeing, for example, collaborated with 50 vendors to create the 777 aircraft. Ecosystems enable companies to exchange products and services for information or analytics. It is important to understand the changing definition of "value" created by ecosystems.
Diversity of Industries
Expansion of the ecosystem can result in unexpected partnerships for organizations. Business partners can include organizations within the primary industry, adjacent industries, or most unexpectedly, distant neighboring industries outside of the business industry (e.g. travel and healthcare).
Complexity of Multiple Systems
Large organizations will likely be involved in multiple ecosystems. The important thing is to understand how these ecosystems interact, to identify possible breaks and overlaps, and to accept the constraints and consequences. Note that some overlapping ecosystems will create a new ecosystem, while other overlaps will highlight redundancy.
Technologies
Discussions about ecosystems can be overwhelming, but CIOs should keep in mind that they are responsible for the technology that will enable business ecosystem strategy now and in the future. Leverage a digital business platform (i.e. open APIs, analytics, security capabilities, etc.) success will require a strategic integration of technology, information and business processes.
TYPES OF ECOSYSTEM
There are two main types of business ecosystems that can be observed in practice: solutions ecosystems that create and/or deliver a product or service by coordinating various contributors, and transaction ecosystems that match or connect participants in a bilateral market through a digital platform.
Solution Ecosystem
A solutions ecosystem has a parent firm that regulates the offerings of several complements. During the development of a new solution, the suppliers of the parent company or key complements can also be part of the ecosystem because they are independent and innovation activities need to be coordinated with other players. Once key innovation is accomplished, such suppliers can be confined to a reduced role in a hierarchical supply chain. In solutions ecosystems, the customer is not typically an active member, but has a great influence by selecting and combining the offerings of the core firm and complements.
Process Ecosystem
Transaction ecosystems are characterized by a centralized platform that connects independent producers of products or services with independent customers. Transaction ecosystems are bilateral markets that benefit from direct and indirect network effects. Direct network effects occur when the larger the number of other participants on their side of the market, the more value participants place on the offer. More importantly, indirect network effects occur when the value of the ecosystem to participants on one side of the market increases with increasing number of participants on the other.
THE RIGHT MANAGEMENT MODEL OF YOUR ECOSYSTEM
Let's say you identify an attractive business opportunity and consider the best governance model to make it happen. You have multiple options to organize the required events:
- A vertically integrated model where you carry out all the important activities in your own organization
- A hierarchical supply chain where you delegate certain activities to suppliers you buy from and/or agents you sell to
- A business ecosystem where you coordinate with other, largely independent economic players to create a coherent offer
- An open market model where the customer selects and purchases the required components from independent and uncoordinated suppliers in an open and competitive market
Under what circumstances is a business ecosystem an advantageous governance model for your business opportunity? To begin with, unpredictable but highly flexible business environments may lend themselves to an ecosystem approach. Such environments enable "shaping" strategies that define an industry's profile before the rules are written or rewritten. Shaping strategies require you to collaborate with others because you cannot shape the industry alone, and you need others to share risk, add complementary talent, and quickly build the new market before competitors act. Moreover, business opportunities in such environments are often characterized by both the high modularity of the required product or service solution and a high need for coordination between players - ideal conditions for business ecosystems.
MURAT LEVENT DEMIRCAN
Innovation in Digital Ecosystems 2: Bat Signals
Innovation in Digital Ecosystems 3: Creating an Innovation Environment
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