Goodbye business as usual

Unfortunately, managing in ecosystems requires very different qualities – perhaps even a new set of corporate leaders. This is the result of new demands placed on organisations and those who manage them.

Customers have a far wider range of choice than they used to. When clear-cut industries and categories ruled, companies competed to deliver the same mass-produced product – but not in how the underlying service was delivered. You could have any means of mobility, as long as you bought your own car; any way of talking to people far away, as long as it was on a phone. To that extent, customers were captive and the winners were those who upset their customers least (in retrospect, not such a big ask to make of managers).

Now, however, offerings can be sliced, diced, orchestrated and bundled for delivery as seamlessly as an Amazon package. The implication: you have to understand, and understand deeply, the “jobs to be done”. What demands emerge from how customers actually live their lives? Once you know that, you can start getting partners to team up and innovate around it.

Consider Hyundai’s artificial intelligence (AI)-based Blue Link app, which can track your vehicle, monitor and report on driving behaviour and perform various remote actions on the car. One of these is a one-time-only door lock and unlock. So, in combination with car-wash app WashOS, you could – from your office – ask someone to locate your parked car, valet it and return it ready for collection after work.

Or you could have a grocery order delivered into the boot. Hyundai touts the app as “enhancement of the connected driving experience”; you might call it mobility, retail or convenience.

But the name of your ecosystem’s product matters much less than whether it delights its users.

Those old management reflexes can lead you astray

With the advent of the full Internet of Things and 5G, technological capabilities will only expand. And so will the roster of potential partners able to offer them. BCG recently reported that more than 50% of ecosystems involve partners from five different industries and 90% participants from five or more countries. As technology allows us to redesign our world, this kind of choice makes two things all but certain. First, offerings won’t be delivered in the way they are now. Second, your company is most unlikely to be at the centre.

This means that you should approach customer acquisition, customer retention, new product or service development and customer engagement in a fresh way. Customers expect a seamless suite of services focused around their needs, not the offerings of individual companies that they must piece together themselves.

Many CEOs assume that their job is to create their own ecosystem. But this is a folie de grandeur. The reality is that few companies have the exceptional brand, data, platform-shaping skills, scale or financial assets to become the ‘orchestrator’ of an entire ecosystem. And even firms with significant muscle might want to think twice before grabbing the lead role. We’re talking ecosystems – not ego-systems.

Consider changes in the world of mobility. The rise of Uber, Lyft and Grab has put pressure on traditional car manufacturers, especially at the top of the market. If all customers really want is the convenience of being transported from A to B in a nice car and they don’t really distinguish between brands, what’s the point of being a premium manufacturer?

Both BMW and Mercedes-Benz, traditional arch-rivals in the luxury car segment, saw this threat early. They prepared a mobility service focused on luxury to leverage their investment in upscale vehicles and protect their brand image. Yet, despite their individual clout, they still had to work together to attain the critical mass and visibility necessary to counter Uber – in a move that sent shock waves through their industry.

Leaders must also be prepared merely to manage their ecosystems, not control them. Letting go of control is tough – even for some of today’s celebrated ecosystem orchestrators. Apple’s iPhone only took off when Steve Jobs reluctantly opened up the App Store to outside developers, launching an ecosystem that now numbers more than two million apps and 500,000 publishers.

In the new world, value obeys a different gravity. Above all, it flows to where the information is. Consider the rise of the tech titans. In striking contrast to even the recent past, the chief asset of the most valuable companies in the world – Apple, Alphabet, Amazon, Microsoft and Facebook – is data. By comparison, their tangible assets are meagre. Not coincidentally, each is at the centre of several overlapping ecosystems and also participates in others.

We shouldn’t be surprised if it’s one of these data giants – or another outsider like Uber – that ends up as orchestrator of the emerging mobility ecosystems, rather than a traditional car-maker. Despite a common misapprehension, ecosystems are not supply chains. And there’s no guarantee that even very large companies that sat at the top of their supply chain will go on play the lead role in an ecosystem.

Know your customers and your complementors

The implication of all this? Most firms will participate in ecosystems not as orchestrators but as ‘complementors’ – suppliers of supplementary technologies, brands or capabilities. But even this will be less straightforward than it might appear – and again, not amenable to ‘ego-system’ tactics.

Think about it. You are no longer just competing to win customers directly. Now, you also have to attract the complementors that will augment your product or strategic position. Which value chain you were part of used to be pretty clear. But now complementors, like customers, have many choices – as do you.

Suppose, for example, you have AI expertise to help your phone source the briefcase or handbag you saw and liked and suggest other accessories you’re likely to appreciate and where to buy them at low cost. Do you have better leverage, market access or strategic positioning if you try to sell it to Apple to integrate it in its iOS, or simply develop your own app? 

If you want complementors to create add-on functions, are you in a position to require co-investment, effectively locking in a few trusted partners? Or do you spread the net as wide as possible in a drive for growth? And, if you’re Samsung or Huawei, how do you get AI developers to work better with your phones (or chip-sets), as opposed to working with Apple or Android, which means that intelligence will rest at the OS level, let alone the App?

All this requires much thought. When there are no longer any rules, competition becomes multidimensional and handling it is a skill that must be learned.

Success requires a rigorous reality check

For companies that can learn to navigate these new territories, there are substantial growth opportunities on offer. Fresh cross-boundary collaboration can give firms access to new intellectual property, help firms merge physical and digital channels, and advance new technologies, says a BCG report. It points out that: “Ecosystems can offer multiple players a powerful way to build new revenue streams from products and services that they could not develop and bring to market on their own.”

If you want to end up on the winning side in these new combinations, the first step is to understand where your company best fits. What is your niche? Start by giving yourself a stern reality check.

First, make a sketch of your company at the centre of its existing universe, noting all the elements with which you interact.

Then, set your sketch aside and draw another one centred on the customer – surrounded by all the organisations that can provide the types of services you are concerned with. Who else can act as an intermediator? What other offerings and ecosystems can they bring to bear? You will need to scan a wide horizon. Bear in mind the increasingly likely possibility that competitors may appear from outside your sector as you previously understood it.

From this outside-in perspective, consider how you could make myself more attractive to the customer in this array of possible connections. Who would you need to work with to make that a reality?

Then turn to the roster of complementors. Think about why each of them would want to work with your company (if they would at all). What’s the advantage of your offering? Is there something you can offer that others can’t? How could you leverage that USP?

Answering these questions will be challenging. So will the organisational change that stems from them. But an even greater challenge may be to uproot entrenched thought patterns – in particular, to shift from the assumption that you know what to deliver to the customer, and how, to a humble acknowledgement that the choice is now entirely theirs.

What’s more, whether you carve yourself a niche or are cut out of the equation altogether also depends on how closely you can stay attuned to both customer preferences and to the strengths, weaknesses and opportunities of complementors.

Most ecosystems are driven by data. But thriving in them will depend less on technological expertise than on the irreducibly human qualities of intuition and putting yourself in someone else’s shoes, plus the creativity to turn whatever you find out into a strategy. Forget ego – it’s all about eco.

Michael G Jacobides is the Sir Donald Gordon Professor of Entrepreneurship and Innovation and Professor of Strategy and Entrepreneurship