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To Build A Thriving Business, It Will Take an Ecosystem

Companies have an exceedingly difficult time developing and bringing them to market on their own deploying traditional supply-chain relationships. They need a structure for commercial collaboration that is broader and more adaptive. Hence the ecosystem.

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A well-known proverb holds that “it takes a village to raise a child.” Similarly, in the year ahead it will require an entire ecosystem or value web of cross-industry partners to create a thriving business. This is the fifth key paradigm shift described in our book Beyond Great out of the seven described in this article series

The notion of an “ecosystem” has received a great deal of buzz in the business press. What is it exactly? My BCG colleagues and I define ecosystems as “a group of firms that collaborate to deliver a digitally enabled, integrated customer value proposition.” You know those connected, data-rich products and services described in previous articles in this series? Companies have an exceedingly difficult time developing and bringing them to market on their own deploying traditional supply-chain relationships. They need a structure for commercial collaboration that is broader and more adaptive. Hence the ecosystem.

Traditional supply-chain relationships were bilateral. General Motors contracted with its supplier, who in turn contracted with its supplier, and on and on down the chain. Ecosystems are comprised of multi-lateral relationships. In our book, we develop the example of Volkswagen’s digital value web, in which sixty partners across six industries work together to contribute software, a digitized drivetrain, Internet of Things capability, and much else to Volkswagen’s connected car offering. These various partners work together as an “interconnected network,” with Volkswagen at the center as orchestrator.

Other features clearly distinguish ecosystems from traditional supply chain relationships. Ecosystems tend to span five or more geographies and industries. Unlike traditional supply chain relationships, ecosystem partnerships consist of a range of different structures, ranging from long-term joint ventures, minority investments, short-term contracts, acquisitions, and more. Finally, eco-systems to work needs more equitable sharing of value among all participants, which is often not the philosophy in many supply chains.

Consider the value network created by Ant Financial for its Alipay platform. Alipay has partnered with numerous players across industries and geographies, including hotels, local merchants, banks and more. It has partnered with local electronic payment operators as well as airlines and hospitals. On occasion, it has made strategic investments, but it has also created “alliance relationships” and forged joint ventures. By 2019, the company’s ecosystem afforded it a presence in over 50 markets and allowed it to become the world’s most valuable fintech. 

Not all ecosystems are created equal. Our analysis turned up three distinct kinds. Some ecosystems arise because a company seeks to digitize an existing physical offering. A manufacturer like Dyson might not have the digital expertise it needs to create a connected product, so it verges well outside its industry to obtain it. In addition to such “digitizer” ecosystems, “platform” ecosystems bring together different players onto a single platform to attract consumers. Airbnb is a good example here, partnering with numerous property owners to create a network that yields benefits for all participants. “Super-platforms” are platforms of platforms which bring together not just a wide range of participants but also other platforms too, like Amazon’s Alexa.

Building up a successful ecosystem is by no means easy. As our research and client experience suggests, you’ll want to take your time and proceed strategically. To build a successful one will force you to change some of your deeply held beliefs so that you can move from the traditional closed supply chains with tight control to a more open eco-system (e.g. from completely open like Wikipedia to a semi-open like a platform or e-marketplace) with a flexible, win-win partnership mind-set.

Although it might feel tempting to continue to go it alone (with the more familiar kinds of relationships), ecosystems will become more and more important for adaptability and innovation, and value creation. Now is the time to either join one. Or orchestrate one yourself.

Boardroom comments from Rama Bijapurkar, Independent Director and Prof IIM-A

India is the land of Lilliput (fictional tiny people), a large economy created by hordes of small consumers and small suppliers. Building scale, the traditional way to serve the mass market requires deep pockets and lots of patience, which is why most companies have preferred serving the upper income alone.  Ecosystem and platform businesses are perfect solutions to crack this market and being enthusiastically embraced. They enable aggregation of small suppliers and small customers, effectively providing scale benefits with lower investments and costs. Think food delivery businesses with delivery plus cloud kitchens and restaurants or Oyo rooms or Ola cabs ecosystems.

India also has poor soft and hard infrastructure, so businesses have to build the metaphorical road before they can walk down it. This makes several potential businesses unviable despite high demand, because very few have the money or competencies to do this alone, but ecosystems do. For example, telemedicine for rural areas needs medical equipment, mobile truck clinics, connectivity, training of paramedics and connected doctors. 

Partnerships are increasingly becoming the way forward in different industries now. Telecom plus OTT, payment companies plus spend and reward partners, banks plus fintechs.

Boards and businesses are scrambling to learn this new game.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.

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Beyond Great Business Ecosystems magazine 4 July 2021

Arindam Bhattacharya

Managing Director and Senior Partner & Co-Author Beyond Great

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