Digital Ecosystem: Strategies and Principles of Ecosystem
Several organizations may feel that the channels, platforms, and techniques they have relied on for years are burning up quicker than ever as COVID-19 accelerates customers’ migration to digital, with consumers of all ages going online for everything from food to vehicles to doctor appointments.
The epidemic has amplified a prior trend in which many conventional businesses attempted to build or participate in digital ecosystems but failed. Users may fulfill a range of cross-sectoral demands in one integrated experience by using these ecosystems, which are made up of interconnected sets of services. Ascending tech businesses created today’s dominating ecosystems by using hyperscale platforms to compete with, disintermediate, and frequently replace conventional rivals’ services by controlling consumer interfaces and control points like search, advertising, and messaging.
This power is recognized by the market. The majority of the corporations with the greatest market capitalizations in the world are IT companies that get a significant portion of their income from the digital ecosystems they built. Many of these digital ecosystems are business-to-consumer (B2C) ventures. Amazon, for example, combines e-commerce, cloud computing, shipping, and consumer electronics, while China’s Tencent offers social networking, gaming, banking, and cloud computing services.
The goal of this article is to look at how digital ecosystems affect competitive strategy. Digital ecosystems are ecosystems in which digital connection drives interdependencies. They’re the result of several technical factors that combine to create a network of data receivers with whom businesses may exchange data and co-create value. A company must have productsFootnote1 that produce and distribute data within this network of data receivers in order to profit from digital ecosystems.
They will be able to compete not only with products but also with the data that their products create. Digital ecosystems, in general, have an impact on how things are created, marketed, and consumed. These characteristics of digital ecosystems, in contrast to conventional ideas of digital ecosystems, more clearly exhibit repercussions for competitive strategy. The notion of digital ecosystems is developed in this essay, as well as some of its ramifications for competitive strategy.
Parallelism Between Industries and Digital Ecosystem
To grasp what makes digital ecosystems unique and how they could affect competitive strategy, it’s helpful to first recognize certain similarities between the generic construct of ecosystems based on conventional business interdependencies and industries and the digital ecosystems. Interdependencies, which epitomize the current construct of digital ecosystems, are not a new concept for businesses, therefore parallels are to be expected. Indeed, competing in industries demands managing a plethora of interdependencies, which companies have historically done through their value chains.
A manufacturing company, for example, must handle multiple interdependencies throughout its supply chain, production and assembly divisions, R&D, marketing, and distribution and after-sales support networks. In the process of soliciting deposits and selling loans, a service firm such as a bank maintains interdependencies across several branches in a similar way. The exact manner in which companies do so distinguish their competitive positions.
Firms may expand their value chain interdependencies even more by enlisting alliance partners to help with certain aspects of their operations or sales. Firms must also deal with interdependencies with their industry competitors since each of their competitive activities stimulates competitive replies.
These organizations manipulate their value chain operations such as marketing and sales to develop better multi-market interaction, or coordinate other activities such as plant locations, product releases, or pricing in ways that minimize competitive reprisal to dissuade rivalry and sustain profitability. An ecosystem, in this context, is an industry. Its fundamental interdependencies aid our comprehension of competitive strategy. It also serves as a benchmark for evaluating how this knowledge might be improved via the perspective of digital ecosystems.
How To Create an Ecosystem Strategy?
1. Identify The Ecosystems in Which Your Company Must Play a Part:
Analyze your present business — what you do, who your partners and customers are, and where the dangers and opportunities are arising. Create visual models to demonstrate how your activities fit within current and future digital ecosystems. These models should identify the stakeholders you’re working with, the value propositions they offer, and the value exchanges of commodities, services, money, credits, information, and intangibles.
2. Determine Which Roles You Should Play in Relevant Ecosystems:
Create ecosystem models, incorporating current ecosystems and where you fit in, as well as ecosystems where you can have a huge impact. Define the value propositions, key interactions, ecosystem players, situations that might hasten change, and roadblocks.
A corporation must have or construct, a platform that causes massive network effects to be an ecosystem orchestrator. This necessitates a focus on a key interaction that draws stakeholders to your platform in the first place. The engagement for Uber, for example, was between passengers seeking drivers. Your business can then provide more interactions.
Similarly, a corporation can expand and monetize its products as a modular producer without the added hurdles of organizing the interactions of third parties as well. Such monetization might involve developing data services based on market or client knowledge. It has the ability to transform those insights into consumable goods.
Furthermore, businesses must build a solid application programming interface strategy so that ecosystem stakeholders may connect to its data automatically via the internet. A corporation, for example, can act as an orchestrator in one ecosystem and as a producer in another.
3. Determine How to Monetize Your Role in The Ecosystem:
Examine your key competencies to see if you have any assets that you haven’t been able to monetize in the past but could now in an ecosystem. Consider how you might be able to add value to such assets. An ecosystem modeling exercise enables a company to describe how it derives value from its engagement.
Principles of Ecosystem
Many businesses utilize common frameworks to select which new income streams to explore while pursuing ecosystem strategies. As a result, they only look at the apparent connections. However, in the ever-evolving world of Ecosystem 2.0, a comprehensive strategy driven by the following three ideas is required:
1. Use Strategic Mapping to Detect Control Points:
A top-down view of the possible breadth of influence, as well as a nuanced strategy meant to nurture diverse activities by the many stakeholders involved in an ecosystem, are the foundations of holistic ecosystem strategies. Whether you’re organizing or participating in an ecosystem, the first step is to map the horizontal and vertical dimensions of the vast ecosystem in which you operate or want to participate against your present firm. The map will highlight “control spots”, or locations on the map where the organization might have the most effect on the value chain by installing or recruiting the proper skills.
The map will also show you how far away your company is from these checkpoints. Companies that are getting closer to a control point may want to create an ecosystem around it. If they find themselves further away, they may try to get closer or opt to join ecosystems built by more natural owners of a specific control point.
In general, control points are the optimum places to install capabilities to alleviate pain points and streamline the path of customers’ trips. Mastery of one or more of these control points lays the groundwork for horizontal and vertical expansions that may catapult your organization into new markets, new customer and business partner groups, and even new enterprises.
2. Lock-In Impact with Precise Resources:
Mapping is a method of forcing control points to be prioritized. Companies that wish to get benefit from the control points they’ve identified must first build and recruit the necessary competencies.
To do so, businesses may need to rethink and modify current capabilities, or they may need to seek out partners who can fill in the gaps. Advanced digital skills such as AI, functional know-how such as digital marketing, high-level supply-chain, and logistics skills, and innovation capabilities to boost the value of products and services are all components that incumbents frequently lack. As previously said, IT firms have made it simpler than ever for incumbents to locate suitable partners to supply digital expertise.
Making the whole greater than the sum of its parts by articulating the right vision for where the market is going, combined with building a platform that lowers investment costs for other companies by lowering interaction costs and boosting learning, helps to make the whole greater than the sum of its parts and promotes distributed innovation.
Ecosystems and the organizations that makeup they enhance their reach and influence by locking in impact with suitable capabilities at key control points. Successful firms concentrate on control points with laser-like precision and intentionality in order to align ecosystems exactly with what customers want and expect — and to recruit the partners they need to do so.
3. Design The Organization for Numerous Customers:
Successful ecosystems are built to generate market gains and value for all stakeholders. That is, without a doubt, what investors want to see. Companies that want to orchestrate or participate in ecosystems, on the other hand, must balance a complex set of challenges both within and outside their own walls. Internally, they need to figure out the best organizational structure.
Companies frequently make mistakes in this area by going to extremes. One extreme takes an organizational silo approach, such as handling the whole housing ecosystem through the department or function that deals with mortgages. Capabilities will be insufficient in this paradigm, making scaling problematic.
At the opposite end of the spectrum, organizations utilize the venture capital model to acquire firms that they believe are needed, such as technology platform providers, and then fight to integrate the purchase with their existing competencies, go-to-market strategies, and data systems. The best model will be in the center, adjusted to both internal and external circumstances.
Future research might uncover, explore, and examine further implications of digital ecosystems for competitive strategy. One such issue concerns the mechanisms involved in ecological “digitization.” Firms undoubtedly have a role in digitizing value chains and establishing industrial ecosystems. In this case, the procedure entails digitizing existing ecosystems (or value chain interdependencies). Interdependencies exist outside of existing value chains in consumption ecosystems, on the other hand.
These ecosystems develop as a result of “connected” entities and assets that add to the data created as a by-product. An individual company’s involvement in digitization is significantly smaller; rather, it benefits from a growing network of similar businesses formed by greater technical forces. As a result, analyzing the digitalization of consuming ecosystems may necessitate a different strategy than studying the digitization of production ecosystems.
Data, rather than goods, plays a significant role in value generation in digital ecosystems, which has consequences for organizational architecture. Part of the aims of what is commonly referred to as digital transformation are new organizational structures that enable conventional enterprises to compete effectively in digital ecosystems.