Last month, we introduced our 2021 Business Trends report based on in-depth conversations with top CSOs in our Outthinker Strategy Network. We will be expanding on one of these trends every week with the intention of supporting your organization’s strategy for the next year and beyond. This is our sixth installment.
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Businesses today are encountering a different competitive landscape than we have seen in the past. In the 1980s, an overview of business competition would have shown cutthroat companies building value for their own brand and trying to steal the most market share from other organizations. Now, organizations are joining together, through partnerships or M&A, to form ecosystems that extend their capabilities, better serve their customers, and often fulfill a greater purpose.
Last week, as part of a two-day event organized by the Business Ecosystem Alliance with Thinkers50, the Haier Model Research Institute, Outthinker, and others, I met with a panel of chief strategy officers to discuss the implications of ecosystems on business strategy and explore how their formation will carry us forward into the future.
I had the good fortune to moderate this inspiring and thought-provoking discussion, which will air on March 25 [sign up here]. Panelists included Tess Caputo (Zoetis), Linda Hill (Harvard Business School), Claus Jensen (Memorial Sloan Kettering Cancer Center), Ed Knapp (American Tower Corporation), and Kalina Nikolova (Verizon Media), experts in ecosystem developments who shared their cross-industry perspectives on the need for ecosystems and where they envision this trend heading in the future.
Why are ecosystems forming?
Other trends mentioned in our 2021 Trends Report point to the growing need for the development of strategic ecosystems that satisfy customer desires or answer global challenges. Autonomous connected devices, driven by 5G and the Internet of Things (IoT), demand a greater need for machines and devices, likely from different companies, to communicate and collaborate with each other. Proximity, the movement of the delivery of value closer to the end user in time and location, requires a seamless experience to minimize steps in the supply chain and delivery methods. The “Be Good” movement provides a purpose that unites companies, brands, and customers behind a greater cause.
I spoke with Caputo, head of corporate strategy at Zoetis, the world’s largest animal health company, on the reasoning behind the formation of ecosystems. She explained that when consumers today purchase beef from the grocery store, they are more concerned with where the cow came from, how it was treated, and the medications it received throughout its life. In the beef industry, a cow will typically change ownership between three or four farmers in different states before the beef is packaged for consumption. With every exchange it becomes more difficult to track information along a fragmented supply chain.
In animal health, which draws parallels to other industries, farmers are dealing with this by leveraging the power of blockchain to create a unique ID for each animal. The blockchain will track a cow’s medical history, nutrition information, and owner information from birth, similar to a car’s vehicle history report.
With this information, farmers, ranchers, dairy producers, nutritionists, and veterinarians can all gain insight into an animal’s welfare. Consumers are reassured to know where their meat comes from, and food safety outbreaks can be better traced and controlled. What is now a network of fragmented data will become, in the near future, an integrated and transparent source of insights on a single platform.
How do we identify strategic partnerships?
Through M&A or alliances, unpredictable and sometimes highly unlikely partnerships are forming. Hill, a Harvard Business School professor and co-founder of Paradox Strategies, explained the bottom line for identifying strategic partnerships for an organization. It is about starting with the customer and asking the question:
With whom do we need to partner to make sure we can deliver value to whom we serve?
Innovation and agile development are not concepts limited to what goes on inside your organization. The competitive landscape today and in the future involves aligning with the right ecosystems to move quickly to serve your customers or solve a problem. Hill offered ANA Airlines in Japan as an example.
When considering new growth opportunities, two engineers from ANA decided to team together to build physical avatars that will allow humans to transport our consciousness, knowledge, and skills to another location. After this past year, the benefits of this technology are abundant—children could have visited grandparents during Covid lockdowns; doctors and nurses could have safely attended to operating rooms.
ANA Avatar, winner of XPrize, already has an avatar in space. Similar ecosystem networks, between investors, entrepreneurs, and government regulators, are banding together to take humans to new frontiers. It may traditionally operate as an airline, but ANA’s logistics capabilities and global infrastructure have allowed it to strategically power an avatar production company that is poised to change the world.
What role should we play in an ecosystem?
Historically, every company wanted to be the center of their own ecosystem, but the current competitive environment is weaving a new web of options. Hierarchical partnerships, similar to the reduction of hierarchical working relationships under the Future of Work, are being pushed aside in favor of collaborative alliances. Jensen, chief digital officer and chief technology officer of Memorial Sloan Kettering Cancer Center, presented a hub-and-spoke model of larger ecosystems.
The first question to ask is, “Why is my company here?” based on “Whom do we serve?” Jensen explained that Memorial Sloan Kettering is a hospital for cancer patients, but the reason for its establishment and continued existence is to find a cure for cancer. The hospital is a part of this purpose, but there is also research, education, and advice that can be delivered to people dealing with what has been a confusing and devastating disease. Jensen tells us that understanding your organization’s purpose will indicate whether you play better as a hub or a spoke in an ecosystem.
Remember that these ecosystems are dynamic structures that will be constantly evolving, so you may act as a hub and spoke for different services. Jensen gave us the example of Amazon, which is both a company offering its own products and services as well as a marketplace orchestrating transactions for other companies.
To build and determine your place in an ecosystem, once you have established your “Why”, Jensen suggests asking the following questions:
- Who are my suppliers? Are a key supplier of products or materials for other organizations, or do you rely on supplies from others?
- Who are my amplifiers? These are other organizations or individuals who extend your reach and impact. Are you an amplifier of another brand’s message (and if so, in what way?) or does some other company amplify yours?
- Who are my third-party vendors? Does it better serve my business to become an orchestrator of vendors?
Not every company is ready or willing to become the center of a hub-and-spoke model. Consider your strengths, like ANA Airlines provided logistics and global infrastructure to spin off ANA Avatar. You may have powerful marketing capabilities, a well-developed platform with the ability to scale, or a superior customer experience for amplifiers to share.
To learn more about the power of ecosystems and where your business fits in, join us on March 24 & 25 for an insightful Business Ecosystem Alliance event.