Traditional business ecosystems were quite static. Partners stayed partners, competitors stayed competitors and your customers were the same as who they were yesterday. In a digital world, however, business ecosystems are in continuous flux. Your supplier becomes your competitor. You become your customer’s competitor. You partner with companies that you never heard of a month ago.
There are at least three patterns causing business ecosystems to undergo continuous change. First, digitalization often changes the business model from transactional to continuous, eg subscription based. As a result, the company providing the product wants to own the customer relationship as it simplifies the continuous delivery of value through, among others, software updates. This puts tension on the relationship with the intermediate ecosystem partners, such as wholesalers, resellers and installers, as the product company is now jumping over them to reach the end customer.
Second, digitalization is about software, data and artificial intelligence. When a new technology is introduced, companies often start to collaborate with partners they would never have connected with even a quarter earlier. These partners usually are smaller specialists with dedicated knowledge and expertise and the partnerships initially tend to be concerned with educating the company on the new technology. Later, the company has to decide if the new technology is sufficiently critical to build up expertise inside the organization or if a strategic partnership suffices. Still, new partners disrupt the existing ecosystem as the new technology also affects the existing products, subsystems and functionalities.
Third, although the saying “data is the new oil” is missing the point, data is an increasingly valuable artifact that can be monetized in unique ways. Especially when data is monetized with a secondary customer base, this can be quite disruptive to existing ecosystems for several reasons. First, the existing products are suddenly instrumented to collect data that has no relevance for the primary customer base, only for the secondary one. Second, the funds from the secondary customer base can be used to subsidize products to the primary one, causing a positive feedback cycle where an increasing primary customer base results in more data and hence more revenue from the secondary one, allowing for more subsidizing, and so on.
The danger in these ecosystem transformations is that relationships with existing partners as well as new ones get disrupted along the way as each company is looking out for its own interests rather than the ecosystem as a whole. Due to the disruption, the ecosystem may fall apart and everyone loses. The uncomfortable truth is that while the new business ecosystem is taking shape, the old one still generates the vast majority of the revenue. Getting cut out from that ecosystem will mean the end of business for most companies out there. Consequently, you risk ending up in a situation where all ecosystem partners are keeping each other hostage and the ecosystem grows stale.
So, the key challenge is to achieve ambidexterity between maintaining the relations in the current ecosystem, developing the new ecosystem and helping your partners to co-evolve with you to new roles in the new ecosystem to avoid obsolescence in the old ecosystem and avoiding unacceptable disruption in the transition. The most effective way to do this is by continuously engaging with your ecosystem. This allows you to detect changes early on and to see which partners are the most open to working with you on transitioning. Of course, it also allows you to detect when others are intending to change in a way that’s detrimental to you. You can use this input to identify when the time is right for you to reposition in your ecosystem.
Although business ecosystems have always evolved, digitalization accelerates the pace of change with orders of magnitude. To remain successful, you have to continuously engage with your ecosystem to identify challenges and changes, maintain positive relationships with partners, develop new relationships where necessary and identify when the time is right to transition from one state to the next in the ecosystem. As the saying goes, the only constant is change and the only companies that don’t change are dead ones. And who wants to go the way of the dinosaurs?