June 4, 2018

On the Air

WHY NAVIGATING DIGITAL ECOSYSTEMS IS AN ART, NOT A SCIENCE

Published on Wired Brand Lab for Accenture

OR A FEW YEARS, analysts have blamed this period of dynamic change on “digital disruption.” Digital technology is a big part of this change. But it’s merely a vehicle for getting closer to the consumer.

In 2017, few companies and industries are not digitized. Consumers use apps to buy coffee, hail rides, and book hotels. They watch commercial-free streaming services and read books on tablets. They buy online instead of visiting their local store.

In a break from the past, companies are increasingly integrating their core business functionalities with third parties and their platforms, building a digital environment to grow revenue. The most savvy companies use these ecosystems to establish more personal, informed relationships with consumers and to fill a gap in their offerings.

Relying on such ecosystems can help companies get closer to consumers: There’s a virtuous cycle in which customer data informs the way these companies market their products and services, so that consumers will see ads and promotions that are targeted to their interests. But sometimes an ecosystem can provide less-direct access to customers. A brand that uses a third-party messaging platform to support sales and customer service, for instance, is not in complete control of the consumer experience. A retailer that uses a third-party delivery service also gives up some control.Y

Despite such drawbacks, data shows that there are tangible advantages to using digital ecosystems. Companies that draw 50 percent or more of their revenue from digital ecosystems saw growth and profits 27 to 32 percent higher than average, per a 2015 MIT Sloan Management Review report.

Established companies can transition to such digital ecosystems by modernizing their existing IT systems and optimizing them for agility.Partnerships are necessary, even with rivals.

An unfathomably complex environment 

There’s been a digital ecosystem revolution in IT, too. Thanks to cloud computing, companies no longer need their own data centers. Business units can choose off-the-shelf solutions without consulting their IT departments—a move that can cause headaches for IT and result in siloed data. This is paired with artificial intelligence starting to automate many business functions, including customer service.

These digital ecosystems have created an unfathomably complex business environment. Organizations can now take advantage of this disruption to create new lines of business while keeping the customer experience front and center.

Years ago, retailers controlled the in-store experience. Now they also need to control the brand’s experience on mobile, desktop, social media, and IoT devices— not to mention how they communicate with their customers through these channels. And these interfaces keep evolving. For instance, more and more companies now use AI-based bots to talk to consumers, an option that wasn’t available just two years ago. But how (and where) that bot interaction occurs must be top-of-mind for future-forward businesses.

These ecosystems aren’t just about reaching the consumer. They’re also about creating new sources of growth and new value chains. Thanks to ecosystems, some companies have created new businesses out of providing application programming interfaces (APIs) to other companies. Emerging digital ecosystems for the connected home, precision agriculture, and connected health also offer opportunities to launch new lines of business and new value chains. But successful integration relies on a deep understanding of context. A company engaging in a digital ecosystem might be likened to TV advertisers, who can control their message but need to carefully choose the TV shows and networks they advertise against to most effectively reach a viewer.

Companies that provide platforms in digital ecosystems, like social networks and leaders in the sharing economy, have a natural advantage. But that’s not the only ecosystem strategy. For instance, a retailer might not see a lot of value in building its own delivery service, but joining with an existing one can unlock tremendous value. Similarly, an auto company might not find it feasible to build a ride-sharing service from scratch, but signing on with an existing one can be a mutually beneficial arrangement. The basis for any successful partnership is that it allows both companies to meet their overall goals. Ideally, it should provide a tactical benefit in the short term. The partnership should also be based on the idea that both companies can grow together in the long term, and should easily be able to integrate services. That process is much more seamless if one partner provides an API. 

Obstacles to becoming an ecosystem driver 

At the time of the MIT survey, only 12 percent of companies surveyed were ecosystem drivers. But 31percent of smaller companies were. That’s because smaller, often newer companies aren’t shackled by legacy systems and silos. They are also often closer to the consumer. Think of the startup that began as an app. That company is likely to have granular data about its customers, which it can use to smartly scale. That’s why some 70 percent of “unicorn” startups are platform companies. 

Larger companies don’t have it as easy. One major problem is the lack of a central repository for their data. Instead the data is dispersed throughout the company as a result of acquisitions, mergers, and foreign units, among other factors. Business units often compound the problem by buying their own off-the-shelf tech solutions, which collect data in their own way. 

The other roadblock to moving in this direction is a go-it-alone mentality, which breeds resistance to joining existing ecosystems. Companies sometimes assume that owning the customer relationship means owning the ecosystem too. 

Driving solo is no longer an option, though. “Twenty years ago you were building small software systems that may have done one thing and operated in isolation,” says Jason LaVoie, director of technical solutions and technical operations at SessionM, a loyalty marketing automation platform. “Now you have platform as a service, infrastructure as a service, security as a service, and all of these systems are starting to integrate.”

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