The business ecosystem is now an integral part of organizations, with enterprises putting themselves in a better position to drive innovation and efficiency and create better customer value. With businesses looking for innovative ways to expand, innovate, disrupt and compete, the business ecosystems create a sea of opportunities to address challenges.
What is a business ecosystem?
Often, people are confused about how a business ecosystem differs from other forms of an organization. We can define an ecosystem as an arrangement of two or more business entities or members that collaborate to create and share creative value with customers. Each business ecosystem has various participants representing their brand in the value proposition, and at least one of them acts as an orchestrator.
Each ecosystem has a well-defined value proposition and a group of actors with different roles like orchestrator, producer, and supplier.
There are a few characteristics of business ecosystems that makes them stand out from other governance models:
In a business ecosystem, the business designs its offerings independently, yet they function together. In some cases, customers can choose the components they require and make combinations of their choosing. For example, a smartphone comes with pre-installed apps, but a customer can choose their favorites from the app store.
The contribution of each participant in a business ecosystem is customizable and specific which makes things mutually compatible. This also means that participants need investments specific to the ecosystem. For example, a game development company must generate code compatible with a distinctive console.
Though business ecosystems do not have a comprehensive hierarchy like supply chains or vertically integrated models, they facilitate coordination through standards, rules, or processes. On a digital platform, certain Application Programming Interfaces (APIs) generally regulate them.
The concept of an ecosystem is not new. We can trace the business ecosystem model back to medieval times when merchants would come together to exchange goods at a common marketplace. In today’s business ecosystems, technology is the backbone of all activities.
The main need for organizations is to create a business environment where everything is digital, efficient, and agile. They constantly look to find new revenue streams, boost customer engagement, and generate higher returns. Many c-level executives find business ecosystems a necessity, to facilitate collaboration and establish a connection with their customers. This business model helps enterprises drive growth as they focus on establishing partnerships and shifting non-core capabilities outside of the enterprise.
Examples of business ecosystems
To understand business ecosystems better, let’s have a look at a few prime examples. Streaming companies like Netflix, Hulu, and Disney+ are examples of an ecosystem where the primary goal of the business is providing entertainment content. The streaming company, which is the orchestrator, acts as a platform to host the content and collaborates with other participants like studios, content makers, cloud service providers, Internet Service Providers (ISPs), and banks to handle payments.
Other similar examples of business ecosystems are Uber, Google, Amazon, SAP, etc.
Why do business ecosystems matter?
Like ‘digital’, ‘ecosystem’ is now a buzzword in business circles. More and more highly-valued companies are now migrating to the ecosystem model in hopes of smoothening their business process and generating more profitability and customer value. Presently, companies are in favor of the partnership framework, facilitating collaborative measures to bring more business value than individual efforts. The need for innovation, the rapidly evolving business world, and the democratization of capital via private markets makes the growth of an enterprise more difficult than before. However, with the advent of cloud computing, the roadblock of partnering and collaborative effort posed by traditional technologies is gone for good.
As for the customers, they interact with the ecosystem effortlessly, exploring and paying for various products and services, thus benefiting from the value provided by the partnering businesses. The ecosystem enriches the enterprise, leveraging quality service offerings, richer customer interactions, and a higher level of automation.
What is a business ecosystem strategy?
Similar to traditional frameworks, ecosystem strategies consist of choices and decision-making. However, an ecosystem strategy includes a broader sphere of influence and has the dynamic intent and action of the participants as the base.
Let’s see what makes business ecosystems successful:
Technology companies build an ecosystem in their own space by integrating the abilities and support of their other tech partners. Gradually, they’re able to expand their wings, growing their business through the aggregation of powers and value brought by other industry partners. For example, a tech company focusing on financial solutions uses its ecosystem to reach out to other tech companies to develop bespoke solutions for their new consumers in education, healthcare, and more.
Innovate and disrupt
Creating or entering an ecosystem gives businesses a unique opportunity to drive innovation and lead disruption. The collaborative effort of a new partner often acts as the fuel for driving innovation further. An ecosystem leads to more industrial disruption than an individual-solicited effort does. As for the disruptor, they gain more customer insight that comes in handy to drive more business value.
To remain relevant in the market, a business must continuously be inventive and seek new ways to collaborate with partners. Businesses face threats from rival ecosystems and must act preemptively to stay in the game. A competitive spirit is what keeps an enterprise always ahead.
The types of business ecosystem models
We can divide business ecosystem models into several categories that drive growth and create value for common customers.
The symbiotic model
The symbiotic ecosystem model is very prominent among businesses, where the technology platform company is usually the dominant orchestrator and shapes value around its core platform. The other participating partners tend to align themselves with the primary activities of the technology platform company. For example, tech giants like Microsoft and SAP provide an enterprise software platform that helps their partners generate business value and revenue from the solution. Meanwhile, the technology partners benefit from this partnership in different ways:
- By enhancing their platform with additional functions and capabilities that are otherwise expensive to maintain.
- By widening their market by acquiring more sellers introduced by the participating businesses.
- By increasing the success rate of the platform deployment and achieving business goals.
The marketplace model
Dating back to the medieval age, the marketplace is the original business ecosystem model. Here, the marketplace operator is the orchestrator, and the coordinating brands, who are the other participating members, pay the operator a fee. With all brands present in the marketplace, the customer gets a convenient shopping experience due to the supply system of the market. The app stores of Apple or Google and Amazon’s eCommerce platforms are primary examples of the market ecosystem model. Uber is another example of this model, with the cab drivers acting as the participating vendors.
The scaling model
In the scaling ecosystem model, all participants generally belong to the same domain and technically are competitors. However, they understand the benefits of working together and agree upon some rules, eventually sharing the rewards. Typically, the participating partners of this ecosystem are all orchestrators and collectively raise funds for each action.
The scaling model is also an age-old strategy, often exercised by defensive forces. A great example of this model is NATO (North Atlantic Treaty Organization).
The assertive model
The assertive model is usually a treaty between two or a few organizations who generally don’t compete with each other, which has a portion of an overall customer value proposition more when combined together than their individual parts. The model is popular among companies that gain specific and valuable data from their primary business activities.
The cooperative model
The cooperative model brings together competitors who cooperate together, creating higher customer value. The difference between the cooperative model and the scaling model is the latter takes a value proposition and scales it further while the cooperative model combines two or more value propositions to create a new one.
The value chain model
The value chain sits between suppliers and end customers. The participants of the value chain ecosystem manage their pieces, but without an orchestrator, the model finds it hard to optimize its efficiency. In this model, a naturally occurring group of related businesses forms the ecosystem, helping all participating partners gain value. The participants (the suppliers and the consumers) can achieve better efficiency with fewer risks.
The integrator model
The integrator model involves a customized set of ecosystem participants who create an integrated set of end-to-end solutions for the customers. The ecosystem integrator rapidly builds and integrates the solution to create a tailored solution along with a convenient contract. All the participants have their respective brand propositions, but the end customer can choose to contract with the orchestrator and its subset of participating partners.
More enterprises are opting for a business ecosystem due to the strategy’s success in driving growth and innovation, creating business value and new services while providing excellent customer experiences. Need to know more about how ecosystems help your business drive growth and scale faster? Let’s take a step further.
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