This is part 6 of our 10-part blog series on Ecosystems. You can find the other blogs in the series here.

The fourth industrial revolution, primarily a technological revolution, created a disruption that is transforming the entire order of production, management, and governance and businesses, small and large, across the world, with an access to digital ‘platforms’ for research, development, marketing, sales, and distribution. These platforms are ousting well-established incumbents faster than ever by improving the quality, speed, or price at which value is delivered. A key trend of this fourth industrial revolution, as World Economic Forum points out, is the development of technology-enabled platforms that combine both demand and supply to disrupt existing industry structures, such as those we see within the “sharing” or “on demand” economy, thereby creating entirely new ways of consuming goods and services in the process.¹
So, what are the drivers of the ecosystem that are evolving at quicker pace than ever?

The Inverted Firm

The changes due to the fourth industrial revolution mandates that organizations adopt a mindset that is different from the traditional mindset where organizations preferred that the final value delivered to the end customer was only through their own products and services. As organizations accept that their primary goal is orchestration of value rather than internal creation of value, and firms are getting inverted, they are becoming more open to accepting an ecosystem model of business that involves multiple stakeholders.²

This fundamental shift in mindset and the ground-breaking concept of the “inverted firm” has been driving the rapid growth of adoption of business ecosystems. The foundation of this concept is the acceptance of the fact that there are more customers, and far more customer needs than one organization can serve through its employees and hence needs the support of a network of partners to satisfy this increase in demand of value.

It is also surprising that it is not just digital behemoths such as Amazon, Facebook, or Google that are at the forefront of this transition. Klöckner, a more than century old steel and metal distributor in Europe and United States, established XOM platform, a marketplace for metals buyers. XOM not only includes Klöckner’s own products, but also lists products from their direct competitors, thereby creating a rapid increase in value for its customers.³

This shows that every industry is inclining towards bring collaborative and co-innovating.

Scaling up Strategically
Resources are limited. As organizations grow, and more organizations jump into the fray, the competition for resources increases. It is at this point that the question for a business shifts from increasing the revenue and profits to increasing the revenue and profits from far lesser assets. Every stakeholder of an organization, from the shareholder to the customer is driven by this goal – how can they move forward by creating more output with lesser input, or in other words, how can the stakeholder get the best value.

An increasingly greater number of organizations are attacking the same business problems and creating solutions that are highly innovative, thus creating the need to become the leader in a faster way is the topmost priority for any organization. Ecosystem-based business models offer greater return for the assets they hold.

For instance, Airbnb became the world’s largest hotel chain without owning a single property. Amazon hardly manufactures any product they sell. Netflix does not create most of the content they stream.

Even the world’s largest encyclopedia, Wikipedia, was able to go past the famous Encyclopedia Britannica because Wikipedia hardly owned any assets and focused on crowd sourcing rather than building information by investing heavily on premium authors and research.

The market also understands the same. In 2015, Uber took only five and half years to surpass the valuation of the century old General Motors.⁴ As of July 2020, Uber is valued at more than USD 57 billion whereas Ford is valued at USD 24 billion.

As we witness such companies breaking through conventional modes of operation to create maximum stakeholder value, an ecosystem model of business is gaining traction.

Access to a Broader Range of Capabilities at a Far Cheaper Cost

Organizations are realizing that going alone to create value to the end stakeholder may not always be the best solution and there is greater value in sharing the pie.

There are organizations today, both large and small, who offer highly specialized services and products. This means that a large player just needs to identify the right product or service that it can leverage to create greater value for the end stakeholder.

For example, Uber didn’t need to create an independent mapping system to monitor its rides. It leverages the power of Google Maps. Uber didn’t need to create a payment mechanism. It leverages multiple payment products to ensure the transaction is complete.

In a digital ecosystem, the rise of APIs and the cloud economy has ensured the cost of leveraging these capabilities are minimal and is continuously reducing.

Easier Methods of Collaboration and Co-Creation

The rise of the API economy has made it possible for service providers to come together and maximize value over the last few years. This period also saw the rise of Service Oriented Architecture across software products and witnessed the emergence of products and services that focused on modularity.

All of the above, coupled with the increased use of a communication network that was able to transfer increasingly larger amounts of data in shorter periods of time meant that collaboration and co-creation was much easier than ever before.

We are also in a stage where the ability to measure the value of most of the transactions are easier than ever before. Organizations have incorporated a feedback loop in most of the transactions, thereby ensuring that the efficacy of most of the transactions are measured.

The above factors have contributed to the blurring of boundaries between organizations and have provided organizations with an easier platform to collaborate and co-create products and services in a way that was not possible a decade back.

Ability to Solve Problems That Are of a Larger Scale or Are Completely New

Ecosystems, by virtue of their structure, can bring together the best of minds and the best of capabilities to help solve problems. The logic here is that the total sum of an ecosystem is larger than the sum of its parts.

Therefore, this confluence of the best minds and the best capabilities can also help in disrupting an industry and creating a new industry. Companies like Amazon, Uber, Airbnb, Netflix, and YouTube did things much different from industries that preceded them. Not only did they disrupted the existing industries, but they were also able to create new industries by addressing the fundamental needs of their customer – like the need for mobility, the need for accommodation with a local experience, the need for customized entertainment, and changing customer perceptions and behavior altogether.