Never before have customer needs undergone such rapid change as we see today. In response, companies are increasingly looking for innovative approaches that will lead to the creation of new and unique value propositions. One such approach for reaching this goal that often draws plenty of attention nowadays is the concentration on and design of so-called business ecosystems. A conversation with design thinking expert and author Michael Lewrick.
“Business ecosystems” is a current and trending topic with many multi-layered opinions. What is your understanding of this “buzzword”? And why do you think such systems have to be actively “designed”?
Business ecosystems are being initialized and developed with the aim of providing customers with new and unique offerings. Single, vertically integrated companies are often unable to generate such new value propositions on their own with their limited capabilities, products and services, and customer access. This is the reason why business ecosystem orchestrators are looking for players that are taking part in such systems. Business ecosystems do not arise spontaneously. The involved players do not simply connect magnetically and begin to collaborate in radically new ways. In reality, there must be a precise understanding of who the potential ecosystem partners are, what roles they will play, what skills they will contribute, and how a potential co-competition will be handled.
Business ecosystems offer new ways to realize new market opportunities – but do they also require a new way of thinking? A new mindset?
That is absolutely true. Business ecosystems design opens the door to new growth opportunities that enable companies to become much more meaningful for their customers. The mindset, however, is key to successful design and implementation. In my latest book, Design Thinking for Business Growth, I describe ten mind shifts that are essential for decision-makers and companies if they are to design or participate actively in business ecosystems initiatives. Next to management principles regarding governance, coevolution and desired symbiosis between the business ecosystems players, one of the most important principles is customer centricity. All too often, the ecosystems orchestrators place their own company in the center of considerations instead of the more important customers. Additionally, in many cases it can be observed that the leading company of an ecosystem initiative seeks to control activities in a traditional way rather than orchestrating all the players and allow the necessary degrees of freedom for growth and innovation. Customers and their constantly changing needs are the drivers for the dynamics within a business ecosystem, and are setting the pace of the continuous changes and extensions to the value proposition. Specific functions and experiences are also relevant for customers, as simplicity, automation, and service using the appropriate channel at any given time (opti-channel) are rapidly becoming the expected standard.
Why do European business leaders find it so difficult to think in terms of business ecosystems?
Many decision-makers are too fond of the well-known and established business strategies and models. Business ecosystem initiatives are often perceived as tools for the expansion of existing market space and the sale of familiar products, skills, and business models only. However, this way of thinking has little to do with a successful business ecosystem strategy; it is simply partner management and, at best, a multi-sales strategy that leads to linear growth. My great hope lies in the next generation of leaders who bring with them the mindset and skills to actively accompany such a transformation. More and more of today’s training programs (in-house and external) for product and innovation managers include business ecosystem design as an element of their curriculum for building future skills.
What suggestions do you have? How can companies change and adjust? What are the first steps an established company could take?
If new and complex customer problems are to be solved, it is nowadays often necessary that the various key players are working together within one system. Here, the focus should extend beyond the boundaries of any specific company, existing product, or service. Moreover, it must encompass and especially emphasize customers (along with their current and future needs) and the tasks that must be performed. Anyone who starts thinking about business ecosystem - design with this mindset has already set a good basis for a business ecosystem. Based on a validated value proposition, the right players can be identified, value streams can be defined, benefits for all involved parties can be discussed and a multi-dimensional view of the business models can be carried out. After the design-phase the Minimum Viable Ecosystem (MVE) serves as a validator of the value streams and cooperation for the provision of first services to the customers.
What are the biggest challenges for companies wanting to act as part of business ecosystems and establish the according mindset?
The time and effort required for the mastery of these new skills, mindsets, and technologies with regard to an initialization or participation in a business ecosystem, should not be underestimated. One rule of thumb is that about 20 percent of a company’s core capabilities contribute around 70 percent of the added value. Conversely, that means that up to 20% of a company’s capabilities need to be adapted to exploit the new 70% of first-time value creation in an ecosystem play. The required changes are even more complex than the ones companies have experienced during digital transformation, in no small part because these new capabilities are often lacking both in the own company as well as the other players in the ecosystem. Persuasion, orchestration, and collaboration with other players are part of the governance of business ecosystems. The large variety of required skills and offerings also offers the opportunity to a multitude of players to contribute to the business ecosystems success with their activities. Decision-makers are well advised to actively build business ecosystem capabilities within the company and equip product and innovation managers as well as strategy and business development teams with this new mindset at an early stage.
Thank you very much for this insightful talk.
Michael Lewrick is a design thinking expert, speaker and consultant, and author of the international bestseller The Design Thinking Playbook. His latest book is entitled Business Ecosystem Design. He is also a visiting professor at various universities on the topics of design thinking and business ecosystems. He also spoke on the same topic in our podcast Rebuilding Companies.