Digital Business Models 2.0

Why should you organize your value creation in networks and partnerships?  Detecon Managing Partner Dr. Volker Rieger and Detecon Senior Consultants Riem Jalajel and Dr. Daniela Drube explain what exactly a business ecosystem is, and what prerequisites must be in place in companies for such ecosystems to exist.

The demands of digitization continue to drive companies in all industries forward. The seemingly endless quantities of data, the “new gold,” are the fertile soil from which new digital business models are constantly springing. Along with the development of these new business models, however, the decisive factors that lead companies to success are also changing – on the market as well as during their organizational implementation in the company. What has long since been familiar in the IT industry is now becoming reality in other industries: strictly linear added value and strictly competitive strategies alone are no longer a guarantee of success.

Better together – the business ecosystem

Just as Microsoft would be unimaginable without its resellers and independent software providers, just as Amazon would not have turned into the giant it is today without the Marketplace, just as “made for iPhone” and the App Store have become almost proverbial, other industries must also organize the generation of their added value into networks and partnerships. New alliances are being hammered out constantly, the boundaries between industries are blurring, and it has become difficult to distinguish one company from another and to see who is competing or cooperating with whom at any given moment.

This dynamic interaction among a number of companies across all traditional industrial borders is called a business ecosystem. Derived from the biological definition of an ecosystem, a business ecosystem is viewed as a dynamic system that constantly renews itself and responds to disruptions and competition (WRI 2000). Just like its counterpart in nature, a business ecosystem must be able at all times to adapt to changes, whether internal or external. In a biological ecosystem, the species do not only compete with one another; for the most part, they live in symbiosis. The stability of an ecosystem is secure only when there is a great diversity of species and organizations as this enhances the ability of every single member of the system to survive and grow. The diversity in the many different organizations within the ecosystem are what provide to the system and, simultaneously, to every single company greater flexibility and a broader range of opportunities to respond and to innovate. Just as the organisms in a biological ecosystem are defined by their genetic material as well as by their relationships to their prey, rivals, and enemies, a company defines itself in a business ecosystem by its competencies and culture as well as by its association with suppliers, competitors, and customers (cf. Rothschild 1990).

Co-evolution: orchestrating new economic structures

Moore was one of the first to examine business ecosystems in academic literature. According to his analyses, the most effective companies develop new business advantages by learning how to lead economic co-evolution through their understanding of the economic and social landscape (the ecosystem) and by seeking out potential innovation centers as partners. The task for every company is to orchestrate under its leadership added-value contributions from a network of potential partners. Executives of successful organizations do not stop with leading their own organizations, but extend this leadership to their current competitors, i.e., their entire industry. They also act as catalysts to accelerate the confluence of disparate business elements into a new economic structure that gives rise to new companies, new non-profit organizations, new rules of competition and cooperation, and new industries. They contribute to the transformation of the entire ecosystem in which they operate (cf. Moore 1996).

Current Detecon study: digital ecosystem as the number one success factor

These conclusions are repeatedly confirmed in business practice. During a Detecon study released in December 2017, we empirically examined the success factors for digital business models. The conclusion: The respondents from a number of different industries viewed the creation of a digital ecosystem as the most important success factor. The build-up of an ecosystem with matching additional services (e.g., apps, accessories) was also regarded as essential for the creation of lock-in effects.

The respondents in the study were furthermore in agreement on the question concerning the conditions required for the build-up of a suitable ecosystem revolving around the digital business models of their own companies. Without adequate sharing of information, interfaces among the players, a clear definition of the company’s own role in the ecosystem, and the establishment of the ecosystem with respect to a specific portfolio that can be supplemented with additional services (music services, financial services, mobility services, ...), the project is doomed.

Best practice: DKV shows how it is done

We experience the success factor business ecosystem in our client projects as well. For example, Detecon is currently accompanying DKV Mobility Services Group on its journey into the digital product world. A service provider in the logistics and transport industry, DKV is dealing with issues such as non-cash payments for services while en route (fueling and highway tolls), reimbursements for VAT, and much more for a clientele currently in excess of 170,000 customers in more than 42 countries. A new department called Digital Solutions has been created for the development and marketing of new digital solutions and has been assigned the task of developing solutions that are as closely aligned as possible with the needs of customers. “Our aim is to make use of digital concepts to help us in the further development of the products we currently sell successfully as well as to develop new, data-based products that will complement our core products,” explained Frank Heimbürger, Head of Digital Solutions of DKV Mobility Services Group. As it develops and markets its digital solutions, DKV relies on the establishment of a broad and strong ecosystem comprising existing partnerships as well as other established market players, niche specialists, and innovative startups. “An ecosystem of strong partners is a key element of our digital strategy. We want to create win-win situations for our partners and for us and together set new standards in the transport industry with our solutions,” said Hendrik Rosenboom, chief digital officer of DKV Mobility Services Group.

Sounds good – can we do that, too?

What conditions must exist within companies if they are to be able to thrive in business ecosystems? The answer is obvious: Openness and flexibility toward the outside world cannot function unless they are practiced internally as well. Rigid structures optimized hierarchically for the achievement of a single purpose cannot survive in a dynamic system in the long run.

Even though there are, of course, examples of companies that developed a flexible corporate culture oriented to small structures decades ago (cf. Packard 1995), most traditional companies find it difficult to implement the required changes. They have been operating too long in rigid, linear added-value chains structured along the lines of theories that, while they were once valuable aids, have become outdated. Such theories range from Taylor (Taylor 1911) to Coase (Coase 1937) to Porter (Porter 1980) and are for the most oriented to military practices that were first utilized at Ford, GM, and GE before being integrated into transferrable organizational formulas. Quantity times price, expressed by market share and cost advantages, have until now frequently dominated strategic discussions.

Fit for the business ecosystem with Company ReBuilding

But how to spark new ways of thinking and new ways of acting? Detecon’s Company ReBuilding approach draws another analogy from biology that is simply the natural extension of the ecosystem idea from the company’s macro-level to its micro-level: the principles of the cell and cell division. Companies can be likened to a collection of associated cells that carry a common corporate culture and common values in their DNA and that are connected with one another by means of clear communication pathways and rules. Each cell is in itself virtually autonomous and organized flexibly in accordance with New Work principles. A control mechanism, either explicit or implicit in its nature, ensures that every single cell remains permanently optimized to produce benefits for customers and employees. Companies stand apart from single cells (commonly known as startups) in that they can, for one, mobilize (orchestrate) common resources within the group and, for another, fulfill a duty of care with respect to the single cells. Unsuccessful cells are not cast aside, but dissolved, and their components are reused somewhere else or for new cells, preventing the loss of knowledge and resources.

Almost all of today’s industries are operating in a platform economy, and companies are becoming incorporated more frequently into a business ecosystem. Only those companies that observe the applicable rules of the game internally as well will survive. The Company ReBuilding approach offers established companies a pathway to change while enabling them to continue to play on their strengths.

It is high time to take this path!

Many thanks for the collaboration on the article to Ivo Leonhardt

 

Bibliography:

Coase, Ronald H (1937): The Nature of the Firm, in: Economica, Vol. 4, No. 16, S. 386-405.

Moore, James F. (1996): The Death of Competition: Leadership and Strategy in the Age of Business Ecosystems, New York: HarperCollins Publishers.

Packard, David (1995): The HP Way: How Bill Hewlett and I Built Our Company, New York: HarperCollins Publishers

Porter, Michael E. (1980): Competitive Strategy, New York: Free Press

Rothschild, Michael L. (1990): Bionomics: Economy as Ecosystem, New York: Henry Holt and Company.

Taylor, Frederick W. (1911): The Principles of Scientific Management, New York, London: Harper & Brothers.

World Resources Institute (2000): A Guide to World Resources 2000-2001: People and Ecosystems: The Fraying Web of Life, Washington: World Resources Institute

Wagner, Marc (2018): Company ReBuilding: Die Zeit ist reif! https://www.xing.com/news/insiders/articles/company-rebuilding-die-zeit-ist-reif-1226468

Wagner, Marc, Vinke, Verena (2018): Company Rebuilding: Shaking up Existing Power Structures

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