How to build and manage an Ecosystem for Innovation
- 2. Why…? • …had Amazon Web Services (AWS) a dominant market share of 32% in Cloud Services in 2018? • .. Did London Stock Exchange offer US$ 27B for Refinitiv, formerly part of Thomson Reuters • …has the UK based newspaper The Guardian been able to build a successful global news website (#10 on the eBiz|MBA rank ahead of WSJ and BBC)? • …was Rolls Royce able to build up quickly a supply of skilled employees when it launched its manufacturing site in Singapore in 2010
- 3. Why…? • … was the Cambridge headquartered producer of risc processors ARM sold for US$ 31 B to Softbank in 2016, when it had only slightly more than 4000 employees worldwide? • …has the share price of the French PLM software producer Dassault Systemes been multiplied by more than 7 times between 2005 and 2019? • …can Alibaba Group have annual revenues in 2018 of about US$800,000 per employee, while Amazon does US$ 360,000 per employee? • …did Elliott Management and Veritas Capital offer in October 2018 US$5.7 B for athenahealth, a US provider of network- enabled services for healthcare and point-of- care mobile apps?
- 4. (partially) because they innovated through ecosystems When confronted with a high degree of uncertainty, ecosystems may well be the best form of organization to innovate and create new value and improve efficiency in value delivery
- 5. Current organisational forms are not universal or perennial – a bit of theory The currently prevailing model of the multi- divisional firm is a creation of the late 19th century, in order to cope with the growing scale of industrial firms in the pursuit of economies of scale But many other forms existed and continue to exist: professional partnerships, temporary associations, bureaucracies, markets, etc. Simplifying one can say that organisations exist to solve the issue of specialisation and coordination (or differentiation and integration) Firms exist to avoid high transaction cost of coordination; markets are supposed to create an optimal production and allocation
- 7. Organisations need to change in the 21st century We are more and more moving to a knowledge intensive economy. Contrary to other production factors knowledge gains in value the more it is used. It is like a public good. Agility and speed have become more important for an organisation than stability, predictability and control ICT now enables instantaneous worldwide coordination and interaction The nature of work is changing due to automation, AI, machine learning In an aging society the composition of the workforce is changing Customer activism and government regulation will render customer focus more important
- 8. Some expected changes Generally speaking, I expect organisations to become more focused, smaller and adopt more matrix structures. That does not imply that less people will work for a brand or a product portfolio, but they may not be in the same organisation Jobs will be redefined and recomposed in bite sizes. As a consequence we will see more platform based organisations and human clouds (e.g. the gig economy) An older form of organisation, the community, may make its comeback
- 9. Remember the three fundamental ways of solving the problem of specialisation and coordination Markets Hierarchies Coordination mechanism Price Authority Disadvantage Transaction costs Production and social allocation Coping with information as production factor Trade off between production and social allocation Ineffective for non-routine tasks
- 10. Remember the three fundamental ways of solving the problem of specialisation and coordination Markets Hybrids e.g. communities Hierarchies Coordination mechanism Price Trust Authority Disadvantage Transaction costs Stability & sustainability Production and social allocation Coping with information as production factor Trade off between production and social allocation Enlarges the scope of knowledge generation and sharing Ineffective for non- routine tasks
- 11. A special form of communities: ecosystems for innovation • “A business ecosystem is a network of organisations and individuals that co- evolve their capabilities and roles and align their investments so as to create additional value and/or improve efficiency” • (Moore, J.H., “Predators and Prey: A New Ecology of Competition”, Harvard Business Review, May/June, 1993.)
- 12. The Basic Idea of Ecosystem Advantage is Simple Creating a Network of Partners That Help Make Your Organisation to be more Successful Apple was a late convert: Apps: >2 million Apps in Q4 2018 170 billion downloads since 2010 “Apple lives in an ecosystem. It needs help from partners. And it needs to help other partners” Steve Jobs 2007
- 13. “ “ And it has become a popular concept: In annual reports, the word “ecosystem” appears 13 times more than 15 years ago! (BCG Henderson Institute, 2019)
- 14. The Benefits of an Ecosystem • Joint Learning by bringing partners together with diverse capabilities • Enabling the ecosystem leader to take leadership in Innovation • Fostering flexibility thus enabling partners to adjust their activities quickly to changing circumstances
- 17. Our case studies • Alibaba Taobao • Thomson Reuters (Refinitiv) • The Guardian • Amazon Cloud Services (AWS) • Rolls Royce Singapore • Athenahealth (Veritas Capital) • ARM (Softbank) • Dassault Systemes • … and many other smaller case examples
- 18. The Challenge Our organisations exist in a context, and operate in one or multiple ecosystems -- perhaps unconsciously. The challenge is how to optimise the use of these ecosystem to innovate and create and deliver value in the face of increasing volatility, complexity and uncertainty
- 19. Overview of the discussion topics How to create value with an ecosystem Kick-starting the ecosystem Growing the ecosystem Stimulating innovation and learning in the ecosystem Enhancing productivity Monetising value in the ecosystem Leading the ecosystem Evolving the ecosystem and spawning new ecosystems
- 20. In discovering value you as the ecosystem leader should: Promote Promote value discovery by initiatives that improve the quality of interactions between partners Attract Attract a more diverse set of partners into the ecosystem Search Search for the value created by network effects in the ecosystem Stimulate Stimulate new connections to discover new sources of value to be delivered by the ecosystem Mindset Have a fundamentally different mindset: focus on maximising the overall value created by the ecosystem, as opposed to maximising your own share of it Cast Cast your eyes on what is going on outside your company, starting with potential customers or users
- 21. Six Steps to Kick-Starting the Development of your Ecosystem Demonstrate Demonstrate that you really believe in the ecosystem Co-opt Co-opt foundation customers Develop and share Develop and share a roadmap for the ecosystem Communicate Communicate the value of joining Shrink Shrink the entry barriers Look Look for partners that bring their own ecosystems
- 22. Attracting new Partners Explain in simple terms the value proposition to prospective partners. Clarify the expectations of partners and help equip appropriate partners to fulfil different roles Lower the barriers to joining the ecosystem
- 23. Designing interfaces for improved productivity • Write contracts that focus on high level outcome, leave room for flexibility, are perceived to be fair across the ecosystem and are clear about dispute resolution • Create portals to smooth the path of data exchange between the ecosystem leader, its partners and among its partners, without trying to control all these exchanges. • Develop a set of systems and organisational solutions to manage the exchange of complex know-how • Codify some of the complex and tacit knowledge so that it can be exchanged more efficiently • Encourage mechanisms that help build trust between partners • Agree on governance standards within the ecosystem • Penalise bad behaviour
- 24. How to stimulate Learning and Innovation in the Ecosystem • Enable the ecosystem to draw in new knowledge from outside which it can use to fuel innovation • Leverage the knowledge generated in the ecosystem to enhance your own innovation activities • Encourage learning and innovation among partners in the ecosystem • Orchestrate the accumulation of “ecosystem goods” that can benefit the whole ecosystem without disadvantaging individual participants • Strike the right balance between sharing knowledge with the ecosystem to help it innovate and keeping some knowledge proprietary to underpin your own and profitability.
- 25. Monetising Value • Your strategy must ensure that the ecosystem delivers more value to the end user than any company can single-handedly provide. • You need to identify a keystone: some element of or activity in the ecosystem that you can own and control, and on which the ecosystem’s ability to create value for customers depends. • You must set up the right tollgates, in the right places, through which you can collect a share of the customer value that the ecosystem creates
- 26. Designing Tollgates • Choose the best mix of: • License fees – simple to implement, but may discourage partners from joining • Royalties and transaction fees – embody a powerful proposition: “the more you earn, the more I earn” but partners may worry that the total costs may become huge over time • Selling value-added services – helps to keep down costs of joining, but dissuades partners from deepening their involvement in ways that could be valuable • Using data and knowledge to create new profit streams – mostly pure upside, except for potential competition with partners
- 27. Elements of the mind-Set of a successful ecosystem CEO Belief that there is an opportunity to create new value for potential customers A deep conviction that no single company can unlock the value opportunity acting alone A focus on attracting, engaging and motivating people who are not necessarily their employees A relentless focus on growing the size of the overall ecosystem pie
- 28. Key Skills required by the Head of an Ecosystem Listening or the capacity to listen, both to those within your own organisation and to weak external signals and messages from partners Adapting or encouraging and nudging the ecosystem to respond flexibly to uncertainty Influencing or deploying your soft power that comes from vision, credibility and respect and evidence to bolster your case with partners Collaboration or getting things done through a community of peers
- 29. Going Beyond the Limitations of Classic Collaborative Leadership • Lead beyond your organisation • Build consensus and ensure that a wide group of peers take ownership of most of the decisions you will make • Be an active networker, becoming a trusted source of knowledge and information that others in the ecosystem haven’t yet spotted • Embrace diversity and dilemmas, while at the same time develop an overarching identity and goal for the ecosystem