How companies are coping with evolving business ecosystems in a digital world

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Throughout the world, businesses operate in a broader network of related organizations offering products and services that serve customer needs.  A business ecosystem is where a network of inter-linked companies encompassing various stakeholders provides value based offerings through their products and services to the customers.

It has been observed that there is a shift in the rules of business as we transit from a classic manufacturing economy to digital based economy. Earlier, companies viewed each other as rivals battling for market share and profitability. But today, as organizations operate in a complex business environment, it is imperative that rather than battle, it is essential to effectively collaborate and work together innovatively to survive and overcome the challenges of globalization.

Therefore, today’s modern organization which is deeply embedded in a complex ecosystem is a dynamic network of inter-dependent companies which network and depend on each other for success. There is constant change in the business environment which is very swift and inevitable. Understanding a company’s space in its ecosystem can help predict its market strengths, challenges and its struggle for continued existence and sustenance during change. Such complex symbiotic relationships and networks signify the business ecosystems of today.

Networking which leverages the competencies of the individual aspects of the business ecosystem helps to create and channelize value among constituents in the network. Business networks traverse industries and include widespread activities as a whole in terms of physical, intellectual and financial assets providing a powerful insight with analogies to a biological ecosystem. Notwithstanding the fact therefore companies rely on networking in order to achieve sustained market success.

Networking Essentials
Similar to the biological ecosystem, the business ecosystem includes a network of organizations including suppliers, distributors, competitors, customers, government wherein all stakeholders are rightfully involved. Thereby this turns into a relationship in which businesses need to be flexible and adaptable in a highly unpredictable business environment.

Although business networking has been in existence for hundreds of years, it was loosely networked. But with increasing business challenges in the second half of the 20th century, due to the development of social, economic, political and technological systems coupled with business networking requirements witnessed the evolution of a much improvised business ecosystem.

With increasing opportunities, the value businesses can provide has been exponentially increasing, although businesses are operating in a swift, volatile, complex and dynamic world. For a flourishing business activity, it is important to understand the ecosystem in which it exists. Any successful organization in this digital age must ensure to make the most of its network due to complexity of the value chain requiring expertise and specialization. Customer needs and demands are constantly changing leading to the evolution of the neo business ecosystem.

The essence of the business ecosystem is that the networks between companies need to be analysed from a higher conceptual level and not just from an individual organization perspective. Irrespective of an organisation’s individual strengths or weaknesses, all organisations networked in a business ecosystem share the success or failure in unison. For example, if a business ecosystem of water treatment technology has to succeed, the components involved viz. pumps, membranes, filters, pipes, services etc. all have to be well networked and must contribute to the overall success.

Amidst all this we must not undervalue the contribution of niche players as they tend to be focused on contributing robust innovation in their specialized area for the entire ecosystem. Niche players provide a healthy and strong contribution to a larger value proposition by collaborating amongst themselves in a natural ecosystem.

For example, one niche player may be an expert in design or research and development and another in export and distribution. Collaborations facilitate to leverage lucrative economic benefits to all stakeholder companies. Such collaborations are amplified by key providers all the way through technology, processes, intellectual property management, sharing of skill sets and sustaining relations.

As a result, a successful business ecosystem elevates smaller and specialized business ventures to fill up their internal capability gaps through facilitating partnership within the ecosystem and encourages meeting their primary goals. The strength of the ecosystem manifests with diversity and extent of the constituents. However, effective participation in the ecosystem calls for a alteration in behaviour. The individual perspective is changed into a team perspective. Team dynamics facilitate immensely in the business ecosystem as the world moves towards new business models.

Emerging Trends & Configurations
Quite frequently business activities are focused on the market scenario, competition, product or service positioning to compete for the market share ignoring the business environment ultimately cascading to collapse of the business.  Consequently, the focal point should be to capitalize on the distinguishing proficiencies of the overall business ecosystem in order to achieve sustainable competitive advantage.

Also, it is equally important to significantly determine and examine decisive components, understand their roles, build and manage them by co-evolving and co-operating with other affiliates in the ecosystem. In order for a Business Ecosystem to achieve success, its must align strategies, models and processes to fit the innovative approach of making all stakeholders succeed. For example, a cement company can truly succeed only when there is sustained construction activity undertaken by the builders and these builders get their revenue only when banks provide housing loan to the prospective buyers.

Traditionally, business models viewed that competitive advantage was based on product excellence, in-house R & D in technology, optimum management of scarce resources and supply chains. Such strategies worked successfully before the explosion of the virtual digital domain. But now with the networking, software to manage the supply chain, global connectivity to render customer service and effective feedback mechanisms has made traditional business models totally ineffective.

Thereby, the transformational shift from classic manufacturing to digital based economy has both positive and negative consequences. The challenges are plenty. Nevertheless, these challenges can be addressed through new innovative tools that are being simultaneously developed within the ecosystem. Robust changes in technology, customer expectations or new business models require companies to innovate business models that satisfy the customers and keep costs low. Therefore, in the modern business ecosystem, for companies to be successful, companies need to re-invent new business models which constantly add customer value.

In order to be distinctive, a new business model needs to make the most of new markets or technologies, discover and provide to under-served or never served segments, substantiate to the client in opposition to discounted competitors and help to fill up gaps in suitable employment. With transition in the business ecosystem to digital based economy, the changes in user behaviour and the connected value that is provided by the organizations are momentous and direct to a significant power shift.

In this scenario, the two major factors impacting the success of a company in the ecosystem are a) whether or not the company as part of the ecosystem implements a business model that recognises a change in what is ardently valued by the customer and b) how well the company can use this ecosystem to make the most of innovation and scale-up to international levels in the business environment.

The innovators in the business ecosystem are introducing new business models that leverage existing infrastructure resourcefully. For example, instead of printed books, the books have moved to the web. Wikipedia replaces the encyclopaedia and the all time favourite magazines are replaced by the RSS feeds.

Therefore with this shift, the print publishers are losing supremacy which is gained by the content creators on the web. The new business value is linked to delivering a distinct consumer experience. Moreover, mobile technology and social networking have transformed the entire ecosystem. Similarly, with the growth of an amazing virtual world, a drastic shift has been taking place in gaming entertainment media.
 
In a highly unpredictable and cut-throat environment, it is extremely difficult for a company to protect the customer base by raising the barriers to entry. So also, the value proposition of a traditional offering does not guarantee success. With innovation, as new business models are emerging in the business ecosystem, it’s a challenge for a company to choose the precise offering. Even so, petite and nimble companies using disruptive innovation business models can collaborate and co-create value to compete effectively against their bigger competitors in the industry and be victorious.
 
Prof. Deepak Shyam, Assistant Professor, Welingkar Institute of Management (WeSchool), Bangalore

[This article has been reproduced with permission from Welingkar Institute of Management Development and Research (WeSchool)]