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July 30, 2018
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How the Digital Ecosystem Will Revolutionize Business

How the Digital Ecosystem Will Revolutionize Business

It’s 2018, and business is changing before our eyes. Products and services are morphing and merging, drawing on each other to create a superior customer experience. This is the new world of the digital ecosystem. Companies that don’t adapt to this reality risk missing out on an exciting new way of doing business.

Traditional, Supply-Focused Models

For decades, businesses used traditional, supply-focused models. They designed their products or services for maximum profit and did their best to match them to customer demand. They sold to customers through an ecosystem of channel partners, but they were still in control of the entire value chain. Businesses focused on how they could make the supply chain profitable.

A traditional, physical ecosystem is limited. It relies heavily on the company’s internal resources, which makes it hard to innovate and expand a product or service with new, groundbreaking features. Product and service options are inflexible, and the customer is at the mercy of a rigid supply chain. This is the world that Henry Ford described in 1909 when he said, “Any customer can have a car painted any color that he wants so long as it is black.”

These legacy operating models also limit customer interaction. When the customer steps outside of the traditional conversation, putting down the phone or walking out of the store, the company no longer has access to them.

The world is full of artifacts from this era, and the car sales process is one of them. Manufacturers rarely see the customer after they sell the vehicle. The grocery store loyalty card is another. It was a brave attempt to better understand how customers behave when they visit the store and make purchases. It helped companies create special deals that might appeal to shoppers. But this relationship ends at the checkout. The best the grocery store can do to keep in touch is mail flyers to the customer’s home. These outdated models are inherently limited in their ability to maintain customer relationships.

Digital Ecosystems

Digital ecosystems change this model. Instead of a linear path between supplier and customer, businesses can use new technology platforms to create business opportunities. Multiple providers contribute services online that enhance the customer’s daily life. A digital ecosystem also generates value for the whole group by providing companies with more ways to improve their service propositions. It allows them to interact with the customer indirectly at many different points in their daily lives.

Customers interact with a digital ecosystem by visiting gateway services based on their activity. Tomorrow’s connected car will be one of them, becoming an endpoint and a vehicle for other services. Other gateways could include online, Airbnb-style services for vacation planning, or even a digital assistant–equipped home speaker system. These gateway services will serve the customer’s primary need, but will also provide other services that can piggyback on the initial interaction.

Gateway services access these extra functions via application programming interfaces (APIs) that other companies use to expose their services. From online travel-booking businesses to music streaming providers, most companies will offer additional data or processing services this way. For example, a grocery store might partner with a mobile recipe app to offer customers tailored discounts when they’re meal-planning on their phone or tablet for the week.

Digital ecosystems also give companies more value in the form of customer data. A grocery store might now have access to a wealth of extra information, gathered by others and made available in aggregated, anonymized form. It can use this information in its analytics to gain new insights into the decisions that customers make. This means that aggregated search data from the meal-planning app could tell the grocery store information about which products appeal to people in a particular geographic area, for example.

How to Take Advantage of Digital Ecosystems

Taking advantage of digital ecosystems requires transformational thinking. Instead of relying on rigid supply chains that don’t necessarily serve the customer’s need, the world is shifting to a demand-focused model. Customers served by these digital ecosystems want their products or services immediately, in the forms and quantities that make sense for them. Companies that don’t keep up will fail.

This shift could destroy entire product categories, rebuilding new services in their wake. In the next few years, mobility as a service will begin to replace sales of specific vehicle types. KPMG believes that sedan sales will drop from the current 5.4 million units per year to 2.1 million by 2030. That’s because mobility as a service will enable customers to call autonomous cars via digital services on their smartphones, or perhaps by talking to their digital speakers.

Instead of paying tens of thousands for a car that sits in the driveway 90 percent of the time, customers will be able to order whichever car they like to suit their journey, whenever they want. Perhaps they will trigger that request when they pay for their items in line at the grocery store. The auto industry will be forced to move to a demand-focused model rather than a supply-driven one to cope with this change.

Companies embracing digital ecosystems must change their people, their processes, and their technology to align themselves with a new way of doing business. The rewards will be a change in the pace of innovation as they draw on a constellation of new services from ecosystem partners. The first step is learning not to fight the network effect, but to become part of it.

For more information about how a big data strategy can help revolutionize your business, read this report.

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