Ecosystem Innovation from the CEO’s Perspective
To survive in the digital, fast-changing and often disruptive environment, companies need to acquire new skills and new working practices. They need to innovate constantly, and it is vital that they understand the new driving parameters of innovation and how to achieve them effectively. CEOs will play a leading role in this process: they have to define their company’s strategic positioning, and it is up to them to own the innovation process and to decide what cooperation and partnerships to forge.
This article by Holger Greif, Peter Kasahara and Christoph Birkholz can be found in our book “Ecosystem Innovation”. Free download here.
There is no doubt about it: innovation is both an external and an internal process. New business ecosystems are evolving rapidly, around the globe and across industries, thereby pushing the boundaries of traditional sectors and value chains. Amazon, Alibaba, Apple, Facebook, Ping An, Rakuten Ichiba and Tencent are well-known ecosystems, some of these companies being the biggest animal in their respective habitat. digitalswitzerland, with its network of incumbents and startups driving Switzerland’s digitalisation, is an ecosystem on its own and blurs the traditional borders of an association and an ecosystem. Ecosystems involve multiple stakeholders such as incumbents, startups, infrastructure providers, collaboration platforms and communities, incubators and accelerators, but also capital providers and regulators – and ultimately customers. The boundaries of an ecosystem are fluid and new participants are replacing old ones on a regular basis.
Ecosystems are defined by the interplay of their members, the dynamics of their infrastructure and how they embrace new technologies – with a special focus on insights, trust and resilience as well as providing access to value for the customer. These goals are only feasible by combining various value chains and/or online and offline experiences. Ecosystems inherently cannot be controlled. However, CEOs can have a driving force and generate structures and processes that enable ecosystem innovation.
Ecosystems drive ever shorter innovation cycles, based on the interaction with competitors, partners and customers. In many situations, the ecosystem itself is the only opportunity to customise products, based on data from various providers. What would an entertainment streaming platform be without insights into preferences and personalised content? A company that wants to thrive in the future will undoubtedly have to implant ecosystem innovation in its DNA. We understand ecosystem innovation as a process that takes place within a network of related stakeholders. What are the key requirements for ecosystem innovation, what skills are needed, what organisational processes and structures have to be set up? How can CEOs lead their organisation and their teams to actually live ecosystem innovation?
1 Why you should focus on ecosystem innovation
- Stay relevant in the market
- Have access to relevant/important talents
Innovation is driven by two main factors: changing customer needs and demands and the availability of talent. In the future, these two drivers can only be captured by ecosystem innovation.
1.1 Your customers are in the driving seat
Previously, markets and market conditions were determined and dominated by large players, the market leaders. Market-access costs were high, in some industries extortionate. New participants were struggling to enter the market place, and if they managed to do so, it took them years to gain the smallest of market shares. Today’s exponential development of disruptive technologies changed customer expectations, and new platforms are turning market dynamics upside down. In some industries, new players may enter the market in no time and rapidly leave often inflexible incumbents behind. Technologies and platforms drive competition and lend new impulses to innovation, accelerated by new market players. If large players with often rigid organisational structures want to react to changing customers’ requirements in a timely manner, they need to set up fast and agile structures and processes as well as interact with startups, intra-teams and tech companies. In other words, they need to nurse an effective ecosystem.
Digital transformation is all about customers; however, their needs and requirements are changing fast. Their interactions with other customers and suppliers on a broad array of communication media and the emergence of new trends and beliefs in communities inevitably lead to a perpetual transformation of these requirements. Customers demand seamless services and experiences from whoever can provide them. They have countless touchpoints with many players, the times of bi-directional relationships between a company and its customers are gone. Customers move in an ecosystem with various interlinked actors – if they buy a
product online, not only the supplier but also the payment
service provider and the customer’s bank are involved.
Customers demand tailored offerings and services:
- personalisation of products and services
- enhanced user experience across all touchpoints with your company
- transparency regarding production process, products and services
Their benchmark is not your company’s service. They expect from your company the same or better performance than the most satisfying performance they have experienced from any other company. Such companies must not necessarily be competitors or even be in your line of work or products. It is their performance to meet the customers’ needs that counts and the satisfaction your customers got out of it.
Customers are well connected, their networks are extensive, there are no boundaries, they are always one step ahead and represent an ecosystem of its own. To keep up with their requirements – or ideally be able to anticipate them – a company should adopt a broader perspective and venture into the ecosystem.
1.2 The battle for talent
Talent is key for innovation. However, talents are becoming less loyal to one single company. In the rat race for the workforce of the future, new skillsets apply and the requirements are changing in the blink of an eye. Skilled talents are strongly sought after by competitors and startups. A company has to be able to pinpoint the talents that are available in-house and identify those employees that will have to be recruited externally. It has to closely watch demographic change and the permanent need for upscaling. It has to enable lifelong learning and upskilling. To attract and retain the necessary talents, new life and work plans, as well as an innovation-friendly work environment, must be on offer; monetary compensation is only one of many incentives. The employees of the future are not looking for a job for life, they want flexible work models and are seeking freelance opportunities.
However, even the largest innovation leaders such as Google or Amazon might not be able to attract and have all the talents and resources they need to maintain their edge in-house. To gain access to new systems and technologies, they enter partnerships or – more often than not – simply acquire promising competitors and startups.
CEOs have to lead ecosystem innovation by inspiring their teams to look beyond the internal organisation. They have to push and incentivize the active curating of the relevant innovation ecosystems so that their teams become experienced ecosystem innovators and are able to decide which steps need to be taken in-house, what should be addressed in the ecosystem – and what strategic partnerships on all levels of the value chain should perhaps be considered. To enable ecosystem innovation, it is crucial to think in terms of the ecosystem.
2 How to foster ecosystem innovation
- Decide on your company’s role in the ecosystem
- Enter partnerships
- Adopt new mindset and install the necessary structures
- Set acupuncture points
To foster and practice ecosystem innovation, CEOsfirst and foremost have to reach a deep understanding of their future ecosystem and the role they want to play in it. They also have to choose the intensity of their engagement in the respective role. With regards to leadership, new approaches are needed. As you cannot control the ecosystem, a controlling style of leadership is most likely not the right one. Agile work models and trust in the teams are both a challenge and an opportunity for your organisation.
2.1 Define the way you act in the ecosystem
The three fundamental roles of companies in any ecosystem are:
Participators join an ecosystem by contributing and offering their own products and services to the end customer.
Orchestrators take an active role in influencing the ecosystem. They build platforms and marketplaces that are open to third-party product and service providers, they integrate third party offerings and manage the interactions between the ecosystem participants. Orchestrators are often the owners of the platform technology, and they fuel the ecosystem in parallel. However, an ecosystem is much more than a technology platform. It is not only the marketplace where customers purchase services such as Uber rides, but it is also a system of many different organisations and individuals interacting with each other in co-opetition – sometimes competing, sometimes supporting each other, sometimes both
at the same time.
Suppliers take a prominent role and offer their services to parties engaged within the ecosystem, thereby enabling new, innovative business models (B2B, B2B2C). With respect to the definition of the role of an orchestrator, however, it is pivotal to understand that an ecosystem does not have a central actor that orchestrates and controls the system. The ecosystem itself is “centric” in the sense that different actors co-exist and nurture each other within the system. Yet, a company can engage in influencing the ecosystem and take a leading role in it. Keep in mind that to describe a complex, multi-faceted, interactive and dynamic business environment, the term ecosystem was borrowed from nature – where there are no central or core orchestrators but actors that both compete and depend on each other.
2.2 Innovating equals co-operating
In other words, what role does a CEO want to play? In order to determine the company’s strategic alignment, CEOs take stock of their in-house resources, analyse key partnerships, the community, competitors, suppliers, customers, and other stakeholders; they identify the key players of the ecosystem and the companies capable of disruption, and understand the specific sources that drive innovation in the ecosystem. CEOs must consider whether the big incumbents – competitors, tech players and other third parties – have an interest to fill gaps in the ecosystem or not. If they do so, the company must evaluate if it might not make more sense to be a participator at a big platform or an orchestrator or supplier in a niche market. As companies can no longer offer everything end-to-end, they have to gradually find and establish their new role in the ecosystem. This gives rise to strategic questions with respect to how CEOs can open up their company and allow third-party innovation.
Ecosystems by definition build on partnerships. No partnerships, no ecosystem. The strategic goal a company wants to achieve by means of a partnership – such as an improved product offering or gaining access to partner technologies or networks – defines its structure. The structures may range from referrals and white-label usage to process outsourcing and product development to collaboration and integration.
2.3 Mindset and structures are key
Ecosystem innovation is a mindset and breaks the boundaries of closed innovation. To unleash ecosystem innovation, which happens bottom-up, it must be supported from the top. A specific mindset and innovation fostering structures have to be installed. From silo-thinking to cross-divisional teams. From in-house to the ecosystem. From external partnerships to outsourcing and M&As. Questions such as “How much freedom in decision-making is granted to any team member?” and “How do we pull idea generation, experimenting, piloting and execution of new projects inside our company?” all have to be answered. At the same time, revenue expectations and a corresponding time frame will have to be discussed. To introduce the mindset and culture that enable true innovation, CEOs should make sure that the people involved in the process of ecosystem innovation are granted autonomy.
The respective teams must be encouraged to reach out and take an outsider’s perspective – even if this collides with traditional company views and values. Offering new working models will attract and retain the best talents. In hiring and developing talent, diverse backgrounds and perspectives should be taken into account. CEOs and their innovation workforce can seek external input through learning journeys, cross-sectoral dialogues, customer quests and the participation in ecosystem innovation programmes. Structured programmes and processes as well as venturing programmes, help to implement the culture of ecosystem innovation in your company.
Last but not least, all decisions should be taken from a long-term perspective – but with a clear short-term action and outcome orientation. Innovation in general and ecosystem innovation in particular, should not be subject to short-term pressures and hasty bottom-line considerations. Rather think of intermediate goals and KPIs with regard to the ecosystem innovation process.
As your company’s CEO, you are the person who drives an innovative environment by enabling and participating in your ecosystem’s innovation activities. Learn from those who understand new technologies. Reverse coaching is the name of the game. Get all the resources and technologies you can. Make sure that your company runs smoothly today. But you also have to set the course that will bring success tomorrow, be aware of that. Ecosystem innovation will help you achieve these goals.
About the authors
Dr. Holger Greif is the responsible Partner for PwC’s commitment in digitalswitzerland and Kickstart. He is also a board member of the Zurich-based F10 FinTech Incubator and Accelerator for startups. Besides his PhD in physics, Holger has more than twenty years of consulting experience. In his current role, he launched PwC’s Experience Center in Zurich, where he co-creates and implements new approaches with clients to seize the opportunities of digitalisation. Holger’s philosophy is based on trust, honesty and authenticity, helping the clients to think in new dimensions and focusing on their customers and staff. The objective is an impactful, value-adding transformation based on an understanding of what digitalisation really is all about – which is more than just applying new technologies, but building trust in unfamiliar approaches, structures and ecosystems.
Peter Kasahara is the Managing Partner of PwC Digital and Customer Transformation and a digital “Jedi” from tip to toe. Peter and his team are supporting clients across all industries in their digital transformation and re-imagination having a strong focus on creating trust in a digitised world. Peter became a trusted advisor and challenger for many large national and multi-national companies and organisations from strategy and innovation to transformation and execution. Peter holds an MBA from St. Gallen University in Switzerland, is a proud graduate from Yale School of Management and alumnus of IMD Business School in Lausanne.