Is Your Organization Ready to Become an Ecosystem Driver?

Opinion

[This article is co-authored by Stephanie Woerner.]

Dominating business-to-consumer sales, Amazon seems ready to take over the world of business-to-business too. In its first year, Amazon Business generated $1 billion in sales. However, there is still room for competition. It’s not yet an ecosystem driver in B2B, although the longer it takes for other business supply companies to catch up, the harder it will be to beat Amazon.

This is a good example of the importance of learning how to thrive in a digital ecosystem. Companies must learn to become ecosystem drivers – even if only for a subset of their customers – in order to survive. These drivers have become the destination for their spaces like Amazon with consumer products, Aetna with healthcare needs, and USAA for life events. So what does it take to be a successful ecosystem driver?

The first step is to assess your current business model. Are you an omnichannel business with an integrated value chain? Are you a supplier that sells through another company? Or are you a modular producer that adapts to other companies’ ecosystems? Most businesses today generate revenue with one or more of these models.

The next step is to consider how you will transition to an ecosystem driver model. A distinguishing feature of this model is that they are the destination in their space for a subset of their customers. And these companies have deep knowledge of their customers through data. They understand why customers are buying certain goods and services. This means knowing the customers’ names and addresses, demographics, IP addresses, purchase histories both with your company and other companies, and life events like weddings and births or (for businesses) upcoming mergers. To be a great ecosystem driver you will need to:

– Become the destination in your space
– Add complementary and possibly competitor products
– Ensure great customer experience
– Collect and manage customer data from all interactions
– Match customer needs with providers
– Extract “rents”

You can see how this works at Amazon. The value for consumers stems from having different vendors selling products on one branded platform with good customer service. For vendors, the value comes from reaching a broader audience and receiving fast feedback, enabling companies to improve their offerings.

Another example is Aetna, which provides an Amazon-like experience for healthcare, providing tips to help members lead healthier lives and tools to find doctors and estimate the cost of medical procedures. It also makes recommendations and appointments when a family member is sick.

If you haven’t yet made this transition, you’re not alone. In a study conducted at MIT Sloan’s Center for Information Systems Research (CISR), we found that only 12 percent of large companies (with revenues more than $1 billion) are ecosystem drivers. The majority are suppliers (46 percent), omnichannel (24 percent), and modular producers (18 percent). In contrast, the smaller companies we studied have begun to focus on gaining knowledge of their customers and becoming more networked. As a result, 31 percent are ecosystem drivers.

These smaller and younger companies often have fewer legacy systems and are more willing to take a risk with their business models than larger organizations. They also are able to collect and analyze data – and act on that data – to better understand their customers. Their efforts are paying off, as our study shows that companies with ecosystem drivers as their primary model have 41 percent higher profit margins and revenue growth in their industries.

Moving toward an ecosystem driver model is becoming a matter of survival for all companies. If you don’t succeed as an ecosystem driver, then you will probably be a modular producer – and only the first few modular producers really make money in any industry.

While that may seem like a high bar, it doesn’t need to be unattainable. Many ecosystem drivers serve as a destination for a subset of customers, and follow a modular producer model for others – similar to Amazon and Amazon Business.

If you think your company might be ready to move to an ecosystem driver model, ask yourself the following questions. It’s time to take the leap when the answers are yes.

– Do you have great information about your customers’ goals and “life events”?
– Do you amplify the customer voice inside the company?
– Do you have evidence-based decision making?
– Do you have integrated multi-product and channel customer experience?
– Are you the first choice in your space?
– Are you great at partnerships and acquisitions?
– Do you create service-enabled interfaces that others can use?
– Is compliance a competence?

Peter Weill is chairman and senior research scientist at MIT Sloan’s Center for Information Systems Research (CISR), and Stephanie Woerner is a research scientist at MIT CISR. Their article, “Thriving in an Increasingly Digital Ecosystem,” was published in the MIT Sloan Management Review and they have a forthcoming book on this topic. Follow @MIT_CISR

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