Business ecosystems come of age Part of the Business Trends series Business ecosystems come of age Contents Contents Preface | 2 Introduction Business ecosystems come of age | 3 Blurring boundaries, uncharted frontiers | 17 Wicked opportunities | 31 Regulating ecosystems | 43 Supply chains and value webs | 55 The new calculus of corporate portfolios | 67 The power of platforms | 79 Minimum viable transformation | 91 Beyond design thinking | 103 About the authors | 114 Acknowledgements | 117 1 Business ecosystems come of age Preface WELCOME to Deloitte’s latest Business Trends report. The purpose of these reports is straightforward: to provide business leaders with fresh and well-informed perspectives on important dynamics that are disrupting “business as usual.” While change is nothing new, the speed, scale, and impact of a variety of fundamental shifts—in globalization, technology, and societal expectations—are undeniably transforming the business landscape today. We conduct and share this research as part of our commitment to serve as guides and “wayfinders” to our clients as they navigate their new terrain and shape the future. In periods of disruption, uncertainty and challenge are inevitable. However, these times often also uncover new opportunities. Addressing both risks and potential rewards takes confidence, in decisions and actions alike, and in the solid analysis that should precede them. Uncertainty should not be denied or ignored—instead, it should be mastered, and grounded in both a deep understand- ing of the changes afoot and their potential consequences. In this report, we focus on a critically important transition that has considerable implications for society, the economy, and businesses everywhere: the continued rise of “business ecosystems.” Driven particularly by digitization, connectivity, and new modes of collaboration, important core structures of the industrial economy are quickly and dramatically reshaping, as many long-standing boundaries blur and dissolve. The “art of the possible” is expanding—enabling new approaches to serious societal challenges, and new, often platform-based, business models. In Business ecosystems come of age we explore in detail what lies behind these changes, where they might take us, the new options—and threats—they present to many incumbents, and the stra- tegic and operational shifts they enable and demand. We sincerely hope that these perspectives are helpful as you undertake your journey into a fast-changing future. Mike Canning Eamonn Kelly National managing director Chief marketing officer Strategy & Operations Strategy & Operations Deloitte Consulting LLP Deloitte Consulting LLP 2 Introduction Introduction Business ecosystems come of age By Eamonn Kelly N September 2014, the Chinese online com- world of commerce. As he wrote in a 1993 Imerce company Alibaba Group conducted its Harvard Business Review article: initial public offering (IPO)—the largest ever Successful businesses are those that evolve in history. This event attracted considerable rapidly and effectively. Yet innovative busi- media attention, some of it naturally com- nesses can’t evolve in a vacuum. They must menting on the changing balance of the global attract resources of all sorts, drawing in economy and the growing impact of digitiza- capital, partners, suppliers, and customers to create cooperative networks. I sug- tion.1 Largely overlooked in the commentary, gest that a company be viewed not as a however, was another important signpost to member of a single industry but as part of a the future. In the prospectus it compiled to business ecosystem that crosses a variety of describe its vision, philosophy, and growth industries. In a business ecosystem, com- strategy, Alibaba used one word no fewer than panies co-evolve capabilities around a new 160 times: “ecosystem.”2 innovation: They work cooperatively and competitively to support new products, We’re all familiar with ecosystems in the satisfy customer needs, and eventually natural world. The word was coined in the incorporate the next round of innovations.4 1930s by British botanist Arthur Tansley to refer to a localized community of living organ- Moore’s insight was prescient—just on the isms interacting with each other and their par- cusp of the Internet era, and 15 years before ticular environment of air, water, mineral soil, the emergence of smartphones and the mobile access revolution. Initially his concept Some view the rise of ecosystems as an of “business ecosys- tems” was embraced opportunity for creating powerful new primarily in the community that was competitive advantage. itself creating the transformative capa- bilities of connection and other elements. These organisms influence and collaboration that enabled them—the US each other, and their terrain; they compete and technology sector. It continues to be critically collaborate, share and create resources, and co- important in that arena. Apple Inc. explicitly evolve; and they are inevitably subject to exter- conceived its products and services as an eco- nal disruptions, to which they adapt together.3 system that would provide customers with a Noticing growing parallels, business strate- seamless experience; Facebook recognized the gist James Moore imported the concept to emphasis it had to place on deliberately build- the increasingly dynamic and interconnected ing its “developer ecosystem”; some analysts no 3 Business ecosystems come of age longer see technology and media competition players: “The battle of devices has now become as simply between firms, but among ecosys- a war of ecosystems . our competitors aren’t tems of firms operating in loose alliance.5 taking our market share with devices; they But the idea has now also taken root far are taking our market share with an entire beyond the US technology sector. Over the last ecosystem. This means we’re going to have to few decades, driven largely by digital technolo- decide how we either build, catalyze, or join an gies and massively increased connectivity, the ecosystem.”7 Others take slightly different per- economy has been moving beyond narrowly spectives. South Africa’s SABMiller has made a defined industries built around large, verti- priority of “strengthening business ecosystems” cally integrated, and mainly “self-contained” in which it participates, to the benefit of local corporations. New means of creating value and regional economies where it operates.8 have been developing everywhere in the form Some leaders have even welcomed competitors of ever-denser and richer networks of connec- to their ecosystems. Listen to MakerBot’s newly tion, collaboration, and interdependence. appointed CEO, Jenny Lawton, responding to Businesses around the world are respond- the news that Autodesk planned a bigger push ing. Some view the rise of ecosystems as into 3D printing: “Autodesk’s work an opportunity for creating powerful new and thinking is necessary to the overall competitive advantage. For example, in July industry. So much of the success of the 3D 2014, the CEO of Japan’s Softbank described ecosystem and future of 3D printing can be its strategic intent as follows: “By providing accelerated.”9 And some strong ecosystems all manner of services and content on (our) emerge without individual powerful players: platforms, we are aiming to create a compre- For example, in China the term “shanzhai” for- hensive ecosystem that other companies will merly described copycat versions of electronic never be able to rival.”6 A few years earlier, the goods, but is now commonly referred to as the CEO of Nokia similarly described a landscape “shanzhai ecosystem”—highly collaborative of ecosystems that each encompass an array of arrangements across hundreds of enterprises Figure 1. Defining business ecosystems Ecosystems are Ecosystems typically bring together multiple players of different types and sizes in order to create, scale, and serve markets in ways that are beyond the dynamic and co-evolving capacity of any single organization—or even any traditional industry. Their communities of diversity—and their collective ability to learn, adapt, and, crucially, innovate diverse actors together—are key determinants of their longer-term success. who create and capture Enabled by greatly enhanced connectivity across specialized capabilities and resources, ecosystems develop new, co-created solutions that address new value fundamental human needs and desires and growing societal challenges. While forging superior ways to create new value, ecosystems also increase the importance of discovering new business models to capture that value in a world of commoditization and “de-monetization.” Competition, while still essential, is certainly not the sole driver of sustained through both success. Participants are additionally incentivized by shared interests, goals, collaboration and and values, as well as by the growing need to collaborate in order to meet competition increasing customer demands, to invest in the long-term health of their shared ecosystem, from which all can derive mutual benefit. Source: Deloitte analysis. Graphic: Deloitte University Press | DUPress.com 4 Introduction that are accelerating entrepreneurial innova- co-evolving communities of diverse actors tion in areas such as smartphones and the next who create and capture new value through generation of smart watches.10 increasingly sophisticated models of both col- Especially given the diverse usage of the laboration and competition. This definition term, it might be tempting