Do not fall prey to business ecosystem failure
This article first appeared in the October 2017 issue of The Manufacturer magazine.
There are many reasons why great manufacturing innovations that should have succeeded end up on the scrap heap. Florian Urmetzer explains that an often-overlooked but very common reason is failure to see the blind spots in your business ecosystem.
The term ‘innovate or die’ is now a mantra for business. But sometimes innovating without fully understanding your business ecosystem, or before your ecosystem is ready, can be a massive blunder.
Just one broken link in a business ecosystem can turn a brilliant new idea into a costly mistake, as a number of successful and experienced manufacturers have discovered.
In 2000, Michelin developed what it thought would be a ground-breaking innovation in automobile tyres – a wheel-tyre system that enables you to continue driving safely at speeds up to 55mph for 125 miles after it gets a puncture.
While it was undoubtedly a fantastic innovation that could improve safety, Michelin’s developers had not done their ecosystem homework. Not only were auto-manufacturers reluctant to change the design of the underbody of their vehicles to incorporate the new tyres or incorporate a dashboard display that linked to a sensor in the tyres, but replacing the tyres required expensive new equipment that most mechanical repair garages didn’t have. As a result, Michelin eventually abandoned its new invention.
Sometimes great products fail because they are ahead of their time. A failure to accurately predict the progress of all segments of their ecosystem cost Philips Electronics $2.5bn in write-offs when the company introduced its high-definition TV 20 years too early. The high-definition cameras and digital television transmission technologies required to deliver high-definition pictures to the new TVs were much slower to be introduced.
These two examples of ecosystem failures illustrate that no one is an autonomous innovator. Companies are dependent on one another within a wider business ecosystem.
It is not surprising that even large and experienced companies can fall prey to ecosystem failures – ecosystems are poorly understood by businesses, with many executives struggling to describe the full complexity of the ecosystems that they are part of, or the players within it.
Without having an understanding of their business’s ecosystem, managers risk value leakage, miss opportunities for innovation and potentially set the business and network up for failure.
What is an ecosystem?
Today, products and services are often delivered through multiple companies, which are often referred to as business ecosystems. These business ecosystems are defined as a network of organisations and individuals that collaborate and evolve roles and capabilities, as well as synchronising their investments to build value and increase efficiency.
An ecosystem is the wider network of firms and organisations that can or could influence the way a firm creates and captures value through the provision of a product or service.
Members of this wider network may include, but are not limited to: collaborators, regulators, clients, clients’ stakeholders, suppliers and competitors.
These ecosystems can become incredibly complex, especially in the B2B market. In the UK defence industry, for example, BAE Systems runs Portsmouth Naval Base and has the contract to maintain and repair ships.
As part of the service delivery, BAE Systems collaborates with many organisations including Babcock, Aramark and the Ministry of Defence to deliver value through services including maintenance, staff accommodation, leisure facilities and catering.
To add further complexity, Babcock competes in the same region on another contract. This is a good example of how ecosystems comprise increasingly complex models of both collaboration and competition (‘coopetition’).
As ecosystems evolve, the level of complexity can often prevent organisations from realising opportunities to capture or create value, or seeing potential innovative solutions that could provide a sustainable source of competitive advantage.
This is despite the opportunities often being considerably more significant than could be realised through internal change programmes, where change is limited to a single organisation and not the whole ecosystem.
Collaborating with other companies within a business ecosystem has the potential to create far more value than any single firm could have created alone. A number of multinationals are increasingly realising the importance and value of harnessing the power of their ecosystem to increase innovation, accelerate time-to-market and create new markets.
Last month HP and Deloitte Consulting announced they had formed an alliance to accelerate the digital transformation of global manufacturing in large-scale 3D printing. Their aim is to help enterprises accelerate product design and production, and create more flexible and efficient manufacturing and supply chains.
The UK government is also looking to support manufacturers at the ecosystem level, recently announcing it is investing more than £140m in advanced medical manufacturing as part of its £1bn Industrial Strategy Challenge Fund.
Tools to leverage your ecosystem
Since ecosystems can trip up even the most experienced manufacturers, organisations need structured tools and approaches that enable executives to analyse their ecosystems, and highlight opportunities to innovate and create and capture value.
This could be in the form of using new technologies, developing new business models, identifying new problems that can be solved together, and bringing new players into the ecosystem to plug gaps in capabilities.
The Institute for Manufacturing and Cambridge Service Alliance is developing thought-leading research in this area, bringing insights and knowledge to help organisations leverage ecosystems to their advantage.
We have developed tools to define, map and analyse a firm’s ecosystem, which enables us to systematically consider new ways that the firm could work with key players. Ecosystem mapping identifies the potential evolution of your ecosystem, who the players are now and in the future, how they will impact on your success, and reveals relationships that need to be initiated, developed or abandoned.
No matter what sector your company is part of, an analysis of your business ecosystem can be revealing and help to shape innovation for new products and services.
Florian Urmetzer is a Senior Research Associate with the Cambridge Service Alliance. Florian is interested in the development of tools for service design. In detail, he is looking at the creation and capture of value within complex service ecosystems. Specifically, he is interested in helping managers to fully understand the value exchange, in order to enable them to influence business models, and optimize B2B and B2C processes. Email: email@example.com
Register to attend the next Ecosystem Strategy Workshop on 27 February 2017.