Article posted on August 25, 2016
As “ecosystems” emerge, networked platforms become increasingly important in the business world. Platforms are being built in fields as diverse as health care, education, energy and government to create new efficiencies through unlocking hidden resources and discovering new forms of value. This article explores and explains ecosystem-centric business models, enabled by platform thinking, that are connecting providers and consumers or users more directly.
Competing in the digital era is, simultaneously, both an enormous opportunity and a challenge for most organizations. In fact, most companies are either thinking about, or pressing ahead with, digital transformation initiatives.
The creation of “ecosystems” — the convergence of separate entities into rich networks with variable sets of relationships between producers and consumers — is ubiquitous in today’s business world. The rise of these ecosystems forces businesses to move beyond traditional industry silos and to go from organization-centricity to ecosystem-centricity, resulting in an increasingly networked world.
One of the most important economic and social developments of our times is the rise of the platform as a business and organizational model. Today’s biggest, fastest-growing and most disruptive companies are founded on platformbased business models. Companies such as Apple, eBay, Uber and Alphabet (the parent company of Google) act in ecosystems and connect diverse partners in a network of businesses.
What’s more, platforms are the driving force behind the transformation of many economic and social arenas — from health care to education, energy and government, they are changing the world forever. These new business models use technology to connect people, organizations and resources in an interactive ecosystem in which unlimited amounts of value can be created and exchanged. The concept may sound simple, but it is radically changing businesses, the economy and, above all, the way in which we interact in the digital age.
Practically any industry for which information is an important ingredient is a candidate for the kind of disruption that is enabled by platforms. This includes, for example, businesses in media and education, where information is the product, as well as businesses that value access to information about customer needs, behaviors, prices, market trends, and supply and demand.
Platforms represent a powerful catalyst for rich ecosystems that can enable exponential growth.
The power of the platform
Platforms represent a powerful catalyst for rich ecosystems that can enable exponential growth. How they do this is by creating new markets, due to the fact they are connecting providers, consumers and users directly, mediating their interactions by leveraging information. By doing so, they help create new economic value and scale the potential for learning across entire ecosystems, as platforms dramatically enhance our ability to communicate, share and store information. They also help to connect with internal and external stakeholders.
Designing new platforms
For successful implementation of new platforms, organizations must have a clear understanding of the economic principles and business design across one or more ecosystems. This means they will need to move away from traditional business principles that explain the management of linear supply chains and conventional service models.
Digital business platforms can create massive opportunities for organizations because they provide the infrastructure for our increasingly networked world.
As a consequence of increased interactions and more pervasive connectivity, there is the potential for value to be created and exchanged.
However, organizations are missing out on this potential due to a lack of understanding of the economic principles and business design that govern the execution of successful platforms. Instead, success is determined by functional integration and network orchestration, rather than horizontal or vertical integration — this shift requires new ways of thinking and implies a new business logic. Platform principles and designs are counterintuitive compared with traditional ways of doing business. As a result, many platform implementations fail.
Platforms create new markets by connecting providers, consumers and users directly, creating new economic value and scaling the potential for learning across entire ecosystems.
Innovative platform thinking centered on customer needs
Digital platforms connect every thing, every place and every person; therefore, they are fundamental to satisfy the demands and needs of all those connected via the platform. The important difference is that producers, consumers and users interact with each other and use the software — instead of using a software.
In the past, no matter which industry, customers expected instant gratification and more intuitive, real-time and integrated solutions in their interactions with providers. Now, it is the customers themselves who have become active, independent partners in the ecosystem, sitting at the center of its strategy and reshaping their own needs. They are able to define their own journeys outside of the business’ control. The result is that consumers’ expectations have increased dramatically; they have also become considerably more empowered. As each individual, whether formally or informally, collaborates for the mutual benefit of the entire ecosystem, this ultimately leads to more information, allowing more choices and creating more value.
It is this change in pathways that needs to be better understood by many organizations as they begin to realize that, in the world of digital business ecosystems, they are no longer the only players in the market. The need to enter alliances and partnerships across the business platform should be viewed, by all stakeholders, as an important enabler to meet new growth opportunities.
The right technology enables collaboration: a digital experience platform that serves providers and consumers or users along every step of their journey and provides individual value propositions across the networked ecosystem. Consequently, companies need a digital experience and technology strategy that is informed by the needs and digital behaviors of their stakeholders. In fact, the platform must pinpoint and affect every users’ journey.
The aim, therefore, is for the platform’s focus always to be on the customer journey, as it connects to clients, manages suppliers across industries, and enables communication and data sharing while increasing sales of products and services. The tricky part is that the solution needs to fit the requirements of all of its players, i.e., to benefit customers while simultaneously improving the business performance of both the organization and its partners.
Platforms will replace “pipes”
If organizations are to realize the benefits of a platform-based ecosystem, they must move away from traditional value chain creation, also referred to as “pipe,” toward “platform thinking.” This refers to the way in which users can create value on the platform for others to use; products and services are no longer simply sold and consumed.
Customers’ expectations are increasingly being shaped by their interaction with successful e-commerce companies that allow them to change their needs and wants within an eyeblink. The trade on business platforms will generate tremendous amounts of data that can be analyzed to sell even more products and services. Some experts predict that, in the future, only platform businesses will exist.
Enabled by these platforms, products and services can be traded more quickly and, importantly, among new partners. Digital business platforms facilitate the simplified trade of not just the products and services of the organization, but also all the partners that are connected via the platform.
From a business to business (B2B) commerce perspective, digital business platforms allow participants in the ecosystem to connect with the capabilities of other partners and make them available to their customers in ways that create significant value for the platform participants and the customers. These are simple mechanisms to increase the sales and revenues of both the platform operator and the connected partners.
Such a model provides the necessary transparency that organizations need to be able to innovate and adjust to customers’ changing demands in an agile manner. It becomes cheaper and easier to add new products and services, as real-time information provides instant insights into customers’ buying behavior.
Health care: an example of a new ecosystem
When we think of the traditional health care ecosystem, one would expect it to include physicians, nurses, pharmacies, hospitals and assurers. But there are new entrants now. Patients no longer rely just on their physician to improve and sustain their overall health. That is why we see players from industries such as sport and fitness, nutrition and wellness, plus technology and data experts, entering the arena.
The health care ecosystem is fully extensible, enabling patients, depending on their needs, to have access to different providers and suppliers that offer a multitude of products and services. From the patients’ perspective, they have access to a coordinated, online communication platform that is complementary to the face-toface interactions with health care professionals. It provides an additional source of expert assistance to help patients navigate the health landscape.
For pharmaceutical companies, the digital platform provides insights on how patients are using their products. This data can be used to direct the improve current treatments and offerings, thereby selling more products and services via the platform. One well known example for tracking and monitoring a patient’s health status is wearable technology, sending real-time information to the physician for immediate intervention or advice on better health outcomes, if required.
The need to enter alliances and partnerships across the business platform should be viewed, by all stakeholders, as an important enabler to meet new growth opportunities.
IT and data analytics as an enabler for digital business platforms
Nowadays, building and scaling up platforms has been made much simpler and cheaper by the use of IT, which allows for almost seamless participation, thereby strengthening the network’s effects. IT enhances the ability to gather, analyze and exchange huge amounts of data, which increases the platform’s value to all parties involved.
For organizations, the transmission of enormous volumes of data and information, every minute, provides significant opportunities as ideas and innovations between connected partners are circulated. Yet, new technology brings new capabilities and an increased risk of uncontrolled data disclosure. Understanding cybersecurity and data protection is, therefore, an inevitable prerequisite for sustainable success in the digital era.
At EY, we believe that a strong business reputation is rooted in a robust data privacy and information security program. Organizations must have a well-articulated security and privacy strategy in place when setting up a digital business platform. Only then will organizations succeed in attracting partners onto the platform.
Building the necessary capability
Even the strongest and most profitable players in the market need to rethink their strategies to sustain economic growth in this digitally disrupted world. We see many organizations struggle to understand fully the impact of digitalization. We also see many organizations succeed in making digital part of their strategy, developing new business models that emerge in the form of digital business ecosystems.
The aim is for the platform’s focus always to be on the customer journey, as it connects to clients, manages suppliers across industries, and enables communication and data sharing while increasing sales of products and services.
Creative thinking can help organizations anticipate and understand the potential disruptions that could affect their business. We have seen how it has helped businesses build competitive advantage from uncertainty by being proactive in developing a networked business model for their organization or area of responsibility. In so doing, they have opened themselves to new perspectives, identified opportunities and taken a step toward the future way of doing business.
Traditional industries, such as hotels and television channels, are in a state of upheaval, experiencing disruption from platform business models. Maybe it hasn’t happened in your industry yet, but all that means is you are likely to be next. Businesses that do a better job of harnessing the power of platforms will win by turning disruption into a competitive advantage.
To know more, please click on the link.