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At ClearPrism, platform business models and business ecosystems have been a key focus area of ours for several years now as we help clients undergo digital transformation and help them thrive in a world of digital disruption.
As highlighted in our recent blog, “Tacking digital disruption in your industry”, our research has also confirmed that this approach is one of four key strategic themes for success evident in world-class organizations that have already experienced transformational results in digital transformation.
Many organizations, however, are unclear on what platform business models really entail, and how to incorporate them into their digital transformation strategies and implementations. Basically, platform business models allow enterprises to set up powerful industry-focused, cloud-based ecosystems for value exchange and innovation among participants. In this blog, we examine these business models in more detail with an emphasis on those models that employ business ecosystems to unlock their full potential.
In his most recent book, “Topple”, Ralph Welborn wrote that what made businesses successful yesterday is not what will make them effective tomorrow. The most successful, and explosive growth leaders of today and tomorrow reflect a new competitive reality: the new competitive landscape will be shaped less by firm-specific strategies than by business ecosystems.
They define business ecosystems as follows:
The (pragmatic) definition of business ecosystems—“An ecosystem-centric model orchestrates the capabilities (skill-sets and technology assets) from different actors (partners, customers, other stakeholders) to deliver new types of value in new ways”
Business ecosystems are powerful because they allow organizations to enable “permission-less innovation” where customers and partners are free to innovate on top of their platforms to enable greater functionality and business value for the entire ecosystem. This creates the well-known “network effects” and “virtuous cycles” that can propel these business models into hyper-growth.
As example we often use is that of GE Predix who provide a business-to-business Industrial Internet platform for their customers in the energy, aviation, and oil-and-gas businesses among others.
What makes Predix particularly interesting is that it’s a complete environment for developing and deploying applications with value-added services from core partners that can speed time-to-market and generate cost savings from standardization and reuse. Predix is also the flagship offering of GE Digital – GE’s software division that is on track to achieve 20%+ topline growth in orders annually for the foreseeable future.
If you’re looking to exploit the power of these models within your own business, here’s four steps to incorporate business ecosystems into your overall digital transformation strategy and approach:
1) Ask (and answer) the new strategic question
You start with realizing that a new competitive landscape requires asking, and answering, a new strategic question. The question is “Where is value being created… and destroyed… in the ecosystem and value chains in which you’re engaged… and what role do you play within it with what set of (new) capabilities to do so?”
Asking this question leads you to look at your competitive landscape from an ecosystem perspective, rather than that of your business and even your industry. Doing so logically leads you to ask: What is my ecosystem? How is it changing? What are the specific clusters of capabilities (skill-sets and technology assets) catalyzing those changes? And then, how will different types of technology impact our business over time, with what implications on our Workforce of the Future. These have become the critical questions of today – which require an ecosystem perspective to answer if you want to drive explosive growth.
2) Plant a flag on a “problem” to own… and own it!
Explosive growth has always come from identifying points of friction, non-consumption or market breakdown. Tackling these is the key to figure out what flag to own.
Note that “planting a flag” has little to do with refining your existing set of products and services – which is an “inside-out” perspective. Instead, it requires starting from an “outside-in” view working from the critical points of friction or market breakdown and what is required to tackle those. And then, and only then, to figure out what products and services are needed, including the ones you have today.
Where you plant your flag will determine the new sources of value to deliver which has very real implications on how you engage with customers, the products and services you deliver, and consequently how you both extend and create new revenue streams.
The first two steps here help you figure out “where to play” in a changed competitive world; the final two steps are on “how to execute”.
3) Clarify – and mobilize around – your New 20%
Capabilities (i.e. skillsets, behavioral profiles and technology assets) are the infrastructure of execution. No capabilities mean no execution. No execution means no customers. No customers mean no business. It’s pretty straight-forward. Until it’s not.
Roughly 20% of any organization’s capabilities drive roughly 70% of the value they deliver. (Try this exercise… you’ll see). A changed competitive world requires a new 20% of capabilities critical to capture the 70% of new value. The question becomes: what is that new 20%, and what do you do about it? Which takes us to the last step.
4) Orchestrate your ecosystem
Orchestrating your ecosystem involves figuring out what is the “new 20%” not only of yours, but of those of your partners and figure out how to harness – orchestrate – all of these capabilities to capture new sources of value in new ways.
In summary, our question for you is this: “What are your new 20% of capabilities critical to capture 70% of new growth?”
Answering this question will propel you along the journey of the “new big thing” for distinctive and sustainable explosive growth.
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