Connected Ecosystems in the Digital Age

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The disruption of business models through the advancement of digital technologies is a reality today, globally. Not too long ago, companies operated within strict industry boundaries, rarely seeking cross-sectoral opportunities for growth. Owing to the growing impact of digitization, businesses are now moving beyond traditional industry silos and coalescing into highly ‘connected ecosystems’ thereby transforming how companies serve customers and fulfill human needs. These ecosystems are causing long-standing industry boundaries to dissolve, requiring companies to partner more intensely and effectively with players from a diverse set of industries, while re-inventing their value chains afresh.

Venkat Atluri, Senior Partner at McKinsey & Company defines a business ecosystem as a complex network of interconnected businesses that depend on, and collaborate with each other, to deliver value for their customers, to the end users, and their key stakeholders. In the emerging real world, businesses would no longer operate in siloes, but in complex and dynamic ecosystems where a combination of people, things, processes and rich data, would play a crucial role in shaping business outcomes and behaviors. As traditional boundaries between industry sectors continue to blur, dominant ecosystems of the future will likely consist of networks of businesses that span several different industry verticals.

At the heart of today’s business environment, marked by a product and solutions polluted market with an over-abundance of choices and options, is the empowered customer with elevated expectations. The proliferation of mobile devices, tremendous increase in electronic data, and emergence of technologies like artificial intelligence and the Internet of Things [IoT], allow companies to deliver personalized, valuable and immediate experiences to customers. Venkat Atluri in a McKinsey Podcast on Business Ecosystems says consumer expectations have evolved to a point where they now expect businesses (as providers of services and goods), to know what customer needs are, and to serve those needs proactively. These technological developments are causing businesses that once seemed disconnected, to fit together seamlessly and create more compelling experiences that serve growing customer expectations.

In an annual global banking review published in 2017, McKinsey & Company cites Rakuten Ichiba, Japan’s single largest online retail marketplace, as an example of a business executing an ‘ecosystem’ strategy. Apart from an e-commerce platform, Rakuten provides loyalty points and e-money usable at hundreds of thousands of stores, virtual and real. It issues credit cards to tens of millions of members. It offers financial products and services that range from mortgages to securities brokerage. The company also runs one of Japan’s largest online travel portals—plus an instant-messaging app, Viber, which has around 800 million users worldwide. Rakuten’s global membership base stands at over 1.1 billion today. Such companies are blurring traditional industry boundaries by creating a customer-centric value proposition that extends beyond what users could previously obtain from one interface.

Digital innovation is driving the move to ecosystems of interconnected businesses. By plugging into these ecosystems, businesses will have the potential to tap into new sources of data and revenue monetization, while improve existing service lines, business processes as well as customer experiences. To prepare for the era of digital ecosystems, the key drivers of an organization, namely – people, processes, technology and culture – must synchronize and align with orchestrating capabilities beyond the boundaries of the firm, as well as within it. McKinsey predicts that over the next decade, learning to operate in a business world with disappearing borders will become a necessity for companies that want to be competitive.

References:

  1. McKinsey Podcast: As sector borders dissolve, new business ecosystems emerge
  2. McKinsey Article: Competing in a world of sectors without borders
  3. McKinsey Report: Remaking the bank for an ecosystem world
  4. Ecosystem Collaboration: New Engines for Growth and Competitiveness in the Digital Age by Accenture
  5. Gartner 2017 CIO Agenda Report: Seize the Digital Ecosystem Opportunity

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