Could data-led business ecosystems rule the world?
Data is already the lifeblood behind many businesses. The next step is joining the data dots between corporations
The natural world is a great inspiration for business. Ecosystems, where many different living things work together to produce a thriving entity, are replicated in the corporate world. The variety of goods and services on which humans depend is increasingly delivered not just by biology but by dynamic groups of businesses working together. The DNA underpinning this is data.
Data-led business ecosystems, where a single source of digital information empowers independent economic players to offer services that are valuable to customers, are thriving. Whether it’s Amazon or eBay, Airbnb or Alibaba, collaboration is now a source of competitive advantage where data is shared – and it’s not only online marketplaces that are flourishing.
Last year, more than half of the world’s largest companies seriously engaged in ecosystem business models, according to the BCG Henderson Institute, with innovation in many economic sectors. From John Deere to Walmart and Maersk to Grab, many firms are getting in on the action. They are rolling out ecosystem models which involve a network, linked by flows of data, services and money, where the whole functions better than the sum of the parts.
“Undoubtedly, digital platforms, connectivity and data have fuelled the dramatic rise we’ve seen in the last few years. Successful ecosystems can provide access to new capabilities, scale rapidly, be very adaptive, enjoy high asset productivity and transform entire industries,” explains Martin Reeves, chairman of the BCG Henderson Institute.
“Successful ecosystems also enjoy and exploit the network effect whereby the value to both users and suppliers increases, the larger the ecosystem,” he adds.
That’s because data-fuelled digital platforms can offer more to the customer, such as personalised recommendations across a broader product range – and at a lower cost. This has hugely expanded what’s on offer, breaking the trade-off between complexity and reach.
When Chubb offers embedded insurance via the Grab super app, large traditional players shudder, while Netflix moving into video gaming moves markets. Why? Because ecosystem players have the potential to exploit and disrupt whole economic sectors at scale.
As long ago as 2011, Nokia’s chief executive said: “Our competitors aren’t taking our market share with devices; they are taking our market share with an entire ecosystem!” Stephen Elop’s comments echo today. Data on customers and partners is the lifeblood of such strategies.
But the business ecosystem model extends far beyond online shopping malls such as Walmart Marketplace. It is now being deployed along value chains. John Deere is doing this with its smart-farming ecosystem, as it brings together tech-enabled tractors using cloud computing, field mapping and data analytics. Maersk is focused on integrating container logistics end-to-end, to help customers’ supply chains by connecting the dots in transport, finance and port services. Both organisations realise the power of being information-based businesses.
Dependent on a common data platform
Those firms that have succeeded with an ecosystem model began by rolling out a common data and digital platform. This is the backbone, allowing other players to connect and work together using a single source for customers and supply chains. This also allows synergies between businesses. Data flywheels also start to gain momentum as more information is gathered across the ecosystem, informing how, what and when products and services are offered to customers.
“Companies must, however, first evaluate how data can drive business strategy. We’re seeing data lakes become more prevalent as a means of data storage, largely because it is easy to run analytics on these lakes and then use it to feed an ecosystem of business tools that take advantage of it,” explains Christian Pedersen, chief product officer at IFS.
And that’s where data-led business ecosystems are different from mere digital platforms. Ecosystems depend on shared data to inform strategies and decision-making by stakeholders. Their success is also largely dependent on how humans interpret this data and act on it – the easier it is to digest, the better.
“A key area of focus for business ecosystems is explainability. There is a perceived difficulty in taking complex problems around data and explaining it to stakeholders. Today, however, we are seeing new techniques like explainable AI that provides more information, much faster to people so that they can make accurate decisions,” points out Pedersen.
Not an easy business model
Becoming a business ecosystem player empowered by data isn’t easy. The scale of Meta, Tencent, Gojek or Yandex is mind-boggling. According to research by the BCG Henderson Institute, only 15% of the 57 ecosystems studied were sustainable in the long run. It’s a jungle out there, with a huge rate of attrition, while incumbents that dominate markets are even less successful than large tech or startup players.
“One of the most common mistakes is to automatically assume that one has the right to be the orchestrator of an ecosystem when most don’t and being a complementor can be a viable and attractive role,” states Reeves.
“Building an ecosystem incurs costs and risks. Industries with significant customer friction, such as high intermediary costs, delays, mismatches and those markets which have not yet been disrupted by digital and data-led platforms provide many such opportunities. A lot of B2C opportunities have already played out but B2B and public sector opportunities remain largely untapped.”
Yet, overly complex data infrastructures, siloed data, legacy systems and a lack of real-time information plague many economic sectors, making ecosystem models less viable. Newer technologies can help to overcome this, such as smart data fabrics, which allow organisations to leverage data lakes, building a layer of command and control on top, as well as stitching together distributed information. Bringing in the right talent can also help.
“Against a backdrop of uncertainty, businesses across all sectors are looking to their data to gain a competitive edge. Organisations are also often unaware of just how much value can be added to their innovation initiatives through the inclusion of data specialists,” says Chris Norton, managing director for UK and Ireland at InterSystems.
Right now, the ecosystem business model, which is data-led, presents new opportunities for certain sectors – especially specialist or unexploited niches. Yet finding such opportunities, as Reeves points out, requires counterfactual thinking and imagination and data can also help inform this process.
The concept of business ecosystems is not new. What is different now is the data-empowerment element and that with the right systems in place, ecosystems can be scaled efficiently and at speed. Hence, why they are an exciting prospect for growth.