Michael G Jacobides holds the Sir Donald Gordon Chair of Entrepreneurship & Innovation at London Business School, where he is Professor of Strategy. He is an Academic Advisor to Boston Consulting Group, Visiting Scholar at the New York Fed, and Visiting Fellow at Cambridge. A frequent keynote speaker, he works with companies as they adjust to a shifting environment. He studies industry evolution, new business models, value migration and structural change in firms and sectors, and looks at how digital ecosystems transform the business context. He teaches strategy, innovation, transformation and turnarounds, and works on thought leadership with consultants such as McKinsey, IDEO, Accenture, PwC and Deloitte, and on strategy with corporates such as Santander, Zurich, CS, Airbus, Lufthansa, Vodafone, Nokia, DeBeers, Burberry and MerckSerono. Jacobides recently spoke to The Innovator about why it makes sense for corporates to embrace digital ecosystems and the key factors for success.
Q: Why aren’t more established companies moving to build and shape digital ecosystems?
MJ: Established companies in theory have the resources, the might and access to the customers but what keeps them back is their culture and lack of customer orientation. They are more focused on functioning product lines which makes them less well suited to seize opportunities that are based on real customer needs. There is nothing in terms of business calculus that keeps them back. It is their inability to see the opportunities and even more so their inability to mount an effective response and to put into place the right organizational structure to make sure that it happens.
Q: Do you have to be first to win?
MJ: Just being early is by no means a guarantee of success. What is important is how effectively you can deliver value propositions to the customer. Because many digital ecosystems are also platform businesses, the emphasis is on being first, or at least early. The received wisdom is that scale begets interest, which begets scale, leading to winner-takes-all markets. But the data shows that being an early mover is not sufficient to ensure long-term success or dominance. An ecosystem’s product or service may simply not be suited to some customers’ needs. Second, as technologies and customer needs evolve, later entrants can jump in and take advantage. And third, in their haste to be first, early movers sometimes build the wrong ecosystem or choose the wrong path. Long-term success depends less on being the first mover and more on taking the time to craft the right strategy and value proposition and to attract the right partners.
Q: What, in your mind, are the key factors for success?
MJ: The more successful ecosystems are orchestrated by an established market share leader. These leaders are best positioned to attract partners with the right skills and funding. The idea of starting a digital ecosystem might seem strange to some large incumbent players, who are used to going it alone — either by trying out new things in-house or by simply acquiring innovators. But it’s better for them to try and shape the new digital landscape especially if they have advantages that rivals just can’t match, most notably a strong user base. Research I conducted with BCG shows that 83% of digital ecosystems involve partners from more than three industries and 53% from more than five. Our research showed that the more partners an ecosystem has, and the more industries they come from, the better that ecosystem will fare. While the average ecosystem has 27 partners, the most successful digital ecosystems have about 40. The most successful also cut across a great number of industries and have advanced in a lot of different countries. Our analysis shows that 90% of ecosystems involve participants from more than five countries, and 77% of ecosystems span developed and emerging markets. The orchestrator of a winning ecosystem must manage dozens of partners, across multiple industries and countries, and different types of relationships Selecting and managing the right mix of collaborations is critical for success.
Q: Which established sectors have been hardest hit by platform plays?
MJ: Transport, retail and lifestyle are sectors that have been heavily disrupted and financial services clearly have been challenged. Both banks and telecoms are the big losers of the digital revolution. These companies have a vast array of data about their customers but they have not been able to monetize and leverage that. It comes as a result of their history and regulatory and reputational issues that make them hesitant in ways that the Googles of the world and fintechs are not bothered about. Payments are a key area. Some of the ecosystems including Grab and Amazon and Facebook are trying to ensure they capture this value. They will make millions and destroy billions so the broader question needs to be asked: who bears the cost of the sectors that are being transformed very quickly?
Q: What factors should determine whether a corporate creates a platform or joins an existing ones?
MJ: Get over your delusions of grandeur about needing to be the orchestrator no matter what. Too much testosterone is not a good guide to decision-making. Ask yourself what value do you think you can add? Where do we play? What is the role we want to undertake? Who do we want to combine with? Is it likely that our organization is decentralized enough to take the right decision? Delegation of authority is an important issue. What is the organizational structure that will allow — not as a PR exercise — real value to be added? Consider HaierGroup — one of the largest home appliance companies in China. The CEO decided to create subcommunities to take initiatives and connect with other local players. It has broken the company up into 400 micro enterprise communities, pushing decision making at the local level. Adaptability happens but it may be that some large companies need to be centralized. The challenge is to develop a strategy, understand what the key questions are and build in the right way for the organization.
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