“Digital transformation” is on the top of every business’s mind these days.
Ten years ago digital strategy was having a web site and a cell phone.Now many of our clients and potential clients are searching for a digital solution that incorporates what they currently do in one system, in a simple language that they can understand.They are also faced with coming to grips with a strategy for their business systems and a revolution in marketing and sales using Facebook, Google, LinkedIn, Instagram, Twitter and a growing number of alternatives.
The business world continues to digitize at rapid speed – breaking down barriers and innovating new business models – and organizations are either jumping on the bandwagon or getting woefully left behind. All of this with the main goal of building stronger customer relationships, increasing cross-selling opportunities and focusing on growth. It’s an inevitable transformation to survive in this digital world with an always-connected customer who has discoverability, access and choice at their finger tips. In fact research shows that 87% of senior business leaders now cite digitization as a priority for their company – and 66% fear failure to digitize will jeopardize their competitive position.
Take for example the recent launch Amazon Go – disrupting the retail world even further, by using the world’s most advanced shopping technology so customers can shop in-store without having to wait in a check-out line.
This move to a more digital world has given birth to a new type of company, the “ecosystem” organization – think Amazon, Uber, Airbnb, etc. An ecosystem organization, in the digital context, is an open system of partners (official and/or unofficial) collaborating to deliver against a higher-order customer need. These players are redefining the customer experience – and, in turn, customer understanding and loyalty – by providing customers a low-effort path to achieve their higher-order needs, with a great customer experience along the way. The anchor brands in these ecosystems boost profits from customers and other ecosystem players alike, because they have provided the platform that underpins the ecosystem.
The MIT study found that companies that had 50% or more of their revenues from digital ecosystems (and above average customer understanding) had 32% higher revenue growth and 27% higher profit margins than their competitors.
For many,especially small business without a marketing department building an ecosystem is a highly ambitious and often risky proposition. But, as we’ve seen with Uber, Airbnb and others – if you don’t build an ecosystem in your category, somebody else will. And, then you’re likely to find yourself fighting for scraps of a shrinking pie in your corner of somebody else’s ecosystem.
A key element essential for the success of such ecosystem players is a systems thinking” approach. It is a holistic understanding of how an ecosystem works, including the micro-perspective of any individual part of the system, as well as the macro-perspective of how all the individual parts work together as part of the whole.
But that systems thinking approach has to be coupled with “systems acting.” Most organizations operate in silos – where each silo independently (or mostly independently) operates and optimizes to its own end, not to the end of the broader ecosystem. The customer is at the center of each of the silos but not at the center of the ecosystem. This type of thinking will not yield a thriving ecosystem, because from the customer standpoint the experience will be disjointed, inefficient or simply unworkable. Unfortunately, systems thinking doesn’t come naturally to traditionally scaled organizations that are organized and operate vertically – it’s different, requires fundamental change to operate horizontally through the customer journey and is therefore hard work.
Systems thinking is central to digital transformation and becoming an ecosystem organization. It requires four practical steps:
1. Elevate your customer understanding efforts.
The focal point of an ecosystem must be a higher-order customer need and experience. Let’s say the higher-order need is to “help parents support their children in discovering and pursuing their passions.” One disruptor that fits this bill is Uber, which is building a transport ecosystem that can better serve that need. Imagine a time when, as a parent, you (or your children!) could dial up a self-driving car that will safely ferry your daughter to soccer practice and your son to guitar lessons after school. You no longer play chauffeur! To do this successfully though would require more than just Uber and self-driving cars, but also insurance players, transportation players, kids activity organizations, and so on. Now for the brand that can assemble this ecosystem and stitch things all together in a seamless way for the consumer, they redefine the market. There’s a much larger economic pie there for the taking, compared to the (already well-served) lower-order need of providing transportation from point A to point B. Not possible unless the customer is at the center of this broader ecosystem and not a single part in isolation.
2. Establish a common “north star.”
Having focused your customer understanding on a higher-order need, the next step is to identify a shared vision (your “north star”) of how that ecosystem could (and should) work. A worthy north star will: center on a vision for a holistic customer experience; provide connection points across ecosystem players outside your organization and across any silos inside your organization; and offer a sense of how each ecosystem party plays into the system, along with the benefits they gain (the “what’s in it for me”) by being part of ecosystem.
3. Integrate your ecosystem planning to break down silos.
An important step towards systems thinking and developing the mindset of an ecosystem organization is to draw out what that ecosystem looks like – even if it’s just a hypothesis – on paper or on a whiteboard. How does the customer experience the value proposition delivered by that ecosystem? What are the connections between ecosystem players? Where are there application programming interfaces? Who would need to capture what data? How would the data need to flow?
Planning should proceed from this common view. Once that is established, your individual teams inside and outside your organization working on parts of the ecosystem can do their planning and activities as part of the whole.
4. Reinforce and reward behaviors consistent with the ecosystem view.
Systems thinking requires a huge culture shift in companies that aren’t digital natives. The biggest barrier here is likely to be a “not invented here” mentality. The one where any ideas that come from outside your team or silo or organization are organ rejected because they came from somewhere else. To break this mentality, your organization needs to be open to learning from others – and co-creating with others – whether they are competitors or not. This means rewarding behavior that doesn’t reflect “not invented here,” rather that reflects “proudly delivered in partnership with” mentality.
That culture change reflects the larger strategic shift that leaders of large or small companies need the courage to make as they take their organizations down the transformation path. To be willing to sacrifice a large slice of a familiar (but shrinking) pie or to take a smaller slice of a larger (and growing) ecosystem pie?
That is the leadership challenge.