Brexit And Digitization: Are Ecosystem Platforms A Way Out?

The recent IBM C-Suite study among thousands of CEOs, CIOs, CFOs and other CxOs identified ecosystem partnerships as a strategic direction for realizing growth. The study suggests that companies will grow revenue by developing ecosystem platforms based on value reciprocity, rather than focus on their proprietary advantage as a means to realize growth. To explore this topic of ecosystem partnerships, in today’s blog I interview Barbara Flügge, initiative founder of Digital Ecosystems and an enthusiast of ecosystems in the digital world. After more than 16 years at SAP, Barbara now runs the boutique consulting firm digital value creators focusing on connecting distinct actors in business ecosystems in the digital world.

Question:

Barbara, is your focus on ecosystems new?

No. Throughout my work with SAP I was considered an evangelist of marketplaces. I’m fascinated by identifying the glue that bonds distinct actors together – as for example in a city or an event location you find service driven ecosystems. Much of the innovation ecosystem work happens however with smaller companies. They come up with a great idea, and they create some hype, but what’s next? What is their growth strategy? How will they achieve large scale success? My current focus is on helping such organizations with their growth strategy.

Question:

In my experience, companies are hesitant to develop ecosystem business models because they are afraid to share information. What are other challenges?

Think about brand, for example. Large companies are used to having their brand visible in all their offerings. But when you develop an ecosystem solution, your brand may no longer be visible to the client, because you’re only a component in something bigger. Another challenge is scalability for smaller companies. Large companies such as SAP have Accelerator programs, allowing startups to develop innovative solutions under the umbrella of the large brand. But companies that are already a few years down the road, yet haven’t done a breakthrough, are not being welcome by larger players. They are too small for large players, yet they do not fit in Startup Accelerator programs either.

Question:

Why do you consider Brexit, Ecosystems and Digitization to be very much related topics?

In anticipation of a decision on how Brexit will be shaped, i.e. what kind of agreement will be made between the EU and the UK and if a clear agreement is made at all, many parts of the economy experience a “shutdown”. Many business decisions are being delayed in anticipation of political clarity, and as a result, businesses are paralyzed. Projects and investments are being delayed, impacting the financial stability of businesses. Large companies can absorb such delays, but smaller companies are very vulnerable, because they may not have enough cash flow to survive the political impasse. Ecosystem initiatives are a means to mitigate the negative effects of such political impasse. Take for example the ecosystem of international trade. Companies in the UK will need to spend more time and money on import and export formalities which did not exist pre-Brexit (for trade between the UK and EU countries). But they do not know yet how these processes will look like, and what the cost will be. Neither are they able to assess how fast their supply chain will be, as it all depends on border controls. Right now, such companies are waiting for clarity, and much business is put “on hold” in anticipation of clarity to come. I suggest that rather than sit and wait, take the situation as an opportunity. Existing supply and production networks have been built in a certain way, and they have functioned as such ever since. Now the whole ecosystem is being shaken up by Brexit. Do you need to change your supply chain? Do you have to digitize, e.g. to set up a 3D printing plant instead of importing specific goods? Or work with partners to bypass cross-border formalities? Brexit is an opportunity to rethink how companies do business – regardless your company’s position in the production, supply, distribution or service network. There is a chance to revisit what your company profile is, and maybe to skip some processes. Rethink your ecosystem. Some ecosystem partners might disappear, and others may join your network. And some others might not have existed beforehand.

Question:

This could be done without Brexit though?

True, however Brexit is a huge trigger. Today’s world is built around standardization of processes. In this world, Brexit is an exception, and now companies face this huge exception, and they need to figure out how to deal with it. Brexit is an incident that happened to a well-set-up format of product design-production-assembly-distribution system. It happened in a scenery of a weak political system. Companies need to think how to deal with this “exception”, to avoid that everything falls apart. In situations of political weakness, companies need more than ever to talk to each other, co-create and search for innovative solutions. My role as consultant is helping them find new ways of working.

Question:

What is your starting point in working with these companies?

Every participant in the business network has multiple challenges, due to his or her own external and internal context. So, we start with 360-degree position analysis. Next, we investigate what is a company’s preferred position in the future. Several iterations facilitate an open minded approach: not thinking about legal, political or economic boundaries in the beginning. Eventually this leads to digital initiatives, many of which can involve ecosystem solutions.

Question:

You talk about “physical APIs” in the context of ecosystems. What do you mean?

The term API is used in the IT world to describe a protocol for how two IT systems interact by exchanging messages (requests and responses). Ecosystems require the formalizing of protocols on how companies interact. These protocols are the “physical APIs”. The ecosystem enablement method dictates that every node (company) in the business network needs to know how to interact with other nodes. There may be a gatekeeper in between, but you may not know this entity. Maybe it’s a business process that you never encountered. The agreed-upon physical API will describe how you interact with partners in the network. It may include agreements about IT-based information exchange (APIs in the traditional sense) as well as agreements outside the IT-world (physical APIs).

Question:

How can digitization help solve some of the world’s challenges?

We spoke before about using 3D printing instead dealing with customs procedures. This is feasible for some products, but by far not all. Digitization can help products last longer, e.g. by finding the perfect mix of fertilization, you increase the lifetime of fruit and vegetables. This is an IoT example. Data analytics helps find out what is the right environment, e.g. temperature and moisture, for growing plants. By controlling the growth of plants, we can mitigate supply chain risks. Similarly, digitization can help increase the selling opportunities for farmers, to reduce food waste. Digital solutions can bring products to target groups who have never had access to them. This is not necessarily for the benefit of a single company, but rather provide business and societal benefits for the whole ecosystem. We are all nodes in an ecosystem. Decisions in an ecosystem are based on what serves others, not based on what serves us.

This last sentence keeps going through my head: “Decisions in an ecosystem are based on what serves others, not based on what serves us”. Ecosystems are not only tomorrow’s revenue generators for enterprises, but also a means to realize a better world. A wonderful way to end today’s piece. Thank you Barbara.

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