By J Katherine Bahr
The largest and fastest growing companies of the 21st century almost unilaterally seem to leverage an ecosystem strategy: putting themselves at the center of a platform that connects products and companies to solve an over-arching customer need. The classic examples — Google, Amazon, Alibaba — center around technology, but customer-centricity and digitalization are making these collaborative networks pivotal to market advantage across nearly every industry.
So how do established, non-tech companies transition to ecosystem building strategies? Not easily. Many of the norms that have defined success in a product-centered market create roadblocks on the drive to ecosystems. Product-strategy emphasizes competition, operations efficiency, and differentiating product performance. By contrast, for business ecosystems to be successful, all partners need collaborate, ensure success for all, and innovate together. But a new study from the Strategic Management Journal (SMJ) reveals that shifting to an ecosystem approach is possible for established, product-centered businesses and provides a model for success.
When to Shift to an Ecosystem Strategy
Business ecosystems emerge when a product solves customer needs in concert with other products like:
- Alarm systems, thermostats, and security cameras collaborating to create smart homes
- Taxi companies, rental car agencies, and public transportation aligning for mobility as a service
- Equipment along a manufacturing line integrating to share data and automate tasks
In these situations, many product-centered organizations question the ecosystem model at all, wondering why they should integrate with competitors when they could simply offer more products. That is exactly the approach that the machine manufacturer in the SMJ research originally took. They soon realized that they lacked expertise to compete in many product categories or the operations to remain efficient with such a large number of offerings.
After more than 15 years of failed attempts to create a full-scale product system internally, the company shifted to market collaboration strategy, putting their product at the center of an emerging ecosystem. The research team’s live studies began at this point in the ecosystem journey, and they were given unrestricted access to interview internal management as well as clients and technology partners, observe workshops, and examine presentations and reports to chart the company’s progress.
How To Shift to an Ecosystem Strategy
The heart of the market collaboration was to develop an integrative platform that could coordinate machines along a sequential manufacturing flow to capture data and automate tasks. The company’s original product, die-casting machinery, had a basic form of this software embedded. In an attempt to improve the product and ecosystem simultaneously, the company separated the software from the machinery and broke its R&D into two tracks—one for product optimization and one for ecosystem orchestration. The two teams worked in concert as well as with partners and clients to create a better functioning manufacturing system and created competitive advantage by optimizing their die-casting machine’s performance within it.
Creating that level of collaboration internally and externally required the company to adopt an open strategy process engaging managers, partners and clients; create a partner management role; and develop new norms for cross-departmental coordination. The cross-functional collaboration reduced internal conflict. The new partnership function helped win over industry partners and streamline communications, and discussing previously confidential strategy details with clients helped build trust and foster open dialogue.
Competitive Impact of an Ecosystem Strategy
The case-study company established itself as an almost uncontested leader of integrated, cross-company solutions in its sector between 2001 and 2020. By the end of the study, although most of their business value still came from machine sales, half of revenue was connected to integrated solutions.
The research suggests that businesses can use ecosystems to create competitive advantage in their marketplace while preserving product revenue. The key seems to be adapting their products to the ecosystem instead of vice versa. Unsurprisingly, but still significantly, the study also shows that a successful shift to an ecosystem market requires changes across strategy, product and system activities as well as organizational design.
Find a full explanation of the study and how the case-study company transitioned from a product to ecosystem strategy in the full text, available in the Strategic Management Journal.
Based upon:
Stonig, J., Schmid, T., and Muller-Stewens, G. (2022). From product system to ecosystem: How firms adapt to provide an integrated value proposition. Strategic Management Journal. https://doi.org/10.1002/smj.3390.
J Katherine Bahr is a Knoxville-based freelance writer and content marketer with an advanced degree in creative writing and a decade working in publishing and marketing.