Moving beyond digital transformation to embrace open ecosystems

To build internally, to centralize and wall-off resources, assets, and infrastructure, to prioritize competitive advantage over customer experience—these are all deeply ingrained business instincts. Yet slowly but surely, the largest organizations in the world are embracing a counter trend. This trend strikes traditional business leaders as counterintuitive, even counter-competitive.

Businesses are opening up

They are opening up to unlikely partners, sometimes even competitors, by sharing innovations, business information and data, by creating interoperable devices, and even relying on strangers to design ways to make their products better.

While ecosystems have always been part of doing business, the shift from material economy to information economy renders a paradigmatic shift in strategy: information often becomes more valuable when shared across different contexts. What’s more, this shift in strategy isn’t reserved for tech companies. Digital is forcing organizations of all kinds to open up and tap into interconnected networks—or risk losing out to competitors that do.

Ecosystem enablers both contribute to and extract value from broader networks. What follows is an analysis of four characteristics of ecosystem enablement.

1. Ecosystem enablement in products and services

Born of the need for software integration and hardware interoperability, companies are realizing that opening up their products and services can have profound competitive advantages. Take, for example, the Amazon Echo, a smart speaker whose use cases span far beyond audio. Amazon has opened up its Alexa products to brands and developers in two essential ways:

1. Hardware integrations: by allowing manufacturers to integrate with it directly.
2. Software integrations: by opening Echo’s skills development to the community, as well as voice services.

In effect, the product experience relies on a marketplace of apps and APIs created by developers who aren’t Amazon employees. Infusing interoperability and scalability alongside an an ever-growing list of other product or services means users enjoy a product they can speak to that evolves over time gaining new features and functions. Amazon and partners enjoy new revenue streams, new service channels, and rich contextual customer interaction data.

2. Ecosystem enablement in the supply chain

Companies have always relied on ecosystem partners to move supply and deliver demand, but emerging technologies are enabling new ways to account for inventory, to reconcile transactions, and forge transparency across previously siloed parties (and data sets). Blockchain technologies, for example, are an advancement in record-keeping, in which ledgers are distributed across parties instead of centralized to a single authority. Verification of an event is validated by everyone across the network, meaning disparate (often distrusting) parties are able to share visibility into product provenance and integrity. This includes a wide range of supply chain areas requiring costly reconciliation today, such as product tracking, integrity, compliance adherence, document management, inventory financing, and settlement.

3. Ecosystem enablement in innovation 

For organizations, the quickening and widening pace of technological advancement means innovation is no longer a choice, but an imperative. In this context, the “wisdom (or at least ideation) of the crowd” takes on new strategic value.

Companies are turning outwards for inspiration through a pipeline of outside startups, partners, developers, and university programs. Some organizations set up “open innovation” programs that issue challenges for the community to work on. Or take Tesla. It designed a fleet of interconnected cars that can actually learn from each other—one car’s “experience” trains the rest of the fleet. It also shares data with the U.S. Transportation Department and, in turn, other automakers.

4. Ecosystem enablement of technology

Technology companies themselves are undergoing a profound shift from highly centralized models of the past (think mainframes, Apple’s walled garden) to far more decentralized development architectures in both hardware and software. Meanwhile, virtually every technology giant is fostering huge developer communities to help drive open-source frameworks, protocol, standards and other products and services that benefit broader technological advancement.

For example, companies like Google, Amazon, Facebook, and Microsoft aren’t just leading the current AI market because of their deep pockets to recruit talent or access to data at scale. These companies are sharing their development frameworks via open-source libraries and communities. Google’s TensorFlow is a machine learning framework that offers a standardized way to build deep learning models. Developers are continuously offering feedback and suggesting improvements to TensorFlow and it has quickly become one of the primary software libraries for enterprise deep learning development. This quickly justifies the “give-away” while simultaneously improving the technology and underscores Google’s the dominance in the current AI market.

Whatever advantage a company might gain with a proprietary solution usually ends up negated by the lost opportunity cost sacrificed during development. This doesn’t mean proprietary goes away, or customization isn’t required; rather, when hardware, software and data become shared tools, the ecosystem exponentially accelerates innovation.

This decentralization of dependencies is part of a macrotrend, one of many characterizing the next phase of technology, business, perhaps even economic structures themselves. Although centralized structures are the dominant structural paradigm of modern businesses and societies, they can and do engender significant inefficiencies: redundancy, replication, reconciliation, fraud, sunk costs and low trust.

The nature of digital and the internet: accessible to all, from almost anywhere and, broadly speaking, defiant of geographic boundaries, exacerbates these inefficiencies. Just as the internet transformed the world in a way many intranets could not, the shift from centralized to decentralized is a natural evolution of meeting both business and user demands in the age of automation.