Open Business Ecosystems

Open business ecosystems — a new digital business model

The digital transformation drives organizations into extending their business to greater ecosystems but what is the reason for this evolvement? A business ecosystem is key to meet the fast-growing competition that the globalization and digitization yields and enables organizations to exist in an era of digital, fast-changing business models. Examples of successful business ecosystems can be found from time to time and are very diverse. Take for example the joint venture that Daimler and BMW started in 2019 to explore the mobility services and technology of the future. Both car manufacturers want to profit from the joint venture by combining their mobility services into joint services to evaluate the customer needs and to confront other car manufacturers. Many executives want to enter business ecosystems as all-in-one solutions fearing to miss out trends and changing customer needs. In contrast to this naive approach of entering business ecosystems, the focus of such alliances shall be concrete business problems — otherwise, the ecosystem will lack clarity, openness, and enablement. Let’s have a look into the different aspects of open business ecosystems and how these will interact with an enterprise’s business model. Furthermore, the domain of autonomous driving yields a lot of potential for ecosystems as a lot of enterprises are investing time and effort into exploring mobility trends.

Business Ecosystems

The term business ecosystem is quite widely used. In the context of this article, a business ecosystem is the alliance of independent economic players that combine products or services to follow a coherent goal. Economic players can be enterprises, organizations, or public institutions that share a common value proposition. Early business ecosystems can be identified from the textile industrialization where independent specialized craftsmen exchanged critical services in trading hubs. Basic affiliation-based ecosystems like supplier partnerships are not included in our understanding of business ecosystems as they do not join a concrete business problem. Creating business ecosystems is not a new concept. The following characteristics distinguish the difference between business ecosystems and other ecosystems:

  1. Modularity: The product or service components of the integrated ecosystem parties are offered independently, and it is up to the customer to choose from a list of components that can be combined as they are complementary.
  2. Customization: The contributions of each ecosystem party are customized to the needs of the ecosystem for serving the coherent goal and therefore may include efforts to make the standalone services fit the ecosystem.
  3. Interdependency: The ecosystem consists of interdependent interactions between the involved parties which affect the agreed contracts.
  4. Coordination: To successfully govern business ecosystems coordination efforts are necessary to control the interactions. This coordination can be ensured by defined standards and processes.

The variety of different business ecosystems can be categorized into two ecosystems found in practice. A solution ecosystem, on the one hand, creates a product or service by coordinating contributor along the value chain and, on the other hand, transaction ecosystems which match two-sided markets through a digital platform. The benefits of aligning through ecosystems are access to broader capabilities, scalability, reduced time to market, flexibility, and resilience.

Open Business Model Pattern

According to Gassmann et al. (Link), the open business model pattern represents a collaboration with partners which are a central component of value creation. While the interaction with suppliers is the most obvious collaboration partner, also customers and competitors can be part of the ecosystem. One example might be the competitive ecosystem that Apple, Fitbit, and Garmin created. In the health-tracking domain, the three providers of smartwatches built ecosystems with different software providers e.g. Fitbit allianced with Google for a deeper integrating Fitbit into electronic medical healthcare systems.

The open business model pattern can be found in different industries and amongst others in retail, fashion, and information technologies. In retail and fashion, ecosystems often target to reduce the risk of missing fashion trends in fast-changing markets. Besides this, ecosystems in this industry are beneficial to split the high costs of marketing and branding. In the information technology industry alliances are best for enabling scalability e.g. for selling software products.

Open Business Ecosystems

Defining open business ecosystems allows the specification of several strategical dimensions. The following dimensions shall be considered when deciding on open business ecosystems according to Gartner (Link):

  • Ecosystem strategy: Organizations can play different roles e.g. by leading, disrupting, or orchestrating the business ecosystems. Being part of several business ecosystems furthermore allows the alignment of single strategies.
  • Degree of openness: Business ecosystems can be categorized into public, private, or hybrid ecosystems depending on the possibility of organizations to enter it.
  • Engagement of diverse participants: Depending on the aim of the ecosystem its participants may have diverse characteristics e.g. being focused on sales or technical engagements.
  • Types of relationships: With an increasing number of ecosystem participants the relationship management becomes more difficult. One solution for reducing these relationship efforts is to leverage digital platforms that easily provide relationship management.
  • Form of value exchange: Ecosystems have a common goal of exchanging value. The definition of value is very broad while some organizations aim for money others aim for information, reputation, or other forms of non-monetary benefits.
  • Diversity of industries: Business ecosystems are not restricted to specific industries and the participants may not be part of one single industry. The heterogeneity of the participants may be the key to exchange best practices.
  • Complexity of multiple ecosystems: Being part of multiple ecosystems requires understanding how they can be leveraged for their full potential.
  • Technologies: Technology will enable business ecosystems by providing options for interfacing data, analyzing business behavior, and to exchange information.

With these strategical aspects, organizations can respond to changing demands in a digital era where change is the new status quo.

Open Business Ecosystems Pattern

Now that business ecosystems have been explained and what its strategical dimensions are, we want to have a look at the effects of the business ecosystems pattern to the business model blueprint:

  1. Value Proposition: Among other aspects e.g. cost average effects or a strengthened customer relationship, the improvement of the customer value proposition is the main reason for entering business ecosystems.
  2. Key Partner: Business ecosystems heavily rely on alliances with organizations which shall be considered as key partners.
  3. Key Activities: The main activities of a business ecosystem are the exchange as well as the alignment with the ecosystem partners and the adaption of won insights.
  4. Key Resources: As main resources, the integration with the ecosystem can be highlighted such as meeting technical requirements and common standards.

The above characteristics of the pattern are visualized on the business model canvas below according to Osterwalder and Pigneur (Link).

Open business ecosystems pattern in the BMC

Solution and Transaction Ecosystems

According to BCG (Link), there are two types of ecosystems found in practice. On the one hand, solution ecosystems that focus on the creation of a product or a service along a chain of several organizations and, on the other hand, transaction ecosystems that act as two-sided platforms bringing together offerings and demands.

Solution ecosystems are probably the most common form of open business ecosystems having the main organization which orchestrates a network of several contributors. At the beginning of setting up new solutions, ecosystem contributors have an active part in creating the solutions and when the solution is part of a standard offering the contributors will become a supplier contributing to the overall solution. Customers of solution ecosystems usually are not part of the ecosystem itself but will consume the product or service that the ecosystem is providing. Successful examples of solutions ecosystems include organizations that outsource global services. The main reason for outsourcing such services is the high cost of maintaining them on a small scale. Take for example a proper research and development department. Companies that might be part of solutions ecosystems for outsourcing global services might be the company Motius for outsourcing research and development, Testbirds for crowd acceptance testing, or Personio for human resources management.

Transaction ecosystems rely on a digital platform that brings together producers of products or providers of services and their customers. In contrast to solution ecosystems, transaction ecosystems directly include customers. This is the reason why a lot of effort is put into the customer relationship. Two-sided markets will help to reach a great audience of customers as it may include complimentary service providers. One example of transaction ecosystems is Twitch. The streaming service provider maps content providers with interested parties for entertainment. In this example, the customers can even switch their role in being service producers themselves.

Example: Software-Defined Computing System

Let’s have a look at one of the most promising ecosystems for autonomous driving: the partnership of Daimler and NVIDIA (Link). Together with the global leader in computing infrastructure, Daimler is aiming for revolutionary software-defined vehicle systems for autonomous driving which shall be launched in 2024. The basis for the software-defined architecture will be NVIDIA’s DRIVE platform for developing the most sophisticated automated driving functionalities. The following components shall be part of the joint development:

  • Autonomous driving for level 2–3
  • Programmable vehicle software for upgrades
  • Over the air updates
  • Safety and convenience applications

Joining the forces will help Daimler to catch up with Tesla and other car manufacturers for autonomous driving and will position NVIDIA as the main infrastructure provider for data-driven and deep neural network development.

Best Practices

Including the following best practices into your open business ecosystem will help to strengthen your business model strategy:

  • Agree on responsibilities: Open business ecosystem may yield unclear responsibilities and requirements. Concluding agreements will help to understand the responsibilities of each ecosystem contributor.
  • Multi-strategy ecosystems: Try to follow a multi-strategy being part of several ecosystems in horizontal and vertical value chains.
  • Define exit scenarios: The saying “Finish on a high note” can be seen as equivalent to exit scenarios for joint business ecosystems. Define exit strategies for positive as well as negative outcomes.

Related Patterns

The Open Business Ecosystem pattern can be put in correlation with the E-Commerce business model pattern (Link). In E-Commerce, a lot of services can be combined in common products and services e.g. with the outsourcing of logistics, payment, marketing services, et cetera. The opening example for the retail industry is one of the examples why open business ecosystems are beneficial for e-commerce and allow a lot of potentials for small and medium businesses.

Conclusion and Final Thoughts

Opening up businesses for the development of services and products to partners, customers, and competition offers a lot of changes but also yields challenges for securing intellectual property. While there is a variety of already existing business ecosystems you may also start creating your ecosystem if the already existing ones do not fulfill your aim for joining alliances. As a rule of thumb, it is way easier to join an already existing ecosystem, but it will also be much more demanding with little flexibility.

Solution ecosystems provide value across a chain of partners and tend to be very specific for a business challenge while transaction ecosystems include open digital platforms. The partnership between Daimler and NVIDIA for the future of autonomous driving is a very good example for open business models and strategically joining forces.

Further Readings

Consider the following readings for more information on digital business models and how to adopt AI for your business.

Business Models of a Digital Era (Link)
Do not miss this article about how digital transformation and digital natives are changing the business. With the adoption of emerging technologies and customer behaviors, companies show a variety of new business models patterns face the characteristics of a digital era.

The Keystone Advantage: What the New Dynamics of Business Ecosystems Mean for Strategy, Innovation, and Sustainability (Link)
Today, the success of businesses more and more relies on networks of collaboration. The battle between single companies is changing to battles between ecosystems that are exchanging assets, resources, and information. Marco Iansiti and Roy Levien elaborate on how to leverage ecosystems for long-term business success. Nowadays, a company’s survival depends on the protection and success of its network.

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