Creating value from ecosystems strategy

Digital transformation in our everyday activities is happening at high rates. Virtually every person uses connected devices to communicate and share information to build their own networks for different purposes including new business models for value creation.

The same is happening in the industrial settings. Organisations and governments are setting up their ecosystems as a strategy to enhance efficiency and create value. An ecosystems strategy brings together a network of organisations. For example, an ecosystem strategy for tourism may include travel agents, airlines, airports, policy makers, hoteliers and travel platforms working together to deliver the best services through both co-operation and competition.

This relationship is such that one entity has the potential of affecting the other thus forcing each entity to adapt for survival in a similar way as the biological ecosystem.

In effect, it is a community of interconnected unrelated players with complementary abilities who participate in a value-creation process. This concept has been the subject of intense study and application in recent times.

A November 2019 study titled, ‘‘How the best companies create value from their ecosystems’’ by McKinsey, analysed four different types of ecosystem players and established that ecosystem strategies generate value from five sources: improved revenues from core products and services by decreasing churn and increasing customer loyalty, extending company’s business scope into adjacent opportunities to attract sales of new products and services.

Other opportunities include benefits attracting third party merchants into using the company’s platform thus increasing income, leveraging third party data that can be monetised through targeted advertising, and increased operational efficiency by helping players achieve economies of scale through combining of resources of multiple organizations.

The study argues that there are six core capabilities for creating value in an ecosystem. These include: advanced analytics, agile development and operations, governance mechanisms that bolster innovation and foster a client-oriented mindset, a strong platform that organises core capabilities and maximises synergies, entrepreneurial talent and partnership.

The study demonstrated that it doesn’t matter the size of an organisation to create value. What matters most is that in the era of an emerging digital world decisions are increasingly evidence-based and require data.

To succeed, higher levels of risk tolerance, entrepreneurialism and collaborations must complement better decisions.

The study concluded that in order to make ecosystems work, “companies must decide how they want to value and assess their progress. Companies need to select the path that best matches their scale and core assets and build the capabilities they need to pursue their ecosystem strategy.”

Ecosystems thrive in an environment of openness, value exchange, relationships, shared opportunities and trust. Participants in an ecosystem will have no doubt that any of their members can take advantage of the other.

Unfortunately, many organisations especially in the developing countries mistrust rules. Organisations fail to leverage such a concept to leapfrog and contribute to greater economic expansion.

The rapid rise of the Newly Industrialised Countries (NICs) of Asia was largely through building strong Global Value Chains (GVCs), a concept closely related to ecosystem development.

Indeed, many of the NICs have caught up with many of the more prosperous countries. There are good lessons to learn from GVCs to jumpstart Micro, Small and Medium Enterprises that characterise the landscape of many developing countries.

First, policy makers have to develop a strong industrial policy creating clusters that bring together technical and vocational institutions, customers, competitors, suppliers, distributors and supporting government agencies to deliberately develop the clusters into globally competitive enterprises. The current MSMEs in Kenya could easily become productive if there was more investment into tools (assets) and human resource capacity.

It is possible to create value by developing an ecosystem strategy for MSMEs as a strategy to make them globally competitive. A successful manufacturing sector contributes to economic growth as it happened with the NICs in Asia.