The business ‘ecosystems’ we grew up with were linear – we went down a generally limited path of options to get the job done. Disruptive digital innovations have changed all that. Marketplaces are now defined by ecosystems that are multi-dimensional and complex. They work around all of the old value chain rules and go direct to the customer in a new and more efficient way. The outcome: new customer relationships, more data insights and startups who get between you and your customer in unexpected ways. Business ecosystems are now dynamic, with a plethora of options. You’ll need a new set of tools to leverage an ever-changing set of new players and plot your own pathway to customer value.
Think of traditional chess as the old ecosystem, Star Trek’s 3D chess as the new – remember when you saw that for the 1st time – your mind went right to the new frontier: how many new, unique and cool moves!
The HBR article “Thriving in an Increasingly Digital Ecosystem” points out that businesses need to think more broadly now about their business ecosystem. The authors Peter Weill and Stephanie Woerner had an important insight during their research: In this period of disruption, businesses that are narrowly focused on value chains were at a disadvantage. They also found that most companies don’t think of themselves as operating in an ecosystem, but instead as participating in a more linear value chain. It’s time to get on the board and play in the new 3D ecosystem!
What Does the New Business Ecosystem Offer?
New moves – new layers of opportunity – new ways to engage – all of it going on at the speed of new ideas. Digital technologies present an ability to break down industry barriers and create new opportunities while destroying long-successful business models. They let us short-cut the old linear value chain by giving us an inexpensive path to both gather data and engage customers directly. Airbnb exists because the Internet and mobile could incite homeowners to list rooms and go direct to travelers. Uber and Lyft are better than taxis in so many ways including transparency about drivers and how they are getting you to your destination. It’s just better. It wins easily with customers and takes an exponential hold in the market.
What does all this mean for your business? Could be turmoil. Or if you understand it, great opportunity. In this article, we’re going to tell you how you can learn about your new ecosystem and use it to your advantage.
Behold the Ecosystem of Startups and New Pathways
This market map image shows a view of companies that are part of the retail business ecosystem. It shows start-ups innovating in a few areas of just one industry. For those innovations that get adopted by the customer, there will be spinoffs of more new ideas, new technologies and new ways that the customer will use them to solve their needs. Innovation is happening all around the ecosystem….at internet speed, and your customers are discovering, adopting and leveraging these innovations for new possibilities.
This is the environment where you must now partner and compete. On one side, multiple new entrants are trying to get between you and your customer. On the other, new technologies are giving you opportunities to be the disrupter, increase your customer relationships and find new cross-selling opportunities.
The Key to Leveraging your Ecosystem: Understand the Customer Journey
Mapping out the customer journey has long been a central element of the marketing plan for established companies. It used to be a relatively simple exercise. The marketing executive plotted out the incumbents and their offerings. They tried to create competitive advantage by being faster, better cheaper – mostly around processes – leaving the products to simply offer: ‘better sameness’.
Those who understand new technologies, see a better, less expensive path to your customers. Entrepreneurs are special because they experience pain, get annoyed and get busy using new technologies to weave together a better way. Reshaping the customer journey through the ecosystem gives them this power.
Banking Under Siege by New Ecosystem Players
When Josh Reich arrived in America from Australia to attend grad school at Carnegie Mellon he quickly realized he had no idea how to write a check and do a simple transaction with his bank. This began what he termed an ‘adversarial relationship’ with his bank. Unexplained fees added up and he felt beaten down by the bank. After getting his MBA in finance, accounting and economics he decided to fix this problem and started a new kind of bank, Simple.
Simple found a new, more effective way to interact with their banking customers by presenting a user enabling front end and a way to save for specific projects while tracking spending. There are no physical bank branches, instead Simple uses fee-free ATMs inside places like CVS, 7-Eleven, and Walgreens. The company makes money splitting interest margins with its partner bank and splitting the service fee on debit-card purchases. There are no overdraft fees, late fees, or any other more traditional banking fees. Customers took notice and their growth tells the story, “If we were a traditional bank, we would have needed 945 branches to support the growth that we’ve had. We have 320 people and we’re well able to punch above our weight class.”
We started Simple with the realization that banks make money by keeping customers confused” – Josh Reich, Founder, CEO Simple
“Our hypothesis was that there is a different way to grow the banking business. The traditional way is through the price mechanism. They all ended up doing the same thing — free toasters, sign-up bonuses, introductory interest rates, branch proximity, marketing spend — it has always been linear. What we do to grow is invest in the user experience, primarily delivered by the Web. If it works great for 1,000 people it doesn’t cost us 10X to deliver the experience to 10,000. We’ve made a big investment in the first order costs of developing technology and in our model” explains Josh Reich.
That’s using the ecosystem of bank partners and retail ATMs to build a better bank!
How Do They Do It?
Digital Giants and Start-ups can come out of nowhere, re-shaping the ecosystem and changing the playing field. While they also plot out the customer journey, they are looking for three different things:
- Finding the ‘constraints’ where technology can create shortcuts and paths that no one else has seen.
- Finding the areas where a few established companies are competing – at high margins and, again using technology to: shorten the cycle, predict the choices or personalize. They launch a minimum viable product (MVP) then squeeze the margin. In this area, they will also look to offer an enhanced customer experience – even if it is only by introducing DIY options
- Adding a data component to a product. This often includes finding where they can introduce a smart capability; creating a platform to develop an on-going, direct relationship – leveraging data for context, predictability and demand-discovery
As mentioned in our previous whitepaper on The Evolution of the Innovation Marketplace – much of the difference between established companies and start-ups is ‘greenfield’ – relative to people, process and technologies. With no prior infrastructure constraints, they have the ability to move fast; leveraging continuous process and a wide range of technologies to create disruption across the customer journey. There are no organization or infrastructure rules for them and that is a decided advantage.
Retail Ecosystems: Push vs Pull Thinking
Established Retailers come from a mindset of: ‘what’s inside the four walls of the store’. Their view of evolution: stores – then adding catalogs – then the internet – then social-media – then omni-channel marketing. But, it’s still about the store and thus, the most significant initiatives are around getting the product delivered – from where it is (the store, the warehouse, etc.), into the customer’s hands – faster, better, cheaper than anyone else. Basically, this is old-style ‘push’ mentality, or said another way: better sameness.
Retailers continually come up with more complex combinations of in-store, free shipping, loyalty programs, etc.; all of which may push the needle one way or another – until someone comes up with a disruption. A disruption like; Amazon’s new Doorbell for Secure In-Home Deliveries. This innovation will change the way packages arrive to you either in home or to your parked car.
Established Retailers aren’t wrong about the importance of delivery, they just need a wider view about what trends are taking over and how new models will catch on with customers. For more on the wider view, see our recent blog: Retail, It’s Time to Run (not hide) From Your Future.
Put yourself into the mindset of a Digital Giant or a start-up. They generally don’t think in terms of ‘push’. They look to engage directly with the customer; creating a ‘pull’. The pull isn’t about the stores’ four walls, it’s about establishing a direct, demand-discovery relationship with the customer. One of the things Amazon/Echo, Google/Home and others are doing involves creating this ‘pull’. In addition to basic sales, this direct relationship/pull will enhance ‘prediction’, knowing what/when the customer will be buying.
Another example of “pull”, Stitch Fix a 6 year old company that plays to the growing desire for extreme convenience and highly-personalized shopping. They are a subscription based, personal shopping service for people on the go. In a few short years they built a loyal customer base and over $750M in revenues (2016). Data shows that 85% of millennials are more likely to make a purchase if it’s personalized to their interests. Customers fill out a profile and get ‘fixes’ s
sent to them. Shipping is free in this no-hassle model. Stitch Fix becomes smarter as the customer sends them feedback. Data Scientists and stylists are the core employee base for this business. This is a disruptive idea changing the nature of retail and winning by combining new technologies with a new way of thinking.
And ….There is Still Much to do With the Four Walls
BestBuy and their new Ignite initiative are going back to their roots and recasting their foundation using startups as the innovation core.
Ignite is a great example of leveraging the Innovation Marketplace to re-shape the Ecosystem – on steroids! Ignite builds on BestBuy’s’ legacy of offering really cool, innovative products, some of which ‘aren’t yet on their shelves’. The concept involves working with ‘new, early-stage products/start-ups in the market’. Creating a kind of Open Innovation both in-store and beyond the four walls. In essence giving customers ‘more opportunities to discover some of the coolest tech out there.
Leaders in Every Industry are Making the Right Moves
The insurance industry is notoriously complex and that sets the stage for new entrants. MetLife has confronted the problem of slow, incremental change (better sameness) and complex offerings by creating an internal platform: Collab to work with and manage startup relationships.
MetLife started by laying out their customer’s journey. Their process identified friction, constraints and slow downs. Essential to success: ‘problem definition’. It sets the stage to a successful discovery and relationship program with startups. They then created scouting challenges to find outside resources in the areas of need. MetLife Collab invites startups to connect with them on the following basis:
• Front End Operations
• Back End Operations
• Financial Management
• Customer Engagement
The Collab site lists those start-ups that are already engaged to help fill the gaps across the Insurance Ecosystem. Each new addition to the Ecosystem will help guide the customer to engage with MetLife.
MetLife’s offer for engaging with start-ups: Collab 2.0 is the beginning of a beautiful friendship – it includes a contract that can ‘change the trajectory’ of your start-up. It includes much of the power, prestige and resources of an industry-leading insurance provider, plus the potential for a funded, ‘revenue-generating pilot’! See Collab’s list of benefits below:
Can this happen in Healthcare? It Already Has!
AthenaHealth, is leading the way with their “More Disruption Please” initiative. Partnering with outside resources (start-ups and others) to “provide elegant solutions so that healthcare providers can focus more time on their patients’. They offer support across a wide range of operational services, such as: Billing, Administration, Care Management and Medical Records.
AthenaHealth’s Open Innovation program is re-shaping the Ecosystem with services that alter their customer’s journey.
Many organizations are at the beginning of an exploration around Open Innovation. Intently focused at how start-ups and digital giants will impact the ecosystems where their offerings play. These organizations are looking to understand the full dimensions of the future ecosystem model and it’s critical both to the future strategy and operation of their company.
According to a recent McKinsey study with 300 CEOs across 37 industry sectors – worldwide: fully one-third had cross-sector (ecosystem) dynamics top of mind. Results of the study: ‘within a decade, companies will define their business models not by how they play against conventional industry peers but by how effective they are in competing within rapidly evolving ecosystems’
How Do You Re-Shape the Ecosystem So Customers Choose You?
There are three things you need to do in order to make the ecosystem work for you:
1. Understand the Job
Create your own ecosystem map. You can work with a company like The Innovation Scout in order to define the ecosystem. Looking at the Retail Store Tech Market Map at the top of this whitepaper as example, it is not only a map of start-ups looking to gain traction, it defines the areas of value creation. Emerging technology and new business models will be exposed on the map to understand what’s gaining traction and where investors are placing bets. It’s also a way of looking into the future. A crystal ball into how the new offerings will impact the customer journey.
2. Find and Define the Pain
This is the transformational part. This is the time to understand the pain. Talk to customers and prospects outside of your corporate environment. What are the things they find disturbing, frustrating, urgent or uncomfortable? It’s also important to discover when they have this pain.
You need a candid view of where your business is currently missing a need or causing a pain. You’ll need to go outside of your comfort zone to do this well. Another good exercise is to understand the pain points that your competitors and the startups in the ecosystem are addressing. Ask startups “how did you get the idea to start this business”?
For startup Stitch Fix, they saw the pain of working women with no time to shop. They developed a personalized service that shops for them matching clients with boutique-brand clothes, shoes and accessories on recommendations powered by a combination of data science and human stylists. Shopping is a pain point, Stitch Fix used ¬¬the ecosystem to solve it.
3. Shorten the Journey
With your established business, you certainly have an organization of people, a structured process and an IT architecture; all designed in support of your core offerings. That’s where it gets sticky. To overcome the ‘sticky’ parts of your present day process, you need to leverage the Entrepreneurial Minds. This is ‘what if’ time. Where design thinking can play an important role. This is the time to assess all of the startups in your ecosystem who can play a part in your new path to the customer. This is where ‘lean startup’ thinking, and creating ‘minimal viable products’ are important. No need to spend enormous amounts of time or budget, it’s a time to “think and do” like a startup.
With this window into the future: try looking at how you will want to partner, what you want to avoid and where you must establish an iron-firm connection with the customer. Keep in mind the concept of 3D Chess and note that this is a moving target. That each of these start-up innovations will have their trial-by-fire and either succeed or fail. Not by how much money they raise from investors, but by how the customer chooses to use these offerings to satisfy their needs. Over time the successful offerings will become embedded in the customer journey and be virtually impossible to replace.
Innovation supply is in abundance. The innovation marketplace is vast, growing fast, and many of the entrepreneurs are interested in working with you. The key involves hunting through the millions of global start-ups to find the right ones. Then going through a process to identify, access, engage and accelerate. Luckily, we have an app for that!
Where Do You Go From Here?
The Innovation Scout
There isn’t a simple formula, rather you need to find the areas that are important for your business within 1 year, 2 to 3 years and 5 year horizons. With this in mind you can plan a strategy that will address each ‘horizon’ and get your team positioned to win in the long term.
Most important is the process to define the ‘challenges’ ahead. The Innovation Scout has a program to help clarify the most important projects that will change your future. The Innovation Scout Canvas will help your team to clearly articulate the problem, define critical success metrics and nail down why your company needs to accomplish this challenge.
Next will be the scouting phase to find relevant startups. Then the assessment process will help you decide just which startups could be good pilot partners or who you want to watch longer term for competitive reasons. We have a platform that will help you to accomplish these goals. We also run programs to Fast Track your innovation and get you to a pilot with the best startups for your challenge.
For innovations that get adopted there are many options: spinoffs, pilots to test new products and services or even acquisitions to change your business over time. Success is in your hands, The Innovation Scout can show you the pathway and partners to help you get there now.
About the Authors
Michael Glavich, Chief Business Accelerator & Change Catalyst for The Innovation Scout. Michael delivers a unique combination of digital strategy, marketing, and whole-product development that seeks to “change the playing field”, creating unique and unbeatable competitive advantage. His back- ground includes business acceleration consulting at Diamond Technology, Index and most recently Maxos.ai; a combination start-up factory and global think-tank. He has spent a lifetime creating innovative new ways to grow successful businesses and representing thought-leadership service offerings from a number of the top fifty living business thinkers in the world.
Annette Tonti, CEO & Co-Founder, The Innovation Scout. She is an executive with over 30 years of corporate and entrepreneurial experience. As founder and CEO of 3 high-tech startups, she has developed early stage businesses and raised over $30M from Venture and Angel investors. Early in her career she delivered digital strategies to Fortune 1000 businesses, ran a global program for the MIT Media Labs and headed up operations for a global telecommunications consultancy.
About The Innovation Scout™
The Innovation Scout helps corporations with their growth initiatives by matching them with startups, University IP and other open innovation partners. At its’ core, The Innovation Scout is a SaaS innovation platform – the accompanying ScoutBots and Fast Track services are designed to accelerate legacy companies’ ability to identify, engage and acquire innovation. We use patent protected machine learning and big data methodologies to ensure the most relevant connections are made.
In its’ simplest form, the SaaS platform can discover: what is happening, why it’s happening and what can be done about it. From a broader perspective, the SaaS platform can serve as a foundational app in helping digitally transform legacy companies.