8 minute read 24 Feb 2020
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Four essential ingredients of successful ecosystem partnerships

Given that ecosystems are a major opportunity for businesses today, we explore four essential ingredients for successful ecosystems.

The digital era has put hundreds of new technologies in the hands of business leaders – offering them the opportunity to transform their business models, processes and customer experiences. But new technologies alone are not enough to meet these goals – businesses must be able to harness them to make them work for their company and customers in the most effective and efficient ways possible. This takes time, money and skills, all of which can be scarce resources.

So, what can companies do to get the most out of new technology and deliver value to their customers faster? One of the answers is to curate ecosystems. By this, I mean joining forces with other companies, aligning capabilities and sharing resources in order to create new and innovative products and services, and accelerate speed to market.

And this is exactly what businesses are doing. Ecosystems and partnerships are seen as the only way to succeed in today’s market, according to two-thirds (68%) of corporate business leaders surveyed in our new research, Tech Horizon: Leadership perspectives on technology and transformation, in which we surveyed 500 corporations1 and 70 start-ups across a range of global geographies and sectors.

In a separate survey of 400 director-level executives, commissioned by EY and due for publication in spring 2020, we found that respondents expect tapping into the ecosystem to materially contribute to their revenue: two-thirds (67%) believe it will account for at least 10% of their revenues in five years’ time.

By curating focused ecosystems, companies are able to drive value creation for customers in a way they wouldn’t be able to do in isolation.

 

Creating more value for the customer drives better business outcomes and increased satisfaction –and, as we all know, these, in turn, drive growth. With this in mind, it’s no wonder that 72%1 of corporates have won a significant customer contract through an innovation partnership.

Ecosystems are a major opportunity for businesses today – but it is not easy. Culture, complexity and contractual considerations all pose significant challenges to companies’ plans to tap into an ecosystem. Businesses which don’t get this right, and therefore don’t partner effectively, are at risk of not being able to serve their customers’ and markets’ needs as well as they could – opening the door to competition.

The four essential ingredients of successful ecosystems

1. A human-centric approach

The first ingredient of a successful digital ecosystem is a shared, human-centric approach to solving technology challenges, both internally and with customers. In the past, if a business identified a company issue, or a customer demand, they would look to their internal technology capabilities to see how it could be solved. They would have to work within the constraints of the technology available to them and their legacy architecture to solve the issue in hand.

This approach is not good enough in the digital age. Technology cannot be deployed for the sake of it and, alone, it will not drive the expected level of value shareholders are seeking.

 

Technology must be combined with a purposeful focus on the human dimension of transformation – how can the technology be used to create real-life value for the people using them? And can the solutions be used by businesses to generate real differentiation or shareholder value?

A human-centric approach like this is difficult for companies to achieve in isolation – companies simply must tap into their ecosystems in order to deliver it. By working within the ecosystem, companies are opening themselves up to a much more diverse range of technology, capabilities and ideas, which combine to create solutions that meet the needs of the intended audience and, ideally, society as a whole. This drives value creation and, ultimately, transformation. The “human enterprise” is essential to transformation, and companies can only achieve this as part of an ecosystem.

2. A collaborative, inclusive culture

Developing an outcome-driven and human-centric approach across a business requires cultural change, so nurturing a collaborative, inclusive culture is another essential ingredient of successful digital ecosystems. Ecosystem partners must be aligned culturally on their purpose, working methods, architectural design principles and incentives, in order to achieve effective collaboration.

A “do it ourselves” culture has prevailed in business for many decades, and working with another party – even a competitor – to solve the issue would be very rare indeed. But in the digital world companies must break free of this mindset and become more collaborative and open to partnerships, rapidly dis-assembling and re-assembling value chains. This is because, as we have touched upon, no single company can be expert in all areas of digital technology.

Teaming up with others is the only way to harness new technology to its full potential and to drive people-centric transformation.

EY’s partnership with Nationwide Insurance is a prime example of how curated technology ecosystems can deliver a differentiated customer experience. Nationwide recently launched its Spire2 digital insurance platform, designed to give millennials a simple and delightful auto-insurance experience. Spire is powered by EY’s Nexus™ for Insurance, a closely integrated ecosystem of established and emerging technology providers, including Microsoft, Socotra, Cambridge Mobile Telematics and many more. EY delivered Spire in seven months, and runs the application on an outsourced basis, allowing Spire to focus on the business and the customer.

Within our Tech Horizon survey1, it was encouraging to see that more than two-thirds (68%) of corporate companies say forging innovation partnerships is a priority in the next 12 months. However, more than half (54%) say there is a general sense of skepticism about partnerships across the business. This is a major concern, and is something that necessitates the development of a collaborative culture to overcome.

Building this type of culture starts at the top, and leadership needs to be seen to be open to, and engaged with, ecosystem behaviors. Across the business, training and incentives must be put in place to help employees follow suit. Prioritizing recruitment of candidates with a demonstrably ecosystem-focused mindset will also help build this culture in the long term.

3. A start-up and scale-up strategy

Having the right culture is an important success factor when it comes to ecosystems. In this vein, it’s also important to have an open attitude to working with companies that may be very different to your own – such as start-ups.

Some of the best examples of ecosystems we’re seeing in the market have harnessed the ingenuity and agility of start-ups, married with the scale and stability of larger enterprises.

For example, US giant Walmart3 is partnering very closely with start-ups as it looks to pioneer the future of retail. Its Store No. 8 project, which was formed in 2017, incubates companies that are developing retail-focused next-gen solutions, incorporating emerging tech such as AI and virtual reality. Through this initiative, the incubated companies get to tap into Walmart’s powerhouse of resources, while the retail giant gets to fast-track its retail tech ambitions – a win-win.

In the automotive industry, we’re seeing similar collaborations between start-ups and large enterprises, such as Ford and Lyft’s autonomous vehicle partnership.The main goal is that Ford and Lyft will be able to dispatch a self-driving vehicle to customers through the Lyft app. For now, the pair are building a technology platform and are using human-driven cars to test it out.

Harnessing the power of start-ups is an important ingredient in digital ecosystems because of the specialist focus they can place on a single technology. Developing an ecosystem of start-ups is a sophisticated way to maximize the value of these partnerships.

4. Robust contracts and internal processes

In the excitement of developing new ecosystems and partnerships around cutting-edge technology and human-centric outcomes, it is easy for more basic considerations, like intellectual property, contracts and processes, to become afterthoughts. But their importance cannot be overstated.

Even with the best will in the world, ecosystems will not succeed unless they are sealed with solid contractual arrangements, covering the nuts and bolts of the agreement: shared IP, commercials, distribution, customer support, data processing, legal details, personnel and so forth. This can be difficult for companies – especially if they’re orchestrating an ecosystem for the first time, or are among companies of a significantly different size, or with a different culture.

It is essential that each participant understands the other’s strengths, value contribution, competitive drivers and desired relationship with customers before contracts are drawn up, because these are crucial factors that feed into legal structure, IP ownership and general operation of the partnership.

In addition to sound commercial agreements with partners, companies must also work hard to ensure that the right processes are put in place internally to support ecosystem activity. Companies working within an ecosystem need to be certain about what each party is responsible for, in order to avoid controversy if something does not go to plan.

Often, the successful operation of ecosystem partnerships requires new roles and business functions, which can take time to build.

The digital world is bringing us together

Modern digital businesses simply must consider ecosystems as they look to transform – they represent a major trend as we look ahead to the next decade of innovation. If they don’t tap into the wider ecosystem of skills, technology and resources, they risk not being able to deliver the human-centered solutions that their customers and employees demand. In short, ecosystems are the vehicle through which companies can deliver new products, services and value at speed, and which, ultimately, will help them remain competitive and distinctive.

Summary

What can companies do to get the most out of new technology and deliver value to their customers faster? A recent EY survey found that, by curating focused ecosystems, companies are able to drive value creation for customers in a way they wouldn’t be able to do in isolation.

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