7 minute read 6 Mar 2020
Male colleagues working together while sitting by desk in office

How to drive innovation through ecosystems and partnerships

By Jim Little

EY Global Microsoft Alliance Lead and EY Americas Technology Strategy Lead

Technology enthusiast. Former CIO. Passionate about helping companies re-imagine their business, value propositions, customer and employee experiences using technology.

Contributors
7 minute read 6 Mar 2020

Leaders in digital transformation understand that they can’t deliver exceptional customer experience alone.

Customer demands are becoming more and more complex, often revolving around personalization, convenience and great experiences. But these are becoming harder to deliver than products, and companies are realizing that they cannot meet all of these demands alone.

That means not only forging partnerships, but also challenging typical sector boundaries in order to be nimbler and more able to innovate at scale. We see this in everything from online retailers partnering with bricks-and-mortar stores to offer customers a more convenient experience, to global technology companies tapping into an innovative ecosystem of start-ups to fuel technology development.

Market analyst IDC1 predicts that the power of ecosystems will only grow in the years to come. It is predicted¹ that by 2023, 60% of the G2000² companies will have a digital developer ecosystem, and half of those enterprises will drive 20% of digital revenue through their digital ecosystem. This trend is reflected in the data from EY’s research report, Six habits of digital transformation leaders. It found that more than two-thirds (68%) of all corporates cite forging innovation partnerships as a core priority for the next 12 months. That’s encouraging, but leaders are already there and are much more partnership-minded than laggards.

Figure 1: Leaders outpace laggards when it comes to partnering 

Leaders are far more likely than laggards to have won a significant customer contract through an innovation partnership (81% leaders vs 54% laggards) and to be investing more money in ecosystem partnerships than they did a year ago (75% leaders vs 40% laggards). It is important to note the value of a wider ecosystem – not just standalone partnerships. While single partnerships do add value to many companies, leveraging multiple partnerships as part of a wider ecosystem better enables companies to creatively solve customer problems and develop solutions that add value to the entire ecosystem.

Microsoft has ecosystem thinking at the core of its business model, with 95% of its commercial revenue flowing through a global network of business partners.

Gavriella Schuster, Microsoft’s Corporate Vice President One Commercial Partner Channel Chief, says that tapping into the ecosystem is essential as customers become more demanding and require personalized, specialist solutions.

“Meeting customer demand is paramount for companies that want to remain relevant in the digital world,” she says. “But doing this alone is difficult – or even impossible. Partnering within an ecosystem increases a company’s capacity to scale and accelerates its ability to respond to changing customer demand. Partnering with specialists allows companies to quickly tap new expertise to fill gaps they identify in the market.”

“Traditional business models are declining fast and the new market reality means that partnerships and ecosystems are critical success factors.”

For example, Keppel Corporation, a Singaporean conglomerate providing solutions for sustainable urbanization, partners with start-ups, education centers and larger global companies to develop the best products and services possible. Although the process of connecting with partners is formal, Global CIO Jacob Tong says it must remain as fluid as possible to fuel innovation. “Care is taken not to create too rigid a framework – partnerships are instead assessed on their potential, not too many defined points,” he says. “An assessment of key capabilities and attitudes is made, before shortlisting. Partners that are ultimately selected are those that we are confident of being able to drive a win-win relationship.”

  • In which industries are companies most likely to create alliances?

    The appetite for partnering with other companies varies by industry. Financial services are in the lead when it comes to winning significant customer deals as a result of an innovation partnership: 83% of financial services companies say this had been the case, which is well above the 72% average.

    This is encouraging, and perhaps reflects the appetite of larger, more established finance players to link up with innovative fintechs. For example, in 2018 HSBC US Commercial Banking  announced plans to launch a Digital Partner Platform to improve its customer experience through digital partnerships, streamlining the ability of fintechs to partner with the global bank.  

Overcoming partnership challenges

Although companies see the potential of a partnership ecosystem, there’s still some resistance. More than half (54%) the corporations surveyed retain a general sense of skepticism about the opportunities partnerships present. In fact, leader companies feel this slightly more, with 56% expressing skepticism about partnerships. This is partly due to leaders being more advanced with partnerships – they may be more aware of the challenges involved in getting from ideation to a scalable solution that provides value to both parties.

“The first challenge is getting the culture right with respect to teaming, and an ‘open architecture’ mindset,” says EY Global  Technology Consulting Leader Dan Higgins. “Equally important are the agreements you put in place to govern the relationships – everything from who owns the IP, to what you do with the innovation that is co-developed, and how you manage that. It’s all solvable, it's been proven to be solvable, but it requires focus and some maturity of thought. Design principles for agreements should be addressed very early in the partnership discussion. If you wait to try to address this toward the end of the conversation, there’s a higher degree of opportunity for it to come undone.”

Challenge with innovation partnerships

42%

of all surveyed corporate companies worry that innovation partnerships will harm their internal culture.

We find that 42% of all corporate companies worry that innovation partnerships will harm their internal cultures, a figure that rises slightly among leaders to 45% (again, perhaps owing to them being more aware of some of the challenges in undertaking a partnership). Many companies may worry that their ecosystem partners do things better than they do, and feel threatened as a result. To combat this, robust change-management processes must be put in place.

“I have seen some very smart firms attempt to create an open platform upon which to invite innovation and collaboration from start-ups and emerging technology players,” says Higgins. “They’ve thought about how to do it in a very modern way, creating open architectures, APIs and microservices to allow that. But then they’ve fallen down in how they’ve approached the interaction with start-up and scale-up communities. They operate and think of themselves very differently than corporates and large hierarchical firms. There is a cultural challenge that makes ecosystem curation difficult.”

The value an enterprise can create within an ecosystem is directly proportional to how well the relationships are managed. A successful relationship requires trust, transparency, and equitable sharing of benefits, as well as effective operational enablement of the relationship.

Greg Sarafin, EY’s Global Alliance and Ecosystem Leader, says that enabling effective relationship management has unlocked hyper growth across EY’s top ecosystem relationships.

“A few years ago we realized that we had a lot of alliances on paper, but the uplift we were getting was only slightly accretive to the overall growth of the firm,” he says. “So we set about curating down to a shortlist of alliances that we would invest in disproportionately, starting with effective relationship management enabled by support services for campaigns, co-innovation, data quality and management information systems (MIS), communications, collateral, compliance, quarterly business reviews, events, and much more. 

“To do this cost effectively at scale, we created a shared service function in low-cost markets, underpinned by significant investment in technologies such as automation and AI. The impact was almost immediate, with growth rates tripling and becoming highly accretive to both EY and its alliance relationships. Driving material revenue contribution from the ecosystem requires a certain level of infrastructure to enable the relationship and joint go-to-market pieces."

“If you aren’t willing to fund the infrastructure, you won’t get results, and you run the risk of creating relationship strain from missed expectations. The good news is there are leading practice models you can draw upon to know where to invest and how much to invest relative to the outcomes you wish to drive.”

Actions for the boardroom

Ecosystem relationships are key to moving with speed and unlocking new opportunities in the next decade. To excel, companies will need to:

  • Proactively explore the areas of value that are too challenging or require too much investment of capital to achieve with existing capabilities
  • Scan the market to identify potential partners, undertaking “art of the possible” discussions before launching into the specific legal and contractual nature of the relationship
  • Dedicate ample time and resources to culturally embedding the relationship across the organization
  • Articulate the value for customers and employees.
  • Establish a recurring review process to allow all parties to generate and receive value from the ecosystem
  • Be sure to set up an effective relationship-management process supported by robust enablement services

Summary

More than two-thirds of corporate companies surveyed by EY say forging innovation partnerships is a core priority over the next 12 months.

Once concerns about data, IP and culture are ironed out, leveraging multiple partnerships, as part of a wider ecosystem, can better enable companies to creatively solve their customer’s problem – and add value to the entire ecosystem. 

About this article

By Jim Little

EY Global Microsoft Alliance Lead and EY Americas Technology Strategy Lead

Technology enthusiast. Former CIO. Passionate about helping companies re-imagine their business, value propositions, customer and employee experiences using technology.

Contributors