The 3 changes
In their article, Stonig, Schmid and Müller-Stevens describe the case of a German company which moved from selling an aluminium processing machine to offering an integrated value proposition including robots, presses and furnaces. The ecosystem orchestrator model has several key benefits. It creates superior customer value through integrated solution. Coordination costs between independent firms are reduced. Last but not least, firms at the center tend to capture a large share of the ecosystem’s value. Moving from product manufacturer to ecosystem orchestrator means the company takes a smaller size of a much bigger pie. It means also favoring the development of other companies which join the ecosystem.
Analysing in detail the case of the company over 20 years of transformation, authors conclude on 3 changes:
- Strategic reorientation. In this transformation, what used to be central (the product) becomes a component of something much bigger (the ecosystem). It takes a clear strategic reorientation about the role of the company, its place in the value chain and the nature of interactions with partners. In the case described, this reorientation has been clearly stated at the beginning of the process and the internal debates were quite intense to reach an alignment on this new orientation.
- Reconfiguring and aligning products and ecosystem activities. Becoming an orchestrator of an ecosystem requires several new assets. First, in order for the value proposition of integration to be delivered, a software and data platform is required to connect all products. Manufacturing companies are not all software-ready and this implies new competencies and mindset, particularly when the software is to be used by external stakeholders. Second, developing an ecosystem requires increasing the level of openness to welcome within the scope of the ecosystem other companies, some of which potentially competing on the product. Third, as products are components, the technical scope of the products needs to be adjusted and reduced to foster compatibility and integration with other products. In particular, its “smart” components (sensors and data) must be adapted to be compatible with the platform and the other products.
- Organisational design changes to support ecosystem creation. To manage the ecosystem, new functions are required like partner management. In addition, some parts of the organisation need to be restructured, for example, reorganizing R&D around clients issues (and not around technologies). Last, in order to design the rights governance mechanisms and the rights offerings, strategy and product developement activities are partly performed with external stakeholder and clients.
The role of data
With products connected to a digital platform, data is one of the unifying thread of the whole ecosystem. Data also support the integration value proposition. It’s because data flow accross the ecosystem that valuable information is captured and products are connected: information on the products or on the way they interact.
The value comes from the integration but not much from network effects. The complementarities between produts were driven mainly by increasing the quantity and quality of data exchange between products and the ecosystem, rather than the network effects of a growing installed base.
- The move to ecosystem orchestrator has significant impact on profits by both increasing the margin of established products and introducing new monetization mechanisms at the ecosystem level.
- It requires to abandon previous hypotheses on success and to frame differently the role of the company.
- It takes to consider what was the center of the attention (the product) as only one component of a bigger system (the ecosystem) and to reconfigure significantly the operations.
- Network effects are not everything: significant value can be provided to each client independently of the total number of clients.
- The value of data accrues when they flow (here between products through the ecosystem platform).
In a nutschell, this kind of transformation requires to work on all key building blocks of an organisation: vision, positionning, processes, structure, mindset and skills. A real leadership challenge.