The emergence of platform-driven ecosystems offers opportunities for upstarts and established companies to connect with new customers and build new businesses. While successful players of both types share a determination to succeed in such ecosystems, they know that they can only win by collaborating and contributing their complementary capabilities and resources.
Harnessing the Power of Ecosystems
Seemingly every industry is undergoing a shift from manufacturing-driven structures that originated during the era of industrialization to user-driven structures influenced by digitalization (McAfee and Brynjolfsson 2017). Three key developments are fueling this transition:
Increased computing power: As the power of computing has dramatically increased – with quantum computing promising another step forward – and the cost has decreased, computers have become widely available and affordable to consumers, and are also being built into items, i.e. the internet of things.
Improved connectivity: The broad availability of computing power coupled with better and cheaper communication technologies – 5G being the latest, but not the final, stage – has resulted in an exponential increase in connections between people, between things, and – crucially – between people and things.
Smarter automated cognition: Automated intelligence utilizes the growing number of connected people and things in an efficient and effective manner. Progress in the domain of artificial intelligence – mainly driven by enhanced computing power and more available data to nourish the systems – has been instrumental in automating cognitive processes that were previously tethered to human intelligence.
New technologies not only elevate the relevance of asset data. They also enable players who were fast enough to create scalable platform businesses that are more efficient and effective in steering interactions and transactions between multiple parties than established intermediaries or allocation mechanisms (Parker, Van Alstyne and Choudary 2016; Cusumano and Gawer 2019). In the race for dominance, established platform players enjoy an inherent advantage: the larger their user base grows, the more data becomes available. More voluble data feeds the intelligence of these new systems, building more effective and efficient matching capabilities (Evans and Schmalensee 2016).
As a result, industrial structures have evolved into ecosystems centered on platforms. The closeness to, and knowledge of, users provides the power for platforms, rendering their ecosystems to be user-centric by nature (Siggelkow and Terwiesch 2019; Teixeira and Piechota 2019). This provides a stark contrast to industrial structures, whereby industries were mainly defined by manufacturing scope.
Such gravitational change requires all other players to define their roles relative to the platform operator. Five roles thereby emerge:
Platform operator: The platform operator is at the center of an ecosystem and forms the connective glue for all players. It manages and controls all data and information flows.
Platform feeder: The platform feeder provides the inputs to any transaction or transfer, e.g. goods, services and information, to any other party. It considers the platform operator as its channel to connect with the platform user.
Platform user: The platform user considers the platform operator as the source for goods, services or information. It appreciates the wide range of options it would be unable to enjoy if it had to interact with each individual platform feeder.
Platform orchestrator: The platform orchestrator helps platform feeders and platform users to navigate the growing universe of platforms, select the most appropriate platforms and adapt the partner strategies in an ever-changing environment.
Platform enhancer: The platform enhancer provides additional services or products that facilitate the transactional and interactional relationship between the other platform players. Their offering is usually closely linked to single transactions and interactions.
Embracing the Collaboration Imperative
While platform operators have been able to capture most of the value in this disruptive transformation, the relative role of the many established players has been challenged. Some of them have even disappeared during the transition. At the same time, new upstarts entered the competitive space, further accelerating innovation. Hence, the opportunities and challenges for each player have been rather different:
The incumbent opportunity and challenge: Incumbents usually attempt to build their strategies by leveraging their strengths and defending their market position. As a result, established players are usually well positioned to play the horizontal game in platform-driven ecosystems, i.e. evolve as platform feeders and users given their strong legacies.
The upstart opportunity and challenge: Upstarts, on the other hand, have nothing to lose and are eager to capture opportunities by building on their capability to act fast. As a result, they often position themselves as successful platform orchestrators or platform enhancers, i.e. play the vertical game in platform-driven ecosystems.
Hence, both players seem to complement each other and collaborate successfully in ecosystems. In fact, their respective strengths and weaknesses even invite symbiotic partnerships that maximize the benefits of ecosystems. Is there anything that can hold back both players from succeeding together?
Facing the Collaboration Challenges
The strategic rationale for collaboration between incumbents and upstarts may seem highly appealing, but numerous challenges await many partnerships. There seems to be an evident gap between expectation and realization. This may be related to the different mindsets and motivations applied by both players along three dimensions:
Aspiration: While upstarts are usually strongly committed to creating value, incumbents are often inclined to focus on value protection.
Assets: The competitive advantage of incumbents is often based on assets developed in the past. Upstarts, by contrast, usually lack significant resources and have no other option than creating assets that are needed.
Agility: The strengths of upstarts can be attributed to their agile mindsets and the capability to adapt quickly to changing requirements, while established players are sometimes accused of lacking those traits.
How can these challenges be overcome and mutually beneficial solutions be created?
Cracking the Collaboration Codes
We believe that a structured approach to designing such partnerships can reduce the expectation and realization gap. Based on the threefold challenge described above, three codes need to be unlocked to ensure a mutually beneficial collaboration, i.e. the collaboration aspiration, agility and asset codes.
Collaboration aspiration code
The basis for any successful collaboration is not only a shared aspiration but also an alignment between the aspirations of each partner. As highlighted by Moss-Kanter (1994), it is instrumental for partnerships to flourish that each partner considers the collaboration important and is willing to institutionalize it. This implies that all involved parties must develop a deep understanding of the nature and dynamics of ecosystems and of the role that partnerships play in this particular context.
Collaboration agility code
While the culture and experience of agility may differ among the players – in particular, if an upstart and established company are involved – it is instrumental that both parties understand the importance of agility for succeeding in fast-moving environments, which often define emerging ecosystems. This commitment should extend beyond lip service, and instead be reflected in the corporate structures affected or involved in the partnerships, such as incentive systems, budget processes or talent management. Agility is more than just a mindset, it needs to be reflected in the structures and lived by the leadership team.
Collaboration asset code
Apart from a shared understanding of aspiration and agility, it is essential that both parties are clear on their comparative strengths and weaknesses in order to define which assets to seek and which to contribute to the partnership. We propose a five-step approach to arriving at such an understanding in the interests of building a winning ecosystem together.
Step 1: Understand your collaboration currencies
Given the different mindsets, it is pivotal to focusing on the tangible needs and assets of both players to find a common ground. In this context, the metaphor of the currency may be helpful. If people or companies want to trade goods or services across borders, they must agree on an exchange rate. The same can be said when upstarts and incumbents attempt to agree on a collaboration deal; they have to trade in their currencies. For both parties, five types of currency are at their disposal:
Capital: Any upstart needs investments, while established companies often generate cash to be allocated to new business opportunities.
Customers: While incumbents usually have a strong base of loyal customers, upstarts need to invest to attract them.
Contracts: Upstarts can benefit considerably from convincing established companies to become their clients. Meanwhile, incumbents may benefit from preferential terms and state-of-the-art solutions.
Credibility: Both the emerging and the incumbent company are credible for different purposes to different audiences. Established players can refer to a convincing track record, while upstarts may define credibility in terms of innovation.
Capabilities: Both players possess and seek certain capabilities from their counterparts. These may involve technical, design and commercial skills.
Each partner must understand and assess the strengths of the different currencies, while also assessing and locating the gaps that need to be filled.
Step 2: Understand your potential partner’s collaboration currencies
Based on a thorough understanding of its own strengths and weaknesses, the five collaboration currencies provide an important window into understanding the relative strengths and weaknesses of a potential partner. It can be instructive to utilize interactions with the partner and other players in the ecosystem to gain a better understanding of the partner’s asset strengths and weaknesses.
Step 3: Choose the preferred collaboration modes
Upon completion of steps 1 and 2, various nexuses emerge, i.e. areas of a potentially attractive collaboration. These opportunities share a perceived strength by one party and an identified need by the other. What still needs to be determined is the optimal collaboration mode. Here, two generic modes are used by Capron and Mitchell (2012), i.e. buy and borrow. We suggest adding a third mode: to give or get for free, and introduce a two-sided perspective, i.e. from both a sender and a receiver. As a result, we arrive at three exchange patterns: sell/buy, lend/rent or give/take. In choosing the optimal modes, various criteria are taken into account:
Sell/buy (transact): The traditional interaction between two organizations is to sell and buy assets. By doing so, the ownership of an asset changes for a financial compensation. This approach can work well if there is a clear commercial rationale and should always be the default option.
Lend/rent (share): Should an asset only be needed temporarily, and/or the receiving party has limited resources, lending/renting can be a viable option to achieve a transfer of assets for a stated period of time.
Give/take (exchange): In some instances, assets may be transferred without compensation. The case of giving/taking may be appropriate if the transfer is reciprocal, i.e. both parties provide some assets for free. Such a transfer of assets may send out a strong signal in support of the partnership.
To optimize the option space, the following modes can be proposed for each opportunity nexus.
Step 4: Define the collaboration portfolio by choosing the most attractive collaboration opportunities
Based on all the options available, i.e. collaboration opportunities and their modes, some collaborations may not be pursued given the limited resources available. Hence, the different opportunities need to be prioritized on two key criteria: overall potential and shared benefits. The overall potential can be defined as the contribution of a specific asset exchange to the potential success of a given joint venture. This must be viewed in terms of the requirements of each respective ecosystem. Given the various unknown factors inherent in such a forecast, predicting the potential impact is critical. The second dimension, i.e. shared benefits, refers to the perceived fairness of a particular asset switch by both parties. Here, each party’s subjective assessment counts.
Step 5: Define the collaboration path
Based on a deliberate prioritization in the collaboration portfolio, the right sequence of the chosen collaboration opportunities and modes should be determined to construct the collaboration path. Discussions are required on whether to pursue opportunities at the same time or sequentially. In choosing the appropriate path, companies will assess both the urgency and their capabilities. Whereas urgency depends on the perceived degree of disruption in a given ecosystem, the capabilities are a function of experience, exposure and expertise. The path chosen shall reflect both criteria.
Winning Together
In order to benefit from the promising opportunities new ecosystems offer to upstarts and incumbents, both players need to be fully aware of their respective strengths and weaknesses for succeeding in the platform economy. Moreover, they should understand each other’s collaboration aspiration and agility, and share an understanding of their collaboration assets and needs as well as the different options to exchange them. Altogether, upstarts and incumbents need to crack the three collaboration codes to optimize the full range of collaboration options and focus on those that are of mutual interest.
Cracking the collaboration codes together can prove rewarding for both parties in their quest to shape the future of emerging ecosystems. The success of any ecosystem will not only be determined by the individual strengths of its partners, but rather by the strengths of their collaboration ties.
References
Capron, L. and Mitchell, W. (2012): Build, borrow, or buy: Solving the growth dilemma. Harvard Business Review Press, Boston, MA.
Cusumano, M.A.; Gawer, A. and Yoffie, D.B. (2019): The business of platforms. Strategy in the age of digital competition, innovation, and power. HarperCollins, New York, NY.
Evans, D.S. and Schmalensee, R. (2016): Matchmakers: The new economics of multisided platforms. Harvard Business Review Press, Boston, MA.
Kanter, R. M. (1994): Collaborative advantage: The art of alliances. Harvard Business Review, 72, 4, 96-108.
McAfee, A. and Brynjolfsson, E. (2017): Machine, platform, crowd: Harnessing our digital future. Norton, New York. NY.
Parker, G.P., Van Alstyne, M. and Choudary, C.P. (2016): Platform revolution: How networked markets are transforming the economy. Norton, New York. NY.
Siggelkow, N. and Terwiesch, C. (2019): Connected strategy: Building continuous customer relationships for competitive advantage. Harvard Business Review Press, Boston, MA.
Teixeira, T.S. and Piechota, G. (2019): Unlocking the customer value chain: How decoupling drives consumer disruption. Currency, New York, NY.
This article was published as a chapter in the book Governance of Ventures in March 2020.