Digital platforms and their ecosystems are outgrowing all other businesses, usurping their market position, commoditizing their products, slowly squeezing them out of negotiating power and hijacking their profits. Or not? Is there a way to escape their grasp? Some kind of strategy for long-term success? How about this: Stop dancing around them. Dance with them instead.
Care for a dance?
Meet your next dancing partner: The all powerful digital platform. It is so big. So innovative. So fast. So smart. It has swallowed up or defeated so many of its rivals, even reshaped entire markets. It has countless customers. More and more businesses are drawn into its ecosystem every day.
And now you fear, it might have developed a taste for your small market as well. Your business is still doing well there, but now bad news are arriving.
Customers in your business sector are asking you to become faster, more connected, more innovative, and less costly to deal with. Some are longingly eyeing at the digital platform and its growing ecosystem of businesses. Competition is heating up. Skilled resources are increasingly harder to obtain, costs are rising, profits are falling and the needs of customers are changing faster than ever before. It seems like an entirely new business environment, much different than what you were used to. Classically structured, vertically integrated companies that have been optimized over decades to the highest levels of efficiency, quality and service have already bowed before the power of the digital platform. They were very similar to your own. But now many of them are gone, or headed for irrelevancy with dwindling profits, declining customer base. Many are reliant upon new, digital powers ruling their market.
You know that they missed big opportunities. In hindsight, it appears they did not keep up with the increasingly complex and dynamic demands of customers. Satisfying these demands takes a myriad of new skills – and they must be integrated into value chains very fast. So fast that they can meet customers’ current needs, before these needs change again. In addition, the required skills are changing quickly. IT technology creates new skills by the hour. You know that there are very few organizations who command all the necessary skills, and likely none that can muster them in the required numbers at a moment’s notice.
Yet, many companies are far away from this vision. They are still stuck in 20th century, requiring stable market conditions to prosper. Their management still follows practices that foster small, incremental innovation practices, focusing on efficiency driven structures and procedures, leaving little room for dealing with new opportunities and unexpected threats. Quickly changing market needs overload their dynamic skills. They are locked in an efficiency trap of their own making, unable to keep pace with innovative competitors and slowly loosing relevance when their main products become commoditized.
They perceive digital platforms and their ecosystems as a threat to their strategic position, and rightly so: Such platforms lower the barriers to market entry for completely new, and unexpected competition, luring away customers and profits with their highly innovative services, strong connectivity and low structural costs. Competing against them turns out to be very difficult and costly. The threat plays out on the strategic level, where these platforms are highly innovative and growing insanely fast. It also plays out on the operative level, where they have ultra-low transaction costs and a seemingly endless pool of resources to draw on.
A business friend recently told you of his own struggles in competing with the same digital platform that is now beginning to enter your own market. He had thought of several different strategies to prepare his business. Initially, he tried building his own competing platform. But he soon realized that this would be very costly and likely not gain market traction against the existing platform. What unique service could his new platform offer to customers, that would not quickly be covered by the existing digital platforms? How would his new platform not eat away at his current profit streams, cannibalizing his own customer base? How to calculate the associated risks? Would it not be safer to stay away from digital platforms? Wouldn’t it be better to search for new opportunities where platforms are not dominating business? Or to build up unique business capabilities to gain negotiating power inside such platforms?
His conclusion was, that all of these strategies can work for a limited time, but in the end they are likely to fail for a number of reasons:
- You cannot out-grow existing, and well-accepted digital platforms without having a breakthrough selling proposition that nobody else has thought of. This is highly unlikely to happen. Startups can hope to achieve this rare feat – and they will simply be bought away by the digital platform.
- Digital platforms are reshaping all markets because they are ultra-efficient in facilitating certain business-critical transactions in these markets. Unless you are able to replicate this efficiency in your own transactions, your company will always loose the battle. Again, reaching this level of efficiency is unlikely to happen without establishing a digital platform.
- You can not gain effective negotiating power against a market-dominating digital platform. Only nation states have that kind of power through laws and regulation – but enforcing new rules takes time. Likely much more time than your business can afford.
- Digital platforms own and generate enormous amounts of real-time data, showing them accurately when new, business-relevant opportunities are emerging, and giving them plenty of time to act on these insights before you ever have the chance. It is unlikely that you can spot and occupy a new, and highly profitable business opportunity without waking up a digital giant.
- Digital platforms can organize huge amounts of skilled resources, and quickly scale their capacity according to required demand. If they want, they are much faster than your business in implementing strategies that take advantage of new opportunities. Any strategy that counts on competitors to not act is very risky. It won’t play out well in the long run.
Looking at this devastating comparison, what else can a business do to stay relevant in the future? What is the plan B that offers a higher chance for lasting success?
Do you dare to dance with me?
Let me introduce myself: I am the digital platform. You might have thought of me as your worst nightmare, but I am not your enemy. I can be your friend. Together, we can do remarkable things. I want to tell you a secret: I am very vulnerable and far less powerful than you think. Like your own business, I depend on relationships based on trust.
I am not here to take away your business. I want you to become better at it. My business is to make yours faster, more connected, more innovative and more adaptive. And of course I need some of your earnings to provide this invaluable service for you. Just follow my steps, and I show you how together we can make your business future-proof.
The first step you need to take is this: Simplify your most common transactions. These transactions occur along your value chain, from the front-end to the back-end and along the whole supply chain. Digital tools and automation can make these transactions fast, safe and cost-efficient for all involved parties. Re-design these transactions and value chains to make invoking and executing them very simple. I can help you with this step. Just look at my own services. All of my services are designed according to this principle. Many of them might be useful for your own business operations. So instead of re-designing all of your transactions, why not use some of mine? They are very sophisticated and get better all the time.
Now, step two is to become much more flexible. Scaling operations flexibly and easily according to market demands without disturbing other operations is key to stay relevant in dynamic markets. The flexibility and scalability of my operations wouldn’t be possible without me having mastered the first step. Step two means connecting each of your operations with those of your customers through digital interfaces and handshakes. This will greatly enhance your awareness on the demand side of markets. Step two also means to use the cost savings gained in the first step wisely: Invest them to build up reserve capacities that can be activated quickly. Flexibility requires some redundancy. Without reserve capacities, I wouldn’t be able to react fast to rising demand. My reserve capacities also give me a strategic advantage. They allow me to explore completely new business opportunities.
This leads us to the third step: You can now not only look at what happens around your business, you can also act quickly on opportunities. With digital transactions in place and operations that can flexibly scale up and down, adapting to changing market environments becomes much easier. Step three is where you learn how to quickly change the purpose of assets and investments according to new opportunities or business needs. Designing all of your operations as a network of flexibly connected assets and services will greatly help in mastering this step. This business network with reserve capacities makes it possible to quickly start new business operations without disturbing existing ones.
When you can perform these three steps without conscious effort, then you are free to focus your strategy on step four: Being ahead of others in sensing new opportunities and the changing needs of your customers. This means learning to make sense of the endless stream of data points generated by so many different data sources. It means learning to steer your business with their help. It also means to build up new business capabilities for emerging opportunities, and to steer multiple business operations simultaneously across a wide spectrum of opportunities.
Mastering those four steps enables a company to reframe its business for highly dynamic markets. These markets will evolve to be so dynamic, that it might be impossible for one company to stay relevant without teaming up with others. Alone, it simply won’t have the capabilities to single-handedly act on important opportunities. It will have to collaborate with others to act in a highly complex environment, where value depends on quickly combining existing and emerging skills. Business ecosystems working across companies can do this at much larger scale than individual businesses – and platforms are the perfect instruments to initiate and power such joint business operations.
Your business can not only stay relevant with the help of platforms, it can fulfill its mission at much broader scale: Teaming up with former rivals in its sector to co-create and perhaps lead its own business ecosystem: Creating, capturing and sharing value for all customers in this sector of business.
This is, how you do business in the age of platforms and ecosystems.
This is, how to stay relevant.
This might be your future.
Shall we dance?
Photo by Ahmad Odeh on Unsplash
This article was first published at the blog of the Business Ecosystem Alliance