Why Digital/Physical Convergence Demands Radical Ecosystem Integration

By Jessica Groopman, Rebecca Lieb, Jaimy Szymanski, and Jeremiah Owyang

In the physical world and nature, interconnectedness is more powerful and adaptable than any single part of the whole. This same applies to the digital realm. Whether physical, digital, or both, distributed systems become more powerful when interconnected.

Already, we’re seeing ‘digital transformation’ require organizations to open up– to unlikely partners, ‘strange bedfellows,’ sometimes even competitors. They’re creating interoperable devices and integrated services; they’re sharing innovations, business information and data, even relying on strangers to design ways to make their products better. To the traditional (and highly ingrained) business instinct, this runs counter-intuitive, even counter-competitive. But in the inevitable convergence of physical with digital, contributing to and extracting value from ecosystems is foundational.

In our inaugural report, Three Macrotrends Impacting the Journey to 2030, Kaleido Insights analyzes the curious emergence of “Enlightened Ecosystems.” Driven by the push towards data-driven products, services, processes, and monetization, the trend is one of decentralization, broadly characterized by companies pushing business models, innovation strategies, and dependencies outwards instead of defaulting to highly centralized proprietary ‘walled garden’ models.

Ecosystem Enablers Look Outward Across Six Key Areas  

Our analysis of many of the world’s leading digital companies (and legacy companies undergoing digital transformation) finds that ecosystem enablement is a common trait across all. Kaleido Insights defines ecosystem enablement as the ability of an organization to both contribute value across and extract value from multiple constituencies across a network of participants. We identify six areas of enablement. (See figure from the report below)

Opening up products and services. Truly intelligent products and services must be interoperable, contextually aware, proactively improving, and constantly evolving––standards no business can achieve alone. Ecosystem integration defines customer value. This realization is pushing the likes of both enterprise giants (à la Google, Amazon, Bosche, GE, and many others) and SMB smart home companies like Sonos, Wink, or Lockstate to open up their devices and data to drive better customer experiences, product utility, and reliability.

Turning outwards for corporate innovation. The social media revolution was the catalyst that caused companies to systematically tap the crowd for feedback, using social platforms on the web for external ideation from online communities, and enterprise collaboration platforms to tap employees internally. But the most resilient companies leverage their ecosystems for innovation. They work with citizens, business partners, and the crowd to solve customer, business, and societal challenges, as exemplified in Visa’s and GE’s Open Innovation programs, or Johnson & Johnson’s JLabs.

Technology innovation flourishes through the ‘wisdom of the crowd’. Virtually every technology giant is fostering huge developer communities to help drive open-source frameworks, protocol, standards, and other products and services that benefit broader technological advancement. Companies like IBM, Microsoft, Facebook, Google, Baidu, Tesla, JDI, Intel, (and many others mentioned throughout this post) are publishing software libraries, frameworks, and development best practices to support learning and building in areas like machine learning, autonomous vehicles, drones, and beyond for anyone interested.

Ecosystem-driven business models. Ecosystems become strategic as digital transformation forces product-based business models to service-based business models. But this goes beyond mere partnerships. Third-party app marketplaces in which outside talent is empowered and entrusted to augment the value of a proprietary product, are strategic backbones for companies like Salesforce, Amazon, Visa, and many others.

Users and consumers value peer-to-peer services. The rise of the sharing economy, in which consumers get what they need from each other, has already reshaped industries. Companies like AirBnB, Kickstarter, Uber, TaskRabbit, Postmates, Upwork, and others have become trusted platforms for enabling peer-to-peer services on-demand, increasing reach, and monetizing stranded resources. Blockchain technologies represent the next phase of P2P services, wherein such trusted intermediary platforms as those listed above are threatened by code and smart contracts.

Ecosystem enablement in supply chain. Companies have always relied on ecosystem partners to move supply and deliver demand, but emerging technologies like blockchain are enabling new ways to account for inventory, to reconcile transactions, and transparency across previously silo’d parties (and data sets). When the ledger is distributed across parties, verification of an event is validated by everyone in the network, meaning disparate (often distrusting) parties are able share visibility into product provenance and integrity.

“Ecosystem enablers” both contribute to and extract value from broader networks

Of course, it’s not mere altruism or ‘democratization’ of innovation driving companies’ inclination to ‘open up.’ Digital requires companies distribute the work of demand generation and value creation across ecosystems of participants.

Organizations have a vested interest in positioning themselves as ecosystem enablers: by sharing the right assets, companies (paradoxically) become more central to the success of others. Take Google Maps’ API, for example. Google Maps both aggregates demand because it can be infinitely replicated for consumers and developers, and also fulfils demand because it can be integrated into services developers build, such as ride-hailing and navigation apps and services. This also exemplifies how new markets can emerge based on existing shared platforms.

Even if companies must leverage each other’s technologies to create better end-user experiences, every company has a unique ability to configure value that applies to other parts of the ecosystem. This doesn’t mean proprietary goes away, or customization isn’t required; rather, when hardware, software, and data become shared tools, the ecosystem exponentially accelerates innovation.

For Kaleido Insights’ recommendations on how to plan for enablement and strategize within your ecosystem, download our report, Three Macrotrends Impacting the Journey to 2030.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s