Leveraging ecosystems rather than buying services

We are a tribal species, operating best in groups and groups of groups. Whether it was the Romans who organised their armies in cohorts or early insurers like Lloyds of London who used syndicates to offset risk, there has always been strength in numbers. As business continues to get more complicated, the strength of coming together has never been more important.

Any student of leadership knows that effective teams seldom have a single individual exercising complete command and control, they tend to operate as a network of capability. Leaders of governments don’t need to understand how most of the bureaucracy works. Similarly, CEOs can’t possibly know how every product gets to market. Everyone has their own role within the team and can generally have confidence in the combined capability of the enterprise.

As the world gets more complicated, some of the greatest productivity benefits have come from teams that cross organisational boundaries. Most of these are some form of “business service” and have, arguably, been the main digital dividend of the last two decades (see, for example, Structural Change in Australian Industry: The Role of Business Services, a speech by Alexandra Heath of the Reserve Bank of Australia which could equally apply to most developed economies).

Business services cover a broad spectrum of capability, including business process outsourcing, cloud computing, management consulting and traditional professional services such as legal and accounting. Technology has enabled businesses to leverage services from each other in more sophisticated ways, turning teams into ecosystems rather than bilateral contracts between groups.

These ecosystems only work when the relationship is deeper than individual self-interest. Transactional buying between members of the ecosystem breaks down the value and productivity that is achieved. As a consultant, I keep seeing examples where organisations buy business services, particularly professional services, but keep them at arms-length and are then surprised when they don’t get the outcome they are after.

The good news is that the success of these relationships is greater than their failures. We’ve wondered where the productivity dividend from digital transformation was in the economy (see Where is the digital-fuelled growth) and the answer, it seems, is here in the business services ecosystem. They work because the boundary between organisations is now able to be far more porous than ever before. In the past, the only way for two organisations to transact was through individual transactions and a small number of metrics. Hence the first generation of outsourcing was based on relatively simply defined service level agreements.

It is well known that productivity growth has slowed in developed economies around the world. Even though we’ve seen success with business ecosystems, today’s models are only achieving a fraction of what is possible. Just as digital transformation has increased the sophistication of business services relationships, the fourth industrial revolution (the merging of physical and digital worlds) will take this type of interaction to a new level. Moving from transacting for their own success, the winners in these relationships will work to ensure the success of their fellow members, knowing their counterparts will do the same for them. This sounds radical until you realise that this is aligns to human nature as a social species which succeeds in groups and groups of groups.

Buyers of products will regard the further sale of similar products by their providers as being in their own interest and work to make it happen. Similarly, all will look to combine their intellectual property within their ecosystem, share their data and put their stamp of authority on a topic to multiply its impact and open greater markets over wider geography and sector territory.

This type of collaboration between participants provides more than greater productivity, it allows for the tackling of new problems. New generations of ecosystem are opening-up and are a logical extension of the business services that have achieved so much. These are groups of businesses aligning to achieve complex goals. Examples include smart cities, renewable energy, biotechnology, urban transportation and space to name just a small number.

The combined knowledge of multiple organisations working together provides an almost unfair advantage against any individual business that decides to go it alone. Game theory and natural selection in business means that the survivors of the next wave of competition in a potentially tougher global market will be those businesses, and even governments, that recognise the power of partnering, opening-up their IP and shared measures of success.

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