Infosys Insights: Ecosystems and innovation

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Business ecosystems have become, in effect, the operating model everywhere, not just in the IT industry. The reasons are many: global expansion, volatile consumer preferences and demand, need for more organizational agility, and so on. All these call for a model in which business innovation takes place in a more decentralized fashion, paving the way for brining products and services faster to market.

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Infosys Insights: Ecosystems and innovation

  1. 1. - Dr. Martin Lockstrom Ecosystems and Innovation INSIGHTS
  2. 2. Introduction From an innovation perspective, business ecosystems are a classic example of disruptive innovation in the sense that a) they are not perceived as threats by incumbents, b) they give rise to new market segments, and c) they grow in a subtle, almost stealthy fashion in the early stages before taking off and overtaking the incumbents. Furthermore, it is worth noting that many of the most successful business ecosystems today came into existence through the process of emergence, rather than through deliberate market launch. There is a logical reason for this: As is often the case with innovation, especially the disruptive type, you cannot go out and ask customers whether they want for instance, an app ecosystem instead of a better handset, when they have no idea about the former. Another analogy is the famous quote by Henry Ford, who said: “If I would have asked my customers what they wanted, they would have responded‘a faster horse’“.1 What’s more, benchmarking and customer surveys won’t help; such approaches can merely prevent competitive disadvantage rather than create competitive advantage. Steve Jobs never tried to make consumers as happy as possible, but instead tried to make the best product possible [10] – this enabled Apple to become truly innovative, although not in a co-creative environment, until more recently. The Competitive Advantage of Business Ecosystems There are many reasons why business ecosystems have become the key unit of competition. First, decision making can be decentralized according to a simple set of rules and guidelines such as risk and reward sharing; this takes significant overhead and administrative burden off the ecosystem partners’shoulders. This is of paramount importance in today’s marketplace, where shrinking product lifecycles and increasing technology churn makes centralized decision making decreasingly viable. Secondly, the ecosystem implies that the lion’s share of customer value is created by peripheral ecosystem partners and not the channel partner; this creates a tremendous leverage effect as each ecosystem partner 1 It is not verified whether this is truly a quote from Henry Ford or his grandson.
  3. 3. is no longer constrained by its own capabilities. Third, every ecosystem partner is incentivized to innovate, meaning that the traditional channel master can constantly deliver value in ways which are in tune with current customer preferences. Finally, by focusing on the ecosystem as a platform, where a company like Apple provides the brick-and-mortar platform, the other ecosystem partners provide customization, meaning that Apple can keep organizational (especially supply chain) complexity low – despite two colors and three memory sizes of the iPhone, each and every device owned by a consumer is unique in its configuration of apps and other contents. Similar stories apply to other companies such as Facebook, whose very existence hinges upon its enormous user and app developer base. Other notable examples are Amazon.com, Groupon and Thomson Reuters, all of which compete through multi-party ecosystems. From a product perspective, another striking example is the mobile phone industry, where competition today is not so much about the handheld devices, which have become quite commoditized, but rather about ecosystems enabled by the underlying operating systems; here the big battle is between Apple’s iOS and Google’s Android. In other words, customer value is not primarily delivered through the functions of the operating systems, but through the ecosystem partner involvement they enable, and the many apps that are offered to consumers as a result of this.
  4. 4. © 2013 Infosys Limited, Bangalore, India. All Rights Reserved. Infosys believes the information in this document is accurate as of its publication date; such information is subject to change without notice. Infosys acknowledges the proprietary rights of other companies to the trademarks, product names and such other intellectual property rights mentioned in this document. Except as expressly permitted, neither this documentation nor any part of it may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, printing, photocopying, recording or otherwise, without the prior permission of Infosys Limited and/ or any named intellectual property rights holders under this document. About Infosys Infosys is a global leader in business consulting and technology solutions. As a proven partner focused on building tomorrow’s enterprise, Infosys enables clients in more than 30 countries to outperform the competition and stay ahead of the innovation curve. Ranked in the top tier of Forbes’ 100 most innovative companies, Infosys – with $7.4B in annual revenues and 150,000+ employees – provides enterprises with strategic insights on what lies ahead. We help enterprises transform and thrive in a changing world through strategic consulting, operational leadership and the co-creation of breakthrough solutions, including those in mobility, sustainability, big data and cloud computing. Visit www.infosys.com to see how Infosys (NYSE: INFY) is Building Tomorrow’s Enterprise® today. For more information, contact askus@infosys.com www.infosys.com Author Profile Dr. Martin Lockstrom Principal Consultant, Building Tomorrow’s Enterprise, Infosys Labs Martin is a specialist in Supply Chain and Operations Strategy, Outsourcing/Offshoring and International Management. During a six-year stint in China, he established the research and education activities at the SCM, Sustainability and Automotive academic centers at China Europe International Business School, Shanghai. He established the first endowed chair for Purchasing and SCM in China at Tongji University, Shanghai, and was also responsible for setting up Supply Chain Management Institute China, an international network of SCM research and education hubs. Martin co-founded Procuris Solutions, an IT company specializing in SCM-related solutions, offering consulting services to companies like Accenture, Ariba, BMW, Clariant, Dell, Dow, Ernst & Young and Intel, among others. He has a Ph.D. in Supply Chain Management from European Business School, Germany, a bachelor’s and master’s degree in Industrial Engineering and Management, from Chalmers University of Technology, Sweden. He speaks Swedish, English, German and Chinese, has published over 50 articles and papers and presented at more than 60 conferences. Summary and Conclusion Today, business ecosystems have become a de facto operating model, and not only in the IT industry. The reasons are manifold: global expansion, volatile consumer preferences and demand, combined with a need for more organizational agility has called for a model in which innovation can take place in a more decentralized and autonomous fashion. Only in this way, can companies win the race of bringing the best products and services to customers in the fastest time possible, without adding excessive complexity.

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