Ecosystem is not the collective noun for Alliance Partnerships

Introduction:

In today's rapidly changing business world, ecosystems have emerged as a powerful weapon for companies to drive innovation, growth, resilience, and market disruption. However, the term ecosystem is lazily being used to describe a group which happens to contain multiple alliance partners, ecosystem being used, quite incorrectly, as the collective noun for such a grouping. Having a group with multiple partners is not an ecosystem, just as stitching a collection of body parts together is not a person. Although there are several similarities, partner onboarding, KPIs and relationship management, proposition and revenue generation to name a few, failure to appreciate the differences and treating ecosystems as an extension to alliance partners will ultimately fail. This means the significant benefits of ecosystems will not be realised, creating yet another failed alliance partner initiative, damaging relationships, reputations, and a weakened position compared to other competitors. This post will identify five key differences, awareness of which should help build more effective ecosystems, and show how ecosystems and alliances differ, which will reveal why ecosystem is not the collective noun of alliance partners.

1. Ecosystems create better outcomes which pull through greater revenues and margins

Whereas partnerships are typically driven by a 1:1 contractual agreement between two organisations, ecosystems are typically several organisations driven by the realisation of mutual benefits from delivering better outcomes. Better outcomes drive a move towards servitisation rather than transaction offerings and solutions, opening the way to different, often non-linear, commercial models. It becomes easier to monetise the service based on the outcome, delivering better, more intimate, longer-lasting, relationships which typically generate greater revenues and margins.

2. Ecosystems leverage capabilities rather than certifications

Ecosystems leverage the strengths and capabilities of a diverse group of organisations. Normally the ecosystem members comprise technology and non-technology partners, including traditional and non-traditional partners. Within the ecosystem, large established organisations collaborate with small disruptors and start-ups, fostering innovation, leveraging their capabilities to create new joint offerings or access new geographies.

Ecosystems provide access to shared R&D assets, talent, and expertise to deliver innovative, innovative solutions more quickly and offer a lower-risk and faster alternative to acquisitions.

3. How ecosystems are data and insight driven:

Successful ecosystems rely on data and insights. Research has shown 76% of high-performing ecosystems have dedicated functions to track progress and regular reviews at the C-suite or board level to ensure strategic alignment.

More mature ecosystems have defined interfaces and common data models to overcome the challenge of data interoperability, eliminating data transformation time, costs, and opportunity to introduce errors. Working as a cohesive, integrated group, ecosystems can reduce costs and increase efficiency whilst ensuring operational consistency.

Using data, both between ecosystem members and about ecosystem performance, and the insight from this data, better more timely decisions can lead to the desired win-win outcomes.

4. How ecosystems evolve and grow (or decline and become extinct):

Ecosystem evolution requires careful management. Patience is crucial, as ecosystems take time to deliver value. The creation of the value proposition requires a lead orchestrator who can coalesce the required members and sell not only the proposition but sell the “why” and cement the partner into the ecosystem.

However, at this point, the hard work is only just beginning, as the legal, commercial, and marketing teams also need to be engaged. Often the existing agreements and legal documents tend to be quite time consuming to agree, and often for smaller ecosystem partners, they do not have the resources or cash flow to support such heavyweight  engagement methods.

Simple lightweight administration is therefore key to ensure all are on board, but equally their interests are protected. It is better to start the ecosystem as a small entity and scale once the initial teething problems have been resolved. However, such flexibility is key to enable successful ecosystems to adapt to changing market conditions and partner needs.

Ecosystems require active management, otherwise they will wither once the initial enthusiasm wanes. There will be many obstacles, not least cultural mismatches between the ecosystem members as different organisations have different metrics, messaging, and ways of working. The shift from a product to outcome focus can often be challenging for those product and services companies more used to selling on features and functions, or into a different group of stakeholders.

5. Common misperceptions about ecosystems:

Five common misconceptions persist about ecosystem partnerships include:

1.     Ecosystems offer quick returns: Ecosystems require long-term commitment so expecting short-term, quarter-busting returns in the first quarter is unrealistic and often leads to disillusion with the participation in the ecosystem.

2.     Ecosystems are easy to implement: Building and managing ecosystems is complex and challenging, often requiring a different way of working to the conventional methods used by the individual partners.

3.     Ecosystems have limited applicability: Ecosystems are relevant across all sectors and company sizes. Every industry sector can deliver better outcomes, so the challenge often is where to focus first.

4.     Ecosystems automatically mean success: Simply forming an ecosystem doesn't guarantee positive outcomes. Governance, security, cultural alignment and sustainability can be difficult to achieve, and anyone of these can become a showstopper.

5.     Ecosystems lack strategic importance: Ecosystems are increasingly central to business strategy. For organisations looking to grow beyond their organic capabilities, alliances and ecosystems offer the best way of doing this, especially if implemented as an annuity or other non-linear service. Research suggests that high-performing ecosystems outperform low-performing ones by 1.5 times in cost reduction and 2.1 times in revenue growth.



Conclusion:

Business ecosystems can be powerful driver of innovation, growth, and resilience. While they offer significant benefits, successful implementation requires careful planning, dedicated resources, and ongoing management. By understanding the realities of ecosystem partnerships and avoiding common misconceptions, organisations and their clients can harness their full potential to transform performance and drive long-term success.

References:

[1] https:// https://www.ey.com/en_gl/alliances/the-ceo-imperative-how-mastering-ecosystems-transforms-performance

[2] https:// https://www.pwc.com/gx/en/strategy-and-business/content/sbpwc-2023-04-12-Tapping-ecosystems.pdf

[3] https:// https://www.strategyand.pwc.com/de/en/industries/telecommunication-media-and-technology/ecosystem-economy.html

[4] https://hbr.org/2019/09/in-the-ecosystem-economy-whats-your-strategy