Those of us brought up on value chain business models need to open our minds to major change. Value chain analysis was identified as core to formulating business strategy by Michael Porter in the 1980s. Now ecosystems thinking is replacing value chain doctrine.
Ecosystems paradigms are being applied in all industries, including professional services and financial services.
Linear relationships managed from silo-based functions typify the value chain approach. These value chains are everywhere, from retail banking’s product silos of consumer banking, home loans, credit cards, etc, to supermarkets that sit in the supplier–retailer–consumer continuum, to B2B services like logistics. All are driven by a focus on production efficiencies to drive margin. And all are in inevitable decay.
This decay is coming from another force that is still evolving, but it is irreversible. This force is a symbiosis of dynamics related to factors that include global and national digital infrastructures, a coordinated network of enterprises, devices and consumers, the ability to earn margin in new areas of commerce and achieve meaningful scale, and the ability to identify changing demand and shape services and products very quickly. These dynamics represent ecosystems that give rise to new enterprise models such that Uber and Lyft owns no taxi’s, AirBNB owns no hotel rooms, and even DollarShaveClub, a new entrant that is a serious threat to Gillette.
Source: The Next Generation Enterprise: Thriving in an Increasingly Digital Ecosystem, CISR Research Briefing Vol XIII, 4, Apr 2013
Professor Peter Weill, of the Center for Information Systems Research at MIT, identifies the choices open to organisations that are seeking competitive advantage and meaningful differentiation in an increasing homogeneous commercial landscape. These choices are driven by the degree of knowledge a business has of its end-consumer and the relationship an organisation has with the rest of its market. Decay seems inevitable for organisations that have only partial knowledge of their customers and are stuck in a traditional value chain structure – Professor Weill terms this the traditional ‘Supplier’ segment which will become increasingly commoditised and probably redundant unless it can change (Figure 1).
Enterprises that are structured to reside in an ecosystem and have complete knowledge of their end-consumer, such as Amazon, will set the rules for the rest of the market – the ‘Ecosystem Driver’. Other participants in the ecosystem will adopt and probably help to improve the rules through broader collaboration.
Players outside ecosystems must be at long-term risk from members of their competitive peer group that are making the strategic leap to becoming an Ecosystem Driver. This is why we are seeing so much interest from the major Australian banks in new technologies and business processes. And why NewLaw firms like Axiom or NewConsulting firms like Skillsapien are making such rapid strides and leaving traditional players wondering what’s happening.
The new language of business enterprise models is here to stay and we will witness only more disruption to traditional markets as ecosystems thinking becomes more fully understood and implemented.
beatonlive, FINSIA and Professions Australia are hosting a conference featuring Professor Peter Weill in March 2016 exploring how to thrive in the new digital landscape – for further details click here.
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