E18: Ecosystem – the future operating model?

E18 with Olivier Wright, MD and Global Lead for Consumer Goods and Services at Accenture. Olivier co-authored the report ”Ecosystems: Cornerstone of future growth”, presented on this subject at the World Economic Forum, and was published in HBR. Learn why #ecosystems are already an industry-wide phenomenon and whether they will be one of the key operating models after #Covid19. Part 1/2.



Oliver, delighted to have you. In 2018, you authored a report on ecosystems, which helped businesses to open a new chapter in how they understand the ecosystem and how they use ecosystems. Can you please start with explaining, how do you understand ecosystems?

Let's give it a bit of context. So what we were doing was, we had been asked by the World Economic Forum to look at the future of operating models for consumer goods companies and retailers. And what we did as part of that exercise is, we talked to a huge range of companies around the world, both large scale organizations, so the Nestle's, the Procter & Gamble's, the Unilever's et cetera. But we also talked to a huge number of disruptors as well. So these are people like Instacart et cetera, a whole range of companies. And what we were looking for is, what are the signs of the ways in which we saw organizations operating in the future. And we identified a broad set of characteristics for the ways in which we saw operations of companies going forward. That was very different from what we've seen in the past. And we summarized those results. I gave a speech at Davos about it and lots of buzz and so on about it. But one of the really interesting things that came out of it was the degree to which this phrase "ecosystem" came up. And when we looked at companies, particularly those that have been founded in the last six to eight years, so the ones that I would describe as digitally native and that don't come from a baggage from the past, those companies consistently described the use of ecosystem models. And so we then started to understand this is an emergent theme that became really one of the key tenets of what we saw as operating models going forward. And the basic premise was that what people were saying to us is “we recognize that we shouldn't try and take on everything ourselves, we shouldn't try and treat ourselves as a fortress, we should be very clear on the capabilities that we need ourselves versus the things that we should be partnering and working with others to have them do things on our behalf”. And second thing that was within that, was the style of the collaboration. Where if you think about the way in which things used to operate say 10, 15, 20 years ago, there'd be a lot more conversation where somebody would say, you know this thing is not something we should do ourselves. Let's issue an RFP, let's go through a very formal procurement driven process where we're very clear on exactly what the contractual boundaries are, we'll make sure there's the right sort of financial conditions in place. But it was more of an arm's length agreement and things were being passed from one side to the other. And you know that was what we historically knew. What we're describing here is fundamentally different. It's where you've got organizations that are saying, they're both going to invest discretionary time together to accomplish something which neither party could do on their own, which helps both people to have a much more material impact on what they can do. And what you see is people actually looking to create relationships where they think about what that long-term opportunity is and they as I said, they invest their discretionary time in doing this in time to build the picture. And there's a much fundamentally different level of trust in the conversation, right. People assume they have a long-term relationship, they are willing to put these ideas in. And critically within that, is this thought about putting yourself in the shoes of your partners', of what they fundamentally need, where the big value is and then proactively coming forward with ideas. And that is fundamentally a big shift in what we were talking about. So as we started to look at this concept, we then said, let's then understand what different types of ecosystems are out there and what are the conditions for them to be successful. And it is something that has been growing, that has achieved more and more traction, both in terms of the number of those sorts of relationships that particularly big companies are willing to have and also the complexity of those as well. Because no longer would it be bilateral relationships alone, it can also be multilateral relationships, where you've got a large number of players coming together to do things that they wouldn't have before. And it's interesting because under C19, the evidence that we have suggests that this trend is going to accelerate. Because what C19 is doing is driving people to further reconsider the way in which they should operate and the relationships they should have with others. And particularly as people are recognizing that they need to move quickly, they need to be much more responsive to immediate pressures that are happening and old taboos, old ways of working are getting very rapidly broken down as a result of that. And so we're seeing emerging types of relationships, emerging types of thinking where ideas have been shared et cetera in a way that we haven't seen before, that we do expect to be a permanent shift in the way in which organizations operate. So we're not going to go back to the world that we saw pre-Covid. It will be something where as we go forward, this model of ecosystems, this way of thinking we see is becoming much more pervasive. And while my expertise given I run the consumer goods practice for Accenture globally, that's my focus in terms of understanding those industry relationships. Every indication we have suggests that this is an industry-wide phenomenon. It's not just restricted to consumer goods and retail players. Going back to your report, and I think where you hit the spot is when you said that there were several reasons why companies engage in ecosystems. It's data sharing, access to customers and so on. Can you talk a little bit more on what is the reasoning behind it, what are fundamentally several key aspects why companies engage in ecosystems?

In every case it comes back to the fundamental premise, which is that a company recognizes that there is a potential level of value that they can't get to themselves at the pace at which they need to and at the cost that they need to do that. I.e. the cost of acquiring those capabilities would take such a long time for them that they would potentially miss the opportunity in the market. So there's a recognition of a very clear commercial need or a commercial outcome that they can generate in that way if they work differently. So that's the first thing, because you know this change to this way of operating is a little bit uncomfortable. It requires a level of trust and so on, and so there has to be high enough incentive to be able to do it. So that's the starting point for all these different pieces and then once you go beyond that then it's a case of then saying let's understand that there are a range of ways, a range of different types of value that people are looking at, that where people are creating ecosystems around those. So it's not like there's just one size fits all. The characteristics of those ecosystems as I was describing before in terms of there being a mutual exchange of value et cetera, those things are pervasive but the types of ways in which they're being used tend to fall into sort of three, four, five different categories. But the one of the key things to remember about this, and this is different from again the way things operated in the past, is that the benefits of these models for them to be sustainable in the long term, have to accrue to everybody, right. In other words, if you're in a model where one player has an outsized gain from that and, you know, that's often where you see people who were running platforms, for example. Those just historically don't tend to sustain themselves for as long a period of time. So one of the people that we've been collaborating with on this is some folks from Harvard Business School and one of the things that they've looked at is things like models going back to the way in which Microsoft operated in the 1990s. And those sorts of things where they created, you know these sorts of relationships where they had relation with a broad network of providers and supplies they were working to. In that model, the vast majority of the benefit accrued back to Microsoft. And so because of that, when people had alternatives, they explored them, rather than reinforcing. And this is the key thing for the sustainability of this ecosystem piece is that the players themselves all recognize that by further deepening their engagement in the ecosystem, they're going to get the highest level of benefit. So it becomes self reinforcing as they go forward. And so that's a key characteristic of this. And then as people commit to that, then obviously that's one of these things one reason why they become so much more valuable and also able to scale in that way. But that thoughtfulness around how do you make those relationships work and make sure that there's no one player who's really driving a completely outsized benefit, is a classic example of this. Right. So it should be more two-sided and balanced relationships I guess, right? You mentioned current economic disruption and I have a question on how ecosystem thinking has been evolving since you published your report? Looking at the entire picture, how do you think it's going to evolve in the next year and then how it's been evolving in the last couple years?

I think there's a few things here. I think one is that it is clear that there is a broader and broader recognition of the value of this approach. So the barriers to this kind of fortress mentality are increasingly crumbling and this is going to become something that's much more pervasive. So if we think about the depth of conversation that will be in these sorts of topics in B-schools over the next five to ten years et cetera. This will become an increasingly central part of the way in which people think, act, operate et cetera, right. The second thing I think tied into that, is that the degree to which people will rely upon them as the mechanism to become successful will become more and more pervasive and deeper. And what I mean by that is that we anticipate that within five to ten years, we'll see more and more examples of what I would describe as almost fully virtual organizations, where you have a relatively small team at the center who is designing what they want the model to look like and who are the set of partners that they need to work with and then reaching out and establishing those relationships and almost all of the work within that business model or within the value chain would be done through relationships with ecosystem partners. So you've got people who would be orchestrating but not executing. And we are already seeing examples where a lot of the faster growth CPGs have substantially gone down this approach. And so what we are trying to do is to be clear as to the extent of that and the fact that when these organizations are operating in this way, it is going to be disproportionately... they are able to move much more quickly than others. So if I give you, you know, a couple of examples, we wrote a piece for Harvard Business Review last year and that looked at some of these questions and was focused specifically on the very rapid growth of a lot of the smaller scale consumer goods players in the fast growth market. So we looked at places like Indonesia, Vietnam, China et cetera. And what we found was that there were companies that had taken incredibly high increases in market share in very short windows of time and a very common characteristic of it was using this sort of approach in what they did. So you know one example is a company called Vini Cosmetics in India who had decided to take on Unilever in the men's deodorant category. And just for folks that don't know our industry as well, Unilever in India is a very, very dominant player. They've been in the market for I would imagine 100, 120 years. And so being taken on in a very dominant category, that's a big move. And basically what Vini did was they said, 'We're going to release this deodorant brand called Fogg and we're going to focus purely on the R&D around the physical product and the marketing of it and everything else will use ecosystem partners to do. So the manufacturing of it, the distribution of it et cetera, et cetera. And they basically went from conceptualizing this thing earlier this decade to actually becoming the number one men's deodorant brand in the category literally in a four to five-year window of time. And so we've seen this huge, huge change in the market using this sort of approach. So you're seeing examples now emerging of incredibly outsize scale benefits to organizations who actually are able to operate in this way. So this isn't a you know, this isn't an academic conversation. This is where we're seeing quite big shifts in market share coming from people who were able to operate in this way and to create these sort of relationships where they are really quite thoughtful about how do they get players to work together?

It's actually a brilliant example because I think increasingly when you see people talk about ecosystems, they go back to examples of Apple and Google, while you know I'm sure a lot of companies are doing that.

I think that's right. I think what's interesting for folks is those examples are often ones that are used. But what you, what we're talking here about is ones where you don't have as dominant a single player who is driving a platform. Because you know people will sometimes confuse platform and ecosystem and obviously every platform is an ecosystem but not every ecosystem is a platform, right. You don't necessarily need to have that same thing with buyers and sellers and a middleman and so on so forth that you see with platforms. You can have situations where people are looking at a more traditional value chain and saying we will have players work along that value chain in a different way. So yes you know, it's easy to go back to the platform idea but people do need to understand the difference, the difference clearly does exist and I suspect that the vast majority of ecosystems aren't platforms at all.

Mentioned references:

  1. Accenture research on ecosystems: https://www.accenture.com/us-en/insights/strategy/cornerstone-future-growth-ecosystems

  2. Harvard Business Review article: https://hbr.org/2019/02/how-global-brands-can-respond-to-local-competitors

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