CIOs must look beyond their organizations' borders to create business ecosystems

Business ecosystems are partnerships that require building trust, learning together and capturing value equitably, say columnists Madeline Weiss and June Drewry.


The Beatles had it right: You need a little help from your friends--to succeed in today's competitive, fast-paced, global environment, that is. But which friends? Why do you need them? And how do you play a leadership role vis-à-vis those friends in evolving business ecosystems?

Business ecosystems are dynamic webs of partners who rely on each other for success. And they're emerging in every industry. One example is Home Depot, which is working with manufacturers to ensure that all of the smart home products it sells are compatible with the Wink connected home system--thereby creating its own ecosystem and simplifying consumer decisions in a confusing new market. Another example is how car companies are teaming with tech vendors for in-car infotainment systems.

"Businesses see great potential to make a difference--and a profit--by operating as ecosystems, not just as individual corporate entities," says the "Accenture Technology Vision 2015" report (download PDF), which is based on a global survey of more than 2,000 IT and business executives. According to Accenture, four out of five survey respondents said they expect to see a dramatic blurring of industry boundaries. Moreover, 60 percent said they plan to engage new partners within their respective industries and 40 percent said they plan to connect with digital partners outside their industries.

To keep up with customers' increasingly complex demands, companies must rely on ecosystem partners to augment their in-house knowledge and capabilities.

At a recent meeting of the Society for Information Management's Advanced Practices Council, Michael Barrett, a professor at Cambridge University's business school, outlined what it takes to lead an ecosystem successfully. Barrett cited the example of ARM, a British company that designs processors for digital devices but relies on ecosystem partners to manufacture the products. Although the platform is proprietary to ARM, significant collaboration occurs among partners, such as Apple, Dell and Nvidia. "ARM's strategy for creating ecosystems is to ensure that the end customer benefits from better reliability, lower costs, and the latest advances in technology," Barrett said.

A successful business ecosystem requires radically new ways of thinking, starting with a shift from a mindset that sees fixed organizational boundaries to one that looks beyond the existing borders of the organization, Barrett added. That leads to sharing critical knowledge throughout the ecosystem so that end customers benefit. It also leads to sharing the financial rewards. ARM executives ensure that their ecosystem partners can build profitable businesses of their own and that not all profits are captured by ARM. Since ARM's earnings come from royalties and software license fees, it needs a strong set of partners to keep the revenue flowing.

Companies also need to think broadly about ecosystem innovation and consider who else needs to innovate, or adopt an innovation, before the end customer can get the full benefits. For example, digital cinema initially failed because of the high cost of adoption by operators of movie theaters. When Hollywood producers subsidized theater owners' purchases of digital equipment, digital cinema became available to customers.

Yet another mindset shift is getting by with help from friends who may be competitors in other situations. The pharmaceutical industry provides myriad examples of competitors who form ecosystems to bring drugs to market sooner than one company could on its own.

This new world of business ecosystems--partnerships that require building trust, learning together and capturing value equitably, all in the interest of increasing customer benefits--will test the leadership skills of any executive.

Madeline Weiss is director of the Society for Information Management's Advanced Practices Council. June Drewry is a former CIO of Chubb and an adviser to the APC.

This story, "CIOs must look beyond their organizations' borders to create business ecosystems" was originally published by CIO.