Taking a Page from Biology

Ecosystem:  A community of organisms together with their physical environment, viewed as a system of interacting and interdependent relationships and including such processes as the flow of energy through trophic levels and the cycling of chemical elements and compounds through living and nonliving components of the system.  Source:  American Heritage Science Dictionary

Borrowing from biology 101, most organizations today understand the essential role a network of business relationships – suppliers, distributors, customers, competitors – plays in bringing products and services to market.  Put simply. it’s the idea that each partner in the “ecosystem” affects and is affected by the others, creating an evolving set of relationships in which participants must be willing to bend and adapt in order to thrive.

In his book, The Wide Lens: A New Strategy for Innovation, Ron Adner, a professor of strategy at the Tuck Business School at Dartmouth, brings this point home by citing many commercial flops (e.g. Sony’s 2007 e-Book Reader; Hollywood’s attempt to bring digital cinema to American theaters in the 1990s) due to a failure to see the whole ecosystem.  His point:

“Greatness on your part is not enough. You are no longer an autonomous innovator. You are now an actor within a broader innovation ecosystem. Success in a connected world requires that you manage your dependence. But before you can manage your dependence, you need to see it and understand it. Even the greatest companies can be blindsided by this shift.”

Taking stock of the ecosystem required by new innovations is a core tenet of Business Model Innovation (BMI).  We advise clients that mapping stakeholder relationships (see illustrative graphic below for an IT department in a financial services company) surrounding the innovation is instrumental to illuminating the risks and dependencies that could catapult or kill a great idea on its way to success.

Ecosystems_6

Identifying the potential land mines in the ecosystem is only a starting point.  To vet the implications of the relationships on the innovation’s business model, organizations must run a series of experiments with stakeholders, focusing on each point in the ecosystem where uncertainty is greatest.  Through testing, organizations will gain the requisite insights for de-risking the partner selection process and the terms and conditions governing their roles.  As the business model evolves, so must the ecosystem to ensure that all interests between stakeholders and their end consumers remain aligned.

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Know What your Customers Want

I sit on the board of an emerging asset manager that has a truly breakthrough innovation in global equities index investing.  The investment strategies have the same risk and liquidity profiles of traditional index funds yet consistently deliver superior risk adjusted returns above the benchmarks.  Our CIO has a stellar reputation, having successfully managed >$75 billion in institutional assets over a thirty year career.  His personal relationships with the heads of largest global pension and sovereign wealth funds also mean we have a target list of accessible prospects.  Despite these advantages, something was constraining AUM from taking off more quickly.

Through trial and error, we learned that our sales motion was not adequately tailored to how our target clients – institutional and non-institutional investors – vet and select new managers.  Following a series of sales calls, we took our learnings and recalibrated the entire sales process to better align with the stage gates commonly used by investment committees in the segments we serve.  Becoming more in tune with what our customers want has begun to pay off – AUM has grown threefold in less than a year.

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Look Forward and Then Act

I had breakfast yesterday with a longtime colleague who was in town visiting with clients. After 20+ years in senior executive roles with global 500 companies, she decamped to a mid-sized firm that was trying to get to the next level.  Like many industries, this company has been reeling from disruption caused by the rise of digital technologies, and investors were expecting bold ideas.  With a board meeting just around the corner, the CEO challenged my colleague to work with the leadership team figuring out how to position the business to become more like a technology-led company?  Looking for guidance on how to proceed, my colleague asked, how do we do this?   As we spoke further, several issues emerged:

  • The company’s vision lacks a bold purpose
  • Clarity what it takes to look, feel, and act like a technology company is limited
  • An understanding of how its markets and customers are changing is not fully formed
  • Open collaboration and communication are the exception rather than the rule

Without a clear template for the future state, addressing these issues would be a challenge.  How could the organization make bets on its people, operations, and partners without first formulating its purpose and deciding what businesses it should enter? Like many companies, this organization seemed to attempting to optimize for the current rather than future business.  Its strategic planning process further reinforced this thinking.

As we parted ways, I left my colleague with the following food for thought:  set aside conventional wisdom about strategy formulation and take a hard look, instead, at who your future customers will be in the future and what they want.  Customer-centric thinking will clarify the types of businesses the organization may wish to pursue.  Apply this customer understanding to how the business could create and realize value from a new mix of offerings.

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