The world is changing at a faster pace than ever before. The key success factors for companies have fundamentally changed over decades especially after Covid 19. We have shifted to the new business environment by forcing our way of thinking and developing strategies, organizational and business models, and our capabilities. While checking the business news around the world, we can clearly see that the business ecosystems are surely storming the business world!! So, You might be thinking about why a lot of developed countries and big corporations are now focusing on the business ecosystems and might want to know the reasons behind it. We will cover the following topics in this blog.
What is a business ecosystem?
Types of business ecosystem
How Correlate between Ecosystem rankings and Economic growth?
Why is it important?
What factors make ecosystems successful?
Benefits and downsides of it
Key Points
A McKinsey research shows that by 2025, 30% of the corporate revenues will come from ecosystems and up to $60 trillion global revenue pool potentially concentrated in an integrated network economy.
According to the Accenture Ecosystem strategy report 2018, almost 50% of executives are actively seeking ecosystems and new business models.
84% of developed countries have an ecosystem ranking within 20. If the ecosystem ranking is not good, the number of unicorn startups is very likely less or no in terms of economic size.
What is a business ecosystem?
A business ecosystem is a set of companies that build up strategic partnerships to provide a specific value to the customers cooperatively or competitively. The partnership can be in many ways such as
Supplying products to one another
Creating products or service together
Finding a better channel to reach the target.
Each business ecosystem is classified by its desired solution and outcomes, a group of actors with their respective roles. In every ecosystem, there is at least one member who plays the part of an orchestrator of the whole participants who is responsible for the structure and the performance of the whole ecosystem.
Types of Business Ecosystems
There are two basic types of business ecosystems:
Solution ecosystems
Transaction ecosystems.
Solution ecosystems, which create and/or deliver a product or service by coordinating various contributors, and transaction ecosystems, which match or link participants in a two-sided market through a (digital) platform.
Correlations between Ecosystem rankings and other economic growth factors
In this section, we are going to introduce you to how country growth is interconnected with the ecosystem.
Global Startup Map
This map represents where startups are concentrated across the world.
Source : Startup Blink Ecosystem Ranking 2020
Top 20 Global Startup Ecosystem Ranking Countries
This is a chart for the top 20 Global Startup Ecosystem Ranking. By just seeing this rank, you can understand how healthy their Economics in terms of talent pool, Capital, Quality of Living, etc.
Source : Startup Blink Ecosystem Ranking 2020
Top 20 Number of Unicorn Startups make Countries
Here is the chart of top 20 countries that make unicorn Startup companies. By seeing how many unicorn startups have made statistics is one of the important factors to measure how likely the ecosystem is strong enough and has potential of growth.
Source : www.statista.com
Top 20 GDP Countries
Here are top 20 GDP countries.
Source :www.worldometers.info
If you see the following chart, 84% of developed countries have an ecosystem ranking within 20. If the ecosystem ranking is not good, the number of unicorn startups is very likely less or no in terms of economic size.
Source : www.openfor.co
Why are the Business Ecosystems playing such important roles?
Now, almost all highest valued companies have business ecosystems of their own or create the business ecosystem structure with the aim of delivering the best values to the customers. The most well-known ecosystems are Apple, Amazon, Airbnb, Facebook, Google, and Uber which are virtual corporate networks.
In addition, it can be said that business ecosystems are bringing advantages to all sizes of businesses including startups, small and medium businesses. Resources and experience of the larger counterparts are offered to the SMEs by the business ecosystems. SMEs are now able to try out the digital economy, consult with suitable partners from all around the world, develop the appropriate business models and evaluate them in the market, all of which lead to the transformation in their value chain.
In the case of startups, the larger companies are cooperating with startups from the accelerators in which both sides benefit. The startups get access to the resources, customers, and capital goods of the larger companies while the larger ones get the new innovations and development methods.
A McKinsey research shows that by 2025, 30% of the corporate revenues will come from ecosystems and up to $60 trillion global revenue pool potentially concentrated in an integrated network economy.
What factors make ecosystems successful?
As a country, a balance between these three factors can lead to a successful ecosystem.
Talent
Capital
High standard of living
Talent - Talents come with a good education. Scott Galloway said that “Find the universities that are gaining the most traction in engineering or STEM and you will be able to find an ecosystem that can produce a unicorn”. Israel is a very good example and it is one of the most educated countries in the world where 47% of its over 25s have a college diploma.
Demographics are also related to talent. Despite having 126 million people in Japan, their startup ecosystem rank is low as the majority of the population is made up of elders and young generations are too busy with taking care of their elders to startup. On the other hand, Israel’s demographic is distributed evenly with enough young people to take care of elders and do start-ups.
Capital - With the news going out that Israel is a great place for start-ups, investors are investing a lot in Israel. 4.5% of Israel’s GDP is used on Research and Development.
High Standard of Living - Entrepreneurs are attracted to places with good healthcare and public transportation and low crime rates. To be a live-able place for entrepreneurs, a high standard of living is essential.
As Businesses for pursuing disruptive growth through an ecosystem initiative must first get a few things
right:
Make the right plays,
Find the right partners
Think outside of traditional boundaries
Make the right plays: Industry innovation is a great threat they face from competitors forming ecosystems. But to innovate together, businesses must know what each brings to the table.
Find the right partners: The right partners and partnership allow a business to successfully collaborate outside of its sphere. Ecosystem leaders master the ability to identify the level of orchestration from ecosystem partners and their level of involvement in product development by clearly defining how data will be shared and how success will be measured.
Think outside of traditional boundaries :Most corporate leaders have felt that disruptive growth is important to the overall growth agenda for a number of years and ecosystems will allow their organization to grow in ways otherwise not possible. But before companies can grow, they must understand what will drive new value, taking the business beyond its current boundaries by sharing vision among partners to be successful. Businesses must explore how to work together across organizations to deliver a joint solution that's essential for future successful services to the customers.
Benefits and Downsides of the Business Ecosystems
Business ecosystems provide three benefits:
A broader range of capabilities
Power to scale quickly
Flexibility and resilience
For the ecosystem, instead of building the expensive internal capabilities, it is possible to provide the external capabilities. Ecosystems are open to all smart people who have the ability to innovate and bring the best result. Ecosystems are able to scale quickly as their structures with clear interfaces make it possible to add members, and the asset-light business models allow rapid growth. Almost all ecosystems have stable platforms and interfaces but the components are highly variable as they can be added or subtracted from the system if needed.
On the other hand, there are some drawbacks to ecosystems. The first one is that each participant in the system, even the orchestrator, has only limited control. Engaging and controlling the external partners without hierarchical power is quite challenging. The other challenge is the value capture in the ecosystems. It is believed and made sure that the total value created in the ecosystem must be split among the participants.
Conclusion
These days, some questions on whether the business can be successful without an ecosystem on its own are made. It could have been successful on its own in the past but nowadays, it is unlikely to stand out from all those big innovations made from the ecosystems by itself. Business ecosystems are also believed to grow more and more in the coming years. Thus, to be a part of an ecosystem is the next step you should take for your business.
If you are not part of the ecosystem yet, it is never too late to start from now.
Openfor.co is a “Partnership Incubator”. We help businesses find strategic partners and collaborate with them for increasing revenues, reducing operational costs, and supporting global business expansions.
We have made barter deals to up to $20 million volume deals for our network. We work with startups and large multinational enterprises to reach out to 500 fortune companies like Applied Materials, Google, Facebook, Microsoft, Amazon, and many more.Join us to stand out from all big innovations made from the ecosystems and be a part of our network of 500+ Partners from over 20 countries.