Winning The Right Game In The Disruptive Ecosystem
As part of a new series of talks exploring the breadth of vision and perspective in NTT DATA's foresight-based value provision on digital transformation, NTT DATA's Senior Executive Vice President Yamaguchi was in discussion with Dr. Ron Adner of Dartmouth College. They spoke about Economic Disruption, citing examples from the Japanese and US ecosystem to explore what it means to win the right game in a disruptive ecosystem.
Moderator Profile: Senior Executive Vice President Yamaguchi of NTT DATA is responsible for helping executives transform their businesses by creating cutting-edge technology. He draws on his extensive experience in digital transformation initiatives to form the basis for NTT DATA's team's success.
Speaker Profile: Dr Ron Adner is the author of two books, one of which is 'Winning the Right Game' - which discusses competitive strategies for an era without industry boundaries. A professor of strategy and entrepreneurship at Dartmouth College, Dr. Adner's award-winning, groundbreaking research on value creation and competition amid ecosystem disruption has offered a new perspective on value creation and competition.
This article is based on the discussion between the two.
Winning The Right Game In The Disruptive Ecosystem
Business ecosystems have evolved so rapidly that companies are expected to win the right game in disruption
Using examples from the Japanese and US ecosystem, the notion of Economic Disruption will be covered in this article. Senior Executive Vice President Yamaguchi and Dr. Ron Adner will discuss what it means to integrate the partners and technology required to construct a value structure and build an ecosystem.
NTT DATA believes that digitalization will change how companies manage and organize customer value changes.
Convert, Connect, Algorithm, and Cognize are the four categories that NTT DATA uses to group digital technologies and development. The combination of these technologies transforms economies and society. The strategy, capabilities, and structure of large organizations impact the development of digital technology. With NTT DATA's cutting-edge digital framework, economic principles are based on universal touchpoints, personalization, and reducing uncertainty.
Using digital technology, the "Customer Value Reinvention Strategy" assists customers in identifying the issues they have with their present customer experience.
An organization that is determined to create new customer value needs a flat, fast-moving, and agile structure. This iterates across the entire customer journey with transforming from a hierarchical organization that merely mass-produces high-quality products already on the market.
Digital technology advancements allow companies to reduce transaction costs by outsourcing their work in-house to outside partners or by working with new partners that offer new services to customers. In doing so, this creates connected partners to provide new services to customers. NTT DATA believes that relationships with manufacturing partners are not fixed but rather a flexible trading system through the market.
What Does It Mean To Win The Right Game?
Dr. Adner advocates three important points.; firstly, the value proposition for the customer should first span the entire customer experience instead of merely the goods and services.
The next essential point involves building an ecosystem of multiple companies collaborating through digital technology to provide value to the customer's experience.
Finally, continued technological development may cause partners who currently provide complementing items in the ecosystem to evolve into competitors. This could even occur without their intent or a change of corporate direction.
By not taking these into account, it is possible to win but not the right game. An example of this is the digital camera company, Kodak. It is widely believed that Kodak failed because it could not shift from film technology to digital camera technology. However, Adner explained that Kodak's failure was an intriguing misunderstanding, not just of the facts but also of their core strategy. The familiar tale portrays Kodak as a hugely successful photography corporate giant, heavily invested in chemical printing, and the inventor of digital photography in the 1970s.
In the 1990s, Kodak attempted to determine what to do with digital. However, by the year 2000, it had made a corporate-wide commitment to become a leader in digital photography after seeing how rivals like HP and Lexmark made as much money as chemical photography with developers and paper. Kodak had a substantial technological advantage with the sensors used inside its photo labs. Over ten years, Kodak became the No. 1 seller of digital cameras in America and the No. 4 seller of inkjet printers worldwide.
Despite these incredible feats, Kodak still went bankrupt. While they succeeded in transitioning from chemical to digital printing, the world had moved on to smartphones, making printing irrelevant. It did not matter how good Kodak cameras or printers were - they were just the No. 1 printing company in a world that no longer wanted to print photos. This is a very different kind of disruption that requires a unique approach to view. To understand the notion of winning the right game, Adner encourages us to consider the case of Kodak, where it is not just about winning but also factoring in the possibility of winning the wrong game. This is especially relevant with rapid digitalization.
What Is 'The Ecosystem'?
A standard business ecosystem is vaguely defined as multiple companies working together to create a product or service. To win the right game however, Dr. Adner advocates focusing on customer experience instead of using products and services to gain customer insights. He defines an ecosystem as the structure through which partners interact to deliver a value proposition to the end consumer. This approach helps formulate ecosystem strategy and analyze the competitive landscape within the ecosystem.
People tend to peg the identity of an ecosystem to a firm, such as referencing a "Sony ecosystem" or an "Apple ecosystem." This approach can create blindness to the other critical parts of the ecosystem definition. When ecosystems are defined by the firm in the middle, the firm's partners, which are critical for the value proposition, tend to be overlooked. This makes the structure more challenging to understand, and changes to this system are harder to anticipate since it is deemed that one is offering a more prosperous value proposition than the other.
In essence, ecosystem disruption can come from unexpected things, such as improved technology shifts like in Kodak's case. The disruption came from introducing smartphones using a different technology that performs a similar job, known as a substitute competitor. This disruption was not a revolution of printing technology but instead a revolution of how people interacted with photos. Rather than just printing them, people could now share with their friends and view a photo-quality recreation on their smartphone screen. To avoid a case like Kodak's, identifying the disruptors before they become a substitute is key to winning the right game.
How Will The Nature of Competition Change?
Dr. Adner suggests scenarios where an ecosystem partner could become a competitor. When this happens, there is the possibility that a company will engage in several mergers and acquisitions of its rivals, or the company could leverage existing know-how to enter a new market.
The first approach was taken by Lexmark - another printing company, before the disruption occurred. Lexmark saw that people were printing less and less. In 2008, it engaged in a slew of acquisitions of software companies, transforming itself into a document management company while acquiring 2.5 times as much money as the company was worth in 2008.
For the second approach, we can look at Fujifilm, a Japanese film manufacturing company, which successfully diversified its portfolio into pharmaceuticals and cosmetics by harnessing its chemical technology know-how developed through film production. Fujifilm's film business currently accounts for just 5 percent of its total revenue. Dr. Adner remarked that Fuji made a crucial decision, knowing they could not fight in the same game. They identified their core capabilities through thorough research and found markets to redeploy them. However, as Kodak did not have the same options as Fuji, they could not replicate the number of business aspects Fuji had. This resulted in Kodak being unable to stop the disruption to their business
How Should the Ecosystem Be Built?
Once you observe a change in the ecosystem's dynamic, it is vital to decide on your response. Building an ecosystem does not happen immediately with the flip of a switch, rather a new ecosystem requires you to change your lineup and partners. Dr. Adner introduced the concept of Minimum Viable Ecosystems (MVEs) as a lever to take a closer look at relationships already in place that can be incorporated into the MVE. There are three stages to consider when adopting this approach. First, consider the smallest set of interactions you can facilitate from your position. Second, a gradual and phased expansion where you can bring in further partners, then finally connect with MVE to a second ecosystem. By examining whether the existing relationships you have can be transferred to the MVE, an efficient ecosystem will be built. In addition, you can use some of the existing relationships they have in other markets they serve to demonstrate the need for new partners. It is also imperative to experiment in the marketplace to determine what your target customers want using the Minimum Viable Product (MVP). Approach strategy with customer insights, gaining a basic understanding of what your customers desire. Now, you can begin the value creation process with a solution for your customers' desires or your value proposition.
Finding the ideal value proposition requires extensive experimentation. Design thinking, A/B testing your options, exploring the minimum viable product story, and market research put you in the customer's shoes, making you more confident that your work will add value. The concept of value architecture, which is essentially how you imagine things coming together conceptually when you analyze your value proposition, is the level of analysis that sits between the value proposition and activities. After all, creating ecosystems and disrupting ecosystems depend on the concept of value architecture.
In the real world of industries, however, the value architectures of competitors often overlap. Key differentiators would then be who individual elements - and who performs better at each aspect. In other words, as a value architect, one of your key responsibilities is comparing competitors to determine who produces work of greater quality, at a lesser cost, etc.
What is required of the ecosystem builder/operator/leader?
Alignment should be your top priority. The alignment mindset is different from the execution mindset held by leaders who truly understand the customer and the organization and puts the needs of the organization above their own. Leaders who are exceptional at execution maximize value capture, efficiency, and efforts to run the business as effectively as possible. On the other hand, the alignment mindset brings together a brand-new group of businesses to create a never-seen-before value proposition, teaching partners how to feel secure and confident in their own efforts while maintaining that their own value capture is guaranteed.
These two leadership mindsets correspond to your position in the economic cycle. When all the relationships are established and mature, the execution mindset prevails when you can consider your company and industry. However, it takes a very different perspective, set of skills, and training to put the coalition ahead of the company when the goal of the game is to bring together new companies in novel ways. As such, if a different leader is not to be put in place, then the incumbent leader must alter their philosophy to succeed.
How can this idea be used to solve social problems?
The COVID-19 experience is a powerful example of an ecosystem disruption. COVID-19 may have started as a healthcare problem, but its effects rippled across every other feature of society, what we call silos, affecting economics, internal relations, and more.
The problems we face today as a society no longer match the silos that we have built our society upon. The only way we will be able to address them is to find new ways of aligning these critical functions for the profit, non-profit, and government sectors. When we see society doing well, that is when someone has figured out how to build a coalition because nobody can do it themselves. The goal of a new alignment structure, not the financial motive, is what matters in ecosystems. This coalition enables a unique connection that cuts through those silos.
Dr. Adner shared insightful opinions and advice, especially the idea of the customer value delivery ecosystem being able to help solve social issues. NTT DATA has recognized this need for an ecosystem where it is not possible for just one company to provide value to greater society. As a result, NTT DATA has been working on a social solution called D-Resilio, which aims to provide a Disaster Management Platform to support disaster response and relief operations.
D-Resilio would create value by harnessing the strengths of each member of the ecosystem. Within this, the media would spread useful information, while the community and citizens would aid in evacuations. Medical institutions would give care as infrastructure companies help early recovery. Finally, both local and national governments would work to provide shelter and deliver essential supplies. As we face ever-increasing threats of frequent, widespread, and complex disasters, it is vital to create value for residents of areas affected by natural disasters and complex threats to encourage easy evacuation and recovery. This is to be achieved by NTT DATA playing a central role in bringing together organizations, governments, and individuals, to build an ecosystem that creates value for society. NTT DATA manages such an ecosystem; since it can be seen, one company simply cannot do it alone