How to create meaningful business ecosystem strategies

During periods of economic uncertainty, many companies tend to reconsider partnerships and focus on protecting market share. But business leaders who embrace ecosystems — relationships with other companies, organizations and institutions that generate value for a common set of customers — are more likely to foster transformation and create measurable, lasting value.

“Ecosystem” has been a buzzword for a long time, but the concept makes a lot of sense. By working together instead of separately, companies can improve outcomes and create more value across their enterprises. In fact, some already have. PwC analyzed 470 companies that were in the top ten total enterprise value of their industry at any point from 2001 through 2021. Among those, about three dozen — which we identified as working in ecosystems as part of their platform business models — delivered significantly higher enterprise value than others.

This hasn’t always been the case, but the digital era combined with the pandemic has accelerated adoption of these collaborative strategies. From 2001 to 2012, our analysis found, the average total enterprise value for companies that had platform business models and those that didn’t was roughly the same each year. But platform businesses started consistently outperforming others in 2013, and by 2021 their average total enterprise value was more than four times higher than that of other companies.

Some companies recognize the need to evolve. In PwC’s latest Global CEO Survey of more than 4,400 executives, about 40% said they believe their organizations will no longer be economically viable in ten years if they continue on their current path. About half of all respondents said shifting customer preferences, regulatory changes, skills shortages and rapidly evolving technology threaten long-term profitability. These concerns reflect broader trends that could have a profound impact on businesses during the next decade, and working with a wide range of collaborators can help companies create economic and social value in tandem.

Ecosystems that work

The ability to collaborate beyond corporate boundaries is essential in addressing today’s business challenges and creating a more sustainable economic future for the organization. Here are some examples of effective ecosystem strategies.

• Building smarter. The construction industry may not be the first that comes to mind for technological innovation. But Komatsu has transformed from an equipment manufacturer to a leader in digital smart construction solutions that share data, improve coordination and help drive productivity across an entire industry. The construction giant started with machinery that used GPS, digital mapping, sensors and Internet of Things (IoT) connections to help customers use its equipment more efficiently. Then Komatsu rolled out a platform that enables customers, business partners and even competitors to coordinate their activities and fleets, improving productivity and reducing maintenance costs. As the ecosystem coordinator, Komatsu can generate revenue from managed services and its automated platforms to offset cyclical equipment sales.
• Powering innovation. Stem Inc., a provider of automated energy solutions, uses its platform to bring together renewable generation sources and battery storage using AI-powered analytics. These “virtual power plants” allow power providers to shift electricity demands in times of shortages and balance the amount of electricity generated by renewables and thermal generation on the grid. This reduces energy costs for utility customers while allowing power providers to comply with new regulations — which can vary from state to state — for reducing greenhouse gas emissions.
• Seeing the forest for the trees. Global food and beverage company Nestle is working with Starling, a provider of data gathered by satellite, to monitor deforestation in its palm oil supply chain. The company plans to add similar programs with its pulp and paper and cocoa suppliers. The program is part of a broader effort to work with suppliers, including some four million farmers, to reduce the 110 million tons of carbon dioxide generated annually to produce the company’s ingredients.
• Enhancing the internal ecosystem. Fully integrated healthcare systems in the United States have reduced the total cost of care in the communities they serve by aligning incentives across healthcare delivery. Kaiser Permanente developed digital applications for patient mental health and wellness provided by both clinician referrals and self-care portals. The availability of these tools led to an increase in patients seeking mental health treatment. This, in turn, helped the company expand virtual care services during the pandemic.

Developing a business ecosystem strategy

Companies have found that ecosystems provide better outcomes than traditional value chains and can help businesses capture revenue that might otherwise be left on the table. Here are some steps to take in establishing ecosystems for your organization.

• Share data and insight. Ecosystems make data available to more participants with the goal of reducing costs and adding value to the consumer. That’s more effective than traditional value chains that silo data within organizational boundaries to further competitive advantage.
• Align incentives for participants. Traditional value chains often improve each individual participant’s financials at the expense of overall consumer outcomes. Ecosystems can change financial transactions from a unit-price based system to one that aligns incentives to consumer outcomes throughout the ecosystem. Examples include value-based healthcare and carbon pricing.
• Rethink the role of supply chains. Ecosystems enable the multidirectional flow of goods and services, such as reverse supply chains for apparel recycling or reprocessing fuels. These initiatives can be critical in helping address the ongoing climate transition.