Ecosystems: Surviving the digital asteroid

19 November 2018
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Reading time: 3 minutes

Companies will need deep technical fluency to survive in a world increasingly dominated by digital businesses.  Punctuated Equilibrium, a theory of evolution, says that there are moments of sudden ecological change when organisms that can adapt quickly take over and dominate new ecological niches. Mammals took over from the dinosaurs after an asteroid crash changed the world. We’ve seen this in IT with, for example, the rise of Intel PCs and Ethernet networking. Neither was the best possible solution, but they filled a need and crowded out technically better alternatives.

Now traditional corporate IT is facing another “asteroid” as the major “digital native” companies, such as Amazon and Tencent, break out of their original markets. For years, they’ve been selling a wide range of services: cloud-computing, logistics, consumer electronics, gaming, finance, and so on. We should expect them to continue to expand into other sectors.

As Atluri et al. point out in “Competing in a world of sectors without borders“, these companies are using their digital systems and experience to enter and overwhelm new market sectors. For example, Amazon recently bought Whole Foods Market to establish a presence in groceries. They can use their ubiquitous online presence and their deep logistics infrastructure, combined with their data analysis, to challenge their more traditional rivals. The whole is very much more than the sum of the parts.

Atluri and his colleagues believe this trend will lead to a small number (about a dozen) of “digital ecosystems”, such as travel and hospitality, health, and (Business to Business) B2B services. These ecosystems will be characterised by their hold on the relationship with the customer and will not respect traditional market boundaries. Instead, they are open to businesses that provide specialist services and good support for integration. This has profound implications for businesses of any significant size.

Given this future, there are two main responses. One is to become an ecosystem. This requires extraordinary luck or very deep pockets, and perfect timing. The history of the internet is littered with once-dominant companies, such as AOL, AltaVista, and Yahoo, that didn’t quite make it. For existing companies, an alternative goal might be to create a specialist ecosystem for their area of business. Apart from the technical challenges, this requires careful thinking about how open they’re prepared to be and where they contribute the most value.

The other response is to learn to thrive in these ecosystems, to be able to adapt quickly in a changing world. This allows a business to exploit new opportunities as they arise, survive shifts in the environment, and build symbiotic relationships with other players. Survival also requires a fundamental shift to digital technology. Having the right product organisation is only part of the story, businesses also need an engineering organisation that has the skills and infrastructure both to respond to product demands and to propose innovations of its own.

In either case, the biggest change for established organisations is that IT is no longer an internal matter but becomes the fundamental medium for engaging with the world. A company has to “deconstruct” itself so that it can create relationships with new partners and so that it can recombine its services to create new ones.

A standard example would be customers tracking items they’ve bought. This can include multiple collaborators: a retail site where the customer finds the item, a financial institution to transfer the money, a manufacturer to produce the item, and one or more logistics companies for the delivery. There might also be less visible collaborators such as accounting systems, customer relationship systems, and chat systems for customer support—none of which are hosted by the retail site.  And, of course, nothing in this scenario limits which organisation owns the retail site: it could be a bank, a manufacturer, a specialist retailer, or the inevitable Amazon.

To succeed in this new world there are many engineering challenges that have to be addressed. We’ll discuss four in follow-up posts:

  • Security: because the digital offering is the company and customers need to be able to trust it with their critical information. A single corporate security breach can cost far more than savings from deskilling staff;
  • Resilience: because customers need to be able to rely on services. Given that the reliability of a customer application is the product of the reliability of all its supporting services, even low levels of failure can trigger a cascade of problems. There is no “Sunday night shutdown” for international systems.
  • Application Programming Interfaces: (APIs) are the mechanism by which all the different services communicate—for technical customers they are the product. For businesses to build new services based on services that they do not control, they need well-defined, stable APIs that they can rely on.
  • Data Analytics is the window onto what customers are actually doing. There is just too much raw data, too many transactions and interactions, to make sense of. Good analytic tools can guide business decisions by providing actionable insight.

 

Figure 1: https://www.mckinsey.com/business-functions/mckinsey-analytics/our-insights/competing-in-a-world-of-sectors-without-borders

CEO at Zuhlke Engineering Ltd

Wolfgang Emmerich

I am currently CEO and Chairman of Zuhlke Engineering Ltd and my objective is to grow the business.

Distinguished Consultant

Steve Freeman

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