Business ecosystems: how they benefit SMEs

Business ecosystems offer SMEs a perspective

Being part of a business economy can fuel a company’s innovative power and growth. This applies not only to global players, but also to small and medium-sized digital enterprises. This type of company ecosystem enables SMEs to

1. develop new product categories and opportunities for added value,
2. tap into new customer groups by focusing more precisely on customer needs,
3. react more flexibly during the digital transformation and implement change processes in a more natural and agile way.

According to last year’s Deloitte study on “Digitale Strategien im Mittelstand” (Digital Strategies in Small and Medium-Sized Companies), more than half of German SMEs have already utilized the opportunities an ecosystem-based business strategy has to offer. Without the third advantage provided by this model of networked business processes, it is likely that hardly any companies will survive.

Will business ecosystems soon be the only option for SMEs?

The digital transformation presents altered realities, especially for small and medium-sized companies. Industry boundaries are blurred, relationships with customers and suppliers are highly volatile, competitors, and especially innovation-driven startups, tear through markets in record time only to rush back into the eye of the storm. Traditional business models, products, and business strategies must bend to these processes, for better or worse.

However, this VUCA situation also offers an opportunity: Digitalization and dwindling industry solutions make it possible, especially in small and medium-sized businesses, for several companies to cooperate on an equal footing in order to develop new products and services that each company would not be able to provide on its own. Small and medium-sized companies that are now open-minded and are proactively starting to cultivate their own business ecosystem may still have a pivotal advantage simply due to the lethargy on the part of many competitors.

What are business ecosystems?

A company is always part of a more comprehensive system – a macroeconomic structure that, driven by innovation, is constantly developing and evolving. That sums up the term “business ecosystem”, coined by James F. Moore in 1993. But what does that actually mean?

Innovation is always the driving force of the whole. It encourages many companies to take initiative and develop new applications and products on the basis of it. What’s special here is that companies not only compete with each other, but also cooperate with one another, working together competitively and incorporating a new generation of innovation. They co-evolve by allowing each company to benefit from the existence and development of the other members of the corporate network.

The most well-known ecosystems are virtual corporate networks such as Amazon, Apple, Facebook, Google, Airbnb and Uber, which are all based on digital platforms. Otto, a traditional German company, relies on the platform economy, as do young, hungry players like Delivery Hero. However, this kind of platform is not the decisive factor. There are also real business ecosystems that can be created in regular corporate networks by using new communication and information technologies.

How does an SME benefit from a business ecosystem?

Business ecosystems enable SMEs to carefully approach the requirements of the digital economy and, in consultation with suitable partners, to adapt suitable structures, develop innovative business models, test them on the market, and gradually transform their value chain.

Establishing a new business ecosystem – or joining an existing one – is thus a strategic decision with long-term effects on the company’s development and focus. Participating in a digital business ecosystem can quickly catapult innovation culture upwards and has huge potential for SMEs.

Relationships within a business ecosystem have various dimensions. These include:

• Crowdsourcing
• Platform economy
• Cooperations with startups

#1 Crowdsourcing

In crowdsourcing, internal tasks are outsourced to a larger group of people. A prime example of the practical inclusion of “swarm intelligence” is customer involvement in the product development of a community project. Open innovation concepts or crowdtesting not only contribute to innovative and customer-focused product development, but also to improving the company’s public image. Crowdsourcing is a modern form of a division of labor in which the consumer, who is already part of the company’s business ecosystem, is upgraded to an equal cooperation and communication partner.

#2 Platform economy

Whether in the energy, telecommunications, transport, credit or automotive industries – the trend is moving away from selling individual products or services and heading towards multidimensional solutions for specific customer needs. These are digital platforms that create a virtual business economy within the framework of the platform economy, in which

• manufacturers,
• product and service providers, and
• customers and consumers

come together and interact in various ways. By cooperating with third-party providers, SMEs can transform their products into complex customer solutions and have a direct link to customers worldwide.

#3 Gig economy and flexible access to employees and expert know-how

In addition to the challenges of digitalization, the lack of skilled workers in many trades is jeopardizing the existence of SMEs. Business ecosystems can also help in this aspect, because they give all parts of the ecosystem access to the know-how and digital expertise of specialists. Freelancing and other flexible employment models are about to replace permanent employees in many positions. There would then also largely eliminate the need to employ external service providers and consultants.

#4 Cooperation with startups

Large companies are doing it: They know that in times of digital transformation, permanent disruptions can quickly strip even long-established success models of any foundation. The constant pressure to innovate is what drives established global players to bring the know-how of small startups on board and integrate it into their own economic ecosystem.

Both sides benefit from the cooperation. Smaller players gain access to resources, capital goods and customers of larger companies. In turn, larger companies benefit from breaking down outdated structures and deadlocked industry logic and introducing agile development methods. They get a fresh boost of innovation from external sources and tap into new target groups through cooperation and innovation.

What to consider when participating in a business ecosystem

Creating a business ecosystem without a forward-thinking strategy and planning is not advisable. First of all, everyone involved should be clear about

• the value proposition the network stands for,
• the solutions that need to be developed to achieve this proposition,
• how many partners are required to implement these solutions, and
• whether the total margin from the value proposition justifies the costs and risks of all companies involved in the ecosystem.

Despite all the tempting advantages, being part of a business ecosystem always involves business risks, considerable coordination effort and, of course, mutual dependencies for all companies involved. One of the biggest obstacles preventing SMEs from forming corporate networks is the fear of having to disclose trade secrets and competition-related information. There are also concerns about liability and data security.

Therefore:

1. Risk management is also highly recommended for SMEs. To this end, orchestrating and complementary positions should be filled.
2. To measure and evaluate success, you need to define dynamic metrics as well as criteria adapted to the timeline of the innovation cycle in advance.
3. It is advisable to be part of several ecosystems so that your company is not completely dependent on one network.

To really expand your area of activity, you need an ecosystem with a sufficient number of participants. A cross-industry approach is recommended in this regard, which brings together specifically selected players from different sectors, industries, and organizational structures.