Understanding Ecosystems for Digital Transformation [2022 Guide]

By this point, most businesses are no strangers to the need to go digital. However, the COVID-19 pandemic may have cranked up the pressure to transform their businesses at speed.

According to a recent survey, businesses are now changing well ahead of schedule. Companies estimated the pandemic accelerated digitization of their customer and supply-chain interactions by three to four years. Plus, the share of digital products in their portfolios accelerated by an incredible seven years.

To cope with these rapid advances and continue to compete, businesses need a strategy that suits the digital age.

That’s why we’ve created this guide to ecosystems for digital transformation. Read on to discover:

  • A clear definition of digital transformation
  • An analysis of how digital ecosystems are enabling transformative change
  • A step-by-step guide to envisioning a new digital ecosystem

Table of Contents

What is Digital Transformation?

Although it’s been a buzzword for many years, some still might lack a clear idea of what digital transformation is.

According to Salesforce, digital transformation is “the process of using digital technologies to create new—or modify existing—business processes, culture, and customer experiences to meet changing business and market requirements.”

The word “create” here is key to understanding digital transformation. Because digital transformation isn’t the same thing as simply “going digital.” Digital transformation encompasses change that’s truly transformative. It delivers new value across a business.

Ultimately, digital transformation is about reimagining the way business is done—both by your people and with your customers.

It’s also a means of future-proofing your business in an age of disruption. By using digital technologies to evolve your business, you can seize opportunities for growth and innovation that help secure a successful future.

Examples of Digital Transformation in Practice

Because digital transformation transcends an entire business, there are a variety of forms that it can take.

  • Infrastructure: Modernizing information technology is a key facet of digital transformation. Cloud computing delivers increased agility and has become standard, with a large majority of businesses now operating cloud workloads.
  • Intelligence: Technologies like artificial intelligence, analytics, and robotics can automate processes and improve decision-making.
  • Product and service innovation: Digital platforms and capabilities can help organizations more quickly develop new offerings and even co-creation models.
  • Distribution, marketing, and sales: Traditional marketing and sales processes can be updated and improved with digital technology to deliver greater customer understanding and improved ROI.
  • Talent: Digital transformation can involve reskilling and upskilling employees to take advantage of new technologies and processes.
  • Workspace: It can also transform where work gets done, enabling remote-first and hybrid models of work.

How Digital Ecosystems Support Digital Transformation

With a clearer picture of digital transformation established, one obvious question remains: How do you go about achieving it?

Implementing changes that create and drive value across an organization is no simple exercise. And while your organization may have developed an innovation strategy, creating broad transformational change requires a strategic framework to capture that overarching ambition.

As digitization drives greater and greater interconnection, businesses themselves are increasing their number of digital touchpoints. The digital ecosystem model reflects the interconnected nature of this digitized environment and offers organizations a framework to compete—and thrive.

What is a Digital Ecosystem?

A digital ecosystem is the sum of that dynamic, interconnected network of digital touchpoints. It includes an organization’s internal solutions, applications, and systems. It also includes external trading partners, suppliers, customers, data service providers, and associated technologies.

Organizations of all shapes and sizes—from new startups to established enterprises—use digital ecosystems to connect within and beyond their businesses. And the connections made between different organizations can pay dividends, as evidenced by the rapid growth in its usage. According to McKinsey, the integrated network economy could represent a global revenue pool of $60 trillion in 2025 with a potential increase in total economy share from about 1 to 2 percent today to approximately 30 percent by 2025.

Types of Digital Ecosystems

Digital ecosystems can most frequently be divided into two categories: in-house and multi-company.

In-house digital ecosystems are entirely made up of owned digital assets, solutions, and systems. Typically, these digital ecosystems are developed by larger enterprises with the resources to develop new solutions or make acquisitions as needed. Take, for example, Microsoft, which has gradually expanded from its roots. The global giant now possesses an ecosystem that connects all aspects of its business through data and intelligent capabilities.

The diverse Microsoft digital ecosystem drives innovation for customers, employees, operations, and products.

Image source: https://www.arbelatech.com/insights-resources/blog/understanding-the-microsoft-ecosystem-and-its-advantages-part-1.html

Not every company is—or needs to be—a Microsoft or an Amazon, though. Developing a more tailored in-house ecosystem can still deliver incredible results.

Meanwhile, organizations are not limited to participating in one ecosystem or even one type of ecosystem. Multi-company digital ecosystems consist of diverse organizations that work together to expand their capabilities and improve customer experiences.

Whichever shape it takes, playing a role in a digital ecosystem is a powerful means of facilitating digital transformation. Digital ecosystems create opportunities to:

  • Identify and develop new sources of revenue. Plus, beyond creating initial value, returns can be invested back into other transformation initiatives.
  • Increase organizational growth and efficiency. Whether by creating new processes or leveraging partner solutions, digital ecosystems can help companies improve operational efficiency and execute culture shifts required to support transformation.
  • Deploy new technologies more efficiently. With agile software-based solutions and services, companies can adopt new technologies and practices quicker than when relying on outdated legacy infrastructure.

The Benefits of Digital Ecosystems

By developing or expanding a digital ecosystem, your organization can find benefits that extend well beyond support for digital transformation. Playing in a digital ecosystem can also:

  • Lower customer acquisition costs. Large-scale automation streamlines acquisition efforts as customers gain access to a variety of products and services via one central platform.
  • Provide access to new streams of data, as well as opportunities to monetize them. From logistics to behavioral insights, establishing connections between all digital touchpoints can deliver huge amounts of new data. This data can be used for improved sales, marketing, service development, and more.
  • Improve customer relationships and retention. Offer frictionless, cohesive experiences and better, more targeted product offerings to customers to reduce churn and boost loyalty.
  • Deliver increased valuation and help companies remain competitive. Participating in an ecosystem can help organizations attract the attention of investors. Meanwhile, they can better withstand challenges from digital rivals by strengthening their digital position.

Envisioning a Digital Ecosystem: Step by Step

While the numerous benefits of ecosystems are clear, that doesn’t mean engaging with this strategic model is fool-proof. So how does an organization develop a successful ecosystem?

  1. Map Your Internal Digital Ecosystem

Creating a digital ecosystem needs to start with a close evaluation of your own organization’s digital practices. Audit the way that your organization uses technology and understand where you are in your digital transformation journey by developing a digital ecosystem map.

The digital ecosystem map should include:

  • A full list of tools, applications, and systems utilized throughout your organization.
  • An accounting of who uses those tools and for what purpose.
  • An analysis of the connections between tools.
  • An evaluation of each tool’s effectiveness. Gather feedback and insights from those who use these solutions. It’s important to assess opportunities to update obsolete processes and applications, identify bottlenecks and shortcomings, and begin to develop potential solutions.

An example of an internal digital ecosystem map. Image source: https://www.forumone.com/ideas/mapping-your-digital-ecosystem/

 2. Identify Problems Through People, Data, and Technology

With an understanding of your current digital capabilities, work with stakeholders to identify the most pressing problems that need solving. As you do so, center your analysis on people: your customers and your workforce. That means:

  • Identifying existing customer pain points across audience segments and the value chain.
  • Exploring product and service offerings that could directly address these pain points.
  • Discovering processes that can be optimized with new solutions and organizational models.
  • Defining the most relevant areas of the organization that can be improved via talent acquisition and education.

 

Also, consider the way you collect and leverage data. Are you missing crucial data integrations? Are you lacking data from an important aspect of your product lifecycle or customer experience?

Lastly, consider broadly the way your organization uses technology. You’ve already mapped your internal digital ecosystem. Look beyond the touchpoints and their connections to consider which breakthrough technologies your company might not be using. How is your organization using artificial intelligence, machine learning, and automation? What about IoT technology, open APIs, blockchain, or cloud computing?

3. Define Ambitions: Products and Partnerships

Using your findings around performance gaps and the opportunities presented by digital technologies, your ecosystem ambitions will begin to take shape.

Identify the products or services that will be the focus of your ecosystem creation—or your participation in an existing ecosystem. Keep your customers top-of-mind: Rather than developing a huge number of new offerings, prioritize those that will deliver the most value to your customers. Moreover, focus on the logistics of producing an optimized, customer-centric experience.

customer experience infographic

Meanwhile, you will need to consider how to approach the development process. Does your organization have the capacity and resources to develop these offerings alone? Will it need to rely on a strategic partnership before or during the launch?

Business leaders have three options when it comes to ecosystem partnership models. Image source: https://www.mckinsey.com/industries/financial-services/our-insights/winning-in-a-world-of-ecosystems

Ecosystem partnerships typically follow one of three models, the suitability of which will vary according to your ambitions, needs, and resources:

  • Investment: Organizations make investments, co-investments, or full acquisitions in companies that offer a strategic advantage.
  • Strategic alliance: Companies with complementary offerings or interests develop shared assets, resources, or solutions to promote a business.
  • Purchase or offer: Corporates partner with product or service providers to deliver new offerings.

Digital Ecosystems in Action

Runway and Epson partnership

The international startup ecosystem offers vast potential for innovative partnerships.

Runway is working with Epson to help them harness that potential. To address unmet customer needs, Runway translates global business trends into opportunities for Epson. Plus, by strengthening their startup partnership pipeline, ideal partners can be identified to seize those chances for innovation and growth.

In 2020 alone, Runway and the Epson DX Open Innovation team:

  • Scouted, analyzed, and evaluated 78 startups
  • Held 22 startup meetings and demo sessions from 6 countries around the globe
  • Hosted at least 11 partnership discussions

 

This strong partnership has continued into 2021, where we’ve continued to source high-quality startups and tech for successful piloting and business unit integration. These collaborations will help Epson co-develop solutions for remote work, distance learning, digital collaboration, stay-at-home and remote manufacturing to support its current and future customers as the world is forever impacted by the global pandemic.

Explore the full case study here.

Conclusion

In the digital age, the rate of change and innovation can be downright dizzying. A digital ecosystem strategy offers organizations of all types a model to achieve the transformation required for sustainable success and security.

Future-proofing your business should always be a priority. Use the insights in our guide to carving out a vision of a digital ecosystem that supports a transformed future for your business.

And to learn more about how Runway can support your digital success, explore our corporate innovation services today.

About Runway Innovation Hub

Runway is a Silicon Valley-based innovation company accelerating the success of global innovators and entrepreneurs. We help corporations through results-focused innovation consulting and power the growth of startups through acceleration programs, mentorship and coworking services. Since 2013, we have has accelerated the innovation efforts of 40+ global companies like Fujitsu, Lenovo and IBM through customized innovation strategy services. Learn more about how we can help you do the same here.