Ecosystem Partnerships: Made Stronger through Industry 4.0’s Digital Transformation
Industry 4.0 (4IR) continues to transform business models, processes, and customer experiences. However, new technology is not enough to meet the speed and agility needed to create success in today’s digital, consumer-driven economy. Many companies struggle to adopt these technologies fast enough, so they are increasingly joining with external partners to share and extend their capabilities. By sharing resources, such as product development, marketing, sales, delivery, as well as customer success and support in an ecosystem, companies are pushing new pathways of innovation, competition, and delivery to market. Ecosystem partnerships are driving business to new levels and creating new opportunities for increased revenue growth.
What is an Ecosystem Partnership?
An ecosystem partnership, simply defined, is a network of businesses working together to create a product or service to address changing market needs. The range of partners in the functioning ecosystem can be centered on the customer (distributors and retailers), supply chain (4IR vendors), talent (government agencies and apprentice programs), or production (logistics and warehouse managers).
Similar to natural systems, ecosystem partnerships are continually flowing with energy and evolving the relationships within to be flexible and adaptable to solve shared challenges and meet shared objectives.
“As manufacturers grapple with the pandemic and economic headwinds, they’re finding digital transformation should be a journey shared with external partners. Companies today are looking beyond the silo of their own organization to establish powerful networks of vendors to source digital capabilities and solutions that drive results,” says Paul Wellener, vice chairman of Deloitte and leader of Deloitte’s U.S. industrial products and construction practice.
These ecosystems drive improvements in agility, efficiency, and production at a pace that most companies would struggle to achieve alone. For manufacturers looking to boost competitiveness, scale their smart-manufacturing capabilities, and thrive in a post-COVID world, the time to adopt an ecosystem approach is now.
A typical, fully mature ecosystem includes these five characteristics of:
- Real-time, secure communication platforms across all ecosystem partners
- Shared access among multiple partners to various capabilities to assist manufacturing to gain a competitive edge
- Manufacturers with complementary capabilities improve supply chain and production efficiency, product value, and speed to market
- Deploy the systems and technologies needed to quickly adapt to any changes or issues
- Use Internet of Things (IoT) technologies to connect the entire ecosystem, enhancing informed decision-making using real-time data
How Companies Benefit
In the past, business was conducted in physical stores, and collaborating with other companies was not the norm. The options for products or services were fewer and varied depending on the inventory in the existing warehouse. Or, if there was a traditional partnership, the partner had one role in a limited capacity. In contrast, partners in an ecosystem partnership can have input in many different points in the process.
Unlike traditional markets where value is created based on one company’s sole ability to generate profit above operational costs, ecosystem partnerships create value together. Each participant contributes to the overall value, often sharing operational costs of the process.
Ecosystem partners operate on the principle of mutual self-interest, working together with shared ideals, standards, or goals to produce, protect, or service to create and deliver more value. For example, John Deere believes that investing in partnerships is the best way to solve problems and bring value to their customers. “One of the best ways we’ve found to do that is to bring connected software companies, our dealers and ag service providers together to explore new opportunities to collaborate, and to share ideas and information that will hopefully result in new digital tools and applications that will help farmers farm even better,” says Kayla Reynolds, digital business development manager for the John Deere Intelligent Solutions Group (ISG).
While the top benefits listed are the increased pace of delivering of new products and services and higher profits, the 2020 Deloitte-MAPI study also states the following benefits to ecosystem partnerships:
- Higher connection density
- Accelerated smart manufacturing adoption
- Increased capacity for innovation
- Faster access to multiple alliances
- Benefits that are up to twice of the competitors of a traditional market
According to Investopedia, “Ecosystems create strong barriers to entry for new competition as the ecosystem already consists of the players that allow it to function.” Together, ecosystems can leverage technology, achieve excellence in research and business competence, and compete effectively against other companies. Traditional companies have to compete against the entire ecosystem to make the same product.
There Can Be Challenges…
Ecosystem management is complex, and issues can arise when different factory footprints starting at various levels of capabilities are trying to work in tandem. And, there is the possibility of uncontrolled and continuous growth when multiple parties are brought together and provide input through the process.
To mitigate risk, Wellener states that “companies need to ensure all of the ecosystem partners have shared business objectives, deliberate coordination, measurable metrics, and accountability.”
Building Ecosystems with Industry 4.0
COVID-19 was the catalyst that sparked several changes within the industry. The pandemic’s disruptions forced companies to become more efficient and more agile by using Industry 4.0 technologies to build ecosystems. A majority of leaders surveyed (85%), believe that developing ecosystems are critical to their competitiveness and will transform the way manufacturers deliver value and lead to higher revenue growth and output. For example, in 2016, Microsoft and GE integrated their Azure Cloud and Predix platform in a partnership. Bringing them together provides their users access to more capabilities, services and a larger cloud footprint.
With future success depending on the rapid transition of smart manufacturing, many manufacturers are struggling to adopt these new systems. To fill in the capability gaps and fully embrace new technologies, companies are increasingly partnering with others to spur product development and innovation, marketing, sales, delivery, and customer satisfaction and support. And ecosystems work: an analysis of Fortune 500 manufacturers identified that companies with more than 15 ecosystem partners experience twice the revenue growth than companies with fewer than 15.
Strength in Numbers
Both natural and business ecosystems need producers, consumers, and suppliers to thrive. All ecosystems need energy; in natural ones, it is from the sun. In business, that energy is created by companies adding value with the unique capabilities they bring to the partnership.
To transform efficiently, companies need to evolve out of yesterday’s model, where business was a solitary process. Ecosystem partnerships represent a significant innovation trend. If companies do not utilize the benefits an ecosystem provides, they risk losing market share. “While manufacturers continue to face a global pandemic and economic and political uncertainty, manufacturing leaders must continue to adapt and invest in the next steps of their digital journeys,” says Stephen Gold, president and CEO of Manufacturers Alliance for Productivity and Innovation (MAPI). “Fully connected enterprises allow manufacturers to expand their capabilities, identify cost savings, and better prepare for the post-COVID era. I anticipate the industry will come out of this crisis stronger and more agile.”