Thriving in an Increasingly Digital Ecosystem

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The business world is rapidly digitizing, breaking down industry barriers, and creating new opportunities while destroying long-successful business models. This process is known as digital disruption.

In "Thriving in an Increasingly Digital Ecosystem," the authors present a framework for helping managers to think about their competitive environments in the digital era.

Weill is chairman and senior research scientist at the MIT Sloan School of Management's Center for Information Systems Research, where Woerner is a research scientist.

Their research revealed that board members at large companies estimated that 32 percent of their company's revenue would be under threat from digital disruption in the next five years.

On the other hand, increasing digitization also offers opportunities. Companies can leverage strong customer relationships and increase cross-selling opportunities.

The authors' research showed that businesses focused narrowly on value chains were at a disadvantage; they needed to think more broadly about their business ecosystems. Companies that had 50 percent or more of their revenues from digital ecosystems had 27 percent higher profit margins than their industry averages.

Today, most companies still think in terms of value chains rather than ecosystems. Walmart knows a lot about its products: where they come from, where they are in the store, and when they are sold. But it doesn't always know who its customers are, and why they are buying what they are buying.

By contrast, consider Amazon's ecosystem. Consumers get greater choices with more information about prices and quality. Amazon gets to see the data on all of the activity in its ecosystem, enabling fine-tuning and identification of new opportunities while it extracts rents from the ecosystem.

The combination of moving from value chains to ecosystems and increasing consumer knowledge provides business leaders with four distinct business models. They can choose to operate as:

  1. Suppliers
  2. Omnichannel businesses
  3. Ecosystem drivers
  4. Modular producers

Suppliers have, at best, a partial knowledge of their end-consumer, and typically operate in the value chain of another powerful company. Companies that sell insurance via independent agents, electronic goods...

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