Executives need an easy way to understand and effectively communicate within the organization why ecosystem strategy and initiatives are necessary. The key to successful strategic ecosystem thinking is the new paradigm, Ecosystem-to-Human (E2H). It describes two factors that are crucial to what makes ecosystems powerful in creating and delivering dominant value propositions: (1) An operating model that is based on a collective identity instead of a single one, and (2) a focus on human needs instead of functional ones.
While developing the Ecosystem Strategy Map in more than 1,000 interviews with strategic practitioners, as well as, over 20 projects with various companies from diverse sectors, our manager counterparts raised the question “How do we explain why to change?” In other words, the executives we worked with knew they had to do something to succeed in the upcoming ecosystem era, but they had difficulties finding words to effectively communicate “why change?” within their organizations. Thus, we started to identify the fundamental shifts that are triggered by ecosystems and translated them into a simple formula. Based on our research, we derived the new paradigm Ecosystem-to-Human (E2H) that we would like to explain for the first time in this article.
The strategic importance of Ecosystem-to-Human (E2H)
Our economy has revolved around making human lives easier and better. With specialization and trade, companies who served the human need directly (B2C) no longer sourced materials and produced consumer goods by themselves. They divided the creation of value by getting resources and prefabricated parts from suppliers (B2B). While this traditional categorization holds true today, the strategic ecosystem thinkers of tomorrow will have to undergo a paradigm shift to a new perspective: Ecosystem-to-Human (E2H).
A new way of strategic thinking: The ecosystem era requires a paradigm shift from B2B/B2C to Ecosystem-to-Human (E2H).
A business ecosystem is a dynamic and co-evolving community of B2B as well as B2C actors. Discovering, addressing, and fulfilling core human needs is an ecosystems’ ultimate goal. A radical, user-centric perspective is not only “state of the art” for most B2C companies already, but in the ecosystem era, it is absolutely necessary for the survival of every company. B2B organizations also need to understand that the relationship with consumers is no longer indirect. Strategic E2H thinking means looking at the whole picture and asking: “How can we make human lives easier? And with whom?”
Two changes lead to E2H
The new paradigm is marked by two major changes within companies: The change of the value creation focus/purpose and the change of the operating model/identity.
Ecosystem-to-Human (E2H) requires two changes within traditional companies.
The value creation focus describes why the value is created and for whom based on a company’s purpose. The focus of a traditional B2B/B2C business is on fulfilling the functional needs of a business customer (B2B) or the final consumer (B2C). They are typically narrow, specific, and feature-driven.
When a company moves towards changing to H(uman), human needs are addressed. These needs are broader, user-driven, and stand in the context of the current ‘Zeitgeist’ (e.g., improving life on the planet, solving problems of humanity, etc.). Fulfilling human needs leads to more holistic solutions with the potential to develop into dominant value propositions.
The operating model describes how value is created and is based on a company’s identity. A traditional B2B/B2C business understands itself as a single entity, is self-centered, and asks: “How can I create the most value?” and “How can I optimize my business?” Hence, efficiency within the organization (e.g., economies of scale) is generated through self-optimization.
When a company goes from B(usiness) to E(cosystem), it changes to a collective identity. Now, the questions are “How can we create the most value together? And how can we optimize our ecosystem?” The new focus on the optimization of the entire system is more complex but offers greater efficiency gains relative to self-optimization (“the power of the many”). Its complexity can be managed with digitization. It requires not only looking at the company’s production or service generation but a holistic partner management approach of how to integrate all business areas within the entire ecosystem and its actors. The company is no longer alone, but amongst others with a common goal.
In the end, E2H is more efficient in creating value and more effective in solving relevant problems with solutions that are needed for humanity. It creates strong positioning that allows for both competitive and sustainable profitability through a wide range of positive effects: A better reputation, stronger employer branding to attract top talent, improved stock market ratings, and higher EBITA to name a few. This is the reason why many companies are starting to think E2H: To enter the ecosystem era from a position of strength.
Amazon’s journey from B2C to E2H
When Amazon started selling books through an online store in 1994 to make readers’ lives easier, it was a B2C company. The operating model was to optimize products and processes to allow for many books in the online store and fast shipping. The value creation focus was on fulfilling the narrow and specific functional need of “buying a book.”
Within two decades, Amazon changed its operating model from self-optimization to emphasizing service and solutions, as well as, partner management. Thus, Amazon integrated the know-how, the offerings, and the operations in a collaborative approach and changed its identity from single to collective. The value creation focus is shifting more and more towards purpose and fulfilling holistic human needs like “assisting people in their homes” in the case of Amazon Alexa (with many partners in the smart home context), “improving healthcare” with 1492/Amazon X (together with JP Morgan and Berkshire), “democratizing education” with Amazon Education, or “making work easier” in the case of Amazon Web Services.
With an E2H perspective, Amazon thought broader and asked “How can we make human lives easier? And with whom?” The important learning from the Amazon case (but also applicable to Apple, Google, Alibaba, Tencent, and many other tech giants) is that in the beginning, these companies did not start as ecosystem players. They recognized the scaling opportunities with a radical E2H approach and focused their activities on this new paradigm.
One could argue that E2H is only relevant for B2C companies, although it is our belief that the opposite is true. Ecosystems are end-to-end systems – from getting resources to delivering a solution to the final customer. E2H players consist of companies of all trades. Be it a digital platform company like Amazon or traditional B2B companies.
B2B companies are already integrating the new paradigm
We see movement from traditional B2B companies in various sectors, such as energy, finance, mobility, IT, health care, and consumer goods. Companies like Enel, IBM, Shell, or 3M are all on their journey integrating the E2H paradigm into their strategic positioning and breaking it down into concrete ecosystem initiatives. Let’s look at the examples of three companies in more detail: Siemens, SAP, and Deutsche Bahn.
Siemens, Europe’s largest industrial manufacturing company, was founded in 1847 based on the invention of the telegraph. Most of the time during its more than 170 years of existence, it has been the typical German B2B engineering company. With an operating model and single identity focused on self-optimization mainly in the areas of industry, energy, healthcare, and infrastructure & cities. Its purpose and value creation focus was on functional needs and solving technological problems like “producing efficient turbines” or “building reliable trains”.
Within the last several years, Siemens has been clearly changing its purpose and value creation focus on broader human needs. This can be seen in its purpose-driven claim “Ingenuity for Life” which Siemens CEO Joe Kaeser explains on his LinkedIn profile: “[It] means working relentlessly to create value for our customers and employees as well as for society – because I believe that companies must contribute to the welfare of society in a sustainable way.“ On the other side, Siemens has also started to change its operating model with its ecosystem IoT platform Mindsphere requiring partner management and a collective company identity.
Like Amazon, Siemens is starting to apply E2H by asking “How can we make human lives easier? And with whom?” Although having a rich history of being a B2B organization, it is making the first steps to prepare for the ecosystem era. And while its overall company portfolio does not make them a full E2H organization yet, Siemens is clearly on its way to becoming one.
Side by side with Siemens are more examples in the traditional B2B sector. For example, the European software corporation SAP recently launched the ecosystem approach “Climate 21” to help its customers understand and minimize their carbon footprint. It is part of the ‘SDG Ambition’ impact initiative that they started with Accenture and the United Nations – aiming to support companies to integrate the Sustainable Development Goals into their core business. With its software solutions, SAP is already an ecosystem company. But initiatives like “Climate 21” are pushing towards more purpose and a focus on human needs.
Another example is the German railway company and second-largest transport company in the world, Deutsche Bahn. The new board member Sigrid Nikutta just recently announced her plans to reposition the freight transport business unit following a consequent E2H approach. In an interview with the German newspaper Die Zeit, she described her purpose-driven vision to sensitize the consumer on how cereals and sneakers are transported to retailers while integrating the human-centric perspective of climate protection and sustainability. Since Deutsche Bahn needs partners along the entire value chain of all products it transports to map the CO2 footprint, this change of mindset can only be executed with a collaborative ecosystem identity.
Conclusion: How to start E2H thinking in your company
A great business strategy allows companies to embrace powerful trends quickly to benefit from prevailing tailwinds, instead of fighting them and potentially compromising their future. For that, thinking E2H is crucial. Every company should base its purpose on the fulfillment of human needs. And with a collective ecosystem identity, it is possible to create greater efficiencies in doing so.
Only with E2H thinking is it possible to avoid attacks from tech players and unicorn startups that are successfully applying this way of thinking already. Only then is it possible to open up, leave incremental optimization aside, and see problems and solutions in the grand scheme of things.
Our Ecosystem Strategy Map is a tool developed to incorporate the E2H paradigm into your organizations’ strategy process. You can intuitively map your company within the ecosystem context to fulfill human needs. With this approach, business strategists are not “forced” to take an internal perspective at all. Rather they will be able to look holistically at the final customer/the human and other companies while defining their ecosystem positioning with the Ecosystem Strategy Map.