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Between Covid-19, geopolitical tensions, rising inflation and interest rates, companies are facing lower growth and more uncertainty. As a result, companies need to think beyond their own boundaries to become more resilient. While many companies are de-globalizing their value chains to become less dependent on unreliable supply chains, numerous new business ecosystems are being established with new or existing partners closer to the firm’s home markets.
Business ecosystems are the emerging model for collaborative and data-driven companies of the future. They are an important step for many companies to become more resilient in times of crisis. Particularly in the face of ever-changing regulations, sanctions, rising prices or more complex challenges such as achieving ESG goals, ecosystems can offer significant advantages in overcoming these hurdles due to their flexibility and access to each other’s capabilities.
This report offers a comprehensive strategic pathway to becoming an effective ecosystem partner company, drawing on unique research which has for the first time identified and quantified the real-world growth potential of the most important ecosystem types and the total addressable markets for business ecosystems.
Why business ecosystems are different
Business ecosystems are made up of individual organizations that work in patterns that are both structured and also self-organizing. They seek to complement one another, using collaboration to create offerings that are greater than the sum of the parts.
Life Areas in brief
A business ecosystem is a different sort of economy, one that will become increasingly dominated by businesses that do not think in terms of business-to-business or business-to-consumer, but rather from an ecosystem-to-human (E2H) perspective. A key part of this new thinking involves a redefinition of the markets that a business serves: in place of the product-first concept, E2H companies think of markets as spheres of business where the defining characteristics are the human needs that drive them. In this report, we call these spheres of business ‘Life Areas’, and have created a unique forecast model for the relative global growth of all the key Life Areas.
Source: Ecosystemizer
The Life Area Mobility includes all present and emerging forms of transportation, as well as related manufacturing, physical and digital infrastructure, and services. Health addresses the need to maintain physical and mental health, with an increasingly patient-centered model that anticipates the E2H ecosystem model. Recreation connects deep-seated ‘need’ themes such as productivity, creativity, concentration, work-life-balance and general wellbeing. Work focuses on value creation, whether that means monetary or intangible value. Consumption ranges from fundamental to higher material needs. Spirituality addresses needs such as belief, faith, meaning, stability, orientation and belonging. Socializing is centered around love, family, communities and friendships. Education serves the human need to gain knowledge, develop skills and enhance the potential for value creation, while in Entertainment, individual needs are primary, yet services often foster a sense of wider belonging. Living is based on the human need to live in and experience a safe, fair, stable, and comfortable environment.
The six-step path to ecosystems
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1Review readiness
Companies with ecosystem ambitions need to assess their current assets, data, and capabilities with respect to the multiple markets, defined as Life Areas. They should review their product portfolios in the light of what human needs they meet now, and what value they could deliver as part of an ecosystem in a particular Life Area. To be successful, a company’s value proposition must increase the value of the overall ecosystem, while the ecosystem needs to enhance the participant’s own value generation.
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2Nurture the ecosystem mindset
Companies need to re-orient themselves around customer needs and data, prepare for long-term investments, and accept delayed profitability. In turn, however, companies have access to new specialist knowledge and skills, which they can leverage for their innovation endeavors without developing everything on their own, and can therefore operate more efficiently and cost-effectively. Like most deep changes, this primarily requires a new mindset. Companies should align themselves with Life Area-defined customer needs and drive that thinking throughout the organization. They should also be aware that ecosystems require long-term thinking and holding on to your strategy despite initial obstacles.
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3Determine present and future roles
Companies can use the Ecosystem Strategy Map and the market potential of business ecosystems detailed above to determine which Life Areas they are currently located in and what roles might be available for them in the future. The following data can help companies make informed decisions on which role to take, which ecosystems they could enter, which new customer groups can be addressed through partnerships, and which of a company’s data sources could be useful to partners.
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4Redefine the playing field
As companies transition to an E2H model they will need to deliberately remove pre-existing boundaries between markets, products and services. Instead, they should consider which ecosystems they want to expand into that match their own ambitions and capabilities, and where they can create the most value together with the other players. After all, success in the ecosystem era depends on helping other companies innovate, rather than innovating yourself. This opens up new opportunities to act and thrive in previously untapped business areas.
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5Invest in partners
In the age of the ecosystem few companies can succeed alone – but they may need to form unexpected partnerships, and it is often unconventional partnerships that bring great value to the ecosystem. Working ecosystem partnerships need more than a cooperation agreement or a joint venture vehicle: companies need to understand what is most important to their partners, what motivates them, and what is at the core of their DNA. Most importantly, it also needs trust and the right mindset.
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6Start and then iterate
Ecosystem companies need to accept that planning and execution are different in the E2H setting. Ecosystems are about journeys through unmapped territory where the highest-value outcomes may not have been foreseen at the outset. Ecosystem partnerships rarely produce optimal results at the first iteration. There typically have to be constant adjustments, and several returns to square one will be necessary; the best ecosystems have been built on initial failure. The key success factor is the ability to learn.
Outlook
The ecosystem economy is a new world, demanding ecosystem-specific skills and strategies. The business world of the future will not be focused on standalone companies but on connections between companies and the markets they serve. The ecosystem is a complex, ambiguous and changing entity, and the ecosystems of the future will embrace very large and interconnected markets and industries worldwide - even as the ecosystems of the present are already emerging as the most cost-effective and profitable way of functioning in the new digital economy.
Alexander Kowarschik has also contributed to this report.
Methodology
Understanding of the ecosystem concept has been hampered by a lack of quantification of the potential of business ecosystems. In order to lay the basis for informed strategic decisions for the ecosystem era, PwC and Strategy& have taken widely available growth forecasts for industries defined according to the UN’s ISIC classification and remapped them onto our chosen ‘Life Areas’ of demand. The data are presented geographically as world forecasts, and also as localized NAFTA and Europe forecasts, including historic data calculations for 2019 and forecast data for 2025 and 2030. For the remapping of the UN data onto our chosen Life Areas, we have developed a model that converts any economic data given in the ISIC classification structure into data on the Life Areas. The allocation was based on objective proxy data designed to achieve an unambiguous reclassification. Where this was not possible, the re-assignment was based on a categorical, qualitative expert estimate. As a result, the numbers shown represent the total addressable market for business ecosystems. The final outcomes were quality-assured in three independent validation rounds with recognized experts.
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