There are many reasons why great manufacturing innovations that should have succeeded end up on the scrap heap. Florian Urmetzer explains that an often-overlooked but very common reason is failure to see the blind spots in your business ecosystem.
The term ‘innovate or die’ is now a mantra for business. But sometimes innovating without fully understanding your business ecosystem, or before your ecosystem is ready, can be a massive blunder.
Just one broken link in a business ecosystem can turn a brilliant new idea into a costly mistake, as a number of successful and experienced manufacturers have discovered.
In 2000, Michelin developed what it thought would be a ground-breaking innovation in automobile tyres – a wheel-tyre system that enables you to continue driving safely at speeds up to 55mph for 125 miles after it gets a puncture.
While it was undoubtedly a fantastic innovation that could improve safety, Michelin’s developers had not done their ecosystem homework. Not only were auto-manufacturers reluctant to change the design of the underbody of their vehicles to incorporate the new tyres or incorporate a dashboard display that linked to a sensor in the tyres, but replacing the tyres required expensive new equipment that most mechanical repair garages didn’t have. As a result, Michelin eventually abandoned its new invention.
Sometimes great products fail because they are ahead of their time. A failure to accurately predict the progress of all segments of their ecosystem cost Philips Electronics $2.5bn in write-offs when the company introduced its high-definition TV 20 years too early. The high-definition cameras and digital television transmission technologies required to deliver high-definition pictures to the new TVs were much slower to be introduced.
These two examples of ecosystem failures illustrate that no one is an autonomous innovator. Companies are dependent on one another within a wider business ecosystem.
This article first appeared in the October issue of The Manufacturer magazine. To subscribe, please click here.
It is not surprising that even large and experienced companies can fall prey to ecosystem failures – ecosystems are poorly understood by businesses, with many executives struggling to describe the full complexity of the ecosystems that they are part of, or the players within it.
Without having an understanding of their business’s ecosystem, managers risk value leakage, miss opportunities for innovation and potentially set the business and network up for failure.
What is an ecosystem?
Today, products and services are often delivered through multiple companies, which are often referred to as business ecosystems. These business ecosystems are defined as a network of organisations and individuals that collaborate and evolve roles and capabilities, as well as synchronising their investments to build value and increase efficiency.
An ecosystem is the wider network of firms and organisations that can or could influence the way a firm creates and captures value through the provision of a product or service.
LEARN ABOUT ECOSYSTEMS
Ecosystems strategy webinar
Explore how an ecosystem strategy can support innovation and value capture.
Wednesday 18 October
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Ecosystems strategy course
A one-day course on understanding your business’ ecosystem and leveraging partnerships. Participants will explore different options and models for understanding their wider ecosystem, learn how to build partnerships and share capability and capacity across multiple companies, and identify weaknesses in their ecosystem and approaches to address them.
Wednesday 22 November
Institute for Manufacturing, Cambridge
More details: rebrand.ly/ecocourse17
Members of this wider network may include, but are not limited to: collaborators, regulators, clients, clients’ stakeholders, suppliers and competitors.
These ecosystems can become incredibly complex, especially in the B2B market. In the UK defence industry, for example, BAE Systems runs Portsmouth Naval Base and has the contract to maintain and repair ships.
As part of the service delivery, BAE Systems collaborates with many organisations including Babcock, Aramark and the Ministry of Defence to deliver value through services including maintenance, staff accommodation, leisure facilities and catering.
To add further complexity, Babcock competes in the same region on another contract. This is a good example of how ecosystems comprise increasingly complex models of both collaboration and competition (‘coopetition’).
As ecosystems evolve, the level of complexity can often prevent organisations from realising opportunities to capture or create value, or seeing potential innovative solutions that could provide a sustainable source of competitive advantage.
This is despite the opportunities often being considerably more significant than could be realised through internal change programmes, where change is limited to a single organisation and not the whole ecosystem.
Collaborating with other companies within a business ecosystem has the potential to create far more value than any single firm could have created alone. A number of multinationals are increasingly realising the importance and value of harnessing the power of their ecosystem to increase innovation, accelerate time-to-market and create new markets.
Last month HP and Deloitte Consulting announced they had formed an alliance to accelerate the digital transformation of global manufacturing in large-scale 3D printing. Their aim is to help enterprises accelerate product design and production, and create more flexible and efficient manufacturing and supply chains.
The UK government is also looking to support manufacturers at the ecosystem level, recently announcing it is investing more than £140m in advanced medical manufacturing as part of its £1bn Industrial Strategy Challenge Fund.
Tools to leverage your ecosystem
Since ecosystems can trip up even the most experienced manufacturers, organisations need structured tools and approaches that enable executives to analyse their ecosystems, and highlight opportunities to innovate and create and capture value.
This could be in the form of using new technologies, developing new business models, identifying new problems that can be solved together, and bringing new players into the ecosystem to plug gaps in capabilities.
The Institute for Manufacturing and Cambridge Service Alliance is developing thought-leading research in this area, bringing insights and knowledge to help organisations leverage ecosystems to their advantage.
We have developed tools to define, map and analyse a firm’s ecosystem, which enables us to systematically consider new ways that the firm could work with key players. Ecosystem mapping identifies the potential evolution of your ecosystem, who the players are now and in the future, how they will impact on your success, and reveals relationships that need to be initiated, developed or abandoned.
No matter what sector your company is part of, an analysis of your business ecosystem can be revealing and help to shape innovation for new products and services.
Case study: Leveraging ecosystems for a win-win with competitors
Taking a new perspective on its ecosystem enabled Finning, the world’s largest dealer of Caterpillar construction and mining equipment, to recapture some of the revenue it was losing to its competitors – while also benefitting its competitors.
Owners of Caterpillar equipment were treating their machinery in a similar way to how many vehicle owners treat their cars – going to an independent garage for a service rather than taking it to a certified dealer.
This trend was not only resulting in lost revenue from the sale of parts and servicing, but many of the independent garages often used non-certified Caterpillar replacement parts.
Also, the independent garages often didn’t complete a full service and only did the minimum repair that was necessary to keep the equipment working.
Undertaking an ecosystem mapping exercise, with the Cambridge Service Alliance at the University of Cambridge, helped Finning to look at these independent garage competitors in a different light as potential collaborators or even customers.
Finning and Caterpillar remotely monitor vehicles, with data being captured on the health of the vehicles and engines to help with diagnosing problems. Through GPS positioning data, Finning was able to see equipment moving from construction sites to independent garages.
At this point, Finning saw the opportunity to contact the garage and offer them a service to help fix the vehicle including:
- Information about the equipment and the problem including diagnostics data
- Shipment of spare parts to fix the problem
- Installation instructions.
By changing the dynamics of the ecosystem, new opportunities for creating and capturing value started to present themselves. While Finning still loses the labour sale, it does secure the parts sale, when previously it was losing both.
Other benefits include:
- Independent garages can reduce stock levels as they can now order stock on demand through Finning
- Independent garages receive diagnostic, repair instructions and correct parts to help them fix the vehicle quickly and thereby provide a better service to the customer
- More certified parts are used to fix the vehicle, which improves the quality of maintenance delivered to Caterpillar equipment owners
- Through the closer relationship with independent garages, the garage is more likely to refer the customer to Finning to undertake large and complex repairs such as engine overhauls that the garage can’t do.