Creating value through Ecosystem Integration

Ecosystem business models are becoming ubiquitous as companies seek to optimize the capital they deploy to create new forms of value at an ever-higher pace. An ecosystem business model is a commercial arrangement among two or more companies for the purpose of creating value propositions collectively that are greater than they can create individually. 

At EY, we have identified seven basic types of ecosystem business models. I’ll cover these seven models in another piece, but all the models contain participants, and every model contains at least one orchestrator.

What an ecosystem isn’t

Ecosystem business models are not “supply chains.” In a supply chain, tiers of suppliers are feeding into an ultimate point of value creation, but the suppliers themselves are not part of the brand promise nor are they material to the value created, though top suppliers can certainly be critical. In an ecosystem business model, the brand of each participant is present in the perceived value to the customer.

Orchestrating an ecosystem

When we look at the market, we see companies in all segments experimenting with ecosystem business models and, in many cases, trying to orchestrate their own ecosystems to create value. Often, the ecosystems they try to orchestrate are the x-techs and other early stage would-be disruptors. The theory is sound. The established companies get the use of disruptive capabilities that were funded by third party capital. The x-techs/disruptors get sources of revenue and some brand permission to increase their likelihood of survival and relevance. But, as is often the case, theory is hard to turn into execution. 

It’s not easy to orchestrate an ecosystem business model. Many try to treat participants as suppliers rather than business relationships, a strategy particularly damaging when considering the x-tech/disruptor cohort was set up to disrupt business models rather than supply them. An ecosystem relationship is not a supplier relationship, so the function that manages participation in and orchestration of ecosystem must operate separately in a very different kind of model. The ecosystem management function must address the needs of relationship management, governance, multi-party go-to-market coordination, commercials and commercial compliance, performance measurement and potentially many other needs depending on the type of model.

Though ultimately companies will need to become highly proficient at orchestrating ecosystem business models, there are some types of models, particularly when working with the x-techs and disruptors, where they are better served working through an intermediary to orchestrate on their behalf. At EY, we realized this several years ago and set out to prove the model in an industry that was itself at an inflection point - Insurance.

Consider the case of Nationwide Insurance. This market-leading, US based carrier used EY Nexus for Insurance, a cloud-native platform, as the foundation to launch Spire, a new business, offering auto policies targeting millennial customers. Nationwide engaged EY after determining that a traditional systems integration build effort would take significant time and capital outlay. Using EY Nexus, we helped Nationwide self-disrupt and bring Spire to market in just seven months – an unheard-of pace for launching insurance products, much less entirely new brands.

The carefully curated EY Ecosystem of innovative technology and software providers is at the heart of EY Nexus. Our technologists and industry specialists scanned more than 650 InsurTechs and selected the best aligned to be part of our ecosystem. We continuously monitor the market to connect with the new players. EY Nexus incorporates tools and technologies for every part of the insurance value chain – from underwriting and product design, to marketing and distribution, to policy administration and billing, to claims and customer service.

A top 10 global bank used EY Nexus for Banking to launch a platform-powered mobile payments application and digital marketplace. Prior to engaging EY, reliability, agility and scalability were formidable barriers, and it took too long to add new features and update existing offerings. With EY Nexus as the backbone, the bank was able to add new functionality to meet evolving customer expectations and competitive considerations. Even as the user base increased from 700,000 to more than two million, the platform continuously adapted.

From system integration (SI) to ecosystem integration (EI)

Platforms like EY Nexus demonstrate the advantages of ecosystem integration, which can be viewed as the next evolution of system integration. It’s a necessary shift, given the sprawl and complexity of today’s value chains and the pressure to transform. Traditional SI approaches don’t enable the quick, bold and holistic change many companies are looking for.

With EY Nexus as the platform for ecosystem integration, firms can get the tech they need, without undertaking time consuming and capitally intensive software development projects. Plus, they can make changes to back-end systems without disrupting front-end interfaces or customer experiences. All this is possible because EY Nexus is designed to simplify a great deal of technical complexity, such as establishing application programming interfaces and managing security protocols. 

Working with ecosystem integrators is an order of magnitude simpler and faster for companies than trying to develop ecosystems on their own. The cost and complexity of setting up an ecosystem management function I mentioned above, plus scanning hundreds of prospective capability providers, building an end-to-end service catalog informed by a mature value chain model, managing brand and reputation risk, managing the operation risk, and managing evolving security and compliance regimes is a significant hurdle that many companies will struggle to overcome.

Ecosystem integration offers a shorter path to optimize the entire value chain, rather than making incremental or piecemeal improvements. More predictable and flexible cost structures, based on pay-per-use consumption models, are yet another benefit.

At EY, we have seen firsthand how ecosystem relationships provide breakthrough value to a wide range of companies, including our own firm. In discussions with C-level professionals and business leaders worldwide, we have seen clear and broad consensus that ecosystems must be a core component of business strategy. Beyond these client experiences, our market research tells us that more companies are leaning into ecosystems and that they are generating tangible value from their ecosystem relationships. 

Companies across sectors, no matter their size or current market position, recognize that ecosystems are essential to success. Today’s question is how to successfully incorporate ecosystem relationships across business strategies. Looking ahead, we believe strong integration will be a hallmark of the most dominant ecosystems, and the future looks bright for those willing to take the first steps toward a working world shaped by collaboration.