Other parts of this series:
Executives frequently lack the experience or capabilities needed to design, implement and manage ecosystems.
Digital ecosystems offer insurers the opportunity to boost their profitability by driving up revenues, pushing into new markets and accelerating innovation, while also raising the quality of their engagement with customers.
Insurers such as AXA, Chubb, Discovery and Ping An have already started collaborating with a mixture of business partners to roll out extensive ecosystems. Nearly 60 percent of the insurance executives we surveyed report that their companies are taking steps to participate in ecosystems.
However, the early performance of many ecosystems, across a broad range of industries, has been disappointing. Initial revenues have often fallen short of expectations. Our research shows that only 12 percent of companies, from major industries across the globe, are generating annual revenue growth of 5 percent or more from their ecosystems. This is well short of the 33 percent of companies that expected to meet this target (See illustration below).
Question: What revenue growth rate do you target / have you achieved on average for initiatives that leverage ecosystems?
What are the reasons for this underperformance? The main reason is that executives often don’t have the experience or the capabilities they need to design, implement and manage high-performing ecosystems. They frequently struggle to define an effective business strategy, to re-align their organization’s operating models or to successfully collaborate with ecosystem partners. Around 84 percent of the executives we surveyed stated that ecosystems are an important part of their disruption strategy. Yet, fewer than half of those executives, for example, were able to balance their current business demands with their need to explore new opportunities.
Ecosystems won’t succeed unless executives adopt fresh approaches to business and broaden their thinking about how their organizations can create value. They’ll need to expand their corporate strategies and grow their organizations by using digital platforms as springboards to become more comprehensive ecosystem businesses. It’s critical that executives appreciate, for example, how the functions and goals of platform businesses differ from those of ecosystem businesses.
Platform businesses create value by allowing many different parties to share information across interconnected digital platforms. These platforms comprise technology architectures and governance frameworks as well as services and applications. They ensure the swift interchange of information by complying with open standards and supporting development tools such as APIs (application programming interfaces). Nearly 80 percent of the executives we canvassed report that their organizations are using digital platforms to share information or capabilities across different businesses.
Ecosystem businesses collaborate with partners from different industry sectors across an ecosystem, which is built on many interconnected digital platforms, to deliver a variety of products, services and experiences. They typically create value by providing customers with highly-tailored “outcomes” such as access to safe transport, memorable leisure experiences or peace-of-mind home-management services rather than specific individual products such as motor vehicles, airplane flights or burglar alarms. More than 80 percent of the executives we surveyed believe that ecosystems will allow their organization to grow in ways not otherwise possible.
In my next blog post, I’ll discuss further why insurers should start shifting their focus from digital platforms that encourage data sharing onto more comprehensive collaborative ecosystems. Until then, have a look at these links. I think you’ll find them useful.