Key Decisions to Create an Attractive Ecosystem

Every large and ambitious company today should consider— at least for its best customers—the Ecosystem Driver model: becoming THE destination for customers in a particular domain such as health and wellness, home purchase, or small business management. Why an Ecosystem Driver? Because it is the most successful model of the digital era to date.[foot]Ecosystem Drivers achieve better performance than Suppliers, Omnichannel businesses, and Modular Producers. See P. Weill, S. L. Woerner, andR. E. Samuel, “Aetna: Building a Healthier World via a Digital Ecosystem,” MIT Sloan CISR Research Briefing, Vol. XV, No. 11, November 2015. https://cisr-mit-edu.ezproxy.canberra.edu.au/publication/2015_1101_AetnaDigitalEcosytem_WeillWoernerSamuel[/foot] But it is also a challenging model to pursue.

In a 2013 MIT CISR research briefing,[foot]P. Weill and S. L. Woerner, “The Next-Generation Enterprise: Thriving in an Increasingly Digital Ecosystem,” MIT Sloan CISR Research Briefing, Vol. XIII, No. 4, April 2013. https://cisr-mit-edu.ezproxy.canberra.edu.au/publication/2013_0401_DigitalEcosystems_WeillWoerner[/foot] we introduced a 2x2 framework that describes the four ways an enterprise can make money in the digital era. Since this research began, we’ve collected data and stories from more than a thousand companies.[foot]MIT CISR’s ecosystem research began in 2012 and is ongoing. It comprises interviews with more than 150 senior executives about digital transformation initiatives of their companies; the following four MIT CISR surveys: MIT CISR 2017 Digital Transformation Survey (n=400), MIT CISR 2017 Ecosystem Survey (n=158), MIT CISR 2015 CIO Digital Disruption Survey (N=413), and MIT CISR 2013 Ecosystem Survey (n=101); and the Harvey Nash/KPMG CIO Survey 2017 (N=701), to which we added ecosystem questions.[/foot] In a 2017 survey, we explored key ecosystem design dimensions.

This briefing introduces seven key design dimensions of ecosystems; four are statistically important influences on the performance of companies in an ecosystem, and should be targeted by leaders of companies trying to create attractive, successful ecosystems. We then describe how aspiring Ecosystem Driver CHRISTUS Health, in the complex and high-cost domain of health and wellness, is focusing on the four most important dimensions while improving the patient experience and managing cost.

FOUR WAYS TO MAKE MONEY IN THE DIGITAL ERA

In our interviews with senior executives about their most important digital transformation initiatives, we have found that most large companies are trying to transform on two dimensions: from value chains to digital ecosystems, and from a fuzzy understanding of the needs of end customers to a sharper one; see figure 1. Each of the business models is profitable on average, though the risk/reward profiles differ; they are listed here in order of decreasing industry-adjusted average net margin. Most large companies have revenues in more than one of the quadrants.

• Ecosystem Driver: Companies such as Amazon and WeChat that increasingly become THE destination for customers’ needs by offering complementary products and services, often from competitors
• Modular Producer: Companies such as PayPal and Kabbage that provide plug-and-play products or services that can adapt to a variety of ecosystems
• Omnichannel: Companies, such as many large retailers and banks, that provide customers with access to their products across multiple channels, combining physical and digital experiences
• Supplier: Companies, such as insurance companies or manufacturers, that are typically in the value chain of another powerful company

WINNER TAKES MOST 

In the past five years, we have seen a consolidation—a Darwinian shaking out—of Ecosystem Drivers and Modular Producers, with the percentage of companies that get most of their revenue from either business model having decreased. From 2013 to 2017, the percentage of companies in our research that are predominantly Ecosystem Drivers fell from 20% to 9%, and those that are predominantly Modular Producers fell from 18% to 8%.[foot]Based on the MIT CISR 2013 Ecosystem Survey and the Harvey Nash/ KPMG CIO Survey 2017.[/foot] Back in 2013, over half of the Ecosystem Drivers we identified in our survey were smaller enterprises trying to create a blockbuster business. The successful ones have grown rapidly, while the others either failed or were acquired. 

Today, large platform businesses like Amazon, Google, Facebook, WeChat, and Alibaba are formidable ecosystem drivers, and in some domains like retail (Amazon) and web search (Google), they dominate the market. But in our interviews, companies identified many areas with great potential for ecosystems, such as healthcare or home ownership. These domains don’t have one dominant player, or they cross multiple industries. Now is the time for large companies that would be successful Ecosystem Drivers to make investments, recruit partners, and experiment in those domains and others that have not yet been identified. The alternative is a future as a Modular Producer to other large successful Ecosystem Drivers, or perhaps focusing only on being an Omnichannel company or a Supplier. So how does an aspiring Ecosystem Driver build a successful ecosystem? 

SEVEN DECISIONS FOR AN ASPIRING ECOSYSTEM DRIVER

In our 2017 Ecosystem survey, we asked companies about the ecosystems in which they participate and identified the seven key ecosystem design dimensions (see figure 2). The enterprise aiming to become an Ecosystem Driver has to strategize how to develop the ecosystem on each of the seven dimensions. Four of the dimensions (emphasized at the top of figure 2) demand particular attention as they were statistically significant in explaining the top quartile revenue growth of companies operating in an ecosystem:

• Closed–Open: Offering a closed ecosystem with access restrictions—like the “walled garden” approach of Apple’s platform—versus a more open  ecosystem, like the Android platform
• Targeted Customer Mix–Broad Customer Mix: Focusing on targeted (travel/industry) versus broad (shopping/multi-industry) customer interests
• No Competitor Products–Competitor Products: Offering only complementary products on the company’s platform, or also competitor products
• Physical Products and Services–Digital Products and Services: Focusing on physical products and services or digital ones. The remaining three dimensions:
• B2C–B2B: Providing services to consumers or businesses, or to both
• Local Market–Global Market: Providing services only to a local market versus more broadly—regionally, nationally (e.g., WeChat’s China focus), or globally (e.g., Facebook)
• Off-the-shelf Products–Customized Products: Offering generic products versus personalized, customized solutions

CHRISTUS HEALTH

The US healthcare industry faces serious challenges, ranking last of eleven high-income countries with the highest per capita expenditures.[foot]Eric C. Schneider, Dana O. Sarnak, David Squires, Arnav Shah, and Michelle M. Doty, Mirror, Mirror 2017: International Comparison Reflects Flaws and Opportunities for Better US Health Care, The Commonwealth Fund, July 2017.[/foot] There is increasing urgency for finding new approaches to the health and wellness delivery system with emphasis on care coordination.

CHRISTUS Health is a not-for-profit health system employing more than 15,000 physicians, with more than six hundred centers across six US states, Mexico, Chile, and Colombia.[foot]About Us,” CHRISTUS Health website, https://www.christushealth.org/about.[/foot] CHRISTUS is expanding its network of partnerships and aspires to become an Ecosystem Driver. In 2017, CHRISTUS-owned facilities delivered 60–70 percent of services directly, and 30–40 percent via joint ventures and partnerships, with partner delivery growing.

CHRISTUS is becoming the “coordinating hub” for a wide variety of healthcare services. The organization recruits and manages partners; drives customer experience, improving patient care and satisfaction by integrating systems for data sharing and efficiency; and becomes the coordination point for services provided by partners across an episode of care (e.g., a joint replacement that includes preoperative, operative, and post-operative care and physical therapy). A goal is that the hub will provide one bill for these services.

CHRISTUS is addressing the four significant ecosystem design dimensions in the following ways:

Open: CHRISTUS is moving toward a more open ecosystem, adding new types of partnerships and access for new types of customers, and digital capabilities to enable both.

Broad Customer Mix: CHRISTUS has historically focused on the experience of existing patients. Facing new competitors (e.g., urgent care centers), CHRISTUS is becoming much more data driven and proactive—targeting customers more broadly (drawing potential patients into the company’s network).

Competitor Products: CHRISTUS is exploring more collaboration with competitors. For example, the company is considering partnerships with healthcare providers that have strong digital capabilities (e.g., telehealth), in order to augment services to existing CHRISTUS patients; and with other healthcare providers that are expanding into CHRISTUS’s coverage areas.

As this provider … started expanding their lines of service, it became apparent to us that we’re either going to be competing, or we need to work with them to partner in some ways, and provide across a broader geography common sets of services.

RANDY OSTEEN, ASSOCIATE CHIEF INFORMATION OFFICER AND VICE PRESIDENT OF INFORMATION MANAGEMENT STRATEGY AND APPLICATIONS, CHRISTUS HEALTH

Digital Products: CHRISTUS Health focuses on customer experience in new ways. The company is developing analytics on all services provided throughout the ecosystem, and on the need for services (e.g., health risk assessments within the company’s communities to identify new patients). CHRISTUS combines services in new ways based on broad sets of data (such as CRM, marketing, clinical, and financial data).

With new entrants emerging within our markets, there is great potential that our revenues start getting taken away through these companies leveraging technology to connect with people that we would have provided that service for. We’re seeing a great need to leverage technology, as well as marketing and other capabilities, to get out and attract more people, make it more convenient and easier for them to connect with us.

RANDY OSTEEN, ASSOCIATE CHIEF INFORMATION OFFICER AND VICE PRESIDENT OF INFORMATION MANAGEMENT STRATEGY AND APPLICATIONS, CHRISTUS HEALTH

CHRISTUS’s digital investment priorities have evolved to support the company’s ecosystem goals:

2004–2008: Established a single standard electronic health record across CHRISTUS facilities

Since 2011: Focused on creating a digitally enabled ecosystem with interoperability for sharing data across CHRISTUS, new acquisitions, and partners (as opposed to more costly and disruptive replacements of EHR systems)

Currently (and a critical part of the digital strategy): Developing seamless interactive capability for patients and providers; significant investments and partnerships are needed to support extension of digital healthcare capabilities such as remote monitoring of patients and telehealth services

SEIZE YOUR ECOSYSTEM OPPORTUNITY

Given the complexity of the healthcare industry, CHRISTUS Health’s journey to become an Ecosystem Driver for its patients is challenging but not unique. We see the next five years as critical for larger companies to experiment and create successful Ecosystem Driver businesses in carefully defined domains that will attract a loyal subset of their customers. If they don’t, we think the opportunity to create successful ecosystems, with the attendant rewards, may be lost—consolidation, as our data shows, is a potent force.