Thriving in an Increasingly Digital Ecosystem

The business world is rapidly digitizing, breaking down industry barriers and
creating new opportunities while destroying long-successful business models. Given the
amount of turmoil digital disruption is causing, authors Peter Weill and Stephanie L.
Woerner of the MIT Center for Information Systems Research say it’s time for companies to
evaluate these threats and opportunities and create new business options for the
more-connected future of digital ecosystems. In recent research, board members at large
companies estimated that 32% of their company’s revenue would be under threat from digital
disruption in the next five years; 60% of board members felt their boards should spend
significantly more time on this issue next year. Despite the threats from companies
including Uber, Airbnb and Amazon, increasing digitization offers opportunities for
companies to leverage strong customer relationships and increase cross-selling, the authors
argue. The authors offer a framework, supported by examples, for helping managers think
about their competitive environments. “The combination of moving from value chains to
ecosystems and increasing consumer knowledge,” the authors write, “provides business leaders
with four distinct business models, each with associated capabilities and relationships.”
Companies can choose to operate as (1) suppliers, (2) omnichannel businesses, (3) modular
producers or (4) ecosystem drivers. The authors found that businesses focused narrowly on
value chains were at a disadvantage compared with those that thought more broadly about
their business ecosystems. Companies that had 50% or more of their revenues from digital
ecosystems and understood their end customers better than their average competitor saw 32%
higher revenue growth and 27% higher profit margins than their industry averages. As they
prepare for growing digital disruption, companies have two major decisions to make. First,
they need to decide the extent to which they want to control the value chain or become part
of a more complex ecosystem. Second, they need to decide how much they want to invest in
knowing their end customers. Companies with ecosystem drivers as their dominant business
model had the highest margins and growth of all the four options in the companies the
authors studied.