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Of new ecosystems and more competition

LiveMint logoLiveMint 25-09-2017 Rachna Nath

There is a fundamental shift in industry today—of ecosystems, rather than individual firms, competing with each other. Companies are looking outside their organizations to acquire skills and capabilities rather than building them in-house. This means that they are also integrating and partnering with other organizations more proactively than before.

What is driving this change?

The first driver is the rise of the new-age consumer who is more aware and has access to more information. This makes them extremely demanding, and at the same time not loyal to any one brand. With digital and new-age technology, empowering the consumer, it is no longer about companies saying, “This is what I have and, hence, this is what you get”. Today’s consumers are saying, “This is what I want, how I want, and if you can’t give this to me, I am going elsewhere”. This shift is putting immense pressure on organizations to take a holistic, long-term view in terms of revenue and create a sustainable business by increasing proximity with consumers.

Agility has hence become the norm. New technologies and the pace at which they are advancing have added more complexity to these requirements. While everyone understands that technologies such as blockchain, cognitive, Artificial Intelligence (AI), robotics, etc., can do wonders for their business, developing in-house capabilities and continuously upgrading those can also become a distraction from the core business.

That in itself drives organizations to tie up with start-ups and companies excelling in specific areas to deliver these requirements. The age of deliveries coming in 8-12 months has passed and the new way of delivering requirements, especially through ecosystem partners, is here to stay.

Innovation and digital disruption are changing the competitive landscape

This is an age of changing competitive landscapes and convergence. Today, sales of automobile companies are being threatened by new-age cab companies, telecom companies are giving banks and their payments systems a run for their money, peer-to-peer payment systems are expected to make intermediaries redundant, natural language processing (NLP)/bots, etc., are a clear demand destructor of call centres, and the list goes on.

Let’s take the example of automobile companies. With the advent of the shared economy, car sales are going down. Hence, it has become more important for auto companies to sweat their assets and increase service revenue. This means that it is becoming critical to keep “in touch” with the car even after the car leaves the showroom and eventually even goes beyond its first owner.

This can be made possible only if all the players in the ecosystem, including service centres, original equipment manufacturers (OEMs), garages, mechanics, etc., are on a common platform. It’s easier said than done. There are, however, companies that are investing in creating digital platforms to get these stakeholders on board and the one who reaches there first will clearly have the competitive advantage.

Acquisition and investing in adjacencies to extend services and products

It is interesting to see how companies are acquiring or investing in other companies to extend their capabilities and offer value-added services to their clients. For example, consulting firms are acquiring design and advertising agencies to provide digital marketing related services, advertising agencies are acquiring analytics companies to bring more value to their clients, manufacturing companies are investing in digital platforms while transportation and logistics companies are investing in companies who own related products.

Emerging financial models are defining how services and products are bought and sold

While the operating expenses model of selling and buying services is not new, digital technologies today have made it possible to provide almost anything as a service. Take the example of tyre companies providing tyres as a service or new-age agri-companies providing farm services to farmers, or water purifier companies providing water as a service, or start-ups providing asset management as a service.

One might be mistaken to assume that these are services that can be provided to the end-consumer by the company directly but consider the case of “farm as a service” where the farmer is the consumer and gets most of the services free of cost. Where organizations can make revenue is by developing an ecosystem of companies (like those selling fertilizers, pesticides, farm equipment, insurance, etc.), for whom the farmer is the buyer and the “farm as a service” company provides easy access to these farmers by getting them on the platform.

As we move into an age where we will see more disintermediation, we are also looking at a future where organizations and people come together to create an ecosystem for a purpose, and then disintegrate once that purpose has been achieved. This might be as short as a project, stated need or as long as the life cycle of the company but the need to be agile, innovative and relevant will drive organizations to look beyond themselves.

Rachna Nath is partner and head, digital consulting at KPMG in India.

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