Industries become ecosystems

Following an interesting report from McKinsey, here a few thoughts based on our own observations of the dynamic of ecosystems and the implications on companies like us but also established players that may need to reinvent themselves.

Ecosystems and digital health

In a recent report from McKinsey from January 2018 on "Why digital strategies fail" there was also a section in there on the implications of ecosystems. I felt this was so spot on and reflects to what we observe that I wrote the thoughts below trying to connect the dots. Understanding the new economic rules will move you ahead, but only so far. Digital means that strategies developed solely in the context of a company’s industry are likely to face severe challenges. Traditional approaches such as tracking rivals’ moves closely and using that knowledge to fine-tune overall direction or optimize value chains are increasingly perilous.

Industries are becoming ecosystems

Platforms that allow digital players to move easily across industry and sector borders are destroying the traditional model with its familiar lines of sight. In China for example, Tencent and Alibaba are expanding their ecosystems. They are now platform enterprises that link traditional and digital companies (and their suppliers) in the insurance, healthcare, real-estate, and other industries. A big benefit: they can also aggregate millions of customers across these industries.

How ecosystems enable improbable combinations of attributes
Can you imagine a competitor that offers the largest level of inventory, fastest delivery time, greatest customer experience, and lower cost, all at once? If we think back the answer would probably be no. In the textbook case, the choice was between costlier products with high-quality service and higher inventory levels or cheaper products with lower service levels and thinner inventories. Digital-platform and -ecosystem economics upend the fundamentals of supply and demand. In this terrain, the best companies have the scale to reach a nearly limitless customer base, use AI and other tools to engineer exquisite levels of service, and benefit from often frictionless supply lines. Improbable business models become a reality. In a world of ecosystems, as industry boundaries blur, strategy needs a much broader frame of reference. A wider lens is needed when assessing would-be competitors—or partners. Indeed, in an ecosystem environment, today’s competitor may turn out to be a partner or “frenemy.”

In an ecosystem environment, today’s competitor may turn out to be a partner or “frenemy.”

While it’s true that not all businesses are able to operate in nearly frictionless digital form, platforms are fast rewiring even physical markets, thus redefining how traditional companies need to respond. When we look around we see the new digital structures collapsing industry barriers, opening avenues for cross-functional products and services, and mashing up previously segregated markets and value pools. With vast scale from placing customers at the center of their digital activity, ecosystem leaders have captured value that was difficult to imagine a decade ago.

What does this mean for Digital Health offerings

Patients are becoming users and users want to be empowered. Many of todays offerings are often focused on selected parts of the healthcare system and are hence not putting the user into the very center of the service. In ‘patient’ generated data, which is rapidly becoming the new reality this means components of such offerings must be designed for reliable use by the user and must be trusted by the professional that depends on standardized data so it can be processed by the system operated in. This all means complex and secured medical technology packaged into a highly user centric design with simply no buttons, no cables, no calibration.

Complex and secured medical technology packaged into highly user centric design

The complexity of the use case is to be managed by intelligently designed software and its integration via secured cloud services. data science, data illustration and derived insights translated into actionable, empowering advice are other skills highly relevant. The deployment and operations, increasingly combined with a specific medication, intervention or health relevant service requires yet another skill set often not entirely held or mastered by traditional players.

BYOA - Bring your own algorithm

Hence, we are increasingly looking at best in class components that combine functionality of completely different industries. Very few companies in this world combine the skills to truly master the entire gamut, including the operation under an adequate regulatory framework whether being ISO 13485, very soon GDPR compliance and other highly relevant standards. Ergo cooperations across different boundaries are becoming very standard and will need to rely on highly flexible, controlled open ecosystems that allow to deploy different services. Kind of BYOX, where X can be an Algorithm, Function or Service.