Florida Institute of Technology Driving Growth in Digital Ecosystems 2 Summaries Articles & Case Study

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1- Summarize 08- The Rules of Co-opetition, including essential elements from the article into one to two pages. Include a brief evaluation of the overall contribution that the article has made to your understanding of the topic. Mention one quote you like the best and explain why? 

2- Summarize 09 - Driving Growth in Digital Ecosystems, 2020.pdf The Rules of Co-opetition, including essential elements from the article into one to two pages. Include a brief evaluation of the overall contribution that the article has made to your understanding of the topic. Mention one quote you like the best and explain why? 

Case Study: 

Read : Michelin: Building a Digital Service Platform, Sunil Gupta, Christian Godwin, Pub Date: Mar 5, 2020, Case-Reference no. 9-520-061 Published by: Harvard Business Publishing, 10-May-2021

The write-up is based on this article: (Mocker, M. et al., (2014), “Revisiting Complexity in the Digital Age”, MIT Sloan Management Review). Download (Mocker, M. et al., (2014), “Revisiting Complexity in the Digital Age”, MIT Sloan Management Review).

Make sure that you fully understand the main ideas of the article, which is: "companies that figure out how to offer customers variety through product complexity yet maintain simple processes tend to outperform their competitors (the complexity sweet spot)"

Answer the following questions:

1. Based on the "complexity sweet spot" model, explain the value proposition of Digital Service Platform for Michelin (up to two pages)

2. Why did the dealers not like the idea of paying fees for the DSP? 

3. Pretend you are the head of the Services and Solutions (S&S) group. Draft a compelling mission statement for the S&S group, explaining what you inspire to achieve? (

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The Rules of 48 Harvard Business Review January–February 2021 Co-opetition AU T H O RS Adam Brandenburger Professor, NYU Stern School of Business Barry Nalebuff ST R AT E GY Professor, Yale School of Management P H OTO G R A P H E R TIERNEY GEARON Rivals are working together more than ever before. Here’s how to think through the risks and rewards. Harvard Business Review January–February 2021 49 ST R AT EGY the moon landing just over 50 years ago is remembered as the culmination of a fierce competition between the United States and the USSR. But in fact, space exploration almost started with cooperation. President Kennedy proposed a joint mission to the moon when he met with Khrushchev in 1961 and again when he addressed the United Nations in 1963. It never came to pass, but in 1975 the Cold War rivals began working together on Apollo-Soyuz, and by 1998 the jointly managed International Space Station had ushered in an era of collaboration. Today a number of countries are trying to achieve a presence on the moon, and again there are calls for them to team up. Even the hypercompetitive Jeff Bezos and Elon Musk once met to discuss combining their Blue Origin and SpaceX ventures. There is a name for the mix of competition and cooperation: co-opetition. In 1996, when we wrote a book about this phenomenon in business, instances of it were relatively rare. Now the practice is common in a wide range of industries, having been adopted by rivals such as Apple and Samsung, DHL and UPS, Ford and GM, and Google and Yahoo. There are many reasons for competitors to cooperate. At the simplest level, it can be a way to save costs and avoid duplication of effort. If a project is too big or too risky for one company to manage, collaboration may be the only option. In other cases one party is better at doing A while the other is better at B, and they can trade skills. And even if one party is better at A and the other has no better B to offer, it may still make sense to share A at the right price. Co-opetition raises strategic questions, however. How will the competitive dynamics in your industry change if you cooperate—or if you don’t? Will you be able to safeguard your most valuable assets? Careful analysis is required. In this article we’ll provide a practical framework for thinking through the decision to cooperate with rivals. What Is Likely to Happen If You Don’t Cooperate? If a cooperative opportunity is on the table, start by imagining what each party will do if it’s not taken. What alternative agreements might the other side make, and what alternatives might you pursue? If you don’t agree to the deal, will someone else take your place in it? In particular, will the status quo still be an option? Let’s start with a simple example. Honest Tea (which one of us cofounded) was approached by Safeway supermarkets to make a private-label line of organic teas. The new line would undoubtedly eat into Honest Tea’s existing Safeway sales. So even though the supermarket was offering a fair price, the deal would ultimately be unprofitable for Honest Tea. I D E A IN BRIEF THE CONTEXT The idea that competitors should sometimes cooperate with one another has continued to gain traction since it was initially explored in the 1990s. 50 Harvard Business Review January–February 2021 THE ISSUE Even so, executives who aren’t comfortable with “co-opetition” bypass promising opportunities. A FRAMEWORK FOR ACTION Start by analyzing what each party will do if it doesn’t cooperate and how that decision will affect industry dynamics. Sometimes cooperation is a clear win. Even if it isn’t, it may still be preferable to not cooperating. But it’s critical to try to figure out how to cooperate without losing your current advantages. There are many reasons for competitors to cooperate. At the simplest level, it can be a way to save costs and avoid duplication of effort. However, if Honest Tea didn’t cooperate, Safeway would surely find another supplier, such as rival tea maker Tazo. Honest figured that if it took the deal, it could design the new Safeway “O Organics” line to resemble the flavors and sweetness of Tazo’s products and compete less against its own. If Honest had said no, Tazo would probably have said yes and targeted Honest’s flavors, leading to the worst possible outcome. So Honest agreed to the deal. Yet the company turned down a similar request from Whole Foods because the grocery chain insisted that the private line include a clone of Moroccan Mint, Honest’s best-selling tea at the time. Honest didn’t want to compete so directly against itself and believed that its rivals would have trouble copying the tea—which indeed turned out to be true. UPS had to think through a similar opportunity when DHL, which had acquired Airborne Express some years earlier and was suffering large losses, asked UPS to fly DHL’s packages within the United States. UPS had the scale to make the service efficient (potentially saving DHL $1 billion a year) and was already providing a similar service to the U.S. Postal Service, so the opportunity appeared to be a profitable one that would allow UPS to rent out space on planes it was already flying. That said, not cooperating might have been even more profitable in the long run. If DHL’s continuing losses led to its exit, UPS stood to gain much of DHL’s U.S. market share. But if UPS turned the deal down, DHL might have offered it to FedEx. And if FedEx accepted it, DHL would still be in the market and UPS would have lost out on potential profits. So UPS agreed to DHL’s proposal, announcing a deal in May 2008. (It turned out to be not enough to save DHL, which decided during the recession later that year to leave the market.) In the tech industry, thinking through alternatives to a deal is complicated because companies have multiple relationships with one another. Samsung’s decision about whether to sell Apple its new Super Retina edge-to-edge OLED screen for the iPhone X is a good example. Samsung could have temporarily hurt Apple in the high-end smartphone market—where the Samsung Galaxy and iPhone compete—by not supplying its industry-­leading screen. But Apple isn’t the only rival Samsung has to worry about. In addition to being one of the world’s largest phone manufacturers, Samsung is also one of the largest suppliers to phone manufacturers (including Apple, across several generations). If it hadn’t provided its Super Retina display to Apple, Apple could have turned to LG (which supplies OLED screens for Google’s Pixel 3 phones) or BOE (which supplies AMOLED screens for Huawei’s Mate 20 Pro phones), strengthening one of Samsung’s screen-­technology competitors. Plus, Apple is well-known for helping its suppliers improve their quality. Cooperating with Apple meant that Samsung would get this benefit and that its screen-­technology rivals would not. The fact that the deal would increase Samsung’s scale and came with a big check attached—an estimated $110 for each iPhone X sold—ultimately tilted the balance toward cooperating. It takes two to cooperate. Now let’s look at the deal from Apple’s perspective. Would it make Samsung a more formidable rival? It probably would: In the year prior to the iPhone X launch, revenue from Apple accounted for almost 30% of the Samsung display business, a division that generated $5 billion in profits. (Apple was also buying DRAM and NAND flash memory chips, batteries, ceramics, and radio-frequency-­ printed circuit boards from Samsung.) But for Apple, getting the best screen was worth bankrolling an already well­resourced rival—at least for a while. The underlying economic reason that working together was advantageous to both sides was that Samsung had the best screen and Apple had a loyal customer base. Without cooperating, neither company could get the extra value from putting the superior screen on the new iPhone. Will Cooperation Give Away Your Competitive Advantage? Suppose you’ve analyzed the alternatives to cooperation and tentatively decided to move ahead. Doing so may mean sharing your special sauce. Then it might not be so special, and that could be a real problem. To get a read on the potential risk, figure out which of these four categories the deal falls into: Neither party has a special sauce at risk, but the parties’ combined ingredients create value. In this sce- nario neither side is giving anything away. A recent example is Apple and Google’s decision to cooperate in creating Harvard Business Review January–February 2021 51 ST R AT EGY contact-tracing technology for Covid-19. By sharing user location data across platforms, the two companies enabled governments and others to create effective notification apps. The circumstances here are exceptional, but it’s not unusual for rivals to team up to set standards and create interoperability protocols and thereby create a bigger pie they can later fight over. Both parties have a special sauce, and sharing puts them both ahead of their common rivals. In 2013, Ford and GM agreed to share transmission technologies. This made sense because they had complementary capabilities: Ford led in 10-speed transmissions, GM in nine-speed. The arrangement saved both money, had no significant strategic impact, and freed their engineers to work on next-generation electric vehicles, giving each company a leg up on other automakers. There’s a caveat here: Cooperation is more challenging if the playing field isn’t level at the start. GM turned down an opportunity to collaborate with Ford on a next-generation diesel engine for super-duty pickup trucks. Though the potential cost savings were compelling, Ford already had a competitive advantage in the F-150’s lightweight all-­ aluminum body, and GM feared that without differentiation between engines, Ford would have an unbeatable edge. Sometimes, getting ahead of (or not falling behind) other rivals outweighs considerations of relative advantage. Autonomous driving technology, for instance, will be a key capability in the near future. Most automakers recognize that they won’t be able to develop self-driving vehicles quickly or cost-effectively alone. That’s why Ford invited Volkswagen to join its investment in Argo AI, an autonomous vehicle start-up. VW’s $2.6 billion investment (along with its $500 million purchase of Ford’s shares of the start-up) greatly reduced the drain on Ford’s resources. The deal also plays to each party’s respective strength in getting regulatory approvals—Ford is strong in the United States, VW in Europe—significantly increasing the chance that Argo AI will be one of the platforms that gets worldwide approval. Ford also believed that if it didn’t work with VW, VW would find another partner, which would decrease the chance that Argo AI would become one of the approved standards. Because Ford’s market share is greater than VW’s in the United States and VW is ahead of Ford in Europe, it was a 52 Harvard Business Review January–February 2021 Harvard Business Review January–February 2021 53 What About Antitrust Issues? ST R AT EGY good bet that this partnership wouldn’t change the balance of power between them. The focus was on elevating the pair relative to their many rivals. One party has a strong competitive advantage, and sharing only heightens it; even so, less-powerful parties are willing to cooperate. Amazon gives rival sellers on Amazon Marketplace access to its customers and warehouses. Why? For starters, while it loses some direct business and the associated markup, it makes a commission on Marketplace sales. The net effect on profit depends on how the commission compares with the markup, and whether Amazon Marketplace (which accounts for $50 billion of the company’s revenue) leads to an increase in the company’s total volume. Even if the net effect were negative, blocking rival sellers from its platform would push them to other sites that could compete with Amazon. More important, though, when Amazon shares its platform, it becomes a hub—the starting place for any search. It makes money when a person looking for a book or a computer cable comes to its site and purchases additional, higher-margin products like electronics or clothing. Amazon also learns about the customer’s preferences and can use this data to offer better recommendations and more accurately identify which Amazon-branded products to offer. And finally, opening up Amazon Marketplace allows Amazon to operate more warehouses and increase shipping volume, thereby reducing shipping times and lowering overall costs. But why do other merchants cooperate with Amazon? Each partner, acting individually, finds it more profitable, even necessary, to be part of the Amazon ecosystem. But it’s a collective action problem: When the merchants all join its platform, they make Amazon a more formidable rival. Indeed, both the European Commission and the U.S. House Subcommittee on Antitrust, Commercial, and Administrative Law are investigating whether Amazon Marketplace is using its dominant position to undermine and compete unfairly with its merchant “partners.” One party shares its secret sauce to reach another’s customer base, even though doing so carries risks for both parties. We saw this dynamic when Samsung shared its high-end screen with Apple. Google and Yahoo provide another example. Google is better than any of its rivals at turning ads that appear alongside searches into clicks—that’s its secret 54 Harvard Business Review January–February 2021 Regulators are naturally suspicious when rivals get together. Executives need to know which types of cooperation are permis­ sible and which are not. Some antitrust violations are black-and-white: Businesses that coordinate to raise prices or divide up the market are engaged in collusion, pure and simple. Regulators tend to take a more favorable view when businesses work together to reduce costs or expand demand. One good litmus test is to ask if customers will be better off as a result of the cooperation. For example, customers benefit if rivals partner to provide charging stations for electric cars. Similarly, supplying a rival tends to pass muster when it improves quality (as is the case when Samsung sells its Super Retina screens to Apple) and doesn’t foreclose market entry to other players. There is always the possibility that regulators will step in to nix a deal, as they did with Yahoo’s 2008 agreement to have Google provide it with search ads. This is one of the challenges of co-opetition. sauce. In 2008 it agreed to do ad placement for Yahoo. Google’s technology would generate substantially more revenue per search for Yahoo, and sharing it was the quickest, surest way to extend its value to the market Google didn’t already have. (In the short run, Google was unlikely to capture all of Yahoo’s customers. By 2020, Yahoo’s share of search was down to 1.6%, but that decline took a dozen years.) The potential gains were enormous. Given Yahoo’s then 17% share of the $9 billion market, a 50% to 60% revenue increase would create almost $1 billion in annual profits to be split between the two companies. The deal did carry some risks for Google. It might have made Yahoo into a stronger competitor, but that possibility was less worrisome because Yahoo was already cash-rich owing to its stake in Alibaba. (More cash probably wasn’t material to its competitive position.) Improved ad technology on Yahoo might have led some Google users to switch, but it seemed unlikely that better ads would cause a large number to do so. Perhaps the greatest risk was that Yahoo would learn the recipe for Google’s special sauce—but Google never planned to hand over its algorithms. The risks for Yahoo were bigger. Its capabilities might wither if it became dependent on Google’s black box. Were the partnership to end, Yahoo would be further behind, perhaps dangerously so. Those risks were mitigated by Yahoo’s plan to continue doing ad placement for its sites in Europe and thus maintain its own capabilities. Cooperation is an overall win-win, but splitting the gains is a zero-sum game. The solution is relatively straightforward when there’s an even trade but harder if the trade is uneven. In the end the deal didn’t materialize; the U.S. Department of Justice ruled against it on the grounds that it might leave Yahoo a weaker competitor in the future. (One of us helped defend the agreement.) But the economics were compelling. One year later, Yahoo made a deal with Microsoft to have Bing provide its search ads. It isn’t always possible to rent the sauce without giving away the recipe, however. Could the United States and China, for instance, cooperate on a mission to Mars? A seemingly insurmountable challenge is that it would involve sharing intellectual property that can’t be recaptured. This is a particularly sensitive issue since space technology spills over to military applications. How to Structure an Agreement The parties have almost gotten to yes. They’ve identified a desirable opportunity and found a way to share their special sauce without giving away the recipe. The remaining task is to craft the agreement. Two issues are particularly challenging when a prospective partner is also a competitor: the scope of the deal and how the costs and benefits will be divided. (There may also be antitrust concerns; for more on those see the sidebar “What About Antitrust Issues?”) Establishing scope and control. First the parties have to figure out how far to extend their cooperation, who is in charge, and how they might unwind their arrangement should it no longer make sense. The simplest types of cooperation are limited and don’t raise control issues. In some cases one party becomes a nonessential supplier to the other—as Honest Tea did with Safeway or as CBS did when it supplied the show Dead to Me to Netflix. In other cases the parties share costs but not proprietary knowledge. Rival television stations sometimes share camera crews, for instance, and rival breweries coordinate on recycling. Several museums in a city may run an ad campaign or develop an all-access museum pass together. Generally these arrangements are easy to negotiate and can be unwound easily. Agreements become challenging when one party has to cede control, however. Ford and GM’s plan to share transmission technologies worked well at the R&D stage, but neither company was willing to give control of manufacturing to the other or even to a joint entity. Ford and GM could have written a contingent contract about who got what transmission production capacity when, but this would have been tricky since demand is variable and transmissions are mission-­ critical. Fortunately, the majority of the cost savings came from using common designs and common parts, so Ford and GM limited the agreement to those areas. In other circumstances one party is in charge and the other party is protected by a contingent contract with performance guarantees and penalties for not hitting specific targets. This works well in situations where there are established performance benchmarks. The party in charge, the one providing the guarantees, doesn’t have to be told what to prioritize; instead the right-sized penalties allow it to internalize decisions and make calls that optimize the combined outcome. It’s important to structure any agreement in such a way that one side doesn’t become dependent on the other. Otherwise, the dependent party may be backed into a corner when it comes time to renegotiate the deal—or distressed when the deal ends. As noted earlier, this was one of the Justice Department’s issues with the 2008 Google-Yahoo deal. Dividing the pie. Cooperation is an overall win-win, but splitting the gains is a zero-sum game. The solution is relatively straightforward when there’s an even trade, as when Ford and GM shared transmissions. It’s harder if cooperation involves an uneven trade and payments are required. Consider interairline agreements to help stranded passengers. For a long time it was customary for airlines to take care of one another’s passengers in the event of a flight cancellation, or what the industry calls an IROP (irregular operation). Airlines paid a low IROP rate to secure a seat on another carrier. Cooperation broke down in 2015 when Delta thought other airlines were getting the better end of the deal and proposed a steep increase in the IROP rate. Delta was taking five American Airlines passengers for each Delta passenger that American took. American declined to pay more, and the agreement ended. The underlying problem was an uneven trade. With an even balance of trade, the IROP fare doesn’t matter. When the trade is out of balance, the right price is what ensures a fair deal. An IROP fare that was Delta’s cost of a seat (including forgone sales to displaced customers) plus half the value Harvard Business Review January–February 2021 55 of American’s gains (the savings on a hotel and meals and avoidance of the customer’s ire) should have done the trick. There might have been a way to save at least part of the deal without agreeing on price. Delta and American could have set up an agreement that guaranteed parity, trading seats on a one-for-one basis. If one airline had more cancellations and took more seats, the number of seats it got could be rationed going forward until things evened out. The problem was ultimately resolved when the balance of trade was restored. After a series of computer outages and systemwide shutdowns, Delta found that it, too, needed some help. It renewed an agreement with American in 2018. The challenges are greater when there are three or more parties to the deal and offsetting trades aren’t possible. Take Ionity, a joint venture involving BMW, Daimler, Ford, Hyundai, Kia, and VW, which is building ultrafast electric-­ charging stations across Europe. The speed and cost savings advantages from teaming up are enormous. Still, each partner 56 Harvard Business Review January–February 2021 has different geographical priorities, creating tensions over where to place the stations. Splitting the massive price tag is even harder. It wouldn’t work to divide the costs equally; the partners have significantly different shares of the market, and Kia, with its much smaller slice, would walk away. Costs could be split according to market share—but should market share be based on unit sales, dollar sales, profits, or even miles driven? Each party had its favorite answer. In the end the six companies agreed that costs would be divided in proportion to current unit sales. A simple, albeit somewhat arbitrary, heuristic like that may be a practical way to get a cooperative venture off the ground. Changing Minds Cooperation with rivals also has an important emotional aspect. Some people are comfortable with the idea that ABOUT THE ART Tierney Gearon collaborated with her children and their friends to create her Alphabet Book series, setting up scenes of calculated kid-chaos playtime for each letter of the alphabet. there can be multiple winners, and some are not. As a result, co-opetition may end up being a strategy of last resort even in cases where it should be a first resort. Apple was on the verge of failure in August 1997 when Steve Jobs was finally forced to confront the fact that Microsoft was not the enemy. Jobs later admitted that “if the game was a zero-sum game where for Apple to win, Microsoft had to lose, then Apple was going to lose.” That change in perspective was hard for Apple loyalists to accept. When Jobs announced at the Macworld conference that Microsoft had invested $150 million in Apple, Bill Gates was booed. Obvious opportunities for cooperation fall by the wayside when businesspeople don’t focus on ensuring that all parties come out ahead. The world of check payments illustrates the problem. Ever since printed checks were invented, more than 300 years ago, banks have needed a way to exchange those deposited by their account holders but written on other banks’ accounts. The obvious solution was to establish a central clearinghouse. When the London banks failed to do this, the bank runners did it themselves. Instead of crisscrossing the city to exchange checks, they did an end run and all met at the Five Bells tavern. Some 50 years later the banks established the Bankers’ Clearing House to do the same job. In the modern era the U.S. Federal Reserve operated a system in which each bank would forward the paper checks it received to the Fed, which would then distribute them to the banks on which they were written. In 2001 some 40 billion checks were being flown around the country. A logical alternative was to scan the checks and send digital images, thereby saving time and money. The challenge was that some of the small banks weren’t set up to process digital images. Thus cooperation would further tilt the playing field. When the large banks didn’t ensure that the small banks would also come out ahead, the small banks used their political power to block digital check clearing. Then 9/11 forced the issue. With all planes grounded for over a week, checks were stranded and could not be cleared. At that point, the large banks finally agreed to ease the transition for small banks by having the Fed print the digital images and send the substitute checks to the small banks. In 2003 digital check clearing became established in law when Congress enacted the Check Clearing for the 21st Century Act. ST R AT EGY It’s also possible to work around mindsets. One solution is compartmentalization—both mental and actual. The Apple-Samsung deal, which happened during a billion-dollar legal battle between the two tech giants over patent infringements, was doubtless easier to arrange given that Samsung operates as three separate companies with three separate CEOs. Apple could cooperate with one autonomous part of Samsung while competing with and suing another. For a similar reason, we think it was wise for Ford to keep Argo AI, the autonomous vehicle start-up, a separate company. It was psychologically and contractually easier to get VW to invest in an entity that was outside Ford. The external structure helps ensure that the two will be equals and also makes it easier to bring in future partners. U LT I M AT E LY, G E T T I N G T H E right mindset requires choosing the right people. The executives we interviewed emphasized the need to staff the cooperating teams with people who are open to the dual mindset of co-opetition. That isn’t always easy, because people tend to think in either/or terms, as in either compete or cooperate, rather than compete and cooperate. Doing both at once requires mental flexibility; it doesn’t come naturally. But if you develop that flexibility and give the risks and rewards careful consideration, you may well gain an edge over those stuck thinking only about competition. We began this article with the missed opportunity for cooperation between the United States and the Soviet Union on a mission to the moon. Today the opportunities for countries to cooperate are even larger—from tackling Covid-19 and climate change to resolving trade wars. We hope that a better understanding of co-opetition will help businesses, managers, and countries find a better way to work and HBR Reprint R2101C succeed together.  ADAM BRANDENBURGER is the J.P. Valles Professor at the Stern School of Business, a distinguished professor at the Tandon School of Engineering, and the faculty director of the Program on Creativity and Innovation at NYU Shanghai, all at New York University. BARRY NALEBUFF is the Milton Steinbach Professor of Management at the Yale School of Management, where he teaches negotiation, innovation, strategy, and game theory. Harvard Business Review January–February 2021 57 Copyright 2021 Harvard Business Publishing. All Rights Reserved. Additional restrictions may apply including the use of this content as assigned course material. Please consult your institution's librarian about any restrictions that might apply under the license with your institution. For more information and teaching resources from Harvard Business Publishing including Harvard Business School Cases, eLearning products, and business simulations please visit hbsp.harvard.edu. D I G I TA L B U S I N E S S Driving Growth in Digital Ecosystems Developing the right capabilities for digital partnering is key to getting value from your ecosystem strategy. BY INA M. SEBASTIAN, PETER WEILL, AND STEPHANIE L. WOERNER H igh-growth companies don’t go it alone. Increasingly, they are achieving results by creating and orchestrating digitally connected ecosystems — coordinated networks of enterprises, devices, and customers — that create value for all of their participants.1 Companies whose dominant business model is ecosystem driver — in both B2B and B2C domains, such as energy management, home ownership, and financial services — experienced revenue growth approximately 27 percentage points higher than the average for their industries, and had profit margins 20 percentage points above the average for their industries, according to our research.2 That 2019 global survey of 1,311 executives also found that successful drivers achieve outsized results by attracting the partners needed to provide complementary — and competing — products and services that make their ecosystems seamless “one-stop shopping” destinations for customers. 58 MIT SLOAN MANAGEMENT REVIEW FALL 2020 HARRY CAMPBELL/THEISPOT.COM Complementary offerings make it easier for customers to obtain comprehensive solutions to their problems. For example, when China’s largest insurer, Ping An, realized that its customers wanted not only insurance but also a means of addressing their medical and well-being needs, it created Good Doctor. The Good Doctor platform offers 24-7 one-stop health care services that are provided by pharmacies, hospitals, and about 10,000 doctors. In September 2019, Good Doctor reported serving more than 62 million customers monthly. Moreover, nearly 37% of Ping An customers used more than one of its services in 2019 — an important measure of ecosystem success.3 Successful ecosystem drivers also offer their customers greater choice, even when that entails featuring competing offers. In Australia, real estate platform driver Domain partners with about 35 mortgage lenders to offer homebuyers more loan choices. In the second half of 2019, the company’s Consumer Solutions segment, which consists of its loans, insurance, and utilities connections businesses, grew revenue by 72%.4 As all of this suggests, a strong partnering capability is required to successfully grow digital ecosystems. This capability must be designed to support digital partnering, which is not the same as the traditional handshake and bespoke partnering of the physical world. Traditional partnering often includes exclusive relationships, long-term contracts, and deep integrations, all of which take time to establish and require strategic commitment. Digital partnering creates growth by adding more products and customers via digital connections with other companies that enable fast response to customer needs. It requires the ability to determine and agree with partners about who will create value, how revenue will be apportioned, and what data will be shared; it also requires the capacity to quickly add partners’ products and services via plug-and-play connections that offer immediate order and payment processing, and sometimes delivery as well. This ability varies widely across sectors (see “Industries Vary in Their Development of Digital Partnering Capabilities,” p. 60), but in several industries in our survey, the average market share of ecosystems increased with digital partnering SLOANREVIEW.MIT.EDU capabilities. In manufacturing, average market share rose from 50% to 62%. In services, it rose from 21% to 35%, and in retail, travel, and hospitality, it rose from 10% to 75%. Moreover, we found that companies with above-average reach (new customers) and range (new products and services) thanks to digital partnering enjoyed revenue growth at 9.8 percentage points above their industry average, while companies that did not partner grew at 7.7 percentage points below their industry average.5 To better understand digital partnering in ecosystems, we studied the practices and results of ecosystem drivers. We found that the more successful drivers attended to two principal partnering capabilities: digital readiness and curation.6 Digital ecosystems in the top quartile on digital readiness had an average market share that was 110% higher than the average market share of the bottom quartile. Ecosystems in the top quartile on curation had an average market share that was 128% higher than the average market share of the bottom quartile. Digital Readiness Partnering in digital ecosystems requires drivers and their partners to be fully prepared to create and extract value. Financial services giant Fidelity Investments began to focus on capabilities required for digital partnerships in 2017 and now offers a marketplace in its personal investments business; a wellness platform in its workplace services business; and Wealthscape Integration Xchange, a storefront in its institutional business.7 Its experience illustrates how successful digital partnering requires digital readiness that consists of three key characteristics: being distinctive, being digitally organized, and being open.8 Distinctive. To attract partners, a digital ecosystem needs to provide differentiated value that enables it to stand out from its competitors. This value may come in various forms, such as a trusted brand, compelling offerings, low prices, or a superlative customer experience. As a well-established incumbent, Fidelity was able to leverage its market-leading offerings, its scale, and the trust of tens of millions of existing customers to its new ecosystem. It used these differentiating factors to attract ecosystem partners that could provide additional services and unique THE RESEARCH In 2017, the authors surveyed 158 enterprises, examining how partnering affects the performance of digital ecosystems at the company and ecosystem levels. In 2018-19, they interviewed more than 70 executives responsible for digital ecosystem partnerships in diverse industries, including manufacturing, financial services, IT software and services, and health care, about their successes and challenges. In 2019, they surveyed 1,311 enterprises, examining a variety of digital transformation topics, including business models and the role of the top management team in digital transformation. The authors developed the concepts of curation and digital readiness based on the interviews and the coordination literature. They tested their effect on ecosystem market share and company performance through statistical analysis. FALL 2020 MIT SLOAN MANAGEMENT REVIEW 59 D I G I TA L B U S I N E S S INDUSTRIES VARY IN THEIR DEVELOPMENT OF DIGITAL PARTNERING CAPABILITIES LOW ON BOTH DIGITAL READINESS AND CURATION INDUSTRY Manufacturing HIGH ON EITHER DIGITAL READINESS OR CURATION HIGH ON BOTH DIGITAL READINESS AND CURATION 0% 17% 83% Services 33% 0% 67% Retail, Travel, and Hospitality 40% 0% 60% Heavy Industry 17% 33% 50% IT, Media, and Telecom 43% 18% 29% Financial Services 80% 0% 20% Nonprofit and Government 67% 33% 0% 100% 0% 0% Health Care SOURCE: MIT CENTER FOR INFORMATION SYSTEMS RESEARCH ECOSYSTEM SURVEY (N=158). value to Fidelity’s customers. For example, as personal investors navigate life events, they can easily access a variety of offerings, such as student loan refinancing and mediation and legal services, through the company’s digital partners. Wealth management companies can access Fidelity solutions and more than 175 third-party technologies, including customer relationship management, financial planning, and portfolio management, in the Wealthscape Integration Xchange.9 Digitally organized. Drivers and their partners need operating models that are optimized for digital ecosystems. This usually requires them to revamp processes used in traditional partnerships, such as procurement, quality control, and legal, and making them more digital and connected. High-performing drivers also eliminate internal silos, use agile methodologies, and leverage data analytics — all of which help them to design for speed and agility when working with digital partners. At Fidelity, senior executives led cross-business teams to execute 11 fast-track initiatives to bolster its enterprise capabilities, including digital marketplaces and a strategy to API-enable enterprise core capabilities. The company is also undertaking a broad-based cultural shift to encourage partnering, agile teams, and the democratization of data.10 Open. It is easy to connect with good ecosystem drivers and partners. They are able to share their 60 MIT SLOAN MANAGEMENT REVIEW FALL 2020 distinctive core capabilities and quickly scale digital partnerships via APIs. We found that digital connections between companies via APIs have significantly increased in the past two years. In 2017, companies shared, on average, 24% of their core capabilities externally via APIs; in 2019, the average had risen to 37% — a 54% increase.11 As Fidelity’s brokerage business transformed from a mainframe environment to a cloud environment, the company built enterprisewide capabilities that promote openness by launching an API store and establishing companywide standards designed to make the APIs easily consumable both internally and externally. In the Wealthscape Integration Xchange storefront, for example, B2B customers can create a custom platform that includes Fidelity’s core services and single sign-on, account opening, and transfer-of-assets functionality with many of the company’s digital partners.12 Curation To grow through partnering, ecosystem drivers must be thoughtful curators of the products and services they offer. Curation enables drivers to coordinate effectively with their digital partners while creating and growing an ecosystem. Our study found that ecosystems with larger market shares had more open designs (that is, a broader set of companies was invited to partner, offering a wide selection of products SLOANREVIEW.MIT.EDU to customers). They also spanned multiple ecosystem domains. For instance, Amazon’s ecosystem includes shopping, selling, purchasing, and operations domains, and Siemens Healthineers spans health, finance, daily life, and education domains. In China, WeChat is the go-to ecosystem for a variety of daily activities in the lives of its users. Bayer subsidiary The Climate Corp. has grown its digital agriculture platform, FieldView, from 5 million paid subscription acres in 2015 to more than 95 million acres in 2019. 13 To do so it has curated offerings from about 65 partners, with services such as satellite imaging, soil assessment, and drone mapping, that it integrates into reports, recommendations, and planting programs that help farmers optimize their crop yields. FieldView demonstrates that good curation is composed of three key characteristics: joint goals, sharing benefits, and sharing information.14 Joint goals. The drivers of successful ecosystems establish a shared vision that serves as the foundation for value creation and governance in the ecosystem. The Climate Corp. curates a diverse ecosystem of services such as analytics, planting prescriptions that can be downloaded to farm equipment, and crop insurance, among others, provided by partners that are complementors and competitors. The company seeks partners that share its vision: “A digital agriculture ecosystem where farmers, globally, can easily access a broad and interconnected set of tools, services, and data to optimize all of their decisions on the farm.”15 Farmers can select from multiple partner offerings on the platform and choose which partners can access their data. Climate ensures a consistent experience for farmers and provides data in one place, leveraging the ecosystem data to improve agronomic recommendations.16 Sharing benefits. Successful ecosystem drivers clarify who captures what value and develop mutually beneficial relationships with their partners. In addition to revenue, these benefits often include customer stickiness, engagement, and visibility. Many of the companies we studied experimented with digital partnering to complement their core offering by curating products of interest to their customers. These offerings were important for meeting customer expectations for more choice, according to executives we interviewed, but they SLOANREVIEW.MIT.EDU also pointed out that improving customer experience has not necessarily translated into big revenue gains. Instead, it has produced higher levels of customer engagement and stickiness. Similarly, ecosystem partners can benefit from associating with a driver and gaining visibility with their customer base and within their industry. Climate created an open ecosystem to bring more value to customers and drive innovation in the agriculture industry. The company makes it easy for partners to join the platform through APIs on its developer platform, but there is a rigorous vetting process. A shared incentive for potential partners that may compete with one another to join the FieldView platform is the opportunity for more revenue through visibility and access to Climate’s global base of farmer customers. In other cases, businesses join the platform because their retail partners and farmer customers request integration.17 Sharing information. In digital ecosystems, data is a valuable currency that gives rise to potentially contentious issues, such as access to the identity of 3 QUESTIONS BEFORE YOU BEGIN DIGITAL PARTNERING 1. HOW WILL YOU PREPARE YOUR COMPANY FOR DIGITAL PARTNERING? Start by identifying the distinctive services that you can make available via APIs to digital partners so that they can complement them to create unique value propositions for your customers. Drive your digital transformation internally to maximize your ability to attract external partners. 2. WHAT SHOULD A WELL-CURATED ECOSYSTEM OF PARTNERS LOOK LIKE? Thoughtfully identify potential partners that have compelling complementary offerings and that share your vision for customers, pursue mutually beneficial partnerships, and engage in effective information sharing, which often involves real-time data. Develop aggregate information to help you and your partners assess success. 3. WHO WILL BE RESPONSIBLE FOR DIGITAL PARTNERING IN YOUR ORGANIZATION? Too often, no one is responsible for digital partnering, or it is delegated to the procurement group, where the focus tends to be on getting the best price for a product. Our statistics show that digital savviness and the involvement of the top management team is essential. The presence of CEOs and chief digital officers who are effective digital transformation drivers significantly predicts effective ecosystem participation. And other digitally savvy executives, like CFOs, chief marketing officers, and business unit heads, are particularly important for executing digital partnering and capturing value from ecosystems. FALL 2020 MIT SLOAN MANAGEMENT REVIEW 61 D I G I TA L B U S I N E S S customers and their activities. Successful ecosystem drivers define who gets what information and establish guidelines for how it will be shared — both digitally and ethically. In the FieldView ecosystem, all partners, whether a startup or major company, must agree that farmers will control their own data and choose the partners with whom they will share data. Climate recently terminated a partnership with Tillable, a farmland lease and rental management platform, over concerns that the company may have used FieldView data without the farmers’ consent. In doing so, Climate emphasized data privacy and its guiding principle to make it easy and safe for farmers to share their own data with the digital partners they choose.18 Digital Partnering for Competitive Advantage None of the six characteristics of digital readiness and curation are easy to attain and sustain, which may explain much of the variation in the performance of ecosystems. Our research found that the top quartile of ecosystems won an average market share of 72%, while the bottom quartile had only a 3% average market share. Today, at least, digital ecosystems are a winnertakes-most proposition. Effective partnering helps drive that proposition. Both drivers and participants in digital ecosystems stand to gain the most benefits by putting their digital houses in order so that their distinctive value propositions can be easily integrated with complementary offerings, and by choosing partners with shared goals in ecosystems set up to share benefits and information among participants. Ina M. Sebastian (@inasebastian) and Stephanie L. Woerner (@sl_woerner) are research scientists at the MIT Sloan School’s Center for Information Systems Research (CISR). Peter Weill is chairman and senior research scientist at CISR. Comment on this article at https://sloanreview.mit.edu/x/62127. REFERENCES 1. P. Weill and S.L. Woerner, “Thriving in an Increasingly Digital Ecosystem,” MIT Sloan Management Review 56, no. 4 (summer 2015): 27-34; and P. Weill and S. Woerner, “Surviving in an Increasingly Digital Ecosystem,” MIT Sloan Management Review, Nov. 17, 2017, https://sloanreview.mit.edu. 2. MIT CISR 2019 Top Management Team and 62 MIT SLOAN MANAGEMENT REVIEW FALL 2020 Transformation Survey (N=1,311); “growth” refers to revenue growth compared to industry average. 3. “Ping An Good Doctor Has Become the First Online Healthcare Platform With More Than 300 Million Registered Users,” PR Newswire, Sept. 23, 2019, prnewswire.com; and “Announcement of Audited Results for the Year Ended Dec. 31, 2019,” Ping An, Feb. 20, 2020: 9, www.marketscreener.com. 4. J. Pellegrino and R. Doyle, “Domain Investor Presentation: 2020 Half Year Results.” PDF file. Domain, Feb. 20, 2020: 9, www.asx.com.au. 5. I. Sebastian, P. Weill, and S.L. Woerner, “Three Strategies to Grow via Digital Partnering,” MIT Sloan CISR Research Briefing XX, no. 5, May 2020, https://cisr.mit.edu. 6. Combined regression of digital readiness and curation against ecosystem market share was significant: R Squared Adj. = 0.148, p = 0.000. Both readiness (p = 0.02) and curation (p = 0.03) were significant predictors. 7. I. Sebastian, P. Weill, and S. Woerner, “Partnering to Grow in the Digital Era,” MIT Sloan CISR Research Briefing XIX, no. 6, June 2019, https://cisr.mit.edu. 8. Digital readiness is an additive construct based on the three components — distinctive, digitally organized, and open — measured at the company level. 9. “Life Events,” Fidelity Investments, accessed July 13, 2020, www.fidelity.com; “Fidelity Makes It Even Easier for Firms to Build Tailored Technology Platforms With New Self-Service Capabilities in Its Open Architecture Digital Store, Integration Xchange,” Business Wire, Feb. 18, 2020, www.businesswire.com; and “Third-Party Marketplace,” Fidelity Investments, accessed July 13, 2020, https://clearingcustody.fidelity.com. 10. Sebastian et al., “Partnering to Grow.” 11. Sebastian et al., “Three Strategies.” 12. “Fidelity Makes It Even Easier for Firms.” 13. “Crop Science R&D Pipeline Update: Delivering World Class Innovation.” PDF file. Bayer, Feb. 13, 2020: 29, www.investor.bayer.de. 14. Curation is an additive construct based on the three components — joint goals, sharing benefits, and sharing information — measured at the ecosystem level. 15. “Climate FieldView,” The Climate Corp., accessed July 10, 2020, https://dev.fieldview.com. 16. M. Stern, “Advancing the Digital Transformation.” PDF file. Bayer, Dec. 5, 2018: 214, www.investor.bayer.com. 17. E. Cosgrove, “Checking In With Climate Corp.’s Open Platform Strategy and the Future of Ag Data,” AgFunderNews, Jan. 30, 2018, https://agfundernews .com; and “Frequently Asked Questions,” The Climate Corp., accessed July 13, 2020, https://dev.fieldview.com. 18. “Climate FieldView Terminates Platform Partner Agreement With Tillable,” The Climate Corp., Feb. 14, 2020; and L. Bedord, “Picking a Data Partner,” Successful Farming, May 6, 2020, www.agriculture.com. Reprint 62127. Copyright © Massachusetts Institute of Technology, 2020. All rights reserved. SLOANREVIEW.MIT.EDU Reproduced with permission of copyright owner. Further reproduction prohibited without permission. Revisiting Complexity in the Digital Age TECHNOLOGY As businesses grow and diversify, they almost inevitably make their range of offerings more complex. Complexity brings costs — but smart use of today’s digital technologies can help companies Rnesse the trade-offs between complexity’s costs and beneRts. Martin Mocker Peter Weill Stephanie L. Woerner Research Feature June 17, 2014 Reprint #55418 http://mitsmr.com/1pcP4Kn D I G I T A L S T R AT E G Y Revisiting Complexity in the Digital Age As businesses grow and diversify, they almost inevitably make their range of offerings more complex. Complexity brings costs — but smart use of today’s digital technologies can help companies finesse the trade-offs between complexity’s costs and benefits. BY MARTIN MOCKER, PETER WEILL AND STEPHANIE L. WOERNER THE LEADING QUESTION How can companies offer complex product portfolios while keeping processes simple? FINDINGS Digitization can help  companies increase product variety and integration while maintaining process simplicity. IMAGINE A RETAILER that has 10 million products and hundreds of variations for each product yet keeps it simple for customers to make a choice. Impossible? Not today. Amazon.com Inc. creates value from its product complexity with simple customer-facing processes, such as search, ratings, reviews and suggestions. Now imagine a diversified high-tech company with locally differentiated products in 60 categories in more than 100 different countries. A mess of internal processes and systems? Not necessarily. Royal Philips creates value by providing locally relevant products to different markets, while keeping the vast majority of its processes standardized on digitized platforms. Until now, managing business complexity has usually involved a trade-off. This trade-off forced companies to compromise between creating value from complexity and benefiting from the efficiencies of simplicity. As businesses entered new geographies, developed new products, opened new channels and added more granular customer segments, they made their offerings more complex with the intention of adding value. But, as an almost inevitable consequence, companies also made it more difficult for customers to interact with the company and more unwieldy for employees to get things done. However, with today’s increased digitization,1 companies can finesse this trade-off; they can increase value-adding complexity in their product offerings while keeping processes for customers and employees simple. Our research suggests that companies operating in this “complexity sweet spot” outperform their competitors on profitability. (See “About the Research,” p. 74.) In this article, we explain how companies achieve this breakthrough in the digital world. PLEASE NOTE THAT GRAY AREAS REFLECT ARTWORK THAT HAS BEEN INTENTIONALLY REMOVED. THE SUBSTANTIVE CONTENT OF THE ARTICLE APPEARS AS ORIGINALLY PUBLISHED. Digital tools such as  search and recommendations enable customers to choose from among many product options. Reusing digitized  platforms can help companies minimize complexity. SUMMER 2014 MIT SLOAN MANAGEMENT REVIEW 73 D I G I T A L S T R AT E G Y Why Companies Continue to Add Complexity We define business complexity as the amount of variety and links in your company.2 Variety is the difference in one or more important characteristics, and links are connections or dependencies. Complexity can show up in many parts of a company: its product and service offerings, its organizational structure and processes, or the environment it faces. 3 We found that product and service complexity and the business process aspect of organizational complexity have the biggest impacts on achieving top performance. Complexity can be good or bad. 4 Frans van Houten, CEO and chairman of Royal Philips, calls this “rewarding” vs. “unrewarded” complexity, and Werner Zippold, former COO of ING Direct Spain, describes it as “value-adding” vs. “non-value-adding” complexity. Because product variety and links are an opportunity to add value, most companies continue to add product complexity. Once merely a bookseller, Amazon now offers more than 10 million different products in categories ranging from music to auto parts, providing what it calls “Earth’s biggest selection” in an “Everything Store.” For almost any product, customers can choose between dozens, if not hundreds, of alternatives from different suppliers. Once offering just savings accounts, ING Direct has deliberately grown its product and service complexity,5 increasing its product portfolio to also include payment accounts, credit cards, investment funds, pension plans, brokerage services, mortgages, personal loans and life insurance. ING Direct has also shifted from operating exclusively through phone and Internet channels to opening about 30 branch offices across Spain, with the goal of becoming a full-service bank. This growth in product variety has allowed customers to use ING Direct Spain as their primary bank. Today, more than half of ING Direct Spain’s 2.4 million customers use multiple ING Direct Spain products. The lifetime value of the average customer using more than one product is nine times that of those with only a savings account. As a result, the bank’s profits grew 28% per year between 2003 and 2011, while the customer base grew at a 16% compound annual rate. Addressing local needs also adds complexity. Instead of selling globally standardized products around the world, Royal Philips develops locally relevant offerings, such as shaving products addressing the specific facial hair needs of different regions.6 “We are not shipping the same devices worldwide; our products reflect the specific needs of each market,” says Jeroen Tas, former Philips CIO and now CEO of Philips Healthcare Informatics Solutions and Services. The Complexity Compromise Traditionally, companies trying to add value by increasing variety and links in their product and service offerings almost inevitably have also added value-destroying complexity in their processes. On the customer side, increased product variety and links can make it more difficult for customers to choose. For example, in one research experiment, ABOUT THE RESEARCH This article is based on a two-year research project at the MIT Center for Information Systems Research. We began with 35 interviews with senior executives in 28 companies about the challenges of managing business complexity. Based on these conversations and drawing from previous research, we created an initial framework. CIOs from 195 companies responded to a joint survey with INSEAD e-Lab and the IT executive community CIONET to validate the framework, and we added three years of financial data from Wharton Research Data Services’ Compustat. We asked about different kinds of business complexity, including product and service, process, geographical, mergers and acquisitions and business environment complexity. Using factor analysis, we identified three distinct types of complexity: product and service, organizational (including process) and business environment. In a regression analysis, only product complexity and process complexity had a significant impact on company performance. Product complexity was measured by averaging the responses from two questions about the contribution to complexity from enterprise products and services. Process complexity was measured by averaging the responses from two questions about the standardization of core and administrative processes. We then used a median split of the two measures to separate companies into high and low product complexity and high and low process simplification 74 MIT SLOAN MANAGEMENT REVIEW SUMMER 2014 categories. Profitability for each company was calculated as a three-year average of operating income as a percentage of revenue, adjusted for industry. To adjust for industry, we measured each company’s profitability relative to its industry’s average profitability. Data for four in-depth case studies (USAA, ING Direct Spain, DHL Express and Royal Philips) were collected through 45 interviews with senior executives. Finally, to refine the work, we presented 23 executive workshops in 11 cities (Boston; Brussels; Eindhoven, Netherlands; Kitzbühel, Austria; London; Madrid; Munich; New York; Paris; São Paulo; and Seattle). We then incorporated the feedback from those workshops into our final analysis. SLOANREVIEW.MIT.EDU HOW DIGITIZATION HELPS MASTER COMPLEXITY Today’s increased digitization can help companies increase value-adding complexity in their product offerings while keeping processes simple for customers and employees. Minimize bad complexity Maximize good complexity MAJOR COMPLEXITY CHALLENGES HOW DIGITIZATION HELPS EFFECTIVE EXAMPLE Customers get frustrated by overwhelming variety Search, ratings, recommendations, multiple categorizations, personalized and customized offerings Hipmunk hides irrelevant flight options Opaque mishmash of internal processes and systems that are not coordinated Digitized process platforms promote standardization while allowing local adaptation DBS Bank’s global ATM platform supports locally unique products Customers get frustrated by not finding exactly what they need Ability to aggregate offerings, cater to the “long tail” and meet the specialized desires of a customer Amazon’s “Everything Store” Products are not connected Integrate digital products seamlessly into end-to-end solutions USAA’s product bundles linked to life events people who had to choose between 24 different types of jams were less likely to make a purchase than those who only had to choose between six varieties — although the table with 24 varieties attracted more people.7 In addition, internal process complexity often grows with increased product complexity. While confused customers can hurt revenues, difficult internal processes add costs. For example, when introducing new products, Royal Philips in the past allowed every product manager to create his or her own processes, diluting the bottom line benefits. “We have hundreds of product managers,” van Houten said. “I cannot allow hundreds of product managers to invent their own process. It’s unrewarded complexity when everybody invents their own process, as it hampers cross-learning and efficiency.” A complex process overwhelms customers and employees, making them contact multiple people, enter data multiple times, log into different systems or contact different call centers for different products from the same company. Customers perceive companies with complex processes as difficult to deal with and may spread the word on social media.8 Employees find it difficult to get things done and create work-arounds that can undermine a company’s risk management or data quality. The net impact of a company’s “good” product complexity and “bad” process complexity determines whether adding complexity pays off or not. Consequently, mastering complexity before the era of ubiquitous digitization meant finding the point where the right amount of product variety and SLOANREVIEW.MIT.EDU links still allowed customers and employees to cope with the process complexity.9 Finding this point, of course, is challenging, as complexity is not easy to measure, and customers’ reactions only surfaced after the fact.10 Ubiquitous digitization changes the calculation: It allows companies to create more value for customers by increasing product variety and links — but without adding complexity on the process side. Companies that achieve both increased product variety and process simplicity operate at their complexity sweet spot. Decoupling Product and Process Complexity To find their complexity sweet spot, companies need to get value from product complexity without confusing customers or making it too difficult for employees to get things done. How can companies find the sweet spot if good and bad complexity are linked? Top-performing companies use digitization to help maximize good complexity and minimize bad complexity by decoupling product and process complexity. (See “How Digitization Helps Master Complexity.”) Digitization helps with complexity management by effectively delivering on a customer promise of simple but tailored engagement. At the same time, digitization helps internal process simplification despite growing product variety and links. Digitization effectively facilitates the decoupling of product and process complexity, allowing top-performing companies to both delight customers and streamline SUMMER 2014 MIT SLOAN MANAGEMENT REVIEW 75 D I G I T A L S T R AT E G Y internal operations. While achieving the same result without significant digitization is possible in principle in smaller companies, it used to be close to impossible in large companies. How Digitization Helps Simplify the Customer Experience How does Amazon make it simple to navigate its store, with 10 million products in various categories, when customers get overwhelmed by a mere 24 jam choices in grocery stores? The answer is that the digital world offers tools that simplify and narrow the decision-making process. Using search, recommendations, customer reviews, seller ratings and other mechanisms, Amazon has so far been able to provide simple customer-facing processes despite its product complexity. Searching in the physical world is much more complicated. For example, where does a customer find organic cookies — in the organic aisle of a supermarket or in the cookies aisle? Hipmunk, Inc., a travel website based in San Francisco, California, is another example of a company that uses digitization to simplify the customer experience. By creatively sorting flights (Hipmunk’s “agony” rating is based on a combination of price, duration and number of stopovers), adding visualization and limiting options that are less likely to be chosen (such as a flight with the same price but more stopovers), Hipmunk offers customers a simplified way to make a selection.11 USAA, a provider of financial products and services based in San Antonio, Texas, has taken the approach of getting value from complex products while simplifying customers’ lives a step further. Since its founding in 1922, USAA has grown its product offerings from just auto insurance to more than 100 property and casualty insurance, banking, life insurance and investment management products.12 More recently, to better meet customer needs, USAA added links between different products to address life events such as buying a house, getting married or dealing with the aftermath of a hurricane. Each life event involves a bundle of linked products such as loans, investments and insurance. One of the company’s first multiproduct solutions, Auto Circle, targeted the car-buying life event. Previously, customers had to visit different car dealers to get prices, compare those prices and negotiate 76 MIT SLOAN MANAGEMENT REVIEW SUMMER 2014 a purchase, contact the USAA bank for a loan and then ask USAA property and casualty insurance for a quote. The new integrated one-stop-shopping experience guides members through a process to select, buy (at prenegotiated and attractive prices), finance and insure a car in one seamless process. Customers can perform all steps with an easy-to-use app on a mobile device or via USAA’s website. USAA’s customers love these seamlessly integrated solutions. USAA’s outstanding Net Promoter Scores are the highest in financial services, but they’ve also been the highest across all U.S. consumer industries for the last five years — higher than those of Amazon or Apple. 13 For USAA, increasing product complexity (variety and links) has paid off; in addition to its great customer satisfaction ratings, USAA has a profit margin that is well above the average for its industry.14 USAA has found its complexity sweet spot by reframing product complexity around life events. How Digitization Helps Keep Internal Processes Simple Adding new products is relatively easy; keeping internal processes manageable is much harder. In the physical world, product platforms, such as those for cars, reuse common physical parts.15 The digital equivalent of product platforms is digitized process platforms: coherent sets of standardized processes supported by standardized applications, data and technology.16 For example, Singapore-based DBS Bank Ltd. uses a digitized process platform to increase valuable local product variety in 15 countries without creating process complexity. 17 DBS offers gold bonds — a product popular in a few Asian countries, such as Taiwan — via its digitized ATM platform. DBS could have allowed Taiwan to design its own gold-bond feature and, with that, its own systems and processes for handling gold bonds. But a proliferation of process variation and system silos would ultimately increase process and systems complexity. Instead, DBS decided to support local products as part of its global ATM platform. All countries use the same ATM platform, but each country can switch different products on or off. This way, DBS gets the value from product complexity, but without a significant increase in process complexity. SLOANREVIEW.MIT.EDU Similarly, to standardize idea-to-market, market-to-order and order-to-cash processes globally, Royal Philips uses and reuses digitized platforms. If designed in a modular and reusable way, digitized process platforms can help companies decouple valuable product complexity from value-destroying complexity in processes and systems. Finding Your Complexity Sweet Spot As anyone who has had a frustrating experience as an online customer knows, digitization is not an automatic solution for mastering complexity. One of the authors of this article had a recent experience trying to shop for a new mobile phone plan online that was tortuous. In a single plan, one large U.S.-based telecommunications company offered 24 different data features (per-use payment vs. different volume packages, each package for non-smartphones vs. iPhones vs. “other” smartphones supporting 3G, 4G or 4G LTE technologies) and a plethora of GPS, insurance, live TV, messaging, voice mail, sharing, push-to-talk, roadside assistance and “additional” features. Some of these could be combined, others could not, making it difficult — no, impossible — to compose the ideal configuration. The problem, however, was not due to too much product complexity; the company failed to simplify the process of guiding customers through the choices. By looking at product and process complexity simultaneously, companies can find their complexity sweet spot. In our research, we found that companies capturing value from product complexity while maintaining simple processes outperform their competitors. (See “Finding Profits in the Complexity Sweet Spot.”) Companies that had found this complexity sweet spot had three-year average profit margins 6.3 percentage points above the average for their industry.18 Companies not able to keep processes simple while growing product complexity (the upper left quadrant in the exhibit) suffer from higher cost or lose on the customer side by offering cumbersome access to their products and services. The result is profitability 1.9 percentage points below the average for their industry. It is also insufficient for companies to focus on keeping processes simple if they do not offer customers the product variety and links that SLOANREVIEW.MIT.EDU add value (the lower right quadrant in the exhibit). The worst case — where 23% of the companies operate — is offering low-value product complexity and little process simplification. Essentially, these companies aren’t meeting customer needs, make hard work of their operations and have profitability 3.5 percentage points below the average for their industry (the lower left quadrant in the exhibit). In our research, we repeatedly found two predictors of success. First, transforming a company to reach its complexity sweet spot requires a vision of where the company wants to be in terms of product offerings and customer and employee experience. What kind of improvement is being sought: Is it a step change in customer satisfaction, cost reduction or some other goal? Second, what are the simple metrics that the whole company can go after? For example, in leading the transformation of the Commonwealth Bank of Australia, headquartered in Sydney, now-retired CEO Ralph Norris and his team targeted the dual goals of being No. 1 in customer experience in Australia and having a cost-to-income ratio below 40%. CBA has achieved these goals to become a top 10 global bank in terms of shareholder return.19 With a clear vision and a simple set of metrics identified, we suggest companies seeking their complexity sweet spot consider the following steps: 1. Assess your company’s current complexity position. The first step is to determine where your company is now on product complexity and process simplification. The best place to start is by FINDING PROFITS IN THE COMPLEXITY SWEET SPOT The authors found that companies that figure out how to offer customers variety through product complexity yet maintain simple processes tend to outperform their competitors. Complexity sweet spot High -1.9 Product complexity + 6.3 26% 32% 23% 19% -3.5 Points above or below industry average profitability Percent of 195 companies in quadrant -2.0 Low Less Process simplification More SUMMER 2014 MIT SLOAN MANAGEMENT REVIEW 77 D I G I T A L S T R AT E G Y assessing your customers’ needs against your product and service offerings. Are your key customers satisfied with your level of product variety and linking? To find the answer, we suggest asking three questions: •Do your best customers buy from companies similar to yours? Why? •Is your customer satisfaction rating (such as a Net Promoter Score or similar measure) lower than those of competitors that offer more product variety and linking? •Is there work your customers do that you could do for them? For example, the USAA service to purchase a car includes negotiating with the car dealer for the best price. If the answer to any of these three questions is a strong yes, then there is an opportunity to create more value for customers by adding more product variety and linking. Virtually every company and individual customer today wants to feel special and receive a customized set of offerings. Digitization makes this more and more possible. For example, one of the most popular ways to use USAA’s Auto Circle is on a tablet — and the resulting multiproduct offers are targeted to the customer’s requirements. Furthermore, in a digital world, companies can cater to the “long tail” and meet the specialized desires of virtually any customer. 20 Does that mean every increase in product complexity is good? Of course not. Many companies have a lot of “deadwood” products that do not add value.21 But, with effective use of digitization, there’s also no defined limit to how much product complexity a company should have. To assess your internal process simplification, several classic measures help, including business process cost and the time and variance for core processes. How long does it take your company to get from order to cash? Or to provide a proposal for a new data center for a business-to-business client? And what does that cost you? How much does the way a process is performed depend on who does it? That is, how many different ways are there for getting the same thing done in your company? To assess customer-facing processes, executives need to find ways to amplify the voices of their customers inside the company. Customer Effort Scores, for example, ask customers to rate “How 78 MIT SLOAN MANAGEMENT REVIEW SUMMER 2014 much effort did you personally have to put forth to handle your request?” on a scale from 1 to 5. 22 Companies with simple customer-facing processes like USAA and ING Direct Spain take customer satisfaction scores seriously and score well on metrics like Net Promoter Score. Other companies go even further to understand the complexity their customers face. Legal-information provider LexisNexis employs anthropologists to observe and interview customers to understand the most frustrating parts of their work. They then use that information to create solutions.23 The digital world gives customers more room to make their voices heard — just take a look at TripAdvisor or Yelp. But it also enhances companies’ abilities to understand their customers by observing actual behavior online. 2. Choose a path to the sweet spot. The journey toward the complexity sweet spot depends on where your company is today. There are three different approaches companies can take. (See “Three Paths to the Complexity Sweet Spot.”) Royal Philips is moving to the right (more process simplification) by reducing process variance and cost (arrow A). ING Direct Spain is evolving from a one-product company with very low product complexity to a full-service bank (arrow B). Some companies are “zigzagging” to their complexity sweet spot (arrow C). Zigzagging has the advantage of avoiding the high risk of “big bang” change projects. Instead, a company makes a series of incremental improvements, first on one dimension and then on another, creating continuous organizational learning. For example, when USAA introduced its first integrated life-event product offerings (increasing product complexity), more and more decisions were made by the company’s executive committee, as the decisions affected multiple product lines. The committee was meeting multiple times each week. To make life simpler and faster for decision makers (moving toward process simplification), crossfunctional governance structures were developed to make joint decisions. This moved decision making to lower staff levels, enabling more rapid decisions and fostering learning about how to improve the customer experience enterprisewide. Using this learning, USAA was then ready to introduce more life events. In general, digitization enables quick learning from customers’ behavior using techniques SLOANREVIEW.MIT.EDU like A/B testing, which involves having subsets of customers use competing versions of a process and then rolling out the more effective one. 3. Increase the value from product complexity (if starting at points B or C). Product variety and links can add value by enabling choice (Amazon), one-stop shopping (ING Direct’s full-service bank approach), customization (Philips’s locally relevant products) or integrated solutions (USAA’s life events). Listening to customers helps companies determine which complexity adds value. The challenge quickly becomes how to improve the customer experience while adding product variety and links. Despite significantly increasing product complexity, ING Direct Spain has managed to keep customers happy. It has been the most recommended bank in Spain for four consecutive years.24 ING Direct Spain achieved this with an “obsession for customer experience” and allowing only complexity that adds value. For example, the bank identified the hassle in the account-opening process as one of the barriers to having clients switch their bank account to ING Direct. Driven by its goal of providing a simple customer experience, the bank reduced the number of mailings required to open a checking account, first to two and later — after encouragement from the organization’s CEO — to one. In many companies, groups focusing on adding product variety and links (such as marketing and product management) are often separate from those managing internal processes (such as operations and IT) and customer-facing processes (such as customer service and sales). ING Direct Spain brought these groups together early in cross-functional teams and decision-making councils, helping to identify the impacts that adding product complexity has on processes. 25 When thinking about a new product, one of the first conversations the product management team must have is with the operations and IT groups to discuss implications on processes and systems. 4. Work toward more process simplification (if starting at points A or C). Companies achieve process simplification in two ways: by reducing process complexity or by building tools, roles and other mechanisms that help make a complex process easier to execute for employees and customers. To reduce complexity in processes, efforts like “lean” SLOANREVIEW.MIT.EDU THREE PATHS TO THE COMPLEXITY SWEET SPOT The path to a company’s complexity sweet spot depends on the company’s starting point. High A Product complexity B C Low Less Process simplification More and “Six Sigma” work, but they are big commitments. To succeed, those initiatives have to be driven from the top down and involve changing the culture and creating the kind of digitized platforms discussed above. In 2007, Bayer MaterialScience — the 10 billion Bayer AG subsidiary that developed the FIFA World Cup Soccer ball — had countless variations in its key business processes, including order-to-cash, demand-to-supply, purchase-to-pay and maintain-to-settle. Over time, BMS’s 30 production sites developed their own process variants, whether for perceived or real differences in customer needs and legal requirements. The opportunity cost of having this process variety was calculated as 50 million per year. BMS initiated “Program One” to reduce complexity with global process standards. Instead of trying to convince every country manager of the benefits of global process standards, Program One reversed the burden of proof so that all process deviations were considered non-valueadding unless proven otherwise through business cases. BMS thus reduced the number of process variants from thousands to 400, all supported by a single digitized process platform.26 Maintaining process standards in the long run is a balancing act between tight governance of the standard and allowing exceptions to the standard to promote innovation. International express-mail service DHL Express makes all investments of more than 5,000 go through a multistep change request process to protect its process and systems standard from creeping complexity. Change requesters have SUMMER 2014 MIT SLOAN MANAGEMENT REVIEW 79 D I G I T A L S T R AT E G Y to convince executives on local, regional and global levels that either an exception should be granted or a change should be rolled out globally and become part of the standard. Exceptions are granted for only one year and then reviewed again.27 Though reducing process complexity sounds like a good idea, it can be politically difficult and is not always feasible. There are situations in which increased process complexity is a necessary consequence of increased product complexity, at least temporarily. But great companies don’t leave employees to their own devices on this front. When USAA introduced life events and service representatives had to give integrated advice on multiple products, the company cross-trained employees, coached them continuously on how to do their jobs better and supported them with integrated information systems. While process complexity was not reduced, USAA helped make it easier for employees to perform more complex processes. The Leadership Challenge Who should lead the company to its complexity sweet spot? As business complexity is a cross-company issue, no individual business unit leader can typically be in charge. Looking at corporate-level leadership, the CFO would be a natural fit if complexity management was mostly about cost reduction. The COO knows the internal process simplification needs of the company but doesn’t typically have a say on products. With the CMO (or the head of innovation), it is the other way around. The CIO often owns neither processes nor products but is especially attuned to a company’s complexity as it is layered into IT systems year after year. CIOs are also at the heart of the digitization that helps to rethink complexity management. The CEO sits across both product and process but is often too busy. So what about making a group of people responsible for managing complexity, especially as it’s a companywide issue? The executive committee comes to mind, but it’s also hard to get a larger group like this to be accountable for both changing and running the company. The companies we studied chose various approaches. At ING Direct Spain, the COO is driving maximizing value from complexity, together with the CIO and in collaboration with the head of 80 MIT SLOAN MANAGEMENT REVIEW SUMMER 2014 products. Royal Philips has created and redesigned its executive committee to deal with rewarding versus unrewarded complexity. USAA has distributed the accountability on making decisions related to life events away from the executive committee to several governance forums that bring together product line and customer experience leaders. Whoever is leading a company’s search for the complexity sweet spot needs to lead a cultural change to embed complexity management into the company’s DNA — after first creating the vision and the simple set of metrics. The good news is that there are almost always quick wins, and the rewards are, well, sweet. Martin Mocker is a research scientist at the MIT Sloan School of Management’s Center for Information Systems Research in Cambridge, Massachusetts, as well as a professor of business administration and information systems at ESB Business School at Reutlingen University in Reutlingen, Germany. Peter Weill is senior research scientist and chair of MIT Sloan School of Management’s Center for Information Systems Research. Stephanie L. Woerner is a research scientist at MIT Sloan School of Management’s Center for Information Systems Research. Comment on this article at http://sloanreview.mit.edu/x/55418, or contact the authors at smrfeedback@mit.edu. REFERENCES 1. “Digitization” involves the creation and enriching of resources (products and processes) by adding IP addresses, indexing, tagging, automating, imaging and making them available online. 2. Oxford University Press defines “complex” as “consisting of many different and connected parts.” Herbert Simon defines a complex system as “one made up of a large number of parts that interact in a nonsimple way.” See “Complex,” 2014, www.oxforddictionaries.com; and H.A. Simon, “The Architecture of Complexity,” Proceedings of the American Philosophical Society 106, no. 6. (Dec. 12, 1962): 467-482. 3. These broad sources of business complexity mirror results seen in other studies. Recently, both IBM and the Economist Intelligence Unit asked executives about sources of complexity. In a global study, CEOs described four major forces creating business complexity: market factors, technological factors, macroeconomic factors and people skills. In an online survey and in a series of interviews, executives and industry experts highlighted rising customer expectations, increased regulations, rapid growth and number of geographies with operations as major sources of business complexity. See “Capitalizing on Complexity: Insights from the IBM 2010 Global Chief Executive Officer Study,” IBM, 2010; and C. Witchalls, “The Complexity Challenge: How Businesses Are Bearing Up,” Jan. 31, 2011, www.economistinsights.com. SLOANREVIEW.MIT.EDU 4. For example, S.A. Wilson and A. Perumal differentiate between good and bad complexity in “Waging War on Complexity Costs” (New York: McGraw-Hill, 2009). 15. D. Robertson and K. Ulrich, “Planning for Product Platforms,” Sloan Management Review 39, no. 4 (summer 1998): 19-31. 5. M. Mocker and J.W. Ross, “ING Direct Spain: Managing Increasing Complexity While Offering Simplicity,” working paper no. 390, MIT Sloan CISR, Cambridge, Massachusetts, June 2013. 16. J.W. Ross, P. Weill and D. Robertson, “Enterprise Architecture as Strategy: Creating a Foundation for Business Execution” (Boston, Massachusetts: Harvard Business Press, 2006). 6. M. Mocker, J.W. Ross and E. van Heck, “Transforming Royal Philips: Seeking Local Relevance While Leveraging Global Scale,” working paper no. 394, MIT Sloan CISR, Cambridge, Massachusetts, February 2014. 17. S.K. Sia, P. Weill and C. Soh, “DBS Bank: Developing Tech and Ops Capabilities for Pan-Asian Growth,” working paper no. 391, MIT Sloan CISR, Cambridge, Massachusetts, August 2013. 7. Being overwhelmed by product options and combinations is referred to as the “paradox of choice.” For a more in-depth description, see S.S. Iyengar and M.R. Lepper, “When Choice Is Demotivating: Can One Desire Too Much of a Good Thing?” Journal of Personality and Social Psychology 79, no. 6, (December 2000): 995-1006; and B. Schwartz, “More Isn’t Always Better,” Harvard Business Review 84, no. 6 (June 2006): 22. Whether high choice generally leads to lower sales has been questioned in B. Scheibehenne, R. Greifeneder and P.M. Todd, “Can There Ever Be Too Many Options? A Meta-Analytic Review of Choice Overload,” Journal of Consumer Research 37, no. 3 (October 2010): 409-425. 18. We used operating income as a percentage of revenue, adjusted for industry, as our measure of profitability. We averaged three years of company profitability and then subtracted the respective three-year industry average for profitability (to adjust for industry). 8. See P. Spenner and K. Freeman, “To Keep Your Customers, Keep It Simple,” Harvard Business Review 90, no. 5 (May 2012): 108-114. 9. For example, S. Collinson and M. Jay propose that there is a “tipping point” where good complexity turns into bad complexity, in “From Complexity to Simplicity: Unleash Your Organisation’s Potential” (New York: Palgrave Macmillan, 2012). 10. In fact, there are various proposals for measuring a “complexity factor” (J.L. Mariotti), “complexity quotient” (R. Ashkenas), “index of complicatedness” (Boston Consulting Group) or “Global Simplicity Index” (S. Collinson and M. Jay). Despite the many options to measure complexity, 70% of respondents in a 2011 KPMG survey stated that complexity is one of the biggest challenges their companies face. See J.L. Mariotti, “The Complexity Crisis” (Avon, Massachusetts: Adams Media, 2008); R. Ashkenas, “Simplicity-Minded Management,” Harvard Business Review 85, no. 12 (December 2007): 101-109; Y. Morieux, “Smart Rules: Six Ways to Get People to Solve Problems Without You,” Harvard Business Review 89, no. 9 (September 2011): 78-86; Collinson and Jay, “From Complexity to Simplicity”; and “Confronting Complexity: Research Findings and Insights,” KPMG International, May 2011, kpmg.com. 11. B. Upbin, “Why Hipmunk Is the World’s Best Travel Site,” June 29, 2012, www.forbes.com. 12. M. Mocker and J. Ross, “USAA: Capturing Value From Complexity,” working paper no. 389, MIT Sloan CISR, Cambridge, Massachusetts, March 2013. 13. “USAA, Kaiser Permanente, Amazon.com, Pandora, Costco, Wegmans, Apple, TracFone, Southwest and Westin Among the Highest in Customer Loyalty in the 2014 Satmetrix Net Promoter Benchmarks,” press release, Satmetrix, San Mateo, California, March 5, 2014. 14. “Driven: 2012 Report to Members,” (San Antonio, Texas: USAA). SLOANREVIEW.MIT.EDU 19. P. Weill and S.L. Woerner, “The Future of the CIO in a Digital Economy,” MIS Quarterly Executive 12, no. 2 (June 2013): 65-75. 20. See C. Anderson, “The Long Tail,” Wired, October 2004, 170-177; and more recently, E. Brynjolfsson, Y.J. Hu and D. Simester, “Goodbye Pareto Principle, Hello Long Tail: The Effect of Search Costs on the Concentration of Product Sales,” Management Science 57, no. 8 (August 2011): 1373-1386. 21. M.L. George and S.A. Wilson differentiate between “deliberate complexity” and “unmanaged proliferation” in companies’ product portfolios in “Conquering Complexity in Your Business” (New York: McGraw-Hill, 2004). 22. Customer Effort Score was introduced by M. Dixon, K. Freeman and N. Toman in “Stop Trying to Delight Your Customers,” Harvard Business Review 88, no. 7-8 (JulyAugust 2010): 116-122. Both CES and NPS correlate well with customer repeat buying. 23. For a more detailed description of this process, see P. Weill and S.L. Woerner, “Optimizing Your Digital Business Model,” MIT Sloan Management Review 54, no. 3 (spring 2013): 71-78. 24. ING Direct Spain’s NPS is 61, and the runner-up’s score is -1. See “Customer Loyalty in Retail Banking: Global Edition 2012,”2012, www.bain.com; and www.ingdirect.es. 25. Increasing cooperation and making conflicts explicit by closing feedback loops have been identified as critical to avoiding “complicatedness” in complex companies. See Morieux, “Smart Rules.” 26. See N.O. Fonstad, “Three Ways to Thrive,” INSEAD 2012 IT Enabled Leadership Report, INSEAD, 2012; R. Sarsam, “Bayer Material Science: Größter Umbau der Firmengeschichte,” April 27, 2012, www.cio.de; and M. Mocker and J.W. Ross, “Rethinking Business Complexity,” MIT Sloan CISR briefing 13, no. 2 (February 2013). 27. M. Mocker, J.W. Ross and P. Ciano, “DHL Express: Implementing and Maintaining a Global Process Standard,” working paper no. 393, MIT Sloan CISR, Cambridge, Massachusetts, January 2014. Reprint 55418. Copyright © Massachusetts Institute of Technology, 2014. All rights reserved. SUMMER 2014 MIT SLOAN MANAGEMENT REVIEW 81 MIT SL SLO OAN MANA MANAGEMEN GEMENT T REVIEW GL GLOBAL OBAL PDFs Reprints Permission to Copy Back Issues Articles published in MIT Sloan Management Review are copyrighted by the Massachusetts Institute of Technology unless otherwise speci@ed at the end of an article. MIT Sloan Management Review articles, permissions, and back issues can be purchased on our Web site: sloanreview.mit.edu or you may order through our Business Service Center (9 a.m.-5 p.m. ET) at the phone numbers listed below. Paper reprints are available in quantities of 250 or more. To reproduce or transmit one or more MIT Sloan Management Review articles by electronic or mechanical means (including photocopying or archiving in any information storage or retrieval system) requires written permission. To request permission, use our Web site: sloanreview.mit.edu or E-mail: smr-help@mit.edu Call (US and International):617-253-7170 Fax: 617-258-9739 Posting of full-text SMR articles on publicly accessible Internet sites is prohibited. To obtain permission to post articles on secure and/or passwordprotected intranet sites, e-mail your request to smr-help@mit.edu. Copyright © Massachusetts Institute of Technology, 2014. All rights reserved. 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Co-opetition has become a common practice which has gained traction since the three decades
across industries. However, executives are hesitant to cooperate with competitors towards a
common goal, turning a blind eye to several opportunities. In the article Rules of Co-opetition,
Adam Brandenburger and Barry Nalebuff outline the intricacies to co-opetition, providing a
practical framework for weighing the risks and rewards before cooperating with the rivals.
Sebastian et al. (2020) emphasized the importance of the digital ecosystem as a strategy to
generate value for the business by developing the right capabilities. A high-growth company is a
company that generates positive cash flow or synergy and needs to be supported by a digitally
connected ecosystem for creating value for all the related participants.

[Title Here, up to 12 Words, on One to Two Lines]
[Author Name(s), First M. Last, Omit Titles and Degrees]
[Institutional Affiliation(s)]

Author Note

Summary ............................................................................................................................. 3
Summary 1- The Rules of Co-opetition .......................................................................... 3
Summary 2- Driving Growth in Digital Ecosystems ...................................................... 5
Case Study .......................................................................................................................... 7
References ......................................................................................................................... 12

Summary 1- The Rules of Co-opetition
Co-opetition has become a common practice which has gained traction since the three
decades across industries. However, executives are hesitant to cooperate with competitors
towards a common goal, turning a blind eye to several opportunities. In the article Rules of Coopetition, Adam Brandenburger and Barry Nalebuff outline the intricacies to co-opetition,
providing a practical framework for weighing the risks and rewards before cooperating with the
rivals. This article introduces an approach for co-opetition with examples of practice from rivals
such as Apple and Samsung, Ford and GM, Google and Yahoo, as well as DHL and UPS. Rivals
cooperate to reduce common costs- saving costs, avoid duplication of effort, helping expand the
market for both the parties involved by creating value through integrating competitor features.
This can lead to positive investments and buy outs, attracting and cross selling customers. Coopetition also puts the cooperating rivals to get ahead of their common rivals by complementing
441/ their capabilities. The authors introduced a framework for action, recommending to start by
evaluating the possibility of non- cooperation and how it will influence the dynamics of the
industry. Analyzing the alternative actions and agreements that might be undertaken can help
provide an idea of cooperation without missing out on the current advantages. However, it's
difficult to act using alternative to deal as the rival companies also have multiple relationships
with other companies. Non-cooperation can make the company lose out on potential
opportunities for growth. Co-opetition can be a better choice than non-cooperation, as it does not
allow another rival company to take part in the deal affecting the competitive advantage.
Secondly, sharing “secret sauce” may help the companies in cooperation get ahead of their
common rivals but it also risks the current advantages for bo...

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