Previously published in The Digital CFO Magazine
There have been many boardroom debates about the right approach to building out a technology architecture. Some IT teams prefer the consistency of working with a single vendor to build out a vertically integrated, ‘wall-to-wall’ architecture. This can reduce costs – though not always over the long term – but sacrifice flexibility and depth of capability.
Other organizations have shifted to a ‘best-of-breed’ or composable approach that utilizes solutions from multiple vendors to gain the best capabilities available. But simply having many, high-quality technology solutions is not enough. They have to work in concert with each other to increase the value they add to their customers.
The technology ecosystem concept takes the best-of-breed approach one step further.
Thanks to cloud computing, open source, and other innovations, technology vendors are building out ecosystems that are greater than the sum of their parts and benefit both customers and the vendors themselves. As a recent Forbes article eloquently summarized, “The walled garden of monolithic, enterprise offerings is simply too siloed in this environment of broad choices. The future of business belongs to ecosystems.”
Defining a technology ecosystem
The definition of a technology ecosystem can vary slightly but they all include the notion of an interconnected, interdependent, integrated network. McKinsey defines it as a model “which is generally built around a larger set of key providers, each focusing on a specific domain or product and all of them functioning in concert… It puts a premium on interoperability between providers and rests on collective accountability. When effectively implemented, it gives the business access to a greater range of capabilities and plug-and-play flexibility.”
While technology ecosystems could be considered a new and disruptive innovation just a few years ago, they have become more widely accepted and their popularity continues to grow. Early day discomfort for vendors who were not only accustomed to working in silos, but also in competition with one another has alleviated, and the opportunity to come together to offer a better solution is top priority. While ecosystems have changed the competitive landscape, they have also improved technological advancements as a whole.
By utilizing open-source approaches or integration with other vendors, ecosystems are enabling companies to leverage existing technologies faster and preventing vendors from having to provide expertise in areas outside their core competencies. This ultimately encourages quicker advancements in technology, drives higher quality standards and supports the growth of both existing and emerging industries, as we have seen with the rise of Fintech and Insurtech. For example, according to an Accenture 2017 report, 96% of insurers reported a belief that digital ecosystems are impacting the insurance industry. Flash forward to a 2021 survey and 54% of insurers reported actively seeking ecosystems—the highest of all the industries surveyed.
Ecosystems are also a product of the shift over the last 5-10 years in the role technology plays in an organization. In 2017, a McKinsey survey on the role of technology found that 48% of respondents selected ‘Scaling down costs’ as one of their top three digital priorities. In 2020, a follow-up survey5 found that just 10% of respondents identified cost savings as a top three digital priority. Customers are increasingly expecting their technology solutions to not just reduce costs but to drive revenue and competitive advantages.
How ecosystems provide customer value
Technology ecosystems provide vendors with the ability to go to market faster, enhance the capabilities offered by their solutions, and create innovative new business models, powered by the cloud. So, what’s in it for customers?
Speed to Value
In the days of single vendor stacks, the pressure was on that vendor to deliver any capability the business might need or risk jeopardizing their position within the customer. Not surprisingly, this could result in long wait times and sub-par functionality if the vendor was operating outside its core competencies.
With a technology ecosystem, customers no longer have to wait for a single vendor to develop new or niche capabilities. Instead, a technology ecosystem can provide quicker access to capabilities that may be too expensive or time-consuming for a single vendor to build internally. Implementation times are reduced, return on investment can be recouped faster and customers gain access to the best technologies, sooner.
“In the days of single vendor stacks, the pressure was on that vendor to deliver any capability the business might need or risk jeopardizing their position within the customer. Not surprisingly, this could result in long wait times and sub-par functionality if the vendor was operating outside its core competencies.”
Access to emerging technologies that are not an afterthought
In the typical modernization roadmap, organizations often leave the implementation of emerging technologies like Artificial Intelligence, Machine Learning or other analytics tools until the end. This process can result in these technologies feeling like bolt-ons rather than an integrated piece of the IT architecture. By taking an ecosystem approach, organizations can ensure that emerging technologies have already been thoughtfully integrated into the holistic solution which can decrease wait times and increase efficiency and performance.
It’s natural that technology providers will typically be focused on a specific area of the business. CRM Software providers provide solutions for sales and marketing teams. HR solution providers typically focus capabilities on compensation, administrative and talent management solutions to name a few. And finance and accounting software businesses may focus on finance transformation, compliance and revenue management solutions. But this can create a siloed tech stack that prevents innovation and data sharing across functional areas.
Technology ecosystems can encourage cross-functional collaboration and data sharing, unlocking new use cases. The customer benefits from the integration of software solutions across the business which can lead to enhanced performance and business insights.
A huge benefit of technology ecosystems has to do with their flexibility and modular design. A customer benefits from the stable, trusted integration between modules with the flexibility to select what they need for their business. A Boston Consulting Group article highlights, “Ecosystems are particularly attractive when consumers’ needs and tastes are heterogeneous or unpredictable or when technological trajectories are dynamic or uncertain.” This defines most businesses, especially as the pace of change – both external market factors and internal business model changes – seems to get increasingly faster.
Today, organizations demand more from their technology solutions without the need for long, drawn out modernization programs. Business units are demanding better UI, plug-and-play capabilities, and a simple way to access technology. Technology ecosystems can give companies the technology value and experience they want while still providing vendors with a profitable solution that expands their market reach.