Partnerships and Digital Maturity
Leaders across all maturity levels recognize the importance of partnerships to innovation, but only at the maturing level are organisations consistently cultivating them.
(Percentage of respondents who agree or strongly agree)
This gap does not exist because less mature companies fail to recognize the importance of partnerships to innovation. Nearly 80% of respondents across all maturity groups consider partnerships vital to their innovation efforts. Of course, as any frustrated dieter can tell you, believing something and acting on that belief are two different things. Early-stage companies, in particular, are less willing to commit resources to innovation. As we saw in our opening example, creating an innovation accelerator requires significant executive time commitments and resources for scaling successful innovation projects with external partners.
Digitally maturing companies also take a different approach to their partnerships, compared with their less mature counterparts. They use partnerships to support multiple dimensions of the innovation process and emphasize wide-ranging, capability-building ecosystems that address both short-term and long-term objectives.
Part of the reason for this emphasis, says Youngjin Yoo, the Elizabeth M., and William C. Treuhaft Professor of Entrepreneurship and professor of information systems at the Weatherhead School of Management, Case Western Reserve University in Cleveland, is that ecosystems enable organisations to operate more flexibly, providing access to more collaborators and potential innovations.
The term ecosystem is rooted in ecology and the work of early 20th-century botanist Arthur Tansley. It originally denoted a community of biological, chemical, and physical components that function as a unit; a beaver pond is an oft-used example. In the business context, it has come to mean a group of companies that cooperate to achieve shared goals, with or without formal ties. While a digital ecosystem4 can include traditional partnerships and consortia, the term covers a wide array of relationships with external organisations and people. These include academic institutions, government entities, non-profits, start-ups, customers, and even competitors (to name a few).
An infographic from the 2019 Digital Business Global Study and Research Project explores distinctive characteristics of innovation in digitally maturing organisations.
Interviews with corporate executives revealed several ways that ecosystems feed innovation. Two stand out. Integrating platform companies is one. Platform companies often end up as the hubs in innovation ecosystems, notes Geoffrey Parker, professor of engineering at Dartmouth College and co-author of Platform Revolution. Platform companies, like Amazon and PayPal, are at least partly “open, and they often have default contracts that allow anybody to participate,” says Parker. That openness attracts “value-added partners that you don’t have to pre-identify and you don’t necessarily have to vet.” In contrast, old-school partnerships typically imply “a lot of due diligence, potentially contracts, cross-ownership, and a long-term relationship.” Dave Otten, CEO, and founder of online video software platform JW Player adds: “A platform can be part of the ecosystem. And a platform can enable a broader ecosystem. If you look at a platform company like YouTube, they are also a big part of the video ecosystem.”
Ecosystems also contribute to innovation through their collective access to diverse customers. In online video software development and distribution, Otten says, technologies like JW Player come together with advertising technology companies and advertising partnerships. All of them, along with the audiences they gather from across the broader web, form a collective ecosystem. Their combined understanding of audience feedback and behavior can play a critical role in the innovation process.
Outlook on Careers
Jeffrey Pfeffer and Robert Sutton, both Stanford Graduate School of Business professors, famously coined the term the knowing-doing gap to encapsulate why what managers do differs from what corporate best practices and management science say they should do. “There is a striking discrepancy between what we know about leadership and what we do in many of the settings in which leadership is presumably taught and learned,” they wrote:
We see this same gap in this year’s report: Executives and managers in less digitally mature organisations are aware of the importance of digital innovation — but also concede that their companies aren’t doing enough.
The gap is less pronounced as it pertains to people’s careers and their expectations about their professional futures. Respondents to this year’s survey expect that they’ll have to “personally innovate” by updating their skills or changing careers and have pondered what that might mean for them. Overall, 81% said they spend time thinking about what their career will look like in 10 years and what they need to do to prepare; only 19% of respondents believe they’ll be on the same career path at the end of that period as they are now.
It may be human nature to shirk from change and the uncertainty it brings. But people who see themselves as innovators embrace it, with 70% of this year’s respondents saying their careers will improve in the next 10 years, thanks to digital trends.
This optimism isn’t simply driven by youth. Across age groups, a majority of managers and executives expect that their careers will improve as a result of digital trends. The youngest cohort — those ages 22 to 27 — agree at the highest rate: 80%. But the oldest cohort that is still likely to be working in a decade — those ages 53 to 59 — do not differ much in their responses, with 67% of them expressing the same sentiment.
Distinct ecosystems contribute to different steps in the innovation process, especially for platform companies. On the basis of his research on digital platforms, Yoo observes that platforms comprise multiple layers, each of which can be managed by different participants. Accordingly, value creation in a platform is not linear: Organisations choose to participate in one or more layers of activity, providing complementary resources where appropriate or allowing others to provide them (car owners supply the cars in Uber’s ride-sharing platform, for example). Layers can involve a variety of offerings, including content, services, networks, or devices. “You could say,” Yoo adds, “that the company at the centre of an ecosystem builds the beaver dam, and that, in turn, creates a pond that attracts other creatures, who also thrive there. The key strategic question is which strategic layer will the platform company control and which ones will it open to others?”
Working with external partners presents difficulties, even to digitally maturing companies. We asked survey respondents to share their biggest challenges with leveraging partnerships and networks to increase innovation. Nearly half (46%) of all respondents cite challenges related to creating a collaborative culture and to aligning goals across an ecosystem. These results are consistent regardless of maturity level. When it comes to culture, companies struggle with employees and leaders who aren’t naturally inclined to collaborate with external partners.
This problem deepens when trying to develop goals that are acceptable to all parties within the network. JW Player’s Otten acknowledges the challenge but advises companies to “balance the need to hold on to the core of your culture, while letting go of the things you need to in order to grow up.” When companies are navigating these issues, Amy Smith, senior vice president of product at Techstars, notes that “executive leadership is really, really important.” Leaders ultimately create credibility around enterprise strategy that facilitates participation in the ecosystem.
Reference Resource: MIT Sloan