Manuel Audi and Florian Weihe on minimum viable ecosystems, the central meaning of purpose
and why technology is a facilitating factor for the success of ecosystems.
Developing Ecosystems
Mr. Audi, Mr. Weihe, why are more and more companies looking at the concept of ecosystems? What is new about this and what potential can be identified?
Florian Weihe: Many companies have understood that the reality of their customers' lives is changing. The world is becoming more and more networked. There are fewer and fewer hermetically closed areas but increasingly more interfaces. Accordingly, there are increasing numbers of configurations in which structures, which are characterized by strict industry boundaries, no longer fit. We have to increasingly address the question of where and how we will reach our customers the day after tomorrow. These questions are also relevant for the insurance industry in which we are intensely involved. Companies must be where the reality of their customers' lives is – in networked, cross-industry spaces. Otherwise, you lose the upcoming generation.
The term ecosystems has been established for these spaces, but it is vague and imprecise.
Florian Weihe: That is correct. Today, we often lack the categories to deal with ecosystems in depth and to define appropriate strategies. Is having your own ecosystem the silver bullet? What role should I play in an ecosystem? Do I want to be the orchestrator of the system? Many companies tend to look at a new paradigm with their usual perspective: I have to establish, orchestrate and control the ecosystem. But that's already moving in the wrong direction. Because you cannot build an ecosystem. It comes into being. You can sow, tend and nurture an ecosystem. But you cannot build it from scratch or control it – trying to control ecosystems prevents their development.
Manuel Audi: We understand ecosystems as networks of actors that provide their services in an integrated manner, thereby creating a new offering for a common market. It is essential that the customer benefits achieved through synergies and network effects exceed the sum of the individual services.
That's another reason why it's a mistake to think of ecosystems in terms of technology. Yes, modern ecosystems always have digital components. And networking within ecosystems is heavily supported by digitization; technology is a very central enabler. But before the question of technology is asked, business and market questions must first be answered.
Many companies have in mind a technological platform that orchestrates supply and demand, a marketplace with a technology-driven coordination mechanism. What is essential here is to create the supply that generates demand. If you start with the attitude that you first need a technical platform to orchestrate the players, the approach is dead from the outset. This way, you may establish a network, an infrastructure as a market place, whatever. But not an ecosystem.
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Manuel Audi and Florian Weihe on minimum viable ecosystems, the central meaning of purpose
and why technology is a facilitating factor for the success of ecosystems.
Developing Ecosystems
Mr. Audi, Mr. Weihe, why are more and more companies looking at the concept of ecosystems? What is new about this and what potential can be identified?
Florian Weihe: Many companies have understood that the reality of their customers' lives is changing. The world is becoming more and more networked. There are fewer and fewer hermetically closed areas but increasingly more interfaces. Accordingly, there are increasing numbers of configurations in which structures, which are characterized by strict industry boundaries, no longer fit. We have to increasingly address the question of where and how we will reach our customers the day after tomorrow. These questions are also relevant for the insurance industry in which we are intensely involved. Companies must be where the reality of their customers' lives is – in networked, cross-industry spaces. Otherwise, you lose the upcoming generation.
The term ecosystems has been established for these spaces, but it is vague and imprecise.
Florian Weihe: That is correct. Today, we often lack the categories to deal with ecosystems in depth and to define appropriate strategies. Is having your own ecosystem the silver bullet? What role should I play in an ecosystem? Do I want to be the orchestrator of the system? Many companies tend to look at a new paradigm with their usual perspective: I have to establish, orchestrate and control the ecosystem. But that's already moving in the wrong direction. Because you cannot build an ecosystem. It comes into being. You can sow, tend and nurture an ecosystem. But you cannot build it from scratch or control it – trying to control ecosystems prevents their development.
Manuel Audi: We understand ecosystems as networks of actors that provide their services in an integrated manner, thereby creating a new offering for a common market. It is essential that the customer benefits achieved through synergies and network effects exceed the sum of the individual services.
That's another reason why it's a mistake to think of ecosystems in terms of technology. Yes, modern ecosystems always have digital components. And networking within ecosystems is heavily supported by digitization; technology is a very central enabler. But before the question of technology is asked, business and market questions must first be answered.
Many companies have in mind a technological platform that orchestrates supply and demand, a marketplace with a technology-driven coordination mechanism. What is essential here is to create the supply that generates demand. If you start with the attitude that you first need a technical platform to orchestrate the players, the approach is dead from the outset. This way, you may establish a network, an infrastructure as a market place, whatever. But not an ecosystem.
"Companies must be where the reality of their customers' lives is."
However, being present in the reality of life, in the everyday life of customers is not a matter of course for all industries.
Manuel Audi: That's certainly true. Insurance, too, is usually not relevant to everyday life, apart from health insurance, to stay with the example. And that's why I don't think it's the smartest strategy to try to force the issue - to put it casually - through a big bang, a battle of expertise and materials. We recommend a subtler approach to the topic. And you may achieve much more this way.
This is precisely the idea behind the minimum viable ecosystem (MVE). Networks are always complex. An MVE is a low-complexity ecosystem that simultaneously fulfills all the necessary framework conditions to grow sustainably.
"Technology is a central enabler. But before the question of technology is asked, business and market questions must first be answered."
Establishing Minimum Viable Ecosystems
What are the requirements and what characterizes a minimum viable ecosystem in general?
Florian Weihe: The requirements are compatibility, openness, market potential and interconnectivity so that the system can further develop and become a large and vital ecosystem. Supported by the requirements, a three-way configuration is established with two suppliers and a customer in which a new value proposition is created for the customer.
What exactly does this mean? The services provided must be compatible and must be able to be combined to create meaningful new solutions. For example, when is it beneficial to combine an insurance product with an additional service? There also needs to be a certain market potential for the system to grow.
Openness is both a technological issue and a mindset issue for the companies and people involved. Ecosystems can be modeled, with graph theory providing the scientific basis. You can thus simulate interconnected business cases that reflect new players and their influence, for example. This way both direct and indirect network effects are included in the results.
"More important than the roles in the MVE is the question of whether a viable business case can be defined."
Does the question of roles already emerge for MVE?
Manuel Audi: The question is often asked, but in our view it is rather counterproductive in the initial phase. It should be more a matter of being prepared to take the first step as an initiator and source of impetus and to find the right allies. The roles will develop in due course. This essentially depends on many factors, such as the willingness to invest, reputation and assets invested. More important than the question of roles is whether a viable business case can be defined. An MVE must be potentially attractive or lucrative for all stakeholders, otherwise there is no point.
How can one imagine the genesis of such a system in concrete terms? How is such a process developed?
Florian Weihe: We can run through this using the example of pet owner liability insurance. Let's assume that this is the product that an insurer wants to introduce into the new ecosystem. This opens up an interesting potential because products and target groups in the field of dog ownership are very flexible, there is an immense market potential and you can assume a basic openness of the actors.
Above all, however, animal welfare is the common purpose shared by all suppliers. And this purpose also defines a non-movable boundary for participation in this ecosystem: Those who don't share this mindset and simply do "something with dogs" are not compatible.
There is no interconnection yet, at least not technologically. But there is, for example, a dog app that warns you about poisoned bait, or tells you where to find vets and dog runs nearby. The insurance, the dog app and the customer are already the necessary elements for an MVE. The insurance can be placed in the app. The next step could be to add a GPS collar. An insurer could make an annex product agreement here. Then, a complete stranger to the industry could enter the ecosystem – for example a hotel chain, which wants to position itself as being particularly dog-friendly and can be found using the corresponding app. And this hotel, could, in turn, enter into an agreement with a dog food manufacturer. Now, we are in a vital ecosystem and the initiator, the insurer, is now much closer to the reality of life and values of its customers and is a beneficiary in a network of multipliers.
"Purpose orchestrates a decentralized ecosystem as the “invisible hand”."
Purpose in MVE
In this example, purpose plays a key role. But how does it come into being? Can the initiator simply set it?
Manuel Audi: What you describe works in controlled, hierarchical networks. In an ecosystem without a distinct dominant actor, this purpose serves as a kit, a common basis, as governance, often unspoken. So it is more about recognizing purpose and less about deterministically setting it. Purpose is the regulating element in a decentralized ecosystem. If you will, the system is orchestrated by purpose as the “invisible hand”.
Are competitive players also conceivable in an MVE? For example, two insurers that share the same purpose?
Manuel Audi: Integrating competitors makes little sense at least in the start-up phase. In mathematical terms, each new player must increase the total value of an ecosystem and not reduce it. Competitive offerings create a cannibalization effect that is rather dysfunctional from the perspective of the overall system in the start-up phase. The offerings should be complementary and stimulate each other to create something new.
We therefore do not consider two insurer companies with two similar insurance products as actors in an MVE to be beneficial. However, it may be beneficial to align insurers with a complementary offering, such as a combination of life, health and non-life insurance, to a specific target group and a specific purpose. At later stages of development, competition with similar services could be included - because a better alternative offering helps to keep the ecosystem competitive.
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