Q&A: How the IT sector adopts new multi-sided business models

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IT and Technology companies are under immense pressure. On one hand, they are considered the vanguard of digital with their technology and skills underpinning growth in many sectors. On the other hand, as mature and established companies, many face the full force of digital disruption. BearingPoint//Beyond recently commissioned research to understand how, as a catalyst for digital disruption, the sector is fairing in adopting the new multi-sided business models, platforms and technologies that will be so key to their future. 

Tell us a bit more about your research and why you decided to commission it?

According to Joy’s Law, “no matter who you are, most of the smartest people work for someone else.” As established companies in every sector attempt to digitally transform, this principle highlights one of the key challenges they are facing today – few innovations are solely created in-house. Instead, the complementary capabilities needed to succeed reside across an ecosystem of partners. with whom IT and Technology companies will need to work with collaboratively.

‘Tech giants’ like Google and Amazon understand this. To them, collaboration is key. Their business model leverages a digital business platform that forms the marketplace that bridges internal and external partner silo, to enable them to work together to create, trade, fulfil and monetise services in a completely automated way. By embracing partner collaboration in combination with a more experimental mindset, tech giants quickly launch a prototype and then use continuous customer feedback to perfect it, resulting in more successful innovation and a business model that is better at driving revenue growth.

Just like these guys, established IT and Technology companies must embrace this way of thinking. Sadly, to date, very little research has been conducted on the expectations of, and readiness to deploy, partner ecosystem business models amongst IT and Technology companies. This is exactly why we commissioned the report Partnership ecosystems: A narrowing window of opportunity for IT & Technology companies?

What is a partner ecosystem anyway?

With digital comes new types of business models. Partner ecosystems are a vital component of these as industries move away from fixed, linear value chains to a multi-sided approach which aims to solve real customer problems with innovative products, services and experiences. By ‘multi-sided’ we can mean joining up internal product silos, but also bringing them together with the external (current and future) producers/channel partners and customers.

An effective partner ecosystem solves customer problems through the exchange of ideas and combining the capabilities, products, services to create the perfect solution. It needs to be underpinned by operative processes and tools for efficiency and control but also to secure and share the benefits across the parties. As such, partner ecosystems help generate new ideas, drive innovation, expand offerings, increase reach and grow revenue. In this survey of the IT and Technology sector, business model innovation and introducing new products and services was the number one priority for companies’ own digital transformation initiatives.

Your report touches on the opportunities available to established IT and Technology companies – could you tell us more about those?

Digitalisation is enveloping every sector around the world, and at the catalyst for this change is technology. Yet, with minimal technology knowledge and skills internally, companies in these sectors have found themselves facing increasing disruption due an inability to react. As such, IT and Technology companies are the preferred partners for many. Considered the vanguard of this change, sectors including Automotive (63 per cent) and Telecoms (62 per cent) are looking to them for help with transforming their businesses. This opening of “white space” between old vertical industry boundaries is where the new opportunities lie for revenue growth.

Yet, as established IT and Technology companies face disruption themselves, many are not actively looking to take advantage of these new opportunities to partner with different vertical industries to create new solutions that combine product, content, data and compelling customer experiences. Today, only 18 per cent of IT and Technology companies’ partner with companies in other sectors.

Your research also mentions the challenges that established IT and Technology companies face in driving their digital strategies and building partner ecosystems. What are they?

Much like every other incumbent today, IT and Technology companies are struggling to digitally transform their core business whilst ‘keeping the lights on’ everywhere else - delivering short-term financial revenues that will fund future investment.

Ironically, technology is also a major challenge for IT and Technology companies today. Fifty-one per cent are struggling to overcome complex legacy technology, while 48 per cent noted difficulty in identifying the right technology to manage a partner ecosystem. It’s no wonder then that 60 per cent of established IT and Technology companies are currently partnering with businesses that look just like themselves.

What’s more, rather than investing in disruptive innovation, many IT & Technology companies choose to play safe (or so they think) by channelling money into sustaining innovation on their old products, adding yet more features and overshooting what customers need. This means that these companies are not focusing on disruptive use of new technologies, nor exposing themselves to start-ups stepping into that space and disrupting them.

IT and Technology companies must look to business model innovation and opportunities to work with different industries and partners to move into the “white space” to create disruptive new services and compelling solutions to perfectly solve genuine customer problems.

How can established IT and Technology companies better help themselves by adopting an ecosystem of partners?

While the sector may be overlooking some immediate opportunities, the good news is that IT and Technology companies are prepared for internal and external partnerships. 

Of all industries surveyed – including the automotive, banking, insurance, telecoms and transport - IT and Technology has the strongest consensus (69 per cent) on the need that it must develop partner ecosystems to drive innovation in the face of digital disruption. What’s more, nearly half (48 per cent) of IT and Technology companies already have a partner ecosystem in place. This more than any other sector surveyed, suggesting partner ecosystems are part of the sectors’ DNA – the challenge here is who chosen to be in it.

It’s only by partnering with companies across a range of sectors that established IT and Technology companies will be able to get the ideas, know-how and complementary capabilities to successfully target the ‘white space’ between ‘old’ verticals and acquire the capabilities, IP assets and knowledge needed to create the new innovations that will drive future revenues in these spaces. 

Angus Ward, CEO Digital Platform Solutions, BearingPoint
Image source: Shutterstock/violetkaipa