Operational and commercial excellence in firms and ecosystems

Defining a unique market position for mature software firms becomes crucial as they transition from prioritizing growth to emphasizing profitability.

Emerging and fast-growing companies embrace an innovation culture focusing on product and market development. Investing in growth and neglecting profitability is the usual way to plant the seed for long-term value creation in flourishing markets during this stage – when sound financing is provided.

Going forward, firms must take a leading position in their targeted markets, building on initial product market fit. This strategic assignment aims to keep growing at lower-level growth rates, as suggested by startup playbooks, but at a larger scale. At the same time, companies must establish commercial and operational excellence in business practices to foster profitability.

Take a leading position using network effects

Maintaining high growth rates becomes ever more demanding without using some kind of flywheel effect. Recurring revenues from XaaS business models are usually built in during a software firm’s very early stages. Sustainably thriving firms also often utilize the catalyzing effects of business networks to attain and enlarge their leading market position.

NFX, a venture capital fund specializing in network effects, estimates that since the wide availability of the internet in the middle of the 1990s, approximately 70 percent of the value in the technology sector has been created using network effects. Most of these business networks, including those led by the technology giants, are consumer-focused business models.

We expect network effects to increase in importance over the next years as ICT systems become more holistic to support broader vertical fields of applications and more comprehensive economic and social use cases. The forecasted demand for cyber-physical systems (CPS) indicates the importance of these networks.

Complex CPS consisting of multiple components from software, hardware, connectivity, and related services depend on well-functioning business networks with specialized providers, which will create significantly greater value than the sum of the single components.

Such B2B ecosystems are opportunities for maturing firms to establish a leading position in newly emerging market segments. The option for ICT providers to operate in different business ecosystems extends the network leverage and the need for dedicated ecosystem management simultaneously.

For example, suppose software components for specialized use cases are applied for different CPS serving specific vertical industries. In that case, the solution providers must permeate and address the demands of the underlying user industries and manage the diverse ecosystems serving these demands. Business networks clustered in that way allow firms to attain a unique and successful market positioning, building on the advancing ICT market opportunities.

Become excellent in what you do

Whatever model a firm chooses to attain profitable growth calls for a set of mature commercial and operational practices. There are various areas to be considered in that respect. Some specific areas are gaining importance in digital B2B ecosystems. Beyond corporate management, sales and marketing, operations, and financial control are equally in demand. Below are some examples to consider in establishing excellent business practices.

Developing ecosystems requires sound analysis and methodical frameworks to succeed. Defining the business model and developing ecosystem services is as critical as constructing the value network model. Management and operations will eventually  require attention in different areas. 

Business setup and steering

1. Design and management practice to promote participation and value creation for all stakeholders.
2. Accelerated service creation and commercialization for competitive time to market.
3. Goals and metrics to reflect the ecosystem structure and support value creation.

Technical infrastructure

1. Tools to facilitate interaction between the partners and between partners and customers.
2. Infrastructure designed to enable value network transparency and fast scaling.
3. Data security while opening systems to external partners.

Partner management

1. Mechanisms to realize network effects and preempt competition.
2. Partner orchestration to produce optimal output.
3. Appropriate monetization and compensation of partner and third-party products and services.