By: Anmar Kamalaldin / David Sjödin / Dusana Hullova / Vinit Parida
Orchestrator, dominator, complementor, and protector: these are four ecosystem strategies toward digitalization. In this case study, we look at an equipment supplier wanting to participate in digitalization initiatives of its industrial customers, so it must configure an ecosystem strategy to align with multiple partners.
Equipment suppliers are increasingly taking more responsibility for improving their industrial customers’ operations using digital technologies including the Internet of Things (IoT) and Artificial intelligence (AI). This trend has been described as digital servitization, which can be defined as “the transition toward smart product-service-software systems that enable value creation and capture through monitoring, control, optimization, and autonomous function” (Kohtamäki et al. 2019). Examples include the implementation of autonomous vehicles, digital site management and optimization solutions, and real-time production diagnostics for process optimization.
For instance, a large equipment supplier offers smart ventilation system to mining companies, enabling optimized ventilation of mines, through collaboration with suppliers of positioning solutions, sensors, fans, and advanced analytics, with the potential to reduce energy costs by more than 50%. The purpose of such digital solutions is to increase production efficiency, improve workers’ safety, and reduce environmental impacts. Hence, equipment suppliers play a vital role in supporting digitalization initiatives of their industrial customers. However, no single equipment supplier has all the necessary expertise, capabilities, or resources to deliver complex product-service-software systems, and there is often a need to align with an extended ecosystem of partners including other equipment suppliers, digitalization actors, and customers.
An ecosystem can be defined as “the alignment structure of the multilateral set of partners that need to interact in order for a focal value proposition to materialize” (Adner, 2017). This definition is most relevant in the context of digitalization, since multiple ecosystem actors need to align activities in order to arrive at focal value proposition for the customer. In many cases, an equipment supplier may have to cooperate with competing suppliers, creating tensions between cooperation and competition that must be balanced. Thus, it has to consciously configure the appropriate ecosystem strategy, i.e., “the way in which [an equipment supplier] approaches the alignment of partners and secures its role in a competitive ecosystem” (Adner, 2017). Numerous conditions can influence the decision on ecosystem strategy configuration, such as competition and cooperation opportunities, and supplier’s role in the ecosystem. Inability to configure an appropriate ecosystem strategy for the specific context may hinder profiting from digitalization opportunities.
To understand how equipment suppliers configure appropriate ecosystem strategies for digitalization, we conducted a study of six cases involving equipment suppliers and their ecosystem partners that are active in digitalization initiatives in the Swedish mining industry (full text: Kamalaldin et al. 2021). We identified four ecosystem strategies (orchestrator, dominator, complementor, and protector) and explored the conditions in which they are applicable. Figure 1 illustrates the core characteristics of the four strategies in the form of a matrix, which highlights how each strategy is based on the supplier’s role in the ecosystem (leader or follower) and the balance of cooperation and competition (cooperation dominated or competition dominated). We summarize our study’s insights in this article and we present a decision tree framework to guide equipment suppliers in configuring the appropriate ecosystem strategy best suited to the industrial customer’s particular context.
Orchestrator Strategy
The orchestrator strategy focuses on taking a leadership role through coordinating collaboration among multiple complementary ecosystem actors for the purpose of increased value creation. This strategy considers the ecosystem to be ‘more than the sum of its parts.’ Three key tactics feed into this strategy:
- Establish an open digital architecture for joint value creation. Through this, other ecosystem actors are able to connect their individual digital solutions, and the orchestrator coordinates their joint efforts in seeking to realize higher customer value.
- Facilitate and incentivize explorative cooperation among ecosystem actors to enable new value propositions. For example, this can be achieved by providing open access to data and infrastructure for IoT applications development.
- Coordinate long-lasting collaboration between ecosystem actors with different capabilities to ensure successful commercialization. Naturally, new propositions have little or no value if commercialization is not achieved.
An example from our study was of an equipment supplier that has capabilities in delivering autonomous solutions, besides strong network and reputation in the mining sector. These enabled the supplier to take a leader role in driving a digitalization initiative for a mining company, focused on mine drilling and automatic tensioning. It established an open digital architecture to openly exchange data between ecosystem actors and coordinate collaboration, following a cooperation-dominated approach. It incentivized other actors to develop solutions on its digital architecture through reduced charges.
Dominator Strategy
Another strategy applied by equipment suppliers is to opt for being a dominator, focusing on enforcing its role as ecosystem leader and making other ecosystem actors integrate into its digital architecture. Three key tactics are employed with this strategy:
- Set a closed digital architecture and pursue selective value co-creation of the value proposition. So, other ecosystem actors are allowed to take part selectively and only to a measured extent.
- Take a central role in optimizing existing processes and directing other ecosystem actors to exclusively work with the dominator. This tends to be facilitated by a long-standing relationship between the industrial customer and the dominator, who may have already been active in digitalization efforts.
- Drive restricted cooperation with ecosystem actors and enforce the dominator’s standards. Other actors have no choice but to comply with these standards and integrate into the dominator’s digital architecture if they are to take partake in the value proposition.
An example was of an equipment supplier which has expertise in control systems, long-standing relationship with the customer in previous projects, and strong market reputation. This enabled it to take the leader role in driving digital mine ventilation control initiative for the mining company. It undertook a competition-dominated approach, as it enforced its control system and standards, and actors consolidated their apps and systems to it. Ecosystem actors had to compete to take assignments.
Complementor Strategy
Instead of taking a leader role, an equipment supplier may be a complementor in the ecosystem, adopting a follower role and seeking to complement other offerings in order to create higher value. This strategy is built on three main tactics:
- Support unique technologies to establish an open digital architecture approach for the ecosystem leader. For example, this can be through providing the technical and operational support, and by sharing data to address customer’s requirements.
- Establish a close connection with the ecosystem leader to increase value creation. This close relationships that the complementor seeks is fostered by offering its digital expertise to supplement the leader’s experience.
- Partner with different ecosystem actors in a supportive manner to combine each other’s resources in order to obtain a “piece of the bigger pie.” The complementor acknowledges that value creation and capture are strengthened if their capabilities and resources are put together with other actors.
We found an example of an equipment supplier that had some technological capabilities, but lacked competence in analytics for optimizing site’s operations, and hence, it accepted a follower role. It integrated its equipment into the leader’s fleet management system, which connected the equipment of all sites, with open exchange of operational data to utilize it for analytics and optimization, following a cooperation-dominated approach.
Protector Strategy
Alternatively, the equipment supplier may opt for the strategy of being a protector. In this case, the supplier tends to be “stuck in the middle” and has to accept a follower role, as it is unable to take a leading role and unwilling to openly share business knowledge for fear of losing its competitive position. Three key tactics are associated with this strategy:
- Pursue limited integration into the digital architecture of the ecosystem leader due to lacking the full array of competence needed for systems integration. The protector acknowledges that it is not feasible to pursue a vision of setting up their own closed digital architecture due to lack of capabilities.
- Seek limited or selective cooperation with other ecosystem actors in order to protect key resources due to high internal and external uncertainty. For example, the protector may not want to share knowledge of a certain asset with other competing suppliers.
- Search for opportunities to take a bigger role involving low cooperation with other ecosystem actors. Thus, the protector draws a line with others, accepting only assignments that do not “cross the line.”
An example from our study was of an equipment supplier that lacked system integration competences and had relatively new relationships with the customer. This made it take a follower role with limited integration to the digital architecture of the ecosystem leader. It undertook a competition-dominated approach because it was unwilling to openly share data or business knowledge, preferring to protect its asset knowledge for fear of losing competitive position. Nonetheless, it continued to search for opportunities to take on a bigger role and develop its capabilities.
A Framework for Configuring Ecosystem Strategies
While we identified four archetypical ecosystem strategies, we propose a contingency perspective and present a decision tree framework (Figure 2) to aid equipment suppliers in configuring the appropriate ecosystem strategy based on assessing their industrial customer’s context. The framework includes three steps focused on:
- Overall assessment of the industrial customer’s context
- Assessing the appropriate role in the ecosystem (leader or follower)
- Assessing the appropriate balance of cooperation and competition (cooperation-dominated or competition dominated).
We hope that our framework and insights can guide equipment suppliers to consciously configure the appropriate ecosystem strategy when approaching digitalization initiatives of their industrial customers. By identifying the appropriate ecosystem strategy, the supplier can better understand its appropriate role in relation to other actors and, hence, be better able to organize value creation and delivery in order to secure the benefits of digitalization. Furthermore, our findings provide important lessons concerning the need for suppliers to simultaneously compete and cooperate. Competition is often a driver of innovation and an enabler of finding novel configurations of collaborating actors in digitalization initiatives. Acknowledging this reality would help managers of equipment suppliers to keep an open mind concerning cooperation with competitors and, consequently, to make decisions regarding the balance between competition and cooperation, and between knowledge sharing and knowledge protection.
Footnote
This research was conducted within DigIn Center (Digital Innovation of Business Models in Industrial Ecosystems) at Luleå University of Technology; a research center funded by Vinnova, Formas, Piia, Interreg Nord, and Kamprad Stiftelsen. DigIn Center conducts research with leading researchers from across Europe in close collaboration with over 50 partner companies in Sweden and internationally.
About the Authors
Anmar Kamalaldin
Anmar Kamalaldin received the Ph.D. degree in entrepreneurship and innovation from Luleå University of Technology, Sweden, in 2021. He is currently a researcher at the same university, and his research focuses on B2B relationships in digital servitization. His research interests include innovation ecosystems, sustainable business models, and sustainability education.
Email: anmar.kamalaldin@ltu.se
David Sjödin
David Sjödin received the Ph.D. degree in entrepreneurship and innovation from Luleå University of Technology, Sweden, in 2013. He is currently an associate professor at the same university. He is also affiliated with the University of South-Eastern Norway. His research works questions how companies can change their business to profit from digitalization through servitization and business model innovation in collaboration with leading Swedish companies and regularly consults the industry.
Email: david.sjodin@ltu.se
Dusana Hullova
Dusana Hullova received the Ph.D. degree in product and organizational innovation management from University of Portsmouth, UK, in 2016. She is currently a senior lecturer in business strategy at University of Roehampton, UK. Her research focuses on studying the impact of the changing economic paradigm on firms and broader ecosystems. She investigates innovative and disruptive companies, their business models, organizational processes, and strategies and the impact they have on the industries.
Email: dusana.hullova@gmail.com
Vinit Parida
Vinit Parida received the Ph.D. degree in entrepreneurship from Luleå University of Technology, Sweden, in 2010. He is currently the chaired professor of entrepreneurship and innovation at the same university. He is also affiliated with the University of South-Eastern Norway. His research interests include how companies can evolve their business to higher profitability with digitalization through servitization and business model innovation in collaboration with leading companies in different industries.
Email: vinit.parida@ltu.se
Featured image via Pixabay.