The CEO Imperative: Are you mastering your ecosystem strategy?

The right use case, partnerships and IT infrastructure are drivers of success in business partner ecosystems.

If you want to go further, go together.

Providing the complex products and services customers want at the speed they expect has become increasingly difficult for any single company, especially for offerings based on advanced technologies such as generative artificial intelligence (GenAI). To compensate, more enterprises are creating partner ecosystems, networks of relationships with partners whose strengths and expertise complement their own.

“The outcome the customer gets is more than they would if they were dealing with us independently,” says Denise Millard, Chief Partner Officer at Dell Technologies, which created a partner ecosystem as part of evolving from selling hardware to selling technology services that support clients’ business transformations.

Companies such as Dell realize the tremendous value a partner ecosystem helps them deliver to customers and stakeholders more broadly. Successful collaborations drive double-digit revenue growth and incremental earnings while improving innovation and speed to market. But despite ecosystems’ widely recognized value, far too many fall short.

Seventy-seven percent of business leaders surveyed struggle with issues related to their ecosystem strategy or planning. A major cause of poor performance is attempting to build and operate a partner ecosystem as an extension of a related function, like channel management, supply chain management or business development. Failure to do so can lead to missed opportunities, wasted time and eroded trust in the market.

To understand how companies can overcome the challenges to develop an effective partner ecosystem strategy, we surveyed over 500 ecosystem leaders and conducted in-depth interviews. Our findings identified three key pillars that serve as the foundation for a successful, scalable partner ecosystem:

• The right use case — a joint innovation that fills a need in the market, blends digital and physical elements and includes clear KPIs to track value creation.
• The right partners and business model — a network of qualified contributors with complementary capabilities and strengths structured so each party shares equitably in value and risk.
• The right IT infrastructure — integration of cloud, automation and cybersecurity to support the use case, enable trusted collaboration and mitigate risk.

The three pillars may seem like common sense moves but have proven to be tricky to master. To make the most of them, leaders must elevate partner ecosystems to the level of a primary business function and implement new processes, ways of thinking and technology architectures to support them. To ensure partner ecosystems succeed, leaders also must implement long-term planning and continuously monitor performance.

The CEO Imperative series provides critical answers and actions to help leaders reframe the future of their organizations. In this article, we demonstrate how leaders must stand up a fully empowered and funded Partner Ecosystem function within their corporate structure to obtain real value.

Ecosystem value and challenges

Partner ecosystem business models go beyond typical supplier and channel relationships. Partners team up to create a product or service or to market to a common set of customers. By working together, companies produce more value than they could on their own and share in the value they generate. A lead partner or “orchestrator” coordinates activities, but all participants’ brands are represented. Partner ecosystem business models take many forms depending on the partners’ industry, needs and goals. Successful partner ecosystems include online marketplaces, airline loyalty programs in which competitors in different geographies join forces and value integrations such as with EY Nexus for Insurance, a solution that helps insurers launch innovative new products, brands and marketplaces at speed.

Previous EY research found that successful ecosystems contribute 16.2% incremental revenue growth, 16.5% incremental earnings and 14.6% cost reduction.

The higher value could explain why, according to ecosystem leaders we surveyed, 61% say their organizations are increasing ecosystems spending through 2024.

As companies integrate GenAI into more operations and offerings, it’s giving them more incentive to create partner ecosystems to gain access to technology and talent with desirable, hard-to-find skills. Two-thirds of CEOs also report seeing a sharp increase in companies claiming to be experienced in AI, and as a result, it’s becoming harder to identify credible partners for AI-based ventures.

Still, developing an effective partner ecosystem strategy and capability remains a challenge, and companies struggle with multiple strategic and operational issues.

Business leaders who haven’t launched a partner ecosystem before can fail if they don’t establish the proper foundation for success, or without proper guidance from those who have. Even leaders with partner ecosystem experience can stumble trying to scale their efforts. In the following section, we explain common missteps and how leaders in various situations can apply the three pillars of successful partner ecosystems to resolve them.

You might think having the right partners would be the first pillar of a successful ecosystem. But to pick the right partners, you need to know what value proposition you want those partners to help you build. Fail to do that and you end up with a product or service that doesn’t fill a need, innovate or create value. In addition, you may launch a use case that shows promise, but if you don’t adequately track its performance, it could develop issues that grow into bigger problems.

Successful use cases have several common elements. They:

• Allow for joint innovation and monetization: When a company decides to launch a value proposition enabled by an ecosystem, leaders may opt to build a business model that is more transactional in nature because it requires less commitment than building a model that requires deep collaboration, such as a joint venture. Although that may be true, transactional models also create significantly less value. Ecosystem leaders we talked to said their top organizational considerations are having a business or revenue model that blends the partners’ expertise into innovative offerings and creating something that is financially sustainable and scalable. The most popular ecosystem business models emphasize deep collaboration, including hybrid, joint ventures and marketplaces.

• Offer a blended digital and physical experience: Companies are moving from selling a product or service to selling an outcome. Health care companies that once offered medical procedures now market their ability to provide patients with a wellness journey. Automotive companies are evolving from manufacturing vehicles to providing mobility in a range of forms, from making a car to selling flexible transportation services that get people from point A to point B as a driver or passenger. Successful partner ecosystem use cases combine the physical and digital experiences these examples feature.

The top three areas where ecosystems mix physical and digital are customer experiences (46%), products and services (46%) and employee experiences (40%).

• Have clear KPIs: Well-conceived, agreed-upon metrics help ecosystem partners track how a use case performs and identify potential problems. “When designing a partner program, you need to start by understanding what’s most important to your partners and build the program around that,” says Kate Woolley, IBM Ecosystem General Manager. “It’s why we anchored on simplicity and transparency when we introduced Partner Plus last year, providing partners a clear view of benefits, resources and paths to success. Partners want to know you’re behind them, supporting their growth and prioritizing their success.”

Among leaders interviewed, there was overwhelming agreement on the need for a unified definition of success. “Coming up with common metrics or goals for commercial opportunities can be challenging because different organizations measure in different ways,” said one leader of a Standards organization. “Think carefully about what’s in it for the partners,” said the leader regarding use case metrics. “They’re all fighting for their own commercial gain, so you need to develop rules early on.”

The right partners and business model

Finding suitable partners and selecting an appropriate business model is the second pillar of ecosystem success. Yet often, companies treat fellow ecosystem participants as suppliers or channels to market rather than full partners. Or partners don’t fully commit to working together or don’t share the same values or culture. Even when partners are all in, ecosystems can fail if the partners choose a business model that doesn't suit their use case.

By contrast, in successful ecosystems, companies are intentional about the types of partners they work with and enlist outside help if they lack internal capabilities.

• Carefully considered partners: The first step in setting up successful ecosystem partnerships is deciding which partners you need for the use case you are pursuing. Ecosystems need a mix of partners with different strengths and expertise to achieve the best outcome.
  • Strategic partners — provide foundational support through the addition of a key product, service or customer base. A strategic partner may be a company that can provide key technology or talent, or help the ecosystem pick up market share.
  • Transactional partners — offer specific expertise or solutions. An ecosystem might bring in a systems integrator or consultant as a partner to manage converging data. An ecosystem might collaborate with a policy or membership organization to help shape a beneficial industry policy or regulation.

When selecting partners, companies must distinguish between the two roles they can play. Ecosystem leaders say their most important partners are business networks (such as procurement, sourcing, supply chain and innovation), hyperscalers and industry cloud platforms.

Partner ecosystems are living organisms, evolving with the partners’ needs, and certain partners may stay for a finite period of time. For that reason, an industry authority deemed creating formal entry and exit guidelines is a must. “Enter with the partners you think are right, but if that turns out not to be the case, have an exit strategy that lets them leave with grace.”

• Shared values and culture: Shared values and culture can build trust, and ecosystem partners need to trust each other to feel confident sharing the data, intellectual property and confidential information that makes an ecosystem business model work. They also need to be able to trust that data from all partners is accurate to ensure that costs and benefits are equally shared and KPIs or metrics are valid. And they need to trust that the other organization won't misuse shared data and confidential information outside of the partnership.

Despite the importance of shared values, ecosystem leaders cited ecosystem participant value sharing and risk among their top struggles, sharing top billing with challenges associated with business planning and strategy and IT architecture.

Partners in successful ecosystems share values, culture and an agreement on goals and strategy. They structure relationships to promote equitable value and risk-sharing. “When an ecosystem partnership shares values and culture, customers notice,” says Millard, the Dell Chief Partner Officer. Describing Dell and one of its ecosystem partners, a customer once told Millard, “’I can see that you truly are partners because it looks like you came to the meeting in the car together and didn’t just meet in the lobby.’”

Even when collaborations are going well, perceptions of inequity can stress otherwise successful partnerships. Maintaining functioning partnerships takes a commitment to openness. “You have to be transparent about what you want out of it, what resources and capital you’ll put into it and what the risks are and how you’ll divide the rewards,” says Amit Sinha, President and Co-founder at WorkSpan. “Everyone has to feel like nobody’s hiding anything and everyone’s agreed on assumptions and KPIs.”

• Help from outside parties: Companies with little or no partner ecosystem experience who attempt to set one up on their own don’t know what they don’t know — and could make mistakes as a result. For that reason, many turn to outside service providers for help. Service providers can act as unbiased arbiters to advise ecosystem partners on best practices, provide industry benchmarks or help design IT infrastructure. Of business leaders we surveyed, 40% ranked strategic consultants as the top group they have consulted for help designing their ecosystem or expect to engage in the future. In addition, business leaders say service providers with experience in IT and business strategy and planning can offer the most help with ecosystem business models.

To determine which service providers could add the most value, experts suggest conducting an audit of the partners’ combined skills and capabilities. “Maybe you need to bring in an external player to act as a facilitator. Or if people are working on the ecosystem venture in addition to their day jobs, bring in an outsider as a consultant or referee.”

The right IT infrastructure

The final pillar of a successful ecosystem is a well-functioning technology platform, one that integrates data from partners, presents a shared stakeholder experience and manages multiple processes, such as marketing, co-selling motions, innovation, pricing and supply chain.  

But if companies struggle to integrate processes between their own departments or divisions – and many do – imagine how much harder it is to sync those functions across multiple ecosystem partners.

Partners eager to fast-track their ecosystems might be tempted to discount the importance of getting the infrastructure right. But that would be a mistake – especially with the advent of GenAI. The absence of a solid IT infrastructure makes it difficult for partner ecosystems to share data and keep data and processes safe and secure, all of which GenAI requires. “You can’t skip the infrastructure and business process orchestration, which are very heavy interoperability processes. You can’t not have them or you will quickly fail,” says Workspan’s Sinha.

Successful ecosystems:

• Prioritize data sharing and interoperability: Organizations can’t partner if they can’t share data, so ecosystem partners need an IT infrastructure that supports this. Standardization and APIs help. In Dell’s experience, standardizing is the only way to move at the pace that customers and ecosystem partners want, including not just standardizing infrastructure but also networks, firewalls and load balancing. “All of it. Otherwise, it’s not technically or financially feasible,” says Millard, the Dell Chief Partner Officer. Improving data sharing and adding agility are the top two aspects of ecosystem IT infrastructure in which business leaders plan to invest in 2024, followed by circular economy.

• Incorporate automation and cloud-based services: IT automation is the top consideration for designing ecosystem infrastructure, cited by 38% of ecosystem leaders. “Multi-cloud is becoming the infrastructure platform of choice for large enterprises, and by definition that means building it with partners,” according to Millard.

• Adopt processes and systems for real-time insights into the supply chain: Sharing data with outside partners increases the potential for risk. Prior EY research showed that cybersecurity is the top concern related to pursuing ecosystem models. It may be difficult to accurately analyze the full nature of the security protocols and guardrails partners have implemented. As a result, it should come as no surprise that business leaders view cybersecurity as the most important area for risk mitigation (45%), followed closely by supply chain execution and logistics (36%) and product or service quality issues (29%).
  

Steps to take now

Companies that want to improve their ecosystem use cases, partnerships, business models and infrastructure can take the following actions:

1. Reframe how you think about partnering: Think beyond the projects or transactions you may have classified as partnerships in the past to the expanded role that ecosystems play in the business. Establishing partner ecosystems requires a cultural shift to embrace collaboration and co-development with internal and external partners. The switch may require implementing a formal change management program to make it happen. “A foundational element of building a high-performance ecosystem is assessing partnerships not as a zero-sum game, with winners and losers, but as mutually beneficial relationships that create value for both partners and clients alike,” says IBM’s Kate Woolley.
   
   
2. Build a purposeful ecosystem function: An ecosystem office leads sourcing and operationalizing the ecosystem partnership, initiatives and processes. Companies with a high-performing ecosystem are 1.6 times more likely to have a capability dedicated to it and capture 1.5 times more value as a result. They’re also more likely to meet their objectives if they have a leader such as a Chief Partner Officer who is responsible for cultivating and managing the partner ecosystem. “You wouldn’t set up a finance function without a CFO. Why would you set up a partnering function without bringing in function people to set it up?” says Asher Mathew, CEO & Co-Founder, Partnership Leaders.
   
   
3. Build a common technology infrastructure: Create an infrastructure strategy with protocols that all participants can adopt to facilitate exchanging data. If possible, manage up to the most sophisticated partners’ standard. Include a security plan that accounts for the additional threats associated with working with multiple outside companies. Decide which portions of the infrastructure to locate in the public or private cloud. Not thinking about these matters and choosing the appropriate set up for the situation in advance impedes the speed and effectiveness at which the ecosystem can operate.
   
   
4. Have a long-term plan: Create a maturity model outlining your partner ecosystem goals. Draw up a five-year roadmap that shows the innovation and investment you need to achieve them.
   
   
5. Measure results: Tracking your progress can create trust and transparency with ecosystem partners. Choose the metrics that determine if the business model is reaching its intended goals, including monitoring to see if you’re realizing the expected return on your capital investments and operating capital.

Michael Wheelock, West Coghlan and Bhavnik Mittal contributed to this article.