On Business Ecosystems

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Tunji Adegbite

Business strategies that facilitate interactions between entities are changing the way companies conduct business and interact with their environment. Very few companies can shoulder the responsibility of providing goods and/or services without external interaction. Thus, for businesses to flourish, they must understand and navigate the ecosystem in which they operate. This understanding will help the viability of that business, ecosystem and minimize the costs and consequences of rent-seeking among players in that ecosystem.

The business ecosystems concept is analogous with biological ecosystems and was first introduced by James F. Moore in 1993 with the description: “An economic community supported by a foundation of interacting organizations and individuals–the organisms of the business world. This economic community produces goods and services of value to customers, who are themselves members of the ecosystem. The member organizations also include suppliers, lead producers, competitors, and other stakeholders.

Over time, they coevolve their capabilities and roles, and tend to align themselves with the directions set by one or more central companies. Those companies holding leadership roles may change over time, but the function of ecosystem leader is valued by the community because it enables members to move toward shared visions to align their investments and to find mutually supportive roles.”

There are three types of ecosystem leadership:

1. The Aggregator: They create transactional marketplaces that connect demand to supply by offering a frictionless exchange of value between customers and suppliers. E.g Amazon Marketplace

2. The Innovator: They create platform environments that enable the development of new solutions and encourages third-party developers to create services and solutions to satisfy customers’ wants or needs. E.g. Apple

3. The Orchestrator: They create platforms that define the reference architecture, drive exceptional customer experiences, and create a “true north” for participants.

In Nigeria, many industries have created an ecosystem while carrying out their businesses. An example is in the eCommerce space dominated by Jumia and Konga. The e-Commerce ecosystem is one whose key functions, just as other ecosystems have, is to create value via customer satisfaction and prompt delivery of services. Konga, for example, is vertically integrated to have its payment platform, KongaPay, Kxpress (logistics services), amongst others. Although independent, these arrangements collaborate, ultimately creating more value for the business, shareholders and customers.

Another example of adaption to the ecosystem business model is the transformation of bike-hailing companies into logistics businesses. Due to the ban on their operation in Lagos, these companies (e.g. Gokada) pivoted to e-commerce . The integration of these businesses into the e-Commerce ecosystem became largely successful due to the impediment logistics pose for e-commerce businesses.

However, when businesses pivot into a different ecosystem, it may lead to blurred lines across industries and thus create a challenge of multiple and/or conflicting regulations. For example, Chinese digital player, WeChat, affords users the convenience to send texts, make payments, invest, order taxis, buy tickets, and much more from a single integrated system.

The ‘Start-up’ ecosystem, a model for Nigerian Banks

To understand the role banks can play in ‘orchestrating’ or providing the ‘platform’ for an ecosystem, it is vital to take a leaf from ecosystem interactions pervasive in Nigeria’s Technology start-up sector.

Co-Creation Hub (CCHub) plays an “orchestrator” role in the Nigerian start up ecosystem, providing the platform for them to thrive amidst collaboration and even competition. CCHub provides funding and incubates start-ups with the objective of solving local problems via technology. This has created a network of start-ups across several industries whose expertise complements and competes with other entities in the ecosystem. Examples of companies that have emerged from CCHub’s incubation program include BudgIT, WeCyclers, Lifebank, amongst others.

The Roles of Banks in Creating a Financial Ecosystem

The traditional banking model focuses on managing the maturity mismatch between deposits and loans. Banks offer more than regular retail banking services to increase revenue and drive growth. Nigeria’s commercial banking sphere is poised to orchestrate and provide a viable financial ecosystem platform, thanks to the “Holdco” policy by the CBN. This directive permits banks/banking groups to retain non-core banking businesses by evolving into a non-operating Holding Company (HoldCo) structure; FBN Holdings Plc and Stanbic IBTC Holdings Plc are examples

The crux of this piece is not for every commercial bank to become a holding company. Banks have the platform they can leverage to provide seamless digital services to customers (e.g. FCMB’s partnership with Brass, a fintech). They can broaden their current value proposition by leveraging ecosystems to stay “hyper-relevant” for their customers, especially in a situation where Fintechs like Kuda and Carbon are gradually increasing their share of the banking population. Afterall, banking is the necessity, and banks are not.

Other options available to the commercial banks include orchestrating ecosystems to cross-sell financial services and partnering with third-party ecosystems thereby extending their presence into the non-banking aspects of customers’ lives. Banks with strong relationships and a seamless digital platform would largely benefit from the implementation of a solid ecosystem model.

Whenever an ecosystem is created, the value chain changes as there is prospect for new players. From the consumer perspective, these extra players could be beneficial. While there exists to some extent justifiable fear in opening an ecosystem or entering a new ecosystem as a result of the perception of reduced rewards due to increased competition, the reality is that this increased competition makes the pie larger, and the externalities it gives foster growth for every player.

In conclusion, while ecosystems could play a vital role in the evolution of the financial sector, customers are key. Plans should be driven by customer expectations and the job-to-be-done in their lives. In the financial service sector, it would seem as though there is a stark choice to be made between co-operation and competition. However, a reality that players in this system have to understand is that both can coexist – and have a symbiotic relationship. And if there are to be larger strides in the financial ecosystem, we would likely be expecting more partnerships between banks and Fintechs.

• Tunji Adegbite (MBA, FCCA, MCIPS) is a thought leader in Strategy and Supply Chain and has worked with leading organisations like PwC and an IOC. He is also the founder of Naspire, a research and business strategy platform using contextual knowledge to help entrepreneurs and professionals in Africa succeed. He can be reached via tunji@naspire.com. Views expressed in this article are personal and do not represent the views of any institution he is affiliated with.