An interview with Professor Dr. Christoph Zanker, Steinbeis Entrepreneur at the Steinbeis Transfer Center Industrial Innovation and Transformation Management
Some companies are taking the current recession as an opportunity to reorient themselves. The famous German Mittelstand is particularly likely to benefit from business ecosystems, says Professor Dr. Christoph Zanker. As an innovation consultant and Steinbeis Entrepreneur at the Steinbeis Transfer Center Industrial Innovation and Transformation Management, for over a decade he has helped numerous firms build up such networks. As a result, he knows exactly what to look out for to ensure choosing a business partner doesn’t become a matter of luck.
Hello Professor Zanker. Many companies are struggling to stand firm with their core business at the moment. Is it even possible to think about new products and transformation processes in such situations?
My perception is that this is precisely the issue most industry decision-makers are grappling with. They’re right to do this, because the current pandemic is having a catalytic impact on many areas. Radical changes are going on, fueled by latent but foreseeable technologies – or market changes. Many companies know all too well that the competencies that previously underpinned their ability to innovate, create, and generate earnings will be partially – or in the worst case: completely – devalued after the crisis.
Can you provide an example of this?
Take maintenance or repairing complex machinery: Who would have imagined, even a year and a half ago, that all of a sudden it would no longer be possible to send out service technicians to any place in the world? But that’s exactly what has happened. Practically overnight, lockdowns and travel restrictions have heightened demand for data-driven remote services. The technology and applications were already out there, but they were exotic ideas with very few users. What’s now managed to establish itself won’t simply disappear again after the pandemic. If anything, we can safely assume that remote services will become standard practice over the next two or three years. Within no time, a comprehensive network spanning lots of local service units – which used to offer genuine competitive advantage – will only have half the value it used to.
So what advice would you give to firms having to deal with these changes?
Most firms know that after the crisis, sooner or later there’s a danger they won’t be able to keep pace with market demands. Closing ranks, covering as much value creation as possible in-house, or putting risky innovation projects on the back burner are all the kinds of things you would read in management manuals, and at first glance they look like the right tactics. But they’re exactly what could be fatal for companies, and it doesn’t help with everyone saying you should “disrupt yourself.” Asking “what” or “how” is anything but trivial. A tier three ultra-precision parts manufacturer doesn’t become a data-driven supplier of medical technology overnight. But that’s not the point, far from it. The goal should be to open up to new technologies, develop new applications, and establish service offerings that deliver benefit for existing and new customer groups. And that has to happen quickly.
In essence, the idea is to fundamentally develop company competences, to shift emphasis, and to add to them in order to plug the gaps. Basically there are two options. One is to build up the required skills yourself, although that’s a long, drawn-out process and there’s a significant risk when you only back one horse with your resources, especially if things are highly uncertain. You would be better advised to place more emphasis on business ecosystems, especially with complex, hybrid, or data-driven services.
Companies joining forces to offer new services is nothing new. So why is this any different to an ecosystem?
Ecosystems clearly go beyond conventional customer-supplier relationships. They’re ongoing partnerships between different stakeholders with a common goal, namely to develop and deliver new and innovative services. So ecosystems are not sequential chains, they’re much more akin to a network. The way different stakeholders interact with each other is more intensive, especially when it comes to knowledge-sharing, so there’s an even stronger emphasis on innovation. There are significantly lower power imbalances between the companies. So each stakeholder becomes more important for the overall service on an individual basis, and that makes them less substitutable.
That sounds like a good thing, but in your experience, why do so many companies have such a hard time finding partners?
I often encounter two extremes: More conservative companies appoint someone like a collaboration manager or, at best, a new business task force that should “finally take care of things.” The supposedly progressive firms go for co-working spaces and innovation hubs and extol the virtues of a new value-based culture of failure, one that allows cooperative innovations to emerge – although at best, if they do, it’s probably by chance. In practice, both approaches are aberrations because they do not bring about any substantial changes. Innovations don’t come about because managers start walking around in white sneakers, and you don’t build up ecosystems by allowing things to happen by chance – they’re the product of a clear vision and goal. They’re 98 percent hard work and, above all, plannable. The organization has to pull on lots of little and large levers, systematically, in coordination. You have to define the role you want to play within the ecosystem, new innovation processes need to be set up, and you need to put the right interfaces in place – internally and externally. These interfaces are characterized by so-called boundary spanners, across several different companies, and these support collective innovation processes, developing a common foundation of knowledge and channeling energy internally and externally so it can be leveraged.
Isn’t it a bit dangerous sharing everything you know?
It is, yes, but you could say that about any business relationship. What matters is what you do with it, especially with ecosystems. You have to be clear about how strongly you depend on the input provided by the other party. If a partner drops out or starts seizing at opportunities, an entire portfolio of services can break down. But also, it sometimes makes sense for companies that used to be competitors to start collaborating. It’s not impossible, but it does require different tactics and approaches. In a nutshell, there has to be a continual and very deliberate weighing up of opportunities and threats, and your company has to be organized to be open, otherwise you can’t leverage external competences.
How does that work in concrete terms?
Here’s an example: I had the pleasure of working over a three-year period with a medium-sized manufacturer of standard heating elements for white goods. It was a classic low-tech product and customers were increasingly being lost to low-wage countries, so the outlook was pretty bleak. The company had a choice – change, and build up huge innovation capabilities, or keep plodding along. By building up its own development competences, but above all by joining forces with other manufacturers and technology suppliers, it succeeded in developing a range of sophisticated hightech applications and a much broader, customer-specific portfolio of services. The company has undergone comprehensive transformation and it’s now doing an excellent job in supplying the network with hightech applications for the mechanical engineering sector. If you do things systematically, setting up those kinds of ecosystems and the transformation it involves aren’t rocket science, even for SMEs. Often, all you need to get some quick wins is someone to create impetus and a bit of support from outside with structuring.
An increasing number of big companies are now working with start-ups. Is that also a good thing for small and medium-sized enterprises?
Definitely – yes. In my experience, such partnerships often work much better than with big players. There are three main reasons for this. First, despite the number of people who say it won’t work, SMEs are really good at adapting and they have a genuine interest in long-term partnerships and offering mutual support. Second, there’s a much more symmetrical balance of power between the collaboration partners. New companies are often in a position to open new doors for SMEs in digitech areas, and at the same time they benefit from being able to work on actual use cases and gaining access to markets. Last but not least, the innovation culture at SMEs and start-ups is much more similar than between large companies and startups, because the focus always lies on coming up with concrete solutions and not just boosting your image.