HubConnectMany of the recent Innovation success stories have been about the creation of new ecosystems which have created new customer value in a way that wasn’t imagined previously.  The iPod and iTunes created an ecosystem of music which included the simple purchase, organization, and portable playback that previously took several steps and suppliers to achieve.  Square is doing a similar thing by connecting the wallet and payment process with the retail point-of-sale system to build an ecosystem and environment that allows both sides of the payment equation to do things more easily than they have in the past.

Much has been made of the “ecosystem” as the business model of the future and a key to Innovation success, but in most of the reading I’ve done the piece that doesn’t get connected is how exactly one should think about innovating a new ecosystem.  Certainly if several people and companies have been successful in building new ecosystems in the past we should be able to build a framework for Innovation that allows us to push the boundaries of this thinking and build even more customer value.  Let’s look at it from the lens of the Apple iPod/iTunes example:

AppleEcosystem

Before the Apple iPod/iTunes innovation we enjoyed music through three distinct phases of the value chain.  First we went to a physical bricks and mortar store like HMV or Tower Records where we browsed literally hundreds or maybe even thousands of albums that we could purchase.  Then we brought our selections home and physically organized them in one of many stylish designs of CD rack that was available.  Finally if we wanted to take our music with us we would bring our Sony Walkman or other similar portable CD player with us and selected the one CD that we wanted to listen to at a time.

After Apple connected those disjointed components in the value chain by digitizing the experience we shop for and organize our music within the iTunes application, browsing literally millions of albums and songs (and more now) available for download and that iTunes application seamlessly synchronizes with our iPod or other iOS device to allow us to carry with us tens of thousands of songs in our pocket to be with us at any time.

While there were MP3 players and digital music before the iPod they didn’t meaningfully change the legal music value chain.  In the case of the pirate ecosystem people still needed to download their music (the purchase phase of the value chain) from one application (like Napster), then organize it through another application, and then play it back on a device which wasn’t made or connected to the other pieces.

Apple really didn’t do anything particularly difficult in the development of iPod/iTunes.  There were portable MP3 players on the market that were quite capable of delivering the quality of music and experience we needed from a portable player.  There were several music organization software packages available that did a very good job of organizing our digital music library.  Perhaps the most difficult feat that Apple accomplished was convincing the music industry to make their music available digitally in the first place.

The key to the success of the Innovation was in the connection between the previously disparate components of the value chain.  We didn’t even know we wanted one company to provide us purchase, organize, and enjoy capability from one simple connected ecosystem until Steve Jobs showed it to us, and then there was no turning back.

There are many more examples of this type of value chain connection that are happening today including Square (merchant, POS, payment terminal, wallet, payment card) and Amazon (publishing, digital book, reader, social reading community).  While it seems like a breakthrough when we see the new ecosystem in front of us, the reality is that all that is required to create these ecosystems is to step back a few steps and watch a customer stumble through an existing ecosystem – particularly one that is making the transition from atoms (physical) to bits (digital).

Leveraging that same approach we can imagine many more new ecosystems that will create incredible new customer value.

And it’s only a matter of time before these new ecosystems extend even further, either with the incumbent Innovator extending their reach or through a new disruptor finding even broader ways to stitch together the value chain in a more seamless and integrated fashion.

You need to look at your own market space and the value chain you play in from the customers eyes.  Where are the boundaries of where you currently service in their value chain?  Are there opportunities for you to provide more components of the value chain and integrate their experience to simplify the way they consumer your product and/or services?  Innovate the ecosystems of the future by connecting the components of the customer value chain.

About Tim Empringham, MBA
Tim Empringham is a passionate advocate for Innovation in organizations of all sizes as a mechanism to drive growth, create uncontested market space, create new customer value, and drive efficiency into the internal organization. His focus is on disruption of thinking and markets through integrative thinking, structured Innovation frameworks, and leadership development of Innovation and Change leaders within the organization.

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