The Problem with Legacy Ecosystems

In the digital age, software has enabled innovators like Uber and Tesla to gather crucial data about customers and create revolutionary offerings to serve them. Meanwhile, many well-resourced incumbents struggle to develop extended digital relationships with customers. That’s partly because it’s hard for companies to change their established business models. But the authors point out another inhibitor—there are repercussions up and down the value chain.

The authors explain that successful upstarts do not just capture and use new data effectively; they also break from traditional reliance on outside partners for sourcing inputs and distributing and servicing products. They keep more functions in-house—a necessary part of launching an innovation. But if incumbents do likewise in their own efforts to take advantage of digital technology, they risk upsetting longtime relationships with suppliers, distributors, and other collaborators.

To navigate this new world, the authors advise managers in traditional companies to think about the macro trends that will shape their industry in the future, agree on a digital strategy to address customers’ needs in the long term, and develop better metrics to monitor progress. Incumbents must also create new business opportunities for partners so that everyone benefits from the new ecosystem.