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As a result of 30 years of observation in different sectors of his 5 Forces Competition Model, Michel Porter highlights that market leaders are more successful when pursuing the sustainable advantage generated by positive-sum rivalry: where companies compete on different attributes, services, and features: doing so, they meet needs of a different set of customers, expanding the overall profit pool of the industry.

When organizations create a mutual roof for all their services (instead of competing purely on price), they facilitate detection of new upcoming needs, and they increase acceptance of new offering among customers.

One of the most enlightening examplesis the way Amazon and Alibaba, despite their differences, jointly have contributed to creating a worldwide market worth in 2019 3.53 trillion US dollars of retail e-commerce sales with a projected growth to 6.54 trillion US dollars in 2022.

Crossing their services and expanding in new sectors with the power of alliance, Amazon and Alibaba break in and change existing ecosystems or create new ones.

No doubts, Bezos and Ma have marketed the customer-centricity well. When asked, Ma suggested to forget about competition and to focus on customers. “Copy your competitors and you will die”, he once said.

Bezos put it even more strongly: “Be customer-obsessed!”, a catchphrase that keeps spreading in management circles, although the negative connotation.

The fact is that stalking customers does not usually turn them into fans that will iterate

In life-science, insurance, system integrators, consulting, retail, energy, and many other sectors, at an organization or individual level, acquiring and divesting assets has become a key for growth or survival.

Setting M&A strategies around financial aspects might generate a profit in the short term, but in the long-run, odds are that organizations will end up in survival mode, fighting to keep the assets tighten up.

M&A strategies generate sustainable growth if they have a focus on cultural aspects. Before even starting, digital pioneers need to question themselves on how they can keep their own identity while differentiating, how they can “organically” grow while acquiring new assets, and how they can divest without losing know-how and opportunities.

This article offers an interpretation key that goes beyond the visionary legend of their founders and, it describes a recipe on what to consider when acquiring or divesting, no matter if the asset is a company, a patent, or training for yourself.


The Five Competitive Forces That Shape Strategy

In 1979, a young associate professor at Harvard Business School published his first article for HBR, “How Competitive…

hbr.org


Scratching the surface, the success of Amazon or Alibaba comes from their focus on merchants more than their final customers and from their ability to embed their brand in their foundation: they increasingly build for small businesses a host of financial and logistics services, products, and tools in the areas of payments, cash, lending, storage, and shipping. Taking merchants by hands in the online journey, the two Tech Giants acquire field information and continuously shape, inject and, incubate services to address their main concerns.

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Photo by John Adams on Unsplash

Without this help, small businesses would not be able to catch by themselves digital opportunities or to accommodate rapid cultural changes generated by globalization.

Merchants of all kinds with business cycles shaped according to rising and fall-patterns with a variety of performance, ranging from excellence to existence, find it convenient to join the e-commerce trail.

Their brand is not in what sold to the final customers. Their brand is deeply in the support services that sustain expansion patterns for the whole ecosystem by keeping new and old businesses fasten up.

“One brand” offers a high reputation, image, and identity to position services and products of merchants that would struggle to compete on the global market.

The “one brand” umbrella helps the sharing of information, allowing a continuous effective and efficient tuning of services that can be available immediately to a wider customer pool.

Sharing is caring. Partners, employees, vendors, authorities, customers will measure you on the way you run your services. The only dominant position is listening and serving, as any gap in the process is an opportunity to become stronger.

Sharing with care. Digital pioneers choose well the brand they associate themselves with digital business is about scalability, not about low entry costs. Digital pioneers invest data in an ecosystem that pays back with data and help all members to retrieve the value from it.

An ecosystem grows if organisms find common advantages in leaving together: this translates into a strong link between the strategic vision, the organization culture, and the way the company is perceived to minimize side effects.

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Photo by Matt Botsford on Unsplash

Beyond the traditional cooperation or competition-paradigm, the ecosystem helps to create value from the ubiquitous form of fuzzy relationships among newly acquired assets, workforce, international investors, authorities, and other actors involved.

The economy of scale, an increased speed of innovation, a shorten go-to-market cycle are enablers to expand in new markets or to cross the borders of traditional industries and to give birth to new sectors. Representative examples are Alibaba’s initiative to help companies in Vietnam to go on-line and to reach an enormous pool of qualified global buyers or Amazon’s Pharmacy services to evolve healthcare toward the patient-centric WellCare.

In new ecosystems and emerging markets, speaking with “one voice” helps to set hard standards, like legal norms for internet security (e.g. digital signature, laws concerning hackers). By provoking discussion around rules that need still to be written and by establishing a climate of trust among partners and in the technological infrastructure, Tech Giants focus the attention of authorities on the paradigm of emergence instead of control.

Rules and standards help to fuel competition and incentives to compete sustainably. Digital pioneers speak on behalf of all their associates to promote changes to legal norms and lead the shaping of the ecosystem beyond the existing control paradigms.

By merging established practices on specific aspects of acquired organizations, digital organizations play a fundamental bridging and leadership role among employees generating opportunities for the whole business ecosystem.

“A chain is only as strong as its weakest link”: a digital organization (chain) becomes stronger by strengthening its assets (links). Buyers should create conditions to include new assets quickly. Sellers of all sizes should synthesize and store the knowledge they are offsetting for future needs.

A digital pioneer is never alone. So before starting lonely battles, googling around, finding and sustaining representative voices that will fight for her and with her might save time and money. Flip the funnel, instead of crying out loud

From an ecosystem perspective, creating a corporate advantage has less to do with quarter by quarter growth and more to do with creating opportunities in abundance and droughts.

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Photo by Chaitanya Tvs on Unsplash

Amazon and Alibaba have developed a distinctive way to interpret the cultural, market, and economic changes. Injecting innovation to include more participants to their ecosystem, in the last decade, Amazon and Alibaba have established services that are incrementally becoming commodities to do business in the West World, in China, in Asian economies, and emerging countries which count 80% of the world market. How do they succeed in that?

They collect, process, and fuel back data in their ecosystem, creating a circular data economy that releases value at each iteration for all participants. They do not compete with SMEs on prices: they are “laboratories” to effectively develop services that can help them scaling up to compete on the global market, although not equipped to compete virtually.

As culture is about people, they have a set of practices to facilitate integration among all the participants of their ecosystem, from employee to authorities: they promote rotation among employees of group companies, they deliver training to small businesses to support them in their journey, meritocratic incentive systems, and organization pride around their ability to innovate which is driven more and more by the simplicity of design and gained customer experience.

Pushing on innovation helps to consolidate their leading role in other emerging economies or markets, incrementally translating the gained advantage in business results. There is no limit to their creativeness and flexibility: AliGenie, a China-based open-platform intelligent personal assistant (currently used in the Tmall Genie smart speaker), or the AI accelerator called the Hanguang 800 (17 billion transistors, capable of 78,563 images per second (IPS) inference and that will be available for renting on Alibaba Cloud are great examples in favor of Alibaba, while the shares gained in the online pharmacy space, or leading role played in Cloud services speak clearly on behalf of Amazon.

Digital organizations retrieves the value from their “cultural intermediary” position by interpreting the needs around acquired assets and expanding the service infrastructures to empowering a company identity around the way they interpret the change.

They focus on creating a common culture that allows them to unlock and share the knowledge coming from the acquisition; at the same time, they continuously inject processes to synthesize the knowledge of divested business as part of their identity.

Digital organizations use innovation, the economy of scale, short lifecycle as levies to promote knowledge sharing, investing in creating a common culture among clients, merchants, authorities, and competitors. Although they reached a titanic size, they invest in speed, not on barriers to protect their leading position.

Financial, logistics, production integration are foundational aspects of an acquisition, but what will make the difference in the long term is the ability to integrate people and leverage new assets culturally. Cultural integration is also a timing game as the longer it takes for the buyer to make the acquired business comfortable, the lower will be the final value of the asset as the people who make that business exclusive will fade away

Innovation is key to digital pioneers’ identity as they have a moving balance: size apart, the knowledge and the position gained in fast-growing sectors open up to investments and sustained upgrading of tools and competencies, increasing strength against rivalry.

Crossing their services and expanding in new sectors with the power of alliance, Tech Giants break in and change existing ecosystems or create new ones. What is the secret of their success? How can they grow big, keeping changing end evolving in different directions without setting barriers at first glance?

They promote an ecosystem growth that has less to do with quarter by quarter growth and more to do with creating opportunities in abundance and droughts for all participants.

They focus their long-term strategy on eliciting and supporting a cultural and economic transition of old and new actors that would not be able to leverage the economy of scale to compete. By creating a circular data economy, they supply information, report statistics, forum, training, research, payment service, transport, etc., helping in matching offer and demand in innovative and pervasive ways. In this way, innovation becomes key to their identity, and the knowledge and the position gained in fast-growing sectors encourage investment and sustained upgrading, increasing their strength.

They have become more than a group of companies working on a specific industry with large diversified portfolios; they are living entities able to keep an identity while differentiating, to organically grow while acquiring new companies, to divest without losing know-how and opportunities. Their M&A and innovation strategies go beyond their financial objectives, creating a common culture and identity.

One brand. One voice. One culture. the rest is diversity in all shapes and forms. To stay away from the hurting drops financial driven ecosystem periodically live, Tech giants like Amazon and Alibaba have become ecosystem based on a circular data economy.

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Flavio Aliberti
Flavio Aliberti brings with him a 19-year track record in consulting around business intelligence, change management, strategy, M&A transformation, IT and SOX auditing for high regulated domains, like Insurance, Airlines, Trade Associations, Automotive, and Pharma. He holds an MSc in Space Aeronautic Engineering from the University of Naples and an MSc in Advanced Information Technology and Business Management from the University of Wales.

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