Today’s proliferating choice and hyper-connectivity have made customers more empowered than ever. A few great experiences with ingenious companies like Uber or Netflix mean they’re now demanding personalised and frictionless services from every organisation they interact with. At the same time, big tech is driving the digitalisation of traditional industries, reshaping the boundaries of the past into larger business ecosystems. For example, is Amazon in retail, payments, devices, infrastructure, drones or entertainment? Is Apple in devices, media, health, communications, software, wearables, retail or payments?
The traditional linear business models, where companies focused on delivering a product or service in an efficient value chain, don’t meet customer expectations in this new world. Platform businesses, from social giants like Facebook to incumbents like Philips Healthcare and ING bank, are flourishing in these ecosystems and have become key drivers for growth. In fact, seven of the ten most valuable companies in the world use platform business models.
So, large organisations need to rethink their strategy to discover how they can play a role in these new business ecosystems. Based on our research and experience, we see three things large organisations should focus on to become part of the platform economy.
Find out more how we help organisations around the world rethink their business and operating models.
With platform businesses growing rapidly to dominate the top of the global economy, traditional organisations need a platform strategy if they’re to compete. But today, only three per cent have adopted an offensive platform strategy.
Capturing the opportunity means running a platform business model, either by building a platform or partnering with one.
What’s the opportunity of a platform business?
Platform businesses ease interactions across users (the consumers) and producers (product and service providers) through frictionless experiences. They generate high profit margins compared to traditional businesses because:
But can incumbent organisations design and operate a platform business model?
As large organisations have a trusted brand and sizeable customer base, budget and infrastructure, they have certain advantages when it comes to adopting a platform business model. And yet many don’t successfully make the transition as it takes fundamentally different capabilities.
Delivering a frictionless experience for platform users is key to growing participation. The most successful organisations have an experimental mindset and let data, instead of opinions, guide decision-making. They continuously test and validate ideas with real people to deliver seamless experiences that users love.
For example, ING Group’s Yolt is an account aggregator app, not a bank. The platform seamlessly integrates all user’s bank accounts into the app, so, once using Yolt, there’s no reason for them to visit their own bank’s app or website. Over time, consumers might see themselves as Yolt app users rather than customers of banks.
To grow return on innovation, large organisations need to design and implement a structured innovation organisation. This includes building innovation capabilities, making budget available and creating a platform-specific innovation method to address the right challenges. And leadership must actively support, drive and manage the scaling of innovations.
Transitioning from a traditional product and value chain towards building, orchestrating and co-innovating a business ecosystem is a big shift that needs new capabilities.
Large organisations need to focus on long-term value creation and building and keeping workable relations with all actors on the platform. For this to happen, they need four things:
All this will give them the ability to govern a platform to increase value and enhance growth for a wide spectrum of platform players. By creating rules and guidelines that set the conditions for positive behaviours and quality interactions on the platform, large organisations can boost transparency and trust while sharing value for continued growth.
One example of where this went wrong is Covisint. In 2000, automakers including Nissan, Daimler-Chrysler, Ford and GM invested in the online marketplace designed to match buyers and suppliers of auto parts. Covisint’s ownership structure and auction format was heavily inclined towards auto companies (the consumers on the platform), forcing suppliers into aggressive price competition, leaving them with little or no residual value. As a result, parts suppliers left the platform and the market never became profitable.
Despite challenging times looming, creating a successful platform business is possible for incumbents. It needs an end-to-end approach, including designing a platform strategy to define where to play and how to win.
To deliver a seamless user experience on the platform, you need an experimental mindset and a structured platform innovation method and organisation. And that means you need to develop and recruit new capabilities to build a business ecosystem, grow platform participation and drive data-driven value creation for everyone involved.