Platforms Everywhere: Transforming Organizations by Integrating Ecosystems in Business Design
Executive Summary and Table of Contents
Nenad Rava, 2017
Executive Summary
Exploring new sources of value in the ecosystem requires an innovative business model that enables ecosystem entities (peers) to co-create and co-deliver, while engaging in learning and community development. Moreover, stakeholders increasingly seek to be empowered and hence want a new kind of businesses, governance, society, and organizations. The main argument that the research puts forward is that platform is such new business model. It has ancient roots, but its modern application provides a unique opportunity for addressing organizational, economic, social, and political problems of the 21st century. The conventional assembly-line (pipeline) approach to organizing businesses and creating value that has been dominant since the Industrial revolution is no longer able to cope with contemporary challenges, needs and aspirations — and is increasingly inefficient, ineffective, and unsustainable in dealing with social complexity.
I argue in this report that there are two main “meta” business models: the first is the conventional, pipeline model, and the second is the platform model. I relate the “meta” model to what Alexander (1968) called “generating system” that provides for creation of a diversity of specific systems. In the case of business models, that implies that there is a generic model that contains essential, core elements, which then can be manifested in a wide variety of particular business applications. However, choosing between pipeline or platform models leads to very different operating systems and capabilities, value propositions and customer relationships, and revenue models — and, thus, very different business design approach.
The differences between two “meta” models are elaborated in the report, and the illustration below represents key aspects visually.
The pipeline business is based on linear processes of creation and delivery of the value: there is an external input (resources) into the business, that are being processes towards a product or a service that is then delivered to an external entity (customer). It is often related to the assembly line, manufacturing organization, which applies at the “meta” level regardless of the purpose of business (i.e. even if we refer to educational and healthcare services). In contrast, a platform business does not create internally and deliver externally the value to customers, but enables ecosystem entities to co-created and co-deliver the value amongst themselves. The business is then divided between a broader platform business and the narrower aspect of the business enterprise (platform owner/host) that focused only on the operating system of the platform. The implications of the two models are fundamentally different, which impacts everything from value proposition to operating system to revenues to performance metrics.
Peter Drucker (1973) famously argued that there is only one definition of the business purpose: to create and serve a customer. Platforms are different: they enable and empower ecosystem entities to co-create value with their own resources; become empowered; learn in the process; and become agents of collective impact. The pipeline is focused on “doing something”, i.e. creating a product or service that would solve a problem. Its logic is based on the progression from problem to solution to customer/user to business design. Platforms do not solve problems, but let the peers do what they want/need/desire, and when and how they want to go about it. Hence, it is the peers who are enabled by the platform for solving their own problems. Thus, the new logic of a business is now about providing opportunities for the ecosystem potential to be manifested in a structured and purposeful manner. In other words, platform is a business medium that leverages ecosystem engagements in order to amplify individuals and make catalytic impact.
Basic elements ofplatform are elaborated in the report. Nevertheless, it is important to emphasize upfront that platform peers define platform value propositions and the purpose of business, while the enterprise focuses on the How, i.e. the operating system that onboards and matches peers, facilitates curated peer interaction and exchanges, and nurtures individual and collective learning. Such a business model requires substantially different design, performance management, capabilities, assets, and accountability.
That leads to the issue of what is the value of platform and how it is created. The concept of value in business remains so evasive that it might refer to almost anything — from the added value for the customer, to monetary value captured by the business enterprise, to an ethical framework or a “mission” of the business. In platforms, the value is rather specific, at least in the context of the model that I propose. It can be understood as the outcome of interactions between peers on the platform — peers exchange a value unit (idea, information, insights, experience, etc.) and in the process of the exchange they co-create something new. Each peer might have a different benefit from that relationship but the value is mutually produced. That value emerges only on the platform in the peer interactions and is being delivered simultaneously when created also only on platform — rather than being created internally by a business and then delivered externally to customers (as it is done in pipelines). In other words, the value co-creation takes place in the ecosystem that the platform business (loosely) enwraps — which is also the reason why the value creation can grow fast and even exponentially by extending further into the ecosystem by involving more of the same or new peers groups. Such value is closely related to the purpose of the platform (as defined by peers and enabled by the business host/owner), and, as I argue in the report, it is always accompanied by certain (individual, organizational, and societal) learning process.
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While conventional organizations never had a rigid boundary with the ecosystem, the ecosystem tended to be on the “outside” of the business, and the business was the same as the enterprise that ran it. In platforms the whole process (input — value creation — delivery of output) takes place in the environment (ecosystem), so the business is manifested in the “outside” of the enterprise. Hence, the role of enterprise in platforms is to develop an adequate operating system for dealing with the social complexity of peer engagements that are non-linear and emergent — rather than to create and deliver value by itself. This is one of the main reasons that platform design tends to be more sophisticated (and more challenging) than the design of a pipeline business.
This research presents a number of different types of platforms, but the focus is put on the three main ones: marketplaces, communities, and open innovation. Firstly, this implies that not all platforms are marketplaces, as often portrayed in the media. Secondly, it clarifies the tendency to equate markets and marketplaces in the platform space. It suffices to mention at this point that markets are part of the economy and they tend to include large number of businesses — in contrast, marketplaces are individual businesses. It is, however, possible that one business captures the whole market (i.e. becomes a monopoly), which would lead to convergence of the market with the marketplace. As I present in the nascent critique, corporate platforms do have a monopolistic tendency, but, in itself, platform should be, first and foremost, understood as a business model.
The benefits of platforms are fundamentally different because they represent a fundamentally different business model from the conventional one. They work well in the contemporary context because they are designed to deal effectively with social complexity; tap into latent potential of the ecosystem for creation of new value; are powerful engines for learning and social impact; and enable agile, resilient, and (potentially) sustainable change. More specifically, I argue that the following are the most important benefits of platforms:
1) Platforms unlock new sources of value by enabling the existing potential for co-creation amongst entities in the ecosystem;
2) Platforms are able to deal with complexity because they navigate it and provide stewardship, rather that attempting to set rigid constraints to attenuate the complexity;
3) Platform tend to bring silos structures, distributed actors, diffused valued and compartmentalized thinking into a more integrated whole, thus facilitating coherent individual and collective action;
4) Platforms can scale fast, rapidly, and with low marginal cost;
5) Platforms empower stakeholders by providing the agency, i.e. tools and opportunities for addressing their own preferences, needs, and desires in their own ways;
6) Platforms have the potential to become democratic frameworks; they can address the “iron law of oligarchy” and they amplify individual voices and actions — thus providing the capacity for systemic change;
7) Platforms are resilient and agile, so they can evolve by adapting to changing contexts and better respond to shocks, crises, and turmoil;
8) Platforms “cut the middle man” and overcome the conventional gate-keepers, while introducing new re-intermediation in economy and society;
9) Platforms are always aspirational: they focus on imagination and inspiration that can lead to new futures by changing the present circumstances, actions, and relationship;
10) Platforms could be genuine learning organizations that have the potential to leverage individual, organizational, and societal learning for the transformation of value configurations in the broader ecosystem.
These benefits are manifested in the initial prototype of the Design Research Platform of the OCADU University produced on the basis on initial application of the methodology for platforming developed in this research. The prototype includes specific platforming value propositions to be co-created by groups with single, identifiable behavioural patterns (peers) when they exchange particular value units supported by an operating system based on the Research, Information, and Knowledge management (RIK). Such a platform (in its full-fledged version) would combine a community with marketplace and open innovation platform, and it would be a hybrid business that integrates existing pipeline businesses of OCAD with its new platform. Fragmented elements of that platform already exist at OCAD, but the prototype goes towards a coherent, integrated business model. Furthermore, it assumes iterative development of the platform (i.e. design finishes when the implementation is finished), and introduces opportunities for scaling and monetization in its 3 phases of deployment. The prototype of the OCAD Design Research Platform manifests the use of the Minimum Specifications for platform (proposed in this research as essential, necessary elements of any platform) as a diagnostic tool. Moreover, it applies 10 Guiding Principles for platform design developed in this research, which both guide the design of a new platform and was can be applied as an analytic tool for assessment of existing platforms.
It should be acknowledged that the interest in platforms is growing rapidly primarily due to the success of digital, corporate platforms such as Google, Amazon, Facebook, Uber or Airbnb. But, the impact of platforms goes beyond market capitalization or exponential growth, and it cuts across all industries and sectors. We can observe proliferation of platform initiatives in non-profits, cooperatives, public sector, governments, and international organizations and those cannot be explained by market developments. Hence, there ought to be something more beyond markets that fuels the “rise” of platforms, as I argue in this research.
Large part of this trend is related to digital technology that provides amazing opportunities for transforming local, national and global organizations, governance, societies, and economies. While digital tools have increased the salience of the platform business model, this model is not defined by digital technology. Bazaars, auction houses, and learning hubs are just some examples that have existed for centuries before digital technology and modern economy. There are also instances — such as a highway — that represent platform infrastructure, although not necessarily being a business. On the other side, not all digital businesses should be considered platforms — especially when they do not have at least two peer-groups (e.g. Netflix or ZipCar) understood as community groups with shared, identifiable behavioural patterns that engage on a curated place in a distributed manner. Digital technology indeed brings in new capabilities, but platforms are not defined by digital technology (or Big Data) and they can exist even without it.
A limited understanding of platforms — including the mistake to equate them with networks or digital business — represents an obstacle for effective platform design in the context of transforming existing organizations. This is further complicated by the need to go beyond digital, corporate start-up or scale-up platforms — and even beyond the types of platforms that currently exist. Hence, this research proposes core, necessary elements of the “meta” platform business model, and the description of how those are (or might be) manifested in a variety of business types), including emerging hybrids that combine platform and pipeline. This represents the foundation for a new platforming methodology.
As a principle, any business (or an organization seeking to become a business) that identifies a potential in its ecosystem (i.e. broader value chain) for peer co-creation might become a platform in the form of a marketplace, community, or open innovation. However, it does not imply that all businesses should (or could) become platforms. Making it happen requires transformation, which leads to systemic change of the culture, new management systems and capabilities, innovative revenue models, and a different definition of success. That further requires a new methodological framework for business design that would transform existing organizations into platforms by bringing the ecosystem “into” the business. Such a methodology is still lacking. Although the literature on design of digital, corporate platforms is proliferating, there is very little focus on transforming conventional (pipeline) organizations into platforms — what this research calls platforming. The intentions and principles of design are similar, but the context is very different because platforming starts from the existing organization and its context, rather than from a blank canvas. This represents a particular gap in the literature and in the current methodologies that this research aimed to address.
Hence, the research project focused on methodological issues, i.e. on How to transform conventional organizations (fully or partially) into platforms? It represents a combination of initial design of a generic methodology for plafforming and a re-conceptualization of the platform business model towards its more comprehensive understanding. The main outcomes include:
- New, generic methodology for platforming existing organizations, consisting of Platform Design steps (with tools and methods), Generic Platforming Roadmap, and 10 Guiding Principles for platform design;
- “Meta” platform model with 4 core elements (Minimum Specifications) without which a business should not be considered a platform; and
- Exploration of the variety of emerging types of platforms, including a proposal for a prospective typology of hybrid platforms.
The research is of exploratory, prospective and pioneering nature. The main audience are organizations interested in business innovation that taps into sources of value in ecosystems and empowers stakeholders for learning and collective impact.
