Giant platform organizations increasingly own the digital infrastructure on which everyone else trades. The digital titans—Amazon, Google, and Facebook in the West and Alibaba, Tencent and Baidu in the East—publicly state that they want to take a cut of all our digital commerce. Increasingly, CEOs fear the day when one of them enters their market.
We often see platform organizations as the way digital natives such as Amazon, Alibaba, and Uber capture share in retail, financial services, health, hospitality and transport. But using the Internet of Things (IoT), other digital natives (e.g., Thingworx) are also capturing the support functions of manufacturing in its 22 sectors from chemicals, automotive and machinery through food, plastics and petroleum to computers, medical, textiles and furniture. Why is the platform business model increasingly necessary in manufacturing? In advanced economies manufacturing continues to drive innovation, productivity growth and export while in developing economies manufacturing provides a path to higher living standards. However, increasing demand for new products in both constantly pushes manufacturing for faster cycle times, lower costs and more innovation. In the future more and more manufacturers will be compelled to experiment with a platform business model to orchestrate the increasing proliferation of products demanded by consumers and businesses.
Ambitious, bold manufacturers, such as John Deere, Siemens, and GE, can thrive by liberating platforms from within themselves, facilitating exchanges between producers, even previous competitors and consumers—swapping the means of production for the means of connection.
Many platform organizations are now more valuable and durable than traditional companies. Consequently, firms and government agencies now investigate them in their annual strategy processes and innovation groups.
The Manufacturing Opportunity
We all know that margins and ROI in the manufacturing sector get tighter and tighter. Becoming a platform organization offers an escape route, a way to move up the value chain, and have significantly higher margins and ROI perception as a result.
Industrial manufacturing organizations have a huge asset at their disposal—data. The vast amounts of data from IoT instrumented assets such as plant, transport, materials and products create great potential for services that can be traded in a marketplace. Equally, a manufacturer with good AI or analytical skills could use that information to build a platform that finds, matches, connects and supports participants in an ecosystem.
A great example of an industrial company already on the platform organization journey is Siemens Mindsphere, which is taking the data from its own industrial products and those of competitors to create ecosystems between its partners and customers, creating new revenue-generating services.
Taking the Leap: Designing the Platform
Manufacturers starting the journey to build a platform business model need to look outside their own business at the emerging ecosystem, but relate that back to the value created in the existing business model; otherwise the organization loses the potential competitive advantage of its relationships, intellectual property, products, services, domain knowledge, scale, data, etc. The task is to explore the ecosystem and its participants, preferably by developing a Wardley Map, where the ultimate customer need serves as an anchor. Increasingly, that need is an experience, rather than a product or a service, which requires the platform to orchestrate many more partners than a traditional organization.
Launching the Platform
The next step is to work up the best opportunity into a value proposition and Market-Shaping Strategy (MSS) with relevant market participants. An MSS redefines competition in the ecosystem through Gameplay, increasingly using nudge economics. At this point there are five typical options for building a platform organization. In the first three, you own all or part of a Minimum Viable Platform (MVPl).
- Design and build an MVPl with a few strategic capabilities and core domain knowledge from the existing organization, and then motivate existing producers and citizens/customers to migrate.
- Enter an ecosystem, discover the most promising propositions and their supporting business model—perhaps by building an MVPl—then exit and build your own platform.
- Take a share in or buy someone else’s MVPl (in your core or a peripheral market) and help it scale.
- Join the ecosystem of an existing platform and work with that platform to become one of its most influential producers.
- Join the ecosystem of an existing platform and do enough to remain on the platform’s panel of producers.
Growing the Platform
A transformation from traditional to platform model is a broad, deep change. You will have to think ecosystem-in, not inside-out. You will have to decide which parts of the ecosystem to own and which to control, and which to influence. You will have to co-create an MSS or enhance someone else’s. You will have to change historical patterns of capital allocation, and take brutal decisions about what to make, what to buy and where to partner. You may even have to eat your own revenue.
What If I Don’t Want to Be the Platform?
There will only be a few platform organizations in any one sector, so strategic planning and first mover advantage will be critical to success for companies that want to own the platform. But it is not necessary to own the platform to be successful in an ecosystem. A manufacturer could transform itself within the platform organization model as a favored producer, where it offers services/products that enhance the core platform offering. This approach negates the need to try and topple an existing platform, or the level of risk/investment associated with being the first mover. There are also many more opportunities for companies taking this approach.
It’s an Opportunity Not a Threat
Making the change to a platform business needs the patience for emergent strategy, the creativity for iterative design and the skills for agile execution. Above all, it needs the dedicated application of data-driven insights to help develop other ecosystem players and to retain them. Manufacturers should think about how they can play in the platform organization model, creating opportunities to grow their business, revenues and margins.
Bill Murray is senior researcher and advisor at Leading Edge Forum.