Part 4 – Guidance on transitioning to the platform model

By transforming and adopting a platform business model, traditional companies can re-emerge as strong competitors in the Platform Economy. But so far this has not been happening very quickly.

While more than 30% of global economic activity — some $60 trillion — will be mediated by digital platforms in six years’ time, only 3% of established companies have adopted an effective platform strategy, according to a McKinsey research report.

Previously we looked at what makes a platform, why it’s such a powerful business model, and the technology that supports platform models. We also looked at an example of a company that successfully adopted the platform business model to unlock new business opportunities and reclaim competitive advantage.

In this concluding article we’ll look at what you should be doing now, if your business or industry is under threat.

Simon Torrance, a member of the World Economic Forum’s Digital Platforms & Ecosystems group, believes that the reason more companies are not adopting platform strategies right now is because today’s corporate leaders were not taught this model at business school.

‘Very few leaders at non-digital companies understand, to a profound degree, business models like this and even when do they do it takes time to percolate through the strategy process,’ he says. ‘In a really connected world what a platform business does is to optimise supply and demand between the producers of certain goods and services and consumers.

It orchestrates those interactions and makes them more efficient — just like farmers’ markets or stock exchanges do. In a digital world you can put many, many more types of people together, as eBay and then Apple, Facebook, Amazon and Alibaba, have demonstrated.
European companies are starting to wake up but they are five years behind and their cultures are certainly not digital.’
Simon Torrance, World Economic Forum

First steps to transitioning for traditional companies

The arrival of platform competitors doesn’t signal the end for traditional businesses, but they’ll need to move rapidly to avoid serious damage.
For a start they’ll need to re-evaluate their existing business models and:

  • Examine the costs of processes such as marketing, sales, distribution and customer service, and decide how those costs can be reduced or eliminated in a connected world.
  • Change the usual approach of process improvement to one of process elimination – not to be confused with outsourcing (which is usually done for reducing cost rather than driving improvement). Ideally these processes can now be performed by customers or suppliers.
  • Determine how they can enable customers and suppliers to design (or assist in guiding) new products and services.
  • Explore the possibilities of connecting with competitors to deliver useful services (such as delivery, installation, service, etc.)
  • Identify ways to use the insights and data that they acquire by using the platform, to enhance their products and services, and to create new revenue streams like ad revenue or subscriptions.
  • Consider all the individuals and organizations that they currently interact with, and come up with new ways of networking with them to create value.

Serve all partners with your platform, and avoid the Field of Dreams approach

If you build it (the platform) without thinking it through, then they probably won’t come. Many companies build grandiose connectivity strategies and portals, then wonder why nobody has come to the party.
These 3 steps will help you to avoid this trap:

  1. Serve your customers individually, and understand their problems. Then solve those problems.
  2. Understand your suppliers’ problems, and solve those too.
  3. Use insights to continually improve your services. With a digital connection to customers and suppliers, you will collect tons of data that informs of success and failure. Use this data to learn and adapt to your customers’ needs.

Start looking outwards – platforms will turn the business inside out

Because the platform’s value is created by its ecosystem, the business must shift its focus from internal activities to external activities.
Strategy moves from controlling intellectual property and erecting competitive barriers, to managing external resources and supporting vibrant communities.
Innovation no longer comes from internal experts and research and development labs, but through crowdsourcing and the contribution of ideas in the platform. You’ll hear what your customers want from your business, directly.

Conclusion and key takeaways

The Platform Economy represents a massive shift in the way business will be conducted in the future. The platform business model can be adapted to practically any business – it’s not the exclusive domain of Silicon Valley start-ups.
However, you don’t need to build a Platform if that doesn’t suit your business plan – you can be very effective and profitable as a participant in another company’s platform.

You also don’t need to have the first-mover advantage. Established companies can be “fast followers”, and leverage their existing assets to considerable effect.

In closing, here’s one more thing for you to consider. You may already be in a dominant position in your chosen industry or business sector, and maybe the possibility of competitive digital disruption seems remote. Why then consider changing your business model?

As a platform business your market value will increase, considerably. An increasing percentage of a business’s valuation is being based on its intangible assets, or intellectual capital (since 1975 the percentage of value based on intangible assets has risen from 20% to 80% among Fortune 500 companies).

As the Platform Economy gathers momentum, the valuation of intangible assets looks set to favour Platform businesses even more highly. Accenture believes that within three to five years, market cap valuations will be largely based on the power of ecosystems and digital assets, including the network effect of platform interactions, and control of key digital technologies such as algorithms and APIs.

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Naspers has built up a global online classified business call OLX, and acquired a stable of tech and platform businesses including food delivery start-up Delivery Hero (Germany).

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2019-07-17T08:28:29+00:00