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David Card
Managing Editor, On The Horizon
New York NY 2019–08–06 — There are intertwining themes this week. Incumbent organizations have a hard time inverting themselves, especially when visionary leaders leave. Platforming often drives an emergent organization and leadership. And one of the core components to glue together platform ecosystems is customer and partner data — but that requires building a lot of trust.
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The Latest from On The Horizon
Platforming | Pulling The Business Inside Out On The Horizon founder Stowe Boyd examines a couple of analysis pieces on how companies, especially incumbents, face the challenges of adapting themselves to the platform ecosystem economy.
In The Four Biggest Challenges Digital Platforms Need to Address, members of the MIT Initiative on the Digital Economy identifies four things companies have trouble with when dealing with “inverted” firms, i.e., those that have moved production outside their own walls: 1) identifying those markets and companies and not understanding how to transform, 2) a shortage of data scientists crucial to the IT transformation efforts, and 3) not understanding how to cooperate with ecosystem partners.
After revisiting Rent the Runway as a case study of this, Stowe turns to Pipelines, Platforms, and the New Rules of Strategy, which contrasts “pipeline” linear supply chain companies with platform-based competitors.
The researchers catalog three key shifts from pipeline to platform:
- From resource control to resource orchestration — in the conventional, pipeline world companies seek advantage by controlling scarce and valuable assets, like metals, real estate and other tangible assets, along with intangibles like intellectual property, trade secrets, and patents. Once pulled inside out, the assets of importance are the ecosystem’s: the community of participants, and the assets that the members own and contribute, like rooms (Airbnb), clothing (RTR), data (Uber), or ideas (Haier’s open innovation model). As the researchers state, ‘In other words, the network of producers and consumers is the chief asset’.
- From internal optimization to external interaction — in pipeline companies, the core effort is to optimize the chain of product-related activities, focusing on price, time-to-market, or other attributes. In platform ecosystems, value is created emergently in the interactions of external producers and consumers. This can drop the costs of production enormously, exponentially for the orchestrator and other participants. So instead of dictating to supply-chain partners what to do, the orchestrator has to persuade partners to play, and ‘ecosystem governance’ becomes central. (Consider Haier’s emphasis on fairness in its ecosystem micro-communities, for example.)
- From a focus on customer value to a focus on ecosystem value — while ecosystems are often built around the provisioning of a product or service to an end customer, that is best understood as one of an interrelated set of value exchanges that link the members of the ecosystem together. All in the ecosystem have to derive a proportionate value relative to their involvement and efforts. Think of the customer as first among equals, rather than the be-all-and-end-all.
He concludes:
The hardest aspect of making the transition to platform thinking is the thinking itself. Adopting the mindset may be harder — especially for successful senior executives in well-established pipeline companies — than what goes on afterward. That explains why the great majority of transitions into the platform economy will be companies that become members of others’ ecosystems instead of creating ecosystems themselves.
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Spotify | An Emergent Organization Stowe digs into the story of how Spotify re-organized its engineering operations, and finds that followed some of the same patterns as other emergent organizations like Amazon. There’s a lot of detail on small-team self-organization and leadership roles in this analysis.
Spotify’s leadership can by mapped onto On The Horizon’s Emergent Organization chart:
I expect that the general lineaments of emergent organizations share key characteristics, in particular, these:
- Balancing self-management with accountability. At Spotify the squad is the nexus of this balance.
- Increasing innovation through decoupling. At Spotify, the loose coupling within tribes and the tight alignment within squads — and the platform architecture to support it — sidesteps bottlenecks and friction that could hold back innovation.
- Independent thought but shared awareness. Spotify squads work independently, but members transit from one squad to another frequently, and the guild and chapter structures, and the open-source model together support shared knowledge, best practices, history of decisions made, and technology trends.
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What We Can Learn From Bill Gore about Emergent Leadership In The short life of enlightened leadership (and how to extend it) by James O’Toole, looks at the 50 years’ worth of failures of enlightened leadership — “organizational practices benefiting both their shareholders and society” — few practice it and fewer still maintain it. Stowe says
O’Toole mentions high-flying exemplars — Herman Miller, Hershey, J.C. Penney, and Marks & Spencer — whose earlier attempts to improve society through business practices, not philanthropy, have degraded into just another batch of Anglo-American capitalist businesses, devoted to making money for shareholders.
He notes that W.L. Gore and Associates, an old favorite, bucked this trend, as it an a few others demonstrated: “Three interrelated factors appear to be critical for their long-term success: the carefully articulated business philosophies of their founders, their unusual governance structures, and their nontraditional forms of ownership.”
The organization system developed since is known as ‘un-management’, and involves no top-down management structure, no title, no ranks, or rules. Un-management relies on self-organization to an astonishing degree[…]
How to maintain this?
Finally, O’Toole provides great detail on the specifics of governance in these closely-held organizations, and how they are structured to resist efforts to reform them into something less protective of the interests of the shareholders and employees, far too much to expand on here. He believes that the recent appearance of ‘benefit corporations’ (or B Corps) may provide an easier mechanism for companies to be set up to benefit society rather than strictly to make decisions in the interest of short-term financial gains.
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Imagining a Digital Strategy Starting from TRUST On The Horizon contributor Tony Fish looks at classic strategic options that have dominated management for year and how they’re being challenged by platforms and big data. Customer data is one of components of the glue that ties platform ecosystems together. And companies must build a “platform of platforms.”
[The analysis] considers what happens if companies maintain existing strategies and styles, since these dominant forces (strategy and style) have path dependency (as in the economic definition). There is a recognition that the pressure of short term reporting and financial planning, with linear models, leads to a lack of appetite to focus on exponential ideals due to perceived risk but how these current limitations may ultimately lead to decline.
But the world is changing:
To compete in a digital world, where data is both an imperative, asset and liability, a new set of game theories need to be debated, recognised and agreed. Data in this context is data about customers. […] The classic economic market theory, where you and another player could use pricing, offers and other marketing tools to compete; has been eroded by data models.
Positioning a company as trustworthy about its customer data is a viable competitive advantage:
Why is trust so important as a new competitive tool? One reason is that in the old strategic framework, if you had dominance in a market you could defend it. Loyalty is an economic manipulation not a basis of trusted relationship. There was no real need for emotional “trust” (doing what is in the best interests of the consumer); just functional trust (make sure it worked). These topics of trust are explored here).
In the data competitive landscape Google, Facebook, Amazon can come into your market and offer the same service for free, with the idea of using data as the value exchange. This, we have already seen means classic cash cow markets and products decline to zero margin if you want to remain a competitor. The value moves. Whilst examples such as the GFA gang can disrupt a market with the offer for free, that is not enough as a long term strategy — trust has become critical.
Incumbents may have a hard time adjusting here, especially if they’re in the midst of digital transformation — largely platform oriented — at the same time. They need to adjust their organization and management over time:
Finally Tony looks at Amazon as an example. AmazonFresh demonstrates platform spin-out, extending trust around data to partners. (I’ll observe that Amazon doesn’t always succeed in transferring — or earning — that partner trust.)
The point is that a corporate needs to consider how to create many platforms from its existing business and not one, how to create an ecosystem that it builds its business with and not about extracting value from the community, how to find and utilise data better: all whilst still increasing the efficiency and effectiveness of the core.
Elsewhere
The Corporate Rebels also look at When Pioneering Companies Fail. Stowe notes that “A common theme is the departure of a CEO who animated the innovation.”
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Sometimes you have to be careful when you’re learning from Amazon. It’s building an infrastructure that will require a whole heap of consumer trust: How Amazon will take over your house. Some rogue managers seem pretty shifty: EBay Accuses Amazon Managers of Conspiring to Poach Its Sellers. Not all of its experiments work: Amazon is going to kill your Dash button.
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A big Pew Research Center survey of Americans shows their faith in technology companies has turned sour pretty dramatically. Could it be trust?
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Irving Wladawsky-Berger argues that blockchain technology — distributed ledger, or “blockchain for business” rather than cryptocurrencies — is transformational in three ways: it enables distributed organizations, trusted business models, and decentralized ecosystems.
