Born digital companies that have created platform-based business models such as Facebook, Uber, Amazon, Airbnb, etc. have become tremendously successful and created immense value. Accustomed to the new enhanced “digital way of life”, consumers are less tolerant towards user experiences that do not offer interactivity, convenience and compelling pricing models.
The key to these successful digital businesses is their platforms that are open, scalable, connected and intelligent. They are using technology to channel consumer frustration into inspiration by offering their consumers an opportunity to create, exchange and engage with fellow participants. Harnessing data from their platforms, digital businesses are disrupting existing business models; most traditional organizations are now abruptly subjected to an unanticipated competitive clash. The non-platform companies have realized the far-reaching implications of the platform business models and are defending their market share by creating their own platforms.
The charge is led through “digital transformation programs” but, surprisingly, most companies struggle to defend their turf and transform themselves. While most leaders are now well aware of what needs to be done, major challenges occur during the implementation and integration of platform business models into the existing organization.
Fundamentals of digital platforms are usually well understood
The leadership in most established companies is fully aware of vast opportunities that digital platforms can offer. As part of their “digital transformation” initiatives, they have set priorities around better customer understanding, enhanced proximity, exceptional customer experience and new service/product offering.
Beyond technology, the leaders also understand the need for transforming their organizations and relinquishing obsolete business practices, processes and models. They are transforming their organizations, bringing in agility, speed, flexibility and innovation akin to their tech counterparts.
To achieve this, leaders recognize key transformation levers:
- Integrating technology into business and implementing a modular organization structure and operating model – Creation of new digital platforms must eliminate split between business and IT organizations. Technology becomes the backbone that drives business transformation and new business models. It requires integration of business and technology teams. This seamless coupling of business and technology is exactly the unique differentiator of many born digital companies that enables them to drive platform innovation.
Monolithic structures and silos must be dismantled to create modular empowered business clusters that are organized in a tech products model. This has the benefit of enabling agility and releasing organizational innovation. Platform companies are typically organized into smaller business clusters that enable multidisciplinary individual teams to work on creating successful digital platforms.
- Adopting a flexible technology architecture – The spread of new technologies and architectural styles (e.g. microservices) creates new opportunities. In the past, large enterprises built complex monolithic systems which were cumbersome to manage both development and operations. New technologies allow companies to execute the modernization of legacy systems through the adoption of microservice and API architectures. This allows them to fragment monolithic systems into smaller logical components that are easier to manage and facilitate creating faster change to business models and processes aligned to market needs. Smaller teams are now dedicated to distributed components without the heavy dependency on large projects and associated release cycles enabling them to continuously drive platform innovation.
Why success is still elusive?
Armed with the realization of limitless possibilities of digital platforms and their own aspirations for change, the transformation journey should have been relatively easy. Astonishingly, most companies fail to successfully translate their aspirations into reality fast enough.
The answer lies in organizational “myopia”. It is the rendition of the organization’s bold objectives into “business as usual” initiatives. Most companies create end-to-end processes with clearly defined roles and responsibilities to ensure that strategy, product/service development, distribution and sales are delivered. It is this very operating model that fosters a short-sighted mindset and a culture of compliance to rigid processes and rituals focused on established ways of working. The moral justification for these rituals is usually deeply rooted in success stories stemming from previous periods of growth. It makes it all the more difficult to propose new alternatives – however logical and successful they may be elsewhere.
Traditional companies who now want to build similar digital businesses based on platform models face the difficult situation of running two different business models and processes concurrently; they must run the existing declining business model while simultaneously conceiving and growing a new platform based business. Even a company like Apple has faced a similar dilemma with their music business. The entry of Spotify and Google into the music industry has completed the shift towards a subscription-based model. Apple had no option but to give up its iTunes business in favor of Apple Music, its subscription business.
Why is it so difficult to implement what is common knowledge?
The main issue in a nutshell is the effect of mandated myopia which thwarts the effective implementation of new platform-based businesses.
Applying existing organizational structures and operating models to new platform business – The setup of digital labs to design new products and experiment with digital platform models is now fairly common practice across all industries. These initiatives are incubated as start-ups and rightly run quite independently from existing businesses. The challenge occurs when concepts successful in a lab setting are being applied more widely within the organization. The tendency is to run new concepts as one of the business units under the existing organization structure. The “new” quickly succumbs to the weight of the existing organizational rituals and processes.
Well-meaning key performance indicators – Another convention is to measure the success of new platform models using the same yardstick applied to existing businesses – especially in terms of revenue. New models often appear to be unviable business ventures during the initial gestation period leading to a quick disappointments and consequent actions that are short sighted.
Triumph over “organizational myopia”
Translating new platform concepts and aspirations into reality entails overcoming organizational myopia and the creation of capabilities, systems, processes, structures to translate concepts into a thriving business.
Start with organizational values, culture and mindset – As digital transformation often requires fundamentally changing customer engagement and current business models it also demands a deep examination of the existing organization. This may require the frightening task of identifying and adopting a new set of values to drive organizational culture and behavior.
Measure of success – The measure of success should be aligned with how a company is able to remove obstacles and create value for end customers by quickly adopting new concepts. While not immediately a revenue driver in terms of new customers, new concepts completely change the way the company can interact with customers and open the way to new business models on their digital platform.
Operating model, structure and roles – Rather than forcing the integration of successfully incubated platform concepts into the existing organization, many successful transformations concentrate on ring fencing the old business and letting new business models and leadership expand. The key to success is the identification and enablement of people who have the vision and can translate an idea into business. The market now has many successful examples of such transformations. When Microsoft acquired Linkedin, it could have been integrated in the overall portfolio as just another HR solution. Instead Linkedin was left to keep its own culture and promote digital business models closer to its own core.
In the end such defining decisions will be what it takes to prevail in the digital era!
Written by Srikar Reddy, CEO at Sonata Software; editing by Sridhar Vedala, Head of Digital Business.
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