Reading summaries - week sixteen, Spring 2018

Class themes were Emerging Models of Competition: Platforms, Class Wrapup in IDSC, and Integration and Course Wrap-up in MGNPO. This is the last of the assigned readings for IDSC and there were no assigned readings for the last week of MGNPO. 😎

Table of contents



Pipelines, Platforms, and the New Rules of Strategy, Marshall et al. (2016)

Idea in Brief

  • The sea change
    • Platform businesses that bring together producers and consumers, as Uber and Airbnb do, are gobbling up market share and transforming competition
  • The new rules
    • With a platform, the critical asset is the community and the resources of its members. The focus of strategy shifts from controlling to orchestrating resources, from optimizing internal processes to facilitating external interactions, and from increasing customer value to maximizing ecosystem value.
  • The upshot
    • In this new world, competition can emerge from seemingly unrelated industries or from within the platform itself. Firms must make smart choices about whom to let onto platforms and what they’re allowed to do there

Article summary

  • Apple (along with Google’s competing Android system) overran the incumbents by exploiting the power of platforms and leveraging the new rules of strategy they give rise to.
  • Platform businesses bring together producers and consumers in high-value exchanges
  • chief assets are information and interactions
  • As the number of participants on each side grew, that value increased—a phenomenon called “network effects,” which is central to platform strategy
  • Platforms have existed for years. What’s changed in this century is that information technology has profoundly reduced the need to own physical infrastructure and assets
  • IT makes building and scaling up platforms vastly simpler and cheaper, allows nearly frictionless participation that strengthens network effects, and enhances the ability to capture, analyze, and exchange huge amounts of data
  • platforms all have an ecosystem with the same basic structure, comprising four types of players:
    • owners
    • providers
    • producers
    • consumers
  • how platforms differ from the conventional “pipeline” businesses:
    • Pipeline businesses create value by controlling a linear series of activities - the classic value chain model
    • Apple’s handset business is essentially a pipeline, but combine it with the App Store and you’ve got a platform
    • firms needn’t be only a pipeline or a platform; they can be both
  • move from pipeline to platform involves three key shifts:
    1. From resource control to resource orchestration
    2. From internal optimization to external interaction.
    3. From a focus on customer value to a focus on ecosystem value
  • These three shifts make clear that competition is more complicated and dynamic in a platform world.
  • network effects—the driving force behind every successful platform.
  • The engine of the industrial economy was, and remains, supply-side economies of scale
  • In supply-side economies, firms achieve market power by controlling resources, ruthlessly increasing efficiency, and fending off challenges
  • goal of strategy in this world is to build a moat around the business
  • The driving force behind the internet economy, conversely, is demand-side economies of scale, also known as network effects
  • firms that achieve higher “volume” than competitors (that is, attract more platform participants) offer a higher value per transaction
  • the larger the network, the better the matches between supply and demand and the richer the data
  • The five forces model doesn’t factor in network effects and the value they create
  • In demand-side economies, however, external forces can be “accretive”—adding value to the platform business
  • the power of suppliers and customers, which is threatening in a supply-side world, may be viewed as an asset on platforms
  • How platforms change strategy:
    • In pipeline businesses, the five forces are relatively defined and stable.
    • In platform businesses, those boundaries can shift rapidly, as we’ll discuss
  • platform firms must constantly encourage accretive activity within their ecosystems while monitoring participants’ activity that may prove depletive; a delicate governance challenge
  • successful platform businesses tend to move aggressively into new terrain and into what were once considered separate industries with little warning
  • a platform can abruptly transform an incumbent’s set of competitors
  • Competitive threats tend to follow one of three patterns.
    • may come from an established platform with superior network effects that uses its relationships with customers to enter your industry
    • a competitor may target an overlapping customer base with a distinctive new offering that leverages network effects
    • final pattern, in which platforms that collect the same type of data that your firm does suddenly go after your market, is still emerging
  • pipeline businesses focus on growing sales
  • For platforms, the focus shifts to interactions—exchanges of value between producers and consumers on the platform
  • the number of interactions and the associated network effects are the ultimate source of competitive advantage.
  • Most successful platforms launch with a single type of interaction that generates high value even if, at first, low volume. They then move into adjacent markets or adjacent types of interactions, increasing in both value and volume
  • In a pipeline world, strategy revolves around erecting barriers
  • With platforms, the focus of strategy shifts to eliminating barriers to production and consumption in order to maximize value creation. Must make smart choices about access and governance
  • Platforms consist of rules and architecture. need to decide how open both should be
  • Regardless of who sets the rules, a fair reward system is key
  • These choices aren’t fixed. Platforms often launch with a fairly closed architecture and governance and then open up
  • Some platforms encourage producers to create high-value offerings on them by establishing a policy of “permissionless innovation” - let producers invent things for the platform without approval but guarantee the producers will share in the value created
  • However, unfettered access can destroy value by creating “noise”
  • successful platforms manage openness to maximize positive network effects.
  • pipeline enterprises have long focused on a narrow set of metrics that capture the health of their businesses
  • As pipelines launch platforms, however, the numbers to watch change
  • Here are new metrics managers need to track:
    • Interaction failure
    • Engagement
    • Match quality
    • Negative network effects
  • Because platforms require new approaches to strategy, they also demand new leadership styles
  • traditional pipeline firms must develop new core competencies—and a new mindset—to design, govern, and nimbly expand platforms on top of their existing businesses.

Finding The Platform In Your Product: Four Strategies That Can Reveal Hidden Value, Haigu and Altman (2017)

In brief

  • The problem
    • Many companies that sell products or services either don’t realize they could turn their offerings into a platform business or struggle to do so
  • The opportunity
    • By becoming a multisided platform (MSP) that facilitates interactions between parties, a company may be able to provide new revenue sources while also preventing competitors from stealing market share
  • The solution
    • four scenarios are presented whereby regular products or services can become MSPs

Article summary

  • multisided platforms (MSPs), which facilitate interactions or transactions between parties. Many MSPs are more valuable than companies in the same industries that provide only products or services
  • companies that weren’t born as platform businesses rarely realize that they can—at least partially—turn their products and services into an MSP
  • Transforming an offering into a platform might enhance your company’s competitive advantage and raise barriers to entry via network effects and higher switching cost
  • many companies would benefit from adding elements of a platform business
  • The reason regular products and services are not multisided platforms is that they do not serve multiple groups or facilitate interactions between customers or groups
  • four ways in which regular products and services can bridge this gap and become MSPs:
    • 1. Opening the door to third parties
      • You become an MSP by making it possible for those third parties to connect with your customers
      • The third-party products may be independent of your product or service or may be apps or modules that work in combination with your offerings
      • For your product or service to become a true MSP in this scenario, at least some of the connection between your customers and third parties must be made through your product
      • For this type of transition to make sense, your product or service must have an established brand and a large customer base
      • must also meet one or both of the following conditions:
        • It serves a baseline need for many customers, yet leaves a large number of heterogeneous customer needs unserved
        • It generates frequent customer interaction
      • several pitfalls associated with this approach to an MSP
        • customers who come to you primarily for a product or service may object to the advertising of third-party offering
        • because you have an existing provider relationship with your customers, they may hold you responsible for the quality of their interactions with third parties
        • some third-party products and services may cannibalize your offering
      • if substitution from third parties is inevitable, bringing them onto your platform may expand its overall appeal to your customers
    • 2. Connecting customers
      • this scenario you are selling a product or service to two distinct customer segments that interact or transact with each other outside your offering
      • become an MSP by modifying or expanding your offering so that at least some element of those interactions or transactions occurs through your product or service
      • two pitfalls associated with this strategy:
        • Run the risk of wasting resources on a feature that ultimately creates little additional value for your customers or your company. It’s imperative that you conduct market research or run experiments to answer the following questions:
          • Would significant proportions of our offering’s various customer segments derive substantial benefits from interacting or transacting with one another?
            • If yes, can our product or service enhance those interactions in a significant way?
          • How will our customers react to the addition of an MSP feature, and how will that feature affect the way they interact with the original offering?
        • if one party is dissatisfied with the other, you may be held partly responsible. You need governance mechanisms in place
      • 3. Connecting products to connect customers
        • this scenario you are selling two products or services, each to a different customer base, and the two customer bases interact outside your offerings
        • become an MSP by modifying or expanding your offerings so that at least part of those interactions occurs through one or both of your offerings
        • Two risks are associated with this strategy:
          • you may waste resources on a feature that ultimately creates little value for your customers or your company
          • optimizing for interactions between customers of different products may lead to design choices that limit the growth potential of one or the other product
        • answer a few questions:
          • Would considerable proportions of your offerings’ respective customers derive significantly greater benefits from interacting or transacting through you?
            • If yes, can your offerings substantially enhance those interactions?
          • How will the customers of your two offerings react to the addition of an MSP feature?
          • How will that feature affect the way customers interact with the original products?
      • Supplying to a multisided platform
        • scenario you become an MSP by creating an offering for your customers’ customers that enhances the value of the product or service they buy from your customers
        • logically possible, we are not yet aware of examples of its successful implementation
        • major pitfall with this scenario is that your customers are likely to react negatively to any attempt to go after their customers.
  • The decision whether and how to convert an offering into an MSP should be informed by who your current customers are, how you currently interact with them, and how they interact with one another.
  • most fundamental challenge associated with this endeavor is transitioning from a world in which you have 100% control over what your customers are offered to one in which you can only influence the value that is created
  • final consideration is organizational and leadership challenges
  • might be difficult for employees who deeply identify with those products
  • might require putting business-development and marketing professionals in significant leadership role
  • senior management teams may find it difficult to deal with multiple or hybrid strategies, adopt and track new performance metrics, and enforce some degree of technological or customer experience consistency

Creating Business Value from Analytics, Kiron and Shockley (2011)

The leading question

What kinds of organizations are gaining a competitive advantage from analytics, and how?

  • There Is a widening gap between organizations that are gaining advantage
  • Management sup­port for analytics, including sponsors and top-down managers, is critical
  • Data-oriented cultures have three key characteristics that can be developed and refined

Article summary

  • companies experienced in analytics use are increasingly gaining competitive advantage - but their approaches vary.
  • increasing trend toward the use of analytics in business is driven by the need- and the ability- to use data to create not just business value but also competitive advantage
  • Companies that are still focused only on baseline uses of analytics are falling behind
  • three levels of reported analytics prowess:
    • Aspirationals
      • basic analytics users; they typically rely on analytics for financial and supply chain management and primarily use spreadsheets and structured, siloed data that support targeted activities
    • Experienced
      • rely on analytics to guide strategy as well as day-to-day activities in marketing and operations. This group also has experience with analytic tools, such as data visualization and advanced modeling techniques and, in some organizations, data integration efforts are underway
    • Transformed
      • strong and sophisticated analytics users. They rely on analytics in most activities to guide both day-to-day operations and strategy, and their enterprise data creates an integrated view of the business-and includes a growing focus on unstructured data. Transformed companies typically use a comprehensive portfolio of tools to support advanced analytic modeling
  • what is it about these analytics-oriented resources and capabilities that produce value?
  • what can companies that do not already have these resources and capabilities do to reap the benefits of analytics?
  • it’s not all about tools or having the right people to analyze the data
  • organizational factors are important predictors of whether an organization will be able to create a competitive advantage with analytics
    • management support for analytics throughout the organization
    • top-down mandates for analytics, sponsors and champions
    • being open to change and new ideas
    • unified focus on the customer that is driven by analytics
    • using analytics to identify strategic threats
  • the most advanced users of analytics typically have a strong data-oriented culture that supports and guides analytics use
  • Without strong cultural commitments, the success of an analytics program can be easily shortchanged or derailed.
  • culture doesn’t come easily, much harder than developing the technology expertise
  • Transformed and Experienced users are disproportionately using analytics to focus on the future, on the customer and on increasing efficiencies at greater depth and scope than Aspirationals
  • competency in two areas:
    • information management
    • analytic expertise
  • Together, a data-oriented culture, information management and analytic expertise foster what we call competitive analytics
  • Transformed organizations display a level of mastery in each of these areas
  • a data-oriented culture at the enterprise level has three key characteristics:
    1. Analytics is used as a strategic asset
    2. Management supports analytics throughout the organization
    3. Insights are widely available to those who need them
  • The path to a data-oriented culture may vary. In some cases, this culture may exist from the very beginnings of an organization; more often than not, a data-oriented culture evolves over time\
  • organizations that excel at using analytics to create a competitive advantage must also excel at two other competencies: information management and analytics expertise
  • Culture, information management and analytic expertise are mutually reinforcing
  • Experienced organizations are taking one of two distinct approaches to analytics:
    • Collaborative organizations
      • Just under half are taking an approach focused on developing their information management competency, with attention focused on creating an enterprise-wide information platform
    • Specialized organizations
      • slightly more than half are focused on building their analytics expertise
      • specialized line-of-business or functionally focused approach
      • deepening analytic skills within operations, finance, and marketing to optimize and predict specific business processes
  • Collaborative organizations emphasize information management
    • Collaborative organizations are almost three times more likely to use analytics to guide future strategies than Specialized organizations
    • Shifting to rely on analytics in day-to-day organizations
    • more than twice as likely to deliver insights to customer-facing employees to drive sales and productivity
    • twice as likely to provide insights to anyone in the organization who needs them
  • Specialized organizations emphasize analytics expertise
    • predictive analytic techniques help managers understand what is probable rather than just what is possible
    • majority of Specialized organizations that have focused on building their functional foundation also have begun to automate tasks using complex algorithms
    • Almost half of this group is leveraging algorithms to optimize activities such as call center interactions and inventory systems
  • which competency you tackle first depends on what kind of company you are, what kind of industry you are in and what kind of company you want to become
  • Managers and midlevel executives who often encounter resistance from senior executives to new ideas or changes in the status quo may create more momentum by taking a specialized approach
  • managers and mid-level executives whose upper management responds well to initiative, innovation and creativity can lead the charge toward a collaborative enterprise approach
  • Transformed organizations, meanwhile, need to be deeply aware of industry challenges arising from a pervasive, always-on digital environment
  • requires vigilance in detecting challenges and customer expectations that are just emerging or have never been fully addressed

Online Reputation Systems: How to Design One That Does What You Need, Dellarocas (2010)

  • The first step toward smart management of the social web is to understand something paradoxical about it: The new platforms may be all about harnessing crowds and communities, but in the end, those crowds and communities are nothing but a sum of individuals. And your company’s social web efforts will succeed only to the extent that you are able to attract good individuals, motivate them to perform good work, and empower them to get to know and trust one another enough to collaborate toward the end goals of the community.
  • How do you do that? By capitalizing on the motivational power of reputation
  • Reputation systems are ubiquitous but often undernourished-and badly designed- components of social web platforms
  • More than almost any other aspect of a social web platform, reputation systems are the puzzle piece that can make the difference between success and failure
  • Over the past 10 years researchers and practitioners in diverse fields have studied reputation systems, arriving at important results
  • Key decision #1: What are the key business objectives of your reputation system?
    • web-based reputation systems serve a surprisingly broad set of objectives that includes the following:
      • build trust
      • promote quality
      • facilitate member matching
      • sustain loyalty
    • All four objectives are relevant to the design of most reputation systems. Different social web platforms, however, assign different priorities to each of these objectives
  • Key decision #2: What information should be included in your user’s reputation profile?
    • three aspects to this decision:
      • Which actions are most relevant to the reputa­tion system’s users?
      • Which user behaviors are desirable?
      • For which behaviors is it possible to obtain reliable information?
  • Key Decision #3: How should reputation information be aggregated and displayed?
    • variety of methods for displaying outputs, fall into these three categories:
      • raw activity statistics
      • scores and distinctions
      • leaderboards and other methods of displaying relative user rankings
    • choice of an aggregation and display method is very important because it can determine:
      • a) the extent to which the reputation mechanism makes a judgement versus allowing users to make their own 1udgments
      • b) the extent to which the presence of the reputation system can create competition among users
  • By starting with the fundamentals, reputation system designers can go far toward creating exactly the system that will advance their company’s aims
Written on April 29, 2018