We can all see the future around us. Uber, Airbnb and Alibaba have all seemed to come out of nowhere to take commanding positions in their respective sectors of local transportation, hospitality and retail. Together, they and other companies that are basically network orchestrators with a digital platform are leading a revolution in business model design.
You, as an IT leader in a traditional sector of the economy, might wonder what this revolution has to do with you and your company. Everything. The benefits of this new model are so compelling, and the underlying premise is so basic, that it will inevitably take root in virtually every sector. And as an IT leader, it is your responsibility to help your company adapt as soon as possible.
It is clear that technology is changing everything: what we want (knowledge and relationships versus things and services) and from whom we want it (each other). That simple formulation is now working for everything from checking for dates (Tinder) to healthcare insights (PatientsLikeMe.com) to local support (Nextdoor.com). All these businesses are based on a simple premise: Each of us has something valuable (a car, a home, etc.) to offer to which others want access. All we seek is a digital platform and a host organization to help us connect the dots.
Now, you might be thinking that your organization neither thinks this way nor uses technology in this way. What’s more, your board will never “get it” because no one in your industry is doing business this way. Well, the good news is you can help move your organization forward by providing its leaders with the business case.
Among the benefits of digital networks and platforms are the following:
1. They scale more quickly and cost-effectively based on the fact that they leverage today’s technologies — social, mobile, cloud.
2. They are worth two to four times as much as older business models such as manufacturers, retailers, distributors, services firms and even technology organizations due to the cost of scaling and growth.
3. They have more potential for profit and growth because they generate revenues from two sides of their business — from customers and suppliers — each of which wants to access the other directly or indirectly.
Seeing the benefits isn’t difficult, though. What your company’s leaders might have a harder time picking up on is the potential for platform-based business models to emerge in every industry. But the evidence is mounting:
- Manufacturing: General Electric’s CEO, Jeff Immelt, declared that GE is going to try to be both a platform company and an application company. To that end, it has developed a platform called PREDIX that it is opening to customers and is building applications. Immelt’s objective: “If we end up having a platform that works, it’s a whole new company.”
- Delivery: Startup Deliv and others like it are offering same-day delivery for companies like Macy’s. There’s also Loggi, which offers to take packages directly from a retailer’s warehouse to the customer that same day.
- Flowers: Although the Netherlands continues to dominate the world flower market, it is on a path to create a platform and network to transform that business. FloraHolland’s CEO, Lucas Vos, told Reuters, “We need to realize that the logistical system we built for ourselves does not work in today’s flat world. In response, we are building a new platform that will be like Tinder or Airbnb for flowers.
Given that the business case is well established — network and platform business models provide superior returns and are emerging in every industry — here’s how you can get started implementing a platform business model in your organization. It’s a five-step process we call PIVOT:
1. PINPOINT your existing business model. Is it an asset builder, a service provider, a technology creator or a network orchestrator (our definition of a platform organization)?
2. IDENTIFY your dormant networks — be they customers, employees, partners, suppliers, prospects, alumni or investors. You have them; they just need to be activated.
3. VISUALIZE and build a prototype digital platform that enables each member of the senior management team to try it and experience how it would work. Nothing is more persuasive than hands-on experience.
4. OPERATE your new platform and network by attracting customers and suppliers to your platform. As an IT executive, this is your opportunity to leave a material mark on the economics of your firm — including growth, value and profits.
5. TRACK your progress and performance by working with your CFO to create new big data “guidance system” for your organization. Existing financial measures are not sufficient to understand the growth and value of a network. You also have to track engagement and contribution.
It’s clear that today’s best-performing organizations benefit from network economics (how large the network is and its level of participation), not just economies of scale (how much your firm can make, market and sell). So, if you want to help your firm as an IT executive survive and grow in the digital age, it’s not enough to just to implement today’s technologies as an IT executive. You also have to become a responsible for transforming your organization into a platform company with a vibrant and virtual network of things (IoT), people and data based on your knowledge of the power of today’s digital technologies.
The bottom line: You need to help your firm join the platform and network revolution. It’s your chance to put technology at the center of your firm’s value-creation equation. The choice is yours. You have all the technology know-how and relationships you need. Now all you need is a business case and investment proposal for the board and CEO/CFO that clearly shows the economic benefit of PIVOTing to a modern business model like Uber and Airbnb in your industry. Your efforts will be well rewarded!
Barry Libert, Megan Beck and Jerry Wind are the authors of the upcoming book The Network Imperative: How to Survive and Grow in the Age of Digital Business Models, out on June 28.
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