The New Order: flexibility and foresight are the keys to the platform economy

Moore’s Law turns 50 this year. If the theory, predicted by Intel co-founder Gordon Moore, that data density will roughly double every year for the foreseeable future, makes your heart sink rather than sing, you’re likely part of an organization facing digital disruption, rather than the one causing it.

Little wonder that the now legendary’ burning platform’ analogy, penned in a panic email to staff by Nokia CEO Stephen Elop as he contemplated the destruction of his company by fast-moving and unforeseen competition from outside the industry, resurfaces regularly. Across sectors from manufacturing to utilities, the tech start-ups just keep on coming.

Often unencumbered by regulation and adopting an ‘act now, apologize later’ approach, these digital competitors, described by The Economist as ‘a magical combination of geeks in T-shirts and venture capital’, form the heart of the platform economy. They derive their success from reinventing the relationship between producer, consumer and employee by building apps on the network and analyzing the data to create a whole new business model embedded in the social and shared economy.

Uber, Airbnb and Netflix have already revolutionized transport, travel and entertainment by thinking first what the consumer wants and matching it with a double-sided platform that brings together supply and demand by manipulating two or more sides of the market – investors-lenders, sellers-buyers, educators-learners. In the same way, with a pot of revenues estimated at $4.7 trillion by Goldman Sachs, the fintech start-ups are scalding the banks with a relentless stream of electronic payment apps, peer-to-peer lending and crowdfunding.

Rather than just offering one product or service, these champions of the network effect have the potential to capitalize on a whole ecosystem. Amazon, for example, brings together supply and demand but also uses the same servers to offer cloud services to both. Uber, operating in 40 countries, is now in a position to deliver meals prepared by home cooks to the elderly, say, paid for via the health insurer’s app, or to negotiate with reluctant cities by offering to share valuable infrastructure data.

What the new competition has in common is the speed with which its ideas take hold and that it catches traditional operators off-guard.

What the new competition has in common is the speed with which its ideas take hold and that it catches traditional operators off-guard. Like Nokia, they don’t see it coming because they’re not moving at the same pace. Even if they can spot the start-ups and recognize what they’re doing, they can’t change quickly enough to keep up. Operating in their comfort zone, they’ve suddenly become second best, ruled by Eroom’s Law –Moore’s Law backwards.

Elop’s desperate memo highlighted radical behavioural change, faster innovation and the promotion of internal co-operation as the saviors of a company falling behind. I would add smart algorithms that translate customer behaviour into accurate personalization, reputational trust communicated via social and unbundling organization layers until only the real customer needs are left.

The new normal is defined by agility, ecosystems, APIs (Application Programming Interfaces) where customers have more freedom of choice and better service at lower cost. Commerce is no longer linear. Either you become a platform yourself, like, say, Apple, or you become an agile ecosystem that incorporates start-ups and accelerators, as the car manufacturers are having to do at pace.

Ultimately, the new value of an organization will be measured by its capability to change. Our advice to CIO and CEOs is not to wait and see but to seize the bull by the horns, deploy technology to break constraints and innovate and, above all, don’t be terrified. The odds are better than you think.

Menno van Doorn
Director, VINT, Sogeti

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Facing Disruption

Watch our videos to get ideas on how to you can innovate in the face of digital disruption.

  • What does innovation mean for companies today?
  • Why should companies innovate today?
  • Key insights into how to win in today’s era of innovation
  • Innovation Hacking
 

Darwinian Digital Disruption: Survival of the Fittest

In recent years, as digital takes hold, corporate mortality rates have increased. Since 2000, 52% of companies in the Fortune 500 have either gone bankrupt, been acquired or ceased to exist.

Smart, technology-driven startups are playing a big part in this development. Venture funding to startups is at historic highs. In just one startup hotspot, Silicon Valley, venture capital investment in the first three quarters of 2014 was around $17 billion, a figure that is only surpassed by the peak of the dotcom era in 2000.

But traditional incumbents are struggling to respond with agility to these increasing levels of digital innovation. Capgemini Consulting’s latest research found that nearly 74% of companies responded to digital disruption only in the second year of its emergence. Worryingly, over 38% of incumbents responded to the emergence of a disruptive company after the fourth year. Our research also revealed that the vast majority of companies that went bankrupt responded only when the digital disruption had already firmly taken root.

As technology cycles keep getting shorter, disruptions will become more prevalent. Does this spell the end of the venerable, centuries-old corporation? Not necessarily. Here are four ways for incumbents to thrive in the digital food chain.

  1. Proactively Identify Customer Pain Points

  2. Disruptive startups are good at entering a market by identifying customer pain points. Resolving these pain points then becomes their – and your - unique selling proposition.

  3. Question the Status Quo and Constantly Audit Your Business Model

  4. Many incumbents typically stick to the same strategy playbook that has served them for years. It is vital for a company to keep questioning the status quo.

  5. Reorganize Resource Allocation around Opportunities

  6. Most organizations are typically organized by business or market unit. Resources are subsequently tied into what are in reality independent fiefdoms. Responding to digital disruptions requires organizations to move to a resource allocation that is centrally governed and organized around opportunities, not existing structures.

  7. Move to an Open Innovation Model

  8. Large companies need to learn to spot the early warning signs of disruption to avoid being surprised by their impact at a later stage. This requires a shift to an open innovation model that allows them to stay tuned to sources of disruptive innovation.

Digital disruptions are a fact of economic life in the twenty-first century. New digital technologies do not care for organizational history or tradition. In fact, they sweep aside existing approaches and models, creating a new world order. The age of digital Darwinism is here.

Jerome Buvat
Global Head of Research, Capgemini Consulting

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10 Design Principles to Platform Design

To protect your enterprise from being outdated by the next start-up, look at how you can turn your enterprise into a platform. Here are 10 design principles to get you started.

  • Sharing is the new having

    Identify what available resources from people could share.

    Sharing personal assets opens up new opportunities: A personal car become taxis; a home kitchen & dining room becomes a restaurant; someone’s home becomes a hotel.

  • Access goes beyond ownership

    Think about how your enterprise provide access to the available resources that belong to your company or your customers.

    What started out in the entertainment industry is now applied everyone. Customers no longer need to own CDs or DVDs to listen to music or watch films. This principle can now be replicated elsewhere.

  • Lower costs through matchmaking

    As the role of the intermediary between the suppliers of the resources and customers, ensure that the transaction between them runs as smoothly as possible.

  • Butter your bread on both sides

    Identify how you can offer services and not just products.

    Just like Apple makes money out of the sale of apps and smartphones. Find out how to create your own Internet of Things project.

  • Unbundle your organization processes

    Unbundling: Strip the layers from a product or a service until only the real customer needs are left to help your organization expose the frictions in a customer interaction process. By unbundling, you will simplify the the end-user experience and find a new way for providing a service.

  • Getting the most out of SMACT

    Why is there so much talk over social, mobile, analytics, cloud and the Internet of Things? Precisely because these enable new players to innovate more simply and quickly. This is why your enterprise should embrace SMACT too.

  • APIs first

    APIs are the integrating link between platforms, apps and services of third parties and have an enormous impact on the scalability and distribution of platforms and their services.

    Think how your enterprise can use APIs to extend your business model cross-sectoral- and cross-partner- wise, and to be placed up front in the distribution chain.

  • Algorithms for the perfect match

    Being intermediaries, platforms will do anything to bring about the perfect match between the service provider and the end user. Digital platforms have increasingly smart algorithms to bring together supply and demand.

    Think about how your enterprise can enhance your services with algorithms to deliver greater personalization and faster, more accurate and efficient processes.

  • Ingrained trust with social systems

    People are more likely to trust one another than they do institutions and it is the individual’s reputation that is gradually becoming the new currency and can help to improve your brand’s reputation.

    To some extent, software has made trust scalable. Enterprises should look at how to use platforms to capitalize on this by deploying new systems based on online signals and evaluations of co-users.

  • Act now, apologize later

    The new challengers are on the look-out for loopholes in the law using the motto “Act now, apologize later.” Look at what boundaries your enterprise can push.

For the full report, read Design to Disrupt.

Meet the authors

 

Lanny Cohen Capgemini Group CTO
Sogeti

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Michiel Boreel Sogeti CTO

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Jerome Buvat Global Head of Research, Capgemini Consulting

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Menno van Doorn Director of the Sogeti Research Institute for the Analysis of New Technology

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Ron Tolido SVP, Group CTO Office and Global Insights and Data Practice

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