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How digital platforms are changing the way we do business - Interview with Geoff Parker

Interview with Professor Geoff ParkerHow digital platforms are changing the way we do business

We are delighted to be welcoming Geoff Parker, Professor of Engineering at Dartmouth College, USA, and a research fellow at MIT’s Initiative for the Digital Economy, as a keynote speaker at this year’s CIM Symposium. Geoff has written extensively on digital platforms, including the book ‘Platform Revolution’ which has sold over 170,000 copies worldwide in nine languages. He also co-hosts the MIT Platform Strategies Summit.

In this interview, Geoff shares his perspectives on how digital platforms are fundamentally changing the economy and the operating environment, and how firms need to adapt to survive and prosper.

How would you characterise the implications of digital platforms for businesses?

The global economy is changing. There is a shift from the domination of traditional firms: although conventional companies are still huge, the growth is coming from elsewhere, largely from the big technology firms.

We’ve also seen a significant change in the economy from the tangible to the intangible in terms of how value is created. This is evident in the accounting measures – the data show there has been a profound shift in the composition of the global economy. Our metrics haven’t caught up; we’re lacking the ability to understand where value is created and why.

In this context, businesses must to adapt to survive. A firm’s position in the supply chain will not remain stable. It will either get pushed down into a commodity layer if it fails to adapt, or it will rise further up the stack if it learns how to add value through digital enhancements. But the idea that you can carry on doing what you do without being affected is simply not true.

What does this mean for how firms need to change the nature of their offering?

The value proposition of a product used to be based mainly around the features of the product itself. But that has been shifting, and much of the value and competitive differentiation now sits in the product’s complementary data and information. For example, if you were buying a car twenty years ago, the ‘data’ you would use to decide on your purchase would have been based on things like the sound of the engine and the radio. We now use these features as minimum requirements, but the choice of purchase is based on more sophisticated criteria, such as the level of connectivity. Tesla cars are a great example: due to the need for finding electric charge points, the company has developed a system for automated optimal route planning, so the car integrates traffic patterns and availability of charging locations. The ability to recharge is facilitated by the use of real time data. This creates value that is incremental to the hardware.

Similarly with a lot of products, the value add is increasing with digital capability. This is also true of simple products – there is the potential for creating digital assets from almost anything. Think of spices –cooking ingredients valued for centuries. How could spices possibly become a digital asset? Well the answer is that you create a ‘social’ layer on top of the product. You disaggregate the spices into flavour profiles, then you use that in some sort of predictive analytics around what likely combinations might work, and map that to consumer food preferences. You can then start to create personalised predictions around new flavours to try. If you do all this in a social context you add a digital value layer on top of a very simple product.

What are the implications for manufacturers?

We’ve seen a revolution in consumer applications from digital applications (think of Amazon, Uber, Google, Facebook), and we’re on the cusp of one in business-to-business applications. Those firms that are able to leverage such capabilities are much more likely to endure and prosper than those who aren’t.

There are some critical ingredients that firms need for success. Organisational culture is crucial, and successful companies will be those with a willingness to adopt ideas that aren’t invented internally. They need to be much more open to innovation that takes place somewhere else, and to value-add that comes from external partners.

Another essential ingredient is the ability to leverage networks of potential collaborators and partners. Many firms do not have the management capacity to do this well, in terms of the influence they have over external parties. For example, how do you respond when there is channel conflict because supply chain partners start to do an activity that was previously done within your firm?

How can firms learn from the experiences of others?

It can be challenging to take lessons learned in one setting and assume you can apply them to another situation. If you have implemented small applications of a technology in one location, for example, can you assume the same modelling and learning will still apply across different company sites? Even more challenging is to apply lessons learned within one company across supply chain partners, or across sectors within manufacturing. There will be different considerations that arise in each context.

Nevertheless, the nature of the challenges are likely to have a lot of similarities. Commonalities may exist in terms of the complexity of the problem, or nature of the inputs. This is where consortia become very valuable, providing an environment where you can share insights, ask questions and pool knowledge.

What are the biggest challenges and risks?

Digital capabilities fundamentally change the dynamics of the environment in which firms are operating. Transparency, through data and digitalisation, is likely to change an organisation because things become visible that used to be hidden. And business models are highly likely to change, including in the way you sell and the way you buy, and the rewards and incentives systems.

There are certainly some major issues around data security and governance. We’re in the Wild West right now! We need significantly better security arrangements, backed up by industry consortia and by regulatory authorities, if we’re going to become more comfortable with the technology and with sharing data. It’s one of those areas where industry would benefit from some regulatory ‘soft infrastructure’.

There are also key questions around how firms measure the value of their offering, or understand the market value cap. The digital revolution is creating assets which are extremely difficult, or impossible, to measure. For example how do you assess the value of user-generated content, or shareability? These don’t show up as a tangible assets.

What would you highlight as the key message of your talk at the CIM Symposium?

I would like to throw out a challenge to companies: Are you being truly innovative?

Many firms think they are innovating because they have adopted technologies, but in fact they have been limited in how they are using it, perhaps because it remains localised, isn’t integrated across the end-to-end supply chain, or perhaps because they have implemented technology without changing their business model.

So to prosper in the new digital environment, firms need to think well beyond the box of their own systems. They need to think about where their connection points are, how to create value from those, and what that means for their own organisations.


 

Geoffrey Parker

Geoff Parker is a Professor of Engineering at Dartmouth College, USA, and a research fellow at MIT’s Initiative for the Digital Economy where he leads platform industry research studies and co-chairs the annual MIT Platform Strategy Summit. He has written extensively on digital platforms, including the book ‘Platform Revolution’ which has sold about 150,000 copies worldwide in nine languages. He also co-hosts the MIT platform strategies summit.

Geoff’s research explores the economics and management of platform-centred markets. Lots of product and service companies are thinking about or have already become ‘platforms’, using technology to match producers and consumers. Companies such as Facebook, Paypal, Alibaba and Uber have disrupted entire industries through harnessing the power of a platform business model. Geoff argues that all large companies need a platform strategy: this might be to be the platform, to partner for the platform, to sell through the platform, or it may be a conscious decision to continue to operate a traditional supply chain.

Additional information can be found at ggparker.net@g2parker, and Google Scholar

Read a recent articles from Geoff here:

https://hbr.org/2019/06/platforms-and-blockchain-will-transform-logistics

https://medium.com/mit-initiative-on-the-digital-economy/the-four-biggest-challenges-digital-platforms-need-to-address-a842413ee3c7

The 23rd Cambridge International Manufacturing Symposium

Shaping the future of global manufacturing supply networks:

Delivering sustainable value for producers and consumers through digital platforms

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