On The Horizon Weekly – Origin Story

Google’s Ecosystem Construction | Competitive Environments |

New York NY 2019-08-013 – Looking back, what Google did to build the model of a modern digital ecosystem was a lot more than just launch a platform. Incumbent industry players wary of digital intruders would do well to learn its lessons.

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The Latest from On The Horizon

The Origins of the Modern Ecosystem. Haydn Shaughnessy digs into the history of how Google built its search engine-based ecosystem. There were more moving parts that you might remember, and less dependence on classic platform tropes.

Google’s rise to dominance in this industry marked the origins, the very genesis, of the modern business ecosystem. A look at Google shows that platforms are not about two-sided markets or network effects.

Google built a rich infrastructure of tools and services to support the marketers in its ecosystem, and built them so they wouldn’t bog down Google’s own resources:

Google showed the way with a run of innovations in customer focused tools that it gave away (tools like Trends and Analytics, and self-service dashboards). Tools that shifted us away from old fashioned ideas about service and customer centricity to something also new — creating the conditions for customers to take charge of their own success.

But first, it had to establish the business model of search. No, it didn’t invent paid advertising and placement. But it did lay the groundwork for search engine optimization suppliers.

Google’s innovation was, in a sense, to make this word-stuffing game harder but still achievable.

PageRank could still be manipulated by SEO experts who second-guessed how the algorithm worked, but it took considerable investment to build high-quality inbound links, initially the primary driver of Google’s rankings.

The search engine won favour with the search marketing community in part because there was now a systematic and low-spam way of serving their customers. Creating pages with inbound links from pages that also had inbound links was an easily understood mission, though a difficult one too.

The ecosystem foundation also supported smaller marketers:

There was the search element, a platform where people could come online and immediately jump into relevant content; there was the paid element, where advertisers could pay for clicks through to their websites; there was the SEO community that would arrange “organic” search return performance, meaning companies would score highly on Google because they had the right content and the right links; and there were massive content providers who felt that Google was the channel for them to reach more readers. There were also small advertisers with micro-budgets advertising local goods and services and large advertisers who began to divert significant budgets to “digital.”

Haydn illustrates that Google’s ecosystem combined key elements beyond what casual analysts attribute to platforms:

  • Self-service – for the marketers

  • User experience – again, for the marketers: easy to use and configure tools

  • Microtransactions – so small and large players could participate

  • Scale – on all sides: end users, content searched, marketer participation, global distribution

  • Data – for tracking search campaign effectiveness

  • Advocacy ecosystem – the combination of all of the above was more powerful than mere network effects or a 2-sided marketplace.

Haydn concludes:

What can we say about this ecosystem play? This was not the two-sided market experts claim it to be. A two-sided market would be an Uber, bringing people together travelers who need a ride. Or it would be a dating site bringing people into couples. But this search community was, and is, something else. It is a vast collection of different types of content creators, craving different kinds of audiences; it is those audiences too. It is the skilled search engine marketer selling visibility to clients. It is the vast literature on good online marketing practices; social media conferences, authors and their books, training courses, all ultimately telling you how to Google. It is the brand community who need exposure. It is people needing information and the apps that have grown over time to help them. It is the early advocates of Google.


Elsewhere

Software, Ecosystems and the New Logic of Competition The BCG Henderson Institute (the Boston Consulting Group’s think tank) uses some squabbling over open source commercialization to illustrate key principles of digital ecosystem competition. “For companies accustomed to traditional competitive dynamics in industries with linear value chains, these principles may seem counter-intuitive, but they will become increasingly important[…]” Roles can change on the fly and orchestrators must choose what value to capture, resulting in inter- and intra-ecosystem competition.

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Radically rethink your strategy: How digital B2B ecosystems can help traditional manufacturers create and protect value Some McKinsey partners argue that digital ecosystems are the best defense against tech giants moving into the manufacturing space. They outline the building blocks that form the foundation of a sustainable system.

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Advantage Flywheels Max Olson’s FutureBlind blog provides handy visuals of 6 different types of flywheels – also known as causal loops – for your future presentations. He uses them to map a handful of the usual platform ecosystem suspects.

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Amazon-FedEx split sets battle lines in e-commerce delivery feud After dropping out of Amazon’s air distribution, FedEx takes the next step and exits its ground network, too. FleetOwner digs in a little deeper than the obvious coverage and suggests which partners will pick up the slack (UPS) and how FedEx will compensate (Walmart).

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Twitter to Remove Third-Party Data From Ad-Buying System Privacy regulations are biting into the services that digital media companies offer their marketing partners. Facebook was the first to strip out third-party targeting data, now it’s Twitter. Big agencies will adjust and supply their own, but this kind of thing makes it tougher for smaller marketers.

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Deliveroo Rescue Team to Turn Struggling Restaurants Into Delivery-Only Businesses In contrast, the food delivery company is adding more services for its ecosystem partners. It will try to help failing restaurants with its “ghost-kitchen” delivery-only network.


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On The Horizon Weekly – Emerging, Platforming, Trusting

Platforming | Emergent Organizations and Leadership | Spotify | Trust

image by Zdeněk Macháček

New York NY 2019-08-06 – There are intertwining themes this week. Incumbent organizations have a hard time inverting themselves, especially when visionary leaders leave. Platforming often drives an emergent organization and leadership. And one of the core components to glue together platform ecosystems is customer and partner data – but that requires building a lot of trust.

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The Latest from On The Horizon

Platforming | Pulling The Business Inside Out On The Horizon founder Stowe Boyd examines a couple of analysis pieces on how companies, especially incumbents, face the challenges of adapting themselves to the platform ecosystem economy.

In The Four Biggest Challenges Digital Platforms Need to Address, members of the MIT Initiative on the Digital Economy identifies four things companies have trouble with when dealing with “inverted” firms, i.e., those that have moved production outside their own walls: 1) identifying those markets and companies and not understanding how to transform, 2) a shortage of data scientists crucial to the IT transformation efforts, and 3) not understanding how to cooperate with ecosystem partners.

After revisiting Rent the Runway as a case study of this, Stowe turns to Pipelines, Platforms, and the New Rules of Strategy, which contrasts “pipeline” linear supply chain companies with platform-based competitors.

The researchers catalog three key shifts from pipeline to platform:

  1. From resource control to resource orchestration — in the conventional, pipeline world companies seek advantage by controlling scarce and valuable assets, like metals, real estate and other tangible assets, along with intangibles like intellectual property, trade secrets, and patents. Once pulled inside out, the assets of importance are the ecosystem’s: the community of participants, and the assets that the members own and contribute, like rooms (Airbnb), clothing (RTR), data (Uber), or ideas (Haier’s open innovation model). As the researchers state, ‘In other words, the network of producers and consumers is the chief asset’.

  2. From internal optimization to external interaction — in pipeline companies, the core effort is to optimize the chain of product-related activities, focusing on price, time-to-market, or other attributes. In platform ecosystems, value is created emergently in the interactions of external producers and consumers. This can drop the costs of production enormously, exponentially for the orchestrator and other participants. So instead of dictating to supply-chain partners what to do, the orchestrator has to persuade partners to play, and ‘ecosystem governance’ becomes central. (Consider Haier’s emphasis on fairness in its ecosystem micro-communities, for example.)

  3. From a focus on customer value to a focus on ecosystem value — while ecosystems are often built around the provisioning of a product or service to an end customer, that is best understood as one of an interrelated set of value exchanges that link the members of the ecosystem together. All in the ecosystem have to derive a proportionate value relative to their involvement and efforts. Think of the customer as first among equals, rather than the be-all-and-end-all.

He concludes:

The hardest aspect of making the transition to platform thinking is the thinking itself. Adopting the mindset may be harder — especially for successful senior executives in well-established pipeline companies — than what goes on afterward. That explains why the great majority of transitions into the platform economy will be companies that become members of others’ ecosystems instead of creating ecosystems themselves.

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Spotify | An Emergent Organization Stowe digs into the story of how Spotify re-organized its engineering operations, and finds that followed some of the same patterns as other emergent organizations like Amazon. There’s a lot of detail on small-team self-organization and leadership roles in this analysis.

Spotify’s leadership can by mapped onto On The Horizon’s Emergent Organization chart:

I expect that the general lineaments of emergent organizations share key characteristics, in particular, these:

  • Balancing self-management with accountability. At Spotify the squad is the nexus of this balance.

  • Increasing innovation through decoupling. At Spotify, the loose coupling within tribes and the tight alignment within squads — and the platform architecture to support it — sidesteps bottlenecks and friction that could hold back innovation.

  • Independent thought but shared awareness. Spotify squads work independently, but members transit from one squad to another frequently, and the guild and chapter structures, and the open-source model together support shared knowledge, best practices, history of decisions made, and technology trends.

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What We Can Learn From Bill Gore about Emergent Leadership In The short life of enlightened leadership (and how to extend it) by James O’Toole, looks at the 50 years’ worth of failures of enlightened leadership – “organizational practices benefiting both their shareholders and society” - few practice it and fewer still maintain it. Stowe says

O’Toole mentions high-flying exemplars — Herman Miller, Hershey, J.C. Penney, and Marks & Spencer — whose earlier attempts to improve society through business practices, not philanthropy, have degraded into just another batch of Anglo-American capitalist businesses, devoted to making money for shareholders.

He notes that W.L. Gore and Associates, an old favorite, bucked this trend, as it an a few others demonstrated: “Three interrelated factors appear to be critical for their long-term success: the carefully articulated business philosophies of their founders, their unusual governance structures, and their nontraditional forms of ownership.”

The organization system developed since is known as ‘un-management’, and involves no top-down management structure, no title, no ranks, or rules. Un-management relies on self-organization to an astonishing degree[…]

How to maintain this?

Finally, O’Toole provides great detail on the specifics of governance in these closely-held organizations, and how they are structured to resist efforts to reform them into something less protective of the interests of the shareholders and employees, far too much to expand on here. He believes that the recent appearance of ‘benefit corporations’ (or B Corps) may provide an easier mechanism for companies to be set up to benefit society rather than strictly to make decisions in the interest of short-term financial gains.

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Imagining a Digital Strategy Starting from TRUST On The Horizon contributor Tony Fish looks at classic strategic options that have dominated management for year and how they’re being challenged by platforms and big data. Customer data is one of components of the glue that ties platform ecosystems together. And companies must build a “platform of platforms.”

[The analysis] considers what happens if companies maintain existing strategies and styles, since these dominant forces (strategy and style) have path dependency (as in the economic definition). There is a recognition that the pressure of short term reporting and financial planning, with linear models, leads to a lack of appetite to focus on exponential ideals due to perceived risk but how these current limitations may ultimately lead to decline.

But the world is changing:

To compete in a digital world, where data is both an imperative, asset and liability, a new set of game theories need to be debated, recognised and agreed. Data in this context is data about customers. […] The classic economic market theory, where you and another player could use pricing, offers and other marketing tools to compete; has been eroded by data models.

Positioning a company as trustworthy about its customer data is a viable competitive advantage:

Why is trust so important as a new competitive tool? One reason is that in the old strategic framework, if you had dominance in a market you could defend it. Loyalty is an economic manipulation not a basis of trusted relationship. There was no real need for emotional “trust” (doing what is in the best interests of the consumer); just functional trust (make sure it worked). These topics of trust are explored here).

In the data competitive landscape Google, Facebook, Amazon can come into your market and offer the same service for free, with the idea of using data as the value exchange. This, we have already seen means classic cash cow markets and products decline to zero margin if you want to remain a competitor. The value moves. Whilst examples such as the GFA gang can disrupt a market with the offer for free, that is not enough as a long term strategy — trust has become critical.

Incumbents may have a hard time adjusting here, especially if they’re in the midst of digital transformation – largely platform oriented – at the same time. They need to adjust their organization and management over time:

Finally Tony looks at Amazon as an example. AmazonFresh demonstrates platform spin-out, extending trust around data to partners. (I’ll observe that Amazon doesn’t always succeed in transferring – or earning – that partner trust.)  

The point is that a corporate needs to consider how to create many platforms from its existing business and not one, how to create an ecosystem that it builds its business with and not about extracting value from the community, how to find and utilise data better: all whilst still increasing the efficiency and effectiveness of the core.


Elsewhere

The Corporate Rebels also look at When Pioneering Companies Fail. Stowe notes that “A common theme is the departure of a CEO who animated the innovation.”

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Sometimes you have to be careful when you’re learning from Amazon. It’s building an infrastructure that will require a whole heap of consumer trust: How Amazon will take over your house. Some rogue managers seem pretty shifty: EBay Accuses Amazon Managers of Conspiring to Poach Its Sellers. Not all of its experiments work: Amazon is going to kill your Dash button.

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A big Pew Research Center survey of Americans shows their faith in technology companies has turned sour pretty dramatically. Could it be trust?

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Irving Wladawsky-Berger argues that blockchain technology – distributed ledger, or “blockchain for business” rather than cryptocurrencies – is transformational in three ways: it enables distributed organizations, trusted business models, and decentralized ecosystems.


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On The Horizon Weekly – MVE and Six Contexts

Minimum Viable Ecosystem | VUCA | Bezos | Opening and Closing

image by Samuel Zeller

New York NY 2019-07-30 – We’re pretty familiar with the lean startup concept of a minimum viable product, but how about a minimum viable ecosystem? VUCA is an old War College acronym that is a good framework for the modern business environment. Meanwhile, Jeff Bezos may not use the term, but he’s eloquent on the subject of platforms.

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The Latest from On The Horizon

Minimum Viable Ecosystem On The Horizon founder Stowe Boyd follows some threads of conversation centered on the Internet of Things and extending the lean startup concept of Minimum Viable Product to ecosystems.

I don’t think minimum viable ecosystem is at all limited to the IoT context, just as minimum viable product isn’t limited solely to lean startups, which was the context that Eric Ries was thinking about when he introduced that term, originally.

Stowe extends the thinking of Gaye Soykök, Head of Emerging Technologies at Legal & General.

What he is getting at is that you need to pull together the smallest working model of an ecosystem — with the fewest possible participants, interdependencies, interactions — that validates the premises about delivering value to all participants, starting with (but not ending with) the end user.

…to get to a broader definition:

The minimum viable ecosystem is the least complex ecosystem that allows participants to learn about a more complex, future ecosystem with the least effort.

This includes learning about the interdependencies and interactions between ecosystem participants, like customers, partners, and governments, and specifically, how value should be shared.

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Innovating in a VUCA World: The Six Contexts Model Stowe reviews a year-old but still valid article on the global white goods company Haier Group in the California Management Review. VUCA is a military education term that has gained wider use in describing the forces on business: volatility, uncertainty, complexity, ambiguity.

The authors believe it may be difficult for other companies to adopt Haier’s context-specific management innovations, partly due to its long-gestating culture of experimentation. However, the six-context model remains a useful framework for thinking about modern organizations.

The authors break down three categories of environmental context (competitive, technological, and institutional) and another three of organizational context (structural, leadership, and resource). Of these, leadership was the most critical for

Leadership context — Confronted by a VUCA world and the growing inflexibility that comes with company size, [Haier CEO] Zhang believed the company needed to adopt innovative management practices to spread entrepreneurial thinking and an obsession with the user. At first, Zhang looked to Western companies and consultants, but the results were disappointing and did not lead to ‘Zhang’s vision of empowering every employee’. Specifically, he thought that no Western company had cracked the code on a radically different way to run a business like Haier. He responded by weaving together threads from ‘traditional Chinese writings, management gurus such as Peter Drucker, and new concepts such as quantum theory and “maker” culture’. Ultimately Zhang pushed through the various phases of Rendanheyi experimentally, incrementally working toward increasing autonomous operating units (microenterprises, or xiaowei), which make decisions independently, and who are driven by their own entrepreneurial goals.

Stowe summarizes the four key lessons from their analysis:

  1. Management innovation, done well, is a good response to the challenges of a VUCA world. This is as true in a traditionally slow-moving, low-profit sector like white goods as it is in Silicon Valley or the biotech sector.

  2. Haier’s story shows clearly how critical a cycle of experimentation is for management innovation, and as Zhang’s example shows, this is most likely with managers who are capable of learning from the experiments made.

  3. The six contexts model used in the research is a tool that others can apply to other instances of management innovation, and the complement of environmental and organizational factors is critical. As Zhang said, ‘both matter . . . the first big transformation of Haier was based on external factors, as we knew that the market was going to become much more competitive, but the next transformation was based on a fear that we had, or would, become much too bureaucratic, and so we needed to combat the internal tendency’.

  4. Managers should seek to incorporate other lessons from other management innovations, ones that are not necessarily carbon copies of Rendanheyi. The models worth emulating are those with a high degree of experimentation — unsurprisingly — and have to be tempered with an understanding of what is possible in their own organizational environment.

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Platforming | What Jeff Bezos Thinks Although Amazon founder doesn’t use the term platform in his annual letter to shareholders, Stowe notes that Esme González Pillardo correctly points out that it is a guidebook for ecosystem-building.

And in fact, Amazon seems intent on building technologies to support other companies creating new ecosystems relying on the same technologies that Amazon is using. Bezos adds to that mix an operating manual for doing that, and a peek into the mindset needed to balance incremental and revolutionary innovation, customer obsession and radical vision, and relentless experimentation and a willingness to fail big. And of course, building a culture around ‘builders’, and allowing them room to grow, and thereby grow the business.

Growing the ecosystem is good for Amazon: the company’s third-party merchants now outsell its own retail business.

Bezos realized, perhaps from the very start, that providing an ecosystem platform to others — based on the innovations he pioneered for Amazon’s own commerce business — would allow Amazon to grow exponentially faster than if he poured all the company’s energy and capital into simply growing a larger ecommerce business. He understood that in a long tail world the ecosystem of millions of small vendors would expand to occupy much more of the market than Amazon could do on its own. And the interchange and innovation with those vendors — making the tools better, sharing analytic and marketing tools — would increase the competitive advantage of Amazon significantly faster than going it alone.

Bezos distinguishes between customer-driven innovation, which is generally incremental, and revolutionary breakthroughs, which come from an idealized vision. AWS has a lot of features that are customer-driven, but the very idea of Amazon offering companies a cloud-based infrastructure of IT services came from within Amazon.

Stowe concludes with Amazon’s continued investment in people:

Jeff Bezos is well known for his concept of the two-pizza rule: no team should grow so large that two pizzas won’t feed the group at a lunch meeting. But the deeper meaning is manifested by supporting small, independent teams, who are allowed to make their own decisions regarding their project. Behind all the discussion of various bets, experiments, visions, and listening to customers is a culture of builders.

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Opening and Closing Ecosystem Markets Stowe contrasts how Beijing-based Didi Chuxing opened up its ride-hailing platform to smaller suppliers while Uber is experimenting with a subscription plan that includes rides, bikes, scooters, and food delivery.

Stowe sees Didi’s strategy as “an innovative move to retain and capture market share under new pressures.” There are tons of new entrants in Didi’s markets, and he expects:

[…]My bet is that auto manufacturers, who are arriving late to the ride-hailing world, will find it better to join established ecosystems, like Didi and Meituan.

Meanwhile, Uber’s initiative is aimed at locking competition out:

This tactic by Uber plays to its strengths and undermines possible discounts by Lyft and Postmates. Uber may be creating a monopolistic advantage similar to Amazon’s in ecommerce, and close competition down cold.


Elsewhere

Amazon as experiment Ben Evans of Andreesen Horowitz takes a look at Amazon, particularly its focus on buying rather than shopping. For instance, its Four-Star Stores - “Is this a new discovery model? A different way to change how people think about purchasing? Well, it’s another experiment.” He sees Amazon doing a lot of experimentation around logistics, but not very much around other elements of the buying experience. He reasons that Amazon’s focus on the parts that scale may hold it back on delivering the best, personalized experiences. I’m not sure I buy that, but it’s provocative thinking.

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The CEO of eBay explains how offering its own shipping service will be a profitable way to fight Amazon Business Insider describes eBay’s Managed Shipping service for merchants. It makes use of third-party shipping and logistics, eBay boxes for branding, and isn’t aimed at same-day delivery.

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In more delivery discussion, Grocery Dive looks at the grocery cooperative Wakefern, home of ShopRite and Inserra Supermarkets in Wakefern will test micro-fulfillment for 10 stores. It’s using Takeoff Technologies’ robot-powered warehouses in New Jersey.

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The Department of Justice announced it will examine big tech players for antitrust issues. It doesn’t say which players exactly: “The Department’s review will consider the widespread concerns that consumers, businesses, and entrepreneurs have expressed about search, social media, and some retail services online.”

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And the Federal Trade Commission a day later described its $5 billion fine of Facebook for breaking its promises on user data privacy. Facebook also broke the news on its earnings call that the FTC was actively investigating it for antitrust – that’s different than the potential DoJ look.

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Australia is in the action, too. The Australian Competition and Consumer Commission made 23 recommendations on Google and Facebook in its 600+ page report, addressing consumer privacy and competition with media.


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On The Horizon Weekly – Leadership Models for Innovation

Growing Up | Broken Flywheel | Emergent Leadership | Platform Regulation

Image by Markus Spiske

New York NY 2019-07-23 – We wrote a couple pieces on leadership that’s geared toward continuous innovation, and about how Instacart may be breaking its own marketplace by under-emphasizing deliverer retention. Elsewhere, there’s a lot of talk about platform ecosystem regulation.

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Growing Up: How To Let Go To Increase InnovationOn The Horizon chief Stowe Boyd reviews a survey-based study on Accelerating digital innovation by MIT Sloan Management Review and Deloitte. The analysts surveyed 4,800 managers, execs, and analysts, and conducted interviews with a double handful of executives and thought leaders.

The key takeaway is that greater digital maturity leads to an acceleration in innovation trajectory and a greater reliance on ecosystem-driven innovation. And one major insight is that maturation includes a willingness to share control with ecosystem partners to boost innovation.

Their analysis found that digitally maturing companies 1)innovate at a higher rate, 2)give more latitude to employees, 3)collaborate with external partners more, 4)deploy cross-functional teams, 5)are more agile, but may require more governance, and 6)predict future company strength. Stowe notes that

Shared ethics and their distribution through the network of players participating toward convergent goals in the ecosystem have to play the role a market regulator might in a conventional marketplace. However, getting that right can be difficult, especially in less mature companies.

The company types surveyed all seemed to believe external partnerships were vital, but only the digitally maturing did much in the way of cultivating them for digital innovation purposes.

Still nearly half of all the respondents – regardless of digital maturity – said that creating a collaborative culture and aligning goals were challenging. A practitioner advises ceding centralize control of goal-setting, and balancing the need to hold on to corporate culture while letting go of the things necessary to “grow up.” Stowe concludes:

This is again a principle of fast-and-loose operations: everyone does not have to agree about everything. Therefore a great deal of time and energy can be saved by decreasing the central role of full consensus, and replace it with an operational philosophy of consent.

The core principles of the ecosystem have to be rock solid, and a system of governance in place to regulate that, but one organization must allow partners to make decisions in areas of their control even if they themselves would come to a different decision. […]

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Instacart’s Broken Flywheel – A Bloomberg story on the food delivery company’s seemingly coercive practices towards its deliverers is an example for Stowe of “missing the middle ground in optimizing the marketplace dynamics, keeping prices low for customers while treating the workers badly: a broken flywheel.”

Apparently, Instacart sends 4 minutes’ worth of notifications to workers who ignore low-paying grocery deliveries. Stowe says:

Looks like Instacart is stuck with a broken flywheel. In principle, a two-sided marketplace based on buyers, deliverers, and Instacart in the middle where Instacart has an incentive, on one side, to keep buyers happy with low costs and reliable deliveries, while, on the other side, keeping workers happy with consistent well-paid gigs.

He suggests Instacart could

[…]have the option of making deliveries that are currently low-paying better paid. For example, they could institute an auction approach, where available workers could bid on the unattractive jobs, or Instacart could offer secondary benefits for taking bad jobs, such as first chance for later more highly-paid jobs.

In a tight job market, shouldn’t Instacart be organized around retaining its workers? Meanwhile, major grocery chains are acting to turn the two-sided marketplace into a multi-sided one, using Instacart itself to fulfill bulk orders. Instacart concedes that business is low-margin, or even a loss-leader, that allows it to sign up more customers. Stowe doubts this unhealthy alliance is sustainable long-term.

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On Emergent Leadership – Stowe admits a fascination with W.L. Gore, the maker of Gore-Tex, and its founder Bob Gore. Reviewing a Harvard Business Review article by a trio of MIT researchers, encourages him to look at Gore as an example of emergent leadership, and map emergent leader types against an organizational structure geared for continuous innovation.

The MIT researchers outline a three-tier model for leadership based on their historical study: entrepreneurial leaders move the company into new products and services, enabling leaders get them the resources and info they need, and architecting leaders monitor culture and high-level strategy. Stowe maps these types on his model of the global white goods company Haier Group:

I believe that the characteristics of the three kinds of leadership line up with the sorts of leadership in the concentric organizational model for Haier and its cultural context (see Hamel and Zanini on The End of Bureaucracy )

Nimble leaders step up (and out of their domain) when needed. The organization has a constant develop process to support this movement, and Stowe’s definition of emergent leadership:

Emergent leadership: the ability to steer things in the right direction without the authority to do so, through social competence.

This requires a new organization.

The emergent organization, one with three tiers (concentric layers) of leadership. And the executives need to be guided into the new roles that will play in the emergent organization, particularly the architecting leaders, who have to be the driving force behind the transition to emergence[…]


Elsewhere

Last week, the European Commission opened a formal antitrust investigation on whether its use of information from independent retailers violates EU competition rules. The potential conflict hinges on the role Amazon plays as platform owner and marketplace provider.

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Reframing platform power. In light of that, it’s fruitful to look at this recent article by a trio of European and Canadian academics in Internet Policy Review. They use the term “multi-sided platform” and “platform” interchangeably, but they’re really talking about the multi-side marketplaces spawned by the classic platform providers like Amazon, Google, Facebook, and Apple. They propose that European regulators examine the following:

  1. Do a case-study based analysis of how these marketplaces interact, what “critical infrastructure” roles a given platform plays, and their interdependencies.

  2. The goal would be policies and regulations that treat these roles – rather than equating the platform with the company – with more appropriate nuance.

  3. The analytic reframing would encourage countries and the EC to harmonize older regulatory frameworks like antitrust, consumer, and competition, with newer treatments of privacy, media, and network neutrality.

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Amazon Offers Sellers a Leg Up, With a Catch. The Wall Street Journal describes how Amazon is promising third-party merchants extra promotion, marketing, and reviews in trade for the right to buy out the brand for a fixed price. Some are actually agreeing to this.

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Facebook is backpedaling from its ambitious vision for Libra. Ars Technica says that, to satisfy US regulators, Facebook has to “design a new network architecture that strikes a reasonable balance between these competing objectives—a network that is locked-down enough to satisfy regulators but open enough to attract a healthy developer ecosystem.”

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Facebook Libra: What the regulators should do according to Readwrite Labs. And how Libra governance is supposed to work in Zenith Ventures’ analysis – Libra: A Governance Perspective.


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On The Horizon Weekly – Ecosystem Structure and Branding

Organizational Operating System | Ecosystem Branding | Micro-Communities

Image by Alina Grubnyak

New York NY 2019-07-16 – We look at how a platform company can structure its organization to support its ecosystem, and to extend that corporate organization beyond its own employees out into the ecosystem itself. Branding that ecosystem is almost part of the platform. It’s certainly one of a platform provider’s necessary skills.

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The Latest from On The Horizon

Lee Bryant on Digital Leadership – Inspired by a presentation from Lee Bryant, Stowe Boyd looks at platform-centered organizational structures such as the one implemented by multinational white goods company the Haier Group. Platforms plus services equals the new organization operating system.

Moving onto a platform-centered organizational model shifts the linear and vertical supply chain organization to a parallel and horizontal ecosystem model, where the new operating system is the combination of communications, conventions, and contracts — and the protocols of interaction and governance — that connect them together.

Bryant says such an organization is less dependent on managers telling people what to do, but rather setting a course, coaching, and acting as change agents for continuous improvement. Stowe adds:

This focus on continuous design is exactly what John Hagel means when he talks about scalable learning, where everyone engaged with the organization, not just management, is engaged in learning — including the customers — and iteratively improving processes, services, and products to better meet the needs of the customer.

Stowe compares Bryant’s “reverse hierarchy” model with customers on top with one of concentric circles where customers make up the center hub.

The value-creating functions (customer-facing microenterprises in Haier’s terminology) form the next concentric circle outward. They are directly involved in customer interaction and innovation, and they get back from the customer the transfer of money — in exchange for goods and services — but also new insights into customers’ needs and wants. This is the starting point of Hagel’s scalable learning.

He notes:

The concentric model represents something more revolutionary that flipping the top-down model of 19th- and 20th-century management principles and processes upside down. The true revolution lies in embracing Lee Bryant’s model of a new business operating system, that moves past the linear, vertical supply-chain thinking of the industrial era, and adopts a massively parallel, horizontal ecosystem model at all scales, for value delivery and learning, and for all participants.

Based on discussions with Haier, Stowe analyzes how the company pictures its customer-centered organizational structure.

Haier operates on an ecosystem model in its many lines of business. In the diagram we see ecosystem micro-communities, like the Internet of Water, the Internet of Clothing, the Internet of Kitchen), and the Internet of Food.[…]

The concept of ecosystem micro-communities (EMC) is the newest stage in how Haier thinks about organizational evolution. This builds on the basic entrepreneurial business unit of Haier, the microenterprise, and the ecosystem micro-community is made up of a network of microenterprises, including microenterprises within Haier and within ecosystem partners.

From an internal perspective, both microenterprises and partners from Haier’s EMCs would spontaneously embed in user-centered EMCs to achieve the vision of creating Users’ experience of a better life, and reflect the self-organized, flexible and efficient characteristics of ecosystem micro-communities as realized by Haier.

From an external perspective, each EMC would be directly involved in user interaction and innovation, and they get back from the users the transfer of money — in exchange for goods and services — but also new insights into users’ needs and wants, to further improve the users’ experiences. This is the starting point of Hagel’s scalable learning, as discussed earlier in this post.

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Successful Ecosystem Brands Are Win-WinI take a look at how branding is evolving as platform-based ecosystems become more prominent in industry.

Companies orchestrating platform ecosystems must evolve their branding strategy beyond products and platforms to the ecosystems themselves. A successful ecosystem brand is a win-win situation for its participants — including customers — and helps enable the continuous co-creation of the ecosystem itself. The shared value of that ecosystem encourages its participants to cooperate in the creation of user value.

My analysis of how Haier is doing it is based on materials from and conversations with Haier personnel, and the analysis done by the consulting/advertising giant WPP’s brand valuation done by its Kantar Millward Brown unit, as presented in its BrandZ Top 100 Most Valuable Global Brands report.

Haier officially announced its strategy to create the IoT ecosystem brand in 2018, following on the heels of its product and platform brands. It describes the product brand as that of typical enterprises and the platform brand as that of e-commerce companies. That progression can be illustrated by the schematic below.

Product branding focuses on delivering high-quality products that can command premium pricing. Good platform brands must supply high quality services that increase the flow of transactions on the platform. Its ecosystem aims to provide high-quality, heartfelt, and interactive experiences to customers over the lifetime of the engagement.

Haier uses connected appliances and what it calls its Touchpoint Network that connects participants through a variety of online and offline means, including social portals, stores, and service providers. It develops an ever-changing user “demand map” and dynamically establish a holistic ecosystem contributing to adaptable, customized service solutions and products. It can explore common and diversified demands from both urban and rural communities.

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Stowe initiates what will be a series of analysis pieces On Haier’s Ecosystem Micro-Communities — Part 1.

One way to differentiate ecosystem-based organizations is to consider them as horizontal and loosely-aligned networks of self-organized, self-driven, self-optimized organizational units, which Haier calls micro-enterprises. However, microenterprises still operate within the principles and managerial environment of Haier, and therefore their autonomy is not absolute. This may sound like a weakness, but the loose interdependencies between the members of an ecosystem are a source of strength, not a flaw in organizational design.

Stowe’s key takeaway: the modern ecosystem platforms must act as both transaction and learning engines –

One of the two engines of ecosystem platforms is the learning engine, the other being the transactions engine (the part that most people think about). The apparent chaos of a network of loosely-connected, but interdependent entities is, in fact, the best sort of learning engine, where the learning comes at low cost and as the outcome of already necessary communications between the parties. This leads to not chaos, but unintended order.

The Internet of Things and the rise of the platform era sponsoring innovative company organizations that can extend beyond corporate boundaries.

In this, the Platform Era, business and society are adapting to new models of communication — such as the use of protocols built into the tools, applications, and infrastructure of information technology platforms. As a result of those new communications channels, along with intentional organizational changes to operate in a more agile and responsive way, platform businesses can be considered as more fast-and-loose than the tight-and-slow organizations that are the dominant model across the world, today.

Stowe describes how Haier’s organization of teams organize into mini-enterprises around specific customer needs.

Haier’s CEO, Zhang Ruimin, has developed a set of principles that explore a model of interaction between micro-enterprises that are aligned toward shared ends and to dispel the notion that micro-enterprises do not have relationships with each other. This concept is called Ecosystem Micro-community.

Consider a Haier micro-enterprise that was formed to pursue a new market niche — for example, Community Laundry, an app-based service to allow college students to reserve dormitory washing machines and pay digitally. The team that created the idea created relationships with other micro-enterprises within Haier to help with marketing, the Internet of Things programming, and so on. That network of Haier micro-enterprises also aligned with dozens of external partners, who offered various value-added services to the students, the users who are the principal recipient of the value added by the others.

That ecosystem of Haier micro-enterprises, the external partners, and the community of users that participate in the design, development, and operation of Community Laundry can be viewed as an ecosystem micro-community (EMC). Any EMC can be viewed as operating at two scales at once. At the most micro scale, the community is an ecosystem of loosely-aligned units (each self-organized, self-driven, and self-optimized), with the Community Laundry micro-enterprise playing the role of micro-community owner and orchestrator. At a more macro scale, the network can be viewed as a single entity, a coherent ecosystem called Community Laundry. Both are true at the same time.


Elsewhere

Shopify and the Power of PlatformsBen Thompson is always lucid about industry and company structures, even if he’s a little obsessive over the difference between what he calls Platforms and what he calls Aggregators. Here, he posits that platform companies are the best competitors for aggregator companies (Amazon, Google, Facebook) by contrasting Shopify’s and Walmart’s approaches.

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The Four Biggest Challenges Digital Platforms Need to AddressMIT’s Initiative of the Digital Economy held a summit that Stowe attended and is in the process of writing up. Prior to that, the IDE sketched out for incumbents what those challenges mean: regulatory constraints, growth via adjacent markets, a shift from B2C to B2B markets, and emerging tech.

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Road-Tripping with the Amazon Nomads – is a very long, but fascinating story in The Verge about Amazon’s unofficial and only semi-supported ecosystem members.

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Meanwhile Amazon pledges to retrain 100,000 of its workers by 2015. Gizmodo is skeptical Amazon Says It Will Retrain Workers It’s Automating Out of Jobs. But Does 'Upskilling' Even Work?.

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Street Fight’s Mike Bolton thinks Amazon might build out a chain of on-demand kitchens to take advantage of its budding food delivery business: What’s a Cloud Kitchen? Amazon’s Next Move to Revolutionize a Major Shopping Sector. I’m not sure the margins or scale would justify such a thing for Amazon unless it’s highly outsourced.


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