On The Horizon Weekly – Kicking Off

Inaugural Issue of the On The Horizon Newsletter

New York NY – 2019-05-28 – Today we’re launching the first edition of our weekly newsletter from Work Futures’ new publication, On The Horizon. We’ve been building up our library of articles, so this issue may run a little long as I do some catching up.

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This is David Card, managing editor. On The Horizon’s mission is to chart the course of platform ecosystems – their economics, structure, and behavior, as they reorder the operations and organizations of business. We believe the surest way to thrive in today’s accelerating, unpredictable environment is with fast, reactive organizations that use ecosystemic principles both within and outside their own corporate walls.

To get a feel for our themes and approach, take a look at this interview I conducted with Work Futures founder Stowe Boyd.

DC: How are the organizations of participants in platform ecosystem different from those of traditional companies?

SB: There are several key differences, but the biggest can be considered metaphorically as a transition away from a vertical model of business — made up of functional silos, like engineering, customer support, marketing, sales, finance, HR, and so on — principally organized around supply chains. The platform ecosystem is horizontal, where the functional silos have been broken down, and platform’s organizations are reordered around the communications and commitments — including delivering goods and services, exchanging funds, and so on — made among the platform participants on top of protocols laid down by the platform orchestrator. This environment is accelerating; made faster by nearly frictionless platform technologies. So there is an inherent benefit in making organizational units — or what I call organelles, after the biology term — as small and focused (and therefore as agile and flexible) as possible. More than shape, though, it is the dynamics of platform ecosystem organizations that differ from the past.


The Latest from On The Horizon

All Models Are Wrong, but Some Are Useful. Stowe compares two different approaches to modeling platform ecosystems, one from a group at the Graz University of Technology, and the Platform Design Toolkit that On The Horizon will refer to regularly. He prefers the latter, as the Graz model underplays the role of the platform itself. As for the Graz V2 model:

A few observations:

This is a complex model, and takes some time to absorb. My sense is that during the workshop, the authors and other participants created intermediary representations either in text, whiteboards, post-its, or subsets of the larger complete ecosystem.

While V2 includes capabilities to — in principle — represent endogenous (intrinsic) and exogenous (extrinsic) motivations of the parties involved, they are not indicated in the model published in the article. (In other published materials about V2, pairwise relationships between actors are modeled individually, such as the influence that a motivated Sponsor might have on the Catrobat organization.)

The backdrop aggregates different sorts of actors into ecosystem micro-communities, for example Expert Users and Users are placed on the light purple region of the model canvas, while various sorts of Supporters are found on the peach-colored region.

There are five identified value engines on the network, such as that between the Catrobat organization and the User, and the relationships between the Catrobat organization and the various sorts of Development Contributors.

He concludes:

But the two quickly diverge in process and detail, resulting in very different representations, and in the case of V2, the platform seems to have gotten lost. However, the dynamics and exchanges between the many actors in this complex system have been captured and detailed, and that means the Catrobat V2 model is still useful.

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Hamel and Zanini on The End of Bureaucracy summarizes and analyzes a longish Harvard Business Review article about how On The Horizon sponsor Haier’s internal and external micro-enterprise organization works.

[..]Many of the difficulties in understanding, discussing, or comparing platform ecosystems and their organizational impacts arise from conceptual mismatches in the mental models of these three domains, as well as the tendency of practitioners to have widely varying depth of knowledge in the three domains.

For example, Hamel's The End of Bureaucracy approaches the story of Haier from the viewpoint of organizational theory, as an overturning of the conventions of 'normal business', while only touching lightly on the emergent order and non-linear scaling inherent in Haier's formulation of platform ecosystems.[..]

From Top-Down Coordination to Voluntary Collaboration — Hamel and Zanini detail how Haier coordinates large-scale initiatives (like manufacturing automation and new product line development) by aggregating like MEs into platforms, such as the refrigerator platform show below. Customer-facing MEs rely on ‘competence-focused platforms', such as smart manufacturing and marketing. This means the MEs do not have to build up their own mini-marketing organization, but can rely on the 100-person marketing platform that supplies customer information.

Stowe notes that commerce relationships – between supplier and customer, whether inside or outside the company – likely drove Haier’s more than a desire to destroy bureaucracy. Platform owners ‘operate more like venture capitalists, market regulators, and referees than divisional managers. Platform owners don't direct the activities of ME owners, who are not subordinates, per se, but more like franchisees, or partners in a supply chain.’

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Looking at the World with One Eye Closed. Neoclassical economics is broken. It failed to predict the current economic climate because it relied on old-fashioned premises and didn’t account for complexity economics.

[..]Certainly, we need an economics based on premises suitable to a world dominated by increasing complexity and the uncertainty, volatility, and ambiguity that arises. Notably, [the New York Times’ Neil] Irwin never mentions complexity economics, which has failed to register in the contemporary discussion of the economy, despite being around since the '90s.

Neoclassical economics has failed to predict this unexpected boom because many of its premises are wrong, or at least, overly generalized. Specifically, the notion of homo economicus as a deeply non-social actor who merely attempts to 'maximize his utility,' as Neva Goodwin pointed out in The human element in the new economics: a 60-year refresh for economic thinking and teaching.

[..]So I will offer one observation to the discussion that Irwin wants to have: economists have failed to develop new guidelines that are based on the new structures that have formed in the economy in the past decade or two, such as the rapid and pervasive emergence of platform ecosystems, and the enormous impact they have had. (Just consider the differences between linear supply chains and non-linear ecosystems.)

There was nothing remotely like Amazon or Alibaba thirty years ago. There was no parallel to the global spread of smartphones and their app stores. And likewise, the impact of web and mobile advertising by Google, Facebook, and others on the media landscape has no precedent. None of these ecosystemic phenomena are included in the long-established and now outmoded economic models, like the Phillips Curve.

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Evolution of the Platform Organization: What We Can Learn from Haier is an oldie, but goodie. This is our 5-part report from analysis begun in mid-2018 using Haier as an example of a modern, evolving platform ecosystem.

In the following five sections, this report will explore the new calculus of business: the most successful firms of the next era of global business will be built on the emergent value of this formula: Networks + Platforms = Ecosystems. My goal is to make that shorthand make sense.

In section 1, Social Evolution, we will explore the social evolution of human advance, from the transition to agriculture in prehistory up to the fourth industrial revolution that we are living through today.

In section 2, The Era of Networks, we will characterize the state-of-the-practice in organizational thinking, today, as a transition from hierarchical command and control structures to networked organizations.

In section 3, Haier, Rendanheyi, and Zhang Ruimin’s Vision, we explore the history of organizational thinking at Haier, including the development of Zhang's Rendanheyi, and the transition toward the platform organization.

In section 4, The Future of Networks: Platforms and Ecosystems, we explore the transition to the platform organization and the economics of ecosystems.

In section 5, On The Horizon, we will restate some of the key principles explored in the report, and talk a bit about what's ahead.

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Simone Cicero on Ecosystemic Organizations. Stowe and Simone have an informal discussion. A good platform leads to beneficial patterns that are pretty much self-sustaining. Management of the platform is like gardening:

SC: I think it’s definitely important to understand that embracing ecosystem-organizations deals more with preparing, nurturing and respecting the “soil” than actually gardening the plants. A bit like with biodynamic agriculture the idea is to let different plants to grow, and even if you go and eradicate the ones that you don’t like, letting them stay there and fertilize the soil.

“Gardening” an ecosystem organization implies some degree of creative entropy, as this process that is inherent to self-organization: you may have unintended sprouts grow and find their way in the market and you need to deal with it, some of them may not make it, end up in dying but the experiences related to building that sprout-micro-enterprises will again fertilize the soul of knowledge and experiences. As a gardener, you’ll need to make it possible, and you’ll need to allow the members of the organization to explore edges you may not consider strategic from the top. So yes it’s about gardening, but it’s not about the perfect, 17th century’s Italian gardens, made of symmetry and perfection, it’s about the abundance of biodynamic gardens.


And Now, A Word About Our Sponsor

The inspiration for On The Horizon comes from Zhang Ruimin, the innovative CEO and Chairman of the Qingdao-based multinational Haier Group, our corporate sponsor. Earlier this month, Haier received a prestigious “Top 100 Most Valuable Chinese Brands 2019” award from global advertising and consulting giant WPP’s Kantar group. Haier was ranked number 15, and the only company in the IoT ecosystem category.

Kantar’s BrandZ™ takes the financial value created by the brand - a specific number that measures current and predicted future earning - and multiplies it by a brand contribution value obtained from consumer survey. The result is expressed as a percentage that measures the purchase volume and premium price brought by the brand.

Song Zhiming, the Chairman of WPP Greater China, said in a speech at the awards ceremony: “Haier has made special performances in the sector of home appliance as it integrates different categories of products in an ecological and systematical strategy, which has been proved greatly successful. ”

Branding is as much an art as a science. While there is a large library on corporate and product branding, the concept of branding an ecosystem is new. On The Horizon will explore the strategy and tactics of ecosystem branding in future articles, analysis, and case studies.


Elsewhere

Amazon’s Army. Axios sketches out how Amazon’s platform is spinning out and funding start-ups. This AP story offers a little more detail: Amazon Offers to Help Employees Start Delivery Business.

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Sorry, Your Hardware Is All Software Now. Stacey Higginbotham points out that he who lives by the platform can die by it, too. Ron Amadeo lays out how Google killed the Nest ecosystem Nest, the Company, Died at Google I/O 2019.

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The Corporate Rebels outline 5 Steps to a Progressive Organizational Structure.

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Innovative incumbents Hit Their Stride. Irving Wladawsky-Berger examines a big global survey of C-suite execs done by his old employer, IBM. “Ecosystems are shifting the balance further away from top-down control and toward autonomy. Teams, once locked in place, now assemble on the fly and move in a flash from new insights to smart experimentation and consequent action.”

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The Empty Promise of Data Moats. Martin Casado and Peter Lauten at Andreessen Horowitz say “data network effects” are over-rated. In fact, they might not even exist for start-ups.

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The Democratization of the Platform Economy — Establishment of a Platform Ecosystem. Kilian Schmück continues his pretty practical analysis series.


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