The platform economy is one of those obscure concepts, born out of digitalisation, that doesn’t appear to mean much at first. For starters, what is a platform in this context? And how can such a thing form the basis of an economy? According to Applico, which advises companies that wish to build their own platforms, “a platform is a business model that creates value by facilitating exchanges between two or more interdependent groups.”
Essentially, the idea is to match demand with supply. In the B2C world, Spotify does this for consumers and providers of music, Airbnb for accommodation and Uber for taxi services. Within procurement, progressive organisations are implementing platform-based strategies to match internal demand for problem-solving with external innovations – and those people whose job it is to run such initiatives claim there is real substance to the idea.
Goran Cangl, Open Ecosystem Network leader at Nokia, oversees the Finnish telecommunications company’s digital ecosystem platform, called Open Ecosystem Network (Open). Launched in June 2017 with the help of industry and educational partners, Open provides an online space for Nokia and its network of suppliers, customers, developers and academics to collaborate on the development new products and services.
New users of Open access a website where they can submit and contribute to innovation projects; join virtual, closed communities that are organised with seek to solve specific challenges; and access selected whitepapers, technical specifications, software development kits, application programming interfaces (APIs) and product roadmaps – all made available by Nokia and its founding partners in the spirit of collaboration.
“We made the platform data-centric,” explains Nokia’s Cangl. “We’ve given members of Open access to our sourcing challenges, our decision-makers and technical information about our products – this is what attracts the participants.”
So, what’s in it for Nokia? The lifeblood of an open platform is its ability to grow in scale – but that does not happen automatically, explains Cangl. “When you have hundreds of thousands of users, the platform develops its own dynamic. But, early on, you need to stimulate the activity: we started by providing the platform – the technology – then we went to meet the early adopters. We asked what features and functionalities they wanted from the platform and why they had joined.”
The ultimate goal is to find new sources of value creation: new customers, new developers and new innovators, not just new suppliers
Cangl says Open adds value to Nokia’s business due to the way it connects startups, inventors and academics with the company’s established suppliers, all of whom are provided the means to cocreate products and services. He describes the benefits of this break from the traditional supply and demand model as “complementarity”.
“If you think about a supply base, the typical process is you buy something and have suppliers compete for your business. But when you go to your incumbent suppliers and buy off-the-shelf solutions, there is nothing unique there. You are not generating competitive advantage. By facilitating collaboration between startups and our incumbent suppliers, we get something that isn’t off the shelf. We create uniqueness,” he says.
While this seems an extravagant way to funnel innovative companies into Nokia’s supply base, Cangl maintains there is more to it than that. “Participants in the ecosystem eventually want to sell because Nokia has an attractive brand. But the ultimate goal is to find new sources of value creation: new customers, new developers and new innovators, not just new suppliers.” Nevertheless, Open was procurement’s idea and it remains within the function’s control.
BUSINESS DRIVERS: ’OPEN’ INNOVATION PLATFORMS
Other organisations are tackling platform-enabled innovation differently. Bayer, for example, prefers not to broadcast its sourcing challenges and product strategies to the public. The German life sciences company has an online ecosystem like Nokia’s – called Open Innovation – where participants can seek collaboration partners and join virtual project teams. But as Nicolas Limbach, specialist in procurement innovation at Bayer, explains, the digital innovation team owns and controls the Open Innovation platform; procurement at Bayer has little to do with it.
Instead, the function searches for new ideas among its suppliers using a private platform known as Thrive, which was launched in 2017. It works in one of two ways: either Bayer identifies a challenge and invites between two and ten of its key suppliers to pitch suggestions, a process covered by a non-disclosure agreement (NDA); or, unprompted, selected suppliers can submit ‘open’ ideas of how they may be able to help Bayer improve predefined areas of its business, such as process control technology or engineering services, although this process is not covered by an NDA.
“People in the business know we have problems to solve, but we don’t always know what the right solution is,” says Limbach. “The open submission channel ensures we have a process to connect our internal research and development (R&D) team with external R&D functions,” he adds.
Ultimately, Open and Thrive are designed to achieve the same thing: innovation from the outside-in. But Bayer’s open innovation strategy is characterised by a tighter focus than Nokia’s. “With Thrive, we always think first about our most strategic suppliers and, in most cases, the ideas we receive from them target specific problems,” explains Limbach.
For a business on the lookout for innovations to consider only those from its most important suppliers seems like a missed opportunity. Yet not even Nokia’s Open is completely open. Some community groups are closed to users from certain industries, companies and academic disciplines.
Open and Thrive share other similarities, for example, acceleration of the innovation process is a fundamental driver of both platforms. While Nokia’s Cangl seems more excited about Open’s potential to facilitate new connections and create unique products, Limbach believes it is all about the speed with which innovations can be produced using Thrive.
One thing is very important to us and that’s the time horizon in which we provide feedback to suppliers who submit ideas through Thrive – this is critical to the level of engagement
“The platform reduces the amount of time it takes for us to get from initial concept to final product,” he says. This is possible because Bayer has kept the surrounding processes simple. For example, all suppliers enrolled on Thrive will have signed a uniform set of terms and conditions before getting started – no matter what the challenge is that they are assisting with. Idea-submission forms are templated, too, which means staff do not waste time sifting through weighty documents to find the grain of a good idea.
Allowing only certain suppliers to see certain challenges posted on Thrive also keeps things efficient. “We don’t invite suppliers to help us if we think they don’t have the right expertise because we don’t want to receive thousands of ideas with PDFs made up of hundreds of pages for every challenge. It’s better to have something manageable,” says Limbach.
“When we have reached a certain level of maturity with the platform, maybe we will open our sourcing challenges to the world – but not yet,” he adds. Regardless of whether that is a missed opportunity, it is clear there is method in Bayer’s meticulousness.
“One thing is very important to us and that’s the time horizon in which we provide feedback to suppliers who submit ideas through Thrive – this is critical to the level of engagement. Not giving feedback is the worst thing you can do – we allow for two to three months at the most.” Were the team to go public with Thrive, that would not be possible.
“One success story comes from our consumer space, where we reduced the product development cycle from 24 months to 17 months, which gave us seven months of extra revenues. We could invite suppliers to meetings and hold innovation days and we might get the same solutions, but the timeframe would be much larger.”
BUSINESS DRIVERS: ’CLOSED’ INNOVATION PLATFORMS
Cangl’s and Limbach’s stories illustrate the way in which platform strategies may improve the way businesses scope, discover and create value from external innovations. Yet they also demonstrate the different ways public and private platforms achieve that overarching goal, differences that must be reflected in the ways such platforms are measured.
“Thrive is not a [key performance indicator] KPI in itself,” explains Limbach. Rather, Bayer sees the platform as an enabler of wider projects related to supplier-enabled innovation. Nevertheless, the business needs to know how it is performing. “We measure how many challenges we publish and how many we solve; we started at around 90% of all challenges solved but, since the platform has grown, we are now on 60%–70%,” Limbach adds.
At Nokia, Open’s performance is assessed differently. As it’s more inclusive than Thrive, user numbers are considered an important way to gauge success. Cangl himself is targeted on registering 500,000 Open users by 2019.
But the ecosystem also has a number on its head. The plan, according to Cangl, is to deliver €1.5bn in ‘financial impact’ to Nokia by 2021. That will come from savings achieved by divesting the business of noncore R&D, for which it will now use Open; revenue-share from products made within the ecosystem where Nokia has no direct involvement, similar to the way Apple takes a cut of revenues made from sales of apps developed within its App Store; and monetisation of the assets used to make those products, including the data, APIs and product roadmaps that Nokia has uploaded to Open.
Cangl says he cannot disclose the financial results Open has produced so far, but he maintains the project is meeting its return-on-investment targets. “We are still projecting the long-term benefits, but we will break even in 2018.” Not bad, considering Open was launched in 2017.
Yet, despite their advantages, platforms such as Open and Thrive do not sell themselves. Cangl and Limbach agree their respective projects would not have got off the ground without executive sponsorship. Securing buy-in for platform strategies requires project leaders to demonstrate what those strategies can achieve – and to do so in ways that resonate with stakeholders.
Ecosystem models don’t produce the traditional procurement benefits people are used to... [they] must be nurtured and developed over the long term
“We do quarterly reviews,” explains Cangl, “but you could divide Open Board members into two camps: some are focused on the ‘2021 vision’, while others want quarterly updates on progress and the numbers. This gives us a good balance between long-term, focused growth hacking and short-term execution.”
That execution is being managed methodically in what Cangl calls ‘startup mode’. Because of the size of the project, it has been broken down into three phases: disrupting the sourcing interface; R&D offload; and asset monetisation and cocreation. These phases work like investment rounds: “We move from one use case to the next. When the money comes in from one phase, financing is released for us to start developing the next one,” he says.
Managing the implementation of Open this way has helped to assuage some stakeholders’ reservations about the initiative. Yet others remain sceptical.
“Ecosystem models are disruptive. They don’t produce the traditional procurement benefits people are used to. Squeezing x% out of a supplier creates immediate value, but ecosystems must be nurtured and developed over the long term,” Cangl says.
He pays as little attention as possible to the naysayers. “When you do something disruptive, you will always have people telling you it’s never going to work.”
However, it helps if leaders of platform initiatives can show what their colleagues can expect to gain. For Bayer’s Limbach, the key to getting the business on board with Thrive was to choose the right team with which to run a pilot. “We started with consumer health, because the challenges in that space weren’t too R&D heavy,” he says. The idea was to produce quick wins. “We had the backing of upper management and our closest colleagues, but somewhere you have to start with good examples and best practices.”
If the words ‘ecosystem’ or ‘platform’ raise suspicions for you, you may be forgiven: management fads are as pervasive today as ever. But the forecasts from IT experts suggest the platform model is more than a passing whim. By 2020, IDC predicts 60% of all enterprises will be in the process of implementing organisation-wide platform strategies, according to its IDC FutureScape: Worldwide Digital Transformation 2018 Predictions report.
As Cangl and Limbach attest, platform strategies have potential to generate considerable value, particularly in terms of innovation. But proving that value is, at present, a tricky business. For organisations to implement platform strategies, they must adopt new metrics as well as mindsets, which managers will not be familiar with and may not welcome. But successful innovation platforms such as those being used by Nokia and Bayer do something simple: they give businesses systematic means to discover new and unexpected answers to their problems. And who could argue with that?
This article is a piece of independent writing by a member of Procurement Leaders’ content team.