Peter C. Evans is the Managing Partner at the Platform Strategy Institute. He has over 20 years of experience leading teams in identifying, framing and communicating high-priority marketplace trends and disruptions that support business planning and investment prioritization. He previously held senior strategy, innovation and market intelligence roles at large global enterprises, including General Electric, KPMG and HIS/CERA. He has written extensively on platforms and was a keynote speaker at the April 15th Platform Leaders conference on the future of digital platforms. He is co-chair of the MIT Platform Strategy Summit and recently joined the executive education faculty at CalTech to teach a course on platform leadership. He recently spoke to The Innovator about preparing the next generation of platform leaders.
Q: Are the leadership qualities and capabilities required for traditional companies the same as those required for a platform company?
PCE: No. That is why preparing the next generation of platform leaders is so important. It is not sufficient to just hire one or two platform superstars. Companies need to build an entire executive team that understands how to engage in platforms and govern them. Let’s step back for a moment and consider talent within the arch of the history of the enterprise. When private enterprise was created Adam Smith said it was guided by an ‘invisible hand’, a natural force that self regulates the market economy. This was the beginning of specialized talent—the so-called division of labor—but the focus at the time was on the market as the most efficient allocator of resources. But Alfred D. Chandler, who won a Pulitzer Prize for his book ‘The Visible Hand: The Managerial Revolution in American Business’, identified important changes at the turn of the 20th century and rise of the large modern enterprise. He pointed to serious flaws in Smith’s vision. Chandler found that managers served a critical coordination function that more efficient and strategic than leaving allocation to the market. Companies like US Steel, Ford and GE grew to the size and scale that they did not via the invisible hand but through the visible hand of professional managers. These firms located resources and rewarded talent that amassed capabilities within the firm. Today, we are living is a new context. Digital technologies are now making it more efficient to move functions and capabilities outside the firms again. We can call this the “digital hand.” Platform models are rooted in this new world where companies can push more and more things outside to the market in the form of freelance networks and various ecosystems. The digital hand is creating the conditions where an ‘inverted firm’ is more likely to grow and scale than keeping value creation internal to the firm. Today, firms need the talent and leadership that understands these profound changes. This requires the entire executive team, and not just the CEO and the strategy person, to have new platform expertise. It is a very different way of thinking and organizing the company. Traditional firms have distinct groups: supply chains and customers. But if you look at a company like YouTube their customers are their supply chain. This is allso the case of open banking, which is about opening to third-parties so they are part of the process of creating value around financial services. Platforms invert the traditional model because the value is outside of the company boundaries. It struck me that no one was talking about platform leadership, so I led a detailed study of platform talent undertaken by the Platform Strategy Institute. This resulted in a report titled: Preparing the Next Generation of Platform Leaders: Staffing and Training the Inverted Firm. As part of this research, we commissioned a third party to do a poll of public job postings. They found 11,000 job postings related to platform ecosystems for different types of roles: product managers, platform strategy, platform ecosystem management, platform engineering, platform data management and privacy, compliance and cybersecurity experts. So, what we are seeing is that as the platform economy becomes more mature there is a career path for platform professionals. I now write a newsletter which explores the new opportunities available to people who specialize in platforms titled Platform Professional.
Q: So, what, in your mind, are the key leadership qualities that are needed to manage platforms?
PCE: Platform leaders must be versed in the underlying logic of platforms. They must have a strong grounding in how demand for a product is dependent on the demand of others buying that product and how partners can contribute to that demand. They need to have a deep understanding of economic principles driving platform business models and how technologies, data, and operations enable these models. They must be able to develop the platform’s strategic road map; shape the selection of key partners and technology that drive platform growth; and understand what design and pricing choices drive positive and sustainable network effects.
Platform leaders also need orchestration skills. They must be adept at coordinating the actors and activities that build value across the double-sided or multi-sided marketplace they manage. A primary responsibility of the platform leader is to implement mechanisms to provide the incentives necessary for outside participants to bring value to the platform while preventing or at least minimizing the occurrence of bad actors.
The ability to drive outcomes across internal business units and functions and with external contributors and collaborators is another important quality. Platform leaders need to have a dedicated focus on connecting partners to each other in ways that create value for the overall ecosystem. They must also establish and drive incentives and metrics that enhance positive interactions and sustained engagement. Platforms often work on cross subsidization and give away things for free. Executives need to understand that and what are the right metrics to measure. This is not about command and control. It is not about assigning division leaders sales targets. It is about creating new metrics that encourage people to build out their ecosystems.
A third key leadership skill is the ability to pilot a company’s system of rules, practices, and processes that are central to directing and controlling the firm. The rise of the modern enterprise favored leaders who established centralized authority, and of a clearly defined hierarchy with distinct roles and functions. Platforms are different and require different governance. Platform leaders must develop guidelines, policies and procedures that spell out the required behavior of ecosystem participants contributing to and consuming from the platform. They must have the ability to translate platform logic into operational control systems and regulations that shape desired behavior, navigate conflict, and achieve value creation objectives across a much broader group of stakeholders many of which they do not have direct control.
Q: Most of today’s leaders are not trained to be platform leaders How do they get up to speed?
PCE: In the mid-1990s, Harvard Business School launched a program called the New CEO workshop. In addition to a series of articles and papers, the program provided important input for the Handbook of Leadership and Theory and Practice, a 822-page volume published in 2010 as part of the centennial celebrations of the Harvard Business school. There is not one single mention of platforms in the entire book. The top 100 platform businesses are now have a market cap of over $14 trillion. What’s more there is not a single business school in the world that is offering a minor or major in platform strategy management. So, there are big gaps in what I think should be taught.
Q: What do you advise corporates to do?
PCE: While Europe is home to many world-class companies, it has substantially fewer companies among the world’s top 100 platform firms. One consequence of having fewer platform companies is that Europe lags in the number of direct platform employees. Data from Ecodynamics, a German-based consultancy, indicates that Europe makes up only 4% of the 4.2 million people now directly employed by the world’s top platforms. This significantly limits the pool of experienced platform talent available to European companies seeking to recruit platform professionals. There are several ways to close this leadership gap. I outlined some of them in a recent blog posting. The option are limited if you are seeking to introduce a platform leadership program that scales across a large organization. A few companies are doing this. Siemens is one, they have a comprehensive senior management course around platforms. Bosch is another one that is focused on its supplier community. If you are designing your own program first understand what platform training capabilities exist. You will need to design a two-tiered program – an executive level course for leadership and a generalist program for the rest of the organization. Be realistic; multinationals are so big that it is going to require multi-year multi-tiered efforts to change people’s thinking and create the platform leaders that can move the company forward. Whether a company chooses poaching, better recruitment, platform-specific leadership training, or, more likely, some combination of all three, to be successful platform leadership development must be broad enough so that it builds platform competency across the entire leadership team. The digital hand is here and now. Companies need to develop leaders with the knowledge and capabilities to navigate this new enterprise landscape.
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