1. Instead of looking at a corporation as a portfolio of products (single business firms) or portfolio of businesses (multi-business firms), look at corporations as a portfolio of capabilities leveraging a portfolio of relationships (within- and across different organizational entities and including customers). Co-creation with complementary corporations and customers emerge as a useful frame to think about strategic choices.
2. Recognize the role of Internet as the new infrastructure to architect business models that deliver superior value to customers (and by extension, the shareholders).
Viewed this way, there is symbiotic relationship between business and IT strategies. Each needs the other; neither alone is sufficient for winning performance.
So, what new business models emerge when viewed from a network-centric point of view? One that I have been intrigued by for sometime is what I label as platform architect. The term platform has become widely used (and perhaps even abused) in business writings today. But, the logic of architecting a platform reflects the essence of strategic thinking in network-centric terms. Let me outline some essential ideas.
1. The automotive industry may have created the first product platform whereby automakers such as GM or Ford designed ways to share a set of components common to different automobiles. It helped in streamlining production and efficient procurement of components and subsystems from vendors. In the automotive industry, product platforms are also labeled as vehicle architecture that specifies how the various components and subsystems fit together. This is an example of proprietary or closed platform architecture. GM's vehicle architecture differed from Ford's or Chrysler's.
2. The computer industry transformation allows us to go beyond single-company, proprietary closed architecture to a more multi-company, relatively open architecture. A Figure such as the one below is a schematic representation of the shift.
Understanding this shift in the computer industry allowed researchers to introduce key concepts of design rules and modular operators by Carliss Baldwin and Kim Clark. The six modular operators introduced by them in the book is a useful way to understand the shift in the computer industry. These are:
Splitting - Modules can be made independent.
Substituting - Modules can be substituted and interchanged.
Excluding - Existing Modules can be removed to build a usable solution.
Augmenting - New Modules can be added to create new solutions.
Inverting - The hierarchical dependencies between Modules can be rearranged.
Porting - Modules can be applied to different contexts.
This shift also allows us to understand the importance of platform leaders. Annabelle Gawer and Michael Cusumano show how Intel, Microsoft and Cisco (among others) drive innovation in the computer industry through platform leadership. Indeed, a significant part of the Microsoft antitrust case is based on ideas of network effects and 'divided technical leadership'--a term introduced by Professor Tim Bresnahan in an unpublished working paper (available here). The essential point is to recognize that a platform need not be under the control of a single firm but could be designed by the coordinated efforts of multiple different firms, each leading in one or more layers of the stack (as shown in the figure above). Thus, we refer to the dominant architecture of the personal computer as Wintel (Windows-Intel) architecture. Coordination across complementary capabilities through different types of is an essential requirement of crafting strategies in a network-era. Platform architect is one who is capable of coordinating different components into a coherent architecture that creates direct and indirect network effects.
3. So, does the idea of platform architecture have any role beyond the computer industry? To the extent that network effects may be operating, platform architecture will be important. To the extent that business models are being created on a global networked infrastructure, platform architecture will be critical. We are beginning to see attempts by companies to architect platforms in music (e.g., Apple ipod/itunes and Microsoft Zune), photography (Yahoo-Flickr, Google Picasa) and e-retailing (Amazon, eBay), social networking (MySpace, Facebook), media (YouTube) and so on. I have developed some preliminary maps of some of these shifts that I use in my presentation on network-views of strategy. In an intriguing post, JP Rangaswami of BT even suggested that American Idol be viewed as a platform and enumerated a set of criteria that is useful to explore the ideas of platforms beyond the technology sector.
So, are you really a platform architect?
One--platform architecture is essentially network-centric. it involves coordination of modules (or sub-components) designed and delivered by different independent entities. So, while we may credit Apple for shifting the music industry to the network era, its success equally well depends on the broader ecosystem that it has orchestrated. Microsoft--despite succeeding in architecting the Wintel platform--has been unable to win with Zune thus far. Similarly, GM OnStar is a relatively closed (GM-centric) telematics platform that has not yet been adopted by any non-GM automakers for it to be considered a network-centric strategy while Microsoft is initially partnering with Ford Motor Company to launch a new dashboard OS. When Microsoft extends this experiment to deliver this functionality to non-Ford cars, it becomes a platform architect in the same spirit of Windows and Office platforms.
Behind every successful platform is vibrant ecosystem of complementary capabilities.
Two--platform architects earn revenue in two ways. There is direct payment from the users of the platform (e.g., Windows Vista or Office 2007, Sony PS3 or Xbox) or indirect payment from other parties involved in business transactions (e.g., advertising in the case of Google or transaction fee in the case of Visa or Amazon or eBay). The choice depends on network characteristics and customer propensity to pay for different features under different conditions.
Thinking through the location of cash register is critical to successful platform architect strategy.
Three--the scope of platform architecture straddles multiple different industry boundaries. The single-company proprietary platform like the automotive vehicle architecture is a firm-centric strategy. In contrast, platform architect from a network-centric point of view is cross-industry. Is Google a search engine or an advertising platform? Is Microsoft a software company or something else? Is Amazon an e-tailer or e-commerce platform or something even broader? What makes the platform architect strategy challenging is that it defies traditional industry boundaries.
Myopic demarcation of platform scope is likely to lead to failed strategies.
Four--platforms evolve and morph. Networks by definition are connected and dynamic. The dynamic nature is by virtue of addition of new nodes and new linkages. New entities and new relationships change the scope of platforms. Amazon's success is partly due to its ability to evolve its definition of business scope and adapt to the new functionality and market demand (look at Amazon's launch of DRM-free onlin emusic downloads as an alternative to iTunes in different music formats). Competitive moves also redefine the scope of platforms. When Google acquired YouTube, it put in motion a chain reaction of new connections (e.g., NBC and MySpace joining together). RIM announced that its popular blackberry software will be available on competing phones that run Microsoft mobile OS. In some cases, the implication are more emerget (than designed) as in the case of mash-ups using APIs from different entities (The facebook platform releasing itsAPIs is the latest). For an updated matrix of mashups, see here.
Defending successful platforms calls for proactively recognizing the likely evolutionary shifts and being in a position to capture value.