Platform Business Firms

Will you look for jobs in Facebook?

It has been a wonderful week so far with my lectures on Platform Business Models at the University of Rome Tor Vergata over the past two days. In one of the discussions, there was a discussion about network mobilisation, and a perceptive participant quipped about how successful Facebook can be in a variety of businesses. I have been maintaining that Facebook and LinkedIn are in independent markets, with their own unique needs, and therefore would never end up competing. However, this discussion on what Facebook can do with the big, small and thick data it has about users – ads, shopping, or even jobs set me thinking.

Winner takes all markets

One of the most common discussions on platform and networked businesses is the prevalence of monopolies, in what we call as “winner-takes-all” markets. There are three conditions for these markets to satisfy to qualify as “winner-takes-all” markets – multi-homing costs should be very high; network effects should be strong and positive; and users usually do not have any special preferences (read more about it here). Social networking (with peers, friends, and family) is a winner-takes-all business by all counts – it is difficult to affiliate yourself with multiple platforms; network effects are strong and positive; and Facebook is used for pretty much everything – no special preferences.

Professional networking space, on the other hand, would have different economics. Multi-homing costs are sure high, but not so high. Especially when people have multiple identities … for instance a CEO by the day and a triathlon by the evening; or a professor of law and counsel at the same time. And they could possibly have separate professional networks, right for each of their interests, right. On top of this, online media provide us with our own masks, that enable us to insulate the two worlds when we choose to or integrate when it suits us. A sort of maskenfrieheit, a German word that translates to “masks provided to us by the power of anonymity”. Most of us surely live in multiple worlds, leveraging our own maskenfreiheits. Network effects are sure strong and positive, and in addition to social networking, professional networking business also has a significant extent of cross-side network effects (from potential employers and followers). There are special preferences in professional networking – there are those wo write for others to follow; some others just read and follow and minimally engage (a occasional like here and a share there); and there are few INfluencers (as LinkedIn calls them). So, it makes logical sense that a professional networking business is not a winner-takes-all business, and should be prepared to be attacked by a variety of competitors.

LinkedIn, for its part has done it bit, I would say. It has significantly expanded its reach to college students; allowed for writing (competing with blogs); jobs (competing with focused recruitment sites); shares, likes, and comments (competing with social networking, including micro-blogging). And its merger with Microsoft recently would hopefully provide it more teeth to bite in.

Facebook enters the jobs market

But, how does LinkedIn compete when the ubiquitous Facebook decides to enter the jobs market? I recently read this report on TechCrunch (read it here) on how Facebook is entering the jobs market. With its size of members’ network at more than thrice that of LinkedIn, Facebook can unearth more and more passive job seekers. Those of you who are not actively seeking a job, but would be interested in testing something out, if is offers great roles, salaries, titles, locations, or just more fun that your current role. In fact, the value proposition of LinkedIn was just that – one keeps building a stack of endorsements and a network that will then actively seek you out, rather than the job seeker reaching out. Facebook seems to have imitated just that – its profile tags is much the same as LinkedIn endorsements. Everyone sees the similarity … read the Fortune Business report of July 2015 here.

Is the professional networking space contestable?

Firms competing across business lines can also be explained using the theory of contestable markets. The simplest definition and explanation of contestable markets I could find online is on this page. These markets are characterised by low barriers to entry (like no economies of scale) and low barriers to exit (like no sunk costs), and therefore allow for new entrants to adopt a hit and run strategy. Incumbents typically protect their turf using asymmetric information (some specific information/ competence) that the new entrants do not possess. If we were to look at professional networking space as a contestable market, then LinkedIn had it all covered as an incumbent. Facebook anyway had a variety of small and medium businesses maintaining pages to connect with its customers; and all it had to do was to extend the same feature to job applicants connecting with the firms. Much like how a firm would announce a new product or a discount offer, it could advertise jobs on its Facebook page. Just that Facebook is trying to overcome the asymmetric information bit with its Profile Tags feature to quickly imitate LinkedIn’s endorsements (it is not available in all countries, yet). Without that Facebook would not be able to customise the feed to its readers – you would get only “relevant” job offers on your Facebook timeline, now that it would have your Profile Tags.

Facebook jobs, anyone?

So, would you apply for jobs using Facebook? I for one know a lot of active seekers and college students invest in building their LinkedIn profiles, rather than “wasting time” on Facebook. Facebook is for casual chit-chat with friends and family, sharing selfies, religious views, political statements, and even late-night party stories. Not the place where I would imagine a lot of people would apply for jobs. Will you let your maskenfreiheit down?

But hang on, what about those who do not have a LinkedIn profile? What about those who are logged on to Facebook for ever on their smart phones? What about those who use Facebook to gather information about jobs and then apply for the same using traditional job sites, just email, or through their LinkedIn profiles? Small and Medium businesses might be able to attract a lot of undifferentiated talent (I’m not talking about blue collared workers only) through Facebook, if this succeeds. And what do dedicated job sites like Monster.com do?

Facebook surely has big data, small data (or thick data) and even the right data (after my posts of the last two weeks, this HBR post on right data appeared online!). Exciting times ahead.

Cheers.

FirstCry.com: Leveraging the power of offline

In my blog post last week, I wrote about how a hybrid online and offline strategy is useful for collecting small data. As a couple of my readers pointed out, what marketers and strategists call small data, ethnographers and sociologists call as thick data. Honestly, I had not heard of thick data. @fernandogaldino introduced thick data to me. I dug through the online references on thick data, and realized we are talking the same thing. Exactly the same thing. Thank you Fernando! So, I am going to continue using the term small data (that is what I have read academic articles about) with the caveat that small data is also thick data. Last week, I promised to delve deep into FirstCry.com and its online-offline strategy. Here it goes.

FirstCry.com

The firm was founded by Supam Maheshwari and Amitava Saha in 2010 as a pure online venture. By 2011, FirstCry.com opened its first offline stores. In an interview to TechCircle, co-founder Supam Maheshwari elucidated how a vertically focused ecommerce firm could survive and make money in a market dominated by horizontally spread competitors (you can read the interview here). He talked about replicating Quidsi’s business model in the Indian market, by owning a set of vertical markets like diapers.com and soap.com. In replication, firstcry.com has a sister website goodlife.com. The key difference, he said, between the Indian and the US market for baby care products was that, more than 95% of the products were imported. In fact, that was the seed for the enterprise – his own difficulty in finding good quality products for his child in India, whereas he could buy a lot of them during his international travels. That effectively makes this business inherently inventory-heavy. One needs to leverage economies of scale and scope in sourcing, hold inventory and invest in logistics to be able to service customers across the length and breadth of the country (read about firstcry.com inventory model here).

Omni-channel strategy

Here is where the omni-channel strategy helps. Instead of keeping inventory in dark warehouses, ready to be shipped, it was possible for firstcry.com to open retail outlets in tier II and tier III cities (where real estate was also likely to be cheaper), where ecommerce penetration was not as much as the tier I cities and the metros like Mumbai, Delhi, or Bangalore. The inventory holding was thus distributed across the various franchised retail outlets. The outlets also provided customers with the look and feel of the products before they bought them – you need to appreciate that baby apparel and shoes dominate the market, only to be followed by toys and diapers. Clothes and shoes … when was the last time you bought your own shoe purely online? Inventory provided increased footfalls to the store, created brand awareness, and inventory off-take. The decision to have the same prices between online and offline stores, coupled with large touch screen interfaces to shop online from within the offline store could have provided exponential growth in traffic and sales.

Promotion: The FirstCry Box

Firstcry.com began promoting using traditional mass media – television and online ads. They invested in Bollywood’s longest serving (possibly) celebrity, Mr. Amitabh Bachchan as their brand ambassador and launched a few television advertisements (see some of their ads on YouTube here). However, they soon realized that mass media advertising was highly expensive and yielded low returns for a niche range like baby care products. That is when the idea of the FirstCry Box was born. The FirstCry Box is a bundle of some essential products that the mother would need during the first few days of the baby and mother reaching home from the hospital. Firstcry.com has agreements with over 6000 hospitals, through which these FirstCry Boxes are gifted to the new mothers, congratulating them on the birth. These boxes also contained gift and discount coupons from major brands of baby products, that the parents could redeem at either online at firstcry.com or any of their retail outlets. This ‘welcome kit’ to parenting provided firstcry.com a significant opportunity to build brand equity and recall amongst the over 70000 mothers receiving these kits every month. Some marketers call this permission marketing (read about it here), or direct-to-parents strategy. For me, it is a wonderful platform, a two-sided platform mediated by firstcry.com. Parents, especially first-time mothers, are initiated into parenting with the help of these grooming products (basic diapers and lotions) and the gift coupons for free. The new mothers as a subsidy side is being financed by the brands that provide the products and coupons to be included in the box and act as the money side in the platform. For the brands, this is highly targeted sampling of their products, and most mothers would stay loyal to quality brands/ retail stores in baby products. In the entire transaction between the mothers and the brands, firstcry.com benefits significantly in three ways: (a) store loyalty resulting in increased sales, (b) small data about how these mothers use these products, the basket, frequency of purchase, and willingness-to-pay for quality; and (c) good quality prediction of demand in specific geographies, leading to efficiencies in inventory and supply chain management practices.

By the way, such welcome kits are not entirely new – a lot of employers have been on-boarding their employees with such welcome kits. I first heard/ saw such welcome kits when I was part of a team that delivered a customized training programme for the ITES service provider ADP India, a few years back. It was fascinating to see how the entire family was on-boarded into the firm! Not just ADP, a variety of other new age firms, I see have adopted this practice (read this article on how some Indian organizations welcome their employees). I wish I was welcomed like this by my employers!

Are hybrid models here to stay?

I would say, yes. We saw how Amazon was opening stores in our blog last week. We also discussed how Amazon.in was using firms like StoreKing to reach the Indian retail hinterland. I read last week that their Indian competitor, Flipkart.com was also opening offline store to reach users in small cities (Flipkart to open offline stores as well). And in vertical markets like baby products, it has become all the more important to target your promotion very narrowly, and focus on the backend (inventory, supply chain, and logistics) efficiencies, while at the same time achieve scale.

Is vertical ecommerce a winner-takes-all market?

Three industry conditions define a platform market as a winner-takes-all market: presence of strong cross-side network effects, high multi-homing costs for the users, and the absence of special requirements. The baby products retail market is dominated by imported brands, is a highly fragmented industry, and the brand owners are dependent on their retail partners to promote their brands. The demand for these products are relative price inelastic, and consumers would be willing to pay premiums for sustained quality and reliability. An aggregator platform like firstcry.com would significantly aid in establishing and reinforcing the cross-side network effects between the brands and consumers. Second condition – the quality and reliability concerns of the parents would ensure significant store loyalty and brand loyalty. As long as there are no serious concerns, consumers would be loath to switch; and when the fill rates are high (there are no stock-outs of items that they want to buy) in their preferred stores, would not multi-home. In other words, consumer switching costs for brands are high, and as long as these brands are available with their favorite retailer, they would not shop from multiple outlets. And most infants have the same needs – diapers, creams, lotions, oils, and basic toys. Special preferences begin showing up only when they ‘grow up’. Some of them don’t ever grow up, but that is a different matter!

Firstcry.com and BabyOye merger and further consolidation

Given the industry conditions of geographically distributed year-round demand, operational efficiency and leveraging economies of scale and scope become key success factors. Consolidation is inevitable to achieve both backend (sourcing, inventory, and supply chain/ logistics) efficiencies as well as frontend scale (online and offline stores distributed across the country). That is why we would see waves of consolidation in such strong vertical markets. Like how firstcry.com and BabyOye merged their operations, I agree with Supam that this market will see more and more such mergers (read his interview here).

Lessons for enterprises focused on vertical markets

Based on what we have discussed over the past few weeks, I would urge enterprises focused on vertical markets (like firstcry.com) to (a) seriously consider your business model to include online and offline consumer touchpoints … for instance, online furniture store, Urban ladder is ‘pivoting’ to offline stores (read the news here) and are positioning their offline stores as customer experience centers; (b) invest in collecting and analyzing small (or thick) data through these omni-channel (or hybrid) business models; and (c) critically evaluate if the market conditions favour winner-takes-all dynamics.

Hope my readers from India and the diaspora had a great deepavali festival! Greetings from Bangalore.

Disclaimer: I am in no way related to FirstCry.com, Goodlife.com, its investors, or its founders.

Collecting small data in the world of big data

It is a chilly morning in late October in Bangalore, India. As I return back home after a short walk to the bus stop to drop my daughter off to her school, my colleague walking with me begins collecting bird feathers on our way back, of all hues and sizes. We start debating which birds have what kind of feathers, and when she is done collecting four different kinds of feathers, she stops. Another colleague urges her to collect more, but she says “four is good for today”. And she sets me thinking on what is the power of small data. While the world is raving about leveraging big data and the power of mass customization, I argue in this post about why successful firms must also invest in small data.

What is small data?

The best definition of small data comes from none other than Martin Lindstrom, who wrote a book titled “Small Data: The tiny clues that uncover huge trends”. He distinguishes big data from small data thus: “Where big data is all about drawing correlations, small data is about identifying causation” (read more here). Big data is typically collected through a variety of sources, from your credit card spends, loyalty card behavior, search algorithms, and mining of transaction data. What big data analytics can do is pretty visible and known to all of us – patterns that can aid prediction. In his book and other writings, Lindstrom write about the need to uncover the causation behind these patterns. One of the examples he often cites is how a US bank found customer churn using big data, and with the help of small data, discovered that they were moving their assets and mortgages around, and possibly leaving the bank not because of poor customer service, but they were going through divorce!

Small data for listening to customers

A couple of days back, I read an interesting article on why Amazon is opening physical stores by IMD Professor Howard Yu (read it here). In that article, Yu labels Amazon’s book stores as not so much distribution channels, but “research laboratories”. Laboratories where customer journeys are observed, what they like and how they spend their time browsing; simple things like which aisles do they reach first, do they pick up the books first or read the reviews pasted below, do customers get influenced by recommendations, and the like. Small samples, but rich inputs on causation. Retail stores have long been using small data – have you not read about why bread and staples are placed at the end of the alleys and chocolates at the check-out counters? Small data like this helps identify why certain shoppers behave the way they do, whereas big data will be good to classify shoppers into dashers, economists, the pros, and the candy store kids. [Dashers know what they want and dash in and out of the store, picking up her favorite brands/ products/ pack sizes and rushes out. Economists, on the other hand, rummages through deals and offers, and typically shops at warehouse clubs and wholesale shops. The pros are those who do considerable research on the deals and offers, analyze value for money, wait for the right time to buy (like festive seasons), and typically get the best deals. The candy-store-kid is the retailer’s delight; she behaves as the name suggests – impulsive, compulsive, and extensive shopper. Read more about it here.] On the other hand, small data will help analyze when does a typical dasher behave like a candy-store-kid. I was in Barcelona recently, and typical to my urban foreign travels, I was shopping in supermarkets. I noticed that a lot of these stores had “male zones”, where typical electronics, electrical goods, FC Barcelona memorabilia, and beer are stocked. Small data, could suggest that men would hang around the ‘zone’ till the women shop for all the essentials, and just as they reach the counter, these items are added to the cart and billed. Given the festival season, maybe even the textile showrooms of the famed Chennai’s T. Nagar might have implemented this!

Small data for innovation

There is no better use of small data, unless you listen to customers. And better still, if you could listen to your customers at the prototyping stage, well before product design and introduction. User innovation spaces provide opportunities for firms and innovators to collect valuable small data well before the product design. In fact, such small data could help innovators listen not just to the prosumers (innovative proactive consumers, who engage with the firm and are typically early adopters), but a wide variety of consumers as well. One such experiment on early-stage user innovation platform is a physical store-like service manufactory at the Nuremberg city center – JOSEPHS®.

JOSEPHS® – the service manufactory

JOSEPHS® is a unique concept, where user and open innovators could come together with real consumers, consumers who could walk-in to the store as if they shop for goods and services in the city center. The ambience and feel is designed to look like a retail store with spots housing different innovators and a coffee shop at the entrance.

Set up by the Fraunhofer IIS in collaboration with the Freidrich Alexender University at Erlangen-Nuremberg in the city center of Nuremberg city, Germany; JOSEPHS® is envisaged to be a platform for bringing University researchers, Fraunhofer scientists, innovative entrepreneurs, and retail consumers to co-create services. Much like the prototyping TechShops, MakerSpaces, HackerSpaces, or FabLabs for designing products, JOSEPHS® aims at integrating users (randomly walking in) with innovators; a micro-factory for services.

In order to attract walk-in customers, JOSEPHS® has a coffee shop at the entrance. In order to sustain the innovation and create spaces for co-creation, there is denkfabrik, a workshop space, and meeting areas.

Please visit the website of JOSEPHS® at http://www.josephs-service-manufaktur.de/en/. For more information on how the concept works, you could watch the YouTube video at https://youtu.be/eoW3zJkYqzw. [If you would rather watch it in German, please visit https://youtu.be/MIwKdYa3_9A and https://youtu.be/0ndvx-LrBBI]. If you are an academic and want to learn more about JOSEPHS® and teach about it in your class, you can download a copy of my case on JOSEPHS® from the Harvard Business Publishing for educators at https://cb.hbsp.harvard.edu/cbmp/product/IMB567-PDF-ENG.

[Disclaimer: I am a visiting professor at FAU, Nuremberg and have been involved in the conceptualization of JOSEPHS®, as well as the author of the case mentioned above. Read about my journey to FAU here. And about my course at FAU here.]

Summing up

So, why does Amazon open retail stores? How does FirstCry.com manage its online and offline ventures? Think small data. Time to integrate small data with big data to get real deep insights. In the next post, I will delve deep into the business model of FirstCry and elucidate the synergies between online and offline stores.

Problems, solutions, actors in a garbage can: how do we stir up the connections?

Research on decision making has been of interest to me for some time now. And, during my advise and consulting, I have come across a large number of entrepreneurs and managers struggling to make decisions, remain consistent in their decisions and make hard commitments to their decisions, as well as take ownership for the consequences of the decisions. I propose that such “under-decisiveness” (not being comfortable with their decision) is due to their inability to explain to themselves why and how their decisions are right (or appropriate). Some great research on this has been done in the past, and I would draw upon some insights from behavioural science research on decision making, some Indian philosophy, and some neuroscience. In this post, I introduce to my readers the concept of garbage can decision making, and its implications for managers and entrepreneurs.

Aha moments, first

In their recent article, David Rock and Josh Davis (Four steps to have more ‘Aha’ moments), urge decision makers to take breaks from the act of decision-making to make better decisions. In other words, sleep with your problems (no, I am not implying anything about your spouse!). The argument is that taking a break helps in (a) noticing quiet signals, (b) look inward, (c) take a positive approach, and (d) use less effort.

Quiet signals have been talked about in decision making literature in the past (almost the same as weak signals – I am not aware if quiet signals are any different). One of the best articles I have read recently about working with weak signals appeared at the MIT Sloan Management Review (How to make sense of weak signals). To summarise that article, Shoemaker and Day (the authors) urge us to follow nine approaches (see the exhibit in the article): 1) tap local intelligence, 2) leverage extended networks, 3) mobilise search parties, 4) test multiple hypotheses, 5) canvass the wisdom of the crowd, 6) develop diverse scenarios, 7) confront early, 8) encourage constructive conflict, and 9) trust seasoned intuition. If you would rather read a lighter article on how organisations can tap into weak signals, you may read what appeared in the McKinsey Quarterly (read here). The bottomline – listen more; listen to diverse sets of people; actively listen to conflicting views, and proactively build listening mechanisms and routines in your role/ function/ organisation.

To look inwards is easier said than done. Busy executives need to take their time easy. To quote my favourite analogy, which car needs more maintenance – the car that is been driven around between Whitefield and Bannerghatta Road in Bangalore, or the one that is being driven around a formula one track? The competitive formula one driver, driving at 300 kmph (or thereabouts) competing with other fast cars needs much more periodic pit stops than the car that is averaging about 6 kmph (okay, maybe 9 kmph), right? They busier you are, the more you need to take breaks. Taking breaks is not easy – you need to keep your mind active, right. That is where an active pursuit of another ‘activity’ is important. Build an alternative thing to do – I am not using the word ‘hobby’ deliberately. Build an activity that interests you, that you are passionate about. Something that motivates you enough to schedule your work and the ‘activity’ with relatively equal importance. One of my batchmates runs an internet aggregator, as well as competes in the triathlon. One another is a CEO by the day and a fiction writer by the evening. One another colleague of mine trains for marathons in the evening, is Dean for part of his time, and is Professor for the rest of the day.

I don’t need to elaborate about taking a positive approach. Enough research done about it. Using less effort is almost a summary of what is been said already. Take a break, do something else, listen to your own self, and then get back to the problem. You’ll be able to decide better. However, my thesis is that just these are not sufficient – it is like saying that by doing all of these (listening to more people, diverse people, yourself, and taking breaks) you will be able to improve your decision-making. I argue that it is also important to actively make the connections between data (collected through listening), insights (collected through listening to yourself), criteria (oops, we haven’t talked about it yet), and implementation plans (yes, yes, we will talk about this too).

Garbage can model of decision-making

Before we go into the process of what I call active decision-making, we need to understand the ‘garbage can’ model of decision making. Yes, you read it right, the garbage can! Way back in 1972, Cohen, March and Olsen wrote a classic article in the Administrative Science Quarterly, titled A garbage can model of organisational choice (read the abstract here). The primary argument is that decision-making is not as neat as it is taught in the first few sessions of your MBA curriculum, but it is much like a garbage can. In a garbage can, where actors (decision-makers) are looking for work; problems are looking for solutions; and solutions are looking for problems and decision-makers. Solutions are not created from ground up, but are available within the system; it is the active seeking by the decision-maker to match problems with solutions that matters most.

They label organisations as organised anarchies, characterised by problematic preferences, unclear technology, and fluid participation. In other words, organisations do not have clear priorities of projects and actions, unstable or immature processes, and there is a large (noncommittal) silent majority in every organisational decision making setting. Does it ring a bell? A lot of organisations have stated strategy, but the specific decisions made at the field do not reflect the organisation strategy; our organisational processes can do with a lot of discipline and consistency; and in every meeting there is only 20% people contributing to 80% of the voice.

Active decision-making

When we agree that organisations are indeed organised anarchies; and decision-making therefore reflects garbage cans, we need to work on making the connections actively, proactively.

Criteria is the first thing we need to focus on. Organisation’s strategy is one thing – every organisation claims to have one. Does the organisation actively translate the intent/ purpose and strategy into actionable criteria. I know of a variety or organisations where a lot of middle managers (and sometimes even senior managers) cannot translate the organisation’s purpose (or intent) into actionable priorities. when I ask them what their priorities in the next few years are, most of them cannot go beyond simple parameters like growth and profitability; and even if some of them do, very few of them understand why such actions are their priority. So, the first thing you need to is ensure that your organisation vision and strategy is translated into visible priorities and criteria for decision-making. In great organisations, every program, every decision, every initiative reflects their strategy and purpose.

Implementability is another under-rated aspect of decision-making. Every decision need to be implemented. One of my colleagues used to remark – effective decision making is when the decision-maker can take ownership for the consequences of the decision. Which means, the decision-maker should ensure that the decisions are implemented efficiently. Which means that the decision-making has to take into account the contextual realities right at the criteria and option-definition stages.

26-1-garbagecan

Summary

In summary, active decision-making requires the decision-makers to become both efficient and effective in their decision-making. Efficiency of decision-making is about the process of decision-making and effectiveness refers to the success of the decision. In order to ensure that good decisions balance efficiency and effectiveness, decision-makers need to pay sufficient attention to criteria/ options (effectiveness) as well as be aware of garbage can models, weak signals, sleeping over thoughts, active breaks (efficiency).

So, managers and entrepreneurs, even if you are muddling through, please balance efficiency and effectiveness of decision-making.

My platform business models journey

Writing this blog after a long gap. New administrative responsibilities at my school required me to invest some mindspace towards understanding the role, my team (and their roles), and setting up priorities and processes.

I am also figuring out how to respond to blatant plagiarism – some pages from this blog have been plagiarised (word by word, including my writing in first person!) and reproduced at another blog. For example, check this out: http://digiplus.runwise.co/network-mobilization-platform-businesses/ and how this page is different from the original post: https://srini108.wordpress.com/2016/05/26/network-mobilization-in-platform-businesses/. Another page that has been plagiarised is here: http://digiplus.runwise.co/building-platform-business-hard-work/, which is an exact copy of my post at https://srini108.wordpress.com/2016/05/03/building-a-platform-business-is-hard-work-not-for-lazy-people-a-response-to-prof-ajay-shahs-column-in-the-business-standard/. I have written to the supposed author requesting for removal of the infringing posts, but have heard no response. Plus, I have left comments at the bottom of the infringing blog pages that those pages were indeed plagiarised, but those comments are “awaiting moderation”. I have now learnt a lesson. All these pages now come with an explicit copyright assignment, and I am going to make it difficult to plagiarise with increasing use of personal pronouns.

Today morning, I was asked by our Dean to present the evolution of my research, teaching and consulting interest in platform businesses. It was an interesting exercise of thinking through the evolution over the past three years. In this blog post, I intend to capture a short glimpse of the same.

A network of accidents

It all began with a network of accidents. Three accidents to be precise. A dorm-mate from over 20 years back invited me to his company (he had just relocated to Bangalore) for a short discussion on product design ideas. When I went there, I discovered that apart from him, there were enough members of his team who were my students at both IIMB and IIML. Which made the discussion interesting and lively. The “product” that they were developing was actually a platform for the FAs to serve their business process outsourcing customers. And we had a fruitful discussion on the economics of platforms, why network effects are important to understand, and how can the company monetise the efforts, if they chose to (subsequently, they chose not to monetise the platform directly).

The second accident was when a colleague of mine at IIMB could not attend an event his friend was planning. This friend was an entrepreneur setting up a business around pharmaceutical retail supply chain, and had invited his “Professor friend” to talk to his customers (pharmaceutical distributors). My colleague could not attend the event, and requested me to stand in for him. I travelled to Chennai, had an eventful breakfast with the founding team; and over a couple of aloo parathas (potato filled Indian bread), changed their business model from a SaaS model to a platform business model. The said breakfast meeting, I am told, is currently a legend in the company history/ water cooler talks.

The third accident took place (though not in the same chronological sequence as being reported) when another colleague of mine from the Quantitative Methods was leading an team writing a case on a firm. The case writing team felt that there were more strategic issues in the case, and invited me to join in one of the meetings. During the meeting, it was apparent that the firm was transitioning from being a product firm (selling boxed software) to a platform-based business, where product was just a hook for a variety of other services and value propositions.

Consulting and advice leading to case writing and research

These three accidents led me to document them as cases, and I began providing advise/ consulting to some of them. I got introduced to more firms operating platform businesses, and discovered that some of these entrepreneurs were actually making decisions about platform businesses, quite intuitively, without actually knowing the theoretical work behind the same. And boy, weren’t they successful! They have survived the dot-com bust, a series of recessions, and the growth of digital businesses. More learning talking to these entrepreneurs (academics call this as grounded theory). More cases followed, and I began to understand the economics behind the same. I initiated a series of projects around the same, got funding from IIMB and FAU for the same, and wrote a series of cases.

Evolution of the course(s)

As the number of cases bludgeoned, I was invited by the FAU (http://wi1.uni-erlangen.de/) to teach a course on digital business, and I latched on to the opportunity to launch a course on platform strategies. That one course led to another, and I offered an improved version of the same at IIMB immediately thereafter, and then as the number of cases grew, and I began filling in learning gaps, offered a larger version of the same at IIM Trichy. And now both the FAU course (http://wi1.uni-erlangen.de/teaching/strategies-platform-mediated-organizations) and the IIMB course (http://www.iimb.ernet.in/node/5610) have now become 5 ECTS and 3 credit (full thirty hours) courses.

This blog

As the courses matured, I began writing a lot of notes for myself. In fact, true to a business school professor, I would typically prepare for the class, get a lot of insights to share with the class, share a few in class, and the rest of them would remain in my notes. Some of my students continued to urge me (no, I am not substituting it with encourage) to write a blog. And I began this blog in April 2016 (once my course was over). My teaching assistant, who travelled with me to IIM Trichy and took copious notes of my classes was extremely helpful in ensuring that the information loss from the class discussion to the written notes was minimised.

Blog leads to more connections and research

Based on this blog, some of you came back to me seeking specific advice on setting up and running platform businesses; I engaged with a few firms, and more cases followed. The blog now has led me to more connections, and spurn on more research questions. In the meantime, a lot of my PGP and EPGP students have undertaken projects on specific questions around the platform business models (I will run a series on those projects in the next few weeks), and more insights and research questions emerged.

The journey has been exciting, I have learnt a lot. And hopefully, things will continue.

Stages of Digital Transformation

A lot of people confound digital transformation with information technology and automation. Automation of processes would lead to increase in efficiency, quality, and additionally, transparency, and fairness in the case of services. Industries have been transformed in the last few decades in such a manner that what is visible to the outside world is the information technology. What is not so much visible is the painstaking work that goes on in the back-end to support this transformation. In this blog post, I will highlight the stages of digital transformation, building on my previous blog post on digital transformation (read it here).

Four stages of Digital Transformation

The transformation for digital transformation at any organization begins with the definition of a perspective plan. It is absolutely critical that the entire journey is considered an intrapreneurial action – a new business project/ plan. Within the confines of the existing business model, constrained by the extant resources and capabilities, it is highly unlikely that mature organizations can question their status quo. I would therefore suggest that organizations set up independent empowered venturing teams to take the digital transformation journey forward. With appropriate leadership commitment to change and a vision of the future, this venturing team should draw up the perspective plan.

A key component of this perspective plan is the definition of the value that you provide in your ‘transformed’ state. Value is an over-used word in this context, but I will risk using that again. What is that additional/ different value that the transformed organization intends to provide? Take the example of Airbnb.com, that competes with traditional hotel chains. Without owning a single hotel room, Airbnb.com transformed the entire travel/ hospitality industry through the provisioning of basic rooms. While traditional hotel chains behaved like legacy airline carriers, continuously improving “the experience”, Airbnb.com began providing just bed-and-breakfast, but with a different “experience”. The customers might meet more like-minded travelers and hosts at Airbnb.com than at traditional hotels. In just as much the same way low-cost carriers disrupted the legacy airlines industry, Airbnb.com changed the way people looked at travel – it was no longer luxury that one looked for, but something new and exciting. And with their business model, Airbnb.com had the ability to scale up capacity seamlessly in any city, town, village in any country (legal troubles notwithstanding).

Superior customer value cannot be provided unless the organization focuses on re-engineering its back-end processes. What may be visible to the outside world are the rejigs on the front-end, but the back-end process reengineering is the core to successful digital transformation. It is how efficient the back-end processes are, and how the front- and back-end processes talk to each other that matter the most. Imagine the world before the airline ticketing portals. One would have to call in to a travel agent, who would access the reservation systems of different airlines and provide the consumers with limited choices (and in most cases those choices that made him the most margins), and very little flexibility. What these online portals did was to provide consumers with unlimited choice and flexibility, including crazy organizations like https://skiplagged.com. The customer experience changed significantly, primarily because these airline ticketing aggregators could create back-end processes that would extract the schedules and fares, including connections and code-share agreements. It is the based on the strength of the back-end that supports the transformation of this industry. Same is the case with Uber (or any of its competitors or partners) – the back-end that seamlessly connects drivers and riders based on the geo-spatial data captured from their devices. Traditional taxis focused on automation of billing and other front-end services, whereas Uber disrupted the market with back-end re-engineering.

The importance of customer centricity could not be missed in this process reengineering. The customer experience has to be the center of any such reengineering. Good reengineering imagines the customer journey throughout her experience with the organization and its product/ service as it happens chronologically. Like a relay race, the customer “baton” has to be passed on from one organization unit to another seamlessly that the customer should not experience the passing of the baton at all. Organization design that promotes concepts like the key account management (KAM) or single point of contact (SPOC) facilitates such experiences, and it is critically important to keep these customer journeys in mind while redesigning the processes. For instance, take the case of how loyalty programmes work. You rake up your points/ airmiles from one product/ service and struggle to spend those points, as the options for redemption are highly limited. Yes, these days my credit card company and my airline frequent flier miles are merged, as I use an airline-co branded credit card. Even then, my credit card spends get added to my airmiles that I cannot redeem for anything else other than the limited choice provided. Here is where disruptions like WorldSwipe can help (read more about WorldSwipe here), where the platform has partnered with a variety of organizations from where consumers can earn their points, and a much larger variety of outlets where they can redeem their points. For instance, an electrician buying cables and earning points from his favorite electric cables brand can redeem his points by buying cellphone minutes from his favorite telco. [Disclaimer: I advise them]. Imagine the processes reengineering required from the cable company, as well as the telco in order for this loyalty to work; and the extent of consumer insights that could be captured as this platform grows and matures.

In the process of defining and reengineering the processes, it is important to keep the employee experience as well in mind. When customer experience dominates process redesign without regard for the employee experience, the whole system collapses. Take the case of your ecommerce grocer’s last mile delivery persons. These employees, are possibly the lowest paid in the entire chain, and yet, they represent the face of the company to the consumers. The consumer interacts with the company only through her mobile phone or tablet, and then these delivery persons land up at her door. Fullstop. Consumer experienced your product/ service. How critical is it to understand and design the processes that traces the employee experience journey! I have heard horror stories of how these employees in cities like Bangalore are provided with unrealistic delivery targets, without proper consideration of traffic situations, parking issues, and consumer non-availability at home situations. Add cash-on-delivery complications where these employees have to not just deliver goods, but collect cash for the same as well. Complicate this a little further with card-on-delivery and associated network connectivity issues. Once you live through the employee experience journey, you would realise how important it is to balance the process reengineering effort between the customer experience and employee experience. A lot of time, basic training and skill-development may be sufficient, but training on customer service orientation, attitude, and service quality would go a long way in enhancing the employee experience and engagement. Just make sure that your organization does not go towards employing two monkeys (as below).

On Tuesday this week (06 September 2016), The Mint newspaper carried a special issue on the digital future. One of the articles in that edition was by Jaspreet Bindra from the Indian automotive major Mahindra & Mahindra, titled “The 10 Commandments of Digital Transformation (read it here). Coming from someone with a varied experience like him, it is worth reading through. His 10 commandments does touch upon what I have elaborated plus much more.

Enjoy your digital transformation journey!

Regulating Platforms

Over the past few months, there have been a lot of disputes between platform businesses, governments, and a lot of these have gone to courts as well. Last Friday (26 August 2016) issue of the Mint newspaper carried an opinion piece titled “the tricky business of regulating disruptors” (read it here). The editorial while labeling almost all platform businesses as disruptors, just stopped short of calling all of them disruptors. In this blog post, I dig deep into the issue of if and how platform businesses need to be regulated with respect to consumer protection, without impeding innovation and thence providing fair business opportunities to businesses (and returns to investors).

Defining the industry boundaries

One of the key determinants of “competitive” behavior is the definition of the relevant industry. What is competitive and what is anti-competitive can depend on how narrow or broad you cast your net while defining the industry. For instance, the Mint editorial explains in detail how in a 1953 verdict on DuPont’s monopoly on the cellophane as a result of “result, business skill, and competitive activity”, despite having over 75% market share in the cellophane market, because the courts defined the “relevant” market as flexible packaging material, and not cellophane, the product. However, in most cases against platform businesses like Uber, the competition commissions and other regulators have defined the market as app-based taxi services, and therefore looked at the market being usurped by monopolies (Didi-Uber combine in China) or a duopoly comprising of Uber and a local operator (like Grab in SE Asia, OLA in India, Lyft in the USA).

Is Uber a competitor or substitute to Taxi?

In a detailed response to Prof. Aswath Damodaran’s 2014 article on Uber’s valuation (read it here), Bill Gurley (a series A investor and board member of Uber) defined three things (read Bill Gurley’s blog post here).

He argues that Uber has since transformed the industry so much that one’s market size estimates based on current taxi market sizes is flawed. In other words, Uber was providing customers with far more value and a very different set of value propositions than a traditional taxi service – quick discovery, easy payment, predictability of service, quality (dual rating of riders and drivers), and trust/ safety. He talked about how Uber’s customers are using it to transport young adults/ children or older parents in the “comfort and safety” of an Uber, rather than a taxi.
He argued that given the economies of scale that arose due to the positive cross-side network effects, more and more drivers and riders adopted Uber, and Uber expanded to more and more geographies, and the prices fell. And the price elasticity contributed to more demand and therefore more network effects. The economics of Uber (and therefore other ride-hailing app-based services) are very different from the city Taxi services.
Uber is not a taxi alternative – it is a car-ownership (or a car-rental) alternative. When the liquidity (availability + density) of Uber vehicles is so high in every geography you want to travel to, you would rather not rent/ buy a car, but use Uber. The convenience and reduced cost of Uber as an alternative to ownership is something that he substantiates with data and analysis.

In other words, Uber was indeed a disruptor, and therefore was entitled to be treated as a separate industry. It is not a competitor to the for-hire taxi, it is an alternative; much the same way Kodak was bankrupted by digital photography (and not by competitors like Fuji).

Creative destruction and Schumpeterian waves of technology innovation

The Mint editorial called for Honorable Judges to not set taxi fares, simply because these disruptors would transform the industry through their technology innovation, and any restraining regulation would hinder these Schumpeterian waves. It is therefore an indirect call for letting these disruptors alone, let the waves of Schumpeterian technology innovation hit the markets, before we arrive at a stability of sorts. Regulation can wait.

Can regulation wait, and allow for a disruptor, in the excuse that the market is a “winner-takes-all” market monopolize the market? The popular arguments against monopolies is that of consumer protection, and that when monopolies rule, consumers suffer – prices rise, service levels fall, and there may be no alternatives. This is exactly the case for another wave of creative destruction.

My primary thesis is that when such disruptions happen on the basis of network effects, leading to economies and scale, and the disruption is based on parameters like improved customer service, lower prices, and transparent/ fair transactions (trust/ safety and the like), monopolies are not necessarily bad. When such monopolies emerge and the customer experiences deteriorate, as dictated by traditional industrial economics theory, the market will be ripe for another wave of Schumpeterian technology innovation. The waves of market entry in the Indian airlines market is testimony to these (1990s – privatization and shake-up leaving two state-owned and two private competitors; 2000s – entry of low-cost carriers leading to the demise/ consolidation of all stuck-in-the middle competitors; 2010s – entry and strengthening of regional airlines, is it?) waves of creative destruction.

Yes, there is space for other competitors, but not so much for Uber replicas. The market is indeed a winner-takes-all market (as I have argued in the past), and therefore there is just enough room for small, losing replicators. Look around the markets for Uber competitors, you do not find any market fragmented. While differentiation and creating niches is the prescription for firms competing with Uber, I request the regulators to begin treating such platform businesses as an independent market and let the inefficient product-markets fail, if required. No one cried when the offline ticket counters of Indian Railways are declining sales, thanks to the volumes garnered by IRCTC (some claim that this is the world’s largest ecommerce platform, is that true?). No one complains about bookmyshow.com garnering huge market shares in the app-based movie seat booking market, claiming that the livelihoods of the ticket clerks are under threat. Why cry about Uber, or for that matter, OLA, Grab, or Lyft?

There is already sufficient discrimination against these disruptors. In a recent visit to San Francisco, I made an extra effort (okay, walked down a flight of escalators) to click a picture at the SFO airport that read, “app-based taxis to pick-up from departures level”. Honorable Judges, please leave them alone, enjoy your ride/ movies/ every other service, contribute to the economies of scale, and let the market be disrupted.

Cheers.

Social Buffering – Is it lonely at the top?

Yesterday (24^th August), I connected three dots. First dot: I met with a couple of my friends from 20 years back (we were batchmates) – one of them celebrated his tenth year of entrepreneurship this week, and another was taking baby steps into entrepreneurship in the last three months. Second dot: I read a piece on LinkedIn on why Samsung cannot be Apple. Third dot: I read an article in the Strategic Management Journal (SMJ) on executive anxiety. And tossing and turning on my bed, late in the night, the three dots connected. Voila.

Dot #1: The entrepreneurial fetish with fund raising

When two entrepreneurs meet with a business school professor, it doesn’t take long for the conversation to veer from business models to fund raising. So it did happen yesterday. The conversation was going towards evaluating if angel investing is better than crowdfunding, and we agreed that the money raised is much less valuable than the insight/ knowledge/ resources/ network the angel investor(s) would bring in. Isn’t that why those investors are called “angels”, as they have some magic wands in their hands? Slowly, bit by bit, I evaluated their business plans and broke the entire fund requirements to an amount that was so small that they would not take money from anyone other than one with an enormous network or experience in that domain. As entrepreneurs, it was extremely important that they realize that money from the right source is far more valuable than the denomination of the currency (or the balance in the bank). The value of the advice and mentoring the angel investors bring in is severely under-rated in today’s entrepreneurial ecosystem. Here’s calling all entrepreneurs to evaluate your list of mentors – what specific insight, learning & knowledge, experience, resources, network do each one of them bring in. Prune/ add ruthlessly.

Dot #2: Singularity

The drive back home from North Bangalore to South Bangalore in the evening traffic is not something I enjoy, unless I have some company or reading to do. Yesterday, I had both. The reading was this LinkedIn post by Anish Behera on Why Samsung will never be Apple? (read it here). If you have returned back to this blog after reading his piece, you know where I got the three dots idea from, right!

His primary argument is that it was important for Steve Jobs and the American culture to be autocratic and not suitable for Korea and Samsung. He argues that American culture of Singularity is more suitable for innovation than the Korean (in fact, he extends his argument to most of Asia as well) culture of Conformity. Though I am glad that he included Mahindra under the singularity dimension, I think it is a slight stretch. But that is a different debate and discussion.

The substance of his argument was that Apple ha(s)d both singularity (one person) and an opinionated (non-conformist) culture that fostered innovation. What it means for entrepreneurs of today is not so much to create a person who is as charismatic (and possibly maverick) as the leaders he quotes, but to have a singularity of purpose that guides decision making. Strong vision, broader search for alternatives, speed of decision making, and discipline in execution arise out of singularity and non-conformity. Both, together; not a preponderance of one over the other. Pure singularity without a culture of non-conformity would result in a narrow search of alternatives and may lead to phenomena like groupthink. Non-conformity without a strong purpose and direction would result in slow decision making and lack of discipline in execution, and may to phenomena like predictable irrationality.

Dot #3: Social buffering

A couple of weeks ago, Apple CEO Tim Cook asked, “Hey Siri, why am I so alone?”. In an insightful interview with The Washington Post (read it here), he talked about a variety of things including not being able to replace Steve Jobs. But what caught my attention yesterday was the statement that “running Apple is sort of a lonely job”. And when I read an academic article on the Strategic Management Journal (yes, that is my primary job) by Michael J Mannor, Aadam J Wowak, Viva Ona Bartkus, and Uuis R Gomez-Mejia titled, “Heavy lies the crown? How job anxiety affects top executive decision making in gain and loss contexts”, (SMJ, 37,9, Sep 2016) the dot #3 emerged. The heavy crown of leadership can lead to significant anxiety in top executives (so beautifully articulated by Tim Cook when he talked about how he prepared for a congressional hearing – have you not read the interview, yet?). An effective insurance against such anxiety is to surround oneself with a team that is supportive of one’s decisions, effectively buffering the executive from threats from the environment. Building such a supportive team, that shields the top executive from the external world without a risk of opportunistic behavior from the buffer themselves is what the authors label as social buffering.

The implications of social buffering (according to the authors) are three-fold. Higher the perceived threat from the external world (and therefore the anxiety of the top executive), more likely the social buffering behavior. Secondly, in spite of the social buffer, it is likely that anxious executives might be more risk-averse than others. And finally, in contexts that represent losses (rather than gains), executives would be more likely to build strong social buffers. For instance, executives leading firms in declining product-markets may build stronger social buffers than those in high growth contexts. To put this in simple terms, the more vulnerable the top executive feels about the environment, the more she will surround herself with supporting team members (who share the same thought processes); it will make her more risk-averse; and more so, when faced with losses (than gains). Given that loss aversion is more pronounced (executives worry more about losses than celebrate equal quantum of gains), this social buffering can become more and more pronounced in malevolent environments.

Connecting the dots

Find an investor who “has been there, done that” + Build a culture of singularity & non-conformity + Beware of social buffering

While it is important that you seek angel investments from someone who brings in a lot of experience, insights, expertise, and a network, it is also imperative that you build a culture of singularity and non-conformity in your organizations. If you do not pay active attention to these details, you may end up surrounding yourself with a social buffer, promoting and highlighting only those in your network who conform to your thoughts and beliefs while letting others go, you run the risk of running your enterprise to the ground with high anxiety, low risk appetite, and conformist thinking. Without an active innovation programme, replication and possibly fast following strategies are likely to dominate the organizational discourse.

Prescriptions

Seek out investments carefully. Do a proper due diligence of your investors’ resources and networks
Keep checks on how your advisors and investors encourage/ dissuade innovation and risk-taking
Make sure that you surround yourself with a variety of perspectives, and ensuring that your social buffer is not counterproductive to your innovation and external orientations

Cheers.

Building your brand

This is not a post about marketing, though it may sound so. This is a post about how entrepreneurs and leaders communicate. This is relevant for brands and firms as well. Read on.

I listened to a very insightful TEDx talk by Simon Sinek on inspirational leaders. Listen to it here. He talked about how inspirational leaders focus on the inner most ring of what he called the golden circle. In the inner circle is the why, followed by the how, and then the what. He cited examples of ineffective communication, when firms and brands and individuals focused on the what to drive the how and why, and how successful people and brands and firms focused on the why first, before highlighting the how, and what. If you have not listened to it yet, please do so, before you proceed.

As we see a tramline of enterprises biting the dust, liquidating/ selling off to powerful competitors/ selling off at a fraction of its past valuations to firms in complementary businesses, this message is becoming far more relevant. Couldn’t resist this contrast …

Yahoo is a guide focused on informing, connecting, and entertaining our users.

https://about.yahoo.com/

Google’s mission is to organize the world’s information and make it universally accessible and useful.

https://www.google.com/intl/en/about/company/

Just take a look at how these two pages are organised – Yahoo’s page flows like this – a statement of what they do – inform, connect, and entertain; how did they start, how is it to work for Yahoo, and what does it offer for developers, advertisers, partners, and research. Google’s page begins with the company overview (that includes their history), who they are (culture and locations), what they believe, and then what they do.

If your communication focuses on what problems you solve (why you exist), and then lead towards how you solve those problems, and therefore what products and services you offer; I am willing to listen to you. On the other hand, there are entrepreneurs and firms that begin with what they do. For instance, early this week, I heard someone talk about building the Uber of Indian tractors for farmers (if the one who talked about this is reading this, don’t take it personally). I had to probe deeper and deeper to understand what problem was being solved and why did Indian farmers needed a mechanisation solution in the lines of Uber.

Virgin’s Richard Branson also wrote today (11 August) about why successful entrepreneurs should seek problems, and create solutions (read it here). Begin with the problem and the opportunity; the business model and the solution will follow; and thence products and services.

So, whatever brand you are building – of yourself, your firm, your products/ services, please begin with the why, the how, and then get to what. Build a robust brand that stands for something, signifies why it exists, and speaks to the ecosystem on why it exists. Remember the arrow that connects A and z in the Amazon.com logo? Everything from A to Z.

And in today’s world, as firms simultaneously diversify and depend on a cluster of complementors to provide (each others’) customers with unique value, it might not be out of place to conceive of your brand as a platform. A simple platform (like how the automobile companies use the word) upon which your complementors and partners could build on, customise, co-develop, co-innovate, and co-create. Brian Monahan’s post titled “More than a promise: Brands are platforms” (read it here) develops this argument very well. Brian’s primary argument is that brands transcend the promise and should allow for other firms and its partners to shape the consumer experience. Imagine brand Android!

Borrowing the idea from Simon Sinek’s talk, leaders communicate why more than the what. How is your brand communication structured?

Would love to listen/ read/ hear about your brand stories.

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