Thursday, December 01, 2016

Why platforms and ecosystems matter for innovators

You may know that Paul Hobcraft and I are collaborating on a new blog entitled Ecosystems for Innovating where we focus on the emerging importance of platforms and ecosystems for innovation.  We've been exploring the idea that increasingly innovators must understand the ecosystems of products, services and business models that exist.  New innovations must either align to and integrate with, or must overthrow these platforms and ecosystems.  It's simply not possible to create a compelling new innovation that ignores existing platforms and ecosystems, unless that innovation also creates a completely new ecosystem.

We're making these arguments based on another idea:  seamless customer experience.  As basic product and feature needs are increasing met and in many cases exceeded, what customers want is products and services that work together effectively, cohesively and seamlessly.  New solutions or innovations must inter-operate seamlessly with the ecosystem.  Excellent features aren't enough.  Delivering a seamless customer experience requires a couple of interdependent components:
  • Having an appreciation of the existing platforms and ecosystems and filling an important gap while ensuring seamless interplay with the ecosystem contributors
  • Defining and understanding the customer experience journey, and understanding how all of the ecosystem contributors ensure a valuable and seamless experience across the journey, not just at the vital "touchpoints"
Throughout our posts we've examined a range of concepts, including the value of an ecosystem, detailed customer experiences journeys and the platforms that enable these ecosystems.

I thought it would be interesting to take a step back and place the discussion of ecosystems and innovation in context by examining the history of innovation, to demonstrate why ecosystems and platforms become important as a market or industry matures, and why innovators must engage ecosystems and platforms as they compete in a market.  Let's do that by examining a famous innovator and industry (Ford and the automobile industry) to see how ecosystems and platforms have changed.

Brief automotive history

 Ford was not necessarily an "innovator" as far as the automobile was concerned, since many other entrepreneurs were building cars at the same time.  Ford's innovation was really focused on the manufacturing process and mass production.  But for a moment let's consider the environment in which Ford introduced the Model T.

When the Model T and its other competitors entered the market, those vehicles were for the most part discrete products that could rely on very little infrastructure or supporting products and services.  Other than a few macadamized roads, most Model T's traveled on older wagon roads at best, and the drivers often had to become their own mechanics or hire a driver and a mechanic.  Further, there weren't a lot of dependable sources of fuel, and concepts like speed limits, insurance and other things that we take for granted didn't exist.  In other words, when the market was new and emerging, discrete products that met basic needs were valuable even when an ecosystem or platforms didn't exist.

Fast forward a few decades into the 1950s, as a nation wide platform (interstate highway system) and dependable ecosystem partners (gas stations, mechanics, financing for automotive purchases, government regulations and oversight) become more important.  Suddenly there are far fewer options for motive power (gasoline wins as a fuel over electricity and others), so engine innovation narrows while other innovations expand (safety, financing, and a growing motel and fast food industry built specifically around the car).  Here we can see that the ecosystem begins to dictate innovation options or choices(gasoline over electricity) and the ecosystem expands as the base product (the car) comes to some maturity by filling gaps around needs (fast food, inexpensive accommodations) that become needs as the car enables transportation.

Fast forward to the 1990s, when I worked in the semiconductor industry at Texas Instruments.  One project I led was the examination of the electric car market and whether or not TI should put more investment into semiconductor for electric vehicles.  In the early 1990s California dictated that a specific percentage of cars sold in the state were required to be zero emission vehicles.  We had to decide how quickly the electric car market would grow.  After a few months of analysis we recommended holding off, because the gasoline powered ecosystem meant the existing engine technology had an outsized advantage.  A driver could always count on finding gas stations within a few miles of almost any spot in California, while the owner of an electric, rechargeable vehicle could not predict with any certainty whether or not they could find a recharging station.  Even today, 25 years later, it can still be difficult to find charging stations.  Fortunately battery efficiency has improved.  The electric car is stymied by the lack of standards (batteries) and platforms (recharging stations).  Plus, the existing ecosystem doesn't fully embrace the technology or platform.

Fast forward a few years into the future.  While the major platforms in the past were factors like roads, bridges and fuel stations, we can see that an emerging platform and ecosystem will revolve around autonomous vehicles.  Today there is no preferred standard - different companies are exploring different versions of mapping, sensors and command systems for autonomous cars.  If this market is like every other market, there will be a shakeout, and a dominant standard will emerge for autonomous guidance.  Until that happens we can imagine a lot of innovation and investment in a new platform (autonomous systems) and the ecosystem that surrounds that platform (mapping, geolocation, sensors, smart systems, smart grids, big data, etc).  Notice however, that the core technology (the car itself) doesn't change all that much.  The platforms and ecosystems change.

Which is more important?

As a product matures, incremental product innovation becomes important because much of the real effort is in fleshing out and extending the ecosystems and platforms.  Existing supporters of the core technology or product don't want to risk their investment, and the ecosystems is dependent on integrating to a known technology.  Radical innovation on the core product puts hundreds of ecosystem partners and their investments at risk.  If Ford were to come back from the dead today, he wouldn't find the cars we are driving all that unusual.  He'd be surprised by the ecosystems that surround the acquisition, maintenance, financing and insurance around the car, and like many of us would boggle at the idea of autonomous cars.  This suggests that the platforms the core product relies on, and the ecosystems that sustain and extend the use and experience of the core product become as important, if not more important, than the core product.  And we can see this today, as major automotive manufacturers are partnering with internet, computer companies and sensor companies.  The automotive companies don't have the experience with data, sensors, mapping, geolocation and other factors that they need in order to succeed in a new, emerging platform.

Compare and Contrast

Ford didn't have to worry too much about platforms and ecosystems.  There were few platforms other than horse-drawn wagons and dirt roads.  He couldn't count on a ready supply of mechanics and fuel stations.  He created a discrete product that eventually attracted investments in ecosystems and platforms.  Today's Ford company cannot ignore the existing (and more importantly emerging) platforms and those sustaining ecosystem platforms.  To some extent their innovations are dictated by potential platform and ecosystem partners, who in some cases have far more knowledge and experience than Ford does.

Thus we can begin to formulate a way of thinking - not quite a rule - that suggests that the more mature an industry or market is, the more likely that incremental innovation is vital in the core product or technology.  Further, we can also say that much of the innovation is governed by and constrained by the platforms and existing ecosystems. In order to do really interesting innovation, therefore, an innovator must understand the core product and service capabilities, needs and opportunities, AND understand how to leverage the existing ecosystem or how to overturn it.

Why this matters

Today, most corporate innovators are happy and rewarded if they can create incremental or occasionally breakthrough product innovations.  While there is a lot of talk about innovation, it remains in its infancy in terms of capabilities and processes in many companies.  At the same time, the level of complexity and inter-relationships between products, platforms and ecosystems is growing steadily, as fast if not faster than internal innovation capabilities.  This means that many corporate innovators aren't gaining skills and insights fast enough to keep up with consumer, market and ecosystem advances.

We need to congratulate ourselves for the strides we've made, and encourage our corporate innovators to move more quickly to expand their thinking and understand where the true value lies - incorporating platforms and ecosystem thinking in their innovation efforts.
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posted by Jeffrey Phillips at 7:52 AM


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