Industry Insights

Ever wondered how it is possible to get so much from the internet for free these days? Start with your free Twitter account and Google-searching. Think of your free bookings on platforms such as Airbnb. Then consider all these tech companies built on open-source concepts and extensive freemium offerings. And when it comes to actually having to pay for a service, it seems very much affordable. The answer: This is all about the very idea of a platform, one part of which is the rise of IoT platform products.

The Internet Economy

Jean Tirole, the recipient of the 2014 Nobel Prize in Economic Science, says that this is due to a paradigm shift that favors a kind of thinking circling around concepts such as “platform” and “network effects”. 

In the distant 2002, Tirole published the paper “Platform Competition in Two-Sided Markets” together with his colleague Jean Rochet. In Tirole’s classic example, we have consumers on the one side of a platform and providers of goods or services on the other. The platform is the connective tissue that brings these actors together and makes the exchange of services possible. 

Classic examples include B2C platform solutions such as Airbnb. The exchange between two parties is being mediated by a platform. It enables them to “meet” and facilitates the transfer of knowledge and services between them.

Platform Capital

In the typical scenario, the choice is between costly products with high-quality service or cheaper products with lower service levels. But supply and demand do not work that way in the economics of digital platforms and ecosystems. Platforms do not simply bring out products in a walled-off environment. They create a common environment for users to convene, generate, and consume value. This environment is based on various levels of interconnection. 

Without the internet, therefore, we would have never been able to witness the emergence of platform business models. Needless to say, this is a huge shift away from business models clinging to an industrial-revolution mentality. 

The classic platform model described by Tirole is a business model that generates value by facilitating exchanges between interdependent groups. Usually, these are consumers and producers or clients and service providers. To make these exchanges possible in large numbers, platforms create massively scalable networks of users and resources. 

This model has led to the so-called Platform Revolution that puts an emphasis on non-linear value chains, networked markets, and the value created out of network effects. Users are empowered to craft their own products or solutions using platform services. The platform model, therefore, is one of enablement and facilitation. 

From Owning to Using: The Rise of the Platform Economy

These developments have led to changes at another level. Platform users are not so much interested in actually owning a product but only in using an already existing infrastructure. In many cases today, the product is the service is the infrastructure. The overall tendency is to move from owning to using. 

Resources and Infrastructure 

Let’s take an online data warehousing solution as an example. In today’s market, a data warehousing solution would be available as a fully scalable SaaS platform. In its context, users benefit from cloud resources such as CPU, memory, and storage capacities. Usually, by making use of a platform solution, you are also leveraging the performance, security, and privacy of the cloud. 

Many companies today no longer need to invest in huge IT departments or hire large consulting teams to build, say, a data warehouse for them. They can simply turn to a cloud data warehousing platform that comes with flexible compute and storage resources. Companies can then make use of a flat pricing model or billing based on the resources that they use. 

Technically, companies do not “own” the data warehouse infrastructure or the cloud resources that have been made available to them. But they also do not need to. They are able to leverage all of the platform resources and “own” the results: the insights generated out of the data processed on the platform and the associated business outcomes. 

Interfacing Knowledge 

The two-sided-markets scenario sketched out by Tirole is also diversified here.  

Platform models such as SaaS take that platform scenario of facilitation on another level. Again, now the service is the platform itself. The offering, invariably, remains the enabling environment—enriched by tooling and infrastructure—that makes it possible for different user groups to do work in new ways. 

This is why many platform products are collaborative. The exchange that is facilitated is between different types of knowledge groups or know-how holders brought together on the platform. The platform provides the necessary infrastructure and the common ground for these knowledge groups to share tools, convene, and communicate. 

A platform allows multiple participants to connect to it, interact with one another, create, and exchange value. Each platform consists of “a logical cluster of activities and associated technology that provides business results”. It is, therefore, run “as a service”. Emphasizing virtues such as autonomy, speed of delivery, and the enhancement of collaboration has made platforms synonymous with the very idea of service: 

“Platforms focus on business solutions to serve clients … They operate as independent entities that bring together business, technology, governance, processes, and people management and are empowered to move quickly.” 

O. Bossert and D. Desmet

Making the Leap: Shifting to a Platform Model

Only 3% of companies worldwide have actively adopted a platform strategy. Yet more than 30% of global corporate value—with some $60 trillion in annual revenue to be redistributed across the economy over the next five years—will be accounted for by ecosystems and platforms by 2025, according to McKinsey. 

And B2B platforms have a significant role to play. An Accenture report looking at digital B2B platforms estimates that platform-driven interactions are expected to enable approximately two-thirds of the $100 trillion value at stake from digitalization by 2025.

The McKinsey report “Winning in Digital Ecosystems” defines platforms as software and hardware, which may include an operating environment, security, computing power, storage, a set of development tools, and a variety of common functions. Also, platforms support various smaller application programs. 

“Platforms are helpful because they abstract a lot of common functions away from the specific application logic.”

Digital McKinsey Insights, Issue 3

Today, companies have the chance to create their own platforms or become part of another platform ecosystem. According to Simon Torrance, the executive producer of the Platform Economy Summit, however, corporations are slow to change. “… while 90% of corporate leaders are saying—anonymously in surveys—that they know their current business model is not fit for the future, very few are acting fast enough to create platform strategies that can meaningfully impact their performance.”

Corporations: Becoming Connected within Old-Economy Structures

So how can corporations become more connected and geared towards collaboration and innovation? Torrance has the following advice to corporations seeking to adopt platform models within a pre-established structure. “Don’t try to develop a platform strategy entirely within the existing corporate structures … Create a separate unit to invent the future, allow it to work in a different way and, crucially, have it report directly to the CEO, not the core, otherwise any innovation will be stifled and killed.” 

One way for corporations to have a share of the platform model is to form joint ventures with tech entrepreneurs, according to Torrance: “Big corporates are very slow to change their internal culture and can’t move very quickly … So it makes sense to create a portfolio of joint venture ‘speedboats’ with successful entrepreneurs to grab new ‘white space’ market opportunities fast. This model is relatively new but proving very popular.” 

Working with Startups to Accelerate the Shift to a Platform Economy

In a recent interview, Torrance said that corporations do not seem to have a clear strategy on how to leverage entrepreneurial talent and harness third-party innovation. One of the best methods to collaborate with startups is to create joint ventures with tech entrepreneurs. Today, an increasing number of tech entrepreneurs are out there to share their experience of creating and scaling platform business models and developing platform products. 

Within this framework, the entrepreneurs will leverage the corporation’s assets but will not actually work for the corporation. And vice versa, the corporation will leverage the entrepreneur’s assets but will not actually ‘own’ the entrepreneur. 

One such joint venture can be strategically relevant for the corporation and will take place on an equal footing. It will not be confined to asymmetric partnerships or asymmetrical models of collaboration such as an investment. It will, fundamentally, be based on the exchange of know-how for the benefit of a product or a solution. 

Developing or customizing IoT platform products for collaboration with corporations is one part of this trend. Find out how we used our IoT platform products to help optimizing brake systems at Continental.

Platform Products: On Making Sense of IoT Platforms

According to the McKinsey report, to get value from the Internet of Things (IoT), it is helpful to work on platform products that enable you to to create and manage IoT application solutions but also to run analytics, as well as store and secure your device data. Such products would extend from the edge to the cloud, starting at the IoT gateway and encompassing an array of IoT services all the way to final IoT deployment. This will typically include IoT device management, advanced analytics for the delivery of actionable insights, various enterprise applications, connectivity and data harvesting solutions for different IoT endpoints, plus storage for the sensor data.

Similar to an operating system for a laptop, one such IoT cloud platform performs a variety of tasks in the background, spanning across the entire IoT ecosystem. In doing so, it makes life easier and less expensive for users, developers, and managers:

“Application developers just want to focus on the specific problem they are solving and use common capabilities for computing power or storage or security. A good platform dramatically reduces the cost of developing and maintaining applications.”

Digital McKinsey Insights, Issue 3

Our take on this? Viable IoT platform products cover the ability to connect to and manage IoT devices at scale. They also facilitate platform integration with other services. Further, an IoT platform enables app development under consideration of that data and deploys apps on IoT devices. Finally, it improves on the IoT app data and machine learning models on the basis of newly harvested IoT data.

This way, you end up with an IoT system that can reliably incorporate any new IoT initiative, from typical cases in predictive maintenance and operational efficiency to delivering a solid basis for the development of a truly innovative front-line connected product.

Survey data shows that 43% of companies are looking at digital transformation to increase competitiveness. Another 32% plan to spend at least a fifth of their IT budgets on related projects. Decisions made on the management level, however, often clash with employee attitudes on change. Fear of technology and unwillingness to disrupt the status quo are very much on the agenda. Added to this is the widespread employee anxiety about losing one’s job to robots and algorithms. And when it comes to IoT implementation, these are just a fraction of the issues that need to be tackled as part of IoT change management.

This is especially valid when we look at smaller to medium-sized companies with tightly knit employee communities. Here discontent can spread quickly and hurt everyone. Navigating through topics such as employee engagement and employee sentiment is crucial. Employee sentiment power has become a key factor in corporate decision-making.

Partnerships and internal transformation equally important

A trend study about the Internet of Things (IoT) in German SMEs delivers an unexpected insight. When it comes to organizational challenges in IoT and change management, the study shows, the biggest challenge is not IT or data security. It is getting the company’s employees involved. SMEs face most challenges because of workforce motivation. This is where SMEs are confronted with significant investment in training employees on IoT projects and other digitization topics.

An overall effort to inspire enthusiasm about new technologies is also part of the work of management teams. Transparent communication and focusing on specific, targeted skill areas have been cited as decisive differentiators. Many of the responding companies report that the development of their own IoT competencies is not necessarily conducive to success.

Leveraging partnerships

Many SMEs, therefore, turn to partnerships and the help of external consultancies to avoid the risk of missing out on IoT trends. The study cites partnerships as indispensable in the implementation and operation of IoT solutions.

Identification and selection of a suitable partner is a preferred response to the limited in-house IoT competencies. These will deliver insight on IoT device connectivity and IoT device management, recommend ways of dealing with IoT data, or may even end up recommending the use of an IoT platform with device management capabilities for the orchestration of connected devices.

Aiming for internal transformation

But along with that, when it comes to IoT implementation, companies will have to know what they want when addressing the topics of connecting legacy devices, installing IoT sensors, or deciding on the best-suited machine learning algorithms. At the end of the day, they need to make sure that the targeted IoT initiatives and the implemented IoT technology are truly adding value to overall productivity and that this is properly communicated to their employees. This is one step toward successful change management.

Along with partner selection, therefore, internal transformation is cited as one of the key strategic challenges to companies entering the world of Industry 4.0. Only if the added value of IoT solutions is made clear, the implementation is successfully managed, and employees support the effort, can IoT make a lasting contribution to the company’s success, the study says.

Adopting a new digital logic

Whereas turning to digital solutions has almost become imperative, most SMEs do not have resistance management policies in place. And a study by the Bertelsmann Foundation shows that change can only have success within a new culture of work. The takeaway: SMEs need to change their way of thinking. The management needs to change attitudes towards the workforce, and the workforce has to change attitudes towards company policies. A new way of thinking away from the logic of industrial linear production is needed.

The adoption of a new “digital logic” involves a comprehensive digital strategy and a decentralized mindset that prioritizes a culture of continuous learning, transparent communication, collaborative attitudes, and sociocratic structures that remove hierarchies.

Readiness to remain flexible is equally needed to face the insecurities associated with disruptive, sometimes exponential, development. As the study concludes, “the defining image here is that of the responsible and self-aware employee”.

A closer look at resistance

According to the study, digitalization is often hampered not only because “there is often a lack of will and conviction” but also because of “a lack of trust in the workforce”. Rather than ignoring complex employee attitudes, a closer look at resistance is needed. This is how you explicate the exact nature of the setbacks an organization is facing and the concrete needs to be addressed. First, it is essential to evaluate the status quo and set clear boundaries between justified and unjustified resistance.

In the case of justified resistance, the workforce may have reasons to believe that the targeted change is not in the company’s best interest. They may be able to advise on practices better suited to the company’s needs. Decision-makers and managers are often detached from daily business. They may have not been briefed on the needs of the customers and employees. Since not everyone gets included in the decision-making process, you may run the risk of leaving many voices unheard.

Ignoring voices of dissent may indeed lead to the company missing out on key opportunities to improve. The organization may even miss out on implementing projects better tailored to a specific case. Employee competence from specialist departments may be exactly what you need to rethink your solution of preference. This is where conflicts emerge.

Unjustified resistance, on the other hand, does not have a clear logical foundation. It is mostly based on sentiments such as fear of the unknown. Fear is holding many companies back, the 2019 study shows. This calls for careful and empathetic policy implementation.

Dealing with change? A no-fear attitude is crucial

Talk to your employees and make sure that their voices are heard. You cannot underestimate the significance of individual attitudes and opinions in the bigger picture of company success. Establish open communication at all levels. The conversation should be revolving around employee needs and concerns, and not around efficiency and cost-cutting.

So how do you establish a healthy culture of communication?

• Take objections seriously and give employees the feeling that their voices are heard.
• Collect feedback via both formal and informal channels. Give your people as much agency and decision-making power as possible within the circumstances.
• Create forums for improvement suggestions. Clearly communicate your vision on change in meetings, internal email communications, short videos, and working groups.
• Make sure that employees have a point of contact to voice any concerns about processes taking place within the organization.
• Utilize internal networking events to share ideas, prioritize, identify key actions, and develop action plans.
• Fill your central project positions with staff that can lead in an empathetic and motivating way.

And finally, provide reassurance—make sure your employees know that they are still at the center of everything you do.

You may also want to check out our Data Science and IoT consultancy here or find out more about us.