Five Best Practices in the Platform Economy
An energy company and a lease company: At first glance, they might seem very different. Eneco's activities include supplying gas, electricity and heat to consumers and businesses, while LeasePlan offers leased cars and fleet management. These are two very different sectors. However, they do have something in common – and it is due to the transition to electric driving. Both businesses offer charging stations and home energy solutions, which are both new business propositions. Bjorn Cumps, Professor of Financial Services, Innovation and FinTech at Vlerick Business School, immediately sees options for a joint platform in the future, with a range of services relating to charging electric cars. No, the businesses are not talking to each other yet, laughs Michel Alsemgeest, Chief Digital Officer and Chief Information Officer of LeasePlan, and Mario Suykerbuyk, CIO of Eneco.
The winner takes it all
Cumps notes that platform strategy and development is hot. This item is on the agenda at many organizations. A platform enables organizations to offer services on a large scale through a digital medium, either on their own or together with other parties, at relatively low cost. Platform organizations can quickly achieve exponential growth and market dominance: The winner takes it all. We all know the examples: Bol.com, Amazon, Marktplaats, eBay, Booking.com, Airbnb, Uber and Just Eat Takeaway. The essence: Their platform unites supply and demand, connects services and easily offers new applications in other markets. Platforms can also emerge from ecosystems: Mutually dependent parties that need each other in order to best meet the needs of clients and stakeholders.
Breaking down silos, removing friction
Cumps explains the growing interest in platforms and ecosystems by the rapid changes in technology and society and the increasing complexity of the world. “Businesses are increasingly realizing that in this context, they can only achieve major transitions together. They can no longer serve the client or stakeholder alone. Through their own organizations, they only meet some client needs, while the customer journey is much broader.” People are not only looking for a car – they are also looking for mobility. It is not about a boiler; it is about energy. And it is not about a mortgage; it is about living. “To meet this broad client demand, businesses need to look beyond their own boundaries and link products and services,” says Cumps. “Currently, this often cannot be achieved because organizations and sectors operate in silos. That results in friction, which you can remove by uniting the services of all the parties involved on one central platform.”
Collaborating with other parties
It is a familiar scene for the two CIOs at the table. Eneco – which began its platform development early through the smart thermostat Toon – is in the middle of the energy transition and wants to be climate-neutral by 2035. The Dutch energy consumer also needs to become more sustainable and invest in measures such as solar panels, a heat pump and insulation. Many clients consider this a difficult decision and Eneco wants to help them by providing personal advice, maintenance options and perhaps even financing options. Suykerbuyk: “You can only achieve that by working together with other parties. So we have built an energy cloud – an ecosystem around which a platform is currently being set up.” The second development that Eneco is being confronted with is the energy crisis: Rising prices of gas in particular due to inflation and the war in Ukraine. This leads to energy poverty, as some people can no longer pay their energy bills. “We have set up a platform for debt assistance to help those people,” says Suykerbuyk. It not only involves the 'big three' in the energy sector (Eneco, Essent and Vattenfall), but Greenchoice, supplier of green energy, and debt assistance organizations Geldfit and SchuldenlabNL are also part of it. Competition, chains and sectors: Boundaries are effortlessly crossed in the new business models.
Director in the value chain
LeasePlan also operates in ecosystems and participates in platforms. Its core activity is a continuous cycle: Cars are purchased, leased – with services such as financing, insurance and maintenance – and sold again. Alsemgeest: “We position ourselves within that value chain as a director and connector. Each link in the chain serves as a platform in itself. For example, we have removed some aspects of car sales from our own operations and outsourced them to an organization that can do the same thing for other lease companies and thus achieve the desired scale.” LeasePlan also faces an the energy transition: The fleet needs to be adapted into electric vehicles. However, Alsemgeest says it also offers new opportunities. “In the future, the car will become a mobile battery – a storage point for energy. For example, whatever you do not use while driving, you could use at home, and vice versa – or negotiate with the grid. That will also have an impact.” That, in turn, offers the prospect of all sorts of new digital and non-digital partnerships.
Five best practices
So both LeasePlan and Eneco are participating intensively in the strategic platform game, which is connecting increasing numbers of businesses and sectors. However, Cumps does stress that platform development is not easy, and that is confirmed by both Alsemgeest’s and Suykerbuyk’s practical experiences. For example, how do you manage the relationship with the existing business, which partners do you select and how do you distribute costs and revenues? In other words: What are the rules of the platform game and what is the best way to play it? The game strategy of the three experts at the table can be clustered into five best practices.
- Take the client problem as a starting point
What client problem do you want to solve together? According to Cumps, this should form the basis of platform development. He also says it requires a different mindset: “Many businesses are supply-driven and still think primarily in terms of their own product or service. That has to change and become more client-oriented: How and with what resources can you best help the client? You can then start looking for parties and take a shared approach.” Suykerbuyk nods: “Our clients are struggling with the energy transition. To help them, we first of all collected as much data as possible so we could map out the customer journey. Only when you have clearly identified that journey can you start asking yourself which products and services align with that. Stay close to your core business and think about what you are good at. Do not pile all kinds of business models on top – instead, look for partners.” Alsemgeest agrees: “Start from the core of your business and create scale through platforms. Think in very pragmatic terms: How can you facilitate the client as effectively as possible?” One example is to develop a central platform that offers preventive car maintenance. This removes friction for clients, including waiting times, when their car needs servicing. “By doing that, you orient the entire value chain toward the client. But do it all in small steps. Find partners, make good agreements and integrate services. Only when you have that in order can you proceed to the next level.”
- Choose a strategic position on the playing field
Do you transform the entire business into a platform organization or do you add a platform to the traditional business model? And as a business, do you set up your own platform, act as a director of partnerships or join an existing platform? Cumps notices that many businesses struggle with these strategic questions. “Businesses do not need to transform into platforms overnight; they can use them to strengthen their existing business models.” He mentions Apple as an example. “Three quarters of Apple’s money is still earned traditionally: Through hardware such as phones and tablets. Apple has developed platforms such as iOS and the App Store in order to roll out applications on a large scale.” Eneco and LeasePlan have also built a platform strategy based on their existing business. Sometimes, platforms are set up together with other parties and often as a separate business model in the market, while other times affiliation is sought with existing platforms depending on the context. Eneco, for example, participates in external platforms for comparing energy prices. Suykerbuyk acknowledges that it is a catch 22 situation: The client benefits from transparent rates, but such transparency also encourages switching to a competitor. “But as an energy company, you have to have a presence on that kind of platform.” Cumps outlines a key dilemma for participants in the platform strategy game: Weighing up the need for control against creating scale. “Platform development can quickly create scale, but you have to have the courage to let go of some of the control.”
- Select and screen partners carefully
Less control means more risk. The collaborating parties in a platform therefore need to trust each other, as the three experts highlight. They argue that trust is the single most important factor to success, especially since the route that the shared journey will take is often unknown. Instead, it is a voyage of discovery. Partners therefore need to be carefully selected. First of all, the purpose and core values need to be explored: Are they aligned? Cumps: “In the past, collaboration was mainly driven by business opportunities and profit models – partners were interchangeable. Nowadays, the process of selecting partners is becoming increasingly strategic and value-driven: Do we share the same values and can we and do we want to contribute to multiple value creation for people, planet and profit together?” Suykerbuyk: “Eneco's goal is to be CO2-neutral by 2035. That is a rock-solid exclusion criterion: We do not want to work with parties that make different sustainability decisions.” Collaboration with purpose-led businesses is also very important for LeasePlan, as is trust. Alsemgeest: “You need to have the feeling that you can enter into a commitment and a long-term relationship with each other. Ending the collaboration again is a difficult process: Separating software applications and data flows is not easy, for example.” However, Suykerbuyk says it is wise to discuss scenarios in advance. “Ask the question in advance: ‘What if?’ In which circumstances is the collaboration a success, and in which circumstances is it not a success?”
- Make good agreements
In addition to careful partner selection, it is essential to make good agreements for collaboration. But Cumps warns that you need to avoid a stalemate at the start of the platform development process. “Often, a traditional discussion arises straight away: How do we divide the costs and revenues? If parties cannot work that out, then the collaboration will not get off the ground. It is better to make a start first, so that the parties learn to trust each other and the platform is able to grow and make agreements on costs and revenues later. Moreover, it has to be a win-win situation for all parties – that is the only way it will work.” Alsemgeest and Suykerbuyk confirm this, adding that the strategy needs to be defined in detail and understood first.
- Include the organization in the transition
According to the three experts, while boardroom discussions do involve strategic moves, similar to a game of chess, cross-border collaboration in platforms and ecosystems also require a cultural shift within the organization. Client-oriented thinking, a different way of working, learning to work together: “It requires a mind shift at all layers of the business,” says Alsemgeest. It is a challenging process involving fundamental changes, notes Cumps about his contact with managers. “I often hear managers say that they are unable to get the rest of the organization on board with the required change.” He turns to Alsemgeest and Suykerbuyck. How do they think cultural change should be implemented: Top-down or bottom-up? The men are adamant: The top of the organization must take the lead in the transformation. But you have to closely involve the employees, while not forgetting the clients and other stakeholders. Alsemgeest: “I believe in circular thinking, in connections within the organization instead of hierarchical relationships.” When fixed structures become fluid, this can create a different dynamic, from which commitment and initiatives emerge from the bottom up more easily. Suykerbuyk argues that the transformation also needs to be aligned with the various business units. So it is customized work: “In energy supply to consumers, for example, digital developments are coming in thick and fast. Agile working has now emerged from that: Building, testing and rolling out. But a wind farm is built to last for a period of 15 years and requires investments with a long payback period. So in that sense, we make decisions for the long term and in line with the traditional way of working.”
“The ecosystem as a mechanism in transition”
Both organizations and the external environment have to undergo a transformation, according to the three experts. Alsemgeest: “Legislation and regulations, for example in the area of data management, cannot always keep up with the rapid developments.” That puts a potential brake on platform development. In addition, regulations often differ from country to country. Cumps: “A rapid rollout of one central platform across Europe? That would be a challenge!” Alsemgeest: “So this needs to be approached in a very nuanced, detailed way involving the correct configuration for each individual market. There also needs to be a system change and harmonization in order to accelerate social transitions through platforms and ecosystems.” And so there are plenty of challenges for businesses, both internally and externally, where the context is uncertain and the correct timing difficult to establish. Suykerbuyk phrases it well: “It requires thinking big, having the courage to experiment, being willing to involve everyone and being resilient enough, because it is all about trial and error.”
This article was published in Management Scope 06 2022.
This article was last changed on 29-06-2022