Zoe Clements (IBM UK)
Rashik Parmar (IBM UK)
Llewellyn D W Thomas (LaSalle Universitat Ramon Llull)
Increasing numbers of industry platforms are emerging that offer firms new ways of working. For instance, the TradeLens platform empowers businesses and authorities along the supply chain with a single, secure source of shipping data, enabling more efficient global trade. These industry platforms aim to leverage digital technologies to improve ways of working so as to bring performance, productivity, and prediction improvements.
While these platforms promise much, their benefits are not often as clear cut as they seem. Although platform ways of working may at times easily match to existing ways of working, often platforms operate in novel ways that are different to current ways of working. Indeed that is often how they find their “efficiencies”. This means that this way of working with a platform may not align with existing firm structure or internal processes. As an example, while the TradeLens platform offers business development, financial, and procurement services to ecosystem participants, how it delivers these services will not necessarily align with how a potential participating firm currently works. To complicate matters further, traditional measures of investment, such as ROI, are unable to capture both the upfront and ongoing cost aspect of platform involvement, as well as the variety of benefits that accrue from platform services. As a consequence, it is often difficult to clearly measure the return to the business for participating in a platform ecosystem.
In this paper, derived from industry experience, we propose an eight-step method that enables firms to assess the return on participating in an industry platform.
The first step is for managers to rigorously research the platform offering in the context of their own ways of working. This often requires a careful analysis of both how the platform delivers its services, and mapping to the current way of working in the focal firm.
The second step requires managers to evaluate the ROI of the current ways of working that the platform would address. When firms have activity-based costing this should be fairly straight forward, but as platform-provided services are often different to the current ways of working, care needs to be taken to fully understand the alignment and variance.
The third step requires managers to systematically consider the various one-off costs of joining the platform. Joining a platform is never cost free, as participating in a platform can have implications across many parts of the organization, including sales, marketing, operations, and finance, and how they work. Examples of such costs include software integration, organizational restructuring and training, as well as platform specific costs such as organizational form validation, anti-money laundering compliance, credit worthiness, and other various background checks.
The fourth step requires managers to systematically evaluate the annual (or some other temporality) fixed costs that result from adopting the platform. These often involve recurring costs such as membership fees, relationship maintenance, and technological costs such as API or connection costs. The fifth step requires managers to systematically evaluate the variable costs for each process which the platform provides a new service for. While some are often quite obvious, managers need to recognize that there are always other costs that are not-immediately apparent from using the platform. Examples here include transaction costs for using the platform (such as commission or transaction fees) as well as the internal cost of operations for using the platform processes.
The sixth step requires the manager to understand the benefits for each way of working that the platform would change. To do so, managers need to identify “pain points” with the current way of working, evaluating how the platform addresses (“fixes”) the pain points and the resulting benefits of these “fixes”. Often these benefits are not immediately clear, but can usually be categorized as revenue, cost, risk or reputation. These benefits then need to be quantified; although this can sometimes be hard to do, but not impossible.
The seventh step then requires the manager to understand the volumes for each way of working, and any potential scale effects, as up to this point we have been considering the individual transaction. Thus, the manager needs to understand if the platform will increase in throughput or additional iterations, as well as the cost reductions with scale that will need to be taken into consideration. Finally, on the eighth step, the manager can calculate their return on participation (ROP), applying the insights and the various cost and benefit numbers they have generated from earlier. Furthermore, once the manager has calculated the ROP for one platform candidate, they can do this for other platform candidates, proving an easy way to compare the platforms.
While this approach above is the “inside-out” view of a participant, this method can also be reversed for a platform orchestrator to understand the “outside-in” view from the perspective of a participant. In particular, these same steps can be used upon starting up a platform to help define a fair monetisation model. It can be used to explore tipping points e.g. the point at which you start to break even or capture parts of the market.
