Key success factors through internal organisation and external cooperation. An analyses of the most innovative platforms from China and the USA

Table of Contents

Table of Contents

List of Abbreviations

List of Figures

List of Charts

List of Tables

1. Introduction
1.1. Problem Statement and Research Question
1.2. Objectives
1.3. Topic Approach and Research Methodology

2. The Platform Business Model, Digital Innovation-Theories and -Strategies
2.1. The Online Platform Segment
2.1.1. Platform Definition and Economy
2.1.2. The 9 Types of Online Platforms and their Interdependencies
2.2. Innovation “within” and “through” the Online Platform Segment: Business Model Innovation vs. Innovative Digital Native Platforms
2.2.1. Definition and Degree of Innovation in Electronic Markets
2.2.2. Transformation: Business Model Innovation towards a Digital Platform
2.2.3. Technological Innovation in Electronic Markets
2.2.4. Service Innovation
2.3. Internal and External Business Strategies in Order to Achieve Digital Innovation
2.3.1. Digital Innovation Management
2.3.2. Organisational Strategies to Foster Business Model Innovation
2.3.3. Cooperation in the Online Platform Segment in Order to Innovate
2.3.4. The Interplay of Organisation and Cooperation
2.4. USA and China as Main Digital Innovators in the Platform Segment

3. Macroenvironmental Impact on the Innovation Capabilities of Platforms in China and USA
3.1. Comparison of China and the United States
3.1.1. Legal, Political and Social Influences on Digital Platforms
3.1.2. The Impact of Economic Regulations, Cross-Border Cooperation, and Technological Development on Platform Innovation
3.2. Intermediate Result: Theoretical Summary of Enablers for Digital Innovation
3.3. Measuring Digital Innovation
3.3.1. The Difficulty of Measuring Innovation in the Platform Segment
3.3.2. Theoretical Approach to Measure Digital Innovation: Evaluation Matrix Proposal
3.4. Evaluation of the Most Innovative Platforms in China and the United States
3.4.1. Scoring System
3.4.2. Evaluation Criterions and -Procedure
3.4.3. Result: The 4 most Innovative Online Platforms in China and USA

4. Microenvironmental- and Business Analysis on the most Innovative Platforms
4.1. E-Commerce Platforms: Comparison of Alibaba and Amazon
4.1.1. Market Environment: E-Commerce
4.1.2. Business Model Analysis of Alibaba and Amazon
4.1.3. Innovation Strategies of Alibaba and Amazon through Cooperation and Organisation
4.2. Social Media Platforms: Comparison of Tencent and Facebook
4.2.1. Market Environment Analysis: Social Media
4.2.2. Business Model Analysis of Tencent and Facebook
4.2.3. Innovation Strategies of Tencent and Facebook through Cooperation and Organisation

5. Summary and Conclusion
5.1. The 5 Most Important Key Success Factors for Innovation through Organisation and Cooperation
5.2. Role Model for Digital Innovation in the Online Platform Segment

Appendix

Bibliography

List of Abbreviations

Abbildung in dieser Leseprobe nicht enthalten

List of Figures

Figure 7, 10, 11 and 16 have been removed by GRIN for copyright reasons.

Figure 1 Hypothesis 1: Innovation and Growth circle of Online Platforms

Figure 2 Topic Approach

Figure 3 The 9 Types of Online Platforms

Figure 4 Factors that Determine the Degree of Innovation

Figure 5 Business Innovation Landscape Map applied on Electronic Markets

Figure 6 Business Types involved in Innovation in the Platform Segment

Figure 7 Success Factors of Innovation Systems in the Platform Segment

Figure 8 Main Innovation Enablers in The Platform Segment

Figure 9 Porter´s 5-Forces Analysis of Alibaba and Amazon

Figure 11 Sub-Brands of Amazon and Competition/Target Markets

Figure 12 Operating Fields of Alibaba/ Amazon According to Their Contribution to the Revenue Stream

Figure 13 Annual Revenues and R&D Invest in % of Revenues of Amazon and Alibaba 2014-2020

Figure 14 Porter´s 5-Forces Analysis of Facebook and Tencent

Figure 15 Company Structure and Innovation Activities of Tencent Holdings

Figure 17 Operating Fields of Tencent/Facebook According to Their Contribution to Revenue Stream

Figure 18 Annual Revenues and Yield Development of Tencent and Facebook 2015-2019

Figure 19 Role Model for Digital Innovation in the Platform Segment

Figure 20 Appendix: Organisational Structure of Amazon (Board to N2 Level)

Figure 21 Appendix: Organisational Structure of Alibaba (Board to N2 Level)

Figure 22 Appendix: Organisational Structure of Facebook (Board to N2 Level)

Figure 23 Appendix: Organisational Structure of Tencent (Board to N2 Level)

Figure 24 Appendix: Digital Innovation Scorecard

List of Charts

Chart 1 Appendix: BrandZ Top 100 Most Valuable Global Brands 2020 (Partial Ranking, Rank 1-10)

Chart 2 Appendix: Hofstede Insights - Cultural Comparison of China and the United States

List of Tables

Table 1 Digital Innovation Scorecard Proposal

Table 2 Results Analysis 1: Ranking of the Most Valuable &Innovative Companies

Table 3 Final Result: The most Innovative Online Platforms in China and the USA

Table 4 Appendix: Analysis and Scoring: List of the 20 Largest Platforms Worldwide 2019 according to Market Cap

Table 5 Appendix: Scoring: The 20 Most Innovative Companies 2020 according to BCG-Survey

Table 6 Appendix: Scoring: The 20 Most Innovative Companies according to the BrandZ Global Top 100 Report

Table 7 Appendix: Analysis of Number of Patents filed by Platform in the Last two Years

Table 8 Appendix: Detailed Overview of Annual Revenues and R&D expenses of Amazon and Alibaba in billion USD

Table 9 Appendix: Detailed Overview of Annual Revenues, Yield and Growth Rate of Tencent and Facebook

Table 10 Appendix: Analysis on Amazon Cooperations

Table 11 Appendix: Analysis on Alibaba Cooperations

Table 12 Appendix: Analysis on Facebook Cooperations

Table 13 Appendix: Analysis on Tencent Cooperations

1. Introduction

“Innovation is key; only those who have the agility to change with the market and innovate quickly will survive.” – Robert Toru Kiyosaki¹

Over the past 60 years our economy experienced a massive technological development process, inter alia enabled by the first exchange of digital data via the ARPANET, originally initialised as a military project of the United States in the 1960s². The invention of personal computers in the 1970s and the upcoming mainstream use of the world wide web in the 1990s³ enabled businesses, to communicate with customers all over the world. Within this new digital era an unprecedent business model arose: the online platform - and with it the ability for the first movers to scale their businesses tremendously on a global level. Even though digital platforms have only existed for about 25 years, the revenue of the “Big 5” Amazon, Alibaba, Facebook, Google and Microsoft accounted for 0,8% of the global Gross Domestic Product (GDP) in 2019, what shows the size and impact of the biggest online platforms of our time. And the tendency towards digital platform businesses is increasing. According to a survey on 500 C-level executives in 12 countries, 92% of all companies have implemented or started to implement tools to build a digital platform⁴ and 88% of all interviewed executives are stating, that their business strategy is already based on a platform concept or enabled by it⁵. This development is fuelled by the current Covid-19 crisis and the increasing pressure for incumbents to evolve and transform their “physical” business models, if they want to keep up with the competition. Further, digital platforms are seen as creators of “the next wave of disruption, growth and breakthrough innovation” in the Industry 4.0, enabled by technologies such as 5G, cloud systems, or big data⁶. Hence, innovation in the platform segment is key when it comes to business success in the digital age. Here, innovation takes place on two different levels: first, it describes the transformation of incumbent companies towards a digital platform, and second it depicts the innovative pressure within the highly competitive environment of native digital platforms such as Google or Alibaba, that must constantly and fast evolve in order to maintain their leadership position. In the native platform segment, innovation is mostly achieved with business cooperation in order to gain technological knowledge, whereas innovation relating to incumbents mostly deals with an internal reorganisation of existing structures, that is often very individual and varies from company to company.

1.1. Problem Statement and Research Question

Due to the importance of successful innovation in the platform segment it is necessary, to evaluate the key success factors of innovation through organisation and cooperation in order to derive business strategy recommendations for future digital innovation projects. Hence, the business strategies of the most innovative platform businesses are to analyze.

This confronts the researcher with the problem to specify innovation in the platform segment and to find measurement factors to evaluate the innovation level of the several companies in order to determine the most innovative platform businesses. Digital innovation often concerns non-physical subjects such as the improvement of services or restructuring processes in the internal organisation of a company, whose contribution to innovation-based success is difficult to measure. As far as known to the author, there is no theory or matrix against which the innovation level of a digital platform can be measured.

Therewith, the research question of this thesis is:

“Which influence has business cooperation and internal organisation on the innovation capabilities of online platforms in China and the United States, and how is digital innovation defined and measured?”

Here, it was assumed for now, that the size of a platform according to its user base, revenue and cross-sector expansions can be put in relation to its degree of innovation. The underlying Hypothesis 1 is shown as an innovation and business growth circle:

Figure 1 Hypothesis 1: Innovation and Growth circle of Online Platforms

Abbildung in dieser Leseprobe nicht enthalten

Source: figure by author

This hypothesis is partly based on the following statement by Evans and Gawer in 2016´s survey on platform economies: „With platforms, scale creates value and attracts additional users. This dynamic creates a self-sustaining momentum for growth“⁷. Hypothesis 2 is that native digital platforms are in general more innovative than incumbent companies in transformation processes due to the novelty of their business models, services and technologies. Hypothesis 3 claims, that the combination of collaboration and organisation lead to the most innovative results, and that there are factors that are more relevant for successful innovation than others.

An additional challenge is to narrow down the large and extensive topic on the most important influencing factors. The platform segment spans from e-commerce platforms over technology- and computing platforms to interaction networks, on-demand service platforms and data harvesting platforms, and it concerns small- and medium sized enterprises (SMEs), large incumbent companies, digital start-ups and established native platforms such as eBay, Facebook, Tencent or Baidu. The key success factors vary from sector to sector; therefore, superordinate factors must be defined that are valid for most platform segments.

1.2. Objectives

The final objectives of this research are to define the 5 most important key success factors and to develop a role model for digital innovation strategies in the platform segment. In order to achieve this target, the following objectives are to attain, too:

- Defining key success factors for innovation through cooperation and organisation in the online platform segment (eventually adapted on the Chinese- and North American market, if the success factors differ from country to country)
- Identifying external and internal hurdles and limitations of innovation through organisation and/or cooperation
- Defining measurement factors for the digital innovation level of platforms
- Analysing the future potential of the platform segments in China and the United States as well as further growth opportunities
- Evaluating patterns for success and business growth through innovation and cooperation

1.3. Topic Approach and Research Methodology

In order to evaluate the key success factors of innovation through organisation and cooperation, the topic approach was divided into three main parts. In the first part, innovation theories and strategies were evaluated as well as concepts for cooperation and organisation that foster innovation in the platform segment. Further, the first part defined the subject of this thesis and analysed the different types of digital platforms as well as the business model innovation (BMI) strategies of incumbent companies. The first part closes by examining the reasons why China and the United States are the most important innovators by analyzing surveys and statistics. In the second part, the macroenvironmental impact on platform innovation was evaluated by conducting a partial PESTEL-analysis. Here, political, economic, social, technological and legal circumstances were analysed due to their impact on platform innovation capabilities. The environmental factors were not evaluated, since they do not contribute to a decisive level on platform innovation ability. All analysed platforms were aware of their massive influence on sustainability due to their size and global presence. And all platforms implemented environmental protection targets within their business strategies – such as Amazon, that plans to become CO2-neutral until 2030 by using electric vans for product deliveries⁸, or the Ant Group (subsidiary of Alibaba), that developed a game that motivates the users to diminish their carbon footprint⁹. Instead of deepening the environmental aspect, a research of global innovation enhanced by cross-border cooperation was conducted. In the following, as an intermediary result, all influencing factors regarding cooperation, organisation, macroenvironmental influences, and technology were compiled. In order to evaluate the most innovative platforms, a quantitative analysis based on a scoring system led to an innovation ranking of the four most innovative platforms in China and the USA. In the third part, a “Porter´s 5 Forces”-analysis investigated the microenvironmental influence on these four companies, and a business model analysis examined the most innovative business sectors of the companies as well as their Research- and Development (R&D) investments in relation to the annual revenue. Further, a research on the innovation strategies of the four companies through cooperation and organisation led to the five most important key success factors (KSFs). Based on the conducted research within this thesis, a role model for platform innovation strategies was developed.

The following figure shows the topic approach at a glance:

Figure 2 Topic Approach

Abbildung in dieser Leseprobe nicht enthalten

Source: Figure by author

Research Methodology

The research is conducted by evaluating secondary data and the research design is based on the research-onion method of Sanders et al¹⁰, according to which the methodology is to classify as a positivist study. Most of the research was conducted deductive but contains explorational parts in chapter 3 and chapter 4 due to the lack in scientific theories and matrices to evaluate digital innovation levels. In general, the work is mainly based on the mixed methods approach and uses mainly qualitative research with quantitative research parts in chapter 3.4 in order to prove the hypothesis, that the size of a platform has a linear-positive influence on its innovation level. One of theoretical foundations on which this thesis is based follows Gary P. Pisano´s Innovation Landscape Map, according to which the two innovation-types this thesis concerns are classified as disruptive innovation that requires a new business model (= digital platforms) and architectural innovation, that unites technological- and business model disruption¹¹ (= incumbent companies in digitalisation processes). Further, analyses on the innovation-based cooperations of the four detected companies are conducted in chapter 4.

2. The Platform Business Model, Digital Innovation-Theories and -Strategies

2.1. The Online Platform Segment

2.1.1. Platform Definition and Economy

The emergence of online platforms was mainly enabled by the invention of the internet as indispensable groundwork for digital data exchange. The foundation for this development was laid in the late 1950s by former US-President Eisenhower, who initiated the Advanced Research Projects Agency (ARPA) as a military project in order to gain technological advantages ahead of competition, and in the 1960s, the USA were able to exchange the first digital data packages between academic computer systems via the ARPANET¹². In 1969, the internet was born by sending the first message over a host-to-host network, connected via Interface Messaging Processors¹³. In the 1970s, the first personal computers for private households were launched, and in 1989 Tim Berners-Lee created the “Hypertext”-technology that enabled the surfing from one webpage to another- also known as the World Wide Web (WWW). In 1992, the amount of internet hosts surpassed one million, and in 1995 the dotcom boom started with the public belief in a new economic era¹⁴. In this economy, the first platforms arose with the intention to connect users with providers of services or products. Here, it is to highlight that the presence of businesses in form of an online platform concept is “merely” 25 years old, considering the founding times of today´s largest digital platforms in the mid-90s. Since then, they gained in importance and among the ten most valuable companies worldwide are indeed four US-American and one Chinese online platform¹⁵ with a total revenue of $695,052 billion in 2019¹⁶ adding up the annual revenues of Amazon, Alibaba, Facebook, Google and Microsoft. The revenue of these five platforms is about 0,8% of the global GDP¹⁷ in 2019, what demonstrates descriptively the impact of Chinese and American online platforms on the global economy. Therewith, online platforms are a comparably new concept of business models that are indispensably connected to the internet, where they generate value by connecting buyers with sellers of goods and services, enable the collection and monetization of data, and its value increases with an increasing size of the network¹⁸. This network-effect is seen as one of the most powerful sources of platforms: the more users a platform has, the more suppliers and business partners it attracts¹⁹. What leads to the “chicken and egg” problem, described by Caillaud and Jullien. According to the authors, digital markets have a significant challenge to master: platforms need to achieve a critical mass to attract buyers or users - but to attract them, they need a “large base of registered sellers”, and these sellers register only, when they expect a lot of customers on the platform²⁰. This difficulty can be solved in several ways. First, with independent and costly intermediaries²¹, second by building first a critical mass on the demand side and then open up the platform for the supply side (or vice versa), third by attracting users with offering free services, and fourth by offering an attractive service where users attract more users like in Interaction Networks such as Facebook²². The decision for one of the solutions is strongly connected to the individual business-, and/or innovation strategy of the company. The technology behind the digital data exchange on platforms is enabled by APIs (Application Programming Interfaces), that are connected to the data bases of companies and allow the sharing of information between these data bases in order to create new use cases and services with third party developers²³. A research of Benzell et al. shows that the adoption of APIs increases the revenue of a company remarkably, lowers the maintenance costs for technology, supports agile organisation and external growth²⁴. Further, APIs are considered as one of the main driving factors for platform innovation²⁵. Besides the network-effect and the technology, the market structure is a very important aspect of digital platforms. According to Rochet and Tirole, most of the platforms can be defined as two- (or more) sided markets²⁶, that enable the exchange between suppliers, platform users/ customers, and business partners in order to create networks in which services, content, products or information is exchanged- either monetarized or for free²⁷. These ecosystems are creating “markets of enormous scale and efficiency”²⁸ and enable “the conception of entirely new products and services”²⁹. On the other hand, external factors such as governmental and legal regulations as well as disruptive technological developments are putting pressure on today´s platform businesses³⁰. Furthermore, the platform market is rapidly changing and currently transitioning from consumer to enterprise markets according to the MIT Initiative on Digital Economy³¹. This shift from B2C (Business-to-Consumer) to B2B (Business-to-Business) markets underlines the importance of cooperation’s between businesses in order to innovate and grow.

2.1.2. The 9 Types of Online Platforms and their Interdependencies

Online platforms can be differentiated in segments from nearly all industries and they offer a wide range of use cases from e-commerce over communication to advertisement or cloud services, including Software as a Service (SaaS), Platform as a Service (PaaS) and Infrastructure as a Service (IaaS)³². To illustrate the different segments, figure 3 below shows the result of a survey conducted by Platform Hunt on more than 170 platforms. According to the study, the following 9 types of online platforms can be defined³³:

Figure 3 The 9 Types of Online Platforms

Abbildung in dieser Leseprobe nicht enthalten

Source: Figure by author, based on Hunt, “The 9 Types of Software Platforms”, 2016

These types of digital platforms can be “visible” for the users as communication- or commercial networks like Facebook or Amazon. In this case, they are part of the frontend, the visible part of a software with which the user interacts³⁴. And platforms can operate “invisible” for the user as a technology in the background - for example through the charging of fees for the megabyte use of website hosting, whereby the platform´s function is to record “net traffic and operating settlements”³⁵. In this case, the platform is the backend; the invisible part which contains databases, graphical or written content of the frontend, and it defines the look of the latter³⁶. Moreover, the different platform types can be interconnected, so one company may run its platform on the platform technology of another company, using a third platform to collect the data. Giving a specific example: Airbnb.de as a utility platform per definition uses Amazon Web Services (AWS)³⁷, a cloud services platform, and advertises for example over Google AdSense, which is a content distributing platform. These business interdependences may create technical dependencies, especially when there is no adequate substitute.

Regarding the relevance and market distribution of the different platform types according to their market value can be said that “Internet Software and Services”-platforms rank on the first place, followed by “eCommerce/Marketplaces”, “App Marketplaces & Manufacturing”, “Search, AdTech & Services” providers, “Social/Messaging”, and “Media”-platforms, whereas the highest amount of platforms by number of companies is in the “eCommerce/Marketplace”-segment, followed by “FinTech”, “Internet Software & Services” and “Social/Messaging”³⁸. Here, some of the large digital platforms enter markets where they do not origin from³⁹, seen at the example of Amazon that enters the high-fashion sector with a luxury brand platform⁴⁰ or Google with its in-house developed autonomous vehicle unit Waymo ⁴¹. These cross-sector expansions often foster product or service innovations and they are important to grow, but they are also a threat for established companies in the respective industry as will be seen in chapter 4.

2.2. Innovation “within” and “through” the Online Platform Segment: Business Model Innovation vs. Innovative Digital Native Platforms

The title of this thesis suggests that innovation is created within the platform segment, but it must be expanded by the definition, that digital platforms themselves are a huge part of today’s business innovation, including the transformation of incumbent business models into digital platforms. So, innovation concerning internal organisational structures often comes along with a transformation of business models and strategies, therefore, the term “transformation” will be used synonymously for “innovation” when it comes to internal restructuring strategies and processes in order to digitalize (and innovate) the business model and/or its services. Hence, one of the most important definitions of this thesis is the precise description of what innovation in electronic market specifically means, how it differs from former definitions of the past decades, what it in- and excludes, and which targets it has. In the course of time, the concept of innovation has adapted in line with technological development. Looking back in history, the idea of innovation in the sense of novelty creation was defined for the first time by Joseph A. Schumpeter, who stated in 1911, that for the production of “other things, or the same things by a different method, [...] materials and forces” must be combined differently⁴². According to Schumpeter, these “new combinations” lead to new products, qualities, production methods, markets or new sources for raw materials⁴³. This definition arose during the Industry 2.0 and its original meaning was connected to physical goods and production methods. So today, in the Industry 4.0 with Big Data, Artificial Intelligence (AI) and the Internet of Things (IoT), the meaning of innovation must be adapted and enlarged for digital markets.

2.2.1. Definition and Degree of Innovation in Electronic Markets

Innovation in the platform segment concerns companies that started with a platform concept and companies that have to convert their physical business models into digital ones⁴⁴. Further, it is to distinguish between well-established platforms, that started online and were the pioneers in the platform segment, like Google or eBay, and platform start-ups who have recently entered the market. Then, there are the small and medium-sized enterprises (SMEs) on their way from physical to digital business, and incumbent companies that have grown into large enterprises over the last decades, and that have to transform their complex business structures and digitalize them in order to keep up with the competition⁴⁵. Here, the size of a company plays a huge role when it comes to the ability and agility to transform and innovate. According to a research of the Boston Consulting Group (BCG) on the most innovative companies 2020, smaller firms are able to act more agile due to a lack of complex bureaucratical infrastructure whereas large ones are “weighed down by internal bureaucracy, (...) out-of-date systems and ways of working”⁴⁶.

In general, innovation can be described as the economic exploitation of a new idea with the purpose to increase the economic success and it follows chronologically after the invention, which is the first realisation of a new idea⁴⁷. Further, innovation concerns processual- or object-related innovation⁴⁸. According to Vahs and Brem, innovation is the result of a process or the process itself, that includes all stages from invention over economic exploitation to the launch of the product or the implementation of a new process into existing business structures⁴⁹. Further, innovation can be “radical-revolutionary” and herewith disruptive for existing structures, or “incremental-evolutionary”, what describes the continuous improvement of products or processes⁵⁰. Here, the revolutionary innovation holds the greatest potential for the optimization of a firms´ competitive position and requires according to the authors systematic planning, consistent implementation, cross-process coordination and continuous monitoring of all activities as well as a resource-oriented innovation management⁵¹. This management includes the planning, organisation, execution and controlling of the activities of all departments including research- and development (R&D)⁵². R&D itself can be described as the set of all business activities that are targeting “the creation of new knowledge and the use of this knowledge in new products and processes”⁵³. Further, R&D activities are systematically planned and characterized on the one hand by the uncertainty of overall cost and time horizon, and on the other hand by the uncertainty regarding realisation and market launch of the results of R&D⁵⁴. But innovation in electronic markets concerns also new business concept´s, besides the development of software and technology. Hence, it is important to evaluate the degree of innovation, which is a systematic combination of internal, external, micro- and macroeconomic factors⁵⁵ as shown in the following figure. Here, online platforms – either by business model innovation (BMI) or new platform business concepts – achieve a high degree of innovation.

Figure 4 Factors that Determine the Degree of Innovation

Abbildung in dieser Leseprobe nicht enthalten

Source: Figure by author, based on Corsten et al., 2016, p.16 (large presentation in the appendix)

According to Hauschildt and Salomo, the degree of innovation and the success of innovation is more likely to correlate linear-negative because the higher the level of innovation is (e.g. the more radical and disruptive), the higher is the risk of technological, economic, financial or organisational failure⁵⁶. Further, the authors state that the more disruptive an innovation is, the more it requires cooperation with partners and target customers, a conscious management, a holistic and resource-oriented problem definition, an “integration of marketing and production in the R&D-process”, as well as a thoroughly “process control through performance-, and time targets”⁵⁷. The main reason for failure according to Hauschildt and Salomo is the lack of knowledge about the degree of innovation; hence budget is miscalculated, the technology is not mature or time targets are missed⁵⁸. But the rapid technological development and digitalisation of our time forces businesses to innovate fast in order to keep up with the competition. Hence, innovation is often driven by competitive threats within a market that lead to the pressure to develop strategies in order to improve existing products or services⁵⁹. Here, disruptive technologies (or disruptive innovations) are “cheaper, simpler, (...) and (..) more convenient to use” which they use to outbid existing products or services⁶⁰. Pisano´s Innovation Landscape Map extends this topic as follows: innovation – whether it is achieved by cooperation, internal organisation or an interplay of both factors - must follow an innovation system according to Pisano, in order to avoid conflicting priorities and interests within the different departments of a company⁶¹. To improve business innovation strategy, Pisano developed a matrix, that clusters innovation into four types such as disruptive (“requires new business model”), routine (“leverages existing business model”), radical (“requires new technical competences”), and architectural (“combines technological and business model disruption”)⁶².

Figure 5 Business Innovation Landscape Map applied on Electronic Markets

Abbildung in dieser Leseprobe nicht enthalten

Source: Figure by author, based on Pisano “You need an Innovation Strategy”, 2015

Here, digital platforms are classified under disruptive innovation and incumbent companies on their way to digital platforms are to classify under architectural innovation.

According to Pisano, a company has to decide, if innovation should be achieved mainly by technological- or by business model innovation and how the four parts mentioned above are weighted within the innovation strategy⁶³. Further, it is to specify the value-creation on side of the customer and the company, to create a management of innovation processes concerning the resource-allocation for the diverse types of innovation, and to implement an innovation culture, that includes the handling of problems and a hierarchical decision system⁶⁴. In order to stay competitive, this innovation strategy has to be adapted according to the evolvement of “markets, technologies, regulations, and competitors”⁶⁵.

At this point is important to mention, that innovation in the platform segment concerns primarily technological, organisational and business model innovation⁶⁶. The target here is to improve or invent B2B or B2C related services in order to enhance the competitive position, to increase revenues/yield as well as the market share, brand awareness and efficiency⁶⁷. In the following will be described, which forms of innovation the platform segment concerns.

2.2.2. Transformation: Business Model Innovation towards a Digital Platform

First, giving a brief description of the business model by citing Henry Chesbrough: a business model can be described as the interplay of a company´s value proposition, its market segment, the definition of the value chain structure and revenue streams, its supplier and customer network, its cost structure and its competition strategy⁶⁸. Chesbrough addresses business model innovation mostly to the implementation of new technologies in order to commercialise them via the adaption of existing business models⁶⁹, whereby the most difficult part is seen in the reorganisation of existing structures, the mindset-change of the management and the increase in costs on short-term⁷⁰. Here, incumbent companies have the advantage, that they are already established in the market and well-known companies with a wide customer base⁷¹. Furthermore, business model innovation (BMI) concerns the business strategy of the respective company and can be motivated (or forced) by several triggers – for example from within as a modernisation-strategy to increase efficiency, to explore other markets or externally motivated because of competitive pressure⁷². To illustrate BMI of an incumbent company, the business case of Barclays, a major bank, that has existed for more than 325 years⁷³ and is considered as a large company with traditionally grown structures, will hold place.

Jes Staley, CEO of Barclays, stated in an interview on the MIT platform summit 2019, that the strategic innovation plan of Barclays towards a globally operating online banking platform includes a shift from “being product-centric to completely consumer focused”⁷⁴ in order to keep up with their “biggest online banking competitor (...) Monzo, a digital, mobile-only bank” and other competitors, that are not focused on the online banking sector but entering it like the e-commercialist Amazon or social networks such as Facebook with its cryptocurrency Libra⁷⁵. He mentions further that traditional banks are “massively regulated” compared to companies like Amazon, which have “a much lower cost of capital, and (..) no regulatory oversight”⁷⁶. According to Staley, the re-structuring of the company towards an innovative platform is solely possible with a mixture of internal organisation and external cooperation. So, the company executed a “massive organisational shift” where 55,000 employees were moved “away from servicing a product area to managing services”⁷⁷. Further, he states, that Barclays need external cooperation with service platforms like Salesforce to gather data about customers and with prior competitors with whom they have to exchange data, according to Payment Services Directives⁷⁸. The latter cooperations Staley describes as a novelty, because “almost everyone we compete with now is a partner, and almost every partner we have is a competitor”⁷⁹. Also, if this example is not specifically from the US-American or Chinese market, it illustrates very well the difficulties incumbents are facing today and the completely new ways of internal organisation and external cooperation in order to innovate and stay competitive.

2.2.3. Technological Innovation in Electronic Markets

Technological innovation in the platform segment includes all technologies, that are enabling, supporting or evoking innovation such as fast internet with 5G, interfaces that enable the communication between networks such as the previously mentioned APIs, platform-specific software, the development of particular hardware or processes, that are related to technological invention. In the context of technological innovation, the “Push-and-Pull-Theory” is to mention, which puts the trigger of innovation in the centre of interest⁸⁰. This theory has two strategical components: the “Technology-Push”, where innovation is initiated from within the company, it´s R&D department or other internal persons; and the ”Market-Pull” where innovation is initiated from the competition of the business⁸¹ - so technological innovation can be initialized by internal or external factors. Then, it is to mention, that technological R&D passes various phases, starting with internal competencies, the generation of ideas, the invention and prototyping, further investments in the invention, marketing, the launch and the economical use of the innovation⁸². Regarding the specific R&D strategies it is to decide between Make-or-Buy, Keep-or-Sell, to lead or to follow (Leader-or-Follower strategy) or to find sequential or parallel problem-solving strategies⁸³.

Further, APIs are important innovation drivers due to the possibility of external software programming, and companies, that implement this technology have significantly higher income in the following years compared to companies, that are not using this technology⁸⁴. Technological innovation in general tends to be better measurable than service innovation due to its tangibility to a certain point. Technological innovation in electronic markets concerns all platforms types, whereas the degree of innovation depends on the several segments. Small digital start-ups for example, that invent new technologies to improve processes, services or develop new use cases are very attractive for established big player platforms, who merge with these tiny start-ups in order to gain competitive advantages and technological knowledge as will be analysed later.

2.2.4. Service Innovation

Altogether, the companies from all sections aim for service improvement and service innovation since the provision of platform-specific services is one of the main purposes of digital businesses. Therefore, service innovation is one of the important aspects of innovation in the online platform segment. According to Hauschildt et al., product innovation and process innovation are interconnected and inseparable when it comes to service innovation⁸⁵. That means, that digital platforms require hardware (=product) innovation simultaneously to its integration in platform processes in order to increase the efficiency, or the innovation of digital products or Software (such as Microsoft Office 365) and its implementation in organisational structures in order to innovate the business. Hence, product-, and process innovation within and through the platform segment must be considered at different levels and based on the business segment. A digital platform startup may invent a new technology to improve processes or services within the platform, and an incumbent may implement new technologies to innovate the business itself and to become a platform.

According to the services marketing theory of Zeithaml et al., service innovations are characterised by the following 4 aspects: intangibility, heterogeneity, inseparability and perishability ⁸⁶. Heterogeneity concerns the fluctuations in service quality, whereas inseparability describes the consumption of the service in the moment that it is created as well as the involvement of customers in the innovation process. Perishability means on the one hand that services cannot be stored, and on the other that supply and demand do not always balance⁸⁷. Further, and due to the intangibility of services, Hauschildt et al. point out the difficulty of measuring the success of service innovation due to a lack of “objective data”⁸⁸. Taking a critical look at the theory of Zeithaml et al, it could be argued, that today´s online platform businesses may be able to standardize services (and therewith to avoid fluctuations in service quality), to create an equilibrium of service supply and demand by a wide supplier- and customer base that is well-matched due to Big Data, AI, and individualized advertisements, as well as to regulate prices in heterogeneous markets based on supply, demand and competition (whereas Rochet and Tirole state, that the competition on platforms is more likely to create a pressure to lower prices on both sides of the market, what does not necessarily result in efficient prices structures⁸⁹ ). The intangibility of service innovation is one of the main difficulties when it comes to its measurability in order to classify the innovation level.

Concluding it can be said, that innovation in the platform segment must be differentiated in Business Model Innovation (BMI) and innovation within the digital market itself. BMI concerns mostly SMEs and large incumbent firms (LFs) due to their efforts to implement the platform concept and transform the business into a digital one, whereas innovation within the platform segment tackles service-, technological-, and organisational innovation, as well as innovation caused by business cooperations. To illustrate the different aspects, interdependencies and levels of innovation in electronic markets, the following figure clusters the 4 involved business segments (SMEs, Incumbents, digital start-ups and established big player platforms) according to their innovation specifics, whereas each of these four types must be viewed separately in order to describe the different innovation levels, preconditions, hurdles, and their different requirements for innovation.

Figure 6 Business Types involved in Innovation in the Platform Segment

Abbildung in dieser Leseprobe nicht enthalten

Sources: Figure by author, based on literature section 2.2

The following chapters will analyse in particular, how business model innovation of SMEs and incumbent firms is initiated, and what other factors influence the innovation abilities of digital platforms in general.

2.3. Internal and External Business Strategies in Order to Achieve Digital Innovation

2.3.1. Digital Innovation Management

The management of innovation is an important and success-decisive factor. Here, the management´s ability to recognize the potential of an invention plays an enormous role as well as the steps a company undertakes in order to reduce the risks within the innovation process and to increase the efficient realisation/ implementation of the innovation⁹⁰. According to Macharzina and Wolf, innovation management is primarily a task for the top-management of a company, whereby it is to avoid following either solely the Push-strategy or only the Pull-strategy⁹¹. Another criterion and success-decisive factor is the management in the early stages of the innovation process according to Albers and Gassmann⁹². Here, especially the sources for new product or service inventions such as the customers of the company, employees or suppliers are to mention, that have to be included actively in the invention process⁹³. Further, the authors point out the change of the innovation management in the age of digitalisation. According to Albers and Gassmann, R&D is more often outsourced and open innovation systems such as crowdsourcing are providing an enormous potential to profit from online communities and their knowledge, but on the other hand, intellectual property gains importance, reflected in increasing patent registrations⁹⁴. Furthermore, bilateral cooperations are expanded by global cooperation networks, in which partners are contributing complementary resources but also a lot of different internal interests have to be managed⁹⁵. Regarding the innovation strategy, a company has to decide whether they are First-Movers, Fast-Followers or Trendsetters⁹⁶. In the following and as a groundwork for the analyses in the next chapters, the contribution of internal organisation and external cooperation on innovation will be evaluated.

2.3.2. Organisational Strategies to Foster Business Model Innovation

Organisation can be defined as an instrument that helps the management to structure work processes by defining rules and regulations in order to establish efficient routines and achieve particular goals⁹⁷. Hence, it is an important tool to support and enhance the innovative output of a company. According to Schreyögg and Geiger, this “ instrumental organisation ” can be further differentiated in functional-, configurative -, and institutional organisation, whereas the latter is to prefer in order to stimulate creativity and promote innovation due to its agility and focus on the whole company⁹⁸. Institutional organisation is not only a rigid tool to achieve certain and complementary targets, but more a combination of several flexible factors such as a regulated division of labour, individual and institutional purpose orientation, as well as a clear demarcation from the external environment of the company that may be adapted over the time⁹⁹. Moreover, it involves the social structures within the company, planned (but also unpredictable) processes, structures that are flexible, and work processes that are constantly improved in terms of their efficiency¹⁰⁰ - what is particularly important in the disruptive platform segment. Manfred Schulte-Zurhausen adds to the previous definition, that institutional organisation can be seen as a social system that is target-oriented, and in which formal structures and regulations help to increase the achievement of company goals¹⁰¹. Besides that, he adds to the statement of Schreyögg and Geier, that instrumental organisation is the entirety of all regulations concerning the distribution of tasks and competencies (statical component) and work processes (dynamic component) including the exchange of information and use of raw materials¹⁰². Thus, organisation is used as a tool to lead a business in an efficient way¹⁰³, and it is the implementation of specific structures and regulations in order to increase the efficiency and productivity of a company and therewith the stakeholder and shareholder value¹⁰⁴.

But organisational innovation in the platform segment has an additional purpose: the structuring of transformational processes in order to digitalise the business model. According to Erich Frese, organisational innovation is defined by the invention of a completely new organisational structure¹⁰⁵. He states that this form of innovation is explicitly not the adaption of existing organisational concepts, but rather the adjustments within the institutional system, as well as the managerial implementation of the changes towards a common goal¹⁰⁶. Based on this definition, business model innovation as the transformation towards a platform is an existing concept, but it is also very individual and needs business-specific solutions based on the respective platform industry. Therefore, it is rather an architectural change within internal organisation structures as seen previously. To achieve organisational innovation, internal structures of today´s companies must be transformed very quickly in order to keep up with the market and its fast-technological development. Hence, flexibility is key and herewith the so-called agile organisation. Agile organisation as a specific organisation concept is more transparent than former organisational structures, and includes often independent teams, that are working self-organized and cross-departmental with own-developed strategies in order to achieve targets set by the teams instead by the management¹⁰⁷. According to Bea and Göbel, agile organisation is further characterised by “flat hierarchies, wide performance ranges, consequent decentralisation, and self-coordination”¹⁰⁸. This specific form of organisation aims to learn constantly and to share knowledge as well as to implement ideas from all hierarchical levels and not only from the top-management or the department-heads¹⁰⁹. Pursuing, Macharzina and Wolf recommend a reorientation of the existing jobs within a company and the creation of new positions such as a Chief Digital Officers (CDO), the implementation of a Digital Advisory Board and an area of Development and IT Operations (DevOps), as well as the establishment of an incubator model in which new ideas are developed¹¹⁰. Furthermore, the authors assume that new methods like Scrum or Design Thinking will gain importance in the course of digitalisation and in the context of agile project management due to its ability to achieve milestones in a shorter time-period than usual¹¹¹. Additionally, the authors recommend an organisational structure with flat hierarchies, decentralization and less-regulated processes as well as a strong interaction with the customers¹¹². Martins and Terblanche are pointing out the organisational culture as an important factor when it comes to creativity and therewith the innovation ability of a company¹¹³. Here, a corporate strategy that includes a purposeful vision and mission, as well as resources such as time, information technology and creative personnel are indispensable¹¹⁴. The organisational structure should be flexible with the freedom of autonomy, empowerment and decision making, and cooperative teams as well as group interaction, constructive mistake-handling procedures, and open communication should be promoted. To support an innovation-fostering structure, the authors propose rewards and recognition of work as well as a leadership behaviour that encourages a continuous learning culture, conveys the generation of ideas, is risk-taking and competitive, and supports change¹¹⁵. The Boston Consulting Group (BCG) developed a platform innovation system that summarizes the previously mentioned factors and adds the “idea-to-market-fit”, innovation governance and -domains, and performance management in order to source ideas, incorporate new technologies, and to improve innovation-based collaboration¹¹⁶. The following figure illustrates the success factors of innovation systems in the platform segment as an interplay of organisation- and innovation practices.

Figure 7 Success Factors of Innovation Systems in the Platform Segment

Abbildung in dieser Leseprobe nicht enthalten

https://web-assets.bcg.com/dims4/default/3015296/2147483647/strip/true/crop/2480x1913+0+0/resize/1440x1111!/quality/90/?url=http%3A%2F%2Fboston-consulting-group-brightspot.s3.amazonaws.com%2F6d%2F1c%2F56e58da2902e2ef0b61bc62691d8%2Fmost-innovative-companies-2020-when-it-comes-to-innovation-ex2-tcm9-251138.png

This figure has been removed by GRIN for copyright reasons.

Source: Ringel et al. “The Most Innovative Companies 2020 – The Serial Innovation Imperative”, Boston Consulting Group, June 2020

Hence, optimal business model innovation should target becoming a platform based on agile organisation and a strong forward-looking focus, that implements innovation fostering structures. In the restructuring process, time, experience, and the learning of failures and successes is important to increase the effectiveness of an innovation system according to BCG¹¹⁷. Therewith, business model innovation is a trial-and-error process, that allows the company to learn and to test variants of the initial strategy to increase the efficiency and profitability of the new business model¹¹⁸. Further, business model innovation can be leveraged by big data and artificial intelligence (AI) that should be an important element of the business strategy¹¹⁹. Here, the software gathers, interprets and sorts data in order to develop a forecast on future actions or circumstances¹²⁰. Based on this data, the self-learning software constructs algorithms and evaluates its efficiency to be embedded finally in the platform infrastructure and connected with the involved parties¹²¹. This multiplies the efficiency of the platform because of intelligent, automated processes and it enables the fast scaling of the business what leads to an increased competitive advantage¹²². Hence, it is important not only to configure the internal structures and to set up a digital platform, but also to make the most of technology with the implementation of next generation software.

Concluding it must be said that innovation achieved by internal (re-)organisation and technology implementation is empirically hard to measure due the manifold forms that change can have, what complicates the definition of a precise level and scope¹²³.

2.3.3. Cooperation in the Online Platform Segment in Order to Innovate

The following chapter will provide a brief overview of the different forms of cooperation, related theories, advantages and disadvantages as well as a presentation of the innovation potential for digital platforms through business cooperations.

[...]

---

¹ Kiyosaki, 2019

² Kleinrock, 2008, p.9f

³ Ibid., p.14

⁴ Elliott, Nguyen, and Tanguturi, 2018

⁵ Ibid.

⁶ Morvan, Hintermann, and Vazirani, 2016, p.4

⁷ Evans and Gawer, 2016, p.6

⁸ Amazon.com, Inc., 2019, p.4

⁹ Iansiti and Lakhani, 2020, p.62

¹⁰ Saunders, Thornhill, and Lewis, 2019, p.174

¹¹ Pisano, 2015

¹² Kleinrock, 2008, p.10ff.

¹³ ibid, p.13.

¹⁴ ibid, p.14.

¹⁵ BrandZ, 2020

¹⁶ Alphabet Inc., 2019, p.29.; Facebook Inc., 2019, p.57.; Amazon.com, Inc., 2019, p.38.; Alibaba Group Holding,2020, p.22.; Microsoft Corporation, 2019, p.7

¹⁷ The World Bank National, 2020

¹⁸ Evans and Gawer, 2016, p.5

¹⁹ Morvan, Hintermann, and Vazirani, 2016, p.9

²⁰ Caillaud and Jullien, 2003, p.310

²¹ Ibid., p.323

²² Platform Hunt, 2016

²³ Benzell, Lagarda, and Van Allstyne, 2016, p.1ff.

²⁴ ibid.

²⁵ Morvan, Hintermann, and Vazirani, 2016, p.21

²⁶ Rochet and Tirole, 2004, p.1

²⁷ Gens et al., 2017, p.7

²⁸ Morvan, Hintermann, and Vazirani, 2016, p.4

²⁹ Morvan et al., 2016

³⁰ Klein, Ko, and Farrelly, 2019, p.2ff.

³¹ Ibid., p.2

³² Mydyti, Ajdari, and Zenuni, 2020, p.1390

³³ Hunt, 2016

³⁴ Steyer, 2015, p.78

³⁵ Rochet and Tirole, 2004, p.8

³⁶ Steyer, 2015, p.78

³⁷ Amazon Web Services, Inc. – Airbnb Case Study, 2020

³⁸ Evans and Gawer, 2016, p.17

³⁹ Klein, Ko, and Farrelly, 2019, p.3

⁴⁰ Amazon.Com, Inc. - Press Room, 2020

⁴¹ Wakabayashi, 2020

⁴² Joseph Schumpeter, 1912

⁴³ Ibid.

⁴⁴ Morvan, Hintermann, and Vazirani, 2016, p.4f.

⁴⁵ Klein, Ko, and Farrelly, 2019, p.4; Evans and Gawer, 2016, p.18

⁴⁶ Ringel et al., 2020, p.7

⁴⁷ Vahs and Brem, 2015, p.21; Corsten et al., 2016, p.6

⁴⁸ Macharzina and Wolf, 2018, p.739f.

⁴⁹ Vahs and Brem, 2015, p.21

⁵⁰ Ibid., p.23

⁵¹ Ibid., p.23f.

⁵² Ibid., p.24

⁵³ Ibid., p.26

⁵⁴ Corsten et al., 2016, p.2

⁵⁵ Corsten et al., 2016, p.14ff.

⁵⁶ Hauschildt and Salomo, 2005, p.7

⁵⁷ Ibid., p.9

⁵⁸ Ibid., p.15

⁵⁹ Christensen, 1997, p.47

⁶⁰ Ibid., p.11

⁶¹ Pisano, 2015

⁶² Ibid.

⁶³ Pisano, 2015

⁶⁴ Ibid.

⁶⁵ Ibid.

⁶⁶ Hauschildt et al., 2016, p.11

⁶⁷ Corsten et al., 2016, p.8

⁶⁸ Chesbrough, 2010, p.355

⁶⁹ Ibid., p.354 ff.

⁷⁰ Christensen, 1997, p.8 ff., p.38

⁷¹ Morvan, Hintermann, and Vazirani, 2016, p.21

⁷² Gatautis, 2017, p.587 f.

⁷³ Barclays, 2019, p.2

⁷⁴ Klein, Ko, and Farrelly, 2019, p.4

⁷⁵ Ibid., p.4

⁷⁶ Ibid.

⁷⁷ Ibid.

⁷⁸ Ibid.

⁷⁹ Ibid.

⁸⁰ Macharzina and Wolf, 2018, p. 740

⁸¹ Ibid.

⁸² Albers and Gassmann, 2011, p.67

⁸³ Ibid., p.69

⁸⁴ Benzell, Lagarda, and Allstyne, 2016, p.4, 8

⁸⁵ Hauschildt et al., 2016, p.6

⁸⁶ Zeithaml, Parasuraman, and Berry, 1985, p.33 ff.

⁸⁷ Ibid.

⁸⁸ Hauschildt et al., 2016, p.7

⁸⁹ Rochet and Tirole, 2004, p.35

⁹⁰ Macharzina and Wolf, 2018, p. 745

⁹¹ Ibid., p.745f.

⁹² Albers and Gassmann, 2011, p.10

⁹³ Ibid., 10f.

⁹⁴ Ibid., 16f.

⁹⁵ Ibid., 16.

⁹⁶ Ibid., 18.

⁹⁷ Schreyögg and Geiger, 2016, p. 5f.

⁹⁸ Ibid., 5ff.

⁹⁹ Ibid., 9ff.

¹⁰⁰ Ibid.

¹⁰¹ Schulte-Zurhausen, 2014, p.2

¹⁰² Ibid.

¹⁰³ Ibid., p.3

¹⁰⁴ Bea and Göbel, 2019, p. 32f.

¹⁰⁵ Schreyögg and von Werder, 2004, p.1010

¹⁰⁶ Ibid.

¹⁰⁷ Bea and Göbel, 2019, p. 417f.

¹⁰⁸ Ibid., 418

¹⁰⁹ Ibid., 419.

¹¹⁰ Macharzina and Wolf, 2018, p.1070f.

¹¹¹ Ibid., p.1071

¹¹² Ibid.

¹¹³ Martins and Terblanche, 2003, p.65

¹¹⁴ Ibid., 70.

¹¹⁵ Ibid.

¹¹⁶ Ringel et al., 2020

¹¹⁷ Ringel et al., 2020, p.8

¹¹⁸ Sosna et al., 2010

¹¹⁹ Iansiti and Lakhani, 2020, p. 62ff.

¹²⁰ Ibid.

¹²¹ Ibid., p.63

¹²² Ibid., p.65

¹²³ Schreyögg and Werder, 2004, p.1010