Is Platform Leadership Old Hat or the Wave of the Future?

by James Heskett

Summing Up

Platform leadership, the process by which base technologies are developed and on which innovations created by many entrepreneurs can be based, may be characteristic of the knowledge economy. But it isn't new, at least to respondents to this column.

Questions raised by respondents are, however, as interesting as the phenomenon described by Annabelle Gawer and Michael Cusumano in their book, Platform Leadership. They include: Did platform leaders set out to create vehicles by which they might control the direction and pace of the development of new ideas for others (Jeffery Seow)? To what extent does platform leadership help or hinder the development of such ideas? Do our anti-trust laws adequately address the issue of platform leaders and their behaviors?

Platform leadership requires ingenuity, a strong customer franchise, a vision of the future, and substantial resources.
—James Heskett

C. J. Cullinane adds to this list of questions: Are "open" platforms, such as that for the IBM PC, more supportive of innovation than "closed" platforms, such as Apple's Mac? And does the "intent" of the platform leader have to be established in order to determine whether the practice results in "collusion and monopoly?"

In fact, does platform leadership have to be confined to those firms developing technology? Can it just as well be established by marketers who serve as traffic cops for the various new products marketed under the same brand? In one recent case, Procter & Gamble purchased a company producing a low-cost, mass-produced disposable electric rotary toothbrush to be marketed under its famous Crest brand umbrella. As it turns out, its founders developed the product and company with the target at the outset of an eventual sale to Procter & Gamble.

Platform leadership requires ingenuity, a strong customer franchise, a vision of the future, and substantial resources. It is not for everyone. But is it a goal that more and more organizations should strive for? Is it a phenomenon that increasingly large numbers of entrepreneurs can exploit through the development of products and services specifically for inclusion in platforms, whether they are technological or marketing in nature? And do increasingly powerful platforms represent opportunities or threats to competition? What do you think?

Original Article

In their new book, Platform Leadership, Annabelle Gawer and Michael Cusumano offer an interesting exploration of ways in which high-tech firms such as Microsoft, Cisco, and Intel have established commanding positions in software, Internet switching, and chip-based technologies, respectively. They have developed and manage so-called "platforms" on which many innovations created by many entrepreneurs can be based. By successfully facing issues such as scope (the degree to which a "platform leader" creates and develops product complements internally vs. the degree to which it encourages others to do it), modularity and openness (determining the ease with which outside complementors can "hitch their wagons" to the platform), balance (between competition and collaboration with producers of complementary products), and organization (to manage internal and external conflicts of interest most effectively), these organizations have taken different paths to build competitive positions that are hard for others to attack.

They can force suppliers, consumers, competitors, and complementors to bend to their will in the hope of obtaining profit or value.
— James Heskett

Of course, one can argue that this is what the highway system of the U.S. (or any country, for that matter) is all about. Or at a more micro level, it is what General Motors, Ford, and others created when they built a system of complementors based on the platform of the internal combustion engine. They decided what they would create and produce themselves and what they would encourage others to develop. This then determined the extent to which they had to disclose confidential specifications describing their platforms and design the platforms with sufficient modularity to allow makers of component parts to design complementary products that fitted together.

Successful platform leaders exert a great deal of influence. At times, they must build trust among those that choose to utilize the platform as partners. At other times, they may choose to compete with the very partners they may have courted earlier, but at the risk of destroying future trust in search of immediate "in-house" profit. They can force suppliers, consumers, competitors, and complementors to bend to their will in the hope of obtaining profit or value. In doing this, they walk a fine line which, if crossed, can land them in the courts, as Microsoft learned.

The concept of platform leadership raises a variety of questions. First, is it really new or has it just taken on increasing complexity and importance in the high-tech era? Second, how broadly can platform leadership principles be applied? For example, is a comprehensive brand a platform? Or are high-tech platforms of a more pervasive order, essentially influencing the way millions of people do business and lead their personal lives on a global basis? If so, what is the likely process (free market, regulation, or other) by which authority and limits will be imposed on leaders of global platforms who mismanage relationships with complementors and competitors? What do you think?

    • Jeffery Seow
    • Managing Director, ACCENDO

    Platform leadership, as described, does not sound new at all. Throughout the ages man has been discovering, inventing, creating, and innovating. And in all of that he has caught the attention of others who have used or found new uses for those discoveries, inventions, creations, and innovations, or yet others who have profited out of supplying to the production of those things.

    Probably a more interesting question to ask is, how many of those things have been "accidents" and how many planned, or why haven't more of them been planned or did the key movers know they were going to end up manipulating things the way they have ended up doing?

    Can the discovery of penicillin and the subsequent creation of other types of antibiotics or the innovation of existing antibiotics (like removing the impurities in penicillin) be seen as platform leadership? Why or why not?

    • C. J. Cullinane

    The concept of "platforms" is not new but seems to be an old concept utilized in the high-tech arena. Networking, strategic alliances, partnering, and possibly even outsourcing are forms of "platforms." (The ancient Roman use of Sassanian bowmen is a form of platforming or outsourcing.) No, I do not believe this is a new concept.

    How much "platforming" and partnering equals collusion and monopoly? This could only be determined by the intent and fairness of the platform creators and the interpretation of the courts. Most industries do have associations and groups that are a type of platform but they are not (or should not) be controlled by one organization. Which is fairer, the "closed" Apple Computer concept (Mac) or the "open" IBM PC (Intel & Microsoft) concept? One tried to be a monopoly the other just dominant. It depends on interpretation and success!

    • Morntide

    From my understanding, platform leadership is characteristic of the knowledge economy. Due to the highly rapid development of high-tech, the accumulation of knowledge almost explodes. Nowadays, one year's worth of technical advancement may double that of the entire past decade. In order to keep pace with the market trend, corporations must be able to maintain and sustain innovation. The issue here is not how much property or capital you have, but how you can deal with so much information and knowledge. Incisive market sense and efficient exploitation of all available resources may be two key features to maintain competition and innovation. Platform leadership is just this kind of measure.

    It's just like a hierarchy of an organization—different corporations are assigned to different stratums, doing their specific tasks. On the top of it, the giant corporations (platform leaders) such as Microsoft, Cisco or Intel make the blueprint and allocate the components to lower stratums (their subcontractors).

    Platforms exist in almost every industrial sector, especially the knowledge industry—such as software. One important benefit of it is to optimize all resources. In addition, I don't think the giants perform all the creative aspects, thus the lower part remains passive, just following its specific requirement.

    On the contrary, smaller firms may indeed do many of the creative tasks while the giants remain a great market edge over competitors. This leaves the possibility open that the active and creative smaller firms, which are at the market front, incisively master the new market trend that the giants may ignore due to size, and then create a new platform to satisfy the new market. Whether such smaller firms will develop rapidly or even become new giants depends on many factors such as the market itself and the responsive speed of competitors. One thing can be sure: When a new market chance emerges, the winners will develop into new platform leaders.

    However, platform leadership may lead to monopolies that tend to hamper innovation. New techniques that will outdate the old products might handicap the adoption of such techniques by the giants, who use their great edge of brand, market, and influence over competitors to acquire in-house profit.

    First, I don't think this is a very serious problem; it's natural for platforms to have their own disadvantages like everything else. We should look at this with a developing view and believe in our society's capacity for adjustment and supervision. Second, it's difficult for any one giant to keep very much ahead of other competitors in such a drastically competitive world; often there are several big giants. Finally, on a macro level, the regulator should develop the system unremittingly to adjust to new environments of which one requirement is to guarantee that new platform leaders will always emerge along with the new market. Whoever the next GE or Microsoft may be, they will be there eventually due to the effective system.