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Perspectives

Foundational Technologies: Laying the Groundwork for a Platform Business

2016-08-03


By building, buying or plugging into emerging business-technology platforms, organizations can discover new forms of value in the digital era. Here’s what enterprises need to know to create a foundation for platform success.

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Not long ago, “doing business” was a fairly straightforward concept, largely revolving around the physical exchange of tangible goods and services for payment, along with pre- and post-purchase services. In today’s digital economy, however, the most successful organizations are tapping into entirely new forms of value creation and monetization that threaten to make traditional approaches to business obsolete. 

This new way of doing business is premised on the formation of open and flexible digital ecosystems – or “platforms” – that enable new insights, relationships, partnerships and marketplaces, using the power of data and process digitization. In simple terms, platform-based business models are characterized by the following:

  • A market-specific, business function-specific or cross-industry ecosystem of producers and consumers, beyond traditional business boundaries. 

  • Business value generated through the digital interactions and transactions of employees, partners and customers, pertaining to either physical assets outside the platform or digital assets created on the platform (data, content, APIs and apps).

Such ecosystems are cropping up all around us, whether as transaction-, content- or innovation-focused platforms.1 We have worked with several companies to establish a platform business, including a pioneering provider of financial software products (see Quick Take, A Small-Business Platform Transformation), a large electronics manufacturer that is monetizing its supply chain data, and a pharmaceuticals industry consortium whose platform enables collaboration among the bio-pharma research community and provides insights to various stakeholders. (For an in-depth look at a new platform we are building for healthcare payers and providers, see Quick Take, Rendering Healthcare Infrastructure a Moot Point.) 

Increasingly, platform businesses are unlocking user experience insights based on transactions and content usage patterns. To enable these new types of engagements, platforms combine systems of record, systems of engagement and systems of intelligence, using recommendation engines, predictive analytics and other means to provide value to partners and participants. In this way, forward-thinking enterprises are expanding their value proposition further into the customer lifecycle, the value chain and adjacent marketplaces. 

Shaking Up the Enterprise 

With the emergence of the platform economy, the question becomes how, where and when to participate, and overcome the many business-technology challenges along the way. These challenges are systemic and impact each and every platform participant. Importantly, they require individual companies – be they platform operators or plug-and-play participants – to rethink their change management conventions, beginning with business mindset, and flowing through corporate culture, business processes and technology infrastructure. 

Rethink 1: Business Mindset Change 

Platform success depends on the contribution and compliance of ecosystem participants outside traditional organizational boundaries. But encouraging platform use cannot be mandate-driven; it is more a matter of inspiring and influencing participants, using continuous engagement models that keep the ecosystem vibrant. 

Further, some platform participants may be competitors, as well. Business leaders will need to establish a balance between their larger aspirations for the platform and competitive pressures that might exist in a subprocess layer addressed by the platform. For example, Amazon partners with logistics companies but also competes with these businesses through its logistics capability offerings.

Organizations also need to rethink their business models. Compared with one-time product licensing or selling models, platforms will often drive monetization in new ways, influencing such as through “freemiums,”2 try-before-you-buy offers, subscriptions or usage-based models. Marketing, sales and business management must be empowered to embrace and experiment with these models, as well as address the associated revenue predictability and cash flow issues. 

Further, platforms become profitable only after reaching a critical threshold in the number of unique users or partners participating in the ecosystem, as well as the corresponding monetized transaction flows. This financial reality must be supported by strong business vision and multiyear business plans. 

A Small-Business Platform Transformation

In our work with businesses in the telecommunications and technology industries, we’ve seen organizations successfully embrace platforms after ascertaining the market challenges they faced, the opportunities inherent in digitization and the enabling digital technologies that would bridge their journey into the future.  

One example is a technology-savvy provider of financial and accounting software products for consumers and small businesses. Through market and customer research, the software provider realized it could serve its small-business customers better by branching into areas beyond financial management. The company also faced new, nontraditional competitors, particularly in digital payments, that had launched innovative solutions that infringed on its own offerings. 

These market forces led the company to change its model to a small-business-focused platform that provides an ecosystem for financial services organizations, small-business customers and other providers, based on the power of its brand, market presence and rich transaction data. Using an open platform, it enabled the integration of multiple third-party products, such as Salesforce.com, to cover the entire business lifecycle, starting from the early stages of marketing. Through the platform, the company absorbs contributions from ecosystem partners – including customer management and payment capabilities – and positions itself as a provider of solutions that span the small business lifecycle.  

For example, banks are leveraging this platform to provide more meaningful personal finance management to consumers. Further, by analyzing the rich data contained in transactions processed by the platform, the company can form deeper insights into the needs of small businesses and provide contextual recommendations for additional attached services. For instance, depending on the complexity of inventory managed, advanced inventory management services can be recommended; similarly, specific loan products can be recommended based on the business’s financial details.

As consumers derive value from these financial insights, they drive more financial transactions and actions through the platform, which increases the value of the platform.  For instance, predictive analytics can help convert small-business customer insights into consumer spend insights and financial product recommendations that inform near- and long-term business strategies.

Rethink 2: Culture Change 

A data-driven culture is a key aspect of platform businesses, particularly in the marketing and production development realms. The business needs to develop more targeted marketing approaches with opt-in offerings, as well as customized products and services based on deep customer insights. This makes it essential for the organization to embrace frequent, objective and data-driven decision-making processes that combine science with the art of marketing and innovation. (For more on this topic, see our white paper “How to Create a Data Culture.”3

To that end, we have helped customers build analytics capabilities for data flowing from a variety of user touchpoints across the customer lifecycle, including awareness, engagement, trials, onboarding, usage, support and upgrade. Data is consolidated across the customer journey, including social interactions, product experiences and other platform transactions, and predictive analytics approaches are used to discover near-real-time patterns. Content platform companies, for example, can improve the content consumption experience through a better understanding of usage patterns, or even expand their base of content-provider partners. Similarly, e-commerce platform providers can design more effective loyalty and upsell/cross-sell programs through insights into customer lifetime value. 

Another area of culture change is agility, which requires more fluid and seamless collaboration and communications across lines of businesses and functional groups. Key to success is a cross-functional organization that operates under a clear mandate, communicated by a strong leader in an external or future-facing role, such as the CMO or CTO. Barriers across functional groups – market research, product development and support – must be dissolved, and quick cycles of “launch and learn” need to be established. To enable this, businesses need to build systems instrumented for influencing user behavior, using near-real-time analytics and cross-functional response to enable the resulting insights in short cycles. 

Rethink 3: Business Process Change

While much platform activity – the interactions, engagements and transactions – is intended to be conducted in a mostly digitized and automated way, internal processes remain that require human intervention, particularly to handle exceptions. This is often the case with content quality assurance workflows on consumer data platforms, and with customer onboarding touchpoints on digital advertisement platforms. 

Because manual interventions can restrict scalability, businesses should strive for relentless automation across the enterprise lifecycle, even for secondary and out-of-the-ordinary business process scenarios. For example, we helped an innovation platform automate many steps in ad creation and campaign management that were relevant to small businesses.

Deep focus on automating workflows is vital for a platform’s success because as user adoption explodes, even unusual circumstances can become significant in number and cause reputational damage if the problem is widely experienced. 

Rethink 4: Technology Infrastructure 

Platform businesses are enabled by the use of both emerging and fully mature digital technologies and architectures, particularly social, mobile, analytics and cloud technologies, or the SMAC Stack, as well as open-source and Internet of Things technologies (see Figure 1, for a detailed look at key platform technology components). 

Establishing Value 

Once the platform is built, providers need to ensure participants find value in it and that it will scale to additional segments. Platforms are highly dependent on the “network effect” – i.e., their value increases exponentially the more people use it. The following are some considerations for attracting participants to the platform, encouraging onboarding and establishing value and trust over time. 

  • Onboarding: Attracting platform participants can be achieved through several techniques, including conducting digital and social marketing campaigns to promote viral adoption, offering enticing pricing schemes and developing a simple and seamless onboarding experience. 

    Businesses should also ensure that users can quickly realize value from the platform – and even encounter a positive surprise – in the initial minutes of onboarding. This can help offset the significant user churn we often see in the first one to three months of joining a platform. Platform owners should focus not only on the most frequent usage patterns that tend to develop once the user has smoothly onboarded but also on early-stage use.

    Platform businesses can also offer a simple registration process for quick realization of value, and require more comprehensive information once participants become interested in more sophisticated capabilities. Similarly, they can enable auto-filling of forms through a robust set of user data services with the participant’s consent. 

    To reinforce stickiness, platform businesses can enroll users into social groups and communities, as well as leverage the power of other existing ecosystems to provide a superior customer experience. For example, we have built a social buying experience for an e-commerce platform by integrating it with Facebook, enabling a view of purchases to friend circles to validate quality.

  • Scaling up: In order to scale further, platform providers must ensure the trustworthiness of platform participants, as well as the security and privacy of the digital assets that flow through the platform.  

    To ensure active participation, a platform must also provide sufficient flexibility and scalability for participants to leverage it for diverse use cases. They can do this by focusing on a few capabilities that cover a diverse user base. For example, a platform such as Uber supports very few consumer use cases in terms of ride-sharing, but because it supports diverse payment models and providers, it ensures coverage across a large user base, thereby ensuring the reach of the platform. 

  • Encouraging engagement: Platform effectiveness increases when consumers also become contributors, which can be enabled in multiple ways: 

    • Community: Create a sense of community, as well as a civic sense for that community. Users are compelled to participate when they see a clear value in real-time traffic alerts from other users on a Waze platform, contributions of proprietary taxation logic on a small business accounting platform or a supplier review contributed to a commerce platform.
    • Content: Create open discussion forums and groups around the platform, with minimal moderation from the platform provider to ensure legitimacy. At the same time, the platform provider needs to provide important inputs on the platform roadmap, as well as business and technical clarifications and other support.
    • Open APIs: Ensure rich content (either directly from the platform provider or through syndication) so that the platform becomes a hub of engagement around common themes, even if they are beyond the utilitarian use cases supported by the platform. 

Rendering Healthcare Infrastructure a Moot Point 

By David Delano 

While proud of our legacy of homegrown innovation and collaboration at the New England Healthcare Exchange Network (NEHEN), we were ready to graduate to a next-generation technology solution. The not-for-profit, member-based organization specializes in administrative healthcare information exchange (HIE) for more than 50 member organizations in the northeastern U.S., including 55 hospitals, eight health insurance plans and tens of thousands of practitioners.

NEHEN’s services include HIPAA-compliant tools and features that simplify and speed administrative transactions between payers and providers, facilitate the sharing of clinical information, and enable e-prescribing, regulatory compliance and reporting.

After struggling to keep pace with member needs via an assortment of proprietary systems and tools, we sought a more modern, cost-effective, technologically streamlined alternative to a federated processing model, in which every member organization managed its own transactions. The goal: Take infrastructure concerns out of the equation and allow us and our members to focus on process innovation delivered through a new platform. By doing so, we knew we could deliver more efficient workflows and smarter ways of processing advanced administrative data, such as prior authorizations, referrals and the convergence of administrative and clinical content.

Cognizant has already moved our legacy system to the Amazon Web Services (AWS) cloud infrastructure. This allows us, as well as our members and trading partners, to take advantage of standards-based communications protocols to process nearly 12 million transactions monthly. Later this year, we will move all NEHEN transactions to a Cognizant TriZetto platform, which provides member decision-makers with the ability to not only conduct efficient transactions but also discern data patterns using analytics tools. There are implications for community and population health improvements based on this approach.

No longer is infrastructure a primary concern or gating factor, thanks to AWS’s relatively inexpensive and virtually unlimited bandwidth and processing capacity. And with the new platform, we can take advantage of open application programming interfaces (API) to allow members and trading partners to continuously innovate and improve cross-institutional interoperability and outcomes across the healthcare value chain.

We see cloud and our evolving modern technology platform as a way of generating tremendous economies of scale and facilitating greater innovation for our member organizations by focusing our attention on value-based activities. By working collaboratively with Cognizant, we are helping our members embrace the latest technologies and digital capabilities to meet them head-on.

Author

David Delano is Project Director at the Massachusetts eHealth Collaborative (MAeHC) and NEHEN’s Executive Director and Management Services Partner. He can be reached at ddelano@maehc.org.

Figure 1

On-ramps for Success

Platforms enable enterprises to expand their value proposition more deeply and broadly into the customer lifecycle, without facing classical economic challenges associated with capital-intensive business models. Once they gain more comprehensive ownership of the customer lifecycle, platform businesses can develop continuous engagements with customers, thereby enhancing brand equity, customer loyalty, depth of customer insights and the opportunities to cross-sell and upsell. These more substantive customer relationships also help businesses address the potential encroachment of new digital competitors that serve adjacent areas in the customer experience. 

Progressive companies can leverage the power of platforms for business innovation by doing the following: 

  • Apply the power of cross-functional workflows and insights across lines of business.

  • Monetize data and content in new ways. 

  • Expand the value proposition to contributions from external producers and consumers.

  • Extend target market to include long-tail segments in terms of market constituencies and geographies. 

Successful platforms ensure user loyalty by anticipating how users will want to interact with the system. By developing omnichannel-based methods of data capture and systems of intelligence methods of user engagement, platform businesses will be able to influence user behaviors, leading to higher loyalty and higher profitability per user interaction. The enterprise can then engage in completely new business models and new revenue sources that were not possible before, creating a force of competitive disruption and momentum that is difficult to stop. 

Footnotes

1. Platform types and value creation models are extensively explored in a recently published primary report written by Peter C. Evans and Annanelle Gawer for the Center for Global Enterprise entitled, “The Rise of the Platform Enterprise: A Global Survey,”http://thecge.net/wp-content/uploads/2016/01/PDF-WEB-Platform-Survey_01_12.pdf.

2. A freemium is a pricing strategy by which a product or service (typically a digital offering or application such as software, media, games or Web services) is provided free of charge, but money (premium) is charged for proprietary features, functionality, or virtual goods. Source: Wikipedia, https://en.wikipedia.org/wiki/Freemium.

3. “How to Create a Data Culture,” Cognizant Technology Solutions, June 2015, https://www.cognizant,com/insights/whitepapers/ how-to-create-a-data-culture-codex1408.pdf.

Authors

Dharmesh Mistry co-leads the Product Development Services Practice within Cognizant’s Communications and Technology business unit. In this role, Dharmesh has spearheaded multiple platform development initiatives in collaboration with numerous technology companies, and focuses on systems of intelligence layered architectures. He has 23-plus years of experience working in Silicon Valley technology companies. Dharmesh graduated from Cornell University with a master’s degree in applied physics and electrical engineering and a bachelor’s in physics from Imperial College, London. He can be reached at Dharmesh.Mistry@cognizant.com.

Stan Iyer co-leads and is Vice-President of the Product Development Services Practice within Cognizant’s Communications and Technology business unit. In this role, he has worked with many technology companies in defining and developing platforms as a brand-new business model or as an extension of existing businesses. Stan has over 25 years of experience in software development and delivery. He holds a master’s degree in engineering from Carnegie-Mellon University and a bachelor’s degree in Engineering from IIT, Chennai, India. He can be reached at Stan.Iyer@cognizant.com.

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Foundational Technologies: Laying the Groundwork for a Platform Business