Platform Disruption Wave

By: Haydn Shaughnessy

In the new global environment innovation is tending towards Platform Disruption, and is more focused on waves of change than single technology disruptions. The competitive capability of different innovation cultures, rather than technology, therefore becomes the critical success factor. In this article, Haydn Shaughnessy examines product and service platforms as the new organisational form and suggests that modern enterprises need to take the leap to a new way of business.

For a long time I had one worry about the innovation sphere, the role and task of the innovation manager. My worries have increased, but before going into that, here is what used to disturb me. Much of the innovation in an organization is driven by the IT department. Or, alternatively, it will be impeded by IT. Innovation managers rarely had access to IT or a dialogue that would allow them to coordinate significant change. I often wondered how they coped with being one removed from this important lever.

Here’s what worries me now. Innovation has been guided by the remarkable achievement of Clayton Christensen in The Innovator’s Dilemma. Although Christensen’s work is often paraphrased as “good enough products at low prices can kill incumbents,” it is also an extremely thoughtful account of the decision points that innovation managers face. It encompasses alternative scenarios like companies adopting and developing new technologies to develop for entirely new markets where there is “non-consumption”.

It is important because at any given point a research manager might have to confront the possibility that the overall architecture of a product is inhibiting the path forward and rather than keep on trying to improve it, the executive team need to make a big investment in an alternative approach. My second worry is that this dilemma is now less important. The growing area of concern is how do I switch my organization’s operating model? How do I do significant process model innovation?

Facing the first dilemma

A typical innovation dilemma faced Samsung in the early 2000s. They were a leader in cathode ray tube manufacture (CRT) and a contract manufacturer of LCD screens for Japanese electronics firms (and for Apple), producing the highest volume of LCDs in the global market. CRT’s days were numbered, however. The easy option would have been to continue just with its LCD capabilities, but the strategic gains from this switch could have been small. Samsung would have simply continued to face intense competition.

A newer technology was kicking around which nobody seemed ready to invest in or to prove that manufacture was even possible. This was OLED or organic light emitting diode technology. The technology had been proven in the labs by Kodak, who owned many of the patents on OLED technology and on the compounds that go into the OLED display – these are the organic element that the display has to signal on and off to create images. But nobody had shown it could be manufactured at scale.

Samsung took the leap in the early 2000s. To cut a long story short, over the course of 50 major innovation projects and thousands of sub-projects, they managed to make OLED, particularly Active Matrix OLED or AMOLED, a viable, scalable technology. I wrote about it in a couple of articles on Forbes for anyone who wants the detail. On the organization of the OLED project, see here. On the systematic approach to innovation, see here. The result was that Samsung captured 90% of the AMOLED market and 40% of the OLED market.

The genius of Samsung’s approach was three fold:

• First it could weather the depletion of its CRT business
• Second it could continue as a major provider of LCD
• Third it had its own franchise in OLED. It was the master here of its own destiny, as it could provide market traction initially in its own smartphones.

The full story of Samsung’s transition to AMOLED is fascinating. It is not a low cost, low quality product undoing an incumbent, though eventually the Japanese influence in flat panel displays would wane. It is a vastly superior product. AMOLED provides better image quality than LCD and can be used on a plastic substrate, opening up the possibility of flexible and even printable visual displays. It took billions of dollars to bring to fruition, including the cost of setting up the clean-room manufacturing facilities that AMOLED demands. And it was aimed squarely at the LCD business, where Samsung was the world leader.

In the whole of the flat panel/smartphone story it is difficult to find an example of a low cost product being the disruptor. High cost, high quality products like AMOLED have opened up a whole new vista for display technology – they are now in use in car tail lights and medical imaging and are making their way into aviation, for example. But there is nothing low cost of lower quality about them. They were always going to be a superior product. Ten years after the AMOLED projects began, Samsung and its partners were seeking ways to replicate AMOLED as a type of active paper, think, writeable, rollable and disposable, broadening the range of OLED applications.

This new wave converged all screen technologies into two base technologies, and Samsung was there for both.

What marks OLED out is that OLED and Samsung caught a new wave of change. The wave was the move towards a ubiquitous display across all classes of screen – TV, outdoor advertising, desktop computing, medical imaging and, critically, smartphones. Together these represent a huge market, and a growing one. They are a wave brought together by different currents, like personal video recording on smartphones, photography, social networks, streaming media, content diversification and so on.

In 2000 when Samsung embarked on its OLED project it could not possibly have anticipated the smartphone revolution. However, this new wave converged all screen technologies into two base technologies (LCD and OLED), and Samsung was there for both. It rode the wave but you also have to say that while screen convergence was ultimately logical, luck played a part in Samsung catching that wave.

It is important to consider how it managed to do that and I think there are three reasons:

Organization:

There were three organizational innovations

1. It changed the way it innovated, widely adopting TRIZ as a methodology, and hired scientists and engineers from the Russian Academy of Science who were TRIZ experts. It made a decision to professionalize innovation company wide.
2. It explicitly sought out creative and risk happy leaders and made these into an admired carde within the firm.
3. It established competitive teams. LCD competed with OLED. AMOLED competed with other forms of OLED.

Financial:

It made very big bets on OLED. Only from about 2007, five years in, did it know with any certainty that it could mitigate some of the risk of investing in production facilities by using the displays in its own smartphones.

Science:

It brought in people from the Russian Academy who could take the science of display further. Only later (in 2014) did it bring it world class design talent, an error it might now regret.

There are also a couple of consequences:

1. The ubiquitous display and its underlying technology are finding application across many industries. It is becoming a horizontal technology, not confined to any vertical.
2. It enables a huge range of service activity. Display performance in the past decade has improved to the point where our lives center on screens, on reproducing what we see and on sharing what we experience. It had enabled behavioral change and enabled industries like social networking to scale beyond anything we might have imagined. In other words, the display wave is integral to other waves. Again the horizontal impact of the wave is clear.

Platform Disruption Wave

I believe innovation is tending towards Platform Disruption, and is more focused on waves of change than single technology disruptions. I wrote Platform Disruption Wave to describe it and to explore those ideas further.

In the book I distinguish between two main types of platforms. One is product platform and the other is a service platform.

The Samsung example is a good illustration of a product platform. In order to get OLED to work it needed to find support from companies that produced new organic compounds and from companies that could provide the film layers and encapsulation technology that would reliably encase the compounds. The product had a small innovation ecosystem, all of whom were risk takers. It worked.

Scale no longer poses a barrier to a company’s growth and that is why we have seen the growth of huge ecosystems as a new kind of economic activity organized by platforms.

The second type of platform is a service platform. Uber is a service platform. It brings together third parties and enables them to connect. Apple runs product platforms and service platforms (The App Store). Alibaba is a service platform, enabling businesses and customers to connect.

The service platform is beginning to take over from the product platform as the source of disruption. It is also taking the idea of horizontal business far beyond what product platforms have experienced. Alibaba, for example, now has businesses in insurance, finance, ticketing, autos and more.

Service platforms also enable the leveraging of third party assets, much more effectively – like the use of a third party auto in taxis or the use of the IP in app developer communities. In a product platform, the use of third party assets is subject to legal contracts and strict royalty payments or component acquisition. In service platforms the third party asset is used under terms and conditions, making it simple to scale an ecosystem of partners.

They allow humans to organize economic activity at unprecedented scale. They allow what I referred to in Platform Disruption Wave as infinite endpoint management. Scale no longer poses a barrier to a company’s growth and that is why we have seen the growth of huge ecosystems as a new kind of economic activity organized by platforms.

With global connectivity, service platforms are also showing themselves capable of being global from an early stage. Because the service platform is global, however, it is likely that geopolitics is going to be a factor in disruption and disruptive innovation. In a global environment the competitive capability of different innovation cultures, or more precisely organizational forms, rather than technology, becomes an important success factor, perhaps the critical success factor. The platform is a new organizational form.

With these additional factors: platforms, geopolitics and innovation culture,  it is clearly not good enough any more to say it happens when cheaper, good enough products come along and fly into a new sector under the radar. But if we are to replace this Christensen model then what with and as we outline a new theory can we keep on the same page?

Here is my view, taken from Platform Disruption Wave.

The importance of waves and organization: Disruption now happens in waves that encompass (a) the breakdown of vertical market structures into horizontal activities (this is the critical inflection point of the wave and is true even of Samsung’s display hardware. Previously TV companies like RCA also owned networks like NBC) and (b) as a result, reward substantial innovation in the organization of wealth creating activity.

This is analogous to the idea I mentioned in Shift that economic activity has escaped “enclosure”. By that I mean we have to innovate in how we organise economic activity in the wild, and that’s exactly what the platform does.

Culture and organization: Because the primary advantage lies in how we organise wealth creating activity, success favors cultures that prioritise organizational learning and know how.

Geopolitics: The wave is increasingly tied to a geopolitical transition, in this case from the US to China, and is often specific to its own era, so we are now experiencing our wave of change, not the wave that swamped the world between 1973 and 2000. The current wave is driven by scale, or our new capacity for infinite endpoint management. Because disruption now favors scale then it will favor China.

Incumbency and white spaces: Disruption can originate in challenges to incumbent privileges, as writers like Steve Klepper have pointed out. It can be triggered by industry concentration, but incumbents are rarely undone by one new product. They are undone by the wave of change, the hidden currents and their inability to widen their social interaction sufficiently to develop new ecosystems.

The new killer organizing principles can also emerge in white spaces, such as emerging markets where economic structures have to be still to be established, or where there is a deep unfulfilled need, such as to make search a viable business. That is why Chinese entrepreneurs are better at platform organization.

Experimental capitalism: Disruption is always nested in an experimental period where entrepreneurs test hypotheses through public dialogue; where they collectively sense the ability of their ideas to meet new needs; and where they search for a fit with emerging technology infrastructures. Look to finance for an experimental era right now.

Ecosystems and scale: The experimental period creates the ecosystems that break down industry barriers and establish the need for a new organizational form. But what technology now does is allow us to organize at unprecedented scale and seek opportunity without limits.

Summary

Platform disruption therefore consists of five significant elements:

1. The new organizational model
2. Scale and infinite endpoint management
3. The transition in innovation models away from invention to improvement culture and organizational learning
4. The platform as an indigenous organizational form in China
5. The polarization of wealth (platforms contribute to polarization)

My conclusion to this, and you need to follow a couple of hundred pages of argument to agree or disagree is that at pivotal points in history, enterprises need to take the leap to a new organizational form and a new way of business. That time is now. A new wave is already appearing in P2P and autonomous organizations. This is what the West must embrace but is too fearful to try.

 By Haydn Shaughnessy

Image: Backdrop on the subject of modern technologies from Shutterstock.com