Build a Platform-Based Organization

Use a platform structure to overcome bureaucracy.

Analyst Perspective

Build a platform-based organization.

Bureaucracy saps innovation out of large corporations. Some even believe that bureaucracy is inevitable and is an outcome of a complex business operating in a complex market and regulatory environment.

So, what is the antidote to bureaucracy? Some look to startups like Uber, Airbnb, Netflix, and Spotify, but they are digital native and don’t compare well to a large monolithic corporation.

However, all is not lost for large corporations. Inspiration can be drawn from a company in China – Haier, which is not a typical poster child of the digital age like Spotify. In fact, three decades ago, it was a state-owned company with a shoddy product quality.

Haier uses an intriguing organization structure based on microenterprises and platforms that has proven to be an antidote to bureaucracy.

Vivek Mehta
Research Director, Digital & Innovation
Info-Tech Research Group

Executive Summary

The Challenge

Large corporations are prone to bureaucracies, which sap their organizations of creativity and make them blind to new opportunities. Though many executives express the desire to get rid of it, bureaucracy is thriving in their organizations.

Why It Happens

As organizations grow and become more complex over time, they yearn for efficiency and control. Some believe bureaucracy is the natural outcome of running a complex organization in a complex business and regulatory environment.

Info-Tech’s Approach

A new organizational form – the platform structure – is challenging the bureaucratic model. The platform structure makes employees directly accountable to customers and organizes them in an ecosystem of autonomous units.

As a starting point, sketch out a platform structure that works for your organization. Then, establish a governance model and identify and nurture key capabilities for the platform structure.

Info-Tech Insight

The antidote to bureaucracy is a platform structure: small, autonomous teams operating as startups within the organization.

Executive Brief Case Study

Small pieces, loosely joined

Haier

Industry: Manufacturing
Source: Harvard Business Review November-December 2018

Haier, based in China, is currently the world’s largest appliance maker. Zhang Ruimin, Haier’s CEO, has built an intriguing organizing structure where every employee is directly accountable to customers – internal and/or external. A large corporation often consists of a few operating units, each with its own idiosyncrasies, which makes it slow to innovate. To avoid that, Haier has divided itself into 4,000 microenterprises (MEs), most of which have ten to 15 employees. There are three types of microenterprises in Haier:

1. Approximately 200 “transforming” MEs: market-facing units like Zhisheng, which manufactures refrigerators, a legacy Haier product, for today’s young urbanites.
2. Approximately 50 “incubating” MEs: entirely new businesses like Xinchu that wrap existing products into entirely new business models.
3. Approximately 3,800 “node” MEs: units that sell component products and services such as design, manufacturing, and human resources support to Haier’s market-facing MEs.

Each ME operates as an autonomous unit with its own targets – an organizing structure that enables innovation at Haier.

(Harvard Business Review, 2018)

Markets disproportionately reward platform structure

Tech companies like Facebook, Netflix, and Spotify are organized around a set of modular platforms run by accountable platform teams. This modular org structure enables them to experiment, learn, and scale quickly – a key attribute of innovative organizations.

Facebook ~2,603 million monthly active users

India ~1,353 million population

Netflix ~183 million monthly paid subscribers

Spotify ~130 million premium subscribers

Canada ~37 million population

(“Facebook Users Worldwide 2020,” “Number of Netflix Subscribers 2019,” “Spotify Users - Subscribers in 2020,” Statista.)

1. Sketch Out the Platform Structure

What is a platform anyway?

A modular component of an org structure

“Platforms consist of a logical cluster of activities and associated technology that delivers on a specific business goal and can therefore be run as a business, or ‘as a service’ … Platforms focus on business solutions to serve clients (internal or external) and to supply other platforms.” – McKinsey, 2019

Platforms operate as independent units with their own business, technology, governance, processes, and people management. As an instance, a bank could have payments platform under a joint business and IT leadership. This payments-as-a-service platform could provide know-how, processes, and technology to the bank’s internal customers such as retail and commercial business units.

Many leading IT organizations are set up in a platform-based structure that allows them to rapidly innovate. It’s an imperative for organizations in other industries that they must pilot and then scale with a platform play.

What a platform-based org looks like

It looks like a multicellular organism, where each cell is akin to a platform

An organism consists of multiple cells of different types, sizes, and shapes. Each cell is independent in its working. Regardless of the type, a cell would have three features –the nucleus, the cell membrane, and, between the two, the cytoplasm.

Similarly, an organization could be imagined as one consisting of several platforms of different types and sizes. Each platform must be autonomous, but they all share a few common features – have a platform leader, set up and monitor targets, and enable interoperability amongst platforms. Platforms could be of three types (McKinsey, 2019):

1. Customer-journey platforms enable customer proposition and experience built on reusable code. They provide “journey as a service”; for example, Account Opening in a bank.
2. Business-solution platforms are modular and run as a business or as a service. They provide “company as a service”; for example, Payments or Fraud Detection in a bank.
3. Core IT provisioning platforms provide core IT services for the organization, for example, cloud, data, automation.

Case study: Payments platform in a bank

Payments as a service to internal business units

The payments platform is led by an SVP – the platform leader. Business and IT teams are colocated and have joint leadership. The platform team works with a mindset of a startup, serving internal customers of the bank – retail and commercial lines of business.

Advisory Council: An Advisory Council is responsible for strategy, business, and IT architecture and for overseeing the work within the team. The Advisory Council prioritizes the work, earmarks project budgets, sets standards such as for APIs and ISO 20022, and leads vendor evaluation.

International payments (VISA, WU, etc.): Project execution teams are structured around payment modes. Teams collaborate with each other whenever a common functionality is to be developed, like fraud check on a payment or account posting for debits and credits.

Payments innovation: A think tank keeping track of trends in payments and conducting proof of concepts (POCs) with prospective fintech partners and with new technologies.

Use a capability map to sketch out a platform-based structure

Corral your organization’s activities and associated tech into a set of 20 to 40 platforms that cover customer journeys, business capabilities, and core IT. Business and IT teams must jointly work on this activity and could use a capability map as an aid to facilitate the discussion.

An example of sketching a platform-based org structure for an insurance provider (partial)

2. Establish Governance and Nurture Key Capabilities

Two ingredients of the platform structure

Establish a governance

Advisory Council (AC) operates like a conductor at an orchestra, looking across all the activities to understand and manage the individual components.

Nurture key capabilities

Team structure, processes and technologies must be thoughtfully orchestrated and nurtured.

Establish strong governance

Empowerment does not mean anarchy

While platforms are distinct units, they must be in sync with each other, like individual musicians in an orchestra. The Advisory Council (AC) must act like a conductor of the orchestra and lead and manage across platforms in three ways.

1. Prioritize spend and effort. The AC team makes allocation decisions and prioritizes spend and effort on those platforms that can best support organizational goals and/or are in most urgent technical need. The best AC teams have enterprise architects who can understand business and dive deep enough into IT to manage critical interdependencies.
2. Set and enforce standards. The AC team establishes both business and technology standards for interoperability. For example, the AC team can set the platform and application interfaces standards and the industry standards like ISO 20022 for payments. The AC team can also provide guidance on common apps and tools to use, for example, a reconciliation system for payments.
3. Facilitate cross-platform work. The AC team has a unique vantage point where it can view and manage interdependencies among programs. As these complexities emerge, the AC team can step in and facilitate the interaction among the involved platform teams. In cases when a common capability is required by multiple platforms, the AC team can facilitate the dialogue to have it built out.

Nurture the following capabilities:

Design thinking

“Zero distance from the customer” is the focus of platform structure. Each platform must operate with a mindset of a startup serving internal and/or external users.

Agile delivery model

Platform teams iteratively develop their offerings. With guidance from Advisory Council, they can avoid bottlenecks of formal alignment and approvals.

Enterprise architecture

The raison d'être of enterprise architecture discipline is to enable modularity in the architecture, encourage reusability of assets, and simplify design.

Microservices

Microservices allow systems to grow with strong cohesion and weak coupling and enable teams to scale components independently.

APIs

With their ability to link systems and data, APIs play a crucial role in making IT systems more responsive and adaptable.

Machine learning

With the drop in its cost, predictability is becoming the new electricity for business. Platforms use machine learning capability for better predictions.

Related Info-Tech Research

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Bibliography

Bossert, Oliver, and Jürgen Laartz. “Perpetual Evolution—the Management Approach Required for Digital Transformation.” McKinsey, 5 June 2017. Accessed 21 May 2020.

Bossert, Oliver, and Driek Desmet. “The Platform Play: How to Operate like a Tech Company.” McKinsey, 28 Feb. 2019. Accessed 21 May 2020.

“Facebook Users Worldwide 2020.” Statista. Accessed 21 May 2020.

Hamel, Gary, and Michele Zanini. “The End of Bureaucracy.” Harvard Business Review. Nov.-Dec. 2018. Accessed 21 May 2020.

“Number of Netflix Subscribers 2019.” Statista. Accessed 21 May 2020.

“Spotify Users - Subscribers in 2020.” Statista. Accessed 21 May 2020.