From Hierarchies to Platforms
An Interview with Dr. Alison Walling Perman
With Interviewer Janine Schindler
The knowledge economy, Gig economy, and proliferation of network and platform businesses are driving rapid changes in the marketplace. Coaches, consultants and other elite service providers must keep up with or get ahead of the change curve to thrive (or survive).
In this article, we will discuss: 1) how we made the major shift in business models from “Hierarchies to Platforms,” 2) how this connects to the evolution from the industrial era to the knowledge era and beyond, and 3) and the implications for consulting and coaching.
I. How did we get to where we are today?
When we say ‘Business Model,’ we are referring to the structure and activities that impact how the business creates and delivers value in the marketplace—essentially, the what and how of value creation and profit for a business. This is relevant to consultants and coaches for a number of reasons. First, business models are foundational to our business acumen coaching competency. We must understand the larger context of the market within which our clients are operating to best serve them. To best serve our clients and focus on their agenda, it is important to understand their organization’s business model since learning and change happen inside of a system with supports and barriers. And as service providers, we have an ethical duty to understand how our own consulting and coaching business model is and isn’t working so that we can adapt and better add value to our clients.
Here is a quick and dirty explanation of the evolution of business models: moving from a one-sided supply chain optimization model from the industrial era to a business model that is a many-sided network of exchanges. I will explain this in more detail.
Starting with the Industrial Era, business models have largely been driven by supply side optimization—reduce prices, increase volume, drive price cuts, gain larger market share. This resulted in some businesses optimizing to the point of monopolizing the market (and thus having the ability to carry out price fixing). Examples include Edison Electric, which became GE, and Rockefeller’s Standard Oil. Command and control is the mantra for these business models. As Business Model Evolution expert, Marshall Van Alstyne says, “The goal of strategy in this [supply side optimization] world is to build a moat around the business that protects it from competition and channels competition toward other firms” (2016). What would happen if coaches and consultants had this mantra and strategy? Would it be aligned with the ethics, principles, purpose and process of coaching? One of the Columbia Coaching Program’s guiding principles is to Focus on the Client’s agenda. One of the practices of this principle is to ‘make sure that everything you say, everything you do, every suggestion or recommendation you make, is of value to the client and promotes their agenda.’
Command and control, the antithesis of focusing on the client’s agenda, only works as long as the world remains in a zero-sum gain mentality. History is revealing to us that being a market giant with a strong track record of stability, profitability, and even monopolization is no longer enough. The security of being strong in all Porter’s 5 forces is just as reliable today as your Orange County municipal bonds were in 1994 or your Lehman Brothers pension plan was back in 2007 (or your savings investments managed by Bernie Madoff in 2009)!
Just look at Nokia, Motorola, Sony Ericsson, Samsung—all mobile phone carriers that dominated 90% of the industry’s market share. And what happened back in 2007, just 10 years ago? Along came the Apple iPhone and by 2015 the iPhone alone yielded 92% of global profits (Van Alstyne et al., 2016). What differentiated Apple’s iPhone? It wasn’t just strong product differentiation, just-in-time delivery, rigorous compliance, scalability, or sizable investors pumping money into the firm. It exploited the power of platforms. Let’s dive into what platforms are and discuss how they impact the coaching and consulting industry.
Van Alstyne et al. (2016) summarize Apple’s platform business model very clearly when they discuss how “Apple found a way to serve both the app developers and the Apple users, thus creating high value exchanges on both sides.” This strategy is in line with a core principle of success that the majority of humans resist—Covey’s infamous “think win-win.” Thinking win-win is a core value of mine both personally and professionally. It is aligned with the Columbia Coaching Competencies and Guiding Principles. For instance, treating clients as equals (relating competency), choosing strategies that help move the client forward towards achieving their intentions and goals (coaching presence), seeking to understand the worldview of others and helping clients see differences in perspectives (leveraging diversity). These are just a few examples.
In platform business models, the most valuable assets are information and exchanges across networks. These connections become the source of the value created for the business. There is a multiplicative effect: when app developers on one side generate value for the app users on the other side, and the number of developers and users increases, the value increases exponentially. This is called a network effect.
There are many examples of organizations that have taken advantage of network effects. For instance, LinkedIn is a Service Provider that helps exchange value between recruiters and professionals through transferring jobs. Airbnb is another example of a Service Provider in that they help exchange value between hosts and travelers. Uber helps exchange value between drivers and passengers. The Service Provider is responsible for successfully “routing,” or ensuring the best match is made and the best path to connect the players is selected. Routing is a key term in network theory. Thought leader Sangeet Paul Choudary, founder of Platformation Labs and bestselling author of the book Platform Evolution, has a public resource library full of slide decks and articles to teach you about these concepts.
Let’s break it down a bit further. Take the supply chain of mobile phones and imagine deconstructing that chain into its smaller components. For each component, how can other players be invited in to add value? For instance, Apple invited the market to join in supplying endless services via the iPhone—we call them apps. It is no longer just Apple and its mobile phone. It is no longer a single company supplying to set of consumers. It is a network of suppliers, providers, consumers, partners and investors. The total revenue potential of a firm now depends on how many components of the value chain the firm is taking advantage of.
II. What is still left over from “yesterday”?
All of it. There are countless organizations in each business model category. OpenMatters, a leading Business Model Science firm, explains four categories of business models based on the value they create. OpenMatters conducted over 10 years of research across 1500 S&P firms and have determined the following four categories of business: 1) Asset Builders, 2) Service Providers, 3) Technology Creators, and 4) Network Orchestrators. Chrysler and Walmart are examples of Asset Builders, which manufacture and sell physical things. Accenture and Blue Cross Blue Shield are examples of Service Providers that sell human talent, time and effort. Microsoft and Eli Lilly are examples of Technology Creators that create valuable intellectual capital. Facebook and LinkedIn are examples of Network Orchestrators that facilitate valuable connections across a network. It is important for coaches and consultants to understand these categories of business so that they understand and can support the client’s value creation.
Some traditional and matrix businesses are experimenting with leveraging networks and platforms, whereas others have completely transformed their businesses to take full advantage of network effects. The implications for staying in a traditional or matrix business model and not evolving to a network or platform business model are extremely dire. New platform businesses are rapidly replacing their internal functions with external players. For instance, organizations can completely outsource their human resources and IT functions. Our clients are being impacted and we need to understand this latest trend so that we can best support them.
Some businesses don’t even have marketing costs because their consumers are marketing for them. For instance, eyeglass retailer Warby Parker is having their consumers market for them by taking pictures of themselves in their fashionable low cost eye glasses and posting them on social media. In other words, the former overhead costs of running a business are becoming commoditized, thus making the barriers to entry inside of a market very low.
Another example is Morgan Stanley, which is using Machine Learning to supplement financial advisor roles. Machines are matching investment possibilities with client preferences much more efficiently and accurately than financial advisors since they can also track the plethora of factors that impact investments. As humans, we can only keep track of so many variables.
Today’s business models must adapt to the interdependence with networks. If the world’s network does not want what you are offering or can get it faster and easier and less expensive somewhere else, the end is tomorrow for your business. It is an option of either sinking or swimming for most organizations today.
Organizations like ExxonMobil own and control the majority of components of the supply chain and have not opened up its industry value chain for other players to get involved. It is highly possible organizations like these may sink if they do not consider opening up some of their value chain.
Alternatively, organizations like IBM and J.P. Morgan are experimenting with opening up their value chains. IBM and J.P. Morgan are sharing their books so that their financials are public and open to input. J.P. Morgan is using crowd source compliance and principles of accounting to seek feedback from the larger external network. This increases transparency, trustworthiness, perspective and collaboration.
There are also partnerships emerging between key players, thus creating new value for their businesses. As Libert and Beck (2017) report, “A new partnership between UBS wealth management in Amazon allows some of UBS’s European wealth management clients to ask Alexa certain financial and economic questions. Alexa will then answer their queries with the information provided by UBS’s Chief Investment Officer without even having to pick up the phone or visit a website.”
III. What does today’s landscape look like for coaching? What is the impact of today’s business model landscape on coaching?
Although Alexa can’t coach… yet, she is starting to consult with her data analysis skills as we learned earlier in the example at UBS. The good news is that coaching is a service much better suited for platforms than pipelines. As we mentioned earlier, platform businesses enable high-value exchanges of information and interactions between producers and consumers. Coaches and clients work together in a high value, two-way interactive exchange of information and skills. Coaches have the opportunity to add value across many sites in a business value chain. Coaches also have the opportunity to serve as any of the four key players in a platform ecosystem. The four players are platform owners, service providers, service producers and consumers. Right now, independent coaches most naturally fit the description of service producer in that they generate services and offerings. Coaches can also be coached, thus having the opportunity to also be a consumer of the coaching services and offerings. Coaches also have the opportunity to create and service the user platform interface, such as a digital coaching platform that connects coaches with clients and helps orchestrate their interactions. Coaches can also decide to own the platform and its intellectual property. One example of a coaching platform is the CoachingCloud. The CoachingCloud matches coaches with clients and provides a number of services and resources for coaches to manage their business and interactions with their clients (e.g., scheduling, session tracking, goal tracking, vision and planning tools, resource library, customizable branding and a social networking community).
At the same time, we can glean from experience and from the global coaching research reports that there are many concerns about today’s landscape for coaching. For instance, numbers and observations seem to indicate that coaching is becoming a saturated market. The research also indicates that confidence in coaching is not increasing. According to the 2017 Sherpa Executive Coaching Survey, the Coaching Confidence Index spiked from 88 to 104 from 2011 to 2013, but it has declined since then down to 72. And at the same time, coaching is perceived as a valued skill set that many organizations are training their employees in developing. Over the past few years, organizations that would have leveraged coaching for their employees—either external coaches or internal coaches—seem to be moving towards building a coaching culture. For instance, rather than investing a smaller number of employees to be coached one-on-one, they are training their employees to develop coaching skills so that many employees can coach one another. These are often referred to as Leader as Coach programs.
In the current digital knowledge economy, intellectual capital and high value interactions are a competitive advantage. Coaches have both of those factors on their side just by the very nature of their role and service. According to The Conference Board’s 2016 Global Executive Coaching Survey, 81% of respondents (n=164) reported that business knowledge and executive credibility are criteria for selecting external coaches. Seventy-eight percent of respondents reported that their reputation for coaching skill or specialty is a criteria for selecting external coaches.
What about artificial intelligence and its impact on coaching? The big five platforms – Apple, Alphabet, Amazon, Facebook and Microsoft – are using Artificial Intelligence to market, sell and provide goods and services. Machine learning and artificial intelligence are made possible through the network effect—the big data being exchanged is then analyzed for meaningful patterns, correlations and causation. As Libert and Beck (2017) suggest, “Shifting to AI solutions will be a tough pill to swallow for the corporate consulting industry.” Consultants provide high value services in gathering, processing and analyzing organizational data. Even the brightest, most elite consultants include bias in their perceptions and judgments. “Machine learning algorithms are capable of building computer models that makes sense of complex phenomenon by detecting patterns and inferring rules from data – a process that is very difficult for even the largest in smartest consulting teams” (Libert and Beck, 2017). Although machines are not able to replace the attachment forming bonds between individuals, machine learning algorithms are beginning to analyze and interpret the dynamics between individuals. For instance, IBM Watson is currently analyzing the facial expressions, vocal tone, words and dynamics between coaches and clients.
All coaches and their clients have a choice in how they respond. Will they respond with fear or excitement? Will they embrace the change and become agile with curiosity and innovation… or will they dig their heels into the ground with deep denial and frustration? The response is key and will either result in sinking or swimming and winning the race.
IV. How do we prepare ourselves to be successful today?
Elite coaches and consultants need to be proactively seeking to learn about the evolution of business models and help their clients learn and adapt to this change. Below are a set of ideas for how we can help ourselves and others take the next step to prepare:
- Where are you on the change curve? Are you an innovator, change agent, pragmatist, skeptic, or traditionalist? What are the implications of each?
- Who are you serving and why? Assess and adapt motivations for serving—truly the client’s agenda? Then you need to be prepared to help them navigate today’s evolving landscape.
- Is the leadership style aligned with platforms? “Because platforms require new approaches to strategy, they also demand new leadership styles. The skills it takes to tightly controlled internal resources just don’t apply to the job of nurturing external ecosystems.” – Van Alstyne (2016)
- Start interacting with and using platforms. Consumers are getting very used to the benefits of platform business models and we need to understand our clients’ desires.
- Consider the metrics of platforms and how you may need to adapt to these new metrics: 1) interaction failure: if a traveler opens an Uber app and sees no cars available, the platform has failed to match and intent to consume with supply, 2) engagement: see where engagement is high and use this feedback to enhance engagement – akin to net promoters, 3) watch out for negative network effects: these are effects that drive stakeholders away, for instance, on craigslist there are many scams.
- “There are three key shifts to make when moving from a pipeline to a platform: 1) From resource control to resource orchestration, 2) From internal optimization to external interaction, and 3) From a focus on customer value to a focus on ecosystem value.” – Van Alstyne (2016)
V. How do we prepare ourselves for what’s next?
- Broaden and deepen your network: Connect with key thought leaders in this field and seek to understand them, learn from them and connect personally with them.
- Serve on a board of a start-up or accelerator: get exposure and get involved.
- Like Covey says, think win-win. Apple found a core value that we know is true and yet as humans can’t seem to adhere to. I suggest finding core principles and values that the human is still very challenged with today and seek to innovate and address this challenge with solutions supported by technology.
- For instance, the corporate world and all humans shall I say are plagued by a… deficit in synergizing. When faced with two options that seem to be competing, we are often stopped in our tracks and unable to find a new innovative solution that can take advantage of both options and both players’ strengths.
- Organizations are preparing for another round of extreme downsizing – e.g., AI will soon be replacing accountants.
- Organizations are trying to stay up with the digitalization to stay competitive and not lag behind.
VI. What tips can you offer us to keep us relevant?
- Follow Marshall Van Alstyne and team
- Create an RSS feed / alert via google when articles come up with: coaching and platform systems
- Interview and survey on specific topics
- Assess and determine what role you could play as each stakeholder party of platform systems
- Focus on the areas that machines most likely won’t be able to replicate in the immediate short term: creativity, motivating people, and managing people.
- “Nearly every job provides opportunities to use these skills—to create, motivate, and manage—and we encourage you to invest in yourself and challenge yourself to grow in these areas. If you are a doctor, you can write for medical journals, motivate your patients to care for themselves, and actively manage those who work in your office. This would be a huge departure for many physicians who prefer to focus solely on the technical skills of diagnosing and treating patients. Those are the skills, however, most easily replaced by technology. If you are a consultant, you can develop new frameworks, motivate your clients to action, and take on responsibility for the professional development of your team.” — Beck & Libert, Forbes, 2017
- In an individualistic culture, start practicing interdependence.
- Develop your learning agility (see the Burke Learning Agility Inventory)
- Consider buying The Network Imperative Digital Training Program: https://hbr.org/product/recommended/an/10121E-KND-ENG?referral=03545&cm_vc=rr_item_page.better_together_1
- Follow Open Matters—collaborate with HBR and Wharton, developed a digital training playbook to help businesses: can sign up to receive their updates – can calculate your own Universal Value Score (UVS), which is a measure of your business’s value.
- Pipelines, Platforms, and the New Rules of Strategy: https://hbr.org/2016/04/pipelines-platforms-and-the-new-rules-of-strategy
- 81 Sites To Find Side Gigs To Earn More Money Now: https://www.forbes.com/sites/emmajohnson/2015/09/14/81-sites-to-find-side-gigs-to-earn-more-money-now/
- Working in a Gig Economy: https://www.bls.gov/careeroutlook/2016/article/what-is-the-gig-economy.htm
- Platform Thinking Labs: http://platformthinkinglabs.com/library/
- Libert & Megan Beck, Three Key Skills For Staying Relevant In The AI Economy, February 28, 2017: https://www.forbes.com/sites/barrylibert/2017/02/28/three-key-skills-to-stay-relevant-in-the-ai-economy/#28262bd2118e
- Beck & Libert, The Rise of AI Makes Emotional Intelligence More Important, February 15, 2017: https://hbr.org/2017/02/the-rise-of-ai-makes-emotional-intelligence-more-important
- Where the Digital Economy is Moving the Fastest: https://hbr.org/2015/02/where-the-digital-economy-is-moving-the-fastest
- 11th Annual Executive Coaching Survey (Sherpa Coaching 2017 – started in 2005); Plus 2017 Earnings Report]
- The Conference Board’s Bi-Annual Executive Coaching Survey (2016, 2014, 2012, 2010 & 2008) | New for 2016: (1) Global Executive Coaching Survey; (2) GECS – CEO Perspective; and (3) GECS – CHRO Perspective
- Digital Coaching International: http://www.digitalcoachinginternational.com/services/digital-coaching/
*1 International Coach Federation Core Competency #1 / Columbia Coaching Certification Program Guiding Principle: Adhere to Highest Ethical Standards—devise a clear and philosophical orientation to your practice throughout the coaching process; commit to continuous personal and professional development
*2 Greenhalgh, T., Robert, G., Macfarlane, F., Bate, P., & Kyriakidou, O. (2004). Diffusion of innovations in service organizations: systematic review and recommendations. The Milbank Quarterly, 82(4), 581-629.