Adopting one or more innovative and market-appropriate strategies like the Platform Strategy can help SMEs deal with the challenges of the VUCA world.
On 9 February 2017, the Committee on The Future Economy (CFE) released their highly anticipated report that charts Singapore’s strategic response to the ongoing structural shifts and rapid technological disruptions that are happening in the world today. The seven strategies articulated in the report include an emphasis to strengthen the capabilities of our local businesses, especially small- and medium-sized enterprises (SMEs). This includes helping our SMEs to innovate and scale-up, embrace digitisation, and foster synergies and collaboration.
To stay current and grow amidst the challenging economic outlook, our SMEs may need to nimbly adopt new mind-sets and steer ahead with novel and innovative strategies at the cutting edge of technology-driven business developments. Platform Strategy is one of them, and it corresponds closely to the emphasis given in the CFE report. While it is not wholly novel, it has nevertheless gained greater momentum and visibility in recent years.
What is Platform Strategy?
Platform Strategy is simply a concept that brings together different products or services onto a single “marketplace” that may be accessed by buyers all while being administered and controlled by the platform owner. Prominent examples of international businesses that have successfully harnessed this strategy are eBay and Taobao. Locally, Singapore can boast of having incubated Carousell (perhaps best described as a mobile classifieds app) and Reebonz (an online platform for buying and selling luxury products), both of which utilise the power of Platform Strategy in their respective business models. They have been highly successful too—both businesses have raised millions of dollars in funding from established investors.
In recent years, brick-and-mortar departmental stores have been eclipsed by the emergence of online E-commerce platforms such as Taobao. In addition to the benefits offered by brick-and-mortar departmental stores (namely, recognisable brand name and accessibility to a range of products), such online E-commerce platforms also offer greater cost advantages as they are less reliant on human labour, and have completely eliminated the need to pay prohibitive land rent for their store front. Concurrently, the opportunity for disintermediation means that producers can now sell directly to consumers without going through distributors and dealers. All these features have translated to cost savings, which can be passed to the consumers.
Another unique feature of Platform Strategy is that the platform owner does not need to own the resources required to provide the services. Airbnb does not own a single room, but serves as a prominent platform for consumers to source for accommodation worldwide. With Platform Strategy, an aspiring business can potentially capture a significant share of the existing market, without needing to own the resources that are traded on the platform.
There is a further advantage to the use of Platform Strategy: the platform also enables the business to amass huge amounts of data (“Big Data”) from the transactions conducted on the platform, which can help the business to derive consumer behaviour insights through the application of business analytics. These can, in turn, help shape business strategies and improve the consumer experience.
Some Issues to Consider
Suffice to say, it behoves our local SMEs to recognise and prepare for the disruptive potential offered by technology-driven Platform Strategy. For the SME that chooses to adopt such a strategy, there are some key issues to consider before they jump on the bandwagon.
Capitalising on Market Opportunities
Not all businesses and industries lend themselves well to the use of Platform Strategy to capture market opportunities. For example, a single food and beverage (F&B) outlet that serves food on its premises may not need to employ a sophisticated technology-driven platform to do so. However, the changing food consumption patterns in Singapore have revealed a new market opportunity for food delivery service operators, which explains the proliferation of this industry locally. There are now a number of firms that harness the power of platforms to carry out their food delivery business, such as UberEATs, Foodpanda, and Deliveroo, to name a few. While it may not be cost-effective for the single F&B outlet to adopt Platform Strategy to offer its own food delivery services, it could consider tie-ups with food delivery operators to reach out to both new and existing customers.
The taxi industry offers another example of how market opportunities have been capitalised by businesses adopting Platform Strategy. Prior to Uber and Grab, taxi commuters were limited to hailing a ride with one of the local taxi operators. Given the usual complaints from taxi commuters about the difficulties in hailing a taxi during peak hours, there was clearly a market opportunity stemming from such unmet needs among taxi commuters. Now that Uber and Grab (with their innovative platform-powered apps) have captured a significant portion of the on-demand transport market, local taxi operators have to play catch-up to stay in the game.
Sustaining the Platform Ecosystem
After getting through the initial challenges of setting up the new platform, there is still the continuing challenge of sustaining the platform ecosystem. A growing group of buyers (or service consumers) on a platform may attract more sellers (or service providers), and vice versa. Conversely, a shrinking group of buyers on a platform may make it less appealing to potential sellers. This phenomenon, where the value of the platform is dependent on others using it, is known as the “network effect” of a platform, and will likely present a challenging conundrum to the platform owner.
Looking at the Singapore food delivery platform ecosystem as an example, the growing pool of consumers choosing to have food delivered to their doorstep would attract a growing number of F&B establishments to sign up with the platform service providers, and vice versa. However, the growing market has also attracted more food delivery businesses looking to get a slice of the pie, explaining the proliferation of operators in Singapore. At some point in time, unless the business can employ competitive advantages that cannot be easily replicated by new entrants, the pie would stop growing, and everyone’s slice of the market will get smaller. Forward-looking businesses would do well to consider additional strategies to sustain their share of the market, such as the formation of alliances, or consolidation through mergers and acquisitions.
Responding to Evolving Regulatory Frameworks
Furthermore, as businesses adopting Platform Strategy grow and become more dominant in the market, they may increasingly face regulatory challenges.
Singapore has its own antitrust or competition regulatory framework, administered by the Competition Commission of Singapore (CCS). In August 2016, the CCS released a statement on its investigation into alleged anti-competitive practices by an online food delivery service provider, which had entered into exclusive agreements with certain restaurants to prevent them from using other providers’ services. Looking at this example, it is clear that while the platform can enable and facilitate the business, it is also critical that the manner in which the platform business is carried out does not infringe competition law.
Regulatory frameworks are continually being refined to provide an arguably tenuous balance between protecting the consumer interest and promoting a business culture that encourages innovation. A case in point is the introduction in February 2017 of amendments to the Road Traffic Act to regulate private-hire operators such as Uber and Grab. Our SMEs will need to be agile in order to respond to such a dynamic regulatory environment.
As our SMEs grow and expand their operations, it is also likely that some of them will want to venture into international markets, especially if the adopted Platform Strategy enhances their ability to do so. Due to the largely territorial nature of laws, there are different regulatory frameworks that apply to different jurisdictions. Local businesses that are looking to wade into the vast blue oceans of international opportunity would do well to adequately prepare for, and deal with, the evolving regulatory frameworks in the relevant jurisdictions.
Shape up or Ship Out
As our SMEs gear up to deal with the challenges of the VUCA (Volatile, Uncertain, Complex and Ambiguous) world, one thing is clear—they may need to adopt one or more innovative and market-appropriate strategies, such as Platform Strategy, or risk obsolescence when a more innovative competitor arrives to disrupt the status quo. The plans and initiatives presented in the CFE report serve as a strong catalytic impetus for our SMEs to act now.
Copyright © 2017 Singapore Institute of Management