The Product Platform Development Model (PPDM)

It is by remaining focused on these questions that a firm can quickly identify and predict new market trends and develop a matching business model to serve customers’ unmet needs in a more efficient way.

3.3 The Product Platform Development Model (PPDM)

According to Burgelman and Siegel [5], technological development, product development and business strategy are the three most important steps in building a strong technology platform. As defined by the Minimum Winning Game (MWG) Theory, technology firms need to balance these three drivers to ensure that they survive in an extremely complex and fierce environment.

Figure 2: Key Drivers of Strategic Actions in High-Tech Companies [5]

The Product Platform Development Model (PPDM) is set to compile the findings of previous multi-sided platform research into a single model, from the point of view of a company is trying to choose a given platform over which it does not have control and enjoy the benefits from a given ecosystem. We will base our logic on Bon and Kenney’s Stack [22]. This essential tool is a simple graph that allows the user to see which company dominates which part of the value chain

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in a given ecosystem. By adding a 3D visualization, it is easier for the user to understand the market share and strategic importance of each player, while taking into account a broad enough view to consider the option of multi-homing. By transforming the stack into three dimensions, it is also possible to compare different ecosystems and to predict eventual clashes between two converging adjacent industries. In the case of the smartphone industry, there is clearly an imminent conversion of the PC, IT and mobile industries.

The PPDM is meant to address the fact that many firms active within a given ecosystem have difficulty in forging a distinctive image for themselves. This is often because these companies have a product-to-product focus and fail to take into account the huge potential of resource synergies to foster efficiency and innovation. By integrating the Stack [22] with the Power Tower [29], an Integrative Model of Product and Process Innovation developed by Meyer and Leynard [29] , we aim to give multi-sided platform stakeholders a tool to outshine competitors by: (1) better understanding the dynamics of mutli-sided platform competition and (2) efficiently using company internal and external resources (i.e. building blocks) and developing resource-based synergies, to develop a (3) powerful product platform composed of highly-modulable subsystems, (4) serving the latent as well as perceived needs of the target customer. The high-tech industry including three particular characteristics: the (1) highly fragmented nature of component sourcing, (2) the importance of integration to gain power in a given ecosystem and industry, (3) the importance of scanning the strategic landscape not only for existing competitors, but for product and process disruption from adjacent industries.

As seen in this example of the smartphone industry, each side of this asymmetric cube represents a different industry. The companies that by using a Coring Strategy gain a high level of vertical integration are often better situated at capturing value by building powerful platforms of their own [15]. Examples that immediately spring to mind are Apple and Samsung. These companies are central to their respective industries, because they have managed to understand the levels of the value chain that were the most important value creators.

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An alternative way to control industry value creation is by through horizontal integration, as for example Intel in the PC industry. This company has managed to dominate one specific stage of the supply chain in the PC industry for the last two decades. This kind of company tends to compete in capital intensive industries for undifferentiated goods, where it can starve the competition through technological superiority and price pressures through economies of scale.

Both of these kind of firms are increasingly vulnerable to disruptive open source models. The firms or entities that control open source models to innovation tend to be able to create more value by capturing less of it by leveraging the knowledge and resources of a broad partner community. They tend to have a powerful effect in fragmented industries. Thus, even though Google has only recently gained ability in manufacturing since to its recent purchase of Motorola Mobility, it has managed to build a powerful consortium out of a highly-fragmented mobile industry. The same is true for ARM, who has unfortunately for Intel, managed to regroup a fractured semiconductor industry to follow a new open standard for Chip production.

Figure 3: The Virtuous Cycle of Platform Openness

Going back to the IEPF Model, each side represents a given industry. The reason we adopted a cube and not a more complex shape, is for simplicity’s sake. A model with more than 6 parallel industries is possible, but would be hard to conceptualize. As in the Stack, each horizontal level represents a single level of the value chain. Spreading-out throughout a horizontal level would imply horizontal integration, whereas spreading out through vertical steps implies vertical integration. The edges between the sides of the cube represent the zones of potential conflict, for

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example we can see that Intel or ARM might very well make a venture into the other firm’s realm. In this paper we do not refer to the vertical levels of the stack as a supply chain, since they are all an integrative part of a final customer solution, we thus use the term of value chain, which better represents the power of given players within an industry.

Figure 4: The IEPF Model

The second step sets to combine the IEPF Model based on the Stack to the Power Tower introduced by Meyer and Leynard [29], by first exploring the common building blocks behind the new product platforms. We can distinguish four kinds of blocks: (1) consumer insights, (2) product technologies, (3) manufacturing processes, all of which represent the organization’s core competencies and are linked by processes coined (4) organizational capabilities. Some of the building blocks are available inside whereas others need to be acquired from outside the firm through partners and external suppliers. It is by leveraging these common building blocks into the management of one or various product platforms that the company can truly hope to gain a sustainable competitive advantage. The chosen combination of building blocks, i.e. a combination of organizational competencies (hard skills) and capabilities (soft skills), results in the creation of sub-systems. It is by combining these subsystems that a powerful product platform can successfully be created [29].

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It is important to measure these building blocks objectively. The main aim of any going concern remains to gain as much from the positive network effects while minimizing transaction costs within a given ecosystem. The component of multi-homing [27] makes this decision more dynamic, as the company needs to consider the fallback from expanding its market on a rival platform.

The Building Blocks address a critical conflict within B2C high-technology companies that is the often explosive friction between the main management functions: Marketing & Sales, R&D and Manufacturing [14]. Close collaboration and understanding between these corporate functions, resulting in the seamless and efficient implementation of corporate objectives that directly address customer needs is one of the most important key success factors for consumer electronics firms to become top-tier companies, as witnessed by the rise of Samsung in the last decade [16]. Thus the effective streamlining of Product Technology Development, Manufacturing Processes Optimization and Consumer Insight, result in unique organizational capabilities i.e. formal and informal processes that match core competencies together, these in turn insure the timely coordination of Core Competencies to effectively accomplish organizational goals [29].

Figure 5: Building Blocks

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We have just noted that it is by combining the building blocks relating to Sales & Marketing, R&D and Manufacturing that a company can fully utilize its Core Competencies to create a sustainable competitive advantage.

Let us illustrate this theory by a concrete example. Imagine you are an engineering company that currently manufactures gear boxes for motorcycles. Imagine now that you see an opportunity for a new kind of gearbox that could be installed in sports cars. Your company already has engineers that are aware of the modifications that need to be made for automobile gearboxes to be feasible (Subsystem P), it has a mature customer base with local motorcycle producers, some of which also produce sports cars (Subsystem X-Sales & Marketing), finally it has a production line making new generation gearboxes for motorcycles that could be tweaked to accommodate automobile gearbox production (Subsystem A- Manufacturing). A very illustrative case of how to use subsystems is the case of the Honda Motors Company mentioned in the Literature Review.

Honda has since inception been obsessed in modularizing as many components as possible, which is using as many common subsystems as possible for its different products. Honda itself was a motorcycle manufacturer, which decided to produce cars, since it already had the technical knowledge, the manufacturing capability and the distribution channels to do so [30]. In Figure 6, you can see how a company will try to use many common subsystems as possible in order to streamline activities and thus reduce operating cost and increase the utilization of its resources.

The red and blue arrows indicate two distinct product lines, which nonetheless utilize most of the same subsystems. The intersection of the two product lines points to the product platform.

Resources that are neither utilized for the product platform, nor for an individual product line can be liquidated.

The authors emphasize the importance of coupling product renewal with thought architecture.

In the case of Black & Decker, this new thought architecture involved having a macro-perspective by identifying power tools as a category instead of drill, leaf blower, lawn mowers, etc. as a single product. The second step was in bridging the traditional divide between engineering and manufacturing, by promoting product and process innovation. Last but not least the long-term commitment of the management team [29].

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Figure 6: Product Platform Template [29]

Platform thinking goes even as far as product design, as Meyer [30] notes that a product with less subsystems, whether it be a physical product, an immaterial product such as software, or a service is more likely to impress the customer through “elegance” as well as reduced cognitive strain [29]. Please refer to Figures 7 and 8 that illustrate the importance of product elegance.

Figure 7: The iPod has seven buttons to the Nomad’s fifteen [61]

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Figure 8: Google TW vs. Yahoo TW

After analyzing a firm’s position in its Ecosystem, matching its Core Competencies and Capabilities, and turning these resources into Product Lines/Platforms, the last step is to develop a launch strategy. The market segmentation matrix is an easy yet insightful way to screen for market opportunities and threats, and to develop a launch strategy. The advantage of developing a product platform is that we can reach more varied segments thanks to the increased modularization in operations which combine economies of scale and scope, or in layman terms mass production and customization. Meyer [30] states four criteria to evaluate whether a segment is promising or not. Before investing considerable resources in a line extension, one should consider (1) the market size, (2) the market potential for growth, (3) the number of players and their respective market share and finally (4) the ability of the firm to develop a competitive product offer [30].

In order to determine a platform strategy, it will be important to consider whether the firm wishes to have a high-end or low-end consumer focus that matches the market dynamics. This can lead to divergent strategies, such as bottom-up or top-down market expansion. In the long term, decision makers can propose alternative growth strategies by leveraging a product platform within and between market segments.

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Figure 9: Market Segmentation Matrix [29]

Figure 10: The Product Platform Development Model (PPDM)

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With the PPDM, companies that do not exercise significant control within a platform or ecosystem will hopefully find it easier to analyze the industry dynamics, identify their own strengths and weaknesses and develop an adequate strategy to their situation. While this model works well for less influential firms, it can nonetheless be used by platform leaders. However more emphasis would have to be put in including Coring and Tipping strategies.