By Sven Blumberg, Oliver Bossert, Klaas Ole Kürtz, and Gérard Richter
What do some of the best-known tech giants have in common? They are, of course, all phenomenally successful, paradigm-redefining companies, boasting massive market valuations and continuous growth. They are all also platform-based organizations that owe much of their success to the agility with which they are able to innovate and reconfigure themselves to go after new opportunities with apparent shape-shifting ease.
At the 16th annual McKinsey Technology IT conference, leading CIOs discussed how they are driving platform transformations to allow their companies to be tech forward—that is, use technology to drive new value. The participants quickly moved past the well-known aspects of platforms to focus on the key insight: the value of platforms comes from linking them to the business strategy and having a holistic understanding of how all their elements have to work together.
Participants represented a range of industries, including banking, automobile manufacturing, pharmaceuticals, airlines, and retail—a diverse group united by an interest in the potential of platforms. Some have already pulled off stunning transformations. An Asian bank, for example, has effectively reinvented itself as the world’s leading digital bank, a senior adviser told us. It no longer compares itself to other banks but views itself more as a 30,000-person tech start-up, unifying business and technology.
Yet despite the consensus around the importance of platforms, conference presentations and discussions underscored that companies that integrate platforms into their enterprise architecture are doing so in notably different ways. Three broad paradigms for platform transformation emerged, with the most successful companies, like the tech giants, combining elements of all three.
Building ecosystems
The first category of platform transformation involves reshaping the business model to leverage platform elements by building ecosystems within an industry or across traditional industry borders or by setting up marketplaces connecting customers and providers. A banking CIO emphasized the need to focus on the customer journey as a point of departure in the transformation to a platform-based model. He described how his company built an ecosystem of partners integrated into their banking offering, consciously choosing partners so that “we’re not perceived as a banking brand, but as a lifestyle brand.”
A consumer-goods retailer has begun to implement a platform-based model as it transitions from a bricks-and-mortar business to one that is data driven. Its CIO demonstrated how the company has achieved this in a competitive and highly saturated market by offering customers more local, simple, and digital solutions through artificial-intelligence personalization. Its flexible app platform enables the delivery of value to both the customer and the business. A feature on the platform showed that users who selected a “prepaid” option were generating significantly higher sales. “So we now offer a rebate to customers using this feature,” he told us, which benefits both customer and retailer.
Creating ‘platforms as a service’
In other cases, platform transformation involves reorganizing IT (and business stakeholders) around a set of modular platforms, each with its own logical cluster of activities and associated technology delivering on a specific business goal. This approach reimagines the role of technology in business and views platforms not just as a technology but as a service.
Platform governance and organization, starting with top engineering talent, are essential to a successful transformation to a modular platform model. A global pharmaceutical company has established a specialized career path for engineers separate from the rest of the company’s HR infrastructure. As its CTO put it, great engineers “want to write code, not approve vacation requests.” A leading bank has also taken measures to protect its supply of top talent. It screens and recruits talent in-house instead of outsourcing this crucial function to external recruiters. “We need to be better than them; otherwise, our competitors can also hire our talent,” one of its leaders told us.
An airline has achieved the ambitious target of fully digitizing its customer experience by driving business-model and tech transformation simultaneously. It took measures to protect its platform model from the legacy business. The new team, or “digital embryo,” is based in a separate building, close enough to headquarters to attend meetings but, as the CIO told us, “far enough so we avoid constantly eating lunch together with colleagues who might deflect us from our goal of radically rethinking all elements of business and technology.”
Establishing a strong technology backbone
Finally, a platform transformation typically builds on technology platforms, the backbone for digital innovation. Several participants told us how they had first “cleaned up” their IT architecture to serve as a foundation for digital innovations. A leading pharmaceutical company prepared the ground for its transformation by implementing a ruthless platform strategy with six target platforms and the goal of reducing the number of applications from 4,000 to 1,000.
There has been a sharp increase over the past two years in companies embracing platform transformations, and as the number continues to grow, the scope of what that means will continue to broaden.
Whichever aspects of platforms are relevant, the discussions underscored that all of the decisions around platforms at any company are tech driven and interconnected and will require a comprehensive strategic approach that involves the entire company’s enterprise architecture.
Sven Blumberg is a senior partner in McKinsey’s Istanbul office; Oliver Bossert is a partner in the Frankfurt office, where Gérard Richter is a senior partner; and Klaas Ole Kürtz is a practice manager for McKinsey Digital, based in the Hamburg office.