Just as every waiter in Hollywood has a script he’s looking to shop, it seems every MBA from Silicon Valley to Wall Street has a platform pitch in his or her back pocket. It’s not enough these days to have a great idea for a new tool or clever app. To break out in the marketplace, businesses need a plan for global domination through a platform business model. That evolution is having a big impact on the finance departments of multinational corporations, too.
To fully understand the business implications of the platform movement, it’s important to first understand the nomenclature. Like most buzzwords, the term “platform” has been misappropriated so frequently it can be hard to discern exactly what a platform is.
In their new book Platform Revolution, Geoffrey G. Parker, Marshall W. Van Alstyne, and Sangeet Paul Choudary offer a good definition, explaining the platform as “a new business model that uses technology to connect people, organizations, and resources in an interactive ecosystem in which amazing amounts of value can be created and exchanged.”
Examples of successful platform models include Airbnb, Uber, eBay, Alibaba, and Salesforce.com. These businesses thrive by connecting parties in a controlled environment within which they can exchange information, goods, and services following an organized set of standards. Because the whole process is standardized, the platform itself is capable of scaling to an enormous size very quickly.
Take Uber as a simple example. The company uses the user’s location to filter out the supply of available cars in the area, displays them in a standard format, and lets the user select one and pay for it all on his or her mobile device. The entire transaction from product sourcing to delivery to payment is mediated by the platform — in this case, Uber.
Some version of that basic model is currently being rolled out in every piece of business technology used today, from the cloud-connectivity built into Microsoft Office to the iPhone, which itself is a platform for a host of communications, music, connectivity, and gaming functions.
Why does this matter?
For one, not all platforms were created equal. The gold rush mentality around platform business models has led to a proliferation of “platform lite” technologies that promise to integrate into disparate systems and seamlessly connect the world, but really create interoperability headaches for enterprise technology and senior management teams.
An epidemic of this phenomenon is currently playing out in health care, where hundreds of health-care ID start-ups raced to market with electronic health record (EHR) “platforms,” only to create a structural inefficiency in which few health systems’ data are compatible with one another. In this case, the promise of platformization actually created an insular collection of vertical silos that now need to be connected with additional middleware. This patchwork-quilt version of technological innovation is hardly the platform vision anyone had hoped for.
The other major consideration the C-suite needs to weigh when managing the transition to platform solutions is how these technologies should be exploited to their fullest potential. Assuming a platform technology does live up to its promise of creating a seamless, interoperable system, it should open up new doors for the business if used properly.
In the world of corporate tax, for example, new technology platforms are making it possible to improve the connection from the taxpayer to the multiple governments in which it does business. This used to be an incredibly fragmented business that required different sets of rules, different specialists, and different technology systems to manage. Platforms are making it possible to manage payables, receivables, inventories, and the like across geographies from a single source.
At the base level, there is an obvious efficiency gain, but that’s a myopic view of the real potential. Ultimately, the big win from the platformization of these kinds of business functions comes in the transparency that is gained. With the right platforms in place and the right mindset applied to extracting their value, multinational finance and tax departments are getting a bird’s eye view on absolutely everything that’s happening across their companies, everywhere in the world.
As a simple example of this potential, consider the challenges multinationals face synchronizing their global trade requirements across different customs and duty requirements for each country. The platform approach streamlines that process to put all of those disparate systems and different rules and regulations into a single interface that can be managed centrally, giving the C-suite complete visibility into the company’s global operations. This information can be used to make the global trade management process more efficient, but it can also be tapped for compliance monitoring, sales forecasting, and strategic planning.
That’s where the real value of the platform will be felt most. While the push for efficiency may have started the platform revolution, the biggest value may come from the data these platforms produce to help businesses streamline operations, improve compliance, and more easily spot new growth opportunities.
Brian Peccarelli is president of the tax & accounting business of Thomson Reuters.