Q 431. Organizations like Amazon, Airbnb, Uber etc. are prime examples of Platform Economy. With platform based services, they have been able to remove a lot of non-value adding steps from the value chain, still some of them find it difficult to make profits. What is Platform Economy? What are the key drivers for such organizations and how can they leverage Lean Six Sigma to make them profitable?

 

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With the advent of digital age, there has been a marked shift in the business models adopted by the companies. This digital ecosystem has created both “digital communities” and “digital marketplaces” and has completely re-shaped the way they interact and transact.

 

A platform is defined as a system or framework that can create value by enabling transaction between two or more groups, usually called the consumers and producers. This transaction/ exchange can be a product, service, payment or as simple as a communication. This has led to the emergence of “platform economy” which simply means commerce activities facilitated by these platforms. There are three different types of platforms in the platform economy:

1)      Transaction platforms: also called as “digital matchmakers" which serve as intermediaries for exchanges. This is the most common type of platform and includes companies like Amazon and Facebook

2)      Innovation platforms: which provides technology frameworks to its end customers that can be customised for individual consumption. Example includes companies like Microsoft and Salesforce

3)      Integration platform: is a mixture of both transaction and innovation platform. Example includes Apple App Store or Google Play.

 

A right platform can provide a strong competitive advantage to any company. Companies like Uber, Facebook, and Airbnb are leading the transformation by connecting producers with customers in innovative ways. A successful platform companies provides tremendous value to both business and society. The significance of this “value” is determined by factors like

·       Network Size – the number of users (both direct & indirect) it can reach within the market

·       Cost – which includes the development, establishment, and maintenance of assets and framework required to run the platform

·       Capacity – be it the physical storage or the virtual network capacity

·       Differentiation – both in terms of its offerings or in user base. Heterogenous user base will to be more advantages for the business.

 

Lean Six Sigma methodologies and tools can be effectively used by the companies in optimising the platform performance. For Investment based platform companies, it can be used to eliminate errors, therefore saving time and money. For Service based platform companies, LSS tools can help in achieving customer requirements faster and accurately. For a Product based platform companies, it can aid in timely delivery of products, and in accurate inventory count. Additionally, LSS can be used for eliminating non-value adding tasks thus aiding in increased sales and profits.

Economic and social activity facilitated by platforms is broadly defined as Platform Economy. It includes frameworks that facilitate sales, logistics, technology, social activities, etc. These transaction platforms are also called digital matchmakers. Major examples of the platform economy are eBay, Amazon, Facebook, Ola, Udemy, Coursera, etc. The innovation platform offers the technological framework on which other developers can build solutions. Some examples of this are the Microsoft and Ethereum platforms.

Alex Moazed explains in his book Modern Monopolies that “platforms don’t own the means of production; they create the means of connection.” (Moazed, Alex (2016). Modern Monopolies. Macmillan. p. 30.)

The Platform economy was formalized in the year 2000 with many large organizations adopting the technology and disrupting the traditional business models. Firms like Nokia, Blackberry lost out against firms such as Netflix, Amazon, taking leverage of the platform technology. As of today, private, government, and non-government organizations are increasing their presence on the platform economy.

Categories of Platforms. Platforms can be categorized into either investment, transactional, innovation, or integrated. Transactional platforms facilitate different types of online buying and selling. Innovation platforms provide the technological framework on which other developers can create an ecosystem around the platform, Integrated platforms combine both the transactional and innovation aspects into the platform, and investment platforms invest in multiple platform businesses.

Key Drivers and Emerging Key Drivers

The key drivers and emerging key drivers of the platform economy are the network, the ecosystem built around the network, database management systems, machine learning, artificial intelligence, the cloud, the blockchain, decentralized finance, decentralized autonomous organizations, non-fungible tokens, web3, etc.  

Use of Lean Six Sigma Methodology in Platform Economy & Key Drivers

The Platform Economy ties up the entire chain of an eco-system into a single framework. Master Black Belts have knowledge and experience across various domains in both the manufacturing and service industry across the entire spectrum of the chain.  Projects that help in increasing productivity, efficiencies, reducing overall cost, creation of new markets, or even reducing the inefficiencies in the existing markets have all been accomplished by Black Belts. Some of the key drivers and the role played by Master Black Belts are explained below.

Optimizing the Network Effect. The success of a platform depends on the Network Effect. A platform becomes powerful based on the network it is able to bring together. Six Sigma methodology can be used to study the network and create an optimal balance between various components of the network. For example, in a buyer/seller network, there has to be a supply and demand balance. This balance is dynamic and Six Sigma methodology through statistical analysis can be used to maintain the balance of the network so as to be able to monetize it in a profitable manner.

Creating the Ecosystem. The platform economy works around an ecosystem that is not the platform. This ecosystem consists of various developers, who create applications for the ecosystem. These applications could be around any part of the end-to-end supply chain. Lean Six Sigma methodologies can be used in identifying the elements of the ecosystem and creating relevant applications that maximize the platform economy.

Blockchain Technology, NFTs, DeFi, DAOs, etc. The Platform Economy being a centralized technology enables only big players to take advantage of the network, however, the open-source decentralized blockchain technology that enables smart contract functionality and built-in trust has enabled small players, innovators, and entrepreneurs to get on to the platform economy. Take, for example, the Ethereum platform that can attach tangible assets such as property, stocks, art, music, etc to the blockchain. Ethereum is an open-source, decentralized, blockchain technology with built-in trusted smart contracts. Any developer can deploy permanent immutable and decentralized applications. Users can use this technology and enable Decentralized Finance (DeFi), Decentralized Autonomous Organizations (DAOs), Non-fungible Tokens (NFTs), etc. Master Black Belts with their vast experience of working on various projects are uniquely placed to take advantage of the opportunities that are emerging with the decentralized platforms.

References

https://en.wikipedia.org/wiki/Platform_economy

https://en.wikipedia.org/wiki/Ethereum

In old days , even these days, we go to few days / weeks Mela organized by a third party where sellers exhibit / put their merchandise for not just for advertisement but also sell . Visitors, buyers, customers pay visit , see the new things and buy if required. In this , exhibition organizers charge some amount of fee on Exhibitors. Even organizer has no direct relation to seller commerce but does all the possible efforts so that both seller and visitors have good experience with proper amenities during this event. Exhibition organizer makes revenue not just from sellers, but also thru advertisements. Be it shopping malls, physical brick and mortars stores are nothing but physicals platforms where seller products where buyers come physically most cases. Customer foot falls mostly depend of on reviews, feedback that they get by word of mouth, their own experience besides the merchandise / product itself, in nutshell complete user experience. In more than 99% cases, stores are not producer / manufacturer of merchandise or own the service / may doing service on behalf someone. Sellers visits, based on choices made from many, even after visiting, there is no full probability that customer would buy the product / service or not. Like above conventional economy, Platform economy – has same end objectives but sans physical brick/ mortar, however scale, involvement of digital technologies, user experience has many fold impact on sustenance compared to physical platforms.

 

Today companies like Amazon, Flipkart assumed such large scale that these Platform Economies touches everyone across length and breadth of countries, continents. But many such companies who started at level of scale as Amazon few decades back but with higher technological advances, experience, still failed to make mark and end up close the entities. Couple of decades back, these platform Economies come -up with innovation, high risk but with strong purpose to improve customer experience / service and finally enable more masses to use/ enjoy product services. Scale of volumes was used to reduce cost yet improving economy in absolute terms. Now that thousands of such companies are coming to enter this ever evolving/ highly competitive / highly connected world, need for continual improvement is fait accompli. Lean six sigma methodologies play important role in driving not only for sustenance and but for continuous improvements.

Here scope is not selecting the segment, but continuous improvements can undertake by the platform companies in its chosen segment.

 

1 Attracting seller Base – For physical product / service sellers, Platform company is just another customer with plethora’s companies coming -up. They would be looking for easy order receipt delivery system, quality service from entities operating on behalf of Platform companies and in the end digital monetary transactions.

Sellers, Sellers- Inter-phase service providers (example logistic partners) SLA data can be constantly analyzed and BI tools can be developed to track and take not just corrective but improvement actions. Example time series analysis of service, measuring performance of service providers, in case of digital transactions, tickets/ delays in payments wrt to any payment gateways etc.

In case of any repeat / chronic performance gap issues, a special project can be taken by adapting agile methodologies, making scrum teams. Example continuous poor service from any channel partner or seller.

 

2. Improving customer base, improving Loyalty customer base with rewards

Like seller base example. all metrics with respect to customer experience must be collated, monitored, analyzed and acted upon for taking continuous improvement actions. Sample data analysis based on stratification or groups representing population data can be done to come to specific insights and actions.

 

There are many metrics with combination of continuous data, discrete data in all above interactions that get generated need to be evaluated with appropriate tools. Normality tests, Gauge R&R tests can be done to validate the data.

 

3. AI tools and RPA

For successful digital platform economies AI tools , robotic process automation play pivotal role in  reducing waste, improving process efficiencies with high accuracy without depending on manual interventions.

 

Conclusions: There are multiple avenues to apply Lean Six Sigma methodologies in highly agile , data , analytical driven business on Platform Economy to sustain and improve business thru high customer centricity.

 

The platform economy is for business activities enabled by platforms. These platforms are computer systems which host services to help the people to sell & purchase products online. The Platform Economy are based extensively on cloud computing and algorithmic revolution.

Amazon, Uber, Airbnb, etc. are some companies using Platform Economy.

 

The three types of platforms are –

1.       Transaction platforms- these act as a virtual marketplace for different groups of people. E.g. Amazon, Facebook, etc.

2.       Innovation platforms- customers are provided with frameworks that can be adapted to individual use.

3.       Integration platform- combination of the transaction and innovation platform e.g. Apple App Store or Google Play.

 

To improve the quality of the platform economy as mentioned below –

·       Provide the Lean Six Sigma training to the employees to apply the knowledge in identifying and implementing the process improvement initiatives. These can be done by encouraging Brainstorming sessions among team members. This will help the companies to improve the quality of the products.

 

·       Lean and Six sigma can help in improving the customer satisfaction by bringing the improvement in products inventory basis the sales and interest shown by the consumer.

 

·       FMEAs can be done to ensure that all Failure Modes are covered.

 

·       End-end process can be improved by eliminating the non-value added activities involved in the platform

Platform economy is essentially an economy triggered through digital platforms where sellers and buyers can interact and conduct business, provide feedbacks and track delivery and returns

 

The key drivers of platform economy are the following

1. Ensuring supply to manage the demand

2. Seller + Customer satisfaction

3. Global policies and regulations

4. Connectivity

5. Service

6. Pricing

7. Trust and goodwill

8. Positive impact on society and environment

 

Application of Lean Six Sigma in improving profit for platform economy

1. Instill a continuous improvement mindset focused on driving process improvement while minimizing wastage / inefficiencies

2. Use data / simulation techniques to forecast, identify possible future trends and causes

3. Use techniques to confirm various hypothesis and uncertainties. Enable data based decision making

4. Use FMEA to reduce risk and build robust controls

5. Map the value stream and identify areas of improvement to better integrate platform with products, services, buyers and sellers

We generally know that the companies compete each other. However, the dynamics are changing. Today we are seeing companies who are offering a better platform is flourishing. This is an economic platform which enables any small business also to connect with their customer and provide products and services. If we see there are multiple platforms around us. Some of the examples are Amazon, Airbnb, Zomato, Play Store, Flipkart, etc.

 

Platform Economy can be categorized in 3 buckets:

 

1.     Transaction Platforms – this is digital marketplace or digital match makers like Facebook, Amazon, etc

2.     Innovation Platforms – this allows technology frameworks to reach to the customers like Microsoft, Oracle, etc

3.     Integration Platform – this is combination of Transaction and Innovation platforms like Google Play store, Apple Appstore, etc

 

The success of these platforms lies in 3 major ways.

 

1.     How fast we can plug into the platform and transact

2.     How great the platform attracts participants (both consumer and producers)

3.     How well the platform co-creates the values

 

We are seeing now bigger giants in platform economy but number of competitors are increasing. This is increasing competition as well. Also, there are some inherent challenges of platform economy. Some of them are listed below:

 

·       Outperform

·       New selling tactics

·       Maintaining customer loyalty

·       Maintain product quality

·       Capturing customer identity and its validation

·       Improving customer experience

·       Reducing waiting time

·       Data security

·       Adhering to Govt rules and regulations

 

Therefore, if we investigate all the above challenges, we can see that we need to focus majorly on Cost, Quality and Time. These are the 3 major areas where Lean Six Sigma plays an important role. Therefore, using lean six sigma we can improve the performance of any platforms to increase their market share.

Platform economy is a kind of business model where multiple independent framework (technological, social , etc.) are used to sell  products/services. For example, we can use a business website or a mobile app or a social media application to purchase the  product. In many cases , there is a single individual/organization which owns the platform and different producers use the platform to sell their products.

Amazon.com, Alibaba, flipkart, etc are some of examples of platform economy model.

 

These Organizations can apply six sigma  in the some of the below area’s to improve profitability:

 

1. Understanding and improving customer satisfaction ratings so that more and more people use the platform
2. Improve the response time for customer queries coming through email, chat , helpdesk , etc.
3. The product refund rates and how to minimize that.
4. ROI of marketing campaigns

Platform economy is the new dimension that is driving the growth of organizations and countries. With this new dimension, there are new challenges for the organizations. This question sought a view of the participants as to how Lean Six Sigma can help these organizations along with the key drivers.

There are two responses which stand out and hence have been selected as winning answers - Johanan and Gopal.