The majority of the most valuable companies on Earth are now digital platforms – these cannot exist without trust: David B. Yoffie

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David B. Yoffie teaches at Harvard Business School. Speaking to Srijana Mitra Das, he discusses digital platforms – and their leadership:


What is the core of your research?

For 30 years, my research has focused on the strategic management problems of high-tech companies. I focused on competitive strategy and what has enabled leaders to build some of the most successful companies in the world. For the past ten years, I have researched digital platforms.

What is the scale of digital platforms today?

The majority of the most valuable businesses on Earth are now digital platforms – they have become a vehicle for wealth creation that is superior to virtually any other set of strategic policies. Our unicorn research also shows that around 60% of private companies valued at over $1 billion all have platform functionality – so alongside established companies, new entrepreneurial companies are building platforms. digital forms across the economy.

How do you categorize digital platforms?

We distinguish between transaction and innovation platforms. These are technology-based and allow third parties to add value to the core product or service – an operating system might be built by Microsoft or Apple, but the real value here comes from complementary players who create apps that innovate on top of that platform and create more value for the consumer.

In a transactional platform, the goal is to engage in a transaction or interaction, whether it’s peer-to-peer like Facebook that allows people to connect or a marketplace like Amazon that allows you to offer 500 million of products to customers. All transaction platforms offer consumers the ability to connect with much greater choice and lower costs.

What is “platformmania”?

We use the term to describe how this mode of doing business has become so popular now that everyone is jumping into it — everyone sees it as the golden goose. This is why several crazy things are also happening in this space. Our research also reveals that the number of failures here is very high compared to the relative successes.

What are your ideas now for established businesses building a sustainable digital strategy?

The biggest challenge is that traditional businesses operate in a very hierarchical structure where commands are given and things are meant to be done – in a platform world however, you allow and incentivize parties to work on your behalf. It’s a very different skill set and way of thinking. Established companies often struggle to make this transition internally.

Why do you write that trust is crucial for digital platforms to succeed?

Platforms cannot exist without trust – their purpose is to connect parties that would otherwise find it difficult to meet. You must trust the platform to complete the transaction or interaction. Every time you lack trust, you undermine the platform’s ability to ensure efficiency, transparency, and trust.

Can you tell us about your book “Judo Strategy”?

Small businesses are often in competition with companies with much larger resources. If they fight one-on-one battles, they will likely lose. In ‘Judo Strategy’ I describe the tactics that allow you to beat a much bigger competitor. The first is the principle of movement – here you use speed and agility to outsmart a larger competitor. The second is not to enter into wars of attrition. The third is leverage or turning a competitor’s assets into liabilities that you can profit from – a historical example here is the first battle between Coke and Pepsi. Both started in the 1890s, but Pepsi failed for the first 35 years to challenge Coke. In the early 1930s he created leverage – Coke sold six-ounce bottles for five cents. Pepsi created a 12-ounce bottle for five cents. But Coke bottles were returnable – they were assets to his bottlers and not easily replaceable. In addition, its equipment and manufacturing lines have been optimized for six-ounce bottles. This made it very expensive for Coke to retool to attack Pepsi, which created a bigger product at the same price while turning its rival’s assets into liabilities. This is the classic judo strategy.

What are some of the leadership ideas from your book “Strategy Rules” about Steve Jobs, Bill Gates and Andrew Grove?

A common thread I describe between them was “looking ahead, thinking back” – these three leaders thought about where the world would go in the future, then thought about what they needed to do today. To do this, you need to build a vision, anticipate customer needs, and imagine future competition and potential inflection points that could change the entire business. You then need to think back to what activities you need to engage in today to prepare for the world of tomorrow.

The second commonality is that they all made big bets without betting on the company or they mitigated risk. Third, all three were early developers around digital platforms. Fourth, they were all very good at judo and sumo strategy. The fifth is execution – they all had a deep understanding of their own strengths and weaknesses and they built teams that mitigated those. Plus, they showed how essential it is to have a systematic approach to learning new things — the skills you start with aren’t necessarily the ones you’ll need two or ten years from now.

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