Managing digital platform innovation at scale

Have we set up the right organizational structure to drive innovation at scale?

This article is part of the Digital Platforms hub

Platform firms achieve standardization and coordination through shared services. They achieve innovation and agility by enabling small teams across the organization to operate independently, as loosely coupled units, all coordinated through shared services and governance. This allows small autonomous innovation teams to solve problems through customer proximity, while also ensuring that solutions developed are standardized and interoperable through the use of shared services.

Amazon’s two-pizza teams, Coinbase’s “pods”, and Spotify’s “squads” are all examples of team structures at platform organizations which drive innovation at scale by combining the customer proximity of autonomous teams with the standardization and economies of shared services. Amazon, for instance, sets up its shared services around two core internal platform functions, one associated with commerce and one associated with logistics. The organization is set up as an ecosystem of small, decentralized “two-pizza” teams (Bezos’s rule of thumb required every internal team to be small enough to be fed with two pizzas) building on top of these standardized internal platforms and shared services. This allows Amazon to innovate and add new product lines without increasing the complexity of the internal organizational or reporting structure. These new teams continue to operate independently and modularly while building off standardized internal platforms. This ensures organizational scalability as well as standardization in customer experience, without compromising autonomy and agility of independent teams.

Coinbase, similarly, organizes internally in teams of 10 or fewer employees called “pods”, each focused on a specific goal and moving a specific metric. Innovation at scale requires not just leverage of scalable technology but more importantly the organizational framework that enables loosely coupled teams to scale their innovation efforts using these technologies available to them.

A platform organization is often managed as a portfolio of bets placed across these many internal innovation teams. This extends seamlessly beyond the boundaries of the organization to include external partner innovators building on the platform, as the platform firm solves and opens up. Firms like Tencent and Haier set up an internal competition model of governance, where innovation teams compete internally and evolve in Darwinian fashion. Internal teams mirror the external competitive landscape and need to deliver metrics to warrant continued investment. Tencent’s flagship platform, WeChat, was developed through this internal competition model.

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Finally, for incumbents, innovating at scale extends beyond technological scalability and organizational model. It also involves importing the right skills and capabilities in the organization. While organizations may prepare for linear change through education and upskilling, a transformational business model shift may often require inorganic approaches to building scale and capabilities. Some organizations partner with external venture studios and consulting firms to augment such capabilities but soon realize the limitations of relying on external talent without transforming internal talent. Instead, platform firms should look to build fluid workforce models where their workforce spans long-term internal talent as well as on-demand external talent pools. Instead of outsourcing projects to consulting firms and venture studios, platform firms must look to set up teams that span these fluid talent pools, allowing internal project governance while ensuring access to relevant external talent. Much like platform business models open up for external participation, platform organizations should open up for external workforce engagement as well.

To scale as a platform organization, invest in shared services and internal platforms that can support an ecosystem of teams, working across the value chain. Every platform organization mirrors the ecosystem it participates in. As the platform eventually opens out to the ecosystem, this internal organization enables it to mirror, complement, and supplement ecosystem resources strategically and evolve the organization alongside the ecosystem.

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Frequently Asked Questions

How can platform organizations harmonize innovation team autonomy, agility, and standardization while aligning with goals and customer needs?

Balancing the autonomy and agility of small, decentralized innovation teams with the need for standardization and interoperability through shared services is a complex challenge for platform organizations. To achieve this balance, platform organizations often employ strategies that foster a culture of innovation while ensuring alignment with organizational goals and customer needs. For example, they may establish clear guidelines and frameworks that empower innovation teams to experiment and iterate autonomously within defined boundaries. At the same time, platform organizations leverage shared services and governance structures to ensure that solutions developed by innovation teams are standardized and interoperable. This approach enables small autonomous teams to solve problems through customer proximity while also driving consistency and efficiency through the use of shared services.

What are instances of internal competition models succeeding in platform organizations, such as Tencent’s WeChat?

Successful implementation of internal competition models, such as Tencent’s model for developing WeChat, involves creating a culture of innovation and accountability within the organization. These models incentivize innovation teams to compete internally, driving continuous improvement and evolution in a Darwinian fashion. Key factors contributing to the success of these models include clear metrics and goals, transparent evaluation processes, and a supportive organizational culture that encourages risk-taking and experimentation. Additionally, platform organizations must ensure that internal competition does not lead to silos or conflicts between innovation teams by fostering collaboration, knowledge sharing, and cross-functional communication. By creating an environment that rewards innovation and fosters collaboration, platform organizations can leverage internal competition to drive creativity and excellence in product development.

How do platform organizations integrate external talent for innovation, while tackling challenges in collaboration, knowledge sharing, and security?

Integrating external talent and capabilities to drive innovation at scale requires platform organizations to adopt fluid workforce models that enable seamless collaboration and knowledge sharing between internal and external talent pools. Challenges may arise when relying solely on external talent without transforming internal capabilities, such as limited knowledge retention and organizational learning. To address these challenges, platform organizations must invest in upskilling and reskilling initiatives to develop internal talent while also leveraging external talent for specialized skills and expertise. Moreover, platform organizations should establish governance structures and collaboration frameworks that facilitate effective communication and coordination between internal and external teams. By fostering a culture of openness, inclusivity, and continuous learning, platform organizations can harness the collective expertise of both internal and external talent pools to drive innovation and achieve sustainable growth.