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.