Four key capabilities needed for successful innovation platform development

How do innovation platforms emerge and evolve? Despite their growing eminence in the world economy, innovation platforms have been relatively neglected by previous studies. These have tended to focus on successful platforms in established industries, with little attention paid to the dynamic and evolving nature of the actual platform development process. The paper Platform development: Emerging insights from a nascent industry aims to redress this, and presents findings from a three year study of the emergence and development of an innovation platform, specifically the UK’s tele-rehabilitation through gaming (TRTG) industry.

An innovation platform is in essence a tool for the development of ideas. It consists of (i) a core component that can be shared for the development of complements useful to customers, and (ii) the interface through which these complements connect to the core component. A platform firm may provide resources such as software development kits, game engines, technical standards, and rules for the use of the core component to build complements. Examples of innovation platforms are very familiar to the modern consumer; video games (Playstation, Xbox), PCs (Intel microprocessors, Windows operating systems), web browsers (Google Chrome and its extensions), smartphones (Apple, Android, and their respective apps), and smart homes (Amazon Alexa and peripheral devices) are just some examples.

The TRTG industry was enabled by concurrent advances in rehabilitation therapy knowledge and video game technologies. Long-term clinical treatment for victims of strokes and other debilitating afflictions can be exceedingly expensive in countries with ageing populations, of which the UK is one. TRTG aims to offer improved and economical clinical results compared with traditional approaches. Because of the broad range of potential beneficiaries involved - including the patients, their families and friends, healthcare providers, financing bodies, and society at large - this nascent industry is a source of great interest and optimism to researchers, industry practitioners, investors, and the public sector.

With a focus on this industry, the paper addresses two research questions: (1) What capabilities can enable business ventures to develop innovation platforms in nascent industries, and (2) How do business ventures deploy the desired capabilities for platform development?

In response to the first question, the study identifies four dynamic capabilities that are important for successful platform development. These are:

Innovation leverage - the ability to identify and develop the innovation assets (i.e., the core component) to be shared with complementors in order to increase innovation outputs. In a platform ecosystem, access to a common set of innovation assets can, among other things, minimise redundant developments and reduce development costs.

Market exploration - this is the ability to explore new and different market routes in order to expand the demand for the innovation outputs. New market routes can be particularly important for a business in the early stages of development. This capability allows a platform firm to develop appropriate business models, communicate clearly with the market, and to identify and develop new segments, channels, and promotions.

Appropriation - the ability to profit from innovation outputs and reward complementors accordingly. Possessing this capability allows a platform firm to develop appropriate business models and to develop and protect revenue streams. Complementors can then be rewarded relative to their contributions. Appropriation can be a key organisational capability.

Quality control - refers to the ability to manage the quality of innovation outputs, including those developed by complementors. Possessing this capability allows a platform firm to develop appropriate business models and undertake a series of activities to set and adjust the quality standard, monitor the quality of innovation outputs relative to the standard, and then support complementors to meet the desired standard during the process.

Innovation leverage is usually the starting point for platform emergence. A platform can only be functional once a firm has identified and developed the core component.

Once the platform is deployed, innovation leverage and market exploration will ensure that it continues to attract users and complementors - these capabilities generating more innovation outputs and more market demand for those outputs respectively. Such economies of scope and market demand can stimulate each other. In the example of the TRTG industry, as more game studios joined, the economies of scope brought by innovation leverage indicated there was a capacity for more TRTG games, necessitating greater market demand to accommodate the increased innovation outputs. At the same time, the increased market demand indicated greater demand diversity, requiring more games to be produced.

Finally, the fully deployed capabilities of quality control and appropriation can enable the corresponding mechanisms for the innovation outputs, which then constrain those economies of scope and the market demand mentioned. An effective quality control mechanism can help foster innovation outputs of higher quality, and consequently drive innovation leverage and market exploration by instilling confidence in complementors and in the market. In the case of TRTG’s products, meeting the required quality standards was also a prerequisite to enter the regulated market. To achieve the optimal quality control mechanism, the TRTG-Provider decided to focus on the medical aspects of quality, and left the non-medical aspects to the expertise of the game studios. An effective appropriability mechanism that generates profits and rewards complementors equitably can attract and motivate more complementors, thereby facilitating more innovation outputs.

Having identified and discussed the key capabilities, the paper then illustrates how a business venture in a nascent industry can deploy them by altering its firm boundary and integrating selective roles in the industry or platfom ecosystem. Many of the platform firms which have experienced a similar development process to TRTG (such as video game firms) have followed this process, while also developing their innovation platforms and increasing their attractiveness to the market and the complementors. The appropriate planning of firm boundaries can help increase the odds of developing successful platforms.

The accepted version of the paper Platform Development: Emerging Insights from a Nascent Industry can be downloaded at City Research Online. It has been published in Journal of Management.