Open Digital Platforms to Spur Innovation

CURT NICKISCH: Welcome to the HBR IdeaCast from Harvard Business Review. I’m Curt Nickisch.

The Chinese city of Wuhan was urgently in need of mobile isolation wards. It was 2019, at the site of the first outbreak of the novel coronavirus. Officials put out a call, the China-based company Haier Group answered.

Haier is a global leader in appliance manufacturing. It teamed up with a Chinese home furnishings company to prototype, build and deliver these mobile isolation wards, and they did it in record time, in a matter of weeks. It wasn’t just the emergency situation that kicked things into top gear. Haier used a remarkable in-house digital platform.

That story has lessons for any organization that wants to leverage its digital platforms for new business opportunities, but you don’t have to work at Siemens or GE, or another company with a global supply chain for this to apply to you. It has lessons for anyone trying to collaborate quickly and effectively with partners.

To tell the story, we’re joined today by Kasra Ferdows, a professor at Georgetown University, with Hau Lee of Stanford’s Graduate School of Business and Xiande Zhao at China Europe International Business School, Ferdows wrote the HBR article, “How to Turn a Supply Chain Platform into an Innovation Engine: Lessons From Haier.”

Kasra, it’s great to have you.

KASRA FERDOWS: It’s a pleasure, and thank you very much, Curt, for this opportunity.

CURT NICKISCH: You’ve studied how dozens of companies use digital platforms internally. You focused on supply chains for this work, but it could apply to a lot of other functions. What are some examples of these online platforms and how companies currently use them?

KASRA FERDOWS: One that everyone knows, of course, would be Amazon and Taobao from China. But every company – take Home Depot, Walmart, Estee Lauder – all of them also have developed digital platforms. Digital platforms have been really expanding very rapidly in the management of global supply chains.

Supply chain platforms have been mostly focusing on traditional supply chain transactions like orderings and inventory and fulfillments and arranging the logistics, and sometimes also pickup. So, digitization of the supply chain transactions had been going on for a long, long time. And probably, it got into a high gear after 2005, 2010, and most companies felt that they had to do it.

CURT NICKISCH: Are these platforms typically pretty open or closed systems? How hard is it to be part of one of these systems, if you’re somewhere else in the company or maybe at an outside partner?

KASRA FERDOWS: The typical ones, let’s say, if you take the platforms that essentially are working, if I may be a little technical in here, only on one stage of the supply chain. Let’s say again, let’s take Amazon or even non-supply chain platforms like Uber or Airbnb, generally is looking at the sort of a producer or provider of the service and the user of the service.

The other part of the supply chain, if you go back to the manufacturing, who was this really manufacturer, who was the supplier to the manufacturer, who was the supplier to the supplier, going upstream and going downstream, looking at the service providers, those are not really generally included in these platforms. They cannot join that easily.

Second, generally the platform owner controls who comes in and who is out, so to speak. And with Amazon, you have to sign up with them to join them and also with Alibaba, with everybody else, things like that. One of the differences in the Haier’s platform is that it’s actually open.

CURT NICKISCH: So in your work looking at dozens of these platforms, Haier Group really stood out in your research. That’s the Chinese appliance manufacturer that some people know because it is a global brand. What struck you about this system?

KASRA FERDOWS: Well, let me maybe step back for a second and say that Hau Lee and Xiande Zhao, and myself have been studying global supply chains really for many years. Then sort of we were intrigued when we saw what was happening at Haier’s platform, which by the way, it’s called COSMOPlat, which stands for Cloud of Smart Manufacturing Operating Platform.

CURT NICKISCH: That’s a name made for a corporation, for sure.

KASRA FERDOWS: Yeah. Anyway, when we started looking into it, we were intrigued that it was different in a number of ways from the typical platforms. Openness is one. Second, it really focuses on or includes more than one stage in the supply chain. As I mentioned, many of them don’t. Even the B2B, business to business supply chains only look at, let’s say, one manufacturer to other manufacturer. They don’t really go up and down the chain too much.

Maybe number three is that it is doing a lot more than just the typical supply chain functions that I mentioned. It also gets into R&D. It gets into solving engineering and technical problems. On the production side, it gets into getting custom clearance, helping the people that need to be helped with regulations, with laws, with safety, for example on the medical side. It’s a whole bunch of other functions other than the typical supply chain functions.

And maybe the most interesting for us academics, was that it sort of didn’t have a control tower. Many of these supply chain platforms, many people have been saying that it’s almost like they create something like a control tower in an airport that every airplane should tell them where they are and where they’re flying so that they can make sure that everything is all right.

At Haier, this COSMOPlat, the architecture seems to be one that says, “Listen, Haier platform owner doesn’t have to be in the middle of everything. Here’s the problem, who can solve it? Come and explore it.” They do a very rudimentary certification, and then if the company that comes in decides to work with somebody else that is already also part of this open club, then they do a little bit more serious due diligence, only to be sure that the company is not lying about its capabilities. It’s not an assessment of their capability. It’s just checking. And then they let them work together. They know what’s going on, they have the visibility if you like, but they are not the gatekeeper between them.

And in fact, if they want to bring a third person among them, that can also apparently work. This is a very interesting organic design that you don’t see in many other platforms. And of course, it doesn’t mean that the other platforms have to change into this, but it’s a new direction for the evolution of these platforms that we hadn’t really at least observed in reality.

CURT NICKISCH: Why don’t more companies open up their platform more? I mean, I can think of some obstacles here. But what would be some of the reasons for not opening up your platform so much and doing only a few of days of due diligence before you let somebody kind of run loose?

KASRA FERDOWS: You could divide it into a whole bunch of reasons, but let’s say that more practical problems are that you really have to develop the trust and you have to… Because just joining the platform, even there, you need to build up. You need to have a reputation and you have to have a savvy about technology. Some small companies that are not very technology savvy, it might be difficult for them to do it because this is alive. This is constantly changing. That kind of expertise is also perhaps an obstacle.

CURT NICKISCH: So you’re saying that there’s just a brand risk here. If you invite people onto the platform, it needs to run well it needs to work, you need to be professional to keep your reputation?

KASRA FERDOWS: That, plus the fact that in our opinion, there is a human organizational side inside Haier that allows this platform to really function a lot better than maybe some other companies. I don’t want to give the impression that the platform is doing it automatically. There is an organizational design behind the way this platform works. But if you can get that part also done, the rewards could be really enormous.

Maybe I should say the real vision behind this platform that really attracted us, and that was this. No, this is Zhang Ruimin, which was the CEO and the founder of Haier. In 2013, after they had already got some supply chain platforms, he came up with a vision. He said, “I don’t want it to be just doing the supply chain stuff. I want this platform to be a tool to access what I need, resources and capabilities that I need for coming up with a new product, to deal with a disruption, to come up with a new engineering, to know what the customers want. I want this not to be inside and outside the company, by the way.”

And as you said, Haier is a huge company, 108 manufacturing facilities in all continents. So, there’s a lot of resources inside, if you like, but also outside the company. We don’t have the answers, so let’s make sure that we can connect with people that know the answers or can provide the answer and work with us. To me, that vision is a little different than the vision for many other platforms.

CURT NICKISCH: Yeah. That’s interesting. It’s almost like a vertical integration platform. You’re just saying, “This is a tool that we’re going to use to develop products and services. And it’s not just about where the supplies actually come from to manufacture something.”

A lot of companies though would say this seems like you’re giving away too much or letting maybe too much from the outside in. Like if a firm can join a platform within 24 hours and see what kinds of things you’re working on and the expertise you’re looking for, that could give a lot of information to competitors so they maybe can come up with products to compete against you?

KASRA FERDOWS: Curt, that’s a very apt observation and it’s absolutely a risk. But maybe I can add something about my own personal experience. I write many cases and we have been discussing Toyota and Zara and many other companies. What I found is that all these companies that are very innovative and really come up with whole new ways of doing things, they don’t seem to be afraid of letting other people know about it. Somehow, they feel that they’re rushing forward, or maybe they’re gaining more than the risk that would be there.

CURT NICKISCH: Yeah. So how does this really facilitate innovation? What were some of the surprising results with Haier?

KASRA FERDOWS: I think the best way to talk about that is to go over, let’s say, a few examples. A smart refrigerator line that Haier developed. They used this platform very heavily and just very quickly, this platform has got several modules. One is called the cooperative innovation and design module. This is where the designers and technical people, et cetera, are. And this also is example of end users. The second module is production, what they call production resource integration module, which is a module that essentially does the supply chain management plus a little bit more direct things including payments and insurance and so forth and so on.

The third one is delivery and service management that looks at the fulfillment, the marketing, the channels, the delivery service providers, the after-sale service providers, et cetera. So they used all these modules to develop this smart refrigerator line that they talk about.

For example, they used the third one that I mentioned to you to get from the users what did they really desire in the new line. For example, what kind of a customization they want? Did they want to know exactly what’s inside the refrigerator on their phones? How much did they care about that, et cetera?

And they found out a few things that they… At least for them, it was interesting to learn a little bit more about this. For example, that many of the users used refrigerator to store many things other than food. For example, skincare, herbal extracts, things that are not normal, fruits and vegetables. And what they found out is that each one of them requires a different level of moisture, airflow, humidity, temperature. So they needed to design, if you like, different chambers for that.

You see, what’s nice about this platform, is that it grows organically. It doesn’t have to have a master plan that this is the way it’s going to grow. No, it’s almost like a tree. Let it be … Where are the problems? Let’s make sure everybody knows about everything and then let’s see where it grows. And then we follow it, we support it.

CURT NICKISCH: How can other companies think about using their existing software to both improve supply chain management and innovate more broadly at the company?

KASRA FERDOWS: This is where I think is the sort of good news. Most of these other platforms are essentially very dependent on the network effect that I’m sure you know but just to explain. The more people come to this network, the more people like to come to the network.

So, you have to invest a lot at the beginning to get into this virtual cycle. Otherwise, you’ll be in a vicious cycle and you would go out of business. And there have been many examples of that. So this idea that we have to start big and really go all the way, invest, invest, invest, invest big so that you start getting into virtual cycle is there, but not for this kind of platform.

Actually the emphasis is much more on the quality of relationship as opposed to the quantity of the participants. So, that means that you could start small and gradually grow, learn by doing, show some improvement, and maybe convince more people and reinvest some of that money to grow more.

So that path is a lot easier to take than many others. Now, the second part that makes it easy, maybe critical, is that at least for some of these companies that have just the minimum capabilities that are required, have a name, have got technological savviness if you like, for them it’s important to have the vision of what they want from this platform. Because otherwise, they could be locked into just the supply chain efficiency and inviting suppliers, going after people that they hear about.

But to create something that is open membership, something that really looks at multi-functions, something that is multi-stage not just one stage, and something that can grow organically, self-generating relationships, these are some conceptual points. But they are important to keep in mind as a vision when you are growing this platform. So the long answer to your question is this: That many companies can start, and in fact because the barrier to entry, so to speak, is not that big.

Even for small and medium-sized companies that are not really, they can’t create these kind of platforms. Even for them, it’s important to be aware of these kind of platforms because they may want to join. They might just want to see what’s going on. If they are not joining, and this kind of clubs start working together, et cetera, they might get their customers away from them.

CURT NICKISCH: Yeah. And it’s a cheap way to learn: join and see what other people are doing and see how things work.

KASRA FERDOWS: And once you start working with them, then you start selling them other things.

CURT NICKISCH: Right. Now, tech debt is a real thing, right? It’s often an uphill battle to replace existing systems, get people trained on new systems. Can big companies adjust the existing software they have or is this about building new platforms when the strategy and budget is there to do so?

KASRA FERDOWS: I’ll be presumptuous and answer this question this way. I don’t think there are fundamental problems with the software or anything like that. It’s much more about policies and routines that you want to put around the platform. Who can join, how they can join? How can you start changing the relationships? Can you start bringing in engineering, R&D customization, customer surveys, et cetera into this? Those things might require a little bit extension, but I don’t think it needs a new architecture. And again, as I said, the beauty of it is that you don’t have to jump into the deep end of the pool.

CURT NICKISCH: We’ve talked about what big companies can take away from this. We’ve talked about what some small suppliers could take away from this. What other lessons you think there are here for leaders?

KASRA FERDOWS: I think the idea of going after resources, wherever they are is a very interesting one. What are the tools that you have at your disposal in your industry, or even neighboring industry or even other industries, that can reach out to these people and somehow make it attractive for them to come and see what’s going on, at least if they want to contribute, join you or not?

It’s a daunting task. How do you do that? Even for things that you still don’t even know, what home appliances or any other field that are expanding into so many things? We are putting more information content in the products. We are connecting many more suppliers together. All of these things are happening in every industry. So to have a tool, to be able to gradually under controlled system, to reach out to them, at least this would be the way I would say is a philosophical lesson, if you like, for other companies to have. It’s an attitude or maybe a policy. You don’t really need to change things physically too much right at the outset.

There might be some dangers in there. But to come on the side of the trade-off that says, “Okay, let me control the risk as much as I can but not take my eyes off that. Let me still go in that direction,” maybe that’s the art.

CURT NICKISCH: Do you have to be the top dog to own these platforms? I mean, do you have to be the global manufacturer to really be owning and running this ecosystem?

KASRA FERDOWS: We have discussed it among the three of us a little bit. It may be the historical sense that a big company would do something or maybe really visionary chairman manages to do this and changes inside the organization so that they can benefit from it. But technically speaking, as I mentioned before, I don’t think you need to be big nor you need to be a top dog to be able to do this.

It’s really a matter of, again, let’s call it philosophy to develop that terminology in this conversation. It’s really the way, the attitude, the vision that you have for your platform. It could be very small. You could start with only three or four, five suppliers or people. I mean, it doesn’t have to be global. It doesn’t have to be even all the functions at the same time.

Just start. It’s like again thinking about a plant is a useful one. You can seed the plant and you start letting it grow. It can become a big tree and then have many branches, but it also could be a small tree. You’re growing your little tree.

CURT NICKISCH: I think that’s a really good point because a lot of places that might be too scared about some of the risks or perceived risks about doing something really big and open and really show off everything that they’re working on, you can find a garden to start in.

KASRA FERDOWS: Yeah. You can start in a limited basis with one or two suppliers and to start working on this.

CURT NICKISCH: Trusted folks that you want to develop more complex working relationships with, right.

KASRA FERDOWS: But when you do this, you have developed a trust, then you let them invite others as well. You are not the boss. Let them bring in people that they know. And then let the other ones bring in the people that they know. Maybe in particular area, all of a sudden you’ve got all the know-how and the capabilities and facilities and suppliers, for example, for a hot plate on an oven. The rest of it is still there, but at least you get that part run like this.

CURT NICKISCH: Yeah. And you can learn from it and expand it as you wish, right?

KASRA FERDOWS: Precisely, yeah.

CURT NICKISCH: Kasra, this has been great. Thanks so much for sharing your research with us.

KASRA FERDOWS: It’s my pleasure, really a pleasure to talk to you.

CURT NICKISCH: That’s Kasra Ferdows, a professor at Georgetown University and a coauthor of the HBR article “How to Turn a Supply Chain Platform into an Innovation Engine: Lessons from Haier.”

If you got something from today’s episode, we have more podcasts to help you manage your team, manage organizations, and manage your career. Find them at HBR dot org slash podcasts or search HBR in Apple Podcasts, Spotify, or wherever you listen.

This episode was produced by Mary Dooe. We get technical help from Rob Eckhardt. Our audio product manager is Ian Fox, and Hannah Bates is our audio production assistant. Thanks for listening to the HBR IdeaCast. We’ll be back with a new episode on Tuesday. I’m Curt Nickisch.

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