September 2010

"Treat others as you would like to be treated."

First incarnation of the Golden Rule, found in the Code of Hammurabi (1780 BC)

In this article, we describe the Keystone Off-The-Shelf (KOTS), a project to create a toolkit for platform owners. The toolkit will include everything that is required to operate a platform that supports a new approach to grow the revenue of small technology companies.

The organizations expected to benefit the most from the KOTS project are:

  1. Small technology companies that wish to grow their revenue.

  2. Organizations that wish to develop regional economies, technology, or industrial sectors.

  3. Companies and non-profit organizations that wish to migrate their operations from the traditional one-sided approach to the new multi-sided stakeholders approach to revenue generation.

  4. Academic programs that are willing and able to innovate to solve significant real-world problems.

KOTS provides opportunities for platform owners to become central players in their communities by helping small technology companies grow their revenue. The business ecosystem literature refers to these central players as keystones (Iansiti and Levien, 2004).

The name KOTS builds on the keystone concept and the acronym COTS, which stands for “commercial off-the-shelf”. COTS refers to computer software and hardware systems with commercial support that are ready-made and available for sale, lease, or license to the general public. COTS are alternatives to in-house developments or one-off development projects and offer significant savings in development and maintenance costs.

Introduction

Small technology companies, economic development organizations, and industry associations can generate revenue by operating platforms that enable paying participants to achieve better outcomes than those they could achieve without the platform.

A platform owner is responsible for concurrently delivering value to the various groups of platform participants (e.g., by enabling participants to close more and better deals or reduce time-to-cash) and system-level outcomes desired by the community that is anchored around the platform (e.g., more high paying jobs, more private investment, greater talent attraction and retention).

The KOTS project provides a ready-made toolkit for platform owners that includes everything that is required to operate a platform. KOTS develops, maintains, and evolves the technology, as well as the contractual and informational instruments owners of platforms require. This toolkit supports a new approach to grow the revenue of small technology companies, as described by the author in a recent OSBR article (Bailetti, 2010).

KOTS makes it easier and safer for a platform owner to:

  • assure the coherent development of its platform’s technology

  • reduce platform development and maintenance costs

  • encourage investments from their strategic partners

  • attract a large number of paying platform participants

  • manage and maintain the health of the community it serves

The KOTS project develops a platform that enables a small technology company to meaningfully interact with the various groups that affect or are affected by its development and commercialization decisions. The KOTS project supports an agile approach to revenue generation. Small technology companies co-create products and services and complement other participants' products and services rapidly, and incrementally, using their particular and continuously evolving growth formulae.

A top management team of a small technology company can use the platform to:

  • incorporate the interests of all the external and internal groups who can affect or are affected by the company’s objectives into their development and commercialization decisions

  • co-create value across different stages of the development and commercialization life cycles

  • build trust in their work practices and market offers

The purpose of this article is to provide an overview of the KOTS project and the new approach to development and commercialization that it supports. We first describe the project’s goal, objective, deliverables, and leadership. Next, we compare the new approach to development and commercialization that KOTS supports with two traditional approaches. We then identify the culture that best supports the new approach and provide an overview of the three key conceptual building blocks of this approach: integration of stakeholders’ interests into development and commercialization decisions, value co-creation, and trust building. Finally, we provide the conclusions.

Project Goal, Objective, Deliverables, and Leadership

The goal of the KOTS project is to design, develop, test, and release ready-made components for platforms designed to help small technology companies grow their revenue anywhere in the world. KOTS components include: software and hardware systems, applications, tools, educational resources and programs, by-laws, membership agreements, best practices, intellectual property policies, business models, and process rules and constraints.

The objective of the KOTS project is to provide technology, as well as legal and informational instruments, that make it easier and safer for a small technology company, economic development organization, or industry association to:

  1. Operate a platform that enables multiple groups to co-create specific assets (e.g., deals, solutions to customer problems, white papers).

  2. Deliver the system-level outcomes desired by the community anchored around the platform.

  3. Set a price structure for an organization to become a platform participant, transact with other platform participants, and acquire market offers from platform participants .

  4. Manage relationships with platform participants (e.g., membership agreements, intellectual property policy, account management, escrow services).

  5. Shape behaviours (e.g., rules and constraints for platform participants’ interactions, inducement mechanisms).

  6. Support the internal organization of the platform owner (e.g., bylaws).

  7. Become sustainable (e.g., develop business models, select the groups of platform participants, identify the size of the groups participating in the platform, determine value propositions, create community health dashboards, analyze externality matrices).

The deliverables of the first phase that ends March 30, 2011 are:

  1. A software system integrated with a communications infrastructure that supports value co-creation by different types of organizations.

  2. By-laws to govern member interactions, membership agreements, and an intellectual property policy that complements the software system.

  3. Lessons learned from validating KOTS with 20 companies, Lead to Win, and economic development organizations.

  4. Suggestions on ways Lead to Win can support an innovation system across Canada, as well as support other organizations responsible for the health of innovation systems in specific product markets.

  5. A list of gaps in the KOTS approach and a plan to fill them.

The KOTS project is led by the faculty and graduate students of Carleton University’s Technology Innovation Management program (TIM). A leadership position in the KOTS project provides TIM faculty and students the opportunity to:

  • produce theses and projects that advance our knowledge in the new approach to launch, operate, and grow small technology companies

  • publish articles that establish a global brand as KOTS experts

  • produce and disseminate content that educates talented managers worldwide on how to design and operate growth-seeking technology companies

  • strengthen their relationship with industry and economic development organizations, as well as leading multi-sided platform and stakeholder theoreticians worldwide

  • develop expertise in developing the regional economy

  • develop expertise in a communications-enabled software system

  • prepare and test complementary assets to a communications-enabled software system

A New Approach

Traditional development and commercialization models take too long and cost too much. Traditional models expose founders of technology companies to excessive risk and significantly decrease their equity ownership over time. Moreover, academics continue to question the economic benefits delivered by traditional economic development models such as clusters (Kukalis, 2010). A new approach to development and commercialization is required.

Figure 1 illustrates the difference between the traditional one-sided, standalone approach to development and commercialization (Model A), the cluster approach (Model B), and the proposed multi-sided stakeholder approach (Model C).

Figure 1. Three Models of Development and Commercialization

Image:september10_bailetti1.png

The traditional standalone approach (Model A) pushes a supplier’s products, services, and solutions to customers, either directly or through intermediaries. The cluster approach (Model B) pushes market offers with other companies in the same industry or regional cluster. In the multi-sided stakeholders approach (Model C), the supplier uses a multi-sided platform to interact with customers and all other company stakeholders to develop and market its offers. Stakeholders include complementary technology providers, product and skill partners, investors, and community leaders.

Model C is much more than the multi-sided platform model economists commonly use to explain the behaviour of electronic markets, such as auctions, online-dating, and job boards. The main benefit of the multi-sided stakeholder model is that it enables organizations of different types to rapidly co-create products, services, and solutions. Model C also goes beyond decreasing search and transactions costs; it is more about growing sustainable revenue than reducing costs. The focus is to create new things that deliver value to customers and to all the organizations that contribute to the company’s development and commercialziation initiatives. Model C requires a company to access skills that are dispersed globally and attract organizations to share its development, commercialization, and risks. Model C helps a company build capabilities to differentiate offers for which customers are willing to pay.

Culture That Supports Model C Companies

When faced with decisions about development and commercialization, a top management team experiences a tension between self-interests, owners’ interests, and other stakeholders’ interests. We adopt the perspective that organizational culture is what guides a top management team when resolving this tension. Organizational culture is comprised of: (i) assumptions about reality that are taken for granted; (ii) criteria used to make decisions; and (iii) work practices that embody the assumptions taken for granted and criteria used to make decisions.

We argue that the culture that best supports Model C companies is very different than the cultures that support Model A and Model B companies. The culture that best supports a Model C company is one that: (i) incorporates the interests of all company stakeholders into development and commercialization decisions, not just self-interests and company owners’ interest; (ii) co-creates value; and (iii) builds stakeholders’ trust in the company’s work practices and market offers.

Key Conceptual Building Blocks

This section provides an overview of the three key conceptual building blocks of the new approach: integration of stakeholders’ interests into development and commercialization decisions, value co-creation, and trust building.

A company is a collection of stakeholders; these are external and internal groups who can affect or are affected by the company’s objectives. All company stakeholders can be organized into: (i) the company’s top management team, (ii) the company’s owners, and (iii) other stakeholders, such as customers, employees, go-to-market partners, complementors, and suppliers. We focus on the extent to which a company’s top management team is concerned about the interests of other stakeholders when making development and commercialization decisions.

The ways that top management teams of Model C companies think about their relationships with other stakeholders, as well as the tradeoffs they must make among competing stakeholder claims, are very different from those of top management teams operating Model A and Model B companies. To generate profitable revenue, the top management team of a Model C company will make development and commercialization decisions that adhere to the interests of all stakeholders, not just the interests of the top management team and company owners. This top management team will take other stakeholders' interests into account even when doing so does not appear to be in their self-interest. To them, implicit contracts with other stakeholders are no less binding that their explicit contracts with company’s owners. In contrast, to generate profitable revenue, the top management team of a Model A or Model B company will make development and commercialization decisions that mostly adhere to the interests of only one other stakeholder group: potential customers.

Top management teams of Model C companies are better able to turn the concern for the interests of all stakeholders into profitable revenue much better than managers of Model A and Model B companies.

The November and December issues of the OSBR in 2009 were dedicated to value co-creation. The 10 articles published are evidence of the interest in the topic. Although we have not yet implemented a co-creation protocol in KOTS, at this stage it is sufficient to say that central to Model C companies are two propositions:

  1. All stakeholders are able to become co-creators of value.

  2. Company’s top management team must incorporate all stakeholders’ interests in their development and commercialization decisions.

A considerable amount of literature has examined trust in the last decade. Trust is an important aspect of an inter-organizational relationship and ability is an antecedent of trust.

There are at least two outstanding research questions that concern us: (i) how to increase trust in the platform owner and (ii) how to increase trust in platform participants. Eduardo Moraes’ article on this issue of the OSBR deals with the latter question. We need to wait for good answers to the former question.

The KOTS project will build trust by providing the interfaces and controls for platform participants to:

  • share information on their perceptions of other participants’ ability, integrity and benevolence

  • define expectations regarding deadlines, punctuality, work styles, and policies and procedures that pertain to all value-creation activities

  • communicate frequently

  • keep track of what is delivered relative to what was promised

  • tell the truth always

  • take responsibility for the work carried out

  • be who they are

Conclusion

Top management teams of Model C companies generate greater revenue by: (i) making development and commercialization decisions that regard the interests of other stakeholders in addition to, and sometimes more highly than, their own, (ii) co-creating value at all stages of the development and commercialization life cycle; and (iii) building trust in their market offers. This is why Model C companies are more powerful agents for economic development than Model A and Model B companies.

The KOTS project offers to change the way small technology companies worldwide develop and commercialize their products, services, and solutions.

We wish to acknowledge the cash contribution of the NRC Industrial Research Assistance Program (IRAP) and the in-kind contribution of the Innovation Leadership Team to the KOTS project.

Recommended Resources

The new approach to development and commercialization that KOTS supports builds on the following research areas:

Stakeholder theory

Multi-sided platform design rules

Value co-creation

Trust models

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