When Google entered the telecom market with their Android OS in 2007, the firm sought to reshape the industry in a fundamental way. At the end of 2010, the Android OS became the world’s largest smartphone platform. How did an internet company redefine an already-established industry? Google did it by implementing what we refer to as a shaping strategy.
A shaping strategy consists of three very important elements. An aspiring shaper needs to integrate a powerful shaping view, an appropriate shaping platform, and relevant acts and assets to enhance the credibility of the shaping view and platform.
The shaping view communicates a compelling view of the future structure of the market or industry and makes explicit how participants, not just the shaper, can profit from this future state. The shaping view plays a key psychological role: it counters our natural tendency in times of high uncertainty to magnify risks and discount rewards by making the potential rewards much more visible and making it seem like the outcomes are inevitable. In Google’s case, they articulated the opportunity to evolve to a very different telecom industry structure, one that involved a growing diversity of handset manufacturers and application developers driving distributed innovation in smartphone technology. In forming its view of the telecom industry, Google recognized the importance of orchestrating a robust and diverse ecosystem. Google then formed the Open Handset Alliance with T-Mobile, Samsung, Motorola, and other telecom providers. Within this group, the non-fragmentation agreement guaranteed compatibility and integrity of platform (the main issue with open source) and established credibility with participants and external audience. The alliance became an industry model necessary to create stable mobile platforms.
The second element of a shaping strategy, the shaping platform, provides standards and protocols that significantly reduce the participation costs for third parties and accelerates the rewards that they can generate. In other words, shaping platforms materially alter the near-term economics of participation in shaping strategies. The most effective shaping platforms foster distinct niches for participants so that they minimize the risk of commoditization through direct competition with all other participants. Android’s use of open source licenses, for example, created a self-supporting ecosystem where app developers could improve existing technologies. By making its platform accessible, Google was able to mobilize a large and growing number of participants to innovate around its hardware and software platform, unlocking industry-shaping innovations. By opening up the hardware side of the smartphone industry, Google increased the addressable market for app developers and set into motion an interesting interplay between innovation at the device level and at the app level.
The final element of a shaping strategy, the shaper’s acts and assets, help overcome the natural skepticism that potential participants might have in times of high uncertainty. These acts and assets are designed to strengthen credibility by demonstrating the shaper’s commitment and capability to achieving the shaping view and supporting the shaping platform. Google’s strategic prioritization of Android as well as the early sign-on of established players helped assuage any doubts as to whether Google was fully committed.
In a shaping strategy, these three elements reinforce each other, helping the shaper mobilize a large number of participants, build critical mass quickly (a key challenge for any platform strategy), and achieve increasing returns for all. In times of growing pressure, shaping strategies are particularly attractive because they are highly leveraged, inviting many other participants to share in the investment and catalyzing a powerful form of distributed innovation where participants learn faster by working together. As for Google, by creatively combining telecom and wireless resources, the firm has emerged as a global telecommunication power.
Telecom is not the only industry that has seen a successful shaping strategy. Early examples of successful shapers using positive incentives include Malcolm McLean’s efforts to evangelize containerized shipping in the 1950s and 1960s, Visa in the financial services arena in the 1970s, Li & Fung in the apparel industry in the 1980s, and Microsoft in the technology industry in the 1980s and 1990s.
And today, shaping strategies have broader application than ever before. From Facebook’s social network platform that redefines how people connect online to Spotify’s reshaping of the music industry, today’s digital infrastructure makes it easier to mobilize and coordinate the activities of much larger numbers of participants than ever before. The growing gap between digital technology performance and the much more modest growth of business productivity has also created both greater potential for business disruption and an upside in rewards that will accrue to successful shapers. More opportunity, more rewards, and more capabilities create compelling incentives for executives to adopt shaping strategies today.
– John Hagel via Deloitte University Press