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Digital Platforms Drive Shift in Supply Chains, Globalization

July 20, 2016

By Brian Eastwood, MIT Sloan

The political environment in Europe and the United States may point to a growth in nationalism, but the rapid growth of digital platforms, networks, and data business models in fact represents the latest shift in the forces of globalization, according to former IBM CEO Samuel J. Palmisano.

Samuel J. Palmisano

“You have to be cognizant of this technology shift,” he said, adding that advocates of ideas such as Great Britain’s exit from the European Union fail to see that supply chains are shifting around the world. “I’ve been working in technology for 40 years, and I’ve never seen anything move this fast.”

In fact, Palmisano said July 15 at the MIT Platform Strategy Summit hosted by theMIT Initiative on the Digital Economy, the companies achieving the largest scale today possess few assets but build an extensible platform ecosystem.

“These companies have tremendous leverage and return on capital,” Palmisano said.

Leaders and followers in global platform growth A recent global survey of platform enterprises by the Center for Global Enterprise—where Palmisano is chairman—identified 176 firms with a market capitalization of more than $1 billion. E-commerce is the most common industry, followed by financial technology, business tools, and social media and messaging, said Peter C. Evans, vice president of the Center for Global Enterprise. Energy, health care, and the public sector are ripe for innovation, he added, but most platforms addressing these industries remain small.

According to the report, the largest platform companies are typically young, public, and American (think Amazon, Facebook, and Google). China is the second-largest platform market, in part because it has erected barriers of entry for American firms.

Asia and Africa are poised for rapid growth, Evans said, while Europe’s strict regulations have led to a paucity of homegrown platforms. Absent a multinational response, akin to the creation of Airbus to counter Boeing’s dominance of airplane manufacturing, Europe risks falling 15 or more years behind the rest of the world, Evans said.

“If you’re not on the platform wave, you’ll be in trouble, long-term,” Evans said.

Platform strategies come with advantages as well as risks but the best value proposition for a platform may be reducing friction between people and organizations who are trying to connect with each other.

This can be a struggle for some enterprises, said Mynul Khan, founder and CEO of Field Nation, which connects project managers to certified contractors. While small and medium-sized businesses have been quick to pivot and adopt platform services, Khan said on a panel at the summit, “Working with a department within a very large organization that doesn’t have much influence, the adoption is slow. Anyone who wants to put on the red tape will put on the red tape.”


This blog first appeared on the MIT Sloan web site on July 18,  here.