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2×2 Matrix for Platform Scaling Strategy
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The phenomenal success of tech innovators using Platforms has spurred a desire in companies, from a greater variety of sectors and markets, to gain advantage of Product to Platform Transformation.
This Transformation is based on the need to model businesses on a Customer-Centric Design approach. The need has arisen because the concept of Economies of Scale has become archaic and has been taken over by Economies of Unscale. Each customer is now being offered customized products and solutions.
The phenomenal success, by the trailblazing tech innovators, was achieved partly by deploying Platform Scaling that enabled Business Transformation and monopolization of the market. Though, this monopolization and questionable use of the Platform, especially data generated therefrom, saw attempts to regulate these tech companies—making the decision to scale a complex one. Understanding the intricacies of Platform Scaling is thus critical to the development and deployment of any Platform Strategy.
When considering Platform Scaling Strategy, there are 2 key aspects that are of utmost significance:
Regulatory Complexity
Regulatory Complexity means present level of legal and regulatory impediments that govern Platform entry and operation in a sector.
Regulatory Risk
Regulatory Risk refers to the probability of an upsurge in Legal and Regulatory Costs and Complexity in the future.
Some equitable and measurable metrics for calculating Regulatory Risks do exist but generally it is extremely challenging to predict policy outcomes or even ascribe odds to various outcomes.
A straightforward approach for Platform owners and operators to understand and evaluate the prospective combinations of Regulatory Complexity and Risk is to create a 2×2 matrix of high vs. low for the 2 factors.
Regulatory Complexity and Risk are turning out to be the determining factors in the strategic decision between Fast and Slow Scaling.
Fast Scaling, which has also been referred to as Blitzscaling, requires choosing speed over efficiency. Fast Scaling has the strategic objective of growing briskly, experimenting swiftly to tweak product-market fit, and taking advantage of robust network effects to achieve and maintain a leading market share.
Fast Scaling is required to activate 3 interconnected positive feedback loops:
- Network Loop
- Data Loop
- Capital Loop.
Slow Scaling is the most sensible strategy in areas with both High Regulatory Complexity and High Regulatory Risk. Slow Scaling does not disregard the quest for network effects, which are a requirement for success of platform businesses, but it gives preference to analysis, constant growth, and risk curtailment instead of speed.
Platform businesses functioning in High-Risk, High Complexity situations may evade pitfalls by employing 4 key components of Slow-Scaling strategy:
- Analysis of the Macro Environment
- Careful Risk Management
- Investment in Stakeholder Trust
- Incremental Geographic Expansion.
Let us now delve a little deeper into the various permutations of Regulatory Complexity and Risk, quadrant-wise, in the matrix.
QUADRANT 1
Regulatory Risk Regulatory Complexity
Low Low
Compliance costs are comparatively low in such situations and there are no serious deliberations among regulators and policy makers concerning restrictions on business models or operations.
The Strategy in this case is to Scale Fast.
QUADRANT 2
Regulatory Risk Regulatory Complexity
Low High
Sectors in such scenarios are highly regulated e.g., financial services sector. Significant workforce is employed in governance, risk management, and compliance activities. Entering such markets necessitates careful consideration of Regulatory Complexity.
The strategy in such scenarios is to Scale Fast.
QUADRANT 3
Regulatory Risk Regulatory Complexity
High Low
Operations are generally in a Regulatory void—i.e., no established and powerful regulatory authority, tight net of rules, or strict barriers to entry. There is a great degree of ambiguity regarding how regulators may react. Environment in such markets makes it difficult for businesses to mature discrete policy scenarios, allocate probabilities, and make strong assumptions on timing.
Strategy is to Scale Fast in such environments.
QUADRANT 4
Regulatory Risk Regulatory Complexity
High High
There is high Regulatory Complexity, such as unclear approach by various regulators in the various markets. There are strong chances of sudden change in regulator and policy maker’s approach due to a particular incident. Precipitous increase in entire sector’s Regulatory Risk triggered by events is highly likely.
The most sensible strategy in such cases is to Scale Slow.
Interested in learning more about the permutations of these 2 Scaling Strategies, areas of strategic focus, and the 4 components of Slow Scaling Strategy? You can download an editable PowerPoint on Platform Scaling Strategy here on the Flevy documents marketplace.
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About Mark Bridges
Mark Bridges is a Senior Director of Strategy at Flevy. Flevy is your go-to resource for best practices in business management, covering management topics from Strategic Planning to Operational Excellence to Digital Transformation (view full list here). Learn how the Fortune 100 and global consulting firms do it. Improve the growth and efficiency of your organization by leveraging Flevy's library of best practice methodologies and templates. Prior to Flevy, Mark worked as an Associate at McKinsey & Co. and holds an MBA from the Booth School of Business at the University of Chicago. You can connect with Mark on LinkedIn here.
