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From the course by Copenhagen Business School

Digital Competition in Financial Services

147 ratings

Copenhagen Business School

Digital Competition in Financial Services

147 ratings

Course 1 of 4 in the Specialization Digital Transformation in Financial Services

Welcome to Digital Transformation Strategy! As you probably know, this is the first course in a three part specialization focused on the digital transformation of finance. We'll aim to bring you insights about how digitalization intersects with finance, culled from one of the world's top regions for digital innovation. I'm excited to have you in the class and look forward to helping you learn more about this important topic. To begin, I recommend taking a few minutes to explore the course site. A good place to start is the navigation bar on the left. Click Course Content to see what material we’ll cover each week, as well preview the assignments you’ll need to complete to pass the course. Click Discussions to see forums where you can discuss the course material with fellow students taking the class. Be sure to introduce yourself to everyone in the Meet and Greet forum! This course should take about four weeks to complete. You can check out the recommended course schedule below to see a quick overview of the lessons and assignments you’ll complete each week. By the time you finish this course, you’ll have mastered the transformational forces of digitalization and the new competitive dynamics it gives rise to, learned from leading financial companies and seen inspirational examples from the digital masters. You'll be introduced to the Capstone Project for the specialization and have a chance to form some preliminary solutions for a financial company seeking a new strategy for the digital age of finance. Good luck as you get started. I look forward to seeing you in class!

From the lesson

Digital platforms

At the heart of the digital transformation rests an increased orientation towards digitally enabled platform-based business models. In this module, we cover how firms compete with platforms and how platforms change the dynamics of affected industries. We explore the workings of the platform, including how to establish a platform core for others to build on and how to manage the relationship to 3rd party developers. We contextualize the ideas behind digital platform thinking using examples both from financial service companies and from the digital giants that excel in platform-based businesses.

Ordered chaos8:11

Meet the Instructors

Jonas Hedman
Associate Professor
Department of Digitalization
Stefan Henningsson
Associate Professor
Department of Digitalization

Let's continue our exploration of digital platform.

In the last lesson, we discussed how to extend a platform with open innovation and

the involvement of third party developers.

Implicitly, in the discussion, there's a tension between innovation and control.

The platform owner wants to keep things under control.

To understand this tension, we're going to use two new concepts.

The first is generalivity that entails a view of maximizing

the innovation of compliments.

The other concept is control, which refers to control for

quality and to maximize value for the platform provider.

Generativity is related to the five layers that we talked about before.

Another term used is layered modular architecture.

Within a layered modular architecture, a firm seeks to attract different

partners to design and develop new components outside a platform core.

The generativity of an architecture thus come from a firm's ability to

design a platform that can encompass a large number of new components.

The more different parts and components, the more generative the platform becomes.

The power of generativity is fully realized when it's paired with demand side

economics of scale.

As a result, innovation within a layered modular architecture is distributed,

not only among similar firms, but across firms of different kinds.

These firm's innovation activities influence each other

by being reciprocal and recursive.

Thus, the innovation is the demand side based.

It's also distributed because the primary source of value creation

comes with different reasons across layers.

In this environment, an essential capability is the ability to design

a digital platform that inspire and create an interesting and

distributed network to maximize the generative potential.

In managing such contexts, a firm needs to have the capability to create

new uses of its services and platform.

Just think of Amazon who was a bookstore in the beginning, but

now sells basically everything.

This have implications for those who innovates and what is innovated.

The value by generativity is that it adds unforeseen properties to the platform,

such as the capability to recombine data sources,

to seemingly automatically generate assembly or redistribute content.

Generativity allows individuals, groups and

other firms to co-create services, applications, and content.

This can in principle combine any information,

behaviors, or states available on the platform.

This opens up for radical new business models.

Just take eBay or PayPal as examples.

New services have emerged, enabled by lower cost and global reach, encouraging

wide participation in the development of complementary components and new markets.

The outcome has been an unimaginable variety of new services,

including search, e-commerce, social networking,

information sharing, payments and lending, just to name a few.

Today's platform market has become a dynamic mashup of unforeseen

dependencies among content, devices, networks, and partners.

PayPal exemplifies this change.

The payment service uses a sophisticated digital platform

seamlessly to integrate with websites from which music, videos,

movies, application, magazines and books can be purchased.

The combination of PayPal and e-commerce radically

redefines forms of control, through device standards,

storage medium, and transmission formats and

blurs the boundaries between payment and e-commerce.

As a result, people exerts new forms of control by

coordinating the evolution of the platform for

both developing and delivering new services.

So there are endless of opportunities to innovate,

but it is here the tension arises.

So on one hand, the platform provider seeks to maximize

innovation through open innovation and layer module architecture.

But on the other hand, the platform provider seeks to keep

some parts of the platform under strict control.

The platform architecture provides a system to the platform owner.

The layered architecture enforces a governance schemer.

So, every layer in the digital platform include designed rules,

data control and govern the platform and its components.

Control options can be discussed along different types of governance design and

degree of control in the distribution of platform derivatives.

Governance design can be measured as the ability of,

and degree to which third parties- >> [INAUDIBLE]

>> Okay,

governance design can be measured as the ability of, and

degree to which third parties co-develop and maintain a digital platform.

Platform owners, which normally follow the closed notion, develop and

set their rules which potentially can exclude third parties.

To illustrate close platform development,

Barclay's mobile payment service Pingit shares these traits,

as it is a proprietary and self-developed mobile payment platform.

On the contrary, PayPal use an open platform development

with an active development forum and repository service for code sharing.

By having an online presence on this service, the platform owner and its

third-party developers are co-developing the platform in a moderated process.

Platform derivates distribution refers to the ability and degree of freedom for

the third parties in distributing their platform developments.

Digital platforms also difference in how platform derivatives are distributed.

The moderated approach allows the platform owner to control and

channel the distribution of the platform derivatives.

As an example, PayPal request prior approval from third

parties to use its payment API, to exclude for example, undesirable merchants.

The free approach allows third parties to distribute their services

without prior approval by the platform owner.

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