The platform economy challenges the traditional innovation activities and competitiveness of companies in the manufacturing industry. On the other hand, the platform economy provides new opportunities for companies to develop innovations, modernise their business operations and find new growth opportunities. The platform economy enables a new type of network-based value creation by combining physical commodities and the labour force with digital technology (Goldfarb & Tucker, 2019). Network-based co-creation and partnerships using digital platform solutions are at the core of future competitiveness.
In the manufacturing industry, the development of the platform economy has not yet been extensive. Digital technology that promotes innovation and productivity has been less extensively deployed in the manufacturing industry than in the service sectors (Gal et al., 2019). This is evidenced by the fact that the manufacturing industry has no longer been a source of productivity growth since 2007 (Pohjola, 2020). ICT investments have been the new key driver for productivity growth. At the level of Finland’s national economy, however, these investments are below the OECD average (Pohjola, 2020). The impact of ICT capital on productivity growth in Finland has been one half of that in Sweden (Pohjola, 2020). The level of investment in research and product development in the manufacturing industry is also low (OECD, 2017; Pohjola, 2020).
We discuss in this report four innovation challenges facing the manufacturing industry in the current situation and the key reasons for them. After this, we present recommendations related to innovation policy that can accelerate the development and growth of the platform economy in the manufacturing industry.
In the early stages of digital platform development, three factors make companies’ thresholds for participating higher: a lack of trust, a lack of competence related to the platform economy, and closed ICT systems.
The current data market does not encourage data sharing. There are four reasons for this situation: determining the value of data is difficult, cooperation practices are restrictive, legislation is incomplete or restrictive, and companies have no expertise in data-based business.
The main reasons for the small number of shared digital goods in the manufacturing industry are the lack of competence in platform and data business, and rigid organisation structures.
Innovation increasingly takes place in networks forming around platforms and digital architecture structures (‘crowdsourcing’). Companies in the manufacturing industry do not yet exploit the benefits of digital networks in their innovation activities.
We have discussed four key policy recommendations in this report that can promote the development of the platform economy in the manufacturing industry. The rapidly developing structures of the platform economy are of strategic importance for companies in terms of innovation, business modernisation, and productivity. Finland’s innovation policy should tackle the challenges and grasp the opportunities of the platform economy with determination and increasing precision. Policy measures can promote the development of favourable platform-based structures and business activities and speed up the development of the platform economy in the manufacturing industry. The choice between emphasising either obligations or incentives when implementing policy measures should be carefully assessed.
In order to ensure the greatest possible impact, the recommendations should be implemented in parallel as, if implemented individually, they would be less effective. A precondition for promoting the platform economy in the manufacturing industry is that innovation policy funders and the Ministry of Economic Affairs and Employment plan their policies in parallel and engage in close cooperation to implement the recommendations. In addition, the innovation policy funders and the Ministry should jointly promote standardisation and regulation of the platform and data economy actively and ambitiously. To achieve the growth potential of the platform economy, long-term investments and positioning in the global economy are required. Taking into account the fact that the structures of the platform economy will be of strategic importance for the Finnish economy in the long term is important. Consequently, involvement at the forefront of developing these structures is justified.
The policy brief is based on the results of a comprehensive literature analysis of over 100 research articles, books and policy reports and the results of two expert workshops. Top Finnish researchers, key experts from ministries and public institutions, leaders of digital development from large, medium-sized and small companies, and professionals from key intermediary and expert organisations participated in the work.
The first workshop dealt with the key challenges to innovation and growth in the platform economy. The conclusions of the literature analysis and the first workshop have been reported separately as a working paper (Aalto, Gustafsson & Lipiäinen, 2020). The second workshop dealt with the challenges to innovation in the platform economy in the manufacturing industry. This policy brief discusses the key conclusions of the latter workshop.
Professor Robin Gustafsson
Aalto University, Department of Industrial Engineering and Management
P.O.Box 15500, FI-00076 Aalto
Tel. +358 50 316 0981
[email protected]
@robingustafs #platformeconomy
Researcher Eero Aalto
Aalto University, Department of Industrial Engineering and Management
P.O.Box 15500, FI-00076 Aalto
Tel. +358 50 3484 303
[email protected]
@eeroaalto1 #platformeconomy
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Cusumano, M. A., Gawer, A., & Yoffie, D. B. (2019). The business of platforms: Strategy in the age of digital competition, innovation, and power. New York, NY: HarperCollins. OECD Economics Department Working Papers, No. 1533, OECD.
Gal, P., Nicoletti, G., Renault, T., Sorbe, S., & Timiliotis, C. (2019). Digitalisation and productivity- In search of the holy grail–Firm-level empirical evidence from EU countries.
Goldfarb, A. & Tucker, C. (2019). Digital Economics. Journal of Economic Literature, 57(1), pp.3–43.
Karhu, K., Heiskala, M., & Ritala, P., (2020). Beyond the N in Network Effects: Five Type of Network Externality Functions in Platform Markets (May 5, 2020). Aalto University publication series CROSSOVER 14/2020.
Karhu, K., Gustafsson, R. & Lyytinen, K. (2018). Exploiting and Defending Open Digital Platforms with Boundary Resources: Android’s Five Platform Forks. Information Systems Research, 29(2), pp.479–497.
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Parvinen, P., Laitila, M., Pöyry, E., Gustafsson, R., & Rossi, M. (2020). Advancing data monetization and the creation of data-based business models. Communications of the Association for Information Systems (in-press).
Pohjola (2020). Teknologia, investoinnit, rakennemuutos ja tuottavuus: Suomi kansainvälisessä vertailussa. Työ- ja elinkeinoministeriön julkaisuja, Yritykset, 2020:5.
Sommarberg, M., Gustafsson, R., Cheung, Z., & Aalto, E. (2018). Value Creation from the Internet of Things in Heavy Machinery: A Middle Manager Perspective. In Collaborative Value Co-creation in the Platform Economy (pp. 207-224). Springer, Singapore.
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Aalto-yliopiston tutkimushankkeessa selvitetään digitaalisen alustatalouden vaikutusta suomalaisten yritysten liiketoimintaan ja kilpailukykyyn sekä arvioidaan Suomen julkisen innovaatiorahoituksen nykytilaa.