Redefining value. Shifting from products to platforms
When Henkel AG went looking for a digital transformation strategy, the company’s leadership realized they had to build platforms and not just products. Further, when it came to platforms, they had to think big.
The Dusseldorf-based company, founded in 1876, has three main product lines: adhesive technologies, beauty care, and laundry and home care products. Adhesives are sold mostly to industrial customers while beauty, laundry and home care brands are marketed to consumers. All three lines have been evaluated for more platform-based business models.
The company was motivated in part by observing and analysing the evolution of other marketplaces, such as those of Apple and Amazon. Executives noted especially that the size and scale of these other companies’ platforms created a barrier to entry that has proven difficult (if not impossible) for competitors to overcome.
“The current understanding is that in order to compete effectively in the future with the right portfolio, you need to be thinking about platforms and not just products,” explained Marius Swart, Henkel’s digital lead of operations and strategy and Co-Founder of the Henkel X platform.
Fending off commodification
Higher margins are one obvious benefit platform leaders enjoy. Another is brand protection as the higher margins allow for more investment, driving out weaker rivals. Henkel, like every other consumer goods company, is continuously threatened by other brands that offer essentially the same promise, be it to remove stains or treat your hair. This kind of commodification gets accelerated with marketplaces like Amazon or Alibaba, which give the consumers access to a full gamut of different brands, all available through a single source.
By attaching a product to a platform, Henkel can start to think about additional services that can be added to induce consumers to pay a premium, thereby maintaining higher margins and customer loyalty. Ideas for those value-added services will be guided by data collected from consumers. Their patterns and preferences are noted and help Henkel understand which combination of products and/or services best serves their customers’ needs. “Companies are generating so much data today whether it be business process data, product data, or customer data. We’re asking ourselves how to make sense of all this data and look at it not only at an individual or even company level but also at a cross industry level,” said Swart.
Collaborating for scale
The “industry level” suggests that more than one company will be involved, and indeed, for the data to be truly useful (not just to Henkel but to any company), there needs to be a lot of it. This led the company to launch Henkel X in February 2018, an open innovation platform built around an ecosystem of individuals and companies that works toward generating game-changing ideas. Henkel X has three key pillars, internally referred to Exponential E, and all based on a platform approach: ecosystem (share knowledge and ideas), experience (interactive events to foster innovative ideas), and experiment (new ways of working and building MVP’s in lean and rapid fashion).
From the start, cross collaboration and creating something sustainable was central to the Henkel X strategy. “We realized that our digital transformation journey would be accelerated if we teamed up with multiple partners. Today, the rate of change is so fast, that we need to have input from both inside and outside the company to remain competitive. Furthermore, it was clear that a different setup was necessary to drive the innovation agenda, and while many companies have been trying to buy innovation as a service, we decided to go a slightly different route and build a sustainable innovation capability,” said Swart.
This meant changing the way Henkel thinks about other industry players. (Or at least those players whose portfolios did not compete directly with Henkel’s). Swart saw that most of his counterparts in similarly sized companies faced the same kind of challenges. “I would estimate that more than 80% of the challenges most large multi-nationals face today are the same or have a strong correlation.”
The digital transformation was no different. So, it made no sense for these similarly minded companies to spend their resources on developing what would be essentially the same kind of platform, except for the scale.
Currently, Henkel is working with several other industry players to create a digital upskilling platform, which will provide all the participants with data that can be used to enhance their organizational skills. And because the platform will draw on data generated from the experience of several different companies, the participants will be able to develop a greater set of skills over a shorter period of time. A win-win scenario for everyone involved.
Platforms make it easy
Henkel is also exploring platforms on the commercial side. As Swart said, “there’s a clear need for a platform that can serve a few industries and partners where everybody ends up getting value.”
For example: Henkel is one of the world’s largest providers of certain raw materials used in plastic 3D printing. It is also one of the world’s largest providers of adhesives for the automotive industry. These apparently unconnected businesses could merge into a new opportunity for Henkel via a platform. Due to its many customers in the automotive sector, the company has a clear understanding of the business. It understands, for example, that automakers often need expensive custom parts, many of which are made by outside suppliers through a 3D printing process. With its many customers for its printing materials, Henkel has a broad expertise in this business sector as well.
“Why couldn’t we create a platform that includes the largest manufacturers in the world? We provide our raw materials and ingredients to them and we’ll also connect them to the 3D printing suppliers, and everybody collaborates in a very transparent manner,” explained Swart. “The automakers have access to the largest 3D printing companies around the world. At the same time, the 3D printing companies have access to the automotive original equipment manufacturers (OEMs).” Even more so, the whole process is exponentially accelerated. A part that might have taken weeks to source, order and create can now, with the help of the platform, be available in the factory within days.
The lynchpin: trust
None of this works without Henkel having the trust of its customers. Therefore, governance issues demanded prioritized attention. In addition to having to comply with European privacy directives, Henkel must reassure its customers that any shared data will be protected and used for its stated intent only.
Interestingly, this trust issue is one that Swart sees as a competitive advantage: “Ultimately, the foundation of most well-established platforms is trust. As such, we are not only in the business of selling products – trust which is built up over many years will be difficult for others to replicate.”
Can everybody see the future?
Obviously, Swart and Henkel are enthused about the potential of platforms. Swart points to other geographies, such as the U.S. and China, where digital collaborations have been a boon for business. In 2018, the annual Singles Day in China generated over $30 billion in sales for Alibaba in one day, all being the result of multiple parties buying into the massive partnership.1
Not all companies in Europe feel the pressure to develop platforms or even think in terms of platforms. For Swart, this is a concern: “We have to pool our resources and strengths or face falling behind the rest of the world. Just look at what happened to the German automotive industry over the last few years,” he explained.