Many platform firms are now operating in ecosystems to deliver complex value propositions to customers. These platforms largely rely on network externality- benefits consumers reap from the use of a platform increase with the number of its users, generativity, loosely coupled external partners, big data, and artificial intelligence to create and capture value. How can firms manage resources and morph into complex ecosystems over time? We offer some insights to this question from our research recently published in the Journal of Management Studies. Specifically, we conducted an in-depth longitudinal case study of Tencent, one of the largest platform based entrepreneurial firms (PBEFs) in the world, and developed an inductive process model illustrating specific actions and capabilities Tencent employed to scale up a platform ecosystem. Using a new logic of ‘dialectic tuning’, we shifted the research attention on scaling-up from the firm to the ecosystem level, emphasizing the interconnections and interdependence between PBEFs and their ecosystem partners.

The process of scaling up and specific actions and capabilities

Our data reveals that the initiation of a network effect aimed at achieving a critical mass is a primary objective during the platform portfolio structuring stage. PBEFs need to leverage their limited resources to quickly build a critical mass (attracting) through a continuous feedback loop (mining) by gradually adding features and products (diversifying) in order to achieve demand-side economies of scale.

The new resources accessed and the emergent capabilities manifested in stage 1 become essential and pre-requisite for driving the second wave of rapid growth, in which broadening the network scope to create opportunities for more novel resource reconfigurations becomes the priority. The customer base built by the platform during stage 1 stimulates further network effects, which enables the platform to access a large pool of complementor resources and capabilities by opening its Application Programming Interface (API). By fertilizing such ecosystem resources, a platform is better equipped to provide better complementary services to customers and to further improve the performance of the ecosystem, which is instrumental in fostering continued growth. Given the uncertainty and rapid growth trajectory, morphing is pertinent for platform ecosystem development as a platform undergoes constant transformation (e.g., through changes in product and service offerings and organizational structure) to compete in a rapidly evolving market.

Through the new data, additional resources and capabilities, and the organizational re-structuring derived from stage 2, PBEFs are able to build self-organized ecosystems that enable them to continue to scale up. In stage 3, sustaining ecosystem growth is heavily dependent on three capabilities: bio-diversification, cross-pollination, and self-organizing.

Key implications

Our study of Tencent shows that the scaling process of PBEFs are emergent and situated as it is shaped and reshaped by the dialectic interactions between the focal platform and its ecosystem partners, rather than being orchestrated by a unilateral and manager-led process. The strategic priority here is no longer owning and controlling all the valuable resources, but attracting, accessing, fertilizing, and cross-pollinating external ones. This implies a shift in thinking from resource ownership to resource orchestration. Specifically, a platform firm is an open and evolving system because the availability of diverse and autonomous resources garnered through its platform ecosystem assumes significance in shaping its high growth strategies. The organization we studied here is a platform-based firm that is inherently pluralistic, permeated by a variety of external influences and norms that are not always reconciliable with traditional firms. However, the infusion of new digital technologies such as artificial intelligence, cloud computing, 3D printing, and the internet of things (IoT) has led to similar ways of organizing that are open, fluid, and nonlinear, involving a broad, heterogeneous, unbound, and often unpredictable set of evolving actors in value creation (Nambisan, 2017). The logic of ‘dialectic tuning’ could then be generalized to the context in which firms must build complex and flexible relationships with the diverse, heterogeneous, and evolving ecosystem players, while responding to the uncertainty inherent in the strategizing process in the digital age.

As digital transformation drives markets to move faster than ever, managers of PBEFs need to view the process of scaling-up as part of an ongoing conversation with their ecosystem partners in capturing the market needs that never stops changing. Therefore, they should embrace openness, flexibility and empowerment and cultivate an organisational culture of boundary spanning and distributed leadership rather than hierarchical control to counter continuing uncertainties surrounding the evolution of the platform ecosystem. Shared cognition and fluid coordination among PBEF managers and ecosystem partners are likely to enhance normative legitimation and sustained platform growth in their ecosystems. We hope that our work will stimulate future research and offer insights on firm growth and scaling in the context of digital transformation.