INSTITUTIONAL TRANSFORMATION THROUGH DIGITAL PLATFORMS: ENABLERS AND INHIBITORS OF

GROWTH IN EMERGING ECOSYSTEMS

MICHELLE GWEE YAH TING (B.Comp. (Hons.), NUS; M.Sc., NUS)

A THESIS SUBMITTED

FOR THE DEGREE OF DOCTOR OF PHILOSOPHY DEPARTMENT OF INFORMATION SYSTEMS AND ANALYTICS

NATIONAL UNIVERSITY OF SINGAPORE

2018

Supervisor Dr Isam Faik

Examiners

Associate Professor Tan Chuan Hoo Associate Professor Thompson Teo Sian Hin Professor Susan Newell, University of Sussex

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DECLARATION

I hereby declare that this thesis is my original work and it has been written by me in its entirety. I have duly acknowledged all the sources of information

which have been used in the thesis.

This thesis has also not been submitted for any degree in any university previously.

Michelle Gwee Yah Ting 14th May 2018

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ACKNOWLEDGEMENTS

I would first and foremost like to express my heartfelt gratitude to my thesis advisor, Dr.

Isam Faik, for his continuous support during the later stage of my doctoral study. Dr. Faik has

been patiently guiding me to write this thesis. He is extremely positive and encouraging in

motivating me towards the goal of completing my dissertation. With his immense knowledge

and rich experiences in conducting qualitative research, Dr. Faik has inspired me to take a big

plunge to change my research area and methodology, and embark on this journey of doing

interesting, in-depth and robust case studies.

I am very fortunate to have Dr. Tan Chuan Hoo and Dr. Thompson Teo on my thesis

(proposal) committee, and earlier, Dr. Goh Khim Yong and Dr. Jack Jiang on the graduate

research paper (GRP) committee. They have been very supportive in providing critical and

constructive comments at the various stages of my research and their comments have helped

to improve my research work and skills.

I am profoundly indebted to Dr. Chin Wei Ngai and Dr. Hahn Jungpil for giving me this

opportunity to complete my dissertation. Without their support, this thesis would have been

impossible! I would also like to express my sincere gratitude for the guidance that I have

received from the faculty members of the Department of Information Systems and Analytics,

School of Computing. They have been approachable and helpful in sharing their knowledge

and expertise.

I would like to express my sincere appreciation to Dr. Hui Kai Lung from the Hong Kong

University of Science and Technology for his timely advices and support. Special thanks to

Dr. Carmen Leong and Dr. Felix Tan from the University of New South Wales for their trust

and faith in me. I would also like to thank all my close peers (Yimeng, Wu Yi, Li Mei, Yang

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Lu, Shen Yi, Zhenbin, Nadee and Girisha) for their constant care and concern. I am glad to

have met them through this Ph.D. programme. They have made my doctoral journey much

more bearable and indeed, more fruitful.

I am very thankful to have an extremely supportive and understanding husband, Benjamin

Goh. His emotional support and impactful advices helped to push me to complete this thesis.

Finally, I also take pride in dedicating this Ph.D. thesis to my beloved mother, Judy Kwek.

She is the reason why I have preserved on in this tough and long journey. Mum, thank you

for everything you have given me.

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TABLE OF CONTENTS

DECLARATION ……………………………………………………………………….

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ACKNOWLEDGEMENTS …………………………………………………………… ii TABLE OF CONTENTS ……………………………………………………………… iv SUMMARY ……………………………………………………………………………. vi LIST OF TABLES …………………………………………………………………….. viii LIST OF FIGURES …………………………………………………………………… ix CHAPTER 1 Introduction

1. Research Background and Motivation ………………………………...……….. 1 2. Research Context: The Rise of Platform-Based Ecosystems ……….…….……. 4 3. Research Focus and Thesis Organization ………………………………...……. 6 CHAPTER 2 Research Methodology

1. Case Study Methodology ………………………………..…………………….. 8 2. Case Selection and Overview ………...………………………………………... 9 3. Roles of Theoretical Lens ………………………………...……………………. 11 CHAPTER 3 Study One

The Effects of Sharing Economy Platforms on the Informal Sector: The Semi-Formalization of the Transportation Sector in Indonesia 1. Introduction …………………………………………………………………….. 14 2. Literature Review 2.1. Formalization ……………………………………………………………... 17 2.2. Formalization of the Informal Sector ……………………………………... 20 2.3. Effects of Sharing Economy Platforms on the Informal Sector …………... 23 3. Theoretical Background 3.1. Institutional Theory ……………………………………………………….. 25 3.2. Institutional Logics ……………………………………………………….. 27 3.3. Institutional Entrepreneurship …………………………………………….. 29 4. Research Methodology ………………………………………………………… 32 5. Case Background 5.1. The Informal Ojek Sector ……………………………………………….... 34 5.2. The Two-Wheeler “Uber” Service in Indonesia ………………………….. 35 5.3. Going Beyond the Ride-Hailing Service …………………………………. 40 6. Case Findings and Analysis 6.1. Dimensions of Formalization ……………………………………………... 42 6.2. Stages of Formalization 6.2.1. Semi-Formalization of Ojek ……………………………………………. 47 6.2.2. Enhanced Formalization of GO-JEK …………………………………... 56 7. Discussion ……………………………………………………………………… 65 8. Conclusion ……………………………………………………………………... 72

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CHAPTER 4 Study Two Digital Platforms and Community Development: An Institutional Perspective on the Evolution of Platform-Based Ecosystems 1. Introduction …………………………………………………………………….. 74 2. Literature Review 2.1. Evolution of Sharing Economy Platforms ………………………………... 76 2.2. Sharing Economy Platforms and Community Development: The Ecosystem Approach ………………………………………………………

79

3. Theoretical Background: Organizing Vision …………………………………... 80 4. Research Methodology 4.1. Data Analysis ……………………………………………………………... 83 4.2. Case Background …………………………………………………………. 86 5. Case Findings and Analysis 5.1. Birth Stage: The Challenge of Building Trust ……………………………. 89 5.2. Expansion Stage: The Challenge of Building Participation Capabilities … 93 5.3. Self-Renewal Stage: The Challenge of Building Organizational and Strategic Agility …………………………………………………………...

95

6. Discussion ……………………………………………………………………… 97 7. Conclusion ……………………………………………………………………... 104 CHAPTER 5 Conclusion

1. Summary of Findings ……………………………………………………….. 105 2. Final Remarks …………………………………...………………………….. 106 BIBLIOGRAPHY ……………………………………………………………………...

108

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SUMMARY

My thesis investigates the emerging use of digital platforms, particularly sharing economy

platforms, and its relation to the social transformation and development of communities.

Digital platforms are becoming pervasive in our social and economic interactions and they

are recognized as important catalysts for transforming established practices. However, large

numbers of new platforms fail to survive and grow in the face of challenging and

continuously shifting institutional conditions. While a number of studies on digital platforms

have examined the processes and practices of mature platforms, more research is needed to

advance our understanding of the formation, development and evolution of emerging digital

platforms. To contribute to this understanding, I draw on two case studies of two popular

sharing economy platforms in Indonesia. The first is GO-JEK, which is a transport, logistics

and payment platform that started as a ride-hailing for traditional motorcycles. The second is

iGrow, which is a platform that connects under-employed farmers with urban investors and

owners of under-utilized land to create opportunities for better agricultural productivity.

Using an interpretive approach, this thesis studies how these two acclaimed platforms affect

and are affected by the prevalent institutional conditions in their respective fields. The first

case investigates how GO-JEK contributed to the formalization of the informal ride-hailing

sector in Indonesia and offers a theoretical framework of the shifts in institutional logics that

underlie the change in level of formalization. The second case examines how the deployment

of the iGrow platform provided an “organizing vision” for the agricultural ecosystem,

allowing it to expand the pool of actors engaged in production activities by overcoming key

institutional constraints limiting its growth, particularly trust, participation capabilities, and

agility.

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By investigating the institutional dimension of digital platforms, this thesis makes three

contributions to theory and practice. First, it contributes to the literature on digital platforms

by offering an understanding of how institutional conditions influence and are influenced by

sharing economy platforms, particularly how platforms enable formalization of the informal

sector and how they expand their ecosystems by overcoming various institutional constraints.

Second, it contributes to the literature on institutional theory by revealing key institutional

mechanisms that are particularly significant for sharing economy platforms. Third, it provides

practical insights that can help current and future platform owners develop strategies for

managing the growth and development of their platform-based ecosystems and appreciate

how their strategic choices might affect the relevant communities.

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LIST OF TABLES

Table 1. Overview of the Two Studies …………………………………………………. 7

Table 2. Shift in Practices from an Informal Ojek System to a Formal GO-JEK

System ………………………………………………………………….……………….

38

Table 3. Types of Institutional Logics in the Transportation Sector …………………… 67

Table 4. Critical Actors and Constituents of the iGrow Ecosystem ……………………. 85

Table 5. Organizing Vision of iGrow Platform ………………………………………. 100

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LIST OF FIGURES

Figure 1. Interviews with Drivers in the GO-JEK Case ................................................ 9

Figure 2. Case Companies …………………………………………………………….. 11

Figure 3. Ojek Driver ………………………………………………………………….. 34

Figure 4. Motorcycle Taxi Drivers in Green GO-JEK Helmets and Jackets ………….. 36

Figure 5. Feedback Feature on GO-RIDE Interface …………………………………... 36

Figure 6. An Anti GO-JEK and GrabBike Banner in Jakarta’s Pancoran Area ………. 39

Figure 7. GO-JEK Driver with a Passenger on a Busy Jakarta Street ………………… 43

Figure 8. GO-JEK Driver with the Motorbike-Hailing App ………………………….. 52

Figure 9. GO-JEK Multiple Services .…………………………………………………. 56

Figure 10. GO-JEK Driver Collecting Food Order …………………………………….. 58

Figure 11. GO-CAR Service App, in Collaboration with Blue Bird Group ……………. 62

Figure 12. Stages of Formalization through a Sharing Economy Platform …..………... 66

Figure 13. iGrow Ecosystem …………………………………………………...………. 87

Figure 14. iGrow Website ………………………………………………………..…….. 92

Figure 15. Development of iGrow Ecosystem ……………………………………...…... 98

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CHAPTER 1

Introduction

1. Research Background and Motivation

Digital platforms are radically transforming established modes of economic and social

interaction. Platforms are organizing structures that bring together groups of users in two-

sided networks (Eisenmann et al. 2006). They provide infrastructure and rules that facilitate

the two groups to transact (Eisenmann et al. 2006; Evans et al. 2006; Gawer and Cusumano

2002; Rochet and Tirole 2003). Some platforms rely on the exchange of physical products

such as e-commerce websites, while others offer spaces for the provision of services such as

ride-hailing apps.

Rapid advancements in information technology have resulted in platforms becoming more

prevalent in recent years (Eisenmann et al. 2006; Evans and Schmalensee 2007). Platforms

are also getting more complex in nature as they serve a variety of distinct entities with diverse

interests; they link multiple actors in a network and have evolved from being “two-sided” to

“multi-sided” markets (Adner and Kapoor 2010; Cusumano and Gawer 2002). Multi-sided

platforms have many users of different types that find in the platform a means to

complementing each other’s needs (Evans and Schmalensee 2007, p. 152). Platform have

also become an attractive strategy option for organizations because they allow platform

owners to remain asset-light (Edelman 2015). A manifest example of this is ride-sharing

platforms (e.g., GO-JEK, Uber and Grab), which can offer extensive transportation services

without owning much of the fleet.

In addition, digital platforms lower the entry barrier to markets and allow micro-

entrepreneurs to partake in commercial activities with limited overhead and with the ability to

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tap into their privately-owned assets. Hence, platforms create significant value by allowing

communication and commercial exchange that might otherwise not take place. Essentially, a

multi-sided platform is an “organization that creates value primarily by enabling direct

interactions between two (or more) distinct types of affiliated customers” (Hagiu and Wright

2014, p. 7). By bringing together different groups of users who might otherwise never have

the opportunity to interact with each other (Ondrus et al. 2015), multi-sided platforms

facilitate interactions by means of the infrastructure they provide and help to set the

appropriate regulations to govern exchanges (Hagiu and Wright 2014).

There has been a significant amount of research in economics and strategy on multi-sided

platforms covering platform competition and pricing strategies (Armstrong 2006; Parker and

Van Alstyne 2005; Rochet and Tirole 2003; Weyl 2010), ignition strategies (Evans and

Schmalensee 2010), platform leadership and innovation (Cusumano and Gawer 2002), anti-

trust issues, policies and regulations (Boudreau and Hagiu 2009; Economides and Tåg 2012;

Evans 2012), platform envelopment (Eisenmann et al. 2011; Parker and Van Alstyne 2005),

multi-homing (Gabszewicz and Wauthy 2004; Rochet and Tirole 2003), and open/proprietary

standards (Economides and Katsamakas 2006; Ondrus et al. 2015). There are also a number

of special issues that focus on the phenomenon of digital platforms, such as the call for

papers by Strategic Management Journal (SMJ) for a special issue that attempts to bring

studies on platform ecosystems into mainstream strategy research (Ethiraj 2018).

Specifically, the areas of digital platforms and platform ecosystems are broad, so in my

dissertation, I focus on sharing economy platforms. The sharing economy refers to those

economic arrangements in which asset owners and users mutualize access to the products or

services associated with these assets (Lamberton and Rose 2012; Sundararajan 2016). The

emergence of the sharing economy (also known as collaborative consumption) has brought

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about many changes in the nature of competition between entrants and incumbents. The

sharing economy has fostered the growth of several well-known start-ups including Uber and

Airbnb. These companies are digital platforms that tap into under-utilized or idle resources,

move these resources around and deploy them into better usage. Sharing economy platforms

are also garnering a growing interest amongst academics and practitioners manifesting for

example in increasing numbers of special issues on the topic such as the one run by the

Journal of Management Studies (Wang et al. 2017).

Prior studies have focused on the internal functioning of platforms and the boundaries

between the platforms and their ecosystems (Gawer and Cusumano 2008; Tan et al. 2015).

However, there is relatively little work on the institutional conditions in which platforms

start, grow, and sometimes disappear. While many studies examine the effect of various

digital features of digital platforms, there is little research to address how digital platforms

influence and are influenced by institutional conditions of the broader ecosystem, such as

existing labour conditions, trust infrastructure, and education levels. In order to contribute to

addressing this gap, I investigate in this thesis how sharing economy platforms contribute to

the institutional transformation of an ecosystem (first case study), and how they face and

overcome institutional constraints (second case study). I conduct two in-depth case studies

using acclaimed platforms in Indonesia. The first case study is on GO-JEK, which began as

an ojek-hiring (ojeks are “two-wheeled” motorcycle taxis) company that later expanded to

become a transport, logistics and payment platform. In the GO-JEK study, I look at how the

platform managed to formalize the traditional ojek practices and transformed the sector from

an informal to a semi-formal one. The second case study is on iGrow, which is a platform

that connects farmers with urban investors and owners of under-utilized land to foster organic

agricultural production. This study looks at how the digital platform overcame the constraints

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of trust, user capabilities, and agility to build an alternative and stable ecosystem for

agricultural production.

The remainder of this thesis is structured as follows: First, I continue this chapter by

providing an overview of the literature on the relationship between institutional

transformation and digital platforms. Then in Chapter 2, I outline the research methods that I

used to collect and analyze the data. In the next two chapters, Chapter 3 and Chapter 4, I

present the findings and analyses of the two case studies. In Chapter 5, I highlight the

contributions of my research to both theory and practice, and discuss implications for

potential future research.

2. Research Context: The Rise of Platform-Based Ecosystems

The emergence of Web 2.0 technologies has enabled individuals and organizations to become

highly inter-connected and has revolutionized the way people receive, generate and process

information. As result, many organizations have transformed their strategy from the direct

provision of goods and services to the creation of an ecosystem around a platform that

enables the exchange of goods and services (Lella and Lipsman 2014). This inspired a new

model of networked development that leverages the potential of digital platforms to link

various societal actors to drive the transformation of communities (Elder et al. 2011; Heeks

2010; Heeks 2014; Thompson 2008). In particular, it enables tapping into skills and resources

from broad ecosystems and then applying them collectively to drive socioeconomic change

that is scalable and sustainable (Heeks 2008; Heeks 2014).

In addition, digital platforms have grown in complexity over the years and have increasing

become multi-sided in nature. A multi-sided digital platform is defined as “a commercial

network of suppliers, producers, intermediaries, customers, and producers of complementary

products and services termed “complementors” that are held together through formal

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contracting and/or mutual dependency” (Tan et al. 2015, p. 249). Notable examples of such

multi-sided platforms include Microsoft, which brings together personal computer

manufacturers, users and application developers with its Windows operating system, Google,

which brings together Internet users, content providers and advertisers with its web portal,

and eBay, which brings together buyers and sellers with its online auction marketplace. Some

popular examples of sharing economy platforms include Uber and Grab that connect drivers

with riders, and Airbnb and Couchsurfing that link home owners to travellers.

Due to their multi-sided nature, digital platforms give rise to ecosystems in which different

groups of stakeholders interact around the platform’s technical core. Digital platforms can

generate different types of ecosystems, including business ecosystems, technology

ecosystems and service ecosystems. Business ecosystems refer to economic communities

consisting of interacting organizations (Chesbrough and Appleyard 2007; Iansiti and Levien

2004a; Iansiti and Levien 2004b; Iyer et al. 2006; Moore 1996; Moore 1993). In such

ecosystems, platforms allow business organizations to have a symbiotic relationship between

clients, suppliers and competitors. Technology ecosystems are built around platforms that

allow the development of interrelated technologies by distributing roles and building

appropriate governance structures (Adomavicius et al. 2008). Service ecosystems are built

around platforms that allow mutual value creation through service exchange (Lusch and

Nambisan 2015). The two cases in this dissertation can be categorized as service ecosystems.

By building wide and open ecosystems, digital platforms lower the entry barrier for potential

participants and consequently create opportunities for inclusion of previously marginalized

groups (Heeks 2014; Spence and Smith 2010). However, the growth of multi-sided platforms

requires cross-side network effects between the different groups of platform participants

(Bakos and Katsamakas 2008; Rochet and Tirole 2006). This means that a platform has value

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for a group only when the size of other groups on the platform is relatively large (Katz and

Shapiro 1994). As a result, the growth and impact of digital platforms are complex and hard

to predict.

In particular, the success of a digital platform depends on the ecosystem that is built around

it, which in turn is dependent on the institutional conditions that shape the actions and

cognition of those participating in the ecosystem. When these conditions align, the platforms

become spaces for what has been called “convergent innovation” (Dubé et al. 2014), where

each stakeholder created value for themselves, while at the same time, increasing the pool of

technological, human, economic and material resources that become part of collective actions

that have the potential to transform individuals and communities (Dubé et al. 2012; Jha et al.

2014).

3. Research Focus and Thesis Organization

Two case studies were conducted to understand how digital platforms, in particular, sharing

economy platforms, relate to the institutional conditions in their field. The two platforms

studied have established wide networks of stakeholders and have transformed the conditions

of the relevant communities. Table 1 summarizes the design of the final thesis, contexts and

focus of the two studies.

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Table 1. Overview of the Two Studies Case Study Study One

The Effects of Sharing Economy Platforms on the Informal Sector: The Semi-Formalization of the Transportation Sector in Indonesia

Study Two Digital Platforms and Community Development: An Institutional Perspective on the Evolution of Platform-Based Ecosystems

Context of the Studies Description of the Sharing Economy Platform

GO-JEK is a transport, logistics and payment start-up that is founded in 2011 aiming to improve the welfare of workers in Indonesia’s vast informal sector

iGrow, founded in 2014, is a marketplace that brings together under-employed farmers, under-utilized land, and investors to produce organic food and sustainable income for all stakeholders

Theoretical Lens Institutional Logics and Institutional Entrepreneurship

Organizing Vision

Outcome from the Study

Process framework of the transformation (via formalization) of institutional conditions in a platform-based ecosystem

Process framework that reflects how digital platforms enable ecosystems to overcome institutional constraints

Research Focus Information Systems (IS) Phenomenon

Role of IT in the formalization of informal sectors

Role of IT in the growth of ecosystems

Overarching Research Question

How are sharing economy platforms transforming and being transformed by the institutional conditions of their ecosystems?

Specific Research Question

How is formalization achieved via sharing economy platforms? How does formalization through sharing economy platforms enable or constrain change in the ecosystem?

How do platform-based ecosystems evolve in the face of institutional constraints?

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CHAPTER 2

Research Methodology

1. Case Study Methodology

To pursue the objectives of this research, I adopted a case study methodology. Case research

is particularly suitable for examining processes (Gephart 2004; Majchrzak et al. 2000) and

tackling the “how” and “why” research questions (Walsham 1995). My research questions

relate to the evolution process of digital platforms and how platforms relate to the

institutional conditions of their ecosystems. Moreover, digital platforms represent a multi-

dimensional and rapidly changing phenomenon that is not readily amenable to a variance

study that would look at correlations between pre-determined constructs. The inherent

complexity of the phenomenon makes an objectivist approach to this research problematic

(Koch and Schultze 2011). It is therefore more appropriate to investigate the phenomenon by

interpreting the shared understanding of the multiple stakeholders involved in its

manifestations in practice (Klein and Myers 1999). My data combine semi-structured

interviews (Figure 1), observational data (i.e., I been to the field and have spoken to the

participants of the platform ecosystem), and archival sources (e.g., I have obtained

information from the Internet such as online press releases), which will be further detailed in

the subsequent chapters.

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2. Case Selection and Overview

Several criteria guided my selection of the case studies. Firstly, the case organization needed

to be a digital platform that operates and establishes its own ecosystem of stakeholders and

businesses. This was important to allow me to study how platform roles and critical actors

emerge and adapt to drive ecosystem development. Secondly, the case study organization

needed to serve a social purpose or have a clear transformational effect on the relevant

communities. This was important given my interest in studying the institutional dimension of

digital platforms. Thirdly, the platform needed to have a clear digital component. This was

important to better understand how the implementation of technology becomes intertwined

with ongoing practices in transforming institutional conditions and instigating change in a

community.

For these reasons, I chose GO-JEK and iGrow (Figure 2), which are platform organizations

based in Jakarta, Indonesia. These two companies are social enterprises that leveraged a

digital platform to progressively build a large base of users and have consequently

transformed their transport and agricultural ecosystems.

Figure 1. Interviews with Drivers in the GO-JEK Case

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The first case of this thesis – GO-JEK – is a social enterprise that partners with drivers of

motorcycle taxis, known as ojek in Indonesia, to deliver a one-stop, one-shop convenience

service for both the customers and drivers. The GO-JEK platform matches the demand from

customers by deploying ojek drivers to their requests. It does this efficiently by ensuring that

the customer requests are taken up by nearby drivers who are confident in fulfilling these

requests. The platform recently diversified to offer a wide range of services based on the

same model of partnership with ojek drivers. GO-JEK is currently the top mobile booking

application in Indonesia, with 13 million downloads as of March 2016, having numerous

lines of services spread out in several cities in Indonesia. GO-JEK has changed the

institutional conditions through formalization of the informal economy. For example, riders

are using GO-JEK services as the main way of getting transportation rather than using the

traditional ojeks. Such transformation of the traditional sector has raised the concerns of

traditional operators (territory-based) and attracted the government’s attention on these new

ride-hailing practices.

The second case in the thesis – iGrow – is a platform that connects underemployed farmers

with investors and owners of under-utilized land in order to produce high-quality organic

food and sustainable income for all the stakeholders in its ecosystem. The organization

presents itself as having more than a commercial purpose but a social mission to support

farmers, allow city dwellers to participate in agricultural activities, and to develop underused

arable farm land across Indonesia. Amongst other technologies, iGrow uses an agricultural

management software to develop the working relationships between farmers, landowners and

investors. iGrow is a relatively new start-up and serves as a good platform for observing its

development over time.

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Further details of these two cases are provided under the Case Background of Chapter 3 and

Chapter 4.

3. Roles of Theoretical Lens

Eisenhardt (1989, p. 76) identifies three distinct uses of theory in research: as an initial guide

to design and data collection; as part of an iterative process of data collection and analysis;

and as a final product of the research. Theory plays an important role in early parts of a case

research by providing a theoretical framework to guide the topics and approach of early

empirical work. However, it is important for researchers to see beyond the boundary of the

initial theory and not use the theory in a rigid manner as this prevents discovering new issues

and alternative ways of exploration. Instead, researchers need to remain receptive and open to

modify the initial assumptions and theories; this results in an iterative process of data

collection and analysis – the initial theories can be expanded, revised or discarded eventually.

Finally, Eisenhardt (1989) highlights that the final output from a case study research may be

concepts, a conceptual framework, propositions or a mid-range theory (one that has a limited

scope that explains a specific set of phenomena).

Figure 2. Case Companies – GO-JEK (left) and iGrow (right)

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In Study One, I use institutional logics and institutional entrepreneurship as the theoretical

lens. Institutional logics provide the meaning to guide behaviour in an environment. They

define what are the acceptable goals and organizing principles within a field. Typically,

institutional entrepreneurs tap into the opportunities that are available in an environment and

attempt to shape or shift its institutional logics. Maguire et al. (2004, p. 657) defined

institutional entrepreneurship as “the activities of actors who have an interest in particular

institutional arrangement and who leverage resources to create new institutions or to

transform existing ones”. This definition is closely associated with DiMaggio (1988) who

used the concept of institutional entrepreneurship in institutional analysis to characterize

organized actors with “sufficient resources” to contribute to the genesis of new institutions in

which they see “an opportunity to realize interest that they value highly” (p. 14). Here, the

case company, GO-JEK, is considered to be an institutional entrepreneur because it managed

to disrupt the mature ride-hailing sector by introducing a new way to hire ojeks, which

required important shifts in the institutional logic of this field. Therefore, the concept of

institutional entrepreneurship helps to explain how old logic of the informal ojek sector was

replaced by the new logic of the sharing economy.

In Study Two, I use “organizing vision” as the theoretical lens. Organizing vision draws on

institutional theory to provide a framework for understanding the introduction and

proliferation of technology innovations among a community of organizations. Through this

framework, organizing vision provides three critical functions in the diffusion process of

innovations. First, it addresses the uncertainties during the implementation of a technology

innovation by providing community-level interpretation or public account of the innovation’s

purpose (serves as a common understanding of the benefits of the innovation). Second, it

affects the legitimation of the innovation by providing the underlying reasons why a member

of the community of organizations should implement the innovation (links the innovation

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back to relevant and critical business propositions). Third, it mobilizes and activates the

entire community to be involved with the innovation (promotes widespread acceptance of the

innovation). Here, the case company, iGrow, is a resource integrator platform in the

agriculture sector that links up under-employed farmers with urban investors to tap into

under-utilized parcels of land for organic produce. The organizing vision concept therefore

helps to explain how this iGrow ecosystem advances in terms of the different stakeholders it

involves, and the type of services and activities it supports.

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CHAPTER 3

Study One: The Effects of Sharing Economy Platforms on the Informal

Sector: The Semi-Formalization of the Transportation Sector in Indonesia

Abstract

The rapid growth of sharing economy platforms is disrupting established ecosystems and

introducing new institutional norms and practices. While a significant literature has looked at

the initiation and growth of platforms, little theoretical attention has been given to how

platforms transform existing ecosystems and to the effect of such transformation on the local

communities. Through an interpretive case study of GO-JEK (Indonesia’s largest ride-hailing

company), one of the fastest growing sharing economy platforms in Southeast Asia, this

study reveals ways through which the platform changed the transportation sector from an

informal to a semi-formal one, thereby acting as an institutional entrepreneur that

transformed the norms, practices and the bases of legitimacy in an established ecosystem.

The study provides a theoretical framework that highlights some key mechanisms through

which sharing economy platforms “formalize” their informal and traditional institutional

fields, and either enable or constrain socioeconomic change in the local communities.

1. Introduction

In recent years, peer-to-peer ride-hailing services have vastly transformed the transportation

sector. Peer-to-peer ride-hailing services tend to have a digital platform as their technology

backbone. These sharing economy digital platforms created a huge disruption to the existing

traditional and mature transportation business landscape (Lacy and Rutqvist 2015).

Moreover, because of the loosely coupled nature of these platforms, peer-to-peer ride-hailing

companies can expand their service offering by inviting other industry players and partners to

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collaborate as part of their business ecosystem. The platform service provider, together with

its collaborators and pool of users/commuters, generate what we so-called a platform-based

ecosystem.

The phenomenon of peer-to-peer ride-hailing services is part of the broader collaborative

consumption phenomenon that is growing in various sectors. Sundararajan (2014) argues that

collaborative consumption emerges due to several advantages that it offers economic activity:

1) It cultivates an entrepreneurial mindset in society by exploiting previously idle assets as

additional sources of income, 2) It encourages consumption since customers need not

purchase or own the asset in order to enjoy its benefits, thereby lowering the cost of accessing

the asset’s benefits; and 3) It raises the productivity of assets that are previously under-

utilized.

In view of these advantages, ride-hailing platforms help to pull together resources in an

efficient and effective manner. The platforms match drivers with resources (vehicles) to users

with demand (commuters with transportation need). In this way, these peer-to-peer ride-

hailing platforms leverage on what their potential participants already have and require

minimal additional resource commitment from them. Generally, it is easier to join a sharing

economy platform as a provider compared to joining a professional service provider or

becoming one. This lowers the entry barrier to the transportation ecosystem. This can be a

source of job opportunities for the drivers who might have been previously marginalized. In

addition, users who might not have the means or desire to own a vehicle can have access to a

wide range of transportation option. However, the emerging peer-to-peer ride-hailing

platforms have disrupted well established sectors, such as the taxi sector, and have negatively

affected the economic conditions of the members of those sectors.

16

These platforms can be seen as a form of disruptive innovation. Basically, they enhance the

efficiency and effectiveness of service exchange by leveraging “resource liquefaction” and

increasing “resource density” so that the right resources are easily accessible (Lusch and

Nambisan 2015, p. 166). Resource liquefaction refers to the decoupling of information from

its related physical form or device (Normann 2001). Maximum density occurs when the best

combination of resources is mobilized for a particular situation. Resource liquefaction allows

sharing economy platforms to disrupt existing and mature ecosystems and establish new

ecosystems with different modes of interaction.

This study aims to develop an empirically supported and theoretically grounded

understanding of how the providers of such platforms manage to transform existing practices

in a well-established ecosystem, and introduce new values and norms. We therefore aim to

address the following research questions:

1. How is formalization achieved via sharing economy platforms?; and

2. How formalization through sharing economy platforms enables or constrains

change in the ecosystem?

To address these questions, I conducted a case study of GO-JEK, which is a popular ride-

hailing service in Indonesia. At present, GO-JEK is the top mobile booking application in

Indonesia, with 13 million downloads as of March 2016, and having ten lines of services

spread out in ten cities in Indonesia. The company partners with approximately 200,000

motorcycle drivers in Indonesia to provide a wide range of services that include

transportation and food delivery. The company has expanded their business ecosystem to

include other services, such as food delivery (GO-FOOD), online shopping (GO-SHOP), and

courier (GO-SEND). Basically, GO-JEK provides any services that can tap into the use of the

two-wheeled motorcycles as the logistic means. Through its rapid expansion, GO-JEK has

17

caused significant change to the traditional transportation ecosystem and established new

norms and industry practices.

Achieving this level of transformation required concerted institutional entrepreneurship from

the platform owner. GO-JEK has disrupted the traditional transportation sector and

established new norms and industry practices to the ride hailing business. In this paper, I

investigate how GO-JEK acted as an institutional entrepreneur to move from the informal

ojek sector to a relatively more formal arrangement. My case analysis therefore highlights the

mechanisms that allowed GO-JEK, since it released its mobile application in 2015, to

transform the established institutions of the existing transportation ecosystem and contribute

to its formalization. These changes allowed GO-JEK to move from peripheral participation in

the transportation industry to rapidly become a major and central actor, resulting in GO-JEK

becoming one of Asia’s fastest growing start-ups. Overall, this paper develops a theoretical

framework to understand how sharing economy platforms contribute to the “formalization”

of an informal sector and how that affects their transformation potential.

2. Literature Review

2.1. Formalization

Formalization refers to the extent to which formal rules, policies and procedures are used to

regulate behaviors and decision making (Hempel et al. 2012). When organizational systems

are formalized, it means that there are clear written rules, procedures and instructions to

govern the way the systems run (Adler and Borys 1996; Anderson and Tomaskovic-Devey

1995; Battilana et al. 2015; Huffman and Velasco 1997).

Formalization has different dimensions. According to Patel (2011), the degree of

formalization is based on the level of role formalization, functional specialization and

18

administrative intensity. Role formalization is about having formal job descriptions for

occupation groups and job types, having well-defined reporting relationships and specifying

the line of authority clearly in formal organizational charts (Dalton et al. 1980). Functional

specialization is the about the extent to which the organization members can focus on the

execution of specified and narrowly defined tasks (Pugh et al. 1963; Sine et al. 2006) in order

to build up on their task-related knowledge to enhance information processing capabilities

(Thompson 1967). Administrative intensity is about the extent to which formal policies and

procedures guide decisions, important communications between departments are documented

by memo, rewards and incentives are administered by objective and systematic criteria,

capital expenditures are planned well in advance, plans are formal and written, and formal

budgets guide day-to-day decisions (Blau and Schoenherr 1971).

The literature suggests two opposing consequences of formalization – positive and negative

consequences. The positive consequences include providing strategic direction (Segars et al.

1998) and goal clarity (Organ and Greene 1981). Formalization can be applied to different

aspects of an organization, one of which is pay formalization. For example, studies on pay

formalization have found that compensation systems that are highly formalized and have

unambiguous rules tend to reduce personal bias (Elvira and Graham 2002; Sutton et al. 1994).

This is because a formalized system helps to contain decision makers’ use of discretion and

subjectivity, thereby ensuring a fairer and less biased system (Reskin 2000; Kalev et al.

2006). In addition, the formalization of an organizational structure can contribute to making

job succession more routine (Castilla 2008). This means that when job roles are well-defined

and work procedures are documented, a new employee can more easily fit into a vacant

position. There is also more consistency in the way issues are handled in a formalized

organizational structure, thereby allowing better alignment of the day-to-day work processes

with the overall mission and vision of an organization.

19

The negative consequences of formalization include the “red tape” that confines the ability to

execute flexible plans effectively (Tata and Prasad 2004). Formalization can restrict

autonomy and inhibit entrepreneurship and innovation because it establishes strict boundaries

through rules and policies. Burns and Stalker (1961) suggested that organic organizational

systems are better for innovation as compared to mechanistic systems that are tightly

controlled and have rigid organizational structures. Along with other characteristics such as

narrow span of control, rigid specialization and little autonomy, high formalization is usually

regarded as another major characteristic of mechanistic structures. Moreover, with

formalization can discourage employees from leveraging on their creative potential and going

beyond existing practices, which is important in enabling an organization to advance and

innovate.

Hempel et al. (2012) suggested that one way to reconcile the contradictory outcomes of

formalization is to look at the way in which formalization is implemented. They found that

the effects of formalization on team empowerment and performance (where formalization is

seen as a form of centralized organizational structure) depend on the organizational level at

which the formalization applies. Hempel et al. (2012) studied two kinds of formalization,

organizational formalization and job formalization. Organizational formalization occurs

outside the team; it refers to the “extent to which formal rules and policies are used to

regulate behaviors and decision making within the organization and provides the basis for

interactions between organizational members” (Hempel et al. 2012, p. 480). Job

formalization applies within the team; it is experienced by the team members in the form of

“formalized job descriptions or roles within the team” (Hempel et al. 2012, p. 481). When

formalization takes place at the organization level, there is less uncertainty within the firm,

thereby improving team empowerment. However, when there is more decentralization,

20

formalization at job and/or role level will contribute to decreasing team empowerment by

reducing their flexibility.

Prior studies have largely conceptualized formalization as being binary concept, i.e. either

formal or informal (Hempel et al. 2012; Lee and Hung 2014; Webb et al. 2014). However,

some researchers have found that the level of formalization is better represented as a

continuum (Toivonen and Rivera-Santos 2016). For instance, according to Merz and Sauber

(1995), a high level of formalization hinders entrepreneurial orientation of an organization,

while a moderate level of formalization can be better in achieving the desired outcomes of

entrepreneurial initiatives. This means that effective control and evaluation mechanism are

important for entrepreneurial orientation (Antoncic and Hisrich 2004; Kuratko et al. 1993).

Ireland and Webb (2007) found that semi-formalization and semi-standardization help

organizations in discovering efficient ways to deploy scarce resources during their

exploration efforts. Kirkhaug (2009) also found that some degree of formalization can impact

the implementation of organizational values by employees. Organizations with

entrepreneurial values can utilize formalization to encourage employees to adopt these values

and engage in entrepreneurial activities.

While much research on formalization has focused on the organizational context, this paper

will look at formalization of an entire sector from an organizational field perspective. In this

context, formalization is better conceptualized as the extent to which a sector has established

rules and procedures that define the practices of its various stakeholders.

2.2. Formalization of the Informal Sector

The International Labour Organization (ILO) defines informal economy as “all economic

activities that are in law or in practice not covered or insufficiently covered by formal

arrangements” (ILO 2007, p. 1). Generally, the informal economy in many countries reflects

21

a “considerable diversity of workers and economic units, in different sectors of the economy

and across rural and urban contexts that are particularly vulnerable and insecure, that

experience severe decent work deficits and often remain trapped in poverty and low

productivity” (ILO 2007, p. 1). In developed countries, informal economic activities account

for as much as 10 to 20 percent of the annual gross domestic product, and in developing

countries, they account for as much as 50 to 60 percent of the annual gross domestic product

(Godfrey 2011; Webb et al. 2013).

The informal sector is the part of the economy that is not taxed or monitored by any form of

government. It is also known as underground economy, shadow economy, irregular economy

and unobserved economy (Webb et al. 2013). This concept of informal economy was

introduced in the early 1970s (Hart 1973). To economists, having a good understanding of the

informal economy is important for the development of emerging economies (Hart 2006;

Rakowski 1994). One definition of the informal economy by Portes and his colleagues

(Haller and Portes 2005; Portes and Sensenbrenner 1993) is the production of legal goods

using processes that are not entirely legal. A narrower definition of the informal economy is

the economic activities that are unregistered yet produce legal products (Nichter and

Goldmark 2009).

In this study, I follow the definition of informal economy by Webb et al. (2013, p. 598): the

informal economy “consists of economic activities that occur outside of the formal

institutional boundaries but which remain within informal institutional boundaries for large

segments of society”. Informal economy activities might be technically illegal but are

generally not “antisocial in intent” (De Soto 1989, p. 11). In fact, they are socially acceptable

to many individuals within the society; in other words, they are considered to be legitimate.

22

Acquiring and maintain legitimacy is important to informal economy activities. Legitimacy is

“a generalized perception or assumption that the actions of an entity are desirable, proper, or

appropriate within some socially constructed system of norms, values, beliefs, and

definitions” (Suchman 1995, p. 574). There have been prior studies on the importance of

legitimacy in entrepreneurship in the informal economy (Bruton et al. 2012; Webb et al.

2013; Webb et al. 2009). In particular, researchers aim to understand how legitimacy

provides opportunities to be exploited and the various mechanisms through which informal

entrepreneurs use in overcoming operating outside formal institutional boundaries (Lee and

Hung 2014).

There are several factors that drive an economy from being informal to becoming more

formal (Webb et al. 2013). One main factor is that informal economies offer rich

entrepreneurial opportunities (Lee and Hung 2014). As the number of informal ventures

grows, they start to attract the attention of regulators, thereby motivating a formalized process

to be put in place. Entrepreneurial growth also confers power to informal entrepreneurs,

giving them greater desire to cause change. Also, when informal institutions stop having

benefits and opportunities, actors start to move toward the formal economy.

As noted by Lee and Hung (2014), regulators can move to shut down informal entrepreneurs,

so informal entrepreneurs are motivated to pursue formality. The challenge associated with

informal entrepreneurs to move into the formal economy is to achieve a “legitimacy

threshold”, which is defined as “the point at which, from the entrepreneur’s perception, the

organization moves from an untenable collection of resources to a potentially sustainable

enterprise” (Rutherford and Buller 2007, p. 78). Hence a certain level of legitimacy allows

informal entrepreneurs to access the resources necessary to grow, which over time, “creates

23

the self-reinforcing momentum of critical mass” that is necessary for contesting the state and

changing formal regulations (Lee and Hung 2014, p. 18).

2.3. Effects of Sharing Economy Platforms on the Informal Sector

Sharing economy platforms are generally seen to break established rules of doing business in

many sectors, and hence in making them more informal. Airbnb for example has changed the

traditional hotel industry which relies on standardized operating procedures and established

set of practices. Airbnb offers a more informal arrangement, which has been a source of legal

and regulatory issues raised by city governments, courts and labour unions. There are

continuing debates revolving around the regulation and taxation for the emerging ecosystem.

Similarly, in the case of Uber, traditional taxi services tend to be highly regulated and

restricted in most cities. Uber reduced the level of formality in access and provision of taxi

services. This also raised several issues regarding regulation, insurance, training of drivers

and licenses.

Generally, many sharing economy platforms are making formal sectors more informal and

the mechanisms of this shift, although not framed as de-formalization mechanisms, have been

studied in the literature (Guttentag 2015; Surie and Koduganti 2016). However, in this study,

I investigate how the selected case company makes an informal sector more formal. The role

of sharing economy platforms in formalizing an informal sector has received less attention in

the literature. Other examples of sharing economy platforms making certain sectors more

formal include meal sharing services that enable individuals to offer home cooked food to

customers, such as Share Food Singapore, Dine Inn and Hcook. These websites and mobile

applications sell food, facilitate home dining sessions and arrange catering for small-scale

events. Through these platforms, meal sharing is made feasible under formal guidelines and

regulations, making the already growing home-based catering sector more formal. For

24

example, most meal sharing platforms limit the quantity of food by home chefs to 15 to 30

servings a day. Also, some make it mandatory for home chefs to attend basic food hygiene

courses. They also implemented personal liability insurance so that diners can receive

compensation in the event of food poisoning. Meal sharing platforms also visit homes to

check on the condition of home kitchens and provide food packaging stickers to label when

the food was prepared and by what time it should be consumed. In addition, the rise of the

sector makes governments intervene in its regulation through mechanisms such as the

Singapore government’s Home-based Small Scale Business Scheme. All these measures

taken reflect how an informal sector is being formalized through these platforms.

Similarly, unregulated and informal peer-to-peer money lending is increasingly being

formalized by the mushrooming of small Fintech start-ups. Many such companies provide

capital access to small and medium size enterprises that cannot meet the requirements of

traditional financial institutions. Another example of formalization is in Mumbai, India where

dabbawalas deliver home-cooked meals to individuals working far from their homes. The

dabbawalas pick the lunches from the workers’ homes, sort the various lunches, and label

each tiffin with an alpha numeric code. The tins are then loaded onto city trains, transported

through the city’s maze and handed off to local dabbawalas who will then complete the last

leg of the route, in time for lunch. After lunch, the tiffins are packed back in their bags and

the dabbawalas return the tins back to their respective homes. The administrative and

operational intensity involved in this process has made the informal sector of delivering home

food to working family members a more formal sector.

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3. Theoretical Background

3.1. Institutional Theory

Institutional theory is one of the most established theories for the study of organizations. The

theory looks at how an organization’s environment affects and interacts with the

organization. As an organization works to adhere to norms, values and beliefs from its

environment (i.e., by responding to institutional pressures), formal structures emerge (Meyer

and Rowan 1977). It is during this formation of formal structure that the norms, values and

beliefs get codified into rules and practices to guide the operations of an organization. These

rules and practices enable an organization to gain legitimacy, which is a necessary condition

for resource acquisition and survival. In trying to gain legitimacy, organizations become more

homogeneous. DiMaggio and Powell (1983) discussed this homogeneity using the concept of

institutional isomorphism, which is the tendency for organizations to become more similar in

structure.

An institution is a social structure that provides organizations and individuals with lines of

action and orientation. It is this social structure that constrains, but also enables,

organizational action (Scott 2001). Institutions are supported by three distinct but inter-

related pillars – regulative, normative and cognitive structures – through which legitimacy is

established and maintained (Scott 2001). The regulative pillar refers to how some actors have

formal control over the behaviour of the other actors. The normative pillar explains the

influence on behaviour exercised when specific behaviours are identified as appropriate in

certain social situations. The cognitive pillar is based on “the shared conceptions that

constitute the nature of social reality and create the frames through which meaning is made”

(Scott 2001, p. 67). Institutionalized practices may be maintained at any given time through

the action of one of the pillars or the combined action of multiple pillars (Scott 2001).

26

Under institutional pressures, organizational actors implement strategies in order to earn,

maintain or re-establish their legitimacy (Suchman 1995). Webb et al. (2009) claimed that

informal economy exists because of the incongruence between what is defined as legitimate

by formal and informal institutions. Drawing from our earlier discussion, legitimacy is

important to informal economy activities. According to Suchman (1995), informal

entrepreneurs seek three types of legitimacy: pragmatic, moral and cognitive. Pragmatic

legitimacy reflects judgments about whether a given informal activity benefits a certain

group. Moral legitimacy reflects a positive normative evaluation of the informal entrepreneur

and his/her activities (i.e., whether the activity is the right thing to do). Cognitive legitimacy

increases public comprehension and ultimately normalizes activities that were previously

considered illegitimate.

North (1990) dichotomized institutions into formal and informal institutions. Formal

institutions have laws, regulations and their supporting apparatuses (e.g., enforcement

agencies, regulatory bodies, etc.). Through mechanisms such as enforcement, incentives and

precepts (Suchman et al. 2001), formal institutions establish the boundaries of their

entrepreneurial activities. On the contrary, informal institutions use norms, values and beliefs

to define socially acceptable behaviour. In informal institutions, conformity with the social

groups’ shared norms, values and beliefs is highly encouraged (Aldrich and Baker 2001).

Formal and informal institutions therefore define the “generalized perception or assumption

that the actions of an entity are desirable, proper or appropriate within” these formal and

informal prescriptions (Suchman 1995, p. 574). Institutions “negatively constrain action,

define opportunity, and facilitate patterns of interactions” (Clemens and Cook 1999, p. 445).

This means that institutions confer legitimacy to sanctioned opportunities to encourage

socially acceptable behaviours and outcomes (Jepperson 1991). In the process of sanctioning

27

some opportunities, institutions simultaneously specify a set of opportunities that are not

sanctioned (Webb et al. 2009).

3.2. Institutional Logics

Institutional theorists argue that institutional environments provide meaning to define social

behaviour, and these environments help to shape and constrain organizational actions. In

particular, institutional influences are exerted on organizations through rules and regulations,

normative prescriptions and social expectations (Scott 2001). These influences come in the

form of “institutional logics”, a term that was introduced by Alford and Friedland (1985) to

describe the conflicting practices and beliefs inherent in the institutions of modern western

societies. Thornton and Ocasio (1999, p. 804) defined institutional logics as “the socially

constructed, historical patterns of material practices, assumptions, values, beliefs, and rules

by which individuals produce and reproduce their material subsistence, organize time and

space, and provide meaning to their social reality”. Institutional logics provide a linkage

between individual agency and the socially constructed institutional practices and rule

structures. They do that by providing the “rules of the game” for societal actors to categorize

their activities and infuse them with meaning and value (Greenwood et al. 2014).

Institutional logics define what are the acceptable goals and organizing principles within a

field. They can influence an organization’s priorities (Pache and Santos 2013), strategies

(Battilana and Dorado 2010) and practices (Battilana et al. 2015). They are overarching

principles, values, beliefs and assumptions that prescribe what is legitimate and meaningful

within social institutions (Thornton and Ocasio 1999). They are associated with societal-level

institutional orders (Friedland and Alford 1991) that scholars have typically identified in

relation to the family, community, religion, state, market, profession and corporation

(Friedland and Alford 1991; Thornton et al. 2012).

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Usually an organization operates in a field that is characterized by multiple institutional

logics (Greenwood et al. 2011; Kraatz and Block 2008). For example, biotechnological

companies often combine the “market” and “academic science” logics (Murray 2010); social

enterprises integrate the “commercial” logic with the “social” logic (Pache and Santos 2013)

and community banks incorporate the “financial” and “community” logics (Almandoz 2012).

The presence of multiple logics can cause institutional complexity (Tracey et al. 2011), which

can benefit and at the same time, also present challenges for organizations (Almandoz 2012;

Besharov and Smith 2014).

Institutional complexity can create tensions (Ashforth and Reingen 2014) and cause power

struggles (Golden-Biddle and Rao 1997), breakdowns (Battilana et al. 2015) and overt

conflicts (Glynn 2000). It can jeopardize organizational survival. However, an organization

that manage this institutional complexity well such as having the right processes and

mechanisms in place to overcome the tensions (Battilana et al. 2015) can eventually get the

support of different stakeholders (Pache and Santos 2013), innovate more (Jay 2013) and

design good solutions to complex problems (Canales 2013).

Different logics in an institutional setting can either cooperate due to common interests

among the logics (Durand et al. 2013; Waldorff et al. 2013) or compete over the core position

(Misangyi et al. 2008; Reay and Hinings 2009). In a cooperating relationship, the logics may

sacrifice say some financial interests for strategic interests in the long term. On the other

hand, competing logics view competition as a process of negotiation to find optimal solutions

for an institution (Gawer and Phillips 2013; Gnyawali and Park 2009; Suddaby and Viale

2011). Competing institutional logics create opportunities for institutional entrepreneurs to

develop new institutional arrangement (Cohen and Levinthal 1990; DiMaggio and Powell

1983; Kuhn and Poole 2000; van den Ende et al. 2012), thereby resulting in a shift of the

29

existing logic. It is important to understand how to manage conflicting institutional logics as

they can lead to organizational paralysis (such as long-term strikes) or breakup (such as

demergers, spin-offs or organizational deaths) (Pache and Santos 2010).

Usually the formalization of informal sectors results in a shift of institutional logics, which is

necessary to help redefine social behaviours and guide the right actions. It is therefore crucial

to comprehend the institutional changes that occur during this level up of formalization and

the detailed mechanisms that are involved to bring about such gradual shift in logics.

3.3. Institutional Entrepreneurship

The concept of institutional entrepreneurship has emerged to help answer the question of how

new institutions arise. Institutional entrepreneurship refers to the “activities of actors who

have an interest in particular institutional arrangements and who leverage resources to create

new institutions or to transform existing ones” (Maguire et al. 2004, p. 657). Specifically,

institutional entrepreneurship looks at the importance of skilful and effortful activities that are

carried out by institutional entrepreneurs in order to bring about institutional change and

innovation. Through this change process, new norms, practices and bases of legitimacy are

established, and this results in a shift in institutional logics.

Institutional entrepreneurship requires actors to transform existing practices in mature fields,

introduce new ones, and then ensure that these become widely adopted and taken for granted

by other actors in the field. These actors to whom the responsibility for new or changed

institutions is attributed are known as institutional entrepreneurs. Institutional entrepreneurs

can be organizations or groups of organizations (Garud et al. 2002; Greenwood et al. 2002),

or individuals or groups of individuals (Fligstein 1997; Maguire et al. 2004). The concept

evolved from the work of DiMaggio’s (1988, p. 14) where he argued that “new institutions

30

arise when organized actors with sufficient resources (institutional entrepreneurs) see in them

an opportunity to realize interests that they value highly”.

The concept of institutional entrepreneurship was proposed to address the “paradox of

embedded agency”. The paradox reflects the theoretical challenge that if actors are embedded

in an institutional field and subject to its pressures on their cognition, interests, identities,

how can they envision and enact new practices beyond those dictated by the pressure? As

highlighted by Garud et al. (2007), dominant actors in a field may have the power to force

change but often lack the motivation, while peripheral players may have the incentive to

create and champion new practices, but often lack the power to change institutions.

Institutional entrepreneurs can work to maintain, or to disrupt and tear down institutions,

though there is generally less research in these areas as compared to studies of institution

building and institutional change (Lawrence and Suddaby 2006). In fact, studies of

institutional processes have tended to concentrate on relatively mature organizational fields

(Greenwood et al. 2002; Lounsbury 2002). Institutional entrepreneurship can also occur in

emerging fields where its dynamics may differ (DiMaggio 1991; Garud et al. 2002; Lawrence

1999). Whether an organizational field is forming, stable or in crisis will impact the use of

particular skills and strategies by institutional entrepreneurs (Fligstein 1997).

One major portion of the literature on institutional entrepreneurship focuses on identifying

and explicating the strategic interventions made by institutional entrepreneurs to bring about

change. Hardy and Maguire (2008) synthesized the diverse work in this area in terms of three

broad categories that group the various strategies adopted by institutional entrepreneurs in

effecting change and shifting institutional logics, which are: 1) mobilization of resources, 2)

construction of rationales, and 3) forging of new inter-actor relations.

31

Resource mobilization is one of the main strategic approaches for achieving institutional

entrepreneurship. In developing the notion of institutional entrepreneurship, DiMaggio (1988,

p. 14) highlighted the necessity of deploying “sufficient resources” to create or change

institutions. According to Dorado (2005), powerful actors tend to have sufficient resources to

impose change on an institutional field. However, Hardy and Maguire (2008, p. 207) argue

that “most of the time, institutional entrepreneurship involves a degree of dependency on

other actors and the resources they control to make bargaining and negotiating inevitable”.

This view is consistent with Colomy’s (1998) claim that institutional entrepreneurs employ

strategies that operate through exchange mechanisms, where supporters tend to be rewarded

and opponents tend to be punished.

Constructing rationales for institutional change includes the discursive processes through

which new practices are framed and legitimized. Hardy and Maguire (2008, p. 271)

highlighted that institutional entrepreneurship involves “interventions in the discursive or

ideational realm as actors construct rationales or reasons and communicate them to other

actors concerning why they should support or, at a minimum, not resist the

institutionalization project in question”. Put simply, the construction of rationales is about

crafting valid and strong reasons to justify one’s existence to the stakeholders and society.

Finally, institutional entrepreneurship often involves establishing new “inter-actor relations”

to bring about change, primarily by motivating collective action (Hardy and Maguire 2008, p.

272). Since institutional entrepreneurship involves changing deeply embedded norms, values

and practices, it usually depends on more than a single individual or organization. It is

associated with various forms of collaborative relations, which require the cooperation of

other actors.

32

It is appropriate to use the institutional entrepreneurship perspective to understand informal

entrepreneurs’ transition to the formal economy. McGahan (2012, p. 15) mentioned that

“institutional entrepreneurship, whether pursued by individuals or informal organizations

such as Napster, is the study of informal economic activity precisely because it focuses on the

processes that give rise to the regulatory framework for legitimacy and thus for formality”.

For this study, institutional entrepreneurship helps to focus on the micro-activities and micro-

processes through which informal entrepreneurs influence the macro-institutional context

(i.e., changing the regulatory framework).

4. Research Methodology

My case company is GO-JEK, which claims to be an enterprise that wants to improve the

welfare of workers in various informal sectors in Indonesia. At present, it is the top mobile

application in Indonesia, with 13 million downloads as of March 2016. It has ten lines of

services spread out in ten cities across the country. The company partners with approximately

200,000 experienced motorcycle riders in Indonesia to provide a wide range of services that

include transportation and food delivery.

I leveraged on the preliminary dataset that was first collected as part of a broader project in

September 2016, and continued with further interviews until December 2017. Data collection

occurred through fieldwork in Jakarta where a team of researchers and I interviewed drivers

and commercial partners who are participating on the GO-JEK platform, and several key

personnel from the company. Semi-structured interviews were the primary means of data

collection during our field visit (Myers and Newman 2007). I also conducted Skype

interviews with several users of GO-JEK application. All these interviews were recorded

whenever possible. For interviews with the drivers, a translator was used. The aim of the data

collection was to build an in-depth understanding of how platform-based ecosystems

33

orchestrated actions from the different community players to enable institutional change.

Informants were identified via snowball sampling (Biernacki and Waldorf 1981). The early

interviews focused on gaining a broad overview of the phenomenon, whereas the later

interviews delved more deeply into the underlying processes of interest (Pan and Tan 2011).

In addition to the data gathering from these interviews, I used secondary data from online

information about GO-JEK’s development and activities. This further enriched my

understanding and allowed the triangulation of data (Neuman 2010). The secondary data also

served to prepare and provide direction for our interviews (Ritchie et al. 2013).

In all, a total of 24 interviews were conducted. The respondents include GO-JEK’s Vice

President (Internal Portal), Chief Product Officer, one Product Officer and two Managers of

the respective business lines (GO-GLAM, GO-CLEAN and GO-MASSAGE), ten GO-JEK

Drivers, one GO-FOOD Merchant and eight GO-JEK Users. I also conducted five interviews

with one of GO-JEK’s industry competitors (but also partner), Blue Bird Group. Blue Bird is

the largest traditional taxi company in Indonesia with a fleet of about 23,000 vehicles across

the country (Tan 2017). I interviewed the group’s Chief Financial Officer and Head of

Business Transformation, as well as three drivers. I analyzed the data as it was collected to

take full advantage of the flexibility of the case research approach (Eisenhardt 1989). I have

applied Klein and Myers’s (1999) seven principles for conducting interpretive field research.

As part of my data analysis, I performed open, axial, and selective coding (Strauss and

Corbin 1990) on the translated notes and documents from the secondary data collection. By

moving between the empirical data, my guiding lens of institutional entrepreneurship, and the

related literature (Eisenhardt 1989), I uncovered new themes in the data, developed further

mappings of the coded responses, and subsequently, extended my understanding of the GO-

JEK’s ecosystem.

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5. Case Background

5.1. The Informal Ojek Sector

Most people in fast growing city areas in developing economies depend on informal transport

services for their daily commutes. For example, in Indonesia, ojek (also known as motorcycle

taxi, see Figure 3) is a prominent manifestation of these urban informalities. The ojek service

is provided by individuals, and it is not subsumed under any groups or companies. It is also

not regulated by the government. The ojek system has been left informal so that it can be a

solution for urban mobility problems and also to serve as a means for creating jobs for the

locals. In crowded and jammed cities like Jakarta and Bandung, ojek has become a basic need

for commuters to get around in a faster manner.

Although the ojek system is fairly unregulated, this long standing institution has been based

on an implicit understanding between multiple parties, including the government, ojek drivers

and users/commuters. Ojek drivers usually wait at a certain place on a daily basis (this is

known as pangkalan, which is similar to territory), which can be residential, office or

Figure 3. Ojek Driver (Image Source: Wikipedia)

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shopping areas. There are unwritten rules which are generally respected among the ojek

drivers within the same pangkalan and between different pangkalan. Every pangkalan will

have its own pool of potential customers who should not be grabbed by outsiders and ojek

drivers in the same pangkalan queue in their defined spaces as a way of determining the

priority in taking the next customer. All these norms and values have been internalized into

the ojek system and were generally taken for granted in daily practices of the drivers and the

commuters.

However, this level of informality presents several challenges for the sector. One challenge

relates to the safety of the rides. The ojek drivers have different styles of driving (fast or

slow, smooth or jerky), and different levels of compliance with traffic rules. These

differences in driving styles and attitudes affect expectation of the quality and safety of the

rides. Another challenge relates to rate ambiguity. As there is no meter installed on the

personal motorcycles of the ojek drivers, commuters need to negotiate the rates of the journey

with the drivers. This whole negotiation process can be dependent on whether both parties are

familiar with the route to destination, and when that is not the case, the process can be

relatively stressful. Such situation is further complicated by the fact that there are no clear

rules for determining the rates.

5.2. The Two-Wheeler “Uber” Service in Indonesia

Bringing the same sharing economy platform idea as Uber, but with a different mode of

transport (using motorcycles instead of cars), a start-up company named GO-JEK (see Figure

4) began the first ride-sharing business in Indonesia in 2011. GO-JEK leverages on

technologies (e.g., mobile applications) to help support its business. The company introduces

two key mechanisms into the transportation sector, which are safety and standardized rate,

thereby putting some structure into the traditional ojek sector. For example, via the mobile

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application, commuters will know what rate they are paying when linking up with the drivers

and they are covered by insurance for using the GO-JEK service. Commuters are also being

empowered since they can now feedback and rate the drivers (see Figure 5). Overall, these

initiatives increase the confidence and comfort level of urban mobility service.

Figure 4. Motorcycle Taxi Drivers in Green GO-JEK Helmets and Jackets (Image Source: rtv.co.id)

Figure 5. Feedback Feature on GO-RIDE Interface

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In this study, I focus specifically on GO-JEK operating in the capital city of Indonesia,

Jakarta, which is often derided as the most congested city in the world (Mead 2016). In 2016,

the city had a population of over 10 million and an estimated 5.5 million vehicles on the

roads, of which only 2% are public transport vehicles (Chilkoti 2015). Short-distance trips

can easily take hours and the sound of honking horns has become part of the city’s auditory

landscape.

While many regarded Jakarta’s traffic as a barrier to business, GO-JEK’s Founder and CEO,

Nadiem Makarim, saw a good business opportunity. GO-JEK is now one of Asia’s fastest

growing start-ups – it has evolved rapidly from its original taxi-hailing mission into a one-

stop shop for a wide range of on-demand services. The company saw much potential in two-

wheeled “ojeks” motorcycles that can manoeuvre in and out of Jakarta’s bad traffic jams.

Chief Financial Officer of GO-JEK, Kevin Aluwi, explained: “one of the main things that we

aim to solve at least on the consumer side is this waste of time in traffic ... you can take a

motorbike and cut your travel time by up to 40-50 percent” (Waterman 2015). Although GO-

JEK launched its website in 2011, the fast rise in the company occurred in 2015 when the

company released its mobile application. A StatCounter report (StatCounter 2017) estimated

that in 2015, 70% of Indonesia’s web traffic was from mobile devices, which explains the

strategic significance of GO-JEK’s decision to introduce a mobile application. The founder

and CEO of GO-JEK, Nadiem suggested this when he said in explaining his choices:

“Indonesia is leading the pack in the mobile revolution ... in five to seven years time almost

everybody will have a smartphone” (Makarim 2016). Since the mobile application launched

in January 2015, the company has gone from 1,000 registered drivers on its platform to

200,000 drivers across five locations in Indonesia, including Jakarta and Bali (Chilkoti 2015).

As of August 2016, the mobile application has been downloaded 25 million times and there

are more than 240,000 GO-JEK drivers across Indonesia (Marsh 2016).

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The successful deployment of GO-JEK represented a significant shift from the traditional

ojek practices as passengers no longer needed to look around for available drivers and

bargain over prices, and drivers no longer needed to linger in certain spots waiting to be

approached by passengers (see Table 2 for a summary of the shift in practices). As pinpointed

by a GO-JEK Executive, “this (informal ojek sector) was a market that was ripe for

disruption” (Chilkoti 2015). GO-JEK appeals to commuters by omitting the hassle of finding

a driver and negotiating the price. It also appeals to many female commuters, because it

offers a safer alternative through the ability to track rides and rate drivers.

Table 2. Shift in Practices from an Informal Ojek System to a Formal GO-JEK System Informal Ojek Practices Formal GO-JEK Practices

Drivers source for their own customers within their respective pangkalan/territory

Allocate incoming ride requests to drivers based on their locations

Drivers negotiate for rates with potential riders

Algorithmic calculation by the system based on distance and peak hour rates (pre-determined rates)

Riders are uncertain about the safety of individual rides

Feature to provide feedback about the individual ride experience

Because GO-JEK has radically transformed the ride-hailing sector in Indonesia, there has

been fierce opposition from conventional ojek drivers as well as taxi drivers. One reason is

because the GO-JEK’s business has disrupted their source of income. For instance, the ojek

drivers do not allow GO-JEK drivers to take commuters from their pangkalan area, creating

much tension between these two groups of drivers (see Figure 6). While ojek drivers have

been invited to join GO-JEK, there are various reasons why many ojek drivers have been

reluctant to do so. One is due to uncertainty regarding the working scope as GO-JEK drivers.

Another is a general fear in the use of the new technology. Moreover, the standardized rates

(with highly subsidized rates to entice commuters to use the mobile application) from GO-

JEK are lower than those rates that ojek drivers typically charge, which might result in an

income dip for the drivers. Conventional taxi drivers have also staged rallies and protests

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against the rapid growth of such ride-hailing smartphone applications that pose a threat to

their business (Wijaya 2016).

Besides competing with Indonesia’s taxi sector such as Blue Bird Group that has long

controlled the market, and San Francisco-based Uber that is driving down prices for

conventional taxis, GO-JEK also faces stiff competition from Malaysia’s GrabTaxi, which is

backed by China’s Didi Kuaidi and Japan’s SoftBank, and has launched its own service for

motorcycle taxi, GrabBike. Furthermore, there is strong opposition from ojek drivers who are

reluctant to sign on to a platform that makes money from their established service. One ojek

driver mentioned that his income has dropped from Rp200,000 (US$15) to Rp70,000 (US$5)

a day for a morning’s work due to competition from GO-JEK and other low-cost alternatives

like Uber. Not only are there clashes among drivers, within the company, senior management

faces rebellion. For example, in view of the tight competition GO-JEK subsidizes its rides

and charge customers Rp1,500 to Rp2,500 per kilometre for a ride in Jakarta, depending on

Figure 6. An Anti GO-JEK and GrabBike (competitor of GO-JEK) Banner in Jakarta’s Pancoran Area (Translation of the Banner Message: GO-JEK and Grab Bike are not allowed to enter these areas!!!) (Image Source: Metrotvnews)

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time of the day. The company then reduced the rate GO-JEK drivers receive from Rp4,000 to

Rp3,000 per kilometre and faced threats of a strike.

5.3. Going Beyond the Ride-Hailing Service

After establishing itself as a key player in the transportation sector, GO-JEK expands further

with other service offerings. One way in which GO-JEK differentiates itself in the

transportation sector is its comprehensive coverage of services. The company has diversified

its services. To-date, under GO-JEK main service line, the services include GO-RIDE (a

motorcycle transportation service that can take commuters to various places with ease and

speed), GO-CAR (a car transportation service that can take commuters anywhere

comfortably), GO-SEND (an instant messenger service to deliver goods and documents

quickly), GO-FOOD (the number one food inter-messenger service in Indonesia with over

64,000 registered restaurants), GO-MART (a service that one can use to shop thousands of

items from various stores), GO-BOX (is a large moving good service using a truck or van)

and GO-TIX (is an event information service with direct ticket purchase and ticketing

access). Under GO-LIFE service line, there are GO-GLAM (a beauty care service for

manicure, pedicure, waxing, etc. directly at one’s home), GO-CLEAN (a professional

cleaning service to clean one’s room, house and office), GO-MASSAGE (a professional

healthcare massage service directly at one’s home), GO-AUTO (an auto-care, auto-service,

and towing and emergency service to meet one’s automotive needs). Under GO-PAY service

line, there are GO-PAY (a virtual wallet service for one’s transactions using the GO_JEK

app), GO-POINTS (a loyalty program of GO-JEK where one get a token for using GO-PAY

as a payment method) and GO-PULSA (a mobile pre-paid charging service directly from

GO-JEK app using GO-PAY).

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The current plan is for the “GO” brand to become a one-stop shop for local services and there

is no immediate plan for the company to expand globally. Nadiem mentioned “we firmly

believe in the hyper-expansion of services within one geography ... we have no incentive to

go abroad yet” (Makarim 2016). Standing at a population of 250 million, it is believed that

there is still plenty of untapped potential in Indonesia. Moreover, Nadiem emphasized that

“there is a lot of national pride riding on GO-JEK ... people are really proud that global

innovation is created in Indonesia, and I think that goes a long way for the founders”

(Makarim 2016).

GO-JEK has a unique business model in terms of the way the company recruits “partners” for

say GO-FOOD. Instead of establishing a partnership with popular food merchants first, GO-

JEK sends their own employees out to take photographs of the menu and then list these

restaurants onto the mobile platform. Should orders come in for these restaurants, GO-JEK

drivers will take on the requests and queue for the food (meaning there is no special treatment

when taking the food order from GO-JEK drivers). GO-JEK will approach the food

merchants for potential partnerships when there is sufficient sales/order data to convince

these merchants to come on-board the platform officially. By reversing this process of

recruiting partners, GO-JEK is able to more efficiently offer its GO-FOOD services to

consumers by providing the variety necessary to make the ordering experience more

attractive to consumers.

6. Case Findings and Analysis

This section presents the evidence on how formalization was achieved across its different

dimensions. This is followed by a description of how formalization occurred via the various

stages.

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6.1. Dimensions of Formalization

GO-JEK has disrupted the established norms of a significant part of the transportation

landscape in Jakarta, such as commuters having to find drivers on their own, drivers waiting

in strategic locations for commuters to approach them, commuters having to go through the

hassle of bargaining and negotiating for better prices with the drivers. The platform has

introduced a new and more structured way of hiring drivers to get around in a large

metropolitan city. In doing so, GO-JEK has contributed to the formalization of the informal

ojek sector by introducing several mechanisms into the system, including standardized

rate/pricing, improved the hiring of drivers with formal checks and ensuring insurance is in

place. With effect from 1st November 2017, the Indonesian government has revised the

regulation for all online ride-hailing operators, including GO-JEK. These operators need to

provide insurance for both drivers and passengers, limit the size of their fleets, and apply fare

restrictions. As mentioned by the Transportation Minister of Indonesia, Budi Karya Sumadi,

“the government certainly wants the public to avail of the best services, which provides

comfort with affordable prices and safety” (Susanty 2017).

GO-JEK has formalized the transportation sector in Indonesia where the extent of

formalization is determined by role formalization, functional specialization and

administrative intensity. In role formalization, the GO-JEK drivers are aware of their role in

the ecosystem. GO-JEK drivers have a clear social identity where they see themselves as

micro entrepreneurs providing transport services. They have a dress code of green uniform

and helmet (see Figure 7), which is also a way of distinguishing themselves from other ride-

hailing drivers.

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I want people to know that I'm using GO-JEK with the uniform ... For me this is

more in terms of safety, they recognize I'm using GO-JEK rather than there is no

clue, so it's much more comfortable for me if they are wearing the green jacket

and the green helmet. (GO-JEK User)

GO-JEK drivers identify themselves as different from traditional ojek drivers:

In Bandung in some areas, yes, because there are a lot of conflicts between online

drivers, they sort of categorize them as online drivers and conventional drivers.

So in some parts of the cities, yes, they don't wear the uniforms, the jackets or the

helmet. (GO-JEK User)

GO-JEK drivers can choose not to work on weekends, and this is a form of formal temporal

structure in place:

No, I don’t work on Saturday and Sunday. (GO-JEK Driver)

Figure 7. GO-JEK Driver with a Passenger on a Busy Jakarta Street (Image Source: Reuters)

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The drivers also access the GO-JEK application via their own mobile phones and rely on the

national healthcare service scheme for their insurance:

Driver should have their own phone ... For health insurance we use BPJS

(national healthcare service). (GO-CAR Driver)

For functional specialization, there is a clear division of labour with the implementation of

GO-JEK application. The drivers no longer need to find customers on their own and negotiate

with individual customer for an agreed price each time. Rather the GO-JEK platform will

allocate the incoming requests to drivers based on their locations with a pre-determined price,

and the GO-JEK drivers can just accept the requests that they want (without having to worry

about not being able to find customers) and execute the servicing of customers.

After we drop the customer, we are supposed to take a rest first before we accept

the next order, that’s the ideal condition. (GO-JEK Driver)

It was also mentioned that GO-JEK services provide higher income for the drivers:

We already tried other online applications and so far GO-CAR is more profitable

and progressing. (GO-CAR Driver)

GO-JEK platform also open up the access to many more customers for the drivers:

I joined GO-CAR because they have lot of passengers. (GO-CAR Driver)

In terms of administrative intensity, GO-JEK drivers are aware of how customers are

allocated via the platform’s algorithm. At the initial stage, the more technology savvy drivers

even installed additional software that helps them to accept requests faster. Later on, the

company updated this task allocation algorithm to ensure that the driver who can complete a

request fastest will be given a request first and if he/she rejects the task, then this request will

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be routed to the next closest driver in line. Therefore unlike traditional ojek drivers, GO-JEK

drivers no longer need to worry about finding customers. Ride requests will be pushed to

them via the GO-JEK platform based on their current location.

In the previous model, whenever a customer placed an order, it would be sent to

the five closest drivers and the first to respond would get the order. Some

younger, more tech-savvy drivers would install additional software that enabled

them to accept the orders faster than others, thus receiving more orders. It

became a situation where the driver who could complete the delivery the fastest

was not receiving the order but the driver who accepted it the fastest. (GO-JEK

Chief Product Officer)

There is also formal and traceable communication between the drivers and customers:

So if I want to go somewhere, I only have GO-JEK, if I want to trust the driver ...

Because I know if something happens to me, somebody can track it at least

online. (GO-JEK User)

A structure governing the reward and incentive system of GO-JEK drivers is also in place

and this is made known to all GO-JEK drivers. For example, the drivers know that they have

a performance measurement to adhere. Should the request be incomplete due to cancellation

(such as a customer cancelling on the request after waiting too long for the driver to arrive) or

if the drivers did not take the order, their performance will be affected negatively in this case.

Yes, we hope to, but due to performance policy, we have to rush everything so

that we could reach the target. For example, if customers cancel the order, it

would make our performance look bad. Or if we didn’t take order, it would also

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look bad on our performance. That’s why we have to do it quickly. (GO-JEK

Driver)

How the drivers perform overall will determine whether they qualify for extra bonus:

The point is that the driver has a performance indicator to meet. Bonus will be

given for driver with performance above 50%, if the performance is below 50%,

we will not be entitled for bonus. (GO-JEK Driver)

This is based on a point system where more points will eventually translate to better income:

We offer incentives such as a point system, and drivers receive points if they

travel a set distance, which can be accumulated and exchanged for bonuses. If a

driver gets offered an order but rejects it, their performance drops. (GO-JEK

Chief Product Officer)

6.2. Stages of Formalization

To attain the different levels of formalization across the various dimensions mentioned in the

previous section, GO-JEK went through two stages of formalization. I will analyze the

changes that occurred in these two stages – semi-formalization of ojek and enhanced

formalization of GO-JEK. In the first stage (i.e., semi-formalization), there is a shift in the

institutional logic from informal market logic (traditional ojek) to matchmaking logic (ride-

hailing GO-JEK). In the second stage (i.e., enhanced formalization), there is a shift in the

institutional logic from matchmaking logic to service system logic (multi-service GO-JEK).

To bring about these shifts in logics, I will present the changes in the four elements of

institutional logics in details in the following sub-sections.

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6.2.1. Semi-Formalization of Ojek

The first stage involved attracting traditional ojek drivers and turning their practices into

more formalized practices. However, this stage is not full formalization because of the

presence of some levels of informality in the ride-hailing GO-JEK system. First, the GO-JEK

drivers are still very much independent workers, i.e. they can choose the days and hours to

work. Second, in certain cities such as Bali and Bandung where there are strong protests

against online ride-hailing drivers, the GO-JEK drivers could choose not to wear their green

uniforms (lack of formal strict enforcement). Third, GO-JEK had mass recruitment of drivers

and this can be an indication of informality (such as a lack of strict recruitment criteria

checks). Instead of having formal procedures to recruit drivers, GO-JEK made it very

convenient for a person to join the company during its recruitment drive or whenever he/she

wants.

In this case, formalization manifested in the form of four elements – sources of legitimacy,

sources of identity, basis of norms and control mechanisms. The following paragraphs will

talk about these elements in details.

Sources of Legitimacy

Legitimizing the informal economy activities is an important aspect of formalization. This is

because with legitimacy, informal entrepreneurs are able to access the resources necessary for

growth. Over time, this can result in a “critical mass” that is necessary for contesting the state

and changing formal regulations.

Prior to GO-JEK, ojek drivers were providing ride-hailing services very informally. They

would have to source for their own customers, restricted within their respective pangkalan,

and negotiate with customers for an agreed price. With the introduction of GO-JEK, the

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whole “informal” ecosystem is transformed. In order to bring about disruption to the existing

ecosystem, GO-JEK provided two broad rationales or discourses to legitimize its own

existence and growth to its main stakeholders, which are the drivers and riders. One is about

doing social good for the society (i.e., based on their value proposition to drivers). Another

relates to improvements in lifestyle (i.e., based on their value proposition to riders, such as

increased convenience, access to services, and safety).

First, the platform projects itself as an enterprise that supports the drivers by providing them

opportunities for enhancing their income. In fact, GO-JEK prides itself in “helping

communities” and creating a deep social impact. The discourse adopted by the company

emphasized how prior to the introduction of GO-JEK, the drivers were making less than a

million rupiah per month, while with GO-JEK, many drivers started making more than the

four million rupiah per month. In fact, some study participants indicated that in the initial

stage, there were drivers who earned about 8 to 10 million rupiah, or even, 12 million rupiah

per month. The extra income is seen as a means to increase the living standards of the drivers.

GO-JEK is helping to increase the incomes of our 250,000 drivers nationwide

from the lower brackets to the middle brackets while creating many jobs. (GO-

JEK Chief Product Manager, GO-LIFE)

In addition, during the Tech in Asia event in Jakarta 2015 (Makarim 2015), the founder of

GO-JEK suggested that the Indonesian government noticed an inexplicable decrease in

Jakarta’s unemployment rate, which he explained as the outcome of the rapid increase in on-

demand transportation services such as GO-JEK, GrabBike, etc. In fact, many people in

Jakarta have quit their jobs to become GO-JEK drivers; workers like private drivers and

office assistants, find that driving a GO-JEK represents an opportunity to increase income

and bolster their livelihoods (Cosseboom 2015).

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Previously, I worked as a marketing staff in a company located at Pondok Indah.

(GO-CAR Driver)

I used to work in Telkom as Mitra Telkom (Telkom Partner), which is responsible

for telephone installation (Telkom is Indonesia’s state-owned telecommunication

service company). (GO-CAR Driver)

I used to own and run a grocery shop. (GO-CAR Driver)

Even GO-JEK users see a lot of social value in this platform:

I think the fact that this [GO-JEK] service actually helps a lot of people ... I found

a lot of people who used to work in a different industry, for example mining in

Indonesia, which was a big boom in the last decade, and in the last two or three

years, the industry is actually going really low, and I found a lot of people

changed their job from an engineer to become a driver ... So from a personal

point of view, I see that it provides option for people to get a temporary job. (GO-

JEK User)

In addition to improving income, GO-JEK’s discourse also focused on the added flexibility

that they offer drivers:

None of these guys are employees ... They are micro-entrepreneurs. They work

for themselves. They’re free to take orders whenever they want, or not. (GO-JEK

Founder and CEO, as quoted in (Cosseboom 2015))

Many drivers were accepting of this discourse, which is making the platform highly attractive

to a wide range of drivers:

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Prior to joining GO-JEK, I do not have a fixed income. Now I earn about 4 to 5

million rupiah per month. (GO-CAR Driver)

The second target of GO-JEK’s discourse is their potential contribution to improving the taxi-

hailing service experience of users. By providing on-demand ojek services and deploying

drivers to where there are requests from users, GO-JEK is better able to match the supply and

demand of drivers. This greatly reduced the waiting time of users for available drivers.

Through the various service lines, GO-JEK platform also provides many value-added

services for users such as house/room/office cleaning services, massaging and beauty services

at the comfort of one’s home, etc. Moreover, for female customers, the platform provides an

additional layer of security by tracking the rides, and allowing commuters to feedback and

rate the drivers. The drivers also undergo stringent screening by the company before joining

formally as GO-JEK drivers.

The reason is when we register ourselves; our data is complete, such as SKCK

(police clearance certificate), STNK (vehicle registration) and SIM (driving

licence). (GO-CAR Driver)

Yes, if the candidate have joined GO-CAR previously and got suspended, they

cannot join GO-CAR anymore. But for new candidates, as long as the document

is complete, usually they got accepted. (GO-CAR Driver)

This new legitimacy has been contested by traditional ojek drivers who are not part of the

new GO-JEK family. There is strong tension between GO-JEK drivers and the traditional

ojek drivers, and also with those from other taxi-hailing companies such as Grab and Blue

Bird. In fact, there is even public demonstration between traditional and those online ride-

hailing drivers.

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I think last year we had a big demonstration between online providers and

traditional cab providers, and there's a violent clash as well. Clash between these

two groups were happening last year. Currently in the last few months, there

were not many of such big incidents, but there are still demonstrations going on.

(GO-JEK User)

Sources of Identity

GO-JEK instills more structure into the ojek-hiring landscape. To differentiate its drivers, the

company requires its drivers to wear green uniform and green helmet with the GO-JEK logo.

This serves as a form of identity for its drivers and is posited as a safely feature to riders.

For me this is more in terms of safety, they recognize I'm using GO-JEK ... it's

much more comfortable for me if they are wearing the green jacket and the green

helmet. (GO-JEK User)

Being a technology platform, GO-JEK acts like an intermediary marketplace that pre-

determines the cost of a ride request based on location/distance and time of the day (whether

the ride is during peak hours). Drivers no longer need to negotiate with riders over the price,

but rather, they can just focus on providing the transport services. However, in the dispatch of

ride requests, GO-JEK still maintain the autonomy of the drivers by enabling them to make

their own decisions on whether to accept or reject the ride requests. There is therefore better

structure in place with a clear division of labour.

We [GO-JEK] changed the model and it is now similar to Uber’s allocation

model – each order is sent to one driver at a time and they can choose to accept it

or not. (GO-JEK Chief Product Officer)

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However, the initial constraint at the start of the platform was on the supply side. The

company realized early the need to build a standard driver registration procedure to recruit

drivers at scale (this was done from November to December 2014). By January 2015, when

the users started using the platform, it had already about 300 drivers in the system. GO-JEK

provides formal basic training for its newly recruited drivers to familiarize them with the

interface of the mobile application (see Figure 8). The training empowers the GO-JEK drivers

with the knowledge to use the mobile application with ease and comfort so that they be more

efficient in managing the incoming ride requests from customers.

We [GO-JEK drivers] had training ... It was a one day training and yes, the

training [of the mobile application] is enough. (GO-JEK Driver)

In the most recent move, GO-JEK has teamed up with Bahaso (provides an interesting

English learning method that integrates text, sound, video and content to facilitate and

accelerate the acquisition of the English language) to improve service and communications

between drivers and customers:

Figure 8. GO-JEK Driver with the Motorbike-Hailing App (Image Source: AFP)

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The ability to speak English properly can help our driver partners in providing

the best service to the customers. Some of the customers who booked our service

were expats. So, English language skills are needed so that our partners are more

competent and able to communicate well when running orders. (Vice President of

Swadaya Program at GO-JEK, Ardelia Apti, as quoted in Claudia (2017))

Basis of Norms

GO-JEK is an asset-light company – it taps into the resources (i.e., motorcycles) of its fleet of

drivers and managed to cause a shift in established institutions without having to invest in

these vehicles, which is very different from the way taxi companies such as Blue Bird usually

operate. The platform disrupts the traditional taxi industry and the informal ojek sector by

changing the norms in the sector. GO-JEK does this by mobilizing resources in two ways for

this stage: 1) Tap into under-utilized resources (i.e., drivers’ motorcycles); and 2) Increase

efficiency of resource use (time and fuel).

First, the platform helps drivers better use their under-utilized motorcycles and increase the

utility derived from them. Prior to GO-JEK, most ojek drivers linger around shopping areas

and offices to wait for commuters to approach them to negotiate a price for a ride.

Furthermore, some drivers own motorcycles, but do not work as full-time ojek drivers. This

means that for these drivers, during their spare time, the motorcycles not utilized fully. Hence

by changing the norms, GO-JEK is aiming to contribute to the national economic value.

We are actually quite different than [those ojeks], as most of them are just out to

replicate taxis using motorcycles ... With GO-JEK, the response time is higher, and

we are a social enterprise so we don’t really compete with anyone but we are

focusing on increasing [driver] income. We see that 70 percent of the time,

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motorcycle taxis are actually idle, and that is a waste of an economic value. (GO-

JEK Founder and CEO, Nadiem Makarim, as quoted in Kevin (2012))

Second, it increases the efficiency of resource use. For example, it cuts down on the time

spent scouting for customers and burning unnecessary fuel waiting around. Instead of facing

the inefficiency of the informal ojek sector where separate groups of drivers just linger in

certain spots waiting to be approached by a passenger, adding up to a waste of time and fuel,

GO-JEK can provide on-demand taxi service. By deploying drivers to locations where there

is ready demand for ojek, it improves service experience for the passengers too (i.e., less

waiting time in scouting for available drivers and less frustration of not being able to find a

driver). As a result, there is a shift in norms and by having an algorithm to match the supply

of drivers to the demand of riders, there is a more “formal” structure in place for this ride-

hailing sector.

GO-JEK is a mobile app that allows customers to order up a motorcycle taxi –

often essential to weaving through traffic-gridlocked Jakarta – reducing the time

drivers have to stand around waiting for work, which makes them more efficient

and boosts their earnings. (Borderless 2015)

Control Mechanisms

With GO-JEK, several control mechanisms are put in place formally. One of these

mechanisms is to introduce a point system to incentivise drivers, thereby ensuring a fair

system for them. Drivers receive points if they travel a certain distance, and these points can

be accumulated and exchanged for bonuses later on. There is also penalty (point deduction)

for drivers who misuse the system. Such incentive system incorporates a more “formal” and

“standardized” structure into the system to reward (or punish) drivers for their good (or poor)

work performance.

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Each driver has a performance indicator that he/she will have to meet ... bonus will

be given to driver with performance of above 50% and if the performance is below

50%, we will not be entitled to the bonus. (GO-CAR Driver)

As for me, if I didn’t reach the [bonus] target, I feel like I am at the losing end.

(GO-JEK Driver)

In implementing these control mechanisms, GO-JEK faced the challenge of maintaining

fairness. To illustrate, in the earlier model, a customer order would be sent to five closest

drivers and the first to response would get the offer. This resulted in an issue where younger

and more tech-savvy drivers end up receiving more orders over time. This implied that the

driver who could complete the delivery in the shortest time frame was not getting the order,

but instead, the order goes to the driver who accepted the order fastest. To instill better and

fairer practices, GO-JEK changed their business model – an order will always be sent to only

one driver at a time and he/she can then choose to accept the order or not, before the system

routes the order further.

Once we submit the request, the apps will try to find the GO-JEK driver near the

location of the restaurant. (GO-JEK User)

At this stage, the GO-JEK drivers still have their own private (informal) chat groups to

update one another of useful information such as traffic condition, potential dangerous areas,

etc. in order to improve their efficiency in picking up customers and enhance their safety

when responding to ride requests. This shows that informal practices continue to exist in the

midst of formalization, resulting therefore in a semi-formalization setting.

Well there are many cases about this. We have a chat group and always remind

each other ... We also inform others which area is dangerous ... For example,

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there is traffic jam in this area, so don’t take orders from that area. (GO-CAR

Driver)

6.2.2. Enhanced Formalization of GO-JEK

After succeeding in creating the ride-hailing platform, GO-JEK expanded its presence in the

Indonesian economy by introducing several other services such as GO-FOOD (food delivery

service), GO-MART (concierge shopping service) and GO-MASSAGE (professional

massage service), etc. As shown in Figure 9, the design of the GO-JEK mobile application

has been modified to account for all these new services. It is also at this stage that GO-JEK

started collaborating with industry partners and tapping into its wide network of drivers to

bring the various services to customers. I call this stage enhanced formalization.

Figure 9. GO-JEK Multiple Services

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In shifting from matchmaking logic to this service system logic, there are again changes in

the sources of legitimacy, sources of identity, basis of norms and control mechanisms.

Sources of Legitimacy

In order to bring about disruption to the existing ecosystem, GO-JEK provided two broad

rationales or discourses to legitimize its new development growth to another two groups of

stakeholders, which are the partners and local government. First, GO-JEK highlighted their

value proposition to partners based on their promise to increase sales and revenue. Second,

they emphasized their contribution to the development of the city by highlighting their impact

on traffic problem, which is a major challenge for the local government. This indicates that in

the second stage of growth and formalization, GO-JEK needed to legitimize itself to different

groups of stakeholders.

The first element of GO-JEK’s legitimation discourse is their contribution to enhancing

market activities. Their value proposition to businesses was put forth to convince potential

partners to come on-board the platform. Part of their value proposition was cost cutting

through offering a service that is equivalent to free delivery (see Figure 10):

We had to propose to suppliers the value of them joining the platform ... GO-

FOOD offered free deliveries for customers ... for food merchants, they do not

need to create online platforms ... another attraction that allowed GO-FOOD to

gain popularity so quickly was the free delivery with “no limit on geographical

location”. (GO-JEK Chief Product Manager, GO-LIFE)

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Another part of their proposition is access to a larger customer base:

When small businesses and micro-merchants join the platform, they gain instant

access to a customer base of 15 million. (GO-JEK Chief Product Manager, GO-

LIFE)

The second focus GO-JEK’s rationale is their contribution to addressing the chronic traffic

condition in Jakarta. The company started by arguing that it was improving Indonesia’s very

fragmented motorcycle taxi system. Due to the highly congested traffic in Indonesia,

especially in large cities like Jakarta, commuters usually hop onto unlicensed ojeks (or

motorcycle taxis) in order to avoid traffic jams. Price negotiation for each ride is done on the

spot between the driver and the commuter. GO-JEK presented itself as bringing order to this

system by licensing and insuring drivers, providing them with GO-JEK-branded helmets

(together with hair covers) and jackets, and allowing commuters to book a motorcycle taxi

via the mobile application. This therefore increases safety of the commuters. Therefore GO-

Figure 10. GO-JEK Driver Collecting Food Order

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JEK has “formalized” the informal ojek sector by instilling two important mechanisms into

the system, which are safety and standardized rate/pricing.

We are very grateful that the local government has recognized our value in

helping Jakarta’s transportation and improving the welfare of ojek drivers. Our

true service is, in essence, saving time. (GO-JEK Founder and CEO, Nadiem

Makarim, as quoted in Sulisto (2015))

The government has recognized that GO-JEK helps in the economy development by creating

jobs for the locals:

From government point of view, I think it is a good thing ... It actually creates

jobs ... A good thing from the government level point of view because it actually

creates a lot of jobs. (GO-JEK User)

Overall, GO-JEK brings prosperity to the nation and improves the standards of living:

At the president level, basically he is very, very supportive, because his goal was

to facilitate anything that give advantage to the people and the existence of such

online providers, people are benefited because of the lower cost. (GO-JEK User)

Sources of Identity

To grow and diversify its service offerings, GO-JEK needed to project a new image of its

identity to its partners (includes independent micro-entrepreneurs like masseurs and

beauticians and corporations like food merchants/chains) and its competitors (e.g., Blue Bird

Group).

GO-JEK leveraged the expanding relations they were building with the drivers’ community

through an initial strategy that combined the GO-RIDE and GO-SEND product lines, since

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they both used the same fleet for transporting people and packages. They later added more

product lines as the platform stabilized and became more conducive to building relations with

new partners. To streamline the expansion of services, product lines were classified into

“products with wheels” (majority of the services fall under this category) and “products

without wheels” (e.g., GO-BUSWAY which is a feeder system that enables users to find out

about nearby buses at locations), and also products that need or do not need GO-PAY.

GO-JEK presented itself as being a valuable player in the ecosystem. Its relations with the

different business partners vary in strength depending on the stage of the product line they

support. Usually each product line started off as being a non-core product, which is a product

that is still in the incubation process. The duration it takes for a non-core product to become a

core product is dependent on the nature of the product line. At present, some of the non-core

products are GO-CLEAN, GO-GLAM, GO-MASSAGE and GO-OUTDOOR. The latest

product line is GO-MED that has been launched to 5% of users, which allows them to obtain

both over-the-counter and prescription medication; this is done in collaboration with

ApotikAntar (an integrated, practical service solution for the purchase of drugs) by Halodoc,

a start-up in Indonesia that develops health applications. In sum, the path to stability for these

various services varied significantly, and so did the relations that GO-JEK was building as a

result:

GO-PAY became a core product in three months, whereas GO-TIX (which

facilitates customers to buy tickets for art, sports or other events) took six to eight

months as there were more edits required ... GO-MASSAGE and GO-CLEAN

however are still non-core products as they are smaller in scale. (GO-JEK Chief

Product Manager, GO-LIFE)

With its vast service offerings, GO-JEK can attract a very large group of users:

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Our vision is to deliver not only people, but anything that a user wants within 60

minutes. (GO-JEK Founder and CEO, Nadiem Makarim, as quoted in Sulisto

(2015))

In the most recent strategic move, GO-JEK rebranded itself as a collaborator (instead of

competitor) to Indonesia's biggest taxi operator, Blue Bird. The two companies have teamed

up in an attempt to bolster its services despite clashes during massive protests by drivers

working for conventional taxi companies against the partnership application in March 2016

(see Figure 11). By joining forces, GO-JEK and Blue Bird converted from being major

competitors in the transportation sector to partners. Therefore, as institutional entrepreneurs

who were disrupting the transportation ecosystem in Indonesia, GO-JEK chose to build

relations with the very entities they were disrupting. Such industry collaborations are in fact

facilitated by the formal structure of GO-JEK that makes negotiations with established

companies feasible and more effective.

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Basis of Norms

In the second stage, GO-JEK established new norms in the way it mobilized resources. The

company enabled resource integration by providing a platform that facilitated linking up of

customers, drivers and partners (food merchants, masseurs, beauticians, etc.). Such

collaboration opportunities are further enhanced by the formal structure of GO-JEK. An

example of this is GO-MART (launched in October 2016), a service which is similar to an

online marketplace where consumers can shop on the GO-JEK mobile application for

Figure 11. GO-CAR Service App, in Collaboration with Blue Bird Group (Image Source: Tech in Asia)

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products from local merchants and have them delivered by motorcycles to their home. GO-

JEK is selling about 20,000 products for 45 local merchants, and because most Indonesian

retailers do not have dedicated e-commerce websites that can be used to upload product

images and information to GO-JEK’s mobile application, GO-JEK employees have been

physically going to each merchant’s store to photograph available items and uploading the

prices and product descriptions to the application (Zaroban 2016). By having a protocol on

recruiting partners and by demonstrating flexibility and creativity in this protocol, GO-JEK

has managed to recruit many partners within a short timeframe and is thus able to diversify its

service offerings tremendously.

Because of GO-JEK, suddenly people are getting used to using their mobile

device to shop. (Managing Partner of Ideosource, Andi Boediman, as quoted in

Zaroban (2016))

Since launching the GO-MART service on its app in October, sales are picking up

at a rapid pace, and local merchants that participate are increasing sales four to

five times. (GO-JEK Co-Founder and Brand Director, Michaelangelo Moran, as

quoted in Zaroban (2016))

Moreover, GO-JEK also worked with companies such as KFC who do not want to build their

own fleet of drivers. They have therefore disrupted traditional logistics. Going forward, GO-

JEK is expanding its payment platform – to cover areas where only cash was accepted in the

past. GO-PAY can now be used easily for payments (one payment system for all of GO-

JEK’s services). Transferring between banks incurs a small fee, but as GO-PAY has

partnerships with many banks, customers can top up their GO-PAY account for free. Through

GO-PAY, GO-JEK further formalized the mode of payment on its platform. It can therefore

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offer another level of convenience to its various stakeholders (i.e., to enjoy the advantages of

a cashless system), and entice more widespread adoption of its system.

In a few days there will be more GO-PAY than non-GO-PAY transactions ... I

can’t think of any platform that moved everyone from cash to digital money so

fast. (GO-JEK Founder and CEO, Nadiem Makarim, as quoted in Freischlad

(2016a))

Control Mechanisms

In order to expand its new services, GO-JEK needed to provide appropriate incentives for the

different stakeholders to use their new services. For example, in relation to GO-PAY, GO-

JEK introduced an incentive system to encourage its drivers and customers to use the cashless

payment system. Whenever customers pay for a ride or service in cash, the GO-JEK driver

can ask if they want to receive their change into their GO-PAY account for future use. GO-

JEK driver would get a small bonus while the customers received discounts on their

subsequent rides. Therefore GO-PAY is unique in the sense that unlike GrabPay, it offers this

cash-to-e-money conversion through its drivers. GO-PAY also differentiates itself from Uber,

which also has cashless payments but requires users to link a credit card.

We call this little thing “cash top-up on driver”. We have hundreds of thousands

of drivers who become our points of sale ... Once you’ve done it, you never want

to go back to cash. (GO-JEK Founder and CEO, Nadiem Makarim, as quoted in

Freischlad (2016a))

In the most recent move, GO-JEK is set to launch a new service called GO-RESTO, which

will be under its food delivery service GO-FOOD. GO-RESTO will allow users of GO-PAY

to carry out transaction outside of GO-JEK’s ecosystem, which comprises of services ranging

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from courier to food delivery. At present, GO-JEK drivers have been paying for food order

using cash. However, with the upcoming launch of GO-RESTO, the drivers will be able to

pay for the transactions using GO-PAY, enabling them to go cashless with no limit of

transactions. This update is in line with GO-JEK’s plan to enable the use of GO-PAY for

transactions with merchant partners.

GO-JEK is currently preparing the infrastructure, including applications for

customers, that will make it easier for them to do transactions with various

merchant partners using GO-PAY. (GO-JEK Indonesia PR Manager, Rindu

Ragilia, as quoted in Menur (2017))

7. Discussion

Studies on sharing economy platforms such as those looking at Airbnb, Uber and Lyft

(Cohen and Sundararajan 2015; Hall and Krueger 2017) have mainly studied how these

platforms make a formal sector more informal. Through the case of GO-JEK, this study

addresses the opposite effect of sharing economy platforms by looking instead at how an

informal sector can be transformed to become more formal through the introduction and

growth of a sharing economy platform.

The Formalization Process

The GO-JEK case findings provide an overall understanding of how sharing economy

platforms can transform an informal sector and make it more formal. They suggest that the

transformation takes place in two key stages (Figure 12). In the first stage, the platform

focuses on its core activities to build the network necessary to thrive in their environment. In

the case of GO-JEK, they focused on ride-hailing as their principal activity and service

offering. At this stage, formalization was relatively limited with a hybrid of formal and

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informal activities. Once the platform is more established and has achieved the critical mass

necessary to advance beyond the ignition stage of an innovation, the platform starts to

diversify its service offerings. At this stage, formalization becomes more enhanced. Having a

more formal structure is needed at this stage for building partnerships with key players,

particularly with those that have a highly formalized structure.

Formalization has been studied mainly within organizational contexts (Battilana et al. 2015;

Hempel et al. 2012; Patel 2011). However, this study brings attention to formalization

processes within the broader context of platform-based ecosystems. It extends the findings

from prior research by showing how the dimensions of formalization suggested by Patel

(2011) for organizational context can be applied in the context of platform-based ecosystems.

Role formalization is reflected in having a clear and fixed identity within the ecosystem,

functional specialization is about having a clear division of labour between the different

platform stakeholders, and administrative intensity is reflected in the proliferation of rules

that govern the behaviour of participants on the platform. Also, while prior studies have

regarded formalization as having two extreme ends, i.e. in binary terms, either formal or

informal (Lee and Hung 2014; Webb et al. 2014), this study shows that it is more appropriate

for the study of digital platforms to think of formalization as a continuum (Toivonen and

Rivera-Santos 2016). In the case of GO-JEK, as the platform moved from less to more

formal, it was largely operating in the “semi-formal” space, which provided it with the

Figure 12. Stages of Formalization through a Sharing Economy Platform

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flexibility and agility needed in organizing its activities and in dealing with government

regulations.

Institutional Change towards Formalization

The GO-JEK case highlights how movement along the continuum of formalization requires

significant institutional change. The case narratives offer a basis for identifying the shifts in

logics that institutional entrepreneurs generate in the platform-based ecosystem to attain this

change (Table 3). They indicate that these institutional entrepreneurs tap into the

opportunities of change inherent to many informal sectors. In the case of GO-JEK, the

platform acted as an institutional entrepreneur to transform the ride-hailing sector in

Indonesia from an informal ojek setting, reflecting an informal market logic, to a ride-hailing

GO-JEK service, reflecting a matchmaking logic, before advancing further to providing

multiple services via the GO-JEK platform, which reflects a service system logic. Table 3

detailed this logic change. Specifically, I looked at four elements of the logics, which are

sources of legitimacy, sources of identity, basis of norms and control mechanisms.

Table 3. Types of Institutional Logics in the Transportation Sector Elements of

Logics Informal Market

Logic Matchmaking

Logic Service System

Logic Characteristics of Logics with Illustrations from the Case

Sources of Legitimacy

Negotiated boundaries: • Ojek drivers source

for customers within their respective pangkalan

Association with the platform:

• Drivers who succeed

in joining the platform by satisfying the platform recruitment requirements will gain legitimacy in the eyes of the riders

Partnership with the platform: • GO-JEK became a

source of legitimacy through partnerships for other businesses including its competitors

Sources of Identity

Local community: • Ojek drivers identify

Identification with either side of the platform (service provider or user): • By wearing the green

Positioning within a category of services: • Different partners

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Regarding the sources of legitimacy, for informal market logic, it involves negotiated

boundaries where stakeholders operate within boundaries that have been agreed based on

long time and informal practices. For both matchmaking and service system logics,

legitimacy is gained through the platform. Particularly, in matchmaking logic, it is about the

association with the platform; meaning that players who manage to join the platform

successfully will be seen as more legitimate by the other members of the ecosystem. In

service system logic, it is the partnership with the platform that provides the legitimacy.

Businesses and even industry competitors (through coopetition) partnering with the platform

will be recognized by others as being legitimate.

For sources of identity, under informal market logic, the players identify themselves with

their local community of drivers. For matchmaking logic, it is about identification with

either side of the platform; meaning that platform participants acquire identity by identifying

themselves as service providers on the platforms or as users of its services. For service

themselves with the group of ojek drivers operating in the same area

uniform, GO-JEK drivers identify themselves as service providers within the platform ecosystem

will be part of GO-FOOD, GO-GLAM, etc. depending on the nature of their business

Basis of Norms

Traditional practices: • Driver-rider pairing

is defined by the physical area boundary based on the informal norms that are built up over the years within the ojek-hailing sector

Algorithmic rules: • Platform algorithm

assigns drivers to the appropriate ride requests to ensure optimization of the resource usage

Integrated practices: • Businesses from

multiple sectors start to integrate their practices based on platform features such as the payment service, i.e. GO-PAY

Control Mechanisms

Emergent order/disorder: • Ojek drivers will

queue to in a spontaneous manner and an order will emerge, but this can also result in a lack of order

Rating system: • GO-JEK influences

the behaviour of its drivers by allowing the riders to rate their performance

Interlinked incentives: • Incentive system to

encourage GO-JEK drivers to entice customers to use GO-PAY (based on a cash-to-e-money conversion)

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system logic, identity becomes more about positioning within a category services. In

particular, platform partners are identified in the ecosystem based on the nature of the

businesses they bring to the platform.

With regards to norms, traditional practices that have been institutionalized over long

periods of time are the basis of norms in an informal market logic. When the ecosystem

moves into a matchmaking logic, the norms become guided by algorithmic rules of the

platform. Algorithmic rules enable the sharing economy platforms to automatically determine

the allocation of resources. Once an ecosystem moves into a service system logic, norms

become based on the need for integrated practices. This means that the norms of practice

amongst businesses joining the platform as partners become shaped by the need to align with

the dominant practices on the sharing economy platform.

Finally, for control mechanisms, in informal market logic, control is fluid and is the result of

an emergent order/disorder, such as the order that emerges from the spontaneous queuing of

the drivers. The whole ecosystem will strive to shape and stabilise itself for the better (but

sometimes, it can be for the worse). Under matchmaking logic, there is a rating system to

help govern the smooth operations in the ecosystem and ensure there is harmony between

both sides of the platform. In service system logic, the control mechanisms surface as

interlinked resources, where there are complex incentive systems to encourage various

stakeholders in the platform to contribute to the ecosystem.

Theoretical and Practical Contributions

This study makes three distinct but interrelated theoretical contributions. The first

contribution is to the literature on formalization. While most studies have focused on

formalization within organizational context (Elvira and Graham 2002; Hempel et al. 2012;

Merz and Sauber 1995), this study brings attention to the significance of formalization

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processes in the broad ecosystems generated by digital platforms. Also, while much of the

academic and practical attention is on how sharing economy platforms are making formal

sectors more informal (Guttentag 2015; Surie and Koduganti 2016), this study offers a first

analysis of the opposite effect by looking at how these emerging platforms are contributing to

the formalization of various informal sectors.

The second theoretical contribution is the literature on digital platforms. While much of the

literature on platform strategies focuses on the internal dynamics of platforms, such as coring

(how to create a new platform where none existed before) and tipping (how to win platform

wars by building market momentum) (Gawer and Cusumano 2008; Tan et al. 2015;

Toppenberg et al. 2016), this study highlights the broader institutional actions in which

platform owners need to engage in order to create conditions that are conducive to the growth

of their platforms.

The third theoretical contribution is to the broad literature on institutional logics (Scott 2001;

Thornton and Ocasio 1999) and institutional entrepreneurship (DiMaggio 1988; Maguire et

al. 2004). The proposed framework offers an understanding of how an informal institution

can evolve to become increasingly more formal over time, through a gradual shift in logics.

This study opens up and details the institutional changes that account for the shift in the level

of formalization. It details the interplay between the processes of formalization and the

mechanisms through which institutional entrepreneurs bring about during the shift in logics,

including changes to legitimacy, identity, norms and control.

Institutional change is often initiated by powerful actors. However, this study shows how

digital platforms allow less dominant, more peripheral actors like GO-JEK in its initial stage

to become disruptive to the ecosystem, initiating and bringing significant institutional change.

These actors tend to be less constrained by institutional norms and practices, and are more

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likely to be exposed to alternative modes of organizing by being at the periphery of the

existing field (Suddaby and Greenwood 2006; Maguire 2007). Such actors are more likely to

capitalize on the disadvantages of the prevailing arrangements (Leblebici et al. 1991) to bring

about radical change.

In addition, the findings of this study have several practical implications. I discuss here three

main ones. First, the findings provide sharing economy platforms with insights into the

institutional complexity of the ecosystem they are building around the platform and how

processes of change such as formalization are affected by that complexity. In addition, the

finding bring attention of potential platform developers to the opportunities in the informal

sector to introduce new modes of organizing that target a ‘sweet spot’ along the continuum

between formal and informal organizing. The potential transformative effect of such

platforms on communities can be particularly significant given the size of the informal sector

in the economy, particularly in developing nations, and its impact on the livelihood and

employment opportunities for some of the most vulnerable segment of the population

(Benjamin et al. 2014). However, this also means that consideration of the unintended

consequences of the introduction of such platforms is also of paramount importance.

A second practical insight is to the local governments and policy makers. The process view of

how sharing economy platforms transform their institutional environment enables them to be

more aware of the (step-wise) impact that these industry players are bringing to the economy

so that they can design and implement policies that regulate the actions of emerging sharing

economy platforms. Currently, many policies implemented by the various governments

worldwide have been focusing on regulating sharing economy platforms that do away with

established rules and procedures of doing business in particular sectors, making them less

formal (Guttentag 2015; Zervas et al. 2017). This study suggests that it is equally important

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to look at how sharing economy platforms are adding rules and procedure to sectors that have

had few in the past. The focus of policy formulation might need to be different in these

cases.

A third practical contribution relates to the communities affected by sharing economy

platforms, particularly as users of their services. For people working with such communities,

the study offers insights on how the services of sharing economy platforms can be

influencing the behaviours and overall culture of those communities. However, with the focus

on formalization, the study highlights ways in which various communities can benefit from

the rise of sharing economy platforms. In particular, instead of viewing the new services as

threats to the traditional practices, which most locals should have grown accustomed to and

are therefore comfortable with, more formal procedures and standards in place can contribute

to a better quality of services and potentially to a better quality of life.

8. Conclusion

Sharing economy platforms can result in significant institutional changes. They can provide

more job opportunities to the locals, industry partners and competitors. The case of GO-JEK

offer an illustration of how such platforms “formalize” an informal sector by establishing

new norms and control mechanism and new bases of legitimacy and identity. By shifting the

institutional logics, GO-JEK transformed the informal ojek sector towards higher levels of

formalization.

The findings of this study should be viewed within the context of its limitations. The

interview data was collected mainly in Jakarta, Indonesia. Cultural issues, such as language,

religion, and ethnic traditions, certainly contribute to shaping the institutional environment of

sharing economy platforms, but they have not been included in the theorization of this study.

Another limitation of this study is the lack of interview data with traditional ojek drivers,

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which might have revealed some unintended and undesired consequences of platform

disruption that are not captured in the current data and that might contribute to making

marginalized communities more excluded.

However, I did try to alleviate these issues by tapping into the use of secondary data such as

online articles. For example, online sources allowed a more complete understanding of how

ojek drivers reacted to GO-JEK (such as reports regarding the strikes and protests). Future

study can study more in-depth into the actual sentiments of people who are working in

informal sectors and how their lives might have been changed with the introduction of

sharing economy platforms. This would need to be done by seeking the views of two main

groups of informal workers – those who decide to join the platform and those who refuse to

do so.

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CHAPTER 4

Study Two: Digital Platforms and Community Development: An

Institutional Perspective on the Evolution of Platform-Based Ecosystems

Abstract

Digital platforms are becoming an important catalyst for social transformation and

development amongst a wide range of communities. However, prior studies have focused on

the general structure of mature platform-based ecosystems and its impact on communities,

with little research looking at the challenges facing digital platforms in their early stages of

evolution to bring about change in a community. Using an interpretive case study approach,

this study investigates how these platform-based ecosystems evolve and overcome

institutional constraints to bring about social change. We build our theory development on the

case of iGrow, which is a resource integration platform for the agricultural sector in

Indonesia. The case indicates that an ecosystem needs to overcome different institutional

constraints at various stages of its growth, and that the underlying digital platform helps the

ecosystem in overcoming these constraints by offering an “organizing vision” that helps the

ecosystem members construct meaning, provide legitimacy, and mobilize support for new

practices and production activities. This analysis provides a theoretical foundation for

understanding the mechanisms through which platform-based ecosystems evolve to enable or

constrain community-driven change.

1. Introduction

The introduction of Information Technologies (IT) is enabling the socioeconomic

development of underserved communities through access to education (Furuholt and Orvik

2006), healthcare (Chilundo and Sahay 2005; Kimaro and Nhampossa 2005) and markets

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(Qiang et al. 2006). IT-enabled community development can take the form of top-down

professional interventions (McKnight and Kretzmann 1993) as it can be based on

community-driven transformations (Leong et al. 2015; Mansuri and Rao 2004). Besides IT-

based transformations that are seen to increasingly empower marginalized communities by

providing access to products and services, an increasingly common mode of transformation

involves the creation of ecosystems that enable self-development (Njihia and Merali 2013).

Deepening our understanding of these ecosystems is critical for revealing the mechanism

through which they enable community-driven change.

Such ecosystems are now commonly built around digital platforms (Kenney and Zysman

2015; Tan et al. 2015). Hence developing a conceptual understanding of ecosystems requires

attention to how digital platforms provide a basis for the growth of ecosystems and the

challenges they face in supporting this growth (Moore 1993). Despite the recent prevalence

of digital platforms, few platforms actually succeed in building large and stable ecosystems –

most platforms become stagnant after early stages of growth and many eventually phase out

(Evans and Schmalensee 2016; Tiwana 2013). These ecosystems are institutional fields and

their growth faces numerous institutional constraints. While most of the literature focuses on

constraints that are related to the internal workings of platforms (Van Alstyne et al. 2016),

there is little research on those constraints relating to the broader environment of platforms

(i.e., institutional constraints) (Tilson et al. 2010). This study therefore aims to develop an

empirically supported and theoretically grounded understanding of how digital platforms

enable community development by raising the following research question:

How do digital platforms enable community development in the face of

institutional constraints?

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To address this question, I draw from a case study of iGrow, an acclaimed digital platform

that operates within the agricultural community in Indonesia linking urban investors with

farmers and landowners. On the iGrow platform, investors can choose from a variety of crops

that they wish to invest in according to their budget and expected return. The farmers then

plant the crops while an iGrow team monitors and uploads updates of the process via the

platform. Once the crops are harvested, they are sold to iGrow’s partner merchants and both

the investors and farmers share the profit. My case analysis indicates that, since its

deployment, the iGrow platform provided the agricultural community with a new “organizing

vision” that enabled the growth of an ecosystem in which the dynamics between multiple

stakeholders could overcome major institutional constraints. In particular, the emerging

ecosystem addressed challenges of trust, participation capabilities, and agility that were

limiting the development potential of the agricultural community. Overcoming these

constraints was built on the broadening of the types of actors, relation, and practices

constituting the agricultural community. Overall, this paper contributes to the literature on the

evolution of platform-based ecosystems and provides theoretical insights into the institutional

dimension of platform-based societal change.

2. Literature Review

2.1. Evolution of Sharing Economy Platforms

A platform is defined as “a set of stable components that supports variety and evolvability in

a system by constraining the linkages among the other components” (Baldwin and Woodard

2009, p. 19). Platforms, such as bazaars, have for long been a major form for organizing

market transactions (Hagiu 2009). More recently, digital platforms, such as Apple’s iOS upon

which numerous applications are built and sold, provide a scaled up and distributed version

of old market platforms. Besides having a major impact on the economy, platforms are

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becoming critical in promoting innovation (Gawer 2009). Amongst the multiple types of

platforms, a particular type that is growing in significance and impact is the so called

“sharing economy platforms” (Choe 2016). These platforms help their participants tap into

under-utilized (or idle) resources, shift and redeploy them to more efficient use (Frenken and

Schor 2017). The two most discussed players in this field are Uber (a ridesharing platform for

hailing private cars and taxis) and Airbnb (a private accommodation sharing platform for

short-term room or apartment rental). Some other examples of popular sharing economy

platforms are Lyft (on-demand transportation platform), BlaBlaCar (long distance carpooling

platform), TaskRabbit (handyman services platform), and Upwork (recruitment services

platform).

Constantiou et al. (2017, p. 235) argued that sharing economy platforms gain advantage over

other forms of organizing because of their “boundary fluidity”. This refers to “the loosening

of formerly strict distinctions in all organizational fields, contexts and domains, including

boundaries between producer and consumer, insourcing and outsourcing, or product and

service”. Such boundary fluidity enables ease of participation in sharing economy platforms

and opens the way for a wider range of actors to participate in value creation. However, this

means that platforms need to find the right mix of organizational and market coordination

mechanisms that fit this boundary fluidity. Coordination mechanisms govern the interactions

between participants, whether they are on the same or opposite sides of a platform.

Organizational coordination mechanisms involve the standardization of interactions, while

market coordination mechanisms involve pricing schemes that incentivize the sharing or

renting of privately owned resources.

Although sharing economy platforms do not require large investments in assets (Wallenstein

and Shelat 2017), for them to continue growing, it is critical to keep recruiting new

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participants on both sides of the platform (Evans and Schmalensee 2010). Network effects are

at the core of sharing economy business models and their value propositions (Frenken and

Schor 2017). The attraction and value of any sharing economy platform increases with the

number of users, meaning the more people use a service, the more new people will join in. As

sharing economy platforms deploy business model that require them to posses less company-

owned assets as compared to traditional businesses, this allows the platforms to have more

flexibility in adapting their strategies to environmental changes and tapping into new business

opportunities, thereby intensifying the competition for incumbents.

Despite the increasing significance of sharing economy platforms in most socioeconomic

systems, our understanding of the factors that contribute to platform growth and success

remains fairly limited (Ondrus et al. 2015). Research on the evolution of platforms is also

fragmented across multiple disciplines such as marketing, information systems, economics,

technology management and strategy (Tiwana et al. 2010). One necessary (though not

sufficient) condition for platform’s continued evolution is getting a critical mass of users

(Evans and Schmalensee 2010). However, the complexity of reaching this critical mass varies

depending on the number of distinct groups participating in a platform. For example, this

complexity increases with multi-sided platforms that coordinate simultaneous interactions

between multiple heterogeneous groups of users (Armstrong 2006; Evans 2003; Rochet and

Tirole 2003). The growth of these multi-sided platforms depends on both same-side and

cross-side network effects (Parker and Van Alstyne 2005; Rysman 2009).

One of the critical conditions for platform growth is having sufficient market potential, which

is the maximum number of users who can potentially join a platform on any side (Bass 1969).

Other factors include trust and ease of use, which are often viewed as necessary conditions to

reach critical mass within the given market potential (Davis 1989; Venkatesh et al. 2003). In

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particular, trust is a seen as key ingredient in the evolution of sharing economy platforms

since one of the main functions of these platforms is to act as intermediaries, matchmakers or

gatekeepers between multiple participants and to lower the cost of their transacting

(Constantiou et al. 2017). For example, most ride-hailing platforms enhance trust by

screening the drivers and their cars, operating review systems for drivers and riders, and

standardizing behaviour through algorithmic control.

2.2. Sharing Economy Platforms and Community Development: The Ecosystem

Approach

Sharing economy platforms can bring about the development of ecosystems that are

conducive to societal transformation in various communities. These platforms facilitate the

sharing (i.e. granting of temporary access) of under-utilized or idle physical assets, possibly

for monetary rewards (Frenken et al. 2015). Popular examples of resources that are being

shared are cars (e.g., Lyft and BlaBlaCar) and homes (e.g., Airbnb and Couchsurfing). Such

notion of sharing idle capacity is beneficial as consumers can gain affordable access to goods

by renting or lending them from others. For example, car sharing platforms help to reduce the

carbon footprint by decreasing the number of cars required for a given mileage level. It is

also found that the platforms have been effective in creating new social ties and helps in

building social interactions (Fitzmaurice et al. 2018).

Prior research tended to focus on traditional approaches to community development

involving a single organization designing and deploying an ICT solution to resolve a specific

problem. This research reflected a sequential process of ICT for development – from

assembling actors to designing the ICT solution and then implementing the system. Little is

known about how ICTs, particularly in the form of digital platforms, generate ecosystems in

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which multiple entities interact, influence each other and evolve over time to transform

communities along complex and non-linear paths.

Adopting an ecosystem view of ICTs and digital platforms shifts the focus from internal

optimization to external interaction (Van Alstyne et al. 2016) and turns attention to the ability

of platform-based organizing to overcome the limitations of resources and capabilities of a

single entity. This is because the growth of platform-based ecosystems enables “convergent

innovation” where individual stakeholders create value for themselves, and at the same time,

increase the pool of technological, human, economic and material resources that go into a

collective agenda centred on the objectives of the platform (Dubé et al. 2014; Dubé et al.

2012; Jha et al. 2014).

Several studies have adopted an ecosystem approach for understanding the transformative

effect of digital platforms. For example, Jha et al. (2016) examined the emergence and

evolution of a platform-enabled ecosystem, called eKutir, which is aimed at lessening farmer

poverty in India. Their study revealed that the eKutir’s ecosystem has evolved through five

phases. At each phase, the number and types of actors engaged increased alongside with the

breadth of ICT-supported services provided. Using an incremental approach, eKutir

developed an ICT infrastructure and a sustainable farmer engagement model that facilitated

the sharing of information and coordination of actions among partners, gradually creating a

robust ecosystem around the ICT platform. Within each stage, the ecosystem actors addressed

critical complex problems faced by farmers in a coordinated and integrated manner.

3. Theoretical Background: Organizing Vision

In order to understand how digital platforms enable community development, we need to

understand how platforms enable communities to overcome the institutional constraints that

hinder their transformation. To do that, we draw in this study from the stream of theoretical

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developments in institutional theory built around the concept of “organizing vision”

(Troshani and Wickramasinghe 2016; Yang and Hsu 2011; Yoo et al. 2012). The literature on

“organizing vision” addresses the institutional dimension of the diffusion of digital

innovation with particular focus on the early stages of institutionalization. Swanson and

Ramiller (1997) proposed the concept of “organizing vision” to represent “a focal community

idea for the application of information technology in organizations” (p. 460). Put simply, an

organizing vision is “a community’s idea about the application of an information technology”

(Miranda et al. 2015a, p. 3). It consists mainly of three types of knowledge: what the

technology is, why the technology should be considered by organizations, and how the

technology can be adopted, implemented and used (Wang and Ramiller 2009). This concept

of organizing vision has since been used to study a variety of IT innovations (Currie 2004;

Kaganer et al. 2010; Ramiller and Swanson 2003; Wang and Ramiller 2009; Wang and

Swanson 2008). The literature emphasizes IT innovation as interwoven with institutional

arrangements that are shared amongst a community of organizations (Vargo and Lusch

2014). The institutional arrangements reflect the “schema, norms and regulations” that

organize and regulate the social life in and between organizations within a socio-economic

sector (Hargrave and Van de Ven 2006, p.866).

Thus organizing vision draws on institutional theory to explain how new IT innovations

diffuse amongst a community of organizations through discursive processes. Swanson and

Ramiller (1997, p. 461) posit an organizing vision serves three critical functions in the early

stages of the diffusion process: interpretation (i.e., constructing meaning; interpreting the

expected uses and usefulness of the innovation), legitimation (i.e., providing legitimacy;

legitimating the innovation by linking it to commonly acknowledged and accepted business

problems), and mobilization (i.e., supporting agency; mobilizing industry actors to participate

in the innovation). In fact, the three types of knowledge as discussed in the previous

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paragraph facilitate interpretation and legitimization of the technology, and help mobilize the

material resources necessary for the technology to diffuse (Swanson and Ramiller 1997). The

organizing vision addresses uncertainties in an IT innovation by providing a community-level

interpretation or public account of the innovation’s purposes and goals. This organizing

vision shapes and is shaped by the innovation community. It evolves as adopters gain

experience with the innovation and their engagement with its implementation refine the

community’s shared understanding of its purposes (Pollock and Williams 2011; Wang and

Ramiller 2009).

The literature on organizing vision has investigated various characteristics that make an

organizing vision effective in positively influencing an innovation diffusion. Three

characteristics include interpretability, plausibility and importance of the vision (Marsan et al.

2012; Ramiller and Swanson 2003). An innovation with a coherent and continuous vision

(Ramiller and Swanson 2003; Swanson and Ramiller 1997; Wang and Swanson 2007), and a

vision that is clear in addressing diverse business problematics (Miranda et al. 2015b) is

found to reach wider diffusion. The organizing vision literature has also examined how

community members contribute to IT innovation diffusion (Miranda et al. 2015a). According

to Wang and Swanson (2007), institutional entrepreneurs attempt to facilitate innovation

diffusion by developing and recognizing community leaders, attracting community attention

to the vision and developing a coherent narrative of the innovation that incorporates success

stories. Wang and Ramiller (2009) also found that different community members contributed

to different knowledge categories within the organizing vision and at different stages of

diffusion; vendors contribute the most at early stages of diffusion, while adopters contribute

the most at later stages of diffusion, particularly to the know-what category of an organizing

vision.

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In this study, organizing vision provides a framework for analyzing the evolution of platform-

based ecosystems. It highlights the role of digital platforms in providing an organizing vision

that supports the diffusion of new practices and, through that, the growth and sustainability of

an ecosystem.

4. Research Methodology

This study is based on the case study methodology. The case company is iGrow, which is a

platform organization based in Jakarta, Indonesia that connects under-employed farmers,

landowners and investors to leverage on under-utilized land to produce high-quality organic

food and sustainable incomes for all stakeholders in its ecosystem. The company has been

recognized across the country as having more than a commercial purpose but a social mission

to link farmers, landowners, investors, to crop buyers and to develop under-used arable farm

land across Indonesia. Amongst other technologies, iGrow uses an agricultural management

software to develop the working relationships between farmers, landowners and investors.

4.1. Data Analysis

I leveraged on the preliminary dataset that was first collected as part of other related projects

in September 2016 and continued with further interviews until December 2017. Data

collection occurred through fieldwork in Jakarta and rural parts of Indonesia where I and a

team of researchers interviewed farmers, landowners, investors, to crop buyers and recorded

these interviews whenever possible. The purpose of the data collection is to investigate how

platform-based ecosystems orchestrated actions from various community players to enable

social change. I first seek to comprehend landholder and farmer poverty in the communities. I

then try to understand the role of sponsors, who helped reach out to farmers, their relationship

with iGrow and other actors, and how their economic and social standing change over time,

and the change they see in farmers’ lives. With farmers, I focus on their economic standing

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prior to iGrow and how with the digital platform that has changed, and their perception of

technology. I probed the key inflection points of the organizational strategies and the impact

of technology on other constituents. I ensured these were validated across all respondents in

order to increase the internal validity of the study and minimize any retrospective bias of

individual respondents. For interviews with the farmers, a translator was used. In addition to

the data gathering from these interviews, I relied on secondary data from online information

about iGrow’s development and activities. This further enriched my understanding and

enabled me to triangulate the data (Neuman 2010).

In all, a total of 15 interviews were conducted. The respondents include iGrow’s Chairman,

Co-Founder and CEO, Finance Officer, Business Development Manager, one Surveyor, one

Investor and from Jonggol Farm, one Farm Coordinator and eight Farmers. The interviews

helped me to map out the key stakeholders/constituents in the iGrow ecosystem, as shown in

Table 4. In particular, the table also reveals critical actors of each stage and the interaction

between the actors and technology in a particular farm in Jonggol community. For example, I

conducted interview with the Co-Founder and CEO, Andreas Senjaya of iGrow, to develop a

preliminary understanding of the various stages through which iGrow has progressed for

Jonggol. I analyzed the data as it was collected to take full advantage of the flexibility of the

case research approach (Eisenhardt 1989). Through generative narratives and an iterative

process by moving between the empirical data, our guiding lens of organizing vision, and the

related literature (Eisenhardt 1989), I uncovered new themes in the data, developed further

mappings of the coded responses, and subsequently, extended my understanding of the

iGrow’s ecosystem.

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Table 4. Critical Actors and Constituents of the iGrow Ecosystem

Actors Description Roles and Examples from (Jonggol) Farm

Farm Workers

Farmers who plant and harvest the crops

“The farmers only do the technical job in the field ... The farm workers usually are already attached with the landowners. So they are in the same team.” (Surveyor)

Landowners Owners of the farming land “We connect the landowners with the investors ... The landowners are helped by farm workers.” (Surveyor)

Investors Urbanites who provide the financial means and are the so-called sponsors of the farming activities

“Our investor consists of more than 1000 people. Maybe around 1100 persons right now. Half of them become our repeated investors ... 99% of our peanut investors became repeat investors in next term of plantation.” (Founder and Chairman)

Farm Supervisors iGrow employees who are the managers of the farms and they are in-charge-of recruiting farmers.

“I will report what I get on the field to Mr. Muhsin or Mrs. Ulya.” (Farm Supervisor)

Surveyors iGrow employees who send the farming reports to update investors via the platform, and they are in-charge-of recruiting landowners and investors

“My job is giving plant updates to the investors ... The technology is only used by the surveyor. So I have a mobile application that can be used 24 hours a day to give updates about the plant to the investors every day.” (Surveyor)

Crop Buyers Consumers of the harvested crops

“We do not sell to the customer directly but we sell to the big businesses that become our buyers ... Our fruits are bought by Carrefour and Hero Group. We are working with Kacang Garuda and Dua Kelinci to be our buyers for peanut, and for fragrant root, we are working with a company in Garut which does extracted oil activity for some countries in Europe and India.” (Co-Founder and CEO)

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4.2. Case Background

A United Nations research suggests that crop yields need to double within 40 years in order

to keep up with the world’s population growth (Nations 2009). Specifically, according to

FAO (Food and Agriculture Organization of the United Nations), our food production will

have to increase by 70 percent for an additional 2.3 billion people by 2050 (FAO 2009). This

means that enhancing the scalability and efficiency of farming is critical for meeting the

needs of future generations.

In Indonesia, a major challenge in meeting these objectives is the difficulties faced by

farmers in securing funds to support agricultural production. Another challenge for the sector

is that large swaths of arable land remain unused because of lack of organizational capacity to

support production. iGrow was set as a solution to these two challenges through the

development of a digital platform that connects investors to farmers and landowners (Figure

13). The basic idea of iGrow is to enable people from urban areas (who are known as

sponsors) to fund local farmers to grow specific produce on land that the platform sources

from its network of landowners. The platform thus allows the sponsors to get a return on their

investment without requiring any expertise in agriculture, it allows landowners to turn their

dormant lands into productive spaces, and allows farmers to have access to much needed

capital. As highlighted by an iGrow Surveyor: “Before iGrow, there are so many uncultivated

land. It was such a waste. On the other hand, there are many farmers that want to plant but

they don’t have any capital. So, iGrow provided the solution to connect them.”. Basically, the

company is aiming to be Indonesia’s future of farming and entrepreneurship.

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The company also provides a system for supervision and administration of agricultural

activities. The growth of the plants is monitored by independent surveyors, who then send

regular updates on the state of the crops to the sponsors via the platform. Once the harvest is

ready, iGrow uses its existing distribution channels to sell the produce. After sponsors get a

return on their investment, they continue to gain 40 percent of the profits brought in by the

plants thereafter; while the remaining 60 percent then goes into taking care of the plant until

end of its lifecycle. The sponsor can decide to turn their yields into cash, and they can choose

to donate the results to local schools, hospitals or other non-profit organizations.

Typically, how fast the returns will be is based on the type of seeds that the sponsors choose

to invest in. For example, peanut plants can produce crops within six months, but durian trees

will need five years to grow fruits. According to Andreas Senjaya, CEO of iGrow, the

company had at the time of this study an estimate of around 207 sponsors and had handled

nearly 30,000 plants; by targeting the middle class urbanites in Indonesia, which is around 60

million people, the potential market size for iGrow is somewhere close to US$24 billion

(Cosseboom 2014). In addition to its impact on production levels, iGrow aims to have a

social and environmental impact. According to Muhaimin Iqbal, iGrow Founder and

Chairman: “The idea came from our day to day problem, which is (how to provide) massive

food supplies for Indonesia’s 250 million population. We have enough fertile land but we

Figure 13. iGrow Ecosystem

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import so much food supplies, because a lot of our land is idle or under-utilized, therefore we

want to maximize the land utilization and to improve the environment as well.” (Guerrini

2015).

iGrow offers a platform that is the basis of several digitally enabled processes. First, the

platform allows sponsors to register an account and provides them with choices from a

variety of crops such as durian, peanuts or longan. It also helps them decide on the amount to

invest by selecting the amount of seeds to plant. The platform supports the transfer of

payments. The sponsors wait for their plantation to bear fruits, which can take between 6

months and 5 years, depending on the type of selected crop. During this time the platform

provides periodic reports supported with images from the field that help sponsors monitor

their production.

5. Case Findings and Analysis

In this study, I examine the development of the iGrow’s ecosystem across three stages: birth,

expansion and self-renewal (Moore 1993). Moore (1993) proposes these three stages for

describing the evolutionary stages of a business ecosystem. In a business ecosystem,

companies co-evolve around a new innovation. They work cooperatively and competitively

to support new products, satisfy customer needs and eventually incorporate the next round of

innovations. In the birth stage, entrepreneurs tend to focus on defining what customers want,

i.e., determining the value of a proposed new product or service and the best form for

delivering it. In the expansion stage, they develop a core business concept that is valuable to a

large number of customers and they build the organizational capabilities to scale up and reach

a broad market. In the self-renewal stage, mature business communities are often threatened

by new innovations to which they must constantly react to ensure their continued relevance

and viability.

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In the case of iGrow, the birth stage is concerning the initial introduction of the iGrow’s

platform to the agricultural community; this required buy-in of the key stakeholders

(investors and farmers/landowners) in the ecosystem. The expansion stage is when iGrow

gained an initial foothold in the Indonesian agricultural sector and attempted to attract a

larger group of participants; here, to expand, the participants must be equipped with right

knowledge (and skill sets) to increase farming productivity. Finally, the self-renewal stage is

when iGrow becomes sustainable and continues to gain steady growth; for that, having

constant deployment of new technologies to add more advanced farming techniques is critical

to ensure that the company continues to thrive and gain a strong foothold in the agricultural

sector.

5.1. Birth Stage: The Challenge of Building Trust

iGrow started as a platform that provides a marketplace bringing together under-employed

farmers, owners of under-utilized land and cash-rich urban investors to produce high quality

organic food and sustainable incomes with its agricultural management software. These

investors are mainly Indonesia’s middle class urbanites, which number around 60 million

people, leading to estimates of the potential market size for iGrow at somewhere close to

US$24 billion (Cosseboom 2014). The agricultural start-up has been described as a

“Farmville for real life” (Freischlad 2016c). iGrow co-founder and CEO, Andreas Senjaya,

mentioned that the company has already allocated US$1.4 million for planting in various part

of Indonesia such as Buleleng, Blitar, Garut, Jonggol and Banten (Freischlad 2016b). Another

co-founder and Head of the Business Development team, Jim Oklahoma, believes that the

start-up sees a huge growth opportunity in Indonesia. Andreas and Jim co-founded iGrow

together with Muhaimin Iqbal, who was a farmer previously, in 2014. Muhaimin owns about

610 hectares of land and has more than ten years of agriculture experience. In his LinkedIn

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profile, Andreas also mentioned that he aims to create a better living environment by making

impactful and sustainable product. According to Andreas, the company hopes to become the

place where farmers and landowners can gather together and create more potential initiatives.

In its attempt to attract multiple stakeholders (especially investors and farmers) to the

platform, one main constraint faced at this stage is to develop trust amongst the different

parties. Essentially, there are two types of trust involved here; one type is trust between the

platform participants, and the other type is trust in the platform and the mechanisms behind

the operations of the platform.

First, in order to recruit farmers, it is necessary for iGrow to get buy-in and gain the trust of

the farmers. In this initial stage, iGrow faced important obstacles in trying to convince

farmers to join the platform.

When [we] talk to the farmers, they have some rejection [of] iGrow because this

is a new model. They didn't believe [in] iGrow. We must give proof to them

before we start to [expand] our plantation or farming. For example, in Bali, the

first farming area is only 20 hectares because we have a lot of rejection from the

local communities. After the 20 hectares [brought] in successful harvest, we

enlarged that to 40 hectares, then to 120 hectares and so on, until now to 150

hectares. (Andreas Senjaya, iGrow Co-Founder and CEO)

To overcome the trust issue and recruit farmers and landowners, iGrow first approached the

village head and respected seniors in each community to convince them about its business

model. These key influencers then encouraged their village members (who are the farmers

and landowners) to take part in the platform.

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We talked to the leaders of the community, and from them, we then asked some of

their closest partners, the closest citizen there to work with us ... In Garut (a town

in the West Java province of Indonesia), we also talked to the leader and elders in

the community. Then, they recommended some of the citizens to work with us.

(Andreas Senjaya, iGrow Co-Founder and CEO)

iGrow also links small urban investors to farming opportunities. This can be perceived as a

risky investment to most urbanites because first, the urbanites do not monitor the actual

farming, which is occurring mostly in the rural areas (a far distance away from the cities), and

second, the crops can take months to years to grow before they can be harvested. Moreover,

longer term crops such as durian and avocado are viewed as more risky form of investments.

Building trust is critical at this stage in order to entice investors to come onboard the platform

and invest in the crops.

Trust is the most important ... They [iGrow] give us reports that are so clear, and

we get the money ... That's why I trust them. (iGrow Investor)

iGrow investors can freely choose the type of crop to buy depending on their level of risk

aversion. For more risk adverse investors, they can choose to purchase short-term crops such

as peanut and sugar cane, and get lower returns in say six months; while the less risk adverse

investors can choose to get longer-terms crops such as durian and avocado that usually reap

higher returns in say five years:

Right now, the investors have freedom to choose all seeds in our website. We

have 11 different types of the seed ... Like long‑term plantation that will only give

the result after they wait for four years or five years. This is not the best option

for the early stage of investors. Maybe it's really good ROI, but when this is the

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first time, for those people, they tend to not try it in long‑term plantation.

(Andreas Senjaya, iGrow Co-Founder and CEO)

In the iGrow’s website, there is also an option (“Best for Trial”; see Figure 14) to select

short-term crops for trial. So for the first-time amateur investors, this serves as a good guide

and/or filter to help them decide which crops to invest:

In order to further build up the trust level of the investors over time, several measures are

deployed by iGrow. First, to counter the challenge of moral hazard associated with the

inability of urban dwellers to monitor their farming investments in rural areas, the company

deployed a surveying system and its accompanying discourse of control and visibility.

I have a mobile application that can be used 24 hours a day to give updates about

the plant to the investor every day. (iGrow Surveyor)

Second, the urban investors have the option of starting with smaller investments that can reap

faster returns (such as peanuts), hence omitting the need for a large capital at one go.

Figure 14. iGrow Website

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Because the first time is maybe more of curiosity ... [iGrow] let me invest only

one unit for the peanuts ... It's short term basically, then I waited for six months.

It’s good, so I continued to expand the investment. (iGrow Investor)

Third, investors are invited to tour the farms (and also to talk to the farmers) on a regular

basis to let them see for themselves how their crop investments are doing. This is a shift from

online to offline and physical interactions, which can help in building trust among the

participants of the digital platform.

What makes me happy is that iGrow contacts me to visit the fields to see the

farmers ... So I get to talk to the farmers who are helping me to farm ... It’s like a

tour for the investors to see their investment themselves. (iGrow Investor)

5.2. Expansion Stage: The Challenge of Building Participation Capabilities

At the time of the study, iGrow has employed more than 2,200 farmers in almost 2,000

hectares of land. The company has delivered 500 tons of healthy peanuts and gained revenue

for the farmers, landowners and investors. However, this only covers a small portion of

under-utilized land in Indonesia, which totals more than 16 million hectares. Yet, for its

continual expansion, iGrow needed to mobilize a wide range of stakeholders and sustain their

participation in the ecosystem.

While iGrow’s social mission was the drive behind its establishment, its ability to not just

provide help to the farmers but to support their agency and ability to act on their own

conditions was the basis of the growth and sustainability of its ecosystem at this stage. This

means that increasing the knowledge (and upgrading the skills) of the farmers were important

at this stage.

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The biggest challenge for iGrow now is no longer capital. It's skill because skill

is not something that you can multiply any time. You must persistently grow it to

train them and drive them and encourage them, challenge them, motivate them,

and this is not easy. (Muhaimin Iqbal, iGrow Founder and Chairman)

To increase the pool of employees (i.e., farm supervisors and surveyors) who could assist to

supervise the farmers in an efficient manner, and ensure that the right training was provided,

iGrow started its own school of agriculture. This gives iGrow more extensive control over the

course syllabus and specific training to provide for their employees:

We [iGrow] have now our own school of agriculture. You [the supervisors] can

join our programme for three months. If they pass these three months, they can be

a good farmer. (Muhaimin Iqbal, iGrow Founder and Chairman)

The farm supervisors were given several months of training in order to equip them with the

knowledge and essential skills for supervising and educating farmers to carry out better

farming:

The supervisors undergo three‑month training ... They can actually supervise and

educate these farmers to build their own fertilizers ... The supervisors teach by

doing – they show how to make the fertilizers, and not teach by telling or just

teach about the concept/principle. Instead, (the supervisors show farmers) this is

how you work with this. If you put this amount of this component, you will get

fertilizer. (Andreas Senjaya, iGrow Co-Founder and CEO)

iGrow also provided farmers with the resources and supports (such as having an encouraging

environment for self-learning) to experiment with new tools and to pick up new farming

skills:

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I like it here because working here is more comfortable, flexible, and also it can

be applied in my hometown. (iGrow Farmer)

There are plenty of things to learn here. How to fertilize, how to plant, also how

to make organic fertilizer. (iGrow Farmer)

5.3. Self-Renewal Stage: The Challenge of Building Operational and Strategic Agility

After iGrow stabilized its operations and built up a strong network of sponsors/investors,

workers (i.e., farmers, supervisors and surveyors) and partners (i.e., landowners and buyers of

the harvested crops), the platform had to move on to the next stage of development. iGrow

needed to ensure that its organizational model allowed the platform to react and respond to

changes in the ecosystem such as change in the level of crop demand, change in available

technologies/tools, etc. The case showed that in order to transform the platform ecosystem

further, the key challenge in this case was maintaining agility. Here I identified two main

types of agility that were required in this study, i.e. operational and strategic. Operational

agility is about being able to scale up its productivity, while strategic agility is about being

able to move into a new field and/or area.

At this stage, iGrow had already automated the investment portion of the supply chain. To

take the operations to a higher level, the company had to automate the farming process and to

make the farming activities more scalable.

The bottleneck is on the operational side, when we can make our operation more

scalable. For example, make surveyor's production more scalable and how we

recruit the farmers, how we recruit the landowners more scalable. For

landowners, it's easier to recruit because now we already have 2,000 hectares,

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but the challenge is how to match between the land location and the seed we want

to plant. (Andreas Senjaya, iGrow Co-Founder and CEO)

Going forward, iGrow intends to deploy more advanced technologies to improve farming

techniques and enable further growth. This usually means using the latest farming techniques

in the market to improve yields:

We didn't use any modern technology. Only enable the under-employed farmers

to have job again … We will adapt some of the modern technology to make the

organization more scalable and faster. That will be the next strategy, maybe in

the next one or two year. In United States or Brazil, the farmers are already

utilizing the technology but in Indonesia, farmers are not into technologies yet.

They need time. (Andreas Senjaya, iGrow Co-Founder and CEO)

The growth at this stage is mainly driven by new and more advanced initiatives that iGrow

highly regards (such as its micro-green initiative). iGrow believes that constant deployment

of new technologies for added enhanced capabilities is important for doing things differently.

This is reflected via the fact that iGrow will assign the top 10% of each graduating

agricultural class (from its own school of agriculture) to manage the new initiatives.

The top 10% for each class, which are really good people who can solve problem,

we assign them for our new development … For example, to grow what we call

micro-green. Micro-green, it's a vegetable that you can have in 10 days and you

convert this yield into the standard vegetable. This one room size (gives yield that

is) equivalent to one hectare land ... We can grow micro-green vegetable

anywhere in the country. If we're in the centre of the city, even in the backyard of

a hotel … Productivity is as high as one hectare (and can harvest) in 10 days and

can be planted in stack. (Muhaimin Iqbal, iGrow Founder and Chairman)

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Besides farming only in the rural areas, iGrow is starting to explore vertical farming in the

city. Vertical farming is the practice of producing crops in vertically stacked layers, vertically

inclined surfaces and/or integrated in other structures such as in a skyscraper. It is a more

innovative method of enabling farming activities in urban areas.

That's part of our next development of iGrow. We are not only farming in the

remote area, but we can now farm even in the city. This one is very attractive and

there’re a lot of people learning about it. (Muhaimin Iqbal, iGrow Founder and

Chairman)

6. Discussion

Digital platforms are fast emerging in different industries and it is therefore critical to have a

better understanding of platform evolution, particularly on how these digital platforms

support the growth of their ecosystem and change the communities. The findings from this

study provide an overview of how sharing economy platforms evolve in the face of

institutional constraints, which takes place via three stages – birth, expansion and self-

renewal – as summarized in Figure 15. This shows that a digital platform typically grows in

three distinct phases where at each phase, it has to overcome the key constraint that is

“hindering” or preventing it from growing efficiently. In this paper, the iGrow platform helps

to overcome the institutional constraints (i.e., lack of trust, lack of participation capabilities,

lack of operational and strategic agility) by providing an organizing vision for the key

stakeholders of the platform-based ecosystem. From the case study, I found that trust,

participation capabilities, and operational and strategic agility are the three elements of the

platform’s environment that iGrow needed to overcome in order to ensure the continued

growth of its ecosystem. These elements are conceptualized as institutional constraints

because they are part of the broad environment that affects the internal working of the iGrow

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platform. In order to survive and remain sustainable, platforms need to overcome these

constraints.

When a platform enters an economic or social sector and attempts to grow its ecosystem, it

first encounters the constraint of trust. To tackle this first constraint (lack of trust), it is

important for platforms to establish new basis of trust by opening up new channels to

facilitate trust building activities. For example, the monitor and surveillance system in iGrow

was important to enable urbanites to be able to trust farmers in the remote and rural regions to

carry out the farming. Another strategy used for building trust amongst the participants was

reaching out to grassroots leaders. Other sharing economy platforms adopt special measures

Figure 15. Development of iGrow Ecosystem

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in their early stages to overcome this challenge of building trust such as Airbnb conducting

preliminary background checks on all its platform users (Zaleski 2017).

After a large enough number of participants on the various sides of a platform trust the

platform and other participants on its ecosystem, the next constraint that a digital platform

needs to overcome is lack of participation capabilities. For this second constraint, iGrow

needed to overcome the issue of having limited number of skilled workers (e.g., farmers and

farm supervisors) who are trained to fulfill farming tasks and more importantly to manage

farms. By implementing a purposely designed training programme through a newly

established agricultural school, iGrow managed to increase the pool capabilities that can

support its growth. Other platforms such as Uber faced a similar constraint despite the lower

level of capabilities required to become a provider. To enhance the capabilities of

participation in their ecosystem, Uber started offering short training courses to their drivers

and gave notifications to drivers in their first week, as well as extra assistive features (Mehta

2017).

In the final stage of the growth process, which is the self-renewal stage, digital platforms

need to overcome a third constraint, which is lack of operational and strategic agility. Once a

platform has stabilized the growth of its ecosystem it is important for platforms in most

sectors to keep looking out for new ways to remain relevant and expand their reach.

Experimenting with new and innovative ideas is necessary at this stage of the platform’s

growth. For this reason, platforms need to enhance the flexibility of their operations and their

ability to adjust their strategic direction. For example, iGrow became involved in the

deployment of new technologies that can improve farming activities and ensure better quality

control. In terms of strategic agility, iGrow shifted from its early focus on rural farming and

started considering vertical and urban farming as possible ways to increase agricultural

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outputs. Other sharing economy platforms in more competitive markets face the agility

constraint at higher levels. Uber for example tried to maintain its operational and strategic

agility by investing in and experimenting with driverless cars (Etherington 2018).

A digital platform helps its ecosystem overcome these constraints by providing it with an

organizing vision. In the case study, iGrow has been the basis of an organizing vision for a

community of farmers, landowners, and investors. The organizing vision of iGrow was

providing the agricultural community with the thrust to overcome major constraints it was

facing in its development towards better productivity. The evolution of the ecosystem that

emerged around the iGrow platform was supported by its organizing vision because it

constructed meaning (interpretation), provided legitimacy (legitimation), and supported

agency (mobilization) to the various ecosystem participants, particularly those from

marginalized groups such as farmers. Table 5 provides a summary of how the various

elements of iGrow’s organizing vision helped in overcoming each of the institutional

constraints identified in the case.

iGrow links cash-rich urban investors to under-employed farmers and under-utilized land. It

creates this opportunity to move around the resources to optimize outputs. The platform

therefore enables investors to reap profits from their investments in agriculture without

having to know how to farm, allows landowners to get more out of their initial unused land

Table 5. Organizing Vision of iGrow Platform Trust Participation

Capabilities Operational and Strategic Agility

Interpretation Providing stability to the meanings of practices

Reinforcing the meanings of practices

Redefining the meanings of practices

Legitimation Linking to economic and social objectives

Linking to competence objectives

Linking to optimization objectives

Mobilization Supporting information transparency

Supporting knowledge exchange

Supporting technical adaptability

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and creates jobs for farmers. In the initial stage, this interpretation of iGrow as a resource

integration solution was taking hold amongst its participants and was providing stability to

the meanings associated with the new practices, which was helping the emerging ecosystem

to overcome issue of trust. In the second stage of development, iGrow started educating its

employees (mainly the farm supervisors and surveyors) on good and effective farming

practices which was reinforcing the meanings of the new practices being established by the

platform and helping the ecosystem overcomes the constraint of participation capabilities.

Finally, iGrow helped the ecosystem overcomes the constraint of agility by deploying more

forward looking farming techniques and expanding the types of farming in which they were

involved. This was allowing them to redefine the meaning of the practices they have been

establishing in the emerging ecosystem.

The second way in which iGrow’s organizing vision was supporting the growth of the

ecosystem was legitimating its innovation in agricultural production (linking to urban

investors) as addressing key business problematics. These include the challenge of investing

in farming without the need for large capital and the challenge of moral hazard associated

with the inability of urban dwellers to monitor their farming investments in rural areas. The

first challenge was addressed through the aggregation capability of the platform and the

second challenge was addressed by the development of the surveying system and its

accompanying discourse of control and visibility. In particular, the legitimation provided by

the iGrow organizing vision helped in overcoming the challenges of trust building by linking

their innovation to the economic and social objectives of potential participants: investors,

farmers, and landowners. However, beyond the economic objectives, the strategic discourse

shaping the level of trust in the platform also emphasized the significance of its social and

environmental impact. As the platform grew, iGrow’s organizing vision helped its emerging

ecosystem in overcoming the constraint of capabilities by linking its innovation to the

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competence building objectives of the famers. The new arrangements established by the

platform’s alternative mode of organizing offered several farmers good reasons to pursue

their goals of enhancing their farming and farm management competencies. Finally, iGrow

provided the legitimation discourses and practices that helped the ecosystem overcome the

challenge of agility by linking its innovation to the optimization objectives of the ecosystem

participants. After a relative stability of the platform, participants start to seek ways to

optimize the benefits they get from the new arrangements. By providing means of linking the

new arrangements to these optimization objectives, such as the adoption of new technologies,

the platform helped its ecosystem maintain the needed agility for a continuing growth.

The third function of iGrow’s organizing vision in its ecosystem is mobilizing a wide range

of stakeholders and sustain their participation in the ecosystem. The platform was supporting

the participants’ agency and their ability to act on their own and through that providing the

ecosystem with the thrust to overcome the various institutional constraints to its growth. The

platform helped in overcoming the constraint of trust by supporting information

transparency amongst the participants. In the next stage of growth, the ecosystem needed to

overcome the lack of participation capabilities and the platform’s organizing vision

contributed to that by supporting knowledge exchange between the various participants. This

took place through the agricultural school established as part of the platform’s new

organizing model. Finally, the platform helped in overcoming the constraint of agility by

supporting the technical adaptability of its participants. Given their relatively high level of

openness, platforms such as iGrow offer spaces of action that are conducive to

experimentation by both the platforms owners and the platform participants. This allows

them to develop technical adaptability that can infuse the whole ecosystem with the agility it

needs to remain relevant and attractive to other participants.

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Theoretical and Practical Contributions

The study makes two main contributions to the literature. First, it presents a framework for

understanding the institutional challenges facing the evolution of platform-based ecosystems.

Since there are many digital platforms sprouting in various industries (Kenney and Zysman

2016), it is important to advance our understanding of platform evolution (Tiwana et al.

2010), especially on how these platforms support the growth of their ecosystem and enable

change in the relevant communities. This study contributes to this objective by developing a

process framework that reflects key institutional obstacles facing sharing economy platform

evolution. Specifically, it investigates how the growth of platform-based ecosystems may be

restricted by institutional conditions and how the platforms overcome these constraints.

Second, the case of iGrow provides a framework for understanding how digital platforms

help the ecosystems overcome institutional constraints by providing an organizing vision to

the diverse participants in the ecosystem. In iGrow, the platform has been the basis of an

organizing vision for a community of farmers, landowners, and investors. This organizing

vision of iGrow was providing the agricultural community with the thrust to overcome major

constraints (i.e., lack of trust, lack of participation capabilities, lack of operational and

strategic agility) it was facing in its development towards better productivity and more

effective farming practices.

In addition to the above theoretical contributions, this study offers two practical insights.

First, the findings bring the attention of sharing economy platforms to some of the key

institutional challenges they are likely to face as they try to build and expand their ecosystem.

It also provides them with an understanding of the role that the platform plays in the growth

of the ecosystem. Another practical contribution is offering policy makers an understanding

of the challenges facing digital platforms in evolving and affecting local communities.

104

Having a better understanding of these constraints can help them design policy interventions

that facilitate the growth of platform-based ecosystems that support the development of local

communities. In the case study, iGrow was actually categorized and regulated as a Fintech

company in Indonesia due to the involvement of cash investment (from the urban investors)

in the transactions. An appropriate regulatory framework can, for example, help in

overcoming the challenge of trust building in emerging ecosystems.

7. Conclusion

This study draws on the organizing vision perspective to develop a framework of how

platforms support the growth of ecosystems in the face of institutional constraints. Through

the case of iGrow, the study reveals the role of platform as the basis of an organizing vision

that supports the increasing convergence of the interpretations of the different platform

participants, legitimates the growth of the ecosystem in relation to economic, social,

competence, and optimization objectives, and facilitates the mobilization of various

stakeholders by supporting information transparency, knowledge exchange and technical

adaptability. The digital platform also helps in the development of local communities and

serves as an important catalyst to bring about social transformation.

105

CHAPTER 5

Conclusion

1. Summary of Findings

By embracing the transformational power of digital platforms, enterprises across various

industries are capturing new growth opportunities and changing the way they do business. It

is these new business models and the ecosystems being built around them that are driving

some of the most profound changes in the global economic environment. The ecosystems

emerging around these platforms are becoming the main spaces for value creation in the

digital economy. In this dissertation, I studied how some sharing economy platforms build an

ecosystem and transform local communities by formalizing an informal sector, and how

digital platform support their ecosystems in overcoming institutional constraints to maintain a

steady growth.

Study One investigates how GO-JEK formalizes an informal but mature ecosystem (with

deeply entrenched norms and practices) and transforms it into a new ecosystem (with

emerging semi-formal norms and practices). It applies institutional logics and institutional

entrepreneurship as the theoretical lens to explain the formalization process. The study

identifies two main stages of formalization, semi-formalization and enhanced formalization,

with increasing level of regulations at each stage. Changes in formalization levels are

conceptualized based on four elements of institutional logics, which are sources of

legitimacy, sources of identity, basis of norms and control mechanisms. In summary, the GO-

JEK case demonstrates how sharing economy platforms do not deterministically produce

change in their ecosystems, but rather changes to deeply rooted institutions are at least in part

the result of the agency and institutional entrepreneurship of the platform owners and other

platform participants.

106

Study Two looks at how iGrow supported the emergence of a new ecosystem despite

significant institutional constraints, such as the lack of trust, capabilities, and agility. The

study suggests that the platform provides the ecosystem with an organizing vision by

constructing meaning (interpretation), providing legitimacy (legitimation) and supporting

agency (mobilization) for the various ecosystem participants. Essentially, the iGrow case

highlights how a digital platform can help an ecosystem evolve in the face of institutional

constraints that would otherwise stifle its growth and its ability to enable positive

transformation in local communities.

2. Final Remarks

This thesis on platform-based ecosystems and digital platforms addresses topics that are of

increasingly critical importance. The two studies aim to advance the on-going academic

conversations of how institutional conditions and constraints can encourage or restrict the

growth of ecosystems. This is important as many digital platforms expand exponentially in

the initial stages but then fail to maintain acceptable levels of growth in later stages, with

many phasing out. The online space is full of such examples, including MySpace and

Friendster, which were once popular social networking sites but have since shut down, citing

reasons such as evolving landscape in the industry and the lack of engagement by the online

community (Scribe 2018).

The two case studies of this dissertation offer a diverse set of insights, with Study One

presenting the challenges and opportunities in the implementation of a digital platform within

a highly competitive and contentious field, and Study Two addressing platform evolution in a

field with less competition. For example, GO-JEK had to face numerous protests from the

local ojek drivers who refused to join its platform, while iGrow did not face a similar

resistance. Understanding both conditions is important for the design and implementation of

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digital platforms as well as for developing policies that can make them effective means to the

development of local communities.

108

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