WHAT IS DIGITAL STRATEGY?
Understanding Digital Strategy
Sunil Gupta, a professor at Harvard Business School, argues that many companies are still doing digital strategy wrong. Their leaders think of “going digital” as either a way to cut costs or to attract customers with a flashy new app. Gupta says successful digital strategy is more complicated than that. He recommends emulating the multi-faceted strategies of leading digital companies. Gupta’s the author of Driving Digital Strategy: A Guide to Reimagining Your Business.
But for too many leaders, investing in digital just means the tactical, the piecemeal, the incremental. That’s not really enough to stay competitive in today’s market, even for non-tech companies, argues Sunil Gupta.
SUNIL GUPTA: So the challenge for a legacy company is they have to strengthen the core of what they have and build for the future at the same time. The analogy I use is its like changing the engine of a plane while its flying. And many times the plane is going to go down first – and that’s a scary thought – before it goes up.
SARAH GREEN CARMICHAEL: To tackle that challenge, Gupta says leaders should integrate digital into the bigger picture strategy – to look at the ways digital companies survive and thrive, and see how that can apply to your own business.
SARAH GREEN CARMICHAEL: So when you say digital strategy, my impression of looking – especially at legacy businesses- is that they’ll say: “We need a digital strategy,” and that usually means a strategy for this digital world.
SUNIL GUPTA: Exactly. Either a website or an app. That’s how most people started. But in all fairness, I think people have moved beyond that. Five years ago, that was the thought process: “If I have a website, if I have an app, I’m all set.”
But what I found when I asked people, what are you doing to go “digital?” And I heard three things. The first strategy that people use was “I’m going to use technology to cut cost and become more efficient.” So if I’m a bank, I can shut down some ATMs, some branches, and people can do mobile banking.
And that’s fine and nice – you should always cut costs and become more efficient. But the challenges is, if that’s all you’re doing, you might be the most efficient but most irrelevant bank. Because Amazon will come and disrupt you. So you need to sort of think broadly, beyond just cutting cost. That should be first, but not the only focus.
The second strategy people suggested to me is: “Well, I don’t know what the digital world has in store for me in the future. The world is very uncertain, so I’m going to do a bunch of experiments.” And again, great idea to do experiments. We should all do experiments.
But the reality is when I talk to a companies, they found that every brand, every business unit, every country of the multinational firm was doing some experiments, and suddenly you have hundreds of tactical experiments happening in the company. So there was a sense of activity, but there was no progress. There was no fundamental strategy shift.
The third approach I heard from companies is saying, “Well, we heard from experts like Clay Christensen that it’s very hard to do innovation at a large company. So what I’m gonna do is, I’m going to start a separate unit, get a bunch of young people, send them to California, give them a couple of hundred million dollars and hopefully good things will happen.”
And every large company has an outpost in Silicon Valley. The result on that is also mixed, because what really happens is, imagine that you’re trying to turn a large ship – which is what a legacy company is. And what you have done is launched a speedboat. Typically the speedboat takes off, but the ship doesn’t change. And so unless the speedboat is tied tightly to the core of the business, nothing happens.
SUNIL GUPTA: So I think the legacy companies have key assets that they should not forget. Startups have a clean slate; that’s the advantage of startups. Legacy companies have key assets, so they should not ignore those key assets. They can’t be like a startup.
So the challenge for a legacy company is they have to strengthen the core of what they have, and build for the future at the same time. So the analogy I use is: it’s like changing the engine of a plane while it’s flying. And many times, the plane is going to go down first – and that’s a scary thought – before it goes up. And what I have discussed in my book is basically, you have to not only look at one aspect of your business, but every aspect.
I talk about four things: One is your business strategy; the second is about your operations and value chain; third is about how you engage with customers; and fourth is how you structure the entire organization. So it’s not just one piece, all four pieces have to fit together.
SUNIL GUPTA: So let me give you example of each one of those. So, think about business strategy. When I was growing up in the MBA program, I learned competitive strategy – Michael Porter being one of them. And what I was taught was: competitive advantage comes from being better or cheaper.
BENCHMARKING STARTS YOU OFF IN A STRONG POSITION
Another essential result of the benchmarking process is that it can assist in providing a clear understanding of how well a businesses current systems and positioning are working. Before you introduce digital innovations, it’s imperative that you distinguish between aspects of your company that are weak because they lack effective digital solutions, and those in which existing problems are the result of non-technological issues. For example, if customer service is falling short, addressing hiring and training practices before adding new digital solutions, such as automated chat could be a solution.
The foundational layer of digital strategy is your basic business model. A business’s use of digital can’t be examined in a separate petri dish; it’s integrated into the organic whole of how a company runs, as well as what they aspire to be. Building upwards from the basic business model, we look at:
- People: A digital strategy depends on the skills of the entire team. It doesn’t begin out in the cloud; instead, it is inseparable from the efforts of the developers, designers, marketers, strategists, content writers and so on.
- Process: Defining precisely what a businesses human capital will do and how they’ll integrate their work with one another to create a fully integrated strategy comes next.
- Platform: Only after the goals, people and processes are in place do we consider the platforms they’ll need. Again, technology is the tool, not the driver. Platforms depend on individual company goals; they can include cloud servers, content management systems, data analytic systems, mixed reality, artificial intelligence, geo-based apps and more.
- Products: Once platforms have been identified, then the individual products that make up your digital strategy are identified. These may include apps, wearables, responsive websites, IoT smart products, augmented reality experiences and more.
- Channels: Once you have your digital products, then the question is how you’ll connect those products with people. Which channels work best as delivery conduits in your strategy? These can include in-person shopping experiences, email, social media, workplace networking, intranet, websites, IoT remote connections and so on.
- Experience: It’s important to pursue and maintain a clear sense of your user experience. Are your brand’s visual cues consistent and compelling? Is your company’s voice authentic? Are you evoking a sense of ease and delight as people interact with your company?
- Customers: At the pinnacle of the digital strategy framework, it’s all about people, and not just the ones who buy your products or services — although of course they are important. An effective digital transformation also streamlines the experience of your employees, your vendors and suppliers, your partners and stakeholders.
The six types of digital strategy
Platform play: One third of firms have engaged to some degree in platform strategies, in an attempt to redefine their industry’s value chain so customers and suppliers can interact more directly and benefit from network effects. Platforms have the power to radically alter the way value is distributed in a value chain. Accor, which is opening its online booking platform to independent hotels offers a good case.
New marginal supply: A smaller fraction of incumbent firms (13%) were using digital technology to tap into previously inaccessible sources of supply at a marginal cost, often, but not always, in combination with a platform play. Examples include the Swedish retailers H&M and Ikea, both of which are offering a online reseller options for their own customers, allowing them to sell used, branded products to one another.
Digitally-enabled products and services: Other companies, some 55%, were using digital technology to create new products or services with digital features, typically to serve new demand. One example is P&G’s Oral-B toothbrush with Bluetooth-enabled digital guidance.
Rebundling and customizing: Another 60% of companies are using digital technology to rebundle their products or services to better serve their existing customers. The paywall for news content erected by the New York Times where people can personalize reading lists and organize the content they read is a good example.
Cost efficiency: Almost half of companies we looked at were using digital to improve their cost efficiency, typically through automation or cost scaling. In an age where operational excellence is the norm, this strategy looks like it’s aimed at survival rather than creating a source of comparative advantage.
We found that successful companies, especially those with a bold corporate strategy, were considerably more likely to employ one of the three offensive digital strategies. Successful digital transformations are significantly less focused on cost efficiency and more focused on new products or new customers.
For companies committed to transforming and adapting, the key is to make sure that their strategy really is transformational and not just a bundle of cost-cutting measures. Our data shows that, while digital attackers often enter markets with a platform-based business model, only a handful of incumbents have done so. In effect, incumbents are losing because they’re playing defense. For companies looking to successfully ward off digital disruption, they have to play offense.