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Digital Strategies can be disruptive to legacy organizations, even those with modern management systems. Disruptions don’t always threaten from the outside. They sometimes emerge at the heart of organizations with unpredictable consequences.
Required: A new strategy for a new digital age
Digital strategies are frequently framed as catalysts in digital transformation. In this context, the first challenge for business leaders is to define what their digital strategy should be. It’s not so simple. Joe McKendrick pointedly illuminated this issue in Forbes:
In today's organization, there are many ideas of what constitutes a digital strategy. A marketing executive will see [it] as social media and web channels. An IT person would see [it] as cloud. An operations executive will see it as data analytics. An R&D executive would see it as online products. A financial person will see it as online revenue channels. And so forth.
Digital transformation is equally unclear in meaning and implications. It has been variously defined as:
the process that delivers customer centricity…
a way to achieve agility, ensure your survival and engage a future filled with uncertainties…
an ecosystem that blur the lines between supply chain, partner, customer, crowd, and employee…
What if a company is already customer centric? Must a company transform to become agile? Blurring the lines between traditional functional areas is basic Process Reengineering. PE was a mainstay of strategy consulting during the 1990s. It’s hardly something new.
Most innovative digital technologies are not particularly difficult to understand. They are generally less expensive and easier to deploy than their predecessors. These characteristics make them flexible and agile, and potentially disruptive. Viewed through a business strategy lens, they reveal an environment full of risks and opportunities that challenge traditional strategy practices.
A different view
Technological innovations and disruptions are recurring. Evidence suggest that the pace of change continues to increase. Sustaining competitive advantage in this environment demands an aware, agile competitive strategy and the leadership to implement it. Our approach sees the digital domain as indispensable to success and continuous adaptation as the norm. In this context, digital technologies are only part of the solution. Competitive strategy and leadership transform them from capabilities to operational-competitive advantage. Research from MIT and Columbia support this alternative approach to digital transformation.
MIT’s George Westerman lead a study of 391 companies in 30 countries, with revenues of $500 million or higher. It included detailed analysis of 184 publicly traded companies, that were benchmarked against the average performance of all firms in their industries. Those that mastered the digital domain in both capability and leadership were 26% more profitable than their industry peers and generated 9% more revenue from their employees and physical assets.
Westerman concluded that “the best-managed companies in the world—those that significantly outperform their peers in both revenue generation and profitability—tend to manage their digital activities in a common way. They build both digital capabilities and leadership capabilities that are better than other companies.”
Independent research by Columbia’s David Rogers studied the performance of international corporations and their leadership. His yearly BRITE conference brings together “C-suite leaders from global brands, technology firms, media companies, and fast-growing startups to discuss the evolving digital business landscape.” Rogers points out that “transforming for the digital age requires your business to upgrade its strategic mindset much more than its IT infrastructure.”
Framing digital strategy and transformation as initiatives independent of the business’ competitive strategy is risky. Lack of consensus on their meaning and implications contribute to the risks. History suggest that initiatives central to a business’ future success should be informed by its competitive strategy. The Dot-Com-Bust is a cautionary example of the damage caused by lack of strategy and undisciplined transformations.
We propose an alternative approach to digital strategy and transformation. It is to bring these initiatives under the company's competitive strategy. Use targeted initiatives to identify opportunities, and test innovative technologies and methods. Learn from successes and failures and provide continuous feedback while pursuing digital mastery. Then institutionalize these processes to keep leaders aware of emerging innovations, disruptions, threats and opportunities.
Leadership is indispensable for driving innovation and change as a core values. Successful leaders understand that mastering the digital domain requires on-going experimentation and learning. They accept that most innovative projects will fall short of expectations. It's the price paid to find those that will fuel growth for years. It’s this evolutionary process that is the essence of continuously transforming competitive strategy, business models and the enterprise. I will discuss continuous transformation in greater detail in upcoming posts.