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May 26, 2014
Determining a digital strategy should not be like picking porridge
By: Mark McDonald

Digital technology presents executives with complex questions about customers, markets, channels and operations. Simple answers like Omni-channel, customer experience, or digital channel offers do not reflect the reality of digital transformation.

Consolidating the complexity of digital decisions offers a practical approach to managing the choices digital presents. However, distilling digital into simple phrases belittles the possibilities and profitable impact of digital transformation. Digital’s potential and therefore its promise is more than a simple rehashing of past ecommerce initiatives, upgrading marketing programs with technology or moving the business model from online to mobile, from reporting to analytics or from IT to the cloud.

Simplifying digital decisions into single phrase initiatives turns the transformation into strategic option sampling, much like Goldilocks picking the right porridge. The results for many organizations are the same they quickly dismiss options they do not like as being too hot or cold and therefore fail to craft a digital strategy that is just right for them.

Too hot – betting on a fickle future

Digital strategy seems too hot when executives see digital as too disruptive, dynamic and undefined. Digital is something for start-ups that gain attention but lack the serious scale to challenge our market position. If there is something real in those start-ups, then we can invest or buy them when the time is ready but right now this is not real enough to be the basis for transformation.

Executives agree to digitize marketing and channels recognizing these as digital hot spots. Such initiatives create a firewall between the front and back office. It is a short-term solution that postpones rather than preempts the need for deeper digital transformation; particularly as new digital front office demands exceed the analog back office capacity. But digital disrupts the foundations of business and eventually requires a broader approach.

Organizations who think that digital is ‘too hot’ concentrate on the near term viability of their current business model. They see direct monetization of information as the primary way of connecting digital technology to revenue. Why should you bet today’s hard dollar revenues against a fickle future? We are not Google, Facebook, Alibaba, Amazon, etc. so we cannot make money digitally the way they do.

A view of digital as too hot or only hot in the front office represents a narrow view of digital technology and transformation. Executives who think that digital only applies to companies with consumers – B2C – surrender their future to the status quo. These technologies are remaking customer markets and redefining industry borders. Executives should seek the small signs of disruption before dismissing digital as something for hot start-ups and not for those with scale business models.

Too cold – wrapping today’s business in digital

It is easy to think of digital as another technology wrapper on your current business, something you add to what you do now to make things faster or cheaper. This is a palatable option to executives who want to extend the status quo without changing how they do business.

Organizations choose wrapper strategies when they seek incremental cost reduction from digitizing operations. This strategy equates digital technology with prior forms of IT. Better integration and information reduces costs, is the mantra of this approach. Executives rationalize wrapping by pointing out that the core business remains solid, or the technology is changing too quickly to make a long-term investment, or digital is not going to change our industry.

Dunking the current business in digital may make the company feel digital while leaving it cold to actual digital transformation. A digital ‘wrapper’ insolates the ability of digital technology to transform processes, products, services and profitability. “Mobilizing” the sales force and customers via apps, providing ‘analytics’ based reports, or increasing the integration information systems represent wrapping strategies.

Digital wrappers leave the organization cold. Wrappers provide a false sense of digital competency and raise core rigidity as the wrapper covers over deeper transformation opportunities. Executives who recognize there should be more to digital than creating new covers for current capabilities feel cool to this approach. They are right, because there is more to digital than putting a fresh face on today’s business model.

Just right – building a digital business

Achieving and maintaining the right balance between marketing and operations.

Defining digital as an either/or proposition creates an artificial choice in strategic direction. Making digital about either marketing channels or wrapping operations leaves the organization ripe for future disruption from firms that market, sell, serve and fulfill digitally. Perhaps more importantly, an either/or choice keeps the company rooted in its current industry assumptions at a time when customers continue to define future digitally contested markets.

Building a digital business requires focusing on customer outcomes to achieve and maintain the right balance between marketing and operations. That path, shown in the figure on the left, involves more than splitting the difference between the two. Cooling down marketing while raising the relevance of operations is a recipe for mediocrity. Instead executives need a different type of digital playbook that crafts a direction from the outside-in.

Successful transformation involves creating new opportunities via new combinations of physical and digital resources. That is the definition of a digital business. The result redefines the equation for high performance that incorporates the growth aspects of digital marketing with the cost and capacity efficiencies of digital operations.

This means playing the middle against both ends to drive combinations that address the five questions every digital strategy must answer:

  • Who wants to be your customer?

  • Why will digital outperform the current business model?

  • Where will value be demanded and delivered?

  • When will digital transformation happen?

  • How will you win?

More detail on those questions in this blog post.

Digital strategy is not a series of samples to find paths that are too hot, cold or just right. Executives cannot rely on stumbling into success similar to Goldilocks. She found that that form of home invasion did not work, and so will executives facing the challenges of digital disruption.

Related Blog Posts:

What it means to be digital

Why is digital changing business?

Thinking digitally is different than thinking you are digital

A roadmap and a business case are not enough for digital transformation

Digital is more than a sheet of glass

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