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August 26, 2013
Participation or digital premium, what is on your digital agenda?
By: Mark McDonald

It is an increasingly digital world. Look around and see where digital technology plays a role in customer choices, departmental decisions, personal preferences, etc. The reality of digital technology crosses borders, markets, products, services, cultures and socio-economic groups. In that sense, digital is becoming pervasive, personal and powerful.

Digital is bigger than a specific set of technologies like social, analytics, mobile, big data and cloud. Digital increases the information intensity and connectedness of customer and business resources. Digitizing a resource, say a product or a process raises the availability and applicability of its information. The digital agenda calls for combining these resources in unique ways to create new capabilities that result in new sources of comparative advantage.

There is a digital agenda in every organization, even of it is not written down. The digital agenda shapes attitudes toward digital technology, its potential, investment levels and objectives. Those objectives fall into two broad categories: participation and premium.

Digital participation – being there, digitally

Digital participation centers on substituting current solutions with new digital technology. An agenda for digital participation recognizes the digital world and sets goals for how products, services and processes will participate in that world. Achieving the next level of operational efficiency, being in the digital marketplace and feeling digital are all goals of a participation agenda. The business case for a participation agenda often is based on one or more of the following things:

  • Attention and traffic generated in digital media such as hits on a website, downloads of apps, mentions in social media, etc.

  • Cost reductions through better integration of business processes via digital technology, for example using smart phones to connect the sales force with inventory availability.

  • Improved operational effectiveness via improved resource utilization and uptime as production sensors identify maintenance requirements earlier.

  • Brand value and reputation as new ‘digital’ versions of products and services compete in a market.

Each point represents valid value, but they reflect incremental improvements in existing business models. In strategy terms, the company moves along the efficient frontier without pushing the boundaries of that frontier.

A participation agenda sees digital technology as important, but a continuation of current business models, products, services and processes. In technology terms, digital integration (another way of stating participation) is just the latest wave in a series of integrations preceded by business integration and systems integration.

Digital participation is typically found in firms with deeply entrenched business models, comparative advantages based on being aloof, a reliance on current market scale, and visions concentrating on optimization. Implementing digital technologies beyond a substitution model is seen as presenting bigger business risk, diverting attention and chasing phantom market opportunities.

“Getting ahead of the market may mean getting ahead of ourselves or our customers. If we participate, we grow as the digital market grows,” represents a view of the participation digital agenda.

Digital Premium – being different digitally in ways that matter

A digital premium exists in situations where digital solutions outperform the competition. A digital premium is real. A 2011 survey of more than 600 companies published in the book The Digital Edge revealed that firms with above average levels of digital revenue outperformed their industry peers, generating greater sales growth, higher margins and increased returns on assets and capital.

A digital premium results from new combinations of digital and physical resources that enable new capabilities, customer experiences or sources of business value. These combinations go beyond simple substitution – replacing IT systems with tablet apps – to change the way people work. The best type of digital premium is one that resolves apparent market contradictions, giving the company the ability to do something that others find either impractical or impossible.

CDW, a company studied in the book, The Digital Edge, illustrates this point. CDW is a leading provider of technology products and services focusing on the middle commercial and government markets. CDW creates a digital premium via its support for its account executives – enabling them to provide a high touch service normally associated with higher margin products and services.

“High touch service in a low margin market” is the type of contradiction that drives a digital premium. CDW sought this premium through implementing technologies in combinations that span multiple channels, products and services in ways that accompany account executive expertise. Where digital participation calls for replacing people with systems, a digital premium recognizes the potential premium of creating new combinations and capabilities.

A digital premium business case rests on creating the physical and digital combinations that drive contradictions and results. These include:

  • Supporting distinctive customer experiences via digital technologies that give customers the ability to create their own experiences with your information, tools, products and services.

  • Entering new markets via digital channels by using technology to transform operational economics and lower breakeven barriers.

  • Enhancing organizational agility and adaptability via increasing workforce engagement, application of intelligence, social collaboration and dynamic mobilization.

  • Raising the effectiveness of the extended workforce (associates and partners) by supplementing their skills with enhanced information, collaboration and connected tools.

  • Raising resource utilization via enhanced coordination and the ability to operate effectively at full capacity.

These are some of the sources of a digital premium based on transforming specific aspects of strategies, operations, processes, products or services. Achieving these advances requires a digital agenda with clear objectives and goals rather than the traditional approach of amassing a checklist of technology to-do’s common to digital participation.

Participation or premium, the choice is yours

There is nothing wrong with a digital agenda based on digital participation. It is a sound approach to a rapidly evolving set of business and technology innovations. Participation reflects a view of digital technology as the latest in a series of waves of change where the best strategy is to go with the crowd. It is an understandable view to managing the potential scope and scale of digital change. But it is not the only approach.

Seeking a digital premium reflects a pragmatic view of digital technology. Rather than accept the hype that digital changes everything, executives seeking a digital premium concentrate on recognizing the difference between what is possible and what is profitable. With that understanding, they focus investments where being digitally different matters to customers, products, services and the business model. This focus keeps digital premiums grounded in the realities of a dynamic digital marketplace.

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