The Digital Imperative: Prototyping Your Strategy
The numbers are startling: companies today are dying more quickly than ever before. Indeed, one in three public companies overall, and one in six large companies, will likely not survive the next five years. One of the key drivers of this is the rapid pace of technological change. To negotiate this environment, companies need to become truly digital firms.
A critical step in this process, I believe, is prototyping the company’s digital strategy. This involves action in five key areas.
Employing an agile, learn-by-doing approach. Today’s rapidly evolving consumer preferences and competitive landscapes call for a departure from traditional methods of strategy formulation. Winning strategists in today’s digital arena instead are adopting an agile, learn-by-doing approach. (See the exhibit.) Leading digital companies test and refine, or prototype, products and strategies at a dizzying pace. Amazon, for example, has introduced e-readers, tablets, smartphones, cloud services, delivery services, and online marketplaces—all within the past ten years. These businesses are also exiting existing digital businesses in cases where they don’t believe the business case is strong enough. Google, for example, recently made the decision to try to sell its Boston Dynamics robotics group.
Agile, iterative approaches to strategy are not limited to “digital native” companies. More traditional companies are employing them as well. Renault, for instance, is prototyping a multichannel strategy aimed at digitizing and strengthening customer relationships across channels. The firm is simultaneously piloting several strategic approaches: developing digital services to connect cars to Internet-based offerings in areas such as navigation, entertainment, and insurance; testing new business and operating models, such as optimization of the total cost of ownership across a vehicle fleet; and adapting its marketing and sales processes in Renault stores and company call centers.
Such test-and-refine approaches are advantageous for all aspects of digital strategy and its formulation.
Planning a wide range of initiatives and defining KPIs. Leading digital businesses aim to launch digital initiatives spanning a wide range of objectives, including the definition of disruptive new business models, the establishment of platforms for new businesses, enhancement of the company’s core processes, and extension of the company’s core business. They also consider digital initiatives at both the business-model level (including the customer journey, the company’s value proposition, and interactions between the customer and company) and the operational-model level (including business processes and IT).
The companies reinforce these efforts with systematic measurement of the performance of the company’s digital initiatives. This requires the definition of an appropriate set of key performance indicators, ones that are aligned with the company’s overarching digital strategy.
Understanding the market. Winning in the digital area demands a thorough understanding of the company’s competitive environment. This means identifying, monitoring, and working to understand all relevant players, including start-ups, incumbents, and technology providers, and doing the same for macroeconomic trends, business models, digital technologies, and customer journeys. The acquired insights can be used to optimize the firm’s strategy on an ongoing basis. To facilitate the necessary monitoring and understanding of the company’s market, winning companies will establish a sustainable market-watch process based on crowd-sourcing that leverages insights of employees, business partners, and credible sources of market intelligence.
Managing the portfolio and investment. Well-balanced digital portfolios include a consistent mix of digital initiatives and enablers of those initiatives. Leading businesses engage in ongoing experimentation and embrace a “start small to get big, start slow to move fast” philosophy, concentrating on getting things right on a manageable level and then scaling up. These businesses also relentlessly analyze the firm’s successes and failures and apply lessons learned. Further, they secure the backing of senior management, with the CEO acting as sponsor, for portfolio strategy.
Establishing appropriate governance. Digital initiatives stand to deliver significant benefits, including valuable learnings and new capabilities delivered, to their organizations. They are fundamentally different in nature from most traditional business initiatives, however, and hence should not necessarily require a compelling traditional business case for approval. These projects should, however, be managed via a milestone- and stage-gate-based approach, with management defining “max-loss” budgets for key milestones.
Prototyping the company’s digital strategy is obviously a demanding and ongoing exercise. But the rewards for devoting the necessary effort to it can be considerable.
By Ralf Dreischmeier, Senior Partner & Managing Director Global Leader – Technology Advantage Practice, The Boston Consulting Group