The problem with most discussion about digital is it doesn’t explain how and why digital impacts business strategy. Often the discussion takes a single-topic view like mobile or digital marketing or e-commerce, or focuses on the latest device, or analyses digital businesses like Google or Facebook with little consideration of broader opportunities and threats. In this post, I will introduce a more strategic view of digital – why go digital, the stages to get there, and the ‘secret sauce’ to success. First lets define ‘digital’. There are many terms that overlap in this area. Some are broad like ‘digital’, ‘online’, or ‘internet-enabled’, and others have specific meanings like ‘mobile, ‘social’, or ‘e-commerce’. To keep it simple, I am going to use ‘digital’ as an umbrella term to cover everything enabled by the internet. Why should a company go digital? This is an important question as the opportunities and threats are not yet clear for many companies and industries. All newspapers have a digital edition but ask any of them how much they make from online vs print and the answer is pennies on the dollar. But working out how to survive and thrive in the digital world is vital. It is not a stretch to say digital is weapon of mass creative destruction that will change the landscape of all industries sooner or later. A summary of reasons to go digital includes:
- Competition is increasing and it is global. Products are increasingly commoditised. New competitors can come from other industries. Ford may soon be competing with Google driverless cars, and banks expect to be competing with Apple. Companies entering the S&P500 used to stay there for 61 years on average. Now, it is 18 years.
- Consumer attitudes and behaviours are changing. Ever greater numbers of global consumers are online and more active and with access to more information. Attention has become highly contested with more choices available. Consumers are also bringing their expectations about technology (easy, simple) to work and challenging traditional IT department norms (secure, reliable and integrates with other systems).
- Digital offers opportunities to grow. To grow revenue, reduce costs, and delight customers and employees by creating new products and services, new ways to manufacture and distribute products, new ways to engage with customers, new ways to manage functions like finance and HR and IT, and new business models.
What are the stages to going from industrial to digital? For most companies, a key question is how to approach the digital opportunity and where to start. There are four stages in the progression from industrial to digital.
The first stage is Digital Denial. Companies either ignore digital or wait to see how it plays out for their industry. Some have not yet identified the opportunity, or believe their customers are not yet ready (particularly in B2B). The risk is your customers may surprise with how quickly they go digital for the right offer. Transitioning from non-digital to digital is not an overnight process so doing nothing may put you 1-3 years behind a competitor. Companies at this stage will have a website (it is 2014) but little else.
The second stage is Digital Tactics. Companies realise they need to be digital but have not yet worked out the strategic opportunity. Thus this group will be active tactically with some or all of an online store, digital marketing, social media, cloud technology in their back office, but few or none of these efforts are integrated or have common goals. Metrics of success are often absent or are not meaningful to business outcomes. Companies at this stage often ask what a Facebook ‘like’ or a re-tweet actually means in terms of bottom-line value.
The third stage is Emerging Digital Strategy. The key difference between the second and third stage is mindset. Emerging Digital Strategy companies understand there is no recipe book for driving value from digital so have initiated ongoing efforts to experiment, measure, and iterate. As they work out the opportunity, these ‘digi-dustrial’ companies drive real change by developing new products or services, entering new markets, reinventing customer experience, changing distribution strategy, and/or reinventing manufacturing and supply chain. Patterns are emerging in some industries. Banks have used digital to transform their channels with internet banking. Retailers use online stores to address new geographic markets (e.g. Asos from UK has built a large customer base in Australia). Supermarkets are using big data to personalise offers as pioneered by Tesco.
The fourth stage is Digital Leader. These companies regard digital as a core competency and a cornerstone of their business strategy. Right now, Digital Leaders are mostly natively digital companies with no offline predecessors like Facebook, Google, and LinkedIn. But there are a growing number of ex-industrial companies at this stage. Apple is an example, transforming from selling PCs to earning most of their revenue from iTunes, App Store, and internet devices (smartphones and tablets). Zara grew from a large traditional retailer to a global giant by using digital technology to invent ‘fast fashion’ (turning trends from the street and catwalk into clothes a week or two later which are only stocked for a short time).
The secret sauce to digital success… … is humans. The irony about digital is humans are more important than ever before. This stands in contrast to the industrial era, which focused on technology as a replacement for humans. In the digital era, technology is used to enhance humans, making us better informed, entertained and connected; removing friction points; and making us more productive. Thus the secret sauce to a company becoming a Digital Leader is a deep understanding of customers and effectively using this information in everything the company does.