Private: Why Every Organization Needs a Digital Strategy

Drivers for Digital Transformation

The urgency to create an effective Digital Strategy is real. The rise of the digital revolution has been pervasive and disruptive. The former CEO of Accenture, Pierre Nanterme, estimates that since 2000 half of the Fortune 500 companies have disappeared primarily due to Digital. This trend is likely to continue accelerating. More so, the digital revolution affects all industries. While the pressure is higher in industries like finance and retail, transformations are happening everywhere. In all industries, there are digital masters, those who excel in both the “How” and “What” of digital transformations.

Digital Strategy Focus Areas

In creating a digital strategy, it’s essential to understand the core areas that digital technology is transforming. This includes customer experience, business operations, business models, and products and services. While these areas are interconnected, we recommend that you focus on one of these core areas when beginning to frame a Digital Strategy.

 Customer Experience

Many organizations begin with customer experience as the focus of their Digital Transformation.  Companies are using digital tools and channels to reach customers and analytics to help understand and guide actions. There are three critical drivers for a customer experience-driven digital strategy: delivering an integrated and seamless customer experience across channels and touchpoints, using digital tools to establish a robust connection with consumers by receiving feedback and engaging them more thoroughly, and using digital tools to understand customer behavior through various avenues including apps and analytics.

An example of a successful digital strategy around customer experience is seen at Starbucks. The former Chief Digital Officer, Adam Brotman, adopted this approach, “We tend to look at what are the needs of our customers, what’s the strategy of our business, what are all the different digital touch points that are already in place versus ones we need to put in place, and then we’ll roadmap out how we want to prioritize our time and effort against this backdrop.” One way Starbucks started to execute this vision was through creating an app that blurred the physical/digital distinction by allowing customers to order from their smartphones and avoid the line in stores. The success of this action is shown by the wide adoption of the app. In 2012 20% of all loyalty card transactions were done on the app (source). Starbucks also engaged customers across a breadth of social media outlets and built up a digital following including 54 million Facebook fans, 3.4 million Twitter followers, and 900,000 followers on Instagram (source). Thirdly, Starbucks used digital tools to improve services by engaging customers through their “My Starbucks Idea” website, where customers could submit and vote on ideas. Together these aspects of their customer-centric digital strategy improved sales and consumer relationships for Starbucks.

Digital Operational Excellence

Often, organizations whose value relies on the performance of their supply chain and core operations start with a strategy around digitizing operational processes. A digital strategy focused in this area usually involves goals of increased productivity and efficiency. Often a company’s internal processes are not as polished as what they show their customers. But in all industries, companies with better operations have a competitive advantage through superior productivity, efficiency, and agility. Competitive internal operations also have the advantage of being more difficult to copy and duplicate which can sustain competitive advantages.

In the book Leading Digital, the authors describe the operational transformation of Codelco, the world’s largest copper producer. The leaders of the organization began by setting strategic goals of improved innovation and efficiency. The organization then started by improving its administrative systems. By improving and digitizing the base system, it laid the groundwork for implementing autonomous mining.  Through digitization and automation, the company grew productivity and efficiency and is now able to mine 24 hours a day with autonomous machines operated remotely.

UPS provides another example of the benefits of executing a digital strategy focused on digital operational excellence. UPS has 127,000 package vehicles globally and delivers more than 24.7 million packages daily. UPS began using data from sensors and their vehicles along with advanced algorithms to help optimize its operations and routes. Collectively, the savings from these efficiencies results in tens of millions of dollars per year.

 Digital Business Models

For some companies, the digital revolution opened up opportunities (and requirements) to change their business models. This involves radically evolving core processes of creating, delivering, and capturing value. In delivering value this involves looking at how you engage customers and the channels in which you deliver value to them. In creating value, it involves how you work with your key partners and manage your key activities and resources. Capturing value looks at your cost structure on your internal side and your revenue structure on your customer side.

In Jeff Immelt’s article Inside GE’s Transformation, he describes how he saw that the competitive advantage in manufacturing was shifting from hardware to software, sensors, and analytics. In response, he created a strategy that moved GE in the direction of creating and delivering value through making and servicing “smart, connected products.” In support of this strategy, GE built a large software center and developed an industrial IoT platform. This transformation changed GE’s business model from creating value from selling hardware to creating value from gathering and utilizing data from that hardware.

Digital Products and Services

Digital technologies have transformed the landscape of products and services that companies offer. Therefore, for many companies, digital strategies focus on the new digital products and services. New technologies such as 3D printing, augmented reality, artificial intelligence, smartphones, social media, and IoT give companies a large opportunity to change the products and services they offer. For new products, the time to market is drastically shorter, often the cost is lower, and the value per employee is higher. Companies need to rethink their strategies around products and services in order to effectively compete in the new digital age. 

Nike, the global sports apparel giant, sees innovation as a core aspect of its strategy and it applies this strategy to its products and services. One way they did this is through letting customers customize shoes through online shopping. The ability to offer this customization stemmed from digital advances Nike had made in digitizing its operations, demonstrating the interconnectedness of these four focus areas. Nike also created a digital product called the FuelBand, a bracelet that allows athletes to digitally track their workouts, and connect with social media so they can share their performance online. Both of these products utilized digital technologies to change the end product or service. Customers enjoy these products and Nike enjoys selling them and gaining valuable data on their customers. 

For each of these four interconnected areas, customer experience, business operations, business models, and products and services, it is necessary for companies to find a unique and valuable position, involving a different set of activities. This will involve curating and focusing your digital strategy and will ultimately lead to trade-off decisions when competing; choosing what to do and what not to do. Finally, a digital strategy involves creating a fit within your company’s activities. Your digital strategy should complement your current activities and make sense within your company’s current landscape.

Component of a Digital Strategy

The successful Digital Transformations mentioned above all have the common factor of strong digital strategies. Digital strategies are made up of a digital vision for the future along with strategic objectives, initiatives that are specific actions/projects that help reach the vision and objectives, and a roadmap that connects and lays out a logical path forward. 

Digital Vision

Leaders need to begin with a vision, painting a picture of what the digital future will look like for their organization. The vision does not mean planning a Digital Transformation in minute detail from start to finish, nor does it mean just building awareness and energy and waiting to see where things go. The vision needs to be clear but broad, with room to evolve. It describes an aspirational and easily memorable digital future that an organization can picture, aim for, and reference. At the start of Burberry’s successful digital transformation, CEO Angela Ahrendts began with a vision, “We had a vision, and the vision was to be the first company who was fully digital end-to-end… The [resulting] experience would be that a customer will have total access to Burberry across any device, anywhere…”. This vision was both broad enough that Burberry had opportunities to test and develop initiatives, but specific enough that employees knew the end state and what to shoot for. 

Digital Initiatives

Beneath a digital vision and strategic objects are key initiatives. The digital initiatives work together to reach the vision. They need to make sense together and provide tangible steps that are actionable and measurable. Discipline and focus are critical skills to employ when deciding upon initiatives. The digital strategy ultimately needs to be focused and that involves making trade-offs on where and what to compete in. The initiates need to support this focus. In the earlier example with GE, we saw that underneath the vision of moving towards smart connect products, there were key initiatives launched that helped reach this vision. GE created the software center and built off the industrial IoT platform. Each of these initiatives were specific actions and projects, but they both fell beneath the umbrella of the vision and led to it.

 Digital Roadmap

The last part of a digital strategy is the coordinating and planning of initiatives. This is the digital roadmap. Initiatives should be prioritized through looking at the cross between business needs and capabilities. When creating a roadmap, one should begin by building momentum through pilots and quick wins. As the roadmap matures, it is vital for leaders to explicitly connect initiatives and over-communicate how they relate to one another and ultimately the vision. 

Together these initiatives form a digital strategy. A note of caution though, while there is a hierarchy of vision, initiatives, and roadmap, they are not always entirely linear. Meaning, after launching a few initiatives, it is vital to engage your organization to learn, gather data, and potentially course correct. An organization’s vision must evolve as technology continues to advance.