Guiding organizations towards digitization What is a digital strategy?
Digital transformation profoundly changes how organizations work. This is why organizations need a digital strategy. But what exactly is a digital strategy? And which aspects should it consider?
With the risk of oversimplifying, a digital strategy defines how to reach business goals with the help of digital technology. Digital fundamentally changes the business landscape, and digital strategy is a reaction to these changes. However, there is more to digital strategy than business: It connects business, people, and technology. It is thus based on three questions:
- What do people need?
- What is technologically feasible and reasonable?
- What makes sense from the perspective of the overall objectives, e.g., of a business, person, or institution?
The digital strategy aims to align these three aspects. Ideally, this creates a value-creating experience for customers and users. Furthermore, organizations have to constantly change their digital strategy in countless iterations, with the aim of moving to an ethical, sustainable future.
Three pillars of digital strategy: organizations, people, and technology
While this offers a good starting point, there is still much to be said about digital strategy. So let's look at the concept in detail, one step at a time. We will start with what organizations seem to care most about: themselves. With ”organization,” I refer to enterprises, institutions, or even whole societies – each of these can profit substantially from a digital strategy. One could also argue that an individual would need a digital strategy.
Digital strategies explain the digital businesses of organizations
As being said, a digital strategy defines how an organization can reach business goals with the help of digital technology. In many industries, where ”digital” has not always been at the core of the business, this goes hand in hand with transforming the organization to profit from digitization. Digital transformation is one of the biggest changes in the history of economy. There are different approaches to understand what this means for an organization. It helps to think in three points of view that an organization could take:
- retrospection: The first approach takes a historical point of view and is driven by fear. We look at famous examples like Kodak. Kodak invented the digital camera, but then failed to profit from it: Fear of ”cannibalizing” their business of analog films led them to leave the digital field to others. Stories like this scare us, and in hindsight, we can see similar missed digital opportunities in the history of our enterprise: We did not understand the significance of e-commerce, or the blockchain, or artificial intelligence before everybody was talking about it. How can we avoid making this mistake again? In this approach, digital transformation is viewed predominantly as a necessity, and organizations tend to react to the extent that digital transformation is essential to stay in the market.
- inspection: The second approach is driven by current technology trends, which organizations want to exploit: mobile, social media, the cloud – whatever the technology, organizations do not want to miss out. In a way, organizations wait until they can be pretty sure which technologies are on the rise, thus taking a point of view centered around the present. Then, organizations start thinking about how these hot technologies could help them market their products. This approach views digitization as using digital channels, which can be exploited to reach audiences.
- projection: The third approach takes a proactive stance, trying to enhance an organization's products and services with digital aspects. Digital thus becomes a source of revenue, making it an integral part of the business model. The point of view of this approach looks towards the future. Digitization is thus part of the shift towards a brighter, digitally driven future of the whole organization.
It is important to say that none of these viewpoints is a bad thing as such – each has its merits, but also its challenges. While the retrospective view can be compelling in convincing people, it suffers from the fact that the past is not always a good predictor of the future. The inspective view is a great way to broaden our perspective and make sure that we do not miss any current trends. However, it suffers from being too slow and relying on others to observe digital opportunities. Furthermore, we might misinterpret what we see. As the futurist Ray Kurzweil puts it, exponential change looks pretty similar to linear change until we reach the curve. A projective perspective offers excellent opportunities, but risks of being built on air, where it is not straightforward to get the buy-in of other stakeholders for the necessary investments.
Ideally, a digital strategy should thus take a holistic view, by incorporating all three points of view where appropriate. It involves looking at the past to find where an organization missed opportunities, to avoid the same thing from happing again. It means continuously observing the current discussions about digital technologies, to make sure that we miss no opportunity. Moreover, it means actively working on one's own disruption.
Digital strategies put people at the core
”People” is equally well represented in the image above as the organization and technology. This is no coincidence. People's needs are driving digitization, and thus the digital strategy itself. Audiences are rapidly changing in the digital age. For example, a study in the telecommunications industry by the consultants Oliver Wyman (article in German) found that customers increasingly take customer service in digital channels for granted. This makes these digital channels a real hygiene factor, not a distinguishing feature. Being in contact with audiences through digital channels has become a prerequisite.
”People” naturally includes customers, but is not limited to them. It is equally important to consider employees, the general public, and users (who might not always be customers in the sense that they pay for a service). For instance, successful digital transformation needs the support of all employees. A recent study by Microsoft found that only 11% consider the digitization in their enterprise a joint project. This number is a pity because it is unlikely that such a broad change like digital transformation will succeed if the people who are affected are not participating.
In the digital economy, organizations are built around the talents of the employees.
Ayad Al-Ani, organizational researcher
As digital trends like automation, crowdsourcing, and artificial intelligence make repetitive tasks more and more unnecessary, employees gain more time for finding new, possibly digital, solutions for their enterprises. This is a huge potential to capitalize on – great ideas arise from people working together with their talents.
A digital transformation like this does not come easy. It involves profound changes in culture and behavior. It needs planning, integrated thinking, and a long-term vision. Thus, a digital strategy should include reflections about the own employees. Thinking about the ways that digital technology could make their jobs better is a good place to start. How will their situation change? What will be their roles? How much time should they dedicate to digital transformation, and who will take care of what? Moreover, what do these changes mean for the organization as a whole? You should also try to motivate employees to actively participate.
Digital strategies think in ecosystems of technology, not only products
A digital strategy is thus a reaction to the needs of people, with a particular focus on changes of these needs and how digital technologies are used to respond to them. Therefore, understanding the needs of people and the technologies they use is crucial for a successful digital strategy. Understanding the needs of people is grounded in thorough research. Chances are that the needs of people do not circle around your products. Instead, people use a variety of products and services, as well as exchange with a lot of other people, to get a job done. It is thus necessary not to only think in products, but in ecosystems.
In biology, an ecosystem is a symbiotic system where organisms and environment exist together in a way that the overall system is stable and in harmony. Similarly, a digital ecosystem does not limit itself to the products and services of an organization, but on the entire ways these are embedded into the lives of people. An ecosystem thus considers
- who the people are, and their networks with other people
- what they do, and what services, technologies, and channels they use
- how they feel in these situations, and how these emotions influence our experience with the product of the organization.
However, the notion of an ecosystem does not only point us to the connections between different aspects: An ecosystem also is not static, but continually evolving and fragile – a change in one area can affect the whole system. Digital is precisely like that. Furthermore, an ecosystem is not built around one species, but it is a network of species. Likewise, a digital strategy looks at the relationship between the products and services of an organization to the whole range of technologies.
The technological landscape has changed profoundly over the last years. Digitally driven competitors have entered the market in industries where, only a few years earlier, most of us would have never thought it could happen. Furthermore, using technology, competitors of a much smaller size can make a significant impact on the market. More and more data is becoming available, thus creating an ever growing need for data scientists. There is also an ever-increasing number of technological trends (like blockchain, cloud services, or machine learning, to name a few), which in turn influence how enterprises act (e.g., ”Bring your own device” initiatives that allow employees use their own devices for business purposes). Furthermore, the pace of digital change is enormous, making constant technological innovation a necessity.
Technology is a great neutralizer of company size.
Andrew Frawley, Brainfluence 51
However, it is not only the sheer number or speed of technologies that is impressive. It is also the magnitude of its effects. Let's take a brief look at some of the book titles that authors used to describe it: ”The Second Machine Age,” by Erik Brynjolfsson and Andrew McAfee. Or ”The Fourth Industrial Revolution,” by Klaus Schwab. Or Tim O'Reilly, who justifiably speaks of ”What's the Future” technology. Authors like these understand that digital change is a megatrend, which is influencing almost everything. It will undoubtedly continue to do so.
With all these impacts that technology has on organizations: A digital strategy is not about choosing one of these technologies because they are trendy. It is about choosing the right ones to achieve the goals. However, technology alone cannot tell us which ones are right. To answer this question, we thus have to merge the perspectives of organization, people, and technology and concentrate on where they intersect.
Experience as the key differentiator of digital organizations
One of the most important goals in traditional business theory is to create what is called a unique selling proposition (USP). In conventional economics, a USP is something which differentiates you from your competitors. However, in digital business, such a USP is increasingly difficult to maintain. When digital products are based on similar technologies and can be rapidly prototyped in software and hardware, it is likely that a technological advantage does not stay for long. Constant innovation is key to success. Furthermore, the market has become global, meaning that advantages based on location cease to exist in many industries. Low barriers to entry make the problem even worse because new competitors could arise at any time.
However, this does not mean that there is no way to differentiate ourselves from our competitors. The differentiator is just somewhere else. It cannot be found on the side of an organization alone but lies in the center where the goals of an organization, the technological possibilities, and the needs of people meet.
There lies experience, often in the form of user experience or customer experience. Thinking of experiences has a couple of advantages:
- They depend on the needs and goals of people, while at the same time they have to be provided by an organization with the help of technology. They thus make sure that all three areas of digital strategy are accounted for. Even more so, none of these areas can determine experience on its own.
- Experiences provide meaning. They thus distinguish between necessary things to do in a strategy and superficial activities.
- Experience can be measured and evaluated, making it a very actionable concept. However, they are not too simplistic, thus avoiding the risk of oversimplifying of reality.
- Experience is a holistic concept: It comprises what we anticipate an experience to be like, our experience at the moment, our memories of it, and the long-term effect.
- Experience creates a value loop, where each of the three components of digital strategy profits. The more users use a digital product to achieve their goals, the more their use contributes to reaching the business objectives, while at the same time data is created. This data can be analyzed to make the technology better suit the needs of people.
Putting experiences at the core of what an organization does has two challenges worth addressing. The first is its complex nature. It is not easy to design for experience, and it is continuously changing. A digital strategy thus has to move fast, be ready for rapid testing, and continuously push things forward. The second challenge is that experience is only complete if its long-term effects are considered, calling for ethical considerations.
Over and over again, iteration after iteration
The digital world is moving fast. Digital opportunities, platforms, and user needs are evolving each day. In addition, there are far fewer trails and rules of thumbs than in other areas. Although there are best practices, you cannot be sure that they are valid in different contexts. A ”we have always done it like that” attitude does not lead you far in digital. There is just too much change, too many differences between industries, and too much experimentation needed.
The digital strategy should consider this changing nature of the digital landscape. It needs to be constantly evaluated and refined. It should be ready for the future. However, we do not know the future. At the core of digital strategy, experiences are also not fixed but evolve. Furthermore, we cannot design experiences directly. We can only design for experiences, meaning that we always have to get our digital products and services out to people, investigating which experiences they create, and then adapt our strategy.
Therefore, iterating is at the core of digital. Iterating a digital strategy means appreciating its fluid nature. Adam Cranfield of DigitalFWD suggests that a digital strategy should have a scope of about two years. This is a reasonable compromise between not too long, but also not too short.
Iterating also means that we need to consider new qualifications – suddenly, occupations become interesting in new fields. While developers, designers, media experts, or researchers are still mostly found in a well-defined range of industries (like companies with a clear focus on digital services, or agencies doing client work), my impression is that these jobs become more and more interesting in other fields as well. No wonder: these people have learned what is needed to deal with the digital uncertainty. They focus on a particular task, create endless variations of it, and thoroughly test it to see if it works. Moreover, they build on it to find the next solution.
Ethics in digital strategy
As said, experience does not stop at the moment when a user is interacting with our product or service. It includes what he experiences afterward. It also includes what others experience, and even considers the society as a whole. Also, it certainly includes sustainability issues, meaning what a product or service does to society and environment in the long run. Indeed, ”digital” needs ethics even more than other fields for two reasons:
- What ”digital” does is to a large part invisible to the naked eye. We cannot observe functionalities of digital media, like what an algorithm does (and on what it bases its decisions), which data is collected at which point in time, or which consequences a digital technology could have when it is connected to another technology. We only see the results.
- ”Digital” profoundly changes our lives, and digital technologies tend to become personal. The history of computers is indeed a history of digital technologies becoming closer to the human – from the shared mainframes of the 60ies to the ”personal computer” of the 80ies to digital devices we all carry with us, all the time, like smartphones or wearables.
We thus need to consider the role of ethics in a digital strategy. Digital design is not free of values – it always has a goal, so we ask what this goal means for our futures.
We need to fear the consequences of our work more than we love the cleverness of our ideas.
Do we need a digital strategy?
People sometimes ask me whether their organization needs a digital strategy. While this is, of course, the individual decision of everybody, I would argue that yes, a digital strategy is required for most organizations:
- Given the significant changes that digitization means for businesses, society, environment, and culture, it is doubtful that organizations will be able to deal with it when they have nobody to care for it. A digital strategy defines who that should be.
- Furthermore, digital business processes can be scaled up or down, meaning that they are appropriate for organizations of any size.
- Some industries have been affected by digital change early on, while others are still relatively unaffected. However, it is not likely that there is an industry which can afford not to deal with digital transformation. The Global Center for Digital Business Transformation has created the concept of the Digital Vortex, where industries closer to the center experience the need for digitization more urgent than those at the edges. However, there is only one direction in a vortex: inwards. (And remember the old saying: The early bird catches the worm.)
Why other strategies cannot cover what ”digital” means
Can ”digital” be accounted for in another strategy? Which strategies could be able to deal with digital transformation? The first obvious candidate would be business strategy. However, unless ”digital” is really at the core of your business (in which case ”digital strategy” would be identical to ”business strategy”), there are many difficulties in aligning digital and business strategy:
- The business strategy covers the whole range of economic strategy, meaning it is often too broad to account for the opportunities afforded by digital technology.
- Sometimes, you can directly derive objectives for digital strategy from business strategy. For example, when the business strategy states to increase sales by a certain amount, the digital strategy should include goals of how this translates to digital: Which part of this goal should be realized with digital channels? You could thus define that you want to ”increase our sales in our online shop by 15%”.
- However, a digital strategy is also about finding new digital opportunities, which could themselves become part of the business strategy. The trouble is that the abilities that made a business succeed outside ”digital” are not necessarily the same that promise to be successful in digital transformation. As a business strategy focuses on what has been working well in the past, it risks losing sight of what might work well in the digital future.
- In addition, the business strategy often has a focus of several years – probably too much for the rapidly changing digital landscape.
This means that, despite all the connections, business strategy is not the best place to answer the questions that a digital strategy poses for most enterprises.
Given the role that digital channels play in today's marketing, should we then account for it in our marketing departments? Well, we certainly could, but digital also goes beyond marketing, so that marketing strategy is not the best place to deal with digitization. It is true that marketing can (and indeed should) cover some aspects of digital transformation. However, in many cases, marketing also has to take care of non-digital areas, which tend to work according entirely different rules. Furthermore, marketing is looking at the customer, not the user – a meaningful distinction.
IT strategy might be another candidate, and sometimes the Chief Information Officer (CIO) takes this role as the digital strategist. However, the focus of the roles is different: CIOs need to focus on technology, while digital strategists work at the crossroads of technology, business goals, and user needs and experiences. Digital transformation does not only need introducing and taking care of technology. It requires a change of the culture and the structure of the entire organization. Including all of this in IT strategy would considerably extend the work of the CIO, and given the breadth that IT strategy already has, I am not sure that this would be a good idea.
Who is in charge of the digital strategy?
What had been outlined so far indeed argues for seeing digital strategy as something which should have a place in the board meetings of his own. Now, this still leaves one question open: Who should take care of digital strategy? I have already argued that I do not consider IT or marketing strategy the best places to deal with digitization. The apparent first idea would thus be the Chief Executive Officer (CEO) herself.
There are good reasons to say so: I often come across the idea that digital change is a top-down process, meaning that it needs significant buy-in of the CEO and is not likely to be successfully implemented ”from the ground up.” I agree with this statement, but with one modification: While it is true that the CEO should lead the organization towards digital, she still has a business to run. In some cases, this business might be so close to the digital world that the CEO is, in fact, a digital strategist – why would a company like Facebook or Amazon need anyone looking at digitization, if ”digital” is the core of what they do? However, in other industries, I do not think that a CEO can dedicate enough time to ”digital” to stay on top in this fast-moving area.
Another possibility is the relatively new, but rapidly growing role of the Chief Digital Officer (CDO): In their regularly updated CDO-Kompass (only available in German language), Oliver and Leon Merx found that the number of CDOs has been growing from mere 52 in 2010 to 2,500 in 2016.
One of the most interesting recent additions to the C suite that I came across is the CXO: the Chief Experience Officer. This job role is grounded on the growing importance of user experience (UX) as a key differentiator in business, making it the core of a digital strategy. The CXO might, therefore, also be the person in charge of the digital strategy.
Sometimes, digital change is implemented as a subpart of all the other departments. In this view, each department should look on its own at what ”digital” means for its way of working. While it is indeed imperative to have each department share its needs regarding digitization, somebody has to connect and enhance these inputs, take care of synergies and contradictions, and make sure that every digital opportunity is discovered. The whole is more than the sum of its parts, as the old saying tells us. This statement is especially true for digital.
A digital strategy is vision and objectives, not tactics
Now that I have explained what a digital strategy is, I want to emphasize what is it not. When I talk to people about what I do for a living, people tend to ask me about concrete things. How should a website look? How do I program an app? Which rules of thumb should I use to boost my sales? Which content management system (CMS) should I use?
These are interesting questions. However, they are not an integral part of the digital strategy, but of digital tactics. A strategy defines what to do, but not exactly how to do it. A tactic is a means to achieve the goals. Ideally, the digital strategy enables people to act and decide on the right actions on a daily basis. This means that the digital strategy should not be too vague, nor too complicated to understand. It guides behavior, but it does not spell out each and every step of this behavior. A strategy cannot give each and every answer that a practitioner needs. It just gives enough detail so that each actor stays free to quickly evaluate how to achieve it, and thus choose the appropriate tactic. Afterward, the success of the actions is evaluated with the help of the success criteria that the strategy defines. Like the strategy, a tactic also has to be adapted on the run as well.
In times of quickly growing digitization, organizations, institutions, and people are increasingly afraid of not profiting from the opportunities that digital change affords. Developing a well-researched digital strategy is one of the primary means to account for digital opportunities. A digital strategy aligns the needs of people, the goals of an organization, and the opportunities of digital technology. It makes sure that the three components together create valuable experiences. Digital strategy is improved continuously in countless iterations, while always having ethics in mind to make sure that its objectives are meaningful and sustainable. A digital strategy is thus an essential step in the digital maturing of organizations.