The reality today is that despite seemingly endless advances and a steady river of emerging technologies, many of the key insights, strategies, and lessons in the digital age have still yet to be discovered. Looking back, we are frankly still early in the pioneering phase of digital, despite significant early ground being claimed and several generations of impressive success stories emerging.
Therein lies the opportunity for most of us.
Thus, despite all the esoteric talk over the years of network effects, the red queen treadmill, strategic platform plays, and winner-take-all, it’s now clear that the digital market is so fluid, self-creating, and essentially infinite, that most of the value by far still remains to be created and captured.
When I say digital age, I do mean since the advent of the Internet, which as we look back on it now was a truly epochal event whose impact will be felt profoundly for the remainder of this century, both inside and outside our organizations. This isn’t an understatement: The vast, easy, simple enabling of global digital networks of people and organizations has been a genuinely a revolutionary one. Today’s networks can be of any size, any form, and can effortlessly enable us to come together en masse and collaborate for purposes of creating incalculable human value — many of which were hitherto simply impossible, and all at a cost that relentlessly falls towards zero.
Far too many people I talk to today, including many digital strategists I find, still do not fully appreciate this time in our history. Most of us are coming to terms with and beginning to understand what digital can do, both for positive outcomes and otherwise (as all technology is a two-edge sword.)
Digital Setting the Global Growth Pace
Yet while digital in all its many forms is now well down the path of transforming our economies, enterprise, and society, we do have a growing sense of what the art of the possible is. It’s clear that digital is now of the primary aspects of how we live and work, and so we must shape it into what we want it to become. We have only to look at tech firm exemplars like Amazon, Google, Facebook, Airbnb, and the 183 companies currently in the so-called “unicorn club”, namely digital startups worth over $1 billion, to find the companies that are creating the most new large-scale business potential. In fact, over the last 10 years, digital companies have surpassed the traditional corporation dramatically, now making up five of the six most valuable companies in the world by market capitalization:
Put simply, it’s far easier — and more valuable economically — to grow a company in a digital world than it takes to do it the traditional way with physical offices, departments, divisions, stores, factories, and vast workforces to run them all so that you can build products and deliver them to customers individually. The cost of doing it the old way is by comparison simply enormous and increasingly prohibitive, even if we’re not talking about eliminating the old world entirely. An amalgam of the two is happening, as we’ll see.
Note: In a digital world, you still need people of course, and some infrastructure, just orders of magnitude less typically. A canonical example of this is WhatsApp, which only needed 50 direct employees to deliver services to 900 million users at the time they were acquired for $19 billion by Facebook.
What Are the Top Digital Strategies Today?
There have been a good number of attempts lately to quantify what the top-level “known quantity” digital strategies are, since for all the reasons above these should be the top targets for the digital transformation process within most organizations. One of the most recent examinations of this is an exploration by Jacques Bughin and Nicholas Van Zeebroeck’s what they believe today’s 6 core digital strategies are. It’s a good overview, especially the insight that for over 2,000 organizations the value of such digitalization has in general been only a little above the cost of the capital to get there. In other words, most efforts don’t generate unicorn outcomes. (Though to be fair, they shouldn’t be expected to. Digital is a numbers game and it’s why VCs invest in pools of startups than in one or two efforts, but that challenge is another story.)
However, I’d argue that Bughin and Zeeborekc’s digital strategies tend to be ones that traditional organizations would be more able to carry out by their existing inclinations and nature. It’s far easier to move into e-commerce, for example, that it is to become a platform company, as the former seems familiar to traditional organizations, while the latter has entirely different rules.
Being a truly digital organization means thinking quite differently than an industrial age organization. I find the above mentioned strategies to be less transformative and meaningfully sustainable than what is possible and evidently required to get the gains that the more green field unicorns are seeing.
Instead, other research has come up with a slightly different list of strategies, notably recent research by Libert, Wind, and Beck, which shows a breakdown that focuses on price-to-revenue impact. They identify asset builders, service providers, technology creators, and network orchestrators, in that order, with the latter coming out far head. As we’ll see, this identifies more strategic value creators for digital than the previous set of strategies, yet I find that it’s also incomplete in terms of describing digital strategy by not taking into account some of the more tactical approaches.
In my own work with clients, I’ve used a more comprehensive and strategic list of digital strategies — along with applied integration with some of the many proven and/or emerging digital business models that now exist — to identify where organizations should be focusing their valuable leadership time, execution resource, and organizational capacity.
The 8 Essential Digital Strategies Today
With the disclaimer that we’re learning more all the time about which are the most significant and impactful digital strategies, here’s the leading models that exist today, in increasing order of strategic value:
This was the first generation of applying digital to business and didn’t even require networks, though they certainly added an inflection point when they arrived. ERP, CRM, and business process management (BPA/BPM) are all examples of IT automation of the business. The growth of corporate productivity as a direct result of technology automation is a well known story. There is plenty of value here worth investing in, but primarily of the cost-cutting and efficiency variety. Automation will not even prepare organizations for their digital future, so its score is the lowest of all the digital strategies, but is nevertheless the most common form of digitalization. IT vendors such as IBM, Microsoft, SAP, and Oracle have long played a key enabling role in this strategy, but most of them have since moved their new products and services to other digital models below.
2. Legacy product/service digitization
This strategy involves taking existing products and services and putting a digital face on them. This was done by the entire airline and hotel industry in the 1990s and was finally taken up by the retail, media, and financial services industries in the 2000s, in the form of transactional Web sites. Telecom and other industries most affected by digital disruption have often done a very poor job of legacy digitization. While most organizations must look to digitize legacy products to sustain their organizations during digital business model transition, the rise of the unicorns shows us that the largest growth and value is in new markets and technologies. Unfortunately, the majority of traditional enterprise have done a relatively poor job creating effective customer experiences for digital, though the lessons are getting clearer now. Bottom line: Like automation, legacy digitization is a responsible and required investment, but not necessarily highly strategic nor likely to enable survival for the long term by itself.
3. Digital channel distributor
Getting digital products and services to market requires far more than a digital experience at a handful of touchpoints. Instead, it requires marshaling digital channels of all kinds, both self-realized as well as enabling 3rd parties, to flow value from source to customer. Digital affiliate programs (Walmart pays 4% or more gross commission to enable this, for example), marketplaces, arbitrage services, business app stores, open APIs, and other channel reach models such as Amazon’s Alexa Skills are all examples. Even the stodgy insurance industry has gotten into the digital channel game, with insurance giant Chubb partnering with Suning to distribute insurance products to the online Chinese retailer’s ecommerce network, with 230 million users.
4. Marginal market making
Once you have a digital audience, it allows you to expose them to new offerings and digital experiences. This enables incremental new gains that would have been cost-prohibitive without pre-existing investment in that digital market or channel. For instance, Amazon, a good example in so much of digital, allows any of its customers to become individual sellers, tapping into an existing marginal segment that would not have been worth the investment otherwise. While not a big business by itself, this strategy can further tip the competitive scales by generating additional revenue while becoming even more valuable to customers.
5. Technology creation
While having formidable barriers to entry due to capital expenditure, though certainly much less so on the software than the hardware side, there’s no denying that creating a must-have technology remains one of the top digital strategies on the market. Technology creation has created trillions in economic value over the years for companies that solve important problems for their customers. From hardware like smart devices to must-have apps for social networking and messaging to search and media consumption, technology creation can lead directly to value creation like few others digital strategies.
6. Digital platform ownership
Most of us are now familiar with the digital platform discussion, made famous back in the PC days with Microsoft vs. IBM, and now much more familiar to us as iOS vs. Android or Amazon Web Services vs. Microsoft Azure. If you build a platform that can be extended, instead of a just a single point technology, it can be enriched many orders of magnitude further by others, creating an unbeatable network effect over time. Apple and Google have attracted millions of apps collectively to their mobile platforms, while hundreds of thousands of businesses and software companies have built on top of AWS and Azure, making them indispensable foundations that will be vibrant and growing largely through the effort and investment of their platform partners.
7. Network orchestration
What if you could take the assets and technologies that already exist on the network, connect them, and turn them into business models? That’s the premise of this digital strategy, which the likes of Uber and Airbnb have shown pay off in spades. The essence of this strategy is the following: Use existing infrastructure and resources (connecting people who have cars with people who needs rides, for example) and make it the most appealing process. Organizations can create fast-growth new lines of business in very short amounts of time than using the traditional, slow, and out-dated approach of trying building everything yourself, a prohibitive and unnecessary cost today.
8. Ecosystem cultivation
Orchestrating your own platform and enabling it become an ecosystem is the most valuable digital strategy of all. Amazon does this with Amazon Web Services by extending it with marketplace built on top of it, as does SAP with its new but already large and growing SAP App Center. The key here is not just in owning a platform but in making it a recombinant living ecosystem that is directly enabled and extended by each and every new partner, through their own respective ecosystems. Apple does this by allowing other platform partners to build on top of it, a specific example is much of the consumer Internet of Things (IoT) industry, such as Philips Hue and other connected device product lines. Another important example is commercial blockchains, which are poised to become major category ecosystems in their own right, highlighting a path towards a major new digital future. Short version: Ecosystems are as much about their community of business partners, not just the technologies or platforms within them.
Digital Strategy: The Story of Disruptive Co-Evolution
Is this list of strategies an oversimplification? Almost certainly. Is it incomplete and will it grow. Absolutely. Yet it also provides a clear lens through which to look at the heart of an existing organizations and making momentous changes. Smart organizations will grow digital competency — largely through talent — that can quickly execute from the start to the end of this list.
How will such changes be made in large organizations? I’ve been exploring that and grappling with the means of digital transformation and the future of technology enablement in my work for years and some broad outlines are emerging. So in the meantime, brush up on these and get ready for one of the most interesting and challenging times in business history.
Old but still interesting: Fifty Essential Web 2.0 Strategies
(Cross-posted @ On Digital Strategy | Dion Hinchcliffe)