Asking what your digital strategy is akin to asking what your electricity strategy was at the turn of the last century. Seems absurd. Yet both questions reflect how a shift in an underlying technology fundamentally changes what is possible.
When something has a digital component, it means that there is a layer of information and connectivity between people, things, pieces of software, etc. Digital offers the potential for creating virtually unlimited perfect copies of the original.
Absent this quality, OTT subscriptions wouldn’t be this cheap.
How about getting a fix on pricing?
The downside is that when you have a potentially unlimited supply of something, your ability to extract a price for that drops dramatically. That means the value for a customer is going to shift from possessing the physical thing to doing something desirable with it – from product value to the value in interactions.
You see this in the music business. As the price of a single song has gone to virtually zero, artists are finding they can only earn a living doing that which is scarce – going on tour and giving an irreplaceable live experience, and customers pay for that experience. Second, digital is far easier to combine and recombine in new ways that simply can’t be organized manually. For example, the Sabre airline reservation system use electronic records about passenger reservations and seat availability to match the two electronically. Prior to that the job was done with scribbled notes stored in lockers – inefficient, and a big barrier to the growth of aviation. Today, airline can find out which seats and times are more popular and price accordingly.
More free thinking
Finally, together with the recombinant quality are the reduction in cost and increased ease of experimentation. Employees using digital tools can engage in tinkering and experimentation without much need for resources or permissions, since the cost and risks are relatively low. This has huge implications for how business models are designed in the digital age. When entirely new classes of value open up, the old business models won’t be able to capitalise on them. Businesses are much more likely to succeed if they take an opportunity lens to the digital revolution.
Many newspapers viewed the advent of digital as a threat, hived off their operations into a ‘digital division’, left their basic operations unchanged and were ultimately unsuccessful at holding back the digital tide. One shining exception was Norwegian operator Schibsted, which both embraced digital technologies and compensated its executives for keeping customers with the company, no matter which channel they chose to use. Domino’s Pizza is another example of a company that used digital smartly to give itself an edge. Here are some thoughts for developing a digital-friendly strategy:
* Begin with frictions. Every established business does things a certain way because it was more convenient. But each of these activities is likely to create frictions that a digital solution might address. Imagine the possibility of digitizing operations to eliminate glitches and barriers. For instance, Germany’s Kloeckner started its digital journey by getting rid of manual faxes.
* Consider new kinds of value that might emerge from interactions. Conventional views of strategy often rest on a zero-sum attitude towards value. Instead, imagine the value that could be created with digital interactions.
Take the example of John Deere, which started by helping farmers get better yields, but facilitated interactions between seed producers, fertilizer makers, chemical companies, and local governments, creating value-generating activities for all. Many agritech startups are copying similar models now.
* Consider re-architecting how work is done. One of the biggest impacts of digital, accelerated by the pandemic, is to change the nature of how work is done. Enterprises are using technology to reframe how they do business. At ING, conventional silo structures were replaced with more agile ones in which small teams could move quickly to solve complex problems with an architecture suitable to fast-moving technology enabled work. ‘Permission-less' systems allow those closest to problems to take action.
As Jeff Bezos observes, you can anchor your strategy on what is unlikely to change. Customers will never say, “I wish Amazon would charge me more and deliver slower.”
The benefits of digital means re-imagining how the business works. Think boldly, but experiment cheaply by quickly checking assumptions about how digital could help the business.