CHAPTER 2

An Introduction to the Seven Principles of Digital Business Strategy

In attempting to further our understanding of leadership and management decision making, Walt Disney is very instructive.

His ‘Dreamer’, ‘Realist’ and ‘Critic’ roles are still used in management courses today as illustrations of achieving a balance between what we might achieve if we had no obstacles (the dreamer), the adoption of a more resource-based view (the realist), and a view that challenges decisions made and checks that they are the best they could be in the context of the dream–reality balance (the critic).

In the popular Disney fairy-tale Snow White, we meet the seven dwarfs, a band of well-meaning miniature miners who capture the hearts of not just the heroine herself, but of many generations of readers and viewers. “Can you name all seven dwarfs?” is a question that has appeared on many a trivia quiz for adults—usually with varying results—but we are never asked to name just one of the dwarfs. Indeed, these fairy-tale friendlies are never seen as anything other than a single, heroic body made up of seven very different, but equally valuable and complementary parts. Grumpy, for example, cannot be grumpy without his six companions as his grumpiness is defined by them and their circumstances. For Happy, his happiness infects his colleagues (except Grumpy of course) and the team is better and more effective as a result. Without Happy and Grumpy, they are merely miners going about their business, neither happily nor grumpily, but for both Grumpy and Happy to truly shine as individuals, they must be part of this collective, and for the collective to truly shine, each individual must be present and adding their particular character and personality traits.

So it is with the Seven Principles of Digital Business Strategy although we can’t claim these have any particular anthropomorphic qualities. The underlying point is one of gestalt—together the Seven Principles are stronger than the sum of their individual parts.

In this chapter, we will give an integrative overview of each of the Seven Principles of Digital Business Strategy. Just as Grumpy is not the completed mining hero without his six counterparts, no one principle of a digital business strategy can stand alone and do the job of the seven. They are all complementary to each other and all necessary if we are to create strategies that can help our businesses to succeed in a modern, technological marketplace. At the end of this chapter, when the seven principles are more clearly defined, we will discuss how they relate to each other.

While the principles are numbered from 1 to 7, it is practical and often necessary for a strategist to start on a principle other than 1 and return to it when they have the right information at hand to complete the task.

The Seven Principles of Digital Business Strategy Are:

They can be roughly placed into three different categories, with Principles 1, 2, 3, and 4 making up organizational internal analysis, 5 and 6 making up external analysis, and 7 being strategy implementation.

Internal analysis drills deep into the business and assesses whether we are capable of making the necessary strategic play, macroanalysis is a broader view of where we are in comparison with our competitors and what we can do in order to match or outperform them, and tactics is where we ensure excellence in tactical planning and execution to make sure that our strategy translates into reality and benefits our business.

Internal Analysis

Internal analysis is a review of the inside of your business. This is where you decide what you want out of your business, assess customer demand, look at the competition within the marketplace, and analyze your available resources for forming your strategy. Though each of these four principles is distinct from one another, they are heavily interwoven in the creation of a strategy, and our path to creating a viable, successful strategy can involve revisiting each of these principles as we go along.

Principle 1—Know Yourself

Within the internally focused stages, the three key elements of the first principle are ambition, diagnosis, and unique value proposition.

It is important to note that the ambition of a business is distinct from its vision, mission, and values. A business vision outlines where a company wants to be. It communicates both the purpose and values of the business. A mission statement talks about how you will get to where you want to be. It defines the purpose and primary objectives related to your customer needs and team values. While the vision is essentially “future-oriented” the mission describes the present and how that future position can be reached. This orientation in mission statements makes them useful from a strategy development perspective as they capture and operationalize the sense of ambition (future orientation) that is presented in the vision.

In order to form good strategies, we must have a clear idea of what our business’s ambition is—an idea of what we actually want to see happen upon the execution of the digital business strategies we create. As we will see in later chapters, there is a method for creating a business ambition.

Once our ambition is defined, we need to look at our unique value proposition. The unique value proposition of our business is not internally driven—it is not focused on what we want to say, or sell—rather it is focused externally on the customer’s perception of what problem we solve, what pain we remove, and what value the customer places on our ability to solve it. We derive our unique value proposition not from what we believe our customers should think, nor on how we believe our customers should value our products and services—but on how they actually do think and on the actual value they place on our products and services.

Principle 2—Know Your Customer

Historically, we have put a lot of effort into considering the demographics of our customers when attempting to classify them. This made sense in the past when more business was done face-to-face and consumers were constrained by geography and technology. In today’s digitized world where customers are potentially global in origin, the categories of demography make a more limited contribution.

Indeed, as technology advances, borders are brought down, and as people increasingly use the Internet to conduct business, the time has come to say goodbye to demographics as a way of knowing our customers and to look more closely into the ways customers behave and into understanding what is influencing their behavior. With the spread of Internet technology into every facet of life, people are gaining information and performing tasks in very different ways. Rather than having information thrust upon them and relying on advertising or word-of-mouth to find their nearest provider, customers are coming to the Internet with a specific task in mind, and they are researching products, prices, and providers for themselves. It is this task-based activity that we must explore if we are to know our customers.

Consider, for example, an airline. An airline has no reason to be concerned with the demographics of its customers. Instead, an airline is concerned with any and all customers, regardless of their demographics, whose task is “book a seat on an airplane.” Similarly, a company whose sole service is to aid people who wish to start investing is concerned only with the task “begin investing.” In both examples, it is the task at hand that is the route to business—not the demographic profile of the customer. What is important is identifying where value can be added in either “taking away the customers’ pain” or building in added functionality to task completion that enhances an offering already perceived as valuable.

Evidence of this customer-focused way of doing business exists in the marketplace already, where companies are beginning to unbundle their software and services. Facebook has unbundled its page functionality and its messenger functionality on smartphones, allowing customers to pick one or the other—or both—depending upon the specific tasks they wish to perform. Google has started to unbundle the products in its ‘Drive’ collection. Rather than downloading a full office productivity suite, a customer can now choose a spreadsheet-only application or a word-processor-only application—again depending on the specific task they wish to perform. This allows us as developers and business providers to become very focused on the customer experience and to capture different users in the moment that they are attempting to perform a specific task.

Principle 3—Competition

In order to understand the competition present in our chosen industry well enough to formulate a cohesive digital business strategy, we must understand digital marketplace dynamics. Imagine Newton’s second law of motion, which states that the force of an object depends on both its mass and its acceleration. In the marketplace, this manifests in the way that different businesses of varying sizes, with different momentum, move toward each other. If we are a small business, (the size of a ping-pong ball) and in our marketplace there are larger, more established businesses (the size and weight of bowling balls), there are only very particular circumstances under which we can move the bowling balls enough to get a share of the market.

Although our business is very small in comparison with the bowling ball, if we accelerate quickly enough into the marketplace and with enough force, we may be able to nudge the larger bowling ball just enough to get a small market share. To a small business, this small market share can be a substantial gain. Obviously, our little ping-pong ball is not the only object to which Newton’s second law applies. If the bowling ball—the larger business—is also accelerating, it will be far more difficult to move. Similarly, if it is in direct line of the customers we wish to cater to, the nudge we are able to give it may not be enough to gain any market share. In other words, there are circumstances that may make it impossible for us to get a share of the market.

We are able to calculate whether there is a possibility of gaining a share of the market, by understanding the digital marketplace dynamics. We must know who the big players are in the marketplace, what size they are, and what momentum and acceleration they have, if any. We must then look at what force we have available to counter the bigger players and assess whether the market spoils available to us are enough to warrant the fight. Where the firm may find itself limited in its ability to offer a differential advantage, then a decision must be made either to assess the viability of achieving that advantage or, where not viable, in retrenching to a less confrontational market position but where alternative opportunity may be identified.

As the digital footprint of our business and that of our competitors is public information, we have created a formula to calculate both the mass of a brand online and its acceleration in the marketplace. You can compare your force to that of your competitors at this web address:

https://www.ionology.com/dmd

Principle 4—Resources

In management thinking resources were originally classified in economic terms: land, labor, and capital. This relatively narrow definition then broadened to include people, and time (i.e., lead time). More recently still “people” has expanded to include competency and capability in staff. Interestingly, aspects of “adaptive capabilities” have been heavily focused upon as a key resource in the digitized economy. Adaptive capabilities are essentially those that are anticipatory in nature. These would be commonly found in “externally oriented” organizations, that is, those that adopt an “outside-in” perspective. These organizations are defined by their markets and customers and respond according to changes in these external markets rather than being internally driven and product oriented.

In today’s digitized economy, many companies are challenged in having competency sets within the company, including at the level of leaders, which allow for such new opportunities to be defined, exploited, or indeed transformed. A lack of resources however does not mean that opportunities should not be vigorously pursued—entrepreneurial thinking has evidenced that resources will be attracted to viable and exciting opportunities, so there will always be ways of compensating for resource gaps. That said in the digital context we would propose that three main resource considerations exist and these are time, talent, and cash.

When we speak about talent, we are speaking of specialist talents—often leadership talents—meaning that some plays require senior leaders’ constant involvement. Talent intensive plans are often associated with the creation of constant cycles of innovation, something that requires constant supervision and leadership, especially in the early years, as the culture of innovation is established.

Once a business becomes efficient at creating, selecting, testing, killing off, or maturing the right innovations that align with the business value proposition, the job of marketing becomes substantially easier. For it is innovation that spreads: tweeters will tweet about the “new innovation,” bloggers will blog, and peer review publications will publish if something is innovative. Innovation is most often the catalyst that creates the multiplier effect of great marketing.

External Analysis

This analysis is externally driven—it is about understanding where our business currently sits in the wider context, identifying where we wish to go, finding out what plays are available to us, and defining what we must do to obtain the growth we want.

Principle 5—Current Position

Knowing where you are now, where you want to get to, and how to get there is a commonly found underpinning in marketing planning. While easy to conceptualize as correct and sound, in practice this simple model is very difficult to implement, and the apparent simplicity belies a very information-intensive, analytical, and interpretative process around each of the three stages.

Under Principle 5, we will introduce a quadrant that allows us to visualize the different positions in which a business might find itself (where am I now?). The quadrant is split into advocacy, attention, authority, and prime. It is important for us to understand where we are on the quadrant, because our current position will determine what plays might be available to us. Misdiagnosing our position on the quadrant might lead us to prescribe the wrong direction, thereby impacting on our intended destination. In this chapter, we take a detailed look at the characteristics of each position on the quadrant, enabling accurate diagnosis and sound directional policy.

Principle 6—Engine of Growth

The Engine of Growth is, simply put, the defined play or series of plays we need to make to move from our current position on the quadrant (where we are now) to our desired position (where we are going to). There is no “bad” quadrant for any business to be in, but if we wish to move from one position in the quadrant to a different one, we must make the right plays. In the coming chapters, we will take a look at what defined plays are the most likely to move us in the right direction. It is worth noting that each quad has a different corresponding characteristic of growth. An Authority business grows faster than an Advocacy business and Attention business only grow when they can acquire new customers at a price less than the gross margin of the deal. More on this later.

Principle 7—Tactics

Since the tactical response of any given business is almost entirely dependent upon the specifics of its analyses, it is impossible to discuss tactics without the input of some data. In this chapter, we use a case study to illustrate what a tactical response might look like and to see how our micro- and macroanalyses help us to develop that response.

Tactics typically are responses to unknown values identified within the creation of the digital business strategy. The greater the unknown, the more important it becomes. We start with mile markers—the big issues—and break these down for easy consumption and division into projects and then individual tasks.

Case Study 2.1

At this point in time CKD (Commercial Kitchen Design) is a very strong business sitting in the advocacy quadrant—they’ve built up their reputation over several years principally by delivering good service and gaining referrals. However, the marketplace is changing, and with other experienced competitors in this quadrant, and increasing commoditization of kitchen equipment and indeed design mean that it is becoming increasingly difficult for CKD to differentiate themselves.

It is common that they are asked to help design a commercial kitchen including fittings and equipment. The challenge they face is that the potential customer demands that they quote the kitchen equipment costs separately from the build cost.

They want to move into an authority position; even though they consider themselves industry experts, there is no evidence that the industry differentiates them as such, and at present they have no unique value proposition. There are also no web data to support their claim that they are perceived as experts. The hallmark of an industry authority is that their ideas area often referenced, shared, and talked about. From a web perspective, no one is quoting them. They have no inbound links.

The current position is also precarious in that the only differentiation is cost, and increased competition and transparency of prices due to the web is reducing margins. CKD recognize that their future is knowledge and innovation.

CKD have a rich source of customer knowledge and understand all the elements of kitchen design. In 2015, they set out their stall at an industry convention, built a demonstration model kitchen, and invited existing customers and potential customers to see their creation. At the tradeshow, they asked their stand visitors, most senior executives, and decision makers, to fill in an anonymous questionnaire. The visitors were asked a wide range of questions regarding what they felt was important when considering the purchase of a commercial kitchen.

The results surprised CKD. Number 1 concern expressed by customers was labor costs of running the kitchen, Number 2 was energy costs, and Number 3 was increasing waste management costs. At the lower end of the survey, the customers showed they had a mild interest in the equipment and kitchen design. They simply assumed the kitchen would be well designed and that the equipment would do the required job.

CKD and the competition had up until now created a proposition based around kitchen design and equipment. This had come about principally because the equipment suppliers force the virtue of their goods through the supply chain that influences the marketing of the service provider.

The evidence from the survey showed there was an opportunity for CKD to change its value proposition, differentiate, and innovate.

Through investment in research they identified energy efficiency, waste management, automation, and personalization of product as key issues, which will need new waves of innovation to allow a commercial kitchen to remain efficient and viable in the future.

While their traditional suppliers were making energy-efficient products, the end purchaser didn’t understand what difference the difference between a 300-watt fridge versus a 500-watt fridge really meant in terms of cost reductions. For energy efficiency to make sense a holistic view of energy consumption was required, including expensive energy-guzzling devices such as air extraction fans and gas cooking which was inefficient compared to induction cooking.

These insights led them to consider whole kitchen design and true cost of ownership to be defining issues going forward. These concepts mean that the kitchen of the future will be specifically designed to reduce running costs associated with energy efficiency, waste management, and carbon reduction.

The new kitchen of the future will also be designed to maximize automation through robotics and to allow advances in the personalization of product. CKD understand that they must develop a complete knowledge of the relationships between people, kitchen and restaurant space, air management, equipment, building design, environmental policy, and costs to become industry leaders.

To generate this knowledge, CKD will need planned cycles of focused innovation to develop the concepts of whole kitchen design and the true cost of ownership. They realize that this process will mean rejecting many ideas as well as developing the key ones for innovation. Human stories of new industry-changing innovations make great reading and the industry press is hungry to share content of this nature.

What CKD have discovered is that if they want to break out of the commodity cycle they are in, they must realign their business around new innovations and this in turn creates an opportunity for excellent marketing. If they don’t change, marketing becomes increasingly costly and less effective.

They know this will require time, talent, and cash to place them in an authority position with this unique value proposition.

The most important aspect for CKD will be talent, and there will be a need to continue to up-skill the in-house team, but there will also be a need to partner with specific expert disciplines to ensure they become the industry authority. The move from advocacy to authority will require published papers and case studies telling the story of the kitchen of the future. It will require referencing by other industry sources, which will only happen if tried and tested innovations are developed and resourced with the right talent. It is a CKD vision that they find a partner to develop a fully automated and energy-efficient kitchen, which will act as demonstration of the whole kitchen approach.

These concepts have allowed CKD to differentiate themselves through a no extra cost scheme whereby they can gain from increased capital costs of kitchen design by guaranteeing reduced running costs for the client and therefore no extra cost. Their research has indicated that there will be marketing gains from this approach both for them and for the clients.

Through time it is anticipated that other competitors will want to move into this field; however, the position of authority can belong to CKD through an archive of expert knowledge, referenced by the industry and by continuing cycles of innovation.