CHAPTER 8
The Fourth Principle of Digital Business Strategy—Resources
As promised at the beginning of Chapter 6, we now return to our Fourth Principle. In practical terms, when you are creating a digital business strategy you can of course work through the principles in sequential order and look at resources after Principles 1, 2, and 3. Resources and engine of growth are so closely intertwined, that resources can end up determining which engines of growth are available as will shortly become clear.
Many businesses begin formulating their strategy from the point of ambition, which they pinpoint under the “Know Yourself” principle. They look at what they would like to achieve, and they set out how to achieve it through their strategy. Other businesses approach their strategy from the perspective of “Know Your Customer”; they look at what their customers wish to achieve and tailor their strategy around that in the hope that it will positively affect the business. Yet other businesses approach strategy from a marketplace perspective, spotting opportunities and gaps in the market and creating strategies that aim to fill those gaps and take those opportunities. Finally, some (though fewer) businesses begin with resources. Resources, and their breakdown into time, talent, and cash, are reflected heavily in the engine of growth and often restrict or dictate which plays are available to us when we wish to move from one position to another.
In terms of resources, we find that advocacy requires time. This tends to be those skilled in marketing that will take time to perform tasks like e-mail marketing, delivering content to existing customers, and running their own social media channels.
If we look at businesses that wish to have rapid growth and have existing customer demand, and space in the marketplace that has not been flooded out by competitors, the resource that they most need is cash. This will allow them to purchase advertising and other means to attain customer attention in a profitable way that allows for business growth.
If we manage to move above the X-axis, we can gain more attention for our business. We have moved into the position of an authority or of a prime player in the marketplace. To become an authority player, the resource that we need is talent. We must circulate our story and make it travel within the niche that we are servicing. This requires creative talents: story writing, playwriting, poetry, and so on. We need the talents of those who are able to create narratives that spread. This spreading of narrative, if we aim to become an authority, is of utmost importance, since we cannot declare ourselves an authority—we can only be declared so by the wider industry, by way of them referencing us through social media and their own published articles. More often than not, the type of attention that allows us to rise above the X-axis is earned through innovation that is evidenced by way of ever-increasing referral traffic coming from relevant third-party sites. These empirical, analytics-based characteristics are the defining measurement of an authority business. Many businesses may declare themselves “authorities” in their own world, but without evidence they can’t declare it in a digital world.
Prime businesses are usually in a defensive position. They are looking out for authority businesses who are trying to come into the more mainstream market, and for people coming up across the X-axis from attention. They require all three resources—time, talent, and cash, but usually have these resources in abundance because they are, after all, the prime player.
The question then is: which of these moves are going to be best for your business?
This chart shows the typical growth profiles associated with each engine of growth in the Ionology quadrant.
As we have mentioned, there is no “bad” quadrant. Advocacy has the slowest growth, attention requires cash, and becoming an authority and moving above the X-axis can be extremely difficult. Usually only two or three businesses get there for any given subniche. Even so, we ought to consistently aim to increase our brand warmth and move above the X-axis. A business above the X-axis gains substantially more traffic than those below. Few make it, but all roads should try to lead to authority or prime. Even if we do not succeed in becoming an authority or a prime player, the higher we are on the X-axis, the more growth we can expect. Of course, if we do manage to push our business above the X-axis and become an authority or a prime player, it becomes very difficult for competitors to attack us from below unless a competing business has a huge amount of cash resources or they have an industry-changing innovation.
Businesses who have diagnosed their current position (as detailed in Chapter 6) will always be trying to move upward on the quadrant—and if at all possible, to move to the right. For any business, there are a defined number of plays available to them. Moving from a cold rational exclusive business, for example, up to becoming a mainstream, mild, informed business or niche business, requires a certain set of steps and plays. Each of these steps usually requires a change in website, value proposition, and customer base. It means figuring out what we need to do to create the stories, news, and brand warmth that will help us with targeting new customers. The business must decide which play(s) it wants to make, based upon what resources it has at hand, what innovation it has, and what cash it has available.
The Ionology quadrant
Not all businesses are going to win in the digital context. As we know, the positions in the inner square of the quadrant have much better results in dealing with digital and using digital for promotion than the outer square. In positions 2 and 4, where we’re down at cold and rational, we usually don’t need social media. Social media have practically no part to play from a tactical standpoint, because the only reason the customer wants to communicate with businesses in position 4 is to complain about a failed product or service.
When we move up from position 4 into being a mild and informed business, then social media—our own social media—become important to us. If we move up further to positions 5 and 7, earned media and social media become extremely important. Choosing the right tactics and the way that we execute those tactics will depend upon where we are right now and where we are going to go.
We tend to find ourselves in positions 4 and 8, at the right-hand side of the quadrant when we’re in mass markets. In this situation engagement in social media and the like can become too overwhelming, engagement solves no business objective, or the customer has no desire to “follow their favorite brand of bleach.” In other words, there is simply too little return for our efforts.
The inner square, then, is where the digital opportunity lies, and that is where we’re aiming to get to if we want to build a digital business, and we want to use digital as a promotional tool effectively and efficiently.
For these engines of growth, we have given each starting position a name as a reflection of how digital translates into the being of the business. The names are as follows:
Position 1: High Five
A business in advocacy in the inner quadrant is using digital to service its customers. E-mail marketing and the business’ own social media are driving traffic to their website.
Position 2: Handshake
Most traditional businesses are in position 2. They are in advocacy and they do not actively use digital to gain new customers. In business-to-business industries new business is sought through a sales team on the road with a basic online presence of a brochure-type website with the “contact us” and “about us” pages being the most highly trafficked.
Position 3: Over Here! Over Here!
This type of business uses paid-for digital tactics to gain attention. The suite of tactics includes pay-per-click, display advertising and remarketing as well as their own media—social, e-mail newsletters, and price-based offers, to drive traffic to their website.
Position 4: Shout Loudly
Similar to position 3, shout loudly also dictates that a business must additionally use offline tactics for brand building, while the website and online presence are primarily used for servicing demand.
Position 5: Omnipresent
This business needs to be everywhere; speaking at events and hosting webinars. They need to have a content engine creating written and video content for training, blogs, and PR, which are featured in influential publications and shared on other people’s social media—as opposed to their own social media. Digital tools include enterprise resource planning (ERP) and customer relationship management (CRM) systems to manage customers. New customers are drawn to the business as influencers are talking about the business as an authority.
Position 6: Members
This business is a very elite one that only wishes to talk to those who are also in the elite group. This position is an authority but does not use digital as a sales tool. Client support tends to be the digital play at hand.
Position 7: Smooth
For this business, demand is not the challenge—servicing demand is. In a prime spot, servicing the demand through a highly effective website becomes the best area of focus. The business in prime position uses all digital media tools; advocacy tactics to retain its loyal customers, innovation to gain new customers, and attention tactics to defend their position.
Position 8: Hot Leader
For businesses in this position, continued innovation is most important if we are to stay in position as the hot leader and get additional traffic and higher margins. Traditional media including television, radio, and Outdoor advertising all have an important role in maintaining this position.
We must be careful, in looking at our engine of growth and formulating our strategies, that we do not credit the syringe, rather than the medicine, for fixing the problem. Quite often, a business will perform a tactic, say, e-mail marketing, and when it’s successful they will think that the delivery method has brought them success, when in fact it was the content delivered that has brought them success. The content is the medicine, and the syringe can only be effective at curing the problem if the correct medicine is used. In the world of marketing, we must always focus on content and ensure that it conveys our unique value proposition in a way that will attract customers to do business with us. To look at our internal analysis then, we must ensure that our content conveys our value proposition, meets a need for the customer, stands out in the marketplace, and can be delivered within the confines of our available resources.
For businesses in advocacy, the tactics tend to be e-mail marketing, our own social media, search, and a CRM system. Businesses in the attention part of the quadrant tend to use paid search, natural search, display advertising, and e-mail marketing to maintain customers once they have them. Businesses sitting in the authority quadrant usually need to focus on the creation of good-quality content, and spread it online, both through their own avenues and through other businesses and consumers sharing their content. Being an authority involves connecting with others to allow them to share your good knowledge and maintain your visibility as an authority figure in your given niche. For prime players, business is all about delivering on-demand, good usability, self-service, and defending the channels of attack coming from authority and from attention. Additionally, prime businesses must always keep a focus on innovation.
Even though these tactics are recommended and most frequently successfully used in strategic terms for the various locations on the quadrant, none of them are mutually exclusive. It doesn’t mean that prime players don’t get involved in e-mail marketing, for example. Of course they do, but the tactics described above are the top tactical responses required for each starting position. As the position of a business on the quadrant changes, so will the priority of different tactics.
Similarly, there are different types of websites required, dependent upon what move we wish to make. Businesses in advocacy often find that new customers are looking at information about their people more than any other part of their website. They have come to the website because of a personal recommendation so they already know what the company does but want to find out more about the people and services, which is evidenced in the website analytics. For a business in a position of authority, the reason new customers arrive on their website is because of news of their innovation, and so it’s important that authority business’ websites aptly showcase their innovation front and center, so the new customers know they have come to the right place. An authority website should also be content-driven and designed in a way that encourages sharing and syndication of the content. Businesses in the attention part of the quadrant are focused on the four Ps of marketing, namely product, price, place, and promotion. They must present their proposition to the customer in the right way to gain their business. Finally, a company in the prime part of the quadrant will need to focus its efforts on understanding process to ensure that they have a website that is efficient and user-friendly for servicing its large customer base. In large organizations, there is also a huge challenge in presenting the vast hierarchy of products and services that cover all the divisions and business units that make up the organization. The internal wrangling and politics may lead to a confusing website as each business division strives to have their product or service showcased—but it is the tasks that the customer is trying to achieve that must take priority.
We must always keep in mind that our position on the quadrant can and will change, and we must always be prepared to reevaluate and redesign our strategy if and when the position changes. Before we make a move it’s important that we have the right baseline and base camp. Baseline is made up of figures and statistics: where are we now and how many customers are coming to us by different channels. The important channels to analyze are social, referral, and direct traffic. Base camp is about getting the right tools that enable us to make the move we have decided upon. If we’re going to move from advocacy to attention, we need to make sure we have the right people, with the right training and skills to understand the science of display advertising, pay-per-click advertising, remarketing, and SEO. If, on the other hand, we are staying in advocacy, we need to be sure we have the right e-mail marketing tools and the ability to create content that resonates with customers. This content may also change over time, dependent upon our strategic desires.
Assuming we have our baseline figures, and we have our base camp set up with all the right tools, we can then make the move we have selected. For the purpose of this book, we’re going to use the journey north from advocacy to authority. This is the most frequently desired journey, but not the most frequently travelled. The most frequently travelled is from advocacy to attention where businesses build a website, put up ads, and hope to attain new customers. As discussed earlier, though, the biggest increase in customers, and consequently growth, comes when a business builds brand warmth.
So how do you move from advocacy to authority?
Something counterintuitive must happen first. Quite often, businesses look at the market and build a value proposition that is too generic; they’re servicing the customer in the same way as hundreds, if not thousands, of other businesses. The key here is to find a unique value proposition, rather than a generic one, and to focus upon that. That unique value proposition is all the business should care to talk about. The reason this is counterintuitive is because most businesses feel they will exclude many opportunities that could come their way by having such a narrow focus. The reality is that when we build our business around the niche that we’re trying to service within our lens lock, we gain more customers because we’re perceived to be the best at what we do.
The other reason we need to keep our focus so narrow is because it takes us a tremendous amount of energy to move from advocacy to authority. Imagine attempting to blow a ping-pong ball upward across the X-axis of the quadrant. The wider the tube, the more breath—the more energy—we need to use. At a certain point, the tube becomes so wide that the task is impossible. The narrower the tube—the more pinpointed our niche—the more focused our energy is, and the more likely we are to succeed. Spreading the niche wider makes the customer perceive that you couldn’t be an expert. It’s not until a business becomes prime that it is perceived to be able to start off new Advocacy to authority journeys in different market sectors and still be believed to be able to deliver.
One of the other great benefits of keeping the niche narrow is that often the prime businesses don’t view a small niche as worthy of their attention, because it doesn’t affect their balance sheets enough.
Let’s look at a company that everyone knows—a prime player in its field and an authority in yet more—Apple. How did Apple become an authority? How did they move into prime? And how did competitors handle it?
We know that moving up on the quadrant requires innovation, and we know that moving to attention and prime requires cash. When Steve Jobs rejoined Apple, the company had multiple products and multiple sectors; it was in the server market and the peripherals market and Jobs removed practically everything the company did. This wouldn’t necessarily work for every business, but his first act was to declutter the business and start focusing on one thing, in other words, to pare down to a point of having a unique value proposition.
In 1998, the business built the first iMac computer. The first iMac was created by Jonathan Ive along with Steve Jobs, and it was a unique product to the marketplace. The advertising that went with this depicted an 8-year-old boy and his dog, Max. It showed Max and the boy getting their home computer connected through a modem that was built into the computer, and the slogan was “there is no step three.” The advertisement went on to show a PhD student trying to use an IBM Windows personal computer to connect to the Internet, and the 8-year-old boy had done it before him. Jobs had narrowed the niche to home computer users who were looking to connect to the Internet. This was an emerging wave at the time.
Jobs’ innovation was to make the simplest tool to allow the home Internet user to get online. The visual design helped, but what sold the product was keeping the niche narrow and understanding the customer—understanding the gap in the marketplace and filling it with innovation that propelled the business forward.
In 2001, Apple released iTunes, which was its second innovation; 8.5 months later, it released the iPod. The iPod opened to a crowd of around 50,000 people. Today, more people than that queue around the block at Apple stores when a new product is released. The iPod was not the first MP3 music player to market, but we know it was one of the best executed.
Next came the innovation of the iTunes store that revolutionized how we buy music, and in 2007, the iPhone was released followed by the iPad in 2010. Apple’s retail and these innovations are all uniquely innovative and all defensible.
Inside the small niche of home computing and Internet access, Apple moved, through innovation, to become an authority. From there, they were able to expand their product portfolio.
Becoming a prime player in almost every field they entered, Apple began to cause disruption and displacement. They displaced Nokia as prime player for the mobile phone market through their innovations and through defending those innovations. Many businesses have tried to take on Apple in the mobile phone market, and many have failed. Other businesses tried to use their cash reserves to buy media in an attempt to move above the X-axis, from attention to prime. Apple’s market position was so strong at this point, thanks to continued cycles of innovation and a hot brand reputation that all these attempts failed. Some businesses tried to innovate, but their innovations didn’t appeal to customers or were not significantly innovative enough to draw customers away from the hot brand of Apple.
The only business that managed to join Apple as a prime player was Samsung. Samsung spent billions of dollars on attention and were eventually able to cross the X-axis of our quadrant to become a prime player. As a result, we’re now seeing that Apple and Samsung are increasingly dominant in Europe and the United States. There are new approaches coming from the east, where there are other new players entering the market, but this is because the product life cycle is starting to reach its pinnacle and go downstream again.
From an article by Patrick Seitz, in the investor’s business daily:
“Apple (AAPL) and Samsung continue to soak up all the industry’s profits,” McCourt says. “Apple claimed 87.4 percent of phone earnings before interest and taxes in the fourth quarter,” he said. “Samsung took in 32.2 percent of industry profits. Because their combined earnings were higher than the industry’s total earnings as a result of many vendors losing money in fourth quarter, Apple and Samsung mathematically accounted for more than 100 percent of the industry’s earnings,” Seitz reports. “A year ago, Apple accounted for 77.8 percent of mobile phone industry profits, followed by Samsung with 26.1 percent,” McCourt said.
We can see that coming from attention to take on the prime players is extremely difficult unless you spend more cash than the prime players are spending. This explains why many businesses prefer to become an authority in a niche and move across to prime. If a business is in a marketplace where the incumbent in prime position is already executing highly innovative cycles, their best play may be to avoid the prime player’s market niches and attempt to create a new one.
Not all businesses have what it takes to move above the X-axis on our quadrant, but for those that do, we can usually build a 10-point plan.
1. Focused Cycles of Deliberate Agile Innovation
To move upward on the quadrant, we must have deliberately designed, focused cycles of innovation, and that innovation must solve a challenge by creating a new market niche or displacing an authority that is already in that niche. Not all innovations need to be wholeheartedly industry disrupting, but those that do disrupt tend to move up to an authority position faster than those that are not disruptive. The creation of innovation is not an innovation unless the customer or the industry peers deem it to be so.
CDS
A company, CDS, makes commercial kitchens. The kitchens that CDS makes are energy-efficient and automated. This automation involves robotics, and the introduction of robotics in the commercial kitchens is going to be a new industry wave that we can see moving forward in the next 5 years. The business’ value proposition is to “let the chef create.” Rather than approaching the market opportunity from one of displacing jobs, it focuses on allowing the chef more time to do what chefs love to do. Energy efficiency is typically controlled or mentioned but there’s no real product on the market that allows a business to reduce its overheads and running costs by the introduction of proper thoroughbred energy efficiency that allows them to save more money than it costs to implement. CDS plans to change that.
2. Agile Innovation
One innovation does not make the news forever. Many businesses think they are innovative, but they need deliberate cycles of agile innovation. This becomes essential if they wish keep powering the road from advocacy to authority, and even bad ideas that they don’t introduce make the cut.
For example, Elon Musk, CEO of Tesla Motors, and SpaceX, and one of the founders of Paypal, released a press statement in 2013 talking about Hyperloop—a conceptual super-fast train. His SpaceX business is involved in space exploration, and of course coming from Elon Musk, everybody got incredibly excited about the press release. Musk had no intention of developing this technology, but the story travelled around the world and it helped increase his own personal brand warmth.
The second thing we need to be careful of in understanding the term “agile innovation” is that we must have this continued focus. Steve Jobs said:
People think focus means saying yes to the thing you’ve got to focus on. But that’s not what it means at all. It means saying no to the hundred other good ideas that there are. You have to pick carefully. I’m actually as proud of the things we haven’t done as the things I have done. Innovation is saying no to 1,000 things.
The important thing is keeping the focus on the agile innovation and using agile innovation cycles to usually help deliver solutions to the near-term challenges that have been diagnosed in earlier chapters of this book, the near-term challenges that have been diagnosed in the creation of the strategy.
3. Unique Value Proposition
To become an authority, a business must have a unique value proposition. To stay in advocacy or to move to attention only requires a clear value proposition. To traverse that important X-axis and become an authority requires a unique value proposition as discussed earlier in this book
4. Clear Vision of a Changed Future Well Told
The move from advocacy to authority usually requires the ability to tell stories of how a business’ product or service will impact on people’s lives. It’s not just about the technology, but about telling the story through that technology, of how our product or service will change the future.
This is as important for internal communications as it is for marketing and communicating to the outside world. If everybody in the company is not aligned with the vision and the vision isn’t clearly told internally, business people become confused about their goals—this typically leads to fragmentation of the message.
5. Delivery of the Vision
As we’re being prophetic and talking about the future, it falls to us to make sure that the future happens. A new formula of paint or new type of propulsion engine doesn’t automatically mean that a business becomes the authority—the business must follow through and create the paint or the propulsion engine and have it change the future in the ways it has dictated it will.
6. Leadership: Internally and Externally
Leadership cannot be overstated. As we have mentioned earlier in this book, leadership is so important to formulating and executing good strategy that it is assumed to exist for the purposes of the Seven Principles of Digital Business Strategy.
7. Opinion
In business, we must have opinion. The challenge here is that many businesses don’t want to offend one side or the other and it’s very difficult to be opinionated without causing offense somewhere. A solicitor’s firm, for example, may be backing fathers who are getting divorced but also backing the mothers. They may wish to pioneer one side of the argument but by doing so they alienate the other side. This prevents the business from wanting to have an opinion, but without having an opinion you cannot move. Government organizations are quite often prevented from having an opinion because of their social responsibility and therefore cannot become an authority through innovation.
8. Create Niches and Displace Competitors
Either we have to create a new market niche or we have to displace a competitor if we are to become an authority. The challenge in creating new niches in the market is often that when we look at “Know Your Customer” there is nobody there. The displacement of a competitor means that the competitor needs to be unable to react quickly enough to your innovation. Quite often they’re already receiving a disproportionate amount of attention, and we need to decide whether there’s room at the authority table for a few competitors.
If you’re forging a new marketplace opportunity or creating disruption, there is less inertia in the marketplace, and it’s even less if you find that there are waves, emerging technologies or emerging trends. Quite often new niches emerge on a daily basis; they are simply waiting for leadership. Leadership skills combined with an understanding of a new wave could be said to be our essential ingredients.
9. Content that Spreads
Content on our own blog does not make us an authority—being referenced does. We need other independent sources to verify our claims and share our messages. This needs to be echoed in social media, referenced in peer-reviewed publications, and quoted by other authorities in adjacent fields. Tweeters need to tweet and bloggers need to blog about our ideas and reference us. We need to create our own ecosystem and build our own community. We need to be sought after as the keynote speakers at conferences. We need to have offers of partnership because we are now becoming the authority.
10. Involve the Community
We must involve the community and give credit to those that link back to our innovation. We then become the leaders of a community, and we know that we have reached the authority position when other leaders start to emerge within the community itself and go forward.
Case Study 8.2
Aepona were a business that was in a market where they created technology for mobile phone telecommunications operators. They had stayed in advocacy for around 10 years, turning up at trade shows and shaking hands with mobile network operators. The challenge they had was that other companies were in the same market, and they all had product lists of around 130 features, and each of those features lists, while some had better and some worse, were similar. The problem was there were prime and authority brands in Aepona’s space. Aepona did the counterintuitive thing of focusing on one specific feature. They spotted a wave happening in the mobile phone market in 2010, whereby mobile phone networks were losing money because people were moving to use voice over Internet protocol programs for their telephone calls, and their voice minutes were reducing.
Part of their technology allowed software developers to create their own apps inside the mobile phone network and to do so safely. This meant that if people wanted to charge their customers using mobile phones, Aepona had the technology to allow software developers to create apps that would enable this—as well as still having 129 other features. They saw the wave coming and decided to become the authority in mobile phone payments from a network perspective. They pioneered the little bit of extra technology that enabled their innovation, narrowed their niche, and moved to authority by speaking to both industry professionals and analysts. They banged the drum around one story about how they were going to be the best, most innovative firm in their community that handled mobile cloud payments from a network operator’s perspective, and made sure that their story was being told.
When they became the authority, their earnings went up substantially. This is the feature that many businesses wanted; the mobile networks felt this was the right solution to their dwindling phone minutes problem. An industry competitor came from the prime position and procured the company for $110 million. This valuation had been achieved within 2 years of them dropping the 129 hierarchy features and focusing on one feature.
Now that is, of course, the success story. There are many other waves they could have chosen and they would have missed, so chasing waves is not without risk. It is not without the counterintuitive removal of all our defense mechanisms that we can narrow the niche. When we try to move to authority in a specific niche, quite often the internal politics for a company can be as difficult as the external marketing. People who have been working on features departments for years may no longer see their message being represented by the company as the defining spearhead of moving their authority north. They perceive their own feature as being under threat because it wasn’t the innovation driving the company on the road to authority. Handling that political impact is usually helped if we have a clear vision and it is explained to the individuals, and their hierarchy of needs is met before the journey upward begins.
Aepona had set out its vision—it went into great detail explaining where it was going from 2011 to 2012 and how it was going to get there. They had calculated the time, talent, and cash requirements for their baseline before they made any plays, and they ensured they had the resources available to make those plays happen. This was done by creating a very simple table where all the channels they were going to need were listed, and alongside them, the time, talent, and cash they were going to need internally and externally were detailed.
Often what we find is that when businesses create such a table, they realize they don’t have the resources and must either narrow their vision further, remain in advocacy, or move to attention. Resources, then, regardless of the size of the business or how well funded the business is, always have a major impact on the play that any business has available to it.
Lastly, and as we mentioned earlier, the website had to change. Aepona changed their website to one that was split into two sections. It was dedicated to handling the customer in one section and their analysts in the other section. They published frequently and used partnerships with other thought leaders in the mobile phone space to help them achieve their outcomes and goals.