CHAPTER 1

Digital Business Strategy

As was discussed in the Introduction, the world around us is changing at a rapid rate. We can see that more and more technological advancements are encroaching on roles we’ve historically considered to be ones that could only ever be filled by humans and we understand that the pace of this change is increasing.

Where previously the local superstore employed 30 cashiers to operate 30 cash registers, they now employ a couple of assistants to aid customers with using automated checkout technology. Even in coffee shops, automation is beginning to take over. Despite our ideas about how much we like that friendly barista, preliminary tests by Briggo Coffee—a fully automated coffee bar in Austin, Texas, where you can create your order precisely how you like it and save it for future orders—have shown that people get used to the bot-made coffee quickly and apparently enjoy it no less.

Artificial intelligence is even encroaching on creative jobs such as journalism, law, and accountancy, which were once thought safe from automation.

If companies are to succeed in today’s digitized environment, the digital aspects of business can no longer be distinct from the business as a whole, and the strategy of digital business can no longer exist in isolation of broader business strategy. The actions of digital businesses still belong to the tactical marketers and technologists, but the strategy of digital business belongs in the boardroom, where the C Suite [i.e., the CEOs, CMOs, CIOs, Chief Finance Officer (CFOs), and Chief Technology Officer (CTOs)] can come together and form a cohesive market-led digital business strategy. This digital business strategy—and the leadership that drives it—is the essential element for success.

The distinguishing characteristics that indicate the onset of disruption are when a current function of a business becomes more affordable, more effective, and more convenient than the current method. Where once a bank would charge its customers for setting up a direct debit, a third party can now handle the transaction by way of a mobile app at a fraction of the cost. While the bank doesn’t see this alternative method of payment as a threat in the early days, the fact remains that this is a more affordable, effective and convenient solution for the customer than the bank offers. Because the smaller business markets this feature with greater focus, it has the power to erode the banks dominance in this domain.

Many smaller companies do not necessarily have better technology or processes than larger companies, but the technology and processes they have are more accessible to their customers and customers see more value in the technology-enabled process than in the traditional process. The dilemma, then, lies in how larger businesses can better engage with and understand their customers so that they can deal with these competitors nibbling away at their business. Quite often, these larger businesses are well established—they have a large customer base and large customer value. Clayton M. Christensen argues that making an inferior but more cost-effective product to sell to the customers downstream is the answer—but in today’s market this is not the only answer. Christensen argues that technology causes businesses to fall and fail, but as we’ve discussed, technology is not the full story—technology is only the visible end of the transformation spectrum. By the time technology comes to change how people do things, or causes disruption in an industry, there has already been a huge amount of market sensitivity, culture change, strategy development, innovation, and education within the business using it.

When threatened by these newer, smaller businesses, most businesses respond by pinpointing the technology as the root cause of the disruption they face and then seek to install technology that is similar to, or more advanced than, their competitors, but in order to change businesses in a competitive way, it must be realized that the technologies and processes are only the final piece of a larger puzzle; they are the servants drafted in to answer the questions posed by a broader strategic process. In taking a closer look at this strategy process, we can see that while digital business strategy in and of itself is not the full story, it is the starting block on the track to better, smarter, more competitive business.

Before considering how to utilize technology, we must first understand where it fits within the overall strategic landscape.

The Change Blocks of Digital Transformation

This model illustrates the high-level change blocks that should be addressed if an organization is to find new and sustaining competitive advantage in the digital world. In this sense, we say that these are the change blocks that must be considered if a business wishes to undergo “Digital Transformation.”

In terms of Digital Transformation, we understand the word “Digital” to be a synonym for the pace of change that’s occurring in today’s world, driven by the rapid adoption of technology. The word “Transformation” describes how an organization is built to change, innovate, and reinvent rather than simply enhance and support the traditional methods.

It shows that digital business strategy cannot be taken in isolation of culture. While this book deals almost exclusively with how to create a digital business strategy, an organization with the best strategy and poor culture is set for failure.

A rough but simple test of organizational culture is to check whether the management blocks access to streaming videos like YouTube or social media sites like Facebook, Twitter, or LinkedIn for their employees. Some managers claim that there are technical or security reasons why this should be so. The reality in most cases however is that the staff are not trusted enough by management to utilize these websites to further their knowledge and build better relationships. An organization with a positive digital culture seeks to provide training to its staff in gaining greater knowledge from YouTube, LinkedIn, and other social platforms rather than discourage their use.

The bedrock of the model is the interdependency between strategy, culture, communications, innovation, technology, and data in the emerging digital context.

Allied to this and representing the next level of enablement is the organization having the necessary competencies and behaviors that allow the business to become agile and innovative. An underlying competency in this dynamic space is the ability to recognize the change process as it is happening and of having the wherewithal to respond in an agile way.

Marketing Professor George Day, from Wharton University in Philadelphia, explained that staff increasingly need what he calls “adaptive” capabilities in facing this digitized economic context. By their nature, these new capabilities are anticipatory and more effectively compensate for the inherent ambiguity and uncertainty in advancing digitized contexts. The open and outward looking nature of these capabilities results in the organization being more innovative and agile in how it anticipates and responds to change and opportunity. Indeed, the increasing attention being paid to design school thinking as applied to business today has much of its roots in the ambiguity and uncertainty managers have been facing in increasingly digitized environments. Thinking more broadly and embracing and leveraging transdisciplinary approaches have been seen to add value to the speed and nature of responses to this level of change. Look at Philadelphia University’s new Strategic Design MBA not only as an example of disruption to the traditional and established MBA model but also as an entrepreneurial response to increasing uncertainty in the market and a desire in managers for the development of a different type.¹

Indeed, a consequence of embracing an approach infused with digital business strategy will naturally expose gaps in education within an organization and identify where capabilities need to be enhanced. One of the key foci in creating a digital business is agile innovation. In her book, The End of Competitive Advantage, Rita McGrath, the Columbia business school professor, points out that the challenge of innovation comes from the fact that innovation itself is constant and gaining pace. Businesses that wish to create a strategy that relies on innovation then must change their culture to ensure the constant flow of innovation through the respective organization. She says that one of the most fundamental and recognized notions of business strategy—sustainable competitive advantage—can no longer be a holy grail for companies. Strategy must be combined with the right culture and deliberate cycles of innovation to succeed. While we all understand that the marketing environment is constantly changing (remember PESTEL, the tool for identifying threats and weaknesses used in a SWOT analysis), the speed and magnitude of such change, and the impact on lead times, now make it virtually impossible to respond in a way that allows for sustainable advantage. Deeply ingrained structures and systems designed to extract value, rather than being a competitive advantage, are becoming a liability.

When we look at digital business strategy, and indeed business strategy in general, we must take this into account. We must figure out a way in which to embed natural and constant innovation within our businesses and then go on to ensure that we have the tactical excellence to correctly execute the strategies fuelled by innovation.

Digital business strategy manifests itself by the way of technology-enabled education and data collection married with cycles of focused innovation, which are manifested using technology. Technology is the enabler, not the differentiator. Technology is not the agent of change, but the expression of the leadership thinking and strategy that goes before it. If we successfully execute these ideas with tactical excellence, we can create industry disruption, which leads again to further cycles of transformation through innovation.

Where strategy is market-led, it falls to the business to align the culture, to ensure that the associated capabilities required of the people behind the change imperative are in place, that the business processes are agile and aligned to the strategy and digital environment, and that excellence should emerge in the deployment and implementation of that strategy.

So where do we start in formulating a digital business strategy, and how does it differ from business strategy?

To answer this question, I’ll use an example from the courses we run for many of leading thinkers and business leaders. At the beginning of the course on digital business strategy, we hand out paper and ask people to write down their definition of strategy. We then bring these definitions together and look through them. The exercise doesn’t last very long, since most people in business have a clear idea of what strategy is. Everyone gets it right in some shape or form. Here are some examples of the answers people have put forward:

None of these definitions can really be faulted. When the definitions are collected, we use them to come up with a single sentence to describe strategy, and it’s usually something along these lines:

Strategy is a plan of action to give direction to overcome defined, specific challenges, and in conditions of uncertainty to achieve specific outcomes.

One we have agreed upon a definition; we examine it to see how it fits into different parts of our business.

We’ll take junior marketers as an example and examine what sort of strategy they work with, if indeed it can be called strategy at all. Do marketers have a web strategy or a social media strategy? If strategy is a plan of action to achieve goals in conditions of uncertainty, what were the conditions of uncertainty? What were the goals of the web strategy? What were the outcomes? In the courses we run, the tension in the room builds as we consider these questions. When we attempt to look at the work of marketers in this way, what we see is not strategy, but tactics. They are plans similar to those of an architect—complex and intricate—but we don’t say that an architect is creating a strategy. We say that she has designed plans.

Vocabulary is important, and often words are used symbolically in business. When we incorrectly identify tactics as strategy, we usually do so to elevate the importance of the tactics we propose. The word strategy gives what we present a gravitas, but of course, this can have a negative impact on the effectiveness of what we want to achieve—or perhaps more accurately—what we think we want to achieve. It makes people in the organization believe that we’re being strategic, when we are in fact being tactical. Worse still, these tactics are not coordinated never mind not being set in any overarching framework. It’s not strategic marketing, because in these instances, no overriding plan resembling what we call strategy has been given to the wider business. These tactics are important and functional in themselves, but they are not strategic. People like to immerse themselves in tactics because they’re more easily and more quickly measured than strategic change and can address the current pressure on immediacy of results and Key Performance Indicators (KPI) achievement. The risk that arises is that such tactics may allow for a degree of efficiency in how we are doing business but undermine our effectiveness in actually what business we are doing. In short, efficient tactics involves “doing things right”; effective strategy is about “doing the right things”.

Many organizations have a business plan that lays out where they are now, where they need to be, and what way(s) they might get there. In most cases, this business plan is strategic—it explains the direction of travel, predicts and defines the challenges ahead, and calculates the resources that need to be committed. We then surround this business plan with sales strategy, innovation strategy, financial strategy, information technology (IT) strategy, education strategy, recruitment strategy, and marketing strategy.

If we start to examine these strategies, the picture becomes quite complex. To take marketing strategy as an example, when we drill down a little, we realize that things like web strategy, advertising strategy, brand strategy, mobile strategy, social strategy, video strategy, and content strategy are all included under this umbrella, and all these substrategies are only loosely woven together. The IT umbrella includes such things as product development strategy, testing strategy, and implementation strategy. Each of these strategies seem essential for the business—but are they really strategies?

If we look at these “strategies” using the definition of strategy we discussed earlier in this chapter, we can see that they are not strategy—they more closely resemble the architect’s plans. These are tactics. All of these tactics and subtactics draw from and give to the business plan—and the business plan, when we look at it in this light, becomes the digital business strategy. Through this lens, we can see that every aspect of the business links into, and is informed by, the digital business strategy. All of our business decisions—every aspect of our tactics—are informed through the lens of digital.

The challenge we most often face when we look at the business plan as digital business strategy is in misunderstanding the word strategy. We often throw out numbers, names, or goals without doing the necessary background work to make sense of them. Here are four examples of things we commonly mistake for strategy.

Expressed Goals

We set goals such as “we will increase our sales by 20 percent. We will increase our page impressions by 10,000 per month.”

Having goals as a result of the strategic process is a good thing, but goals in and of themselves are not useful in isolation of that process. In the example above, we need to be asking questions such as the following: What difference will achieving these goals make? Why are they important for the business? Where will the demand come from to meet the goal of 10,000 page impressions per month? Is the market growing, rendering the growth organic, or do we need to do more work to garner these page impressions? How can we increase sales by 20 percent, and what will happen if we don’t? Finally, if the targets are not accompanied with guidance on how they can and should be achieved, then this can in no way be considered a strategy.

Operational Effectiveness

In 1996, Michael Porter wrote an article for the Harvard Business Review wherein he claimed that operational effectiveness is not strategy. He talked about the interlinking of technology and systems, which many businesses presumed was their strategic competitive advantage. The same thing is happening today, across the web. Technology systems are being implemented to allow web interfaces to get better access to customer data for marketing automation. This is essentially the digital manifestation of operational effectiveness, often mistaken for strategy.

Interwoven Tactics

Marketers look at their social media and tactical activities and use technology tools to automate the connection between them. They create and embed YouTube videos and other media in their websites and use social media to get the word out about them—and they consider this to be strategic. While they form an essential part of a digital business strategy, these interwoven tactics are not inherently strategic unless they are linked back into the strategic aims of the business, as defined by the digital business strategy.

Power Statements

Everyone who’s been in a boardroom has at some point heard these power statements. They usually go along the lines of “we shall use social media to better service our clients.”

These statements sound like noble enough goals when uttered in the boardroom, but without strategy to back them up, they are useless, feel-good slogans. Does the statement mean that clients are being poorly served in the first place? Do clients really want to talk on social media about private matters? To define channels in this way and construct power statements around them is detrimental. When compared with our definition of strategy, they fall a long way short of the mark.

So far we have defined strategy as a plan of action designed to achieve a specific goal, in conditions of uncertainty, with defined limited resources.

Richard Rumelt, the author of the book Good Strategy, Bad Strategy in his address to the London School of Economics said, “Good strategy is about defining the nature of the challenge then focus energy and resources on a proximate objective—something that can be accomplished in the near future.”

Rumelt suggests, then, that strategy is all about solving near-term critical challenges. He’s saying that if we have business assets (i.e., people, plays, and momentum), we should leverage these to create a coherent plan of action and then focus on executing the requisite tactics to solve these issues. Strategy is not strategy unless there is coherent action that leads to an outcome that solves the identified problems.

Rumelt goes on to say that strategy has a kernel and that this kernel is made up of three things: diagnosis, guiding policy, and coherent action. For diagnosis, we must ask “why” questions, until we burrow deep enough to understand what challenges the business is trying to overcome. We then select the guiding policy that will help us to understand how we must act to solve those problems or overcome those challenges and the parameters under which we must operate. We then create the guiding policy, which outlines how we will solve the diagnosed challenge—this is usually a set of instructions, which allows the people that will be executing tactical responses to understand clearly what the challenge is, and the parameters in which they should be acting. Finally, we take coherent action to solve the diagnosed challenges. Unless this kernel is present within a set of goals, Rumelt says, the goals cannot be considered strategic.

When a CEO in a business doesn’t understand the technological end of digital business because it transforms so quickly, they often task marketers to take care of digital business by making sure that a website is up and running, that social media are being utilized, etc. What we can see then is a set of incoherent actions that are disconnected from any diagnosed challenges or which float in isolation away from the business plan, rather than being informed by it. This usually continues with everyone involved becoming more and more frustrated, because while numbers on a specific graph are going up, the increases are not affecting business change, and competitors always seem to be moving forward.

This misunderstanding of strategy is the first challenge we face. When we bring this into the digital realm and begin to look at business strategy from a digital perspective, we recognize that it is about specifying an organization’s goals, opportunities, and related activities. When we lay this over our definition of strategy as put forward by Rumelt, we realize that we are using our vision, goals, opportunities, and related activities to create a set of guiding policies and coherent actions that allow us to solve diagnosed challenges.

A digital business strategy, then, is taking the understanding of strategy and infusing the context in which its development takes place and its actions are implemented with digitization. For the business strategy to work from a digital perspective, we need to understand the management styles that work and the competencies available. We need to get used to the idea of being able to innovate and to test and fail without consequence. This realization leads to a change in business culture, which ultimately needs to be aligned with our strategy if it is to succeed in a digital world.

This change in culture naturally necessitates an adaptation by the people within the business, their roles within the business, and the departments and divisions we’ve built, sometimes over many years. To align with a digital business strategy, we must be able to effectively manage this culture change. When we change the culture of our business, and consequently the roles of the people within it, we will invariably be left with capability gaps. Education must come to the forefront to help people adjust to new ways of doing business, and those within the business who embrace the change are those who will remain relevant for the organization as we move forward.

Only once we have addressed the management style, culture, alignment and filled in the education gaps are we fit to start considering innovation. If we start to implement innovation too early, before “getting our house in order” as it were, it is likely to be rejected by employees because the business culture is not in the right shape to allow for innovation, and indeed perhaps some of the existing employees are not those who will “fit” with the new digital business strategy.

Innovation has a part to play in digital business strategy, but it cannot jump the queue in terms of sequencing. The alignment of the business, people, culture, and education must come first. When these elements are aligned properly, they lead to inspired, focused innovation that links back to the digital business strategy and drives business growth.

This change of culture and business alignment is no easy task, but it can be done by degrees, piece by piece, as businesses change and have a narrative around change communicated to them (and cocreated with them) by the company. The larger a business is, the more its culture can be ingrained, and the harder the process of change can be. By the same token, for larger businesses with entrenched cultures, in the face of a rapidly changing technological world, the more urgent is the need for change.

In creating a digital business strategy, our ultimate goal is to achieve a plan of action that solves our diagnosed problems, gives us focus, and provides a direction that in turn creates large amounts of momentum. We’re creating a strategy that states what the challenges are and what their relative importance is, where we diagnose the critical issues and bring those to our teams, and where we look for our point of leverage and innovate using our existing assets to solve problems. We are aiming for a strategy that gives guiding principles of how to overcome those problems to those who are tasked with tactical response. We want a strategy where the marketing, IT department, and other divisions get on with solving those tactical challenges and deliver value back to the business.

Sandra is the marketing manager of a small software company in Utah. Her marketing strategy contains many promises that in isolation sound like good ideas. Her plan is to use “growth hacking” to gain more “likes” on social media. From there she plans to “push traffic to a landing page.” The desired outcome is that anyone who lands on this page will give over their e-mail address, willingly accept the blog articles her team plan to create as a part of their “content strategy,” and eventually buy her software. She intends to “build better relationships with potential customers” through constant interaction on Facebook and Twitter.

Shortly after she begins, the realization sets in that her plan is neither strategic nor effective. There is a lot of content already available in her market space. Potential customers don’t have an education issue. With nothing unique to say, readers don’t feel the urge to give their e-mail addresses and they will in no way be driven like sheep to her landing page, never mind purchasing the software she promotes.

Sandra’s business lacks strategic leadership, innovation, and any differentiation that sets her apart from marketplace competitors. Her methods for engaging with customers were based upon leap-of-faith assumptions that potential customers were willing to engage. Her plans didn’t start with a clear diagnosis of the situation, and as such her tactical actions were not coherent actions to overcome the diagnosed challenges. Sandra didn’t have a strategy. She had a tactical wish list.

Eventually Sandra fixed the problem by getting strategic. She looked at the competitive marketplace, the customer demand, the overall business objectives, and the resources she had at hand. She diagnosed that unless she started with finding a competitive advantage born from innovation that the business couldn’t compete.

She worked hard with the software engineers and a pilot customer to create an innovative solution to a common business challenge faced in her customer’s industry. This gave her something to go to market with that was different from the competitors and was a starting point for the creation of a real, evidence-based, actionable strategy.

In the digital context, there is a distinct difference between businesses that create digital businesses strategies well and businesses that do not. As outlined in the Introduction, businesses that do it well are digital businesses, and businesses that do not—the more common type of business—are businesses that are simply “doing digital.” Sandra’s business started off as a business that was doing digital and found her plans, while well meaning, were never going to work.

Businesses that are doing digital believe that the merging of technology and marketing creates advancement and will create success in the new digital world. If they have first mover advantage, or they are leveraging a good brand and have other leveraged assets such as logistics, warehousing, people, and technology, this can work for a short period, but as Rita McGrath pointed out, those things are often short-lived. In a technological world, competitors tend to iterate and catch up quickly, leaving the business outdated. Digital businesses, on the other hand, look to constantly align business culture and practices. They understand that the technology is the delivery agent and that marketing is the way of bringing the solutions enabled by that technology to the people. Moreover, they understand that to get to that point, the business must constantly transform, innovate, and have a culture that is open to transformation ingrained within it.

Businesses that are doing digital have websites and social media along with integrated technologies and systems, but the business doesn’t really leverage those technologies; instead they often act as a bolt-on to existing functionality. In a digital business, the culture dictates that everyone is trying to innovate and transform the business. The people within a digital business understand the culture and the challenges faced by the business, and they seek to change practices to meet those challenges.

Businesses that are doing digital talk about how customer-centric they are and how much they care for the customer, but the evidence is lacking. Digital businesses understand that adding value in a digital context is the customer focus required today.

Businesses that are doing digital often abide by the “not invented here” philosophy, where they avoid looking outside the business for innovation and ideas. Digital businesses drop this pretense entirely and seek out additional value from outside the business, looking to partners, customers, and even competitors for innovation and ideas so that they can understand competitive advantage, create new products or services, and leverage their understanding to create network multiplying effects. Day² called this inclusive process “open marketing.”

Businesses that are doing digital often use processes to ensure that their structures are maintained and working efficiently. This is an essential part of any business, but businesses that are merely doing digital tend to be blinded to changes in using technology, whereas digital businesses constantly look to use processes to add value to the customer experience. If people can be replaced with automation, they are replaced with automation. There is no dispute on this front, because a business that has digital capabilities, that wishes to progress faster and further, has a different approach to technology; it is seen as an opportunity, and not as a threat.

One of the most common failings of businesses that are doing digital comes from senior management. Many believe that they need to understand the minutiae of technology to give proper leadership and direction, so they end up giving pointers and encouragement instead and tasking marketers to meet the challenge. As this book will show, this nuts-and-bolts level understanding of the technologies employed by the business is not necessary. Senior management needs to understand and diagnose the critical challenges facing the business, they need to understand how to overcome these challenges and create a coherent plan of action as to how to overcome those challenges. They need to display leadership in terms of communicating that realistic vision, break it down into key mile markers, and in turn break these into projects and tasks.

In digital businesses, leaders look at their businesses from above and view them holistically, but they also ensure that tactics are being used correctly at ground level to overcome business challenges and ensure that the business is moving forward at a reasonable pace. In digital businesses, leaders realize that their expertise in understanding the broader industry and customer demands, and their ability to use that expertise to strategize as laid out in this book, is what’s valuable to the business.

A business that is doing digital responds to change when confronted by industry disruption or even minor change. Change in the industry creates panic in a business that is doing digital, and that panic can lead to poor decisions. Digital businesses anticipate change and thrive on disruption and indeed may seek to create it themselves—they are the change makers and the innovators. Digital businesses have narrowed the capabilities gap, ensured that they have the right culture in place, that they have the right business alignment and that their strategy is entirely geared toward helping them to create disruption.

Businesses that are doing digital tend to lack clear direction from managers. In the absence of direction, they rely on statistical outcomes that may make little sense for the business strategically: likes, page impressions, users, subscribers, and even sales that don’t necessarily indicate whether the business is moving in the right direction. Digital businesses can effortlessly marry long-term strategy with the associated short-term tactics needed for implementation. They use data to gain answers. The senior managers of digital businesses do not stay in ivory towers—they get down to the coal face to understand how individual challenges are being tackled within the business and use data to measure how progress matches up to predefined goals and help guide decision making. They use the information they gather along with their expertise to define how the business can progress further.

So, if by these measures we recognize ourselves as wholly or partially a business that is currently doing digital rather than existing as a digital business, where do we start with digital business strategy?

We must start at the bottom left of the model we looked at the beginning of this chapter—the change blocks of digital business transformation—with the Seven Principles of Digital Business Strategy. While working on our digital business strategy, we must be aware of the fact that it is part of a bigger picture and that it will impact on culture and staff engagement. We must recognize that the business may need to be realigned and that there will be capability gaps. These gaps will need to be filled, these changes implemented, and these challenges met, before we can get into innovation and create tactical excellence using technology.

The chapters of this book take you through the Seven Principles of Digital Business Strategy, showing you where to start, what actions to take, and how to transform the business to meet the demands of an increasingly technological and competitive marketplace. The Seven Principles of Digital Business Strategy is a framework that systematically addresses all three parts of Rumelt’s strategy kernel: diagnosis, guiding policy, and coherent action. It takes you through a process of diagnosis, gives guiding policy on the parameters and rules for moving forward, and the likely outcomes associated with those choices, as well as the resources required for any given move allowing the business leaders to make informed decisions and create coherent plans of action that will achieve the desired outcomes leveraging the assets in the business.

¹ See www.philau.edu/strategicdesignmba/meet_the_director.html.

² G.S. Day. 2011. “Closing the Marketing Capabilities Gap.” Journal of Marketing, 75, no. 4, pp. 183–195.