A guide to crafting a digital strategy to make winning choices

“When a strategy succeeds, it seems a little like magic, unknowable and unexplainable in advance but obvious in retrospect. It isn’t. Really, strategy is about making specific choices to win in the marketplace.”― A.G. Lafley, Playing to win: How strategy really works

If you are embarking on becoming a digital business, using a spray-and-pray approach to launch digital initiatives will be frustrating and wasteful. There is a better way, and it is about systematically exploring your options and making choices to win at digital. It would help if you had a digital strategy.

Understanding a digital business

If a digital strategy transforms your non-digital business into a digital business, let’s understand what makes a digital business.

A digital business is one where the business strategy is driven by digital. By digital, we mean the capabilities of using ubiquitous data, unlimited connectivity and massive computing power to run the business.

Consider a typical order-to-delivery process. The process takes an order from a customer and delivers the purchased goods to the customer.

Let’s consider how a non-digital operator would do this job.

• Process: Order→Pick→Pack→Ship.
• Partners: Logistics providers. The company uses phone calls and emails to communicate and coordinate work.
• Places: The company uses a traditional warehouse with manual picking and packing.
• People: The company’s staff use traditional tools such as paper and spreadsheets to keep things moving.
• Platforms: Phone and email systems for communications.

Now, let’s question this setup:

• Can this setup deliver an order within two hours? No, it just cannot cope with the requirements.
• If we automate the warehouse, can this new setup deliver an order within two hours? No, it still cannot. The value chain demands that all parts function at the same level, and there is no point in automating the warehouse when the logistics partner operates in an old-fashioned way.

So, when we hear that Amazon is now offering two-hour delivery, we can now understand the amount of work they have put into making all the parts of the value chain work in concert.

At Amazon:

• Process: Order→Pick→Pack→Ship.
• Partners: Logistics providers synced up with Amazon’s platforms to get an optimised delivery route map to make the deliveries on time.
• Places: The warehouse is automated with robots picking and packing alongside humans.
• People: Top digital talent that makes data-informed decisions with modern tools.
• Platforms: Modern digital infrastructure with data, workflows and interfaces that orchestrate communications and decision making.

Now, let’s question this setup:

• Can this setup deliver an order within two hours? Yes, it is built for speed.
• Can this setup service other value streams such as returns? Yes, these capabilities are reusable and scalable to adapt to other value streams.

Amazon is a digital business because it has deliberately designed its organisation—people, processes and technology—to be integrated and driven by digital. Digital is at its core, as mentioned in its mission statement:

“Our mission is to continually raise the bar of the customer experience by using the internet and technology to help consumers find, discover and buy anything, and empower businesses and content creators to maximise their success. We aim to be Earth’s most customer-centric company.”

The key lesson: If you are an existing business with a low digital footprint, you need to start becoming a digital business. You don’t need to be 100% digital, but you need to be on the journey. Having a digital strategy can help you in this journey.

Understanding digital strategy

Before we jump into digital strategy, let’s first define business strategy.

Business strategy is an organisation’s unique way of sustainable value creation. Anchored by a compelling vision, it describes where the company will play and how it intends to win.

Consider IKEA’s compelling vision:

“To create a better everyday life for the many people.” This vision goes beyond home furnishing. We want to have a positive impact on the world—from the communities where we source our raw materials to the way our products help our customers live a more sustainable life at home.

• Where to play: IKEA sells direct-to-customer and not through intermediaries.
• How to win: IKEA sells well-designed furniture for less. They have managed to structure their entire value chain around their vision, and this choice is their competitive advantage.

As you can see, strategy is about making tough choices. And it is not a one-time, set-it-and-forget-it activity. No, you have to monitor, evaluate and experiment with it continuously. As a leader, your job is not to “create” strategy but to live with strategy—to be a “strategist”.

When a significant change in the environment such as “digital” comes along, you have two options:

1. Treat digital as an addendum to your business strategy.
2. Treat digital as a force that influences your business strategy.

If you choose option 1, you are just optimising your value creation. If you were a caterpillar before, digital makes you a faster caterpillar.

If you choose option 2, you are looking at new ways to create value. If you were a caterpillar before, now you are a butterfly!

Consider two companies in the taxi business:

1. Company A: Explores new digital capabilities and installs mini-screens in taxis to sell advertisement space.
2. Company B: Explores new digital capabilities such as GPS, smartphones, and idle private cars and creates a ride-sharing platform.

You know where this is going. Both companies had the same options available to them, but Company A decided to use it to supplement their strategy, while Company B decided to make it their business strategy.

A digital strategy, therefore, is your business strategy driven by digital. When a large percentage of your strategy is driven by digital, you are a digital business, and then your digital strategy is your business strategy. Google does not have a digital strategy now, do they? They are a born-digital business and thus have a business strategy.

Therefore, a digital strategy helps transform your non-digital business into a digital business.

The key lesson: Treat your digital strategy as your business strategy in the making.

Crafting your digital strategy

1. Digital vision

For a born-digital business, the digital vision is the business vision. Consider Google again. They don’t have a digital vision; they have a business vision. For companies on the journey of becoming a digital business, a digital vision helps direct the energy.

Consider DBS Bank. The Singapore-headquartered bank has won many awards for being the “best digital bank in the world”. These days, it wins awards for being the “best bank in the world.”

In 2010, DBS’s vision was to be the “Asian bank of choice.” But note how this started to change when they embraced digital transformation. In 2014, their vision changed to “make banking invisible”. In 2018, the vision changed again to “make banking joyful”. In her book, “Designed for Digital”, MIT’s Jeanne Ross explains this phenomenon as the result of a company making bold bets, running experiments and transforming after the learnings: “Digital visions direct experiments. In turn, experiments invariably shape a vision.”

Therefore, a digital vision is a statement that describes the value that the company intends to achieve with digital.

Consider Burberry. When it was transforming (mostly digital), Angela Ahrendts, who was leading the change, declared:

“[Our] vision was to be the first company to be fully digital end-to-end. The [resulting] experience would be that a customer will have access to Burberry across all devices, anywhere in the world.”—Angela Ahrendts

Burberry’s subsequent initiatives all lined up with the stated digital vision and resulted in one of the more profitable years for the company.

So, how can we craft a digital vision?

First, you need insight. You need to know the challenges, obstacles and problems that your customers face and the value your company can offer—you need to reimagine your company’s place in the world.

You can start by questioning your current performance or looking at what your competitors are doing or at the emerging trends that offer significant value creation opportunities. This exercise will take some time, so be patient.

After you’ve gathered the data and analysed it, you need to start exploring your options by asking  deep questions such as:

• What do we do well? What are our core differentiating capabilities that others cannot match?
• What other things can we do with our differentiating capabilities?

Once you have wrestled with these questions, you can put your insights down in the form of a statement.

Recollect that a digital vision statement is a call to action to take bold steps and conduct experiments to learn and build capabilities along a chosen path.

2. Opportunities portfolio

After crafting your digital vision, you now need to hunt for vision-aligning, value-creating opportunities to win with digital.

It would be best to explore where-to-play (WTP) and how-to-win (HTW) choices to find these opportunities.

The WTP/HTP idea comes from Roger Martin and AG Lafley’s brilliant book on strategy: Playing to Win: How strategy really works.

WTP is the playing field for the company (or department or team). Some of the WTP choices include:

• Places (which geography?)
• Customers (which segments?)
• Products or services (what types?)
• Channels (what mix?)

HTW is the value-creation capacity. There are two choices:

• Cost structure: How can you offer more value for less (e.g., IKEA)?
• Differentiation: How can you provide new value for the same job to be done (e.g., Uber)?

As an example, consider the same order-to-delivery process we covered earlier.

In Singapore, Amazon targeted a specific glass of goods such as groceries and household items (stuff that customers would want urgently) and chose to differentiate itself from its competitors by delivering the goods in under two hours.

For Amazon:

• WTP: Direct-to-customer on the web and mobile for a specific class of goods.
• HTW: Differentiate with two-hour delivery, easy returns, and more.

So, how does one come up with the WTP/HTW choices?

Here’s a process you can use:

1. Explore inside: Conduct a detailed audit of customer and employee experiences and internal operations (unless you decide to focus narrowly on one specific area) and list the opportunities. You are looking for manual processes, manual decision points, redundant steps, repeated steps, points of delay, etc.
2. Explore outside: Explore what other admired companies and competitors are doing in the digital space. Make a list of the opportunities you see.
3. Assess deeply: Assess the combined list of opportunities and look for overlaps and group similar opportunities—question how each opportunity creates value.

The resulting list is your portfolio of digital opportunities.

3. Digital capabilities

Capabilities are the activities that an organisation does to create value, and it is a combination of processes, tools, skills and behaviours, and systems that delivers a specified outcome.

Your organisation may have hundreds of capabilities (reach customers, buy goods, pay suppliers, create products, etc.). But your organisation has some key or differentiating capabilities that are better than the competition, and these form the basis of your competitive advantage.

To pursue digital opportunities, your company needs digital capabilities, and to win at digital, your company will need differentiating digital capabilities.

Some baseline digital capabilities include:

• Gather, analyse and use data for decision-making.
• Design and build digital products and services.
• Design and automate processes.
• Integrate different systems.
• Deploy and run digital platforms.

If you are an existing business, you must look at your digital vision and opportunities portfolio and identify the key capabilities your need to realise them.

Identifying the key digital capabilities is only the start. You have to systematically develop these capabilities in your organisation. A common misconception is that capability building is an HR responsibility.

Consider the capability to gather and analyse data to make decisions. To become world-class in this capability, you need knowledge and skills but also the processes, platforms and governance that will help it become consistent and scalable across the value chain. Achieving such a wide-ranging change requires cross-functional collaboration between the business units, HR, digital and IT teams.

4. Digital systems

Consider two digital systems: Human Resource Management (HRM) and Customer Experience (CX). You use an HRM system to make employee payments, and you use a CX system to create and run e-commerce stores.

Both the HRM and CX are digital systems. Still, they have different roles: the former is about keeping the core internal processes stable and robust while the latter is about continuously tweaking digital offerings to customers.

Like the HRM system, many other operating systems form a company’s operational backbone. These include finance systems, sales systems, intellectual property systems, etc.

On the other hand, systems that allow rapid tweaking and experimenting are a new breed called “digital platforms”.

“A digital platform is a repository of business, data, and infrastructure components used to rapidly configure digital offerings.”—Designed for Digital, Jeanne Ross et al.

If you want to launch a campaign for your e-commerce store, for example, you don’t need another system. You can use the campaign building blocks offered in the same CX system to design and launch the campaign.

The Lego-like composability of the digital platforms offers the ability to whip up new offerings quickly and become essential when you are thinking of scaling your digital services. For example, you could address many opportunities in your portfolio with a handful of digital platforms, thereby giving you the leverage to execute a wide range of digital projects quickly.

What are your choices in selecting digital systems?

• Operational backbone: Don’t dwell on this one. The current commercially available crop of systems is very mature and quickly deployable. Just look at what the best in class companies are using and copy.
• Digital platforms: Review your opportunities portfolio and assess which digital platforms can give you the leverage you need. Here, you need to spend the time and effort to select the right platforms.

Implementing your digital strategy

Now that you have crafted your digital strategy, it is time to implement it. Here are the steps you can take:

• Get commitment and buy-in: Although you’ve crafted your digital strategy, you need to ensure that it has the endorsement of the organisation’s leaders. Nothing is more debilitating than the leaders not having skin in the game.
• Identify champions: You need people to be accountable for the implementation of the digital strategy. This is not about having a few senior leaders play a part-time role; it is about assigning full-time roles and sending clear signals that the business supports the digital strategy.
• Pick an opportunity: Pick the right opportunity from the portfolio to start your journey. This activity might take some time as you’ll need to weigh and tradeoff many variables such as the value of the offering, availability, investment, current capabilities, partnerships, and risk.
• Assemble a team: You need a team to work on the project. Your choice of team members will depend on the current capabilities to deliver the project. As described previously, you have options here. If you go with co-teaming, then your choice of team members will be those who can learn and become internal champions of a new way of working.
• Work in modern ways: Working in digital demands that you work at the speed of digital. Hierarchical work is not going to work; you need to go horizontal. Working in flat structures through fast cycles with continuous experimentation is the way to embrace digital.
• Focus on capabilities and systems: Remember, your path to becoming a digital business is by building the right capabilities and systems. Going through a project will surface tensions, and these, in turn, will reveal gaps. For example, if this is the first time you are going direct-to-customer, you’ll notice tensions around managing these relationships. Please don’t ignore them. These tensions reveal new capabilities you might need to develop.

If you’ve made it this far, congratulations! You can appreciate the time and effort required to create a good, solid digital strategy that can transform you into a digital business. Now, go and create your digital strategy. If you need a little help from us, just get in touch at info@pebbleroad.com. Good luck!

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