Disclaimer: The articles in this blog post are those that I found
interesting and relevant to the topic of ERP and technology in general. I
have no commercial association with any of the entities mentioned in
this article. I may be following a few of these entities on LinkedIn and
even some of these entities may be on my LinkedIn or Social Media
network. These articles are selected purely based on their relevance to
the objective of this blog, to promote ERP. Finally, the summary is mine. While I stay close to the points in the articles, I also elaborate a few of them based on my understanding.
The theme for the week is Digital Strategy. This blog post was to have been posted yesterday, but got delayed. I apologize for the delay. But from my personal perspective, the delay was godsend since I was able to read some great articles. The first article differentiate digital strategy from IT strategy. The second article discusses four ways to build an agile digital strategy. The successful companies are quick on the uptake and 'fail fast', take advantage of digital ecosystem, use M and A to build digital capabilities etc. Third article, from Sloan Management Review says that strategy should drive #DigitalTransformation. This article also supports the points made in the previous article. Article four details the academic research on Digital Strategy. There is not one but two digital strategies, Customer Engagement and Digitized Solutions. The choice of strategy will be based on industry. The last article in this post discusses five reasons why Digital Strategies fail. These include Fuzzy Definitions, Having a narrow focus, Not understanding the economics of digital etc.
The short URL for this post is https://goo.gl/5TDAXN
The short URL for this post is https://goo.gl/5TDAXN
Great article. Happy reading. Tell me what you think. And BTW, do not miss the 'Additional Readings'. There are some more great readings there.
https://blogs.gartner.com/dave-aron/2013/11/12/the-difference-between-it-strategy-and-digital-strategy/
No they are not the same. IT Strategy is a subset of the Business Strategy. It decided how IT will play a part in ensuring the success of business strategy. Digital Strategy is an input into Business Strategy. It looks at the changing technology environment and determines how each of them will impact the business either separately or in conjunction with each other. Digital strategy will form the basis for #DigitalTransformation. Based on the digital strategy, the IT strategy of the next few years may be tailored.
Please note that some of the above points are my understanding from reading the short article referred above.
https://www.mckinsey.com/business-functions/digital-mckinsey/our-insights/a-winning-operating-model-for-digital-strategy
There are four areas where best performing companies approach digital strategy. They have:
1. Increased the agility of their digital strategy practices, which enables first-mover advantage
2. Taken advantage of digital platforms to access broader ecosystems and innovate new digital products and business models
3. Used M&A to build digital capabilities
4. Invested ahead of their peers in digital talent
Let us look at each point in a bit more detail
Top performers are quick at setting, executing and adjusting their digital strategies. As the pace of digital related changes accelerate, companies are expected to move around their capital and employees quickly to take advantage of these opportunities. As the pace of digital change accelerates, companies are expected to place bigger bets and reallocate resources quickly. This quick action enables companies to apply 'fail fast' methods will help companies quickly spot new opportunities as well as quickly get out of opportunities that do not work for them.
Successful companies have taken advantage of the emerging trends in three ways. They have taken advantage of the digital ecosystem of consumers, technology and businesses. In addition they are quick to introduce new digital offerings and tailoring the business model to take advantage of digital. Digital platforms have enabled creation of new market places, sharing of data and significant network effect. The changes in the digital ecosystem is forcing the companies to reevaluate the economics of their business models, their customers needs and who their competitors and partners are.
By being a member of the digital ecosystem the successful companies are able to not only identify new customers and partners, but also take advantage of the changing needs of the digital world. Since they are a part of the ecosystem, they get a sense of the impending changes much earlier than their peers.
Companies are also innovating on their business models, by introducing new products tailored to the digital world. Bulk of their digital budget is directed towards preparing for digital's new economic realities.
Successful companies have also tailored their M&A activities to suit the new digital economy by spending 60% of their M&A budget on acquiring digital business or digital technology. Other companies spend about 60% of their M&A budget on acquiring non-digital businesses.
Talent management is another area where successful companies are different from their peers. They recruit quality digital talent, dedicate much more of their workforce to digital activities and regularly reallocate the talent to focus on high value adding digital initiatives.
In summary, successful companies are more nimble in using digital, have a focus on digital initiatives, their digital strategy is dynamic and they invest in talent and capabilities early and aggressively.
Nice article. As usual, McKinsey quality and thoroughness shows.
https://sloanreview.mit.edu/projects/strategy-drives-digital-transformation/
The article in Sloan review is itself a summary of the original article. So my post is the summary of a summary. The article is based on a study on digital business that MIT Sloan Management Review conducted along with Deloitte in 2015. Maturing digital businesses are integrating digital technologies like Social, Mobile, Analytics and Cloud (SMAC) while less successful companies are using individual digital technologies to solve discrete business problems.
In the age of #DigitalTransformation, risk taking has become a cultural norm as companies are seeking digital competitive advantage. In addition, employees across all age groups want to work for companies that are committed to digital progress.
The study finds that:
1. #DigitalTransformation requires a digital strategy. Adhoc approach will not do
2. Digital strategies of successful companies have strategic focus while others have operational focus.
3. Maturing digital organizations are four times as likely to provide employees with digital skills to take advantage of potential digital opportunities.
4. Employees want work for digital leaders.
You can see that the points tie in with the McKinsey article referred above The detailed article should be interesting.
https://pdfs.semanticscholar.org/9845/053c4cd6e2a9ce61988fc060517c933341ff.pdf
This is a study done by academics from MIT Sloan and University of Texas, supported by Consultants from BCG. They found that while small companies can be good at developing SMACIT (Social, Mobile, Analytics, Cloud and Internet of Things) applications, it is the integration enabled by digital technology that constitute the basis for competition in digital economy.
The study identified three key elements that can help leverage the opportunities of digital economy.
1. A digital strategy
2. An operational backbone
3. A digital services backbone that facilitates rapid innovation and responsiveness to new market opportunities.
In this post, I am only focused on the first one, digital strategy.
The authors of the study define Digital Strategy as A Business Strategy, inspired by the capabilities of powerful, readily accessible technologies (SMACIT), intent on delivering unique, integrated business capabilities in ways that are responsive to constantly changing market conditions.
There are two digital strategies which Organizations follow. One is 'Customer Engagement'. This strategy is focused on detailed analysis of customer requirements to identifying the digital solutions that will meet these requirements. You could call it 'Outside In' approach. The other strategy is Digitized Solutions where Organizations reformulate what they are selling. Digitized solutions enhance products and services with information or expertise to solve customer problems.This is an 'Inside Out' approach. Approach should depend on the nature of the industry.These strategies are not mutually exclusive. For example Customer Engagement strategy will mean that products and solutions would by guided by that strategy. An example of company that focus on Digitized Solutions as a strategy is Apple computers who focus on product engineering to build amazing products that customers love. But getting customer love is not the focus of the company.
There are five suggestions that the authors provide to Organizations to handle the digital economy.
1. Define a digital strategy
2. Invest in an operational backbone - quickly
3. Architect a digital services backbone
4. Partner to acquire new skills and capabilities
5. Think services: Digital strategy should not be focused on projects and initiatives. Customer service should be front and centre of the Organization and to execute this strategy the Organization should modify their internal systems and processes to focus on customer requirements.
Finally, the digital strategy should be owned by the Senior Management and should not be delegated to the lower levels in the Organization.
https://www.mckinsey.com/business-functions/digital-mckinsey/our-insights/why-digital-strategies-fail
This article starts off with a fascinating premise. As individuals we are already digital, but as employees we work in environments that are far less savvy. Businesses underestimate the increasing momentum of digitization, the behavioural changes and technology driving it and the disruption that digital will cause. The digital strategy of future has to be generated in a new paradigm. It is incompatible with the traditional economic, strategic and operating models. There are five key issues.
1. Fuzzy definitions: There is a lack of clarity in what 'Digital' means. Some CEOs think that by adding a few applications, they have gone 'digital'. They lack an integrated view of the emerging 'connected environment'. As the first article in this post point out, IT Strategy is different from Digital Strategy. Digital strategy involves understanding the path breaking technology shifts happening around and taking an integrated and long-term view.
2. Misunderstanding the economics of digital: The time tested rules of economics are being challenged in the digital economy in three ways. One, Digital is destroying economic rent. Digital is adding more value to the customers than to the businesses. This is done in three ways. Digital helps in unbundling profitable products and services giving more choice to the customers and more headaches to businesses, provides customers with limitless choice and transparency thereby bringing prices down and due to its free and easy reproducibility, it is driving down marginal cost to zero and bringing down prices further.
Two, Digital is driving 'winner takes all economics'. The economies of scale (see the last line in above para) and the network effects generated by digital means that profits will flow to the leader leaving the others unprepared. McKinsey research on digital revenue growth shows that it is turning sharply negative for bottom three quartiles of companies. The common mistakes that incumbents make are to assume that market shares will remain stable, the profitable niches will be defendable and that it is possible to remain profitable by following traditional operating and business models.
Three, digital rewards first movers and some superfast followers: This happens because these companies test and learn and have a learning advantage. They launch early prototypes and refine results in real time. They also scale up platforms and generate information networks powered by AI. They are already developing V3.0 of the products as incumbents tentatively start working on 1.0. They also benefit from word of mouth from early adopters and technology evangelists.
3. Overlooking ecosystems: Platforms that link digital players to move across industry and sectoral boundaries are upending the traditional model of tracking competition. Due to their ability to aggregate stakeholders across industries, they are able to quickly build up a stakeholders network involving millions of participants. With their ability to reach a large customer base and using tools like AI and a friction-less supply chain, these companies are able to deliver business models considered impossible a few years ago. In the world of ecosystems, strategy has to be much more broad-based than now and companies should 'expect the unexpected'. New digital structures collapsing the industry barriers, opening avenues for cross-functional products and services and mashing up previously segregated markets, is the norm of the future. Companies that are not a part of the ecosystem, will remain so at their peril.
4. Overindexing on the 'usual suspects': When we talk of digital, we tend to focus on the Amazons and the Ubers of the world, what are known as 'Digital Natives'. However, more damaging to a business is when the incumbents, especially leaders, start digitizing. They have the wherewithal to reach vast sections of the industry value chain with serious implications for the others in the industry.
In addition, the leaders in consumer focused industries tend to focus on the consumer. However, significant opportunity and threat of digitization exist in B2B sectors, especially if the stakeholders like customers and suppliers are going digital. By focusing on the 'usual suspect', the consumer, the companies miss the bus on rapid changes taking place in their industry ecosystem. Companies in many industries are using latest technologies like AI, Blockchain, RPA etc. This is an opportunity that should not be overlooked.
5. Missing the duality of digital:Two kinds of duality are discussed. One is between the magnitude of change and the pace of change. For those who are facing rapid disruption (pace of change is high), bold moves across the board are imperative. For most of the other companies, a calibrated approach to gradually move to digital is recommended.
Another type of duality is between scope of change and the ability to execute the change. Organizations struggle to reach a balance between game changing digital initiatives that bring in new business models as against remaking the existing business to move digital. This decision has to be made based on the two factors. One, think big and aspire bold when it comes to digital strategy. As mentioned in Article 3 above, the successful companies invest in higher levels of technology, augment their digital presence through M&A and adopt innovative changes to their operating model. Two, be adaptive. Focus on quick pilots, be ready to fail and learn from failures, adapt to changes and move forward.
In conclusion, while Organizations realize the 'urgency' of the digital, many do not reach the level of 'specificity' needed to execute these changes successfully.
A great article. Made my day....
Additional Reading
1. Four fights you have to win (https://www.mckinsey.com/business-functions/digital-mckinsey/our-insights/digital-strategy-the-four-fights-you-have-to-win)
2. The economic essentials of digital strategy: (https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/the-economic-essentials-of-digital-strategy)
3. When to shift your digital strategy to a higher gear: (https://www.mckinsey.com/business-functions/digital-mckinsey/our-insights/when-to-shift-your-digital-strategy-into-a-higher-gear)
4. The power of digital platforms (https://www.mckinsey.com/business-functions/digital-mckinsey/our-insights/new-evidence-for-the-power-of-digital-platforms)
5. A world of sectors without borders: (https://www.mckinsey.com/business-functions/mckinsey-analytics/our-insights/competing-in-a-world-of-sectors-without-borders)
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