BUSINESS STRATEGY
WHY DIGITAL IS A PANACEA
The many benefits of digitalisation – Dr. Muneer Muhamed and Rita McGrath
Asking what your digital strategy should be is akin to wondering what your electricity strategy was at the turn of the century. Yet, both questions reflect how a shift in an underlying technology fundamentally changes what is possible.
Digital offers several good qualities.
Firstly, there’s the potential for creating virtually unlimited perfect copies of the original. In an analogue world, copying a photograph requires a tedious process of chemical reproduction; but digital photos can be copied, shared or edited with ease.
The downside is that when you have a potentially unlimited supply of something, your ability to extract a price for it drops dramatically. This means the value to a customer is likely to shift from possessing the physical thing to doing something desirable with it – from product value to the value in interaction.
This happens in the music business. As the price of a single song has reduced to virtually zero, artistes are finding that they can only earn a living doing what is scarce – i.e. going on tour and giving an irreplaceable live experience.
Secondly, digital is far easier to combine and recombine in new ways that simply can’t be organised manually.
For instance, the Sabre airline reservation system uses electronic records on passenger reservations and seat availability to match the two electronically. Prior to that, the job was done with scribbled notes stored in lockers.
Today, airlines can find out which seats and times are more popular, and price them accordingly. They can provide frequent flyer miles to enhance customer loyalty and extend that information to staffing schedules. These examples increase value by recombining digital properties in various ways.
Finally, together with this capacity to recombine, there’s a reduction in costs and increased ease of experimentation. Employees using digital tools can engage in tinkering and experimenting without much need for resources or permission, since the cost and risks are relatively low.
This has huge implications for how business models are designed in the digital age. When entirely new classes of value open up, old business models won’t be able to capitalise on them.
Leaders will be forced to make fundamentally important business model choices – whether the potential offered by digital is a major opportunity to be seized or big problem to be avoided. Businesses are much more likely to succeed if they take an opportunity lens to the digital revolution.
Domino’s Pizza was in the doldrums following its 2004 IPO. In 2009, an audacious ad campaign caught the public’s eye – it featured then CEO Patrick Doyle and other employees acknowledging that for many customers, the product itself was lacking.
Simultaneously, the company began aggressively investing in its digital strategy behind the mantra ‘making ordering as easy as possible.’
All franchisees were persuaded to use the same systems for streamlining data, and an unusual alliance (at the time) between its technology and marketing arms was forged by leveraging the new potential of digital to connect authentically with customers.
Domino’s online customers grew to 65 percent of its total within eight years and this increased its ability to urge more users to join its loyalty programme.
There are guidelines for developing a digital friendly strategy.
Begin with friction. Every established business does things a certain way because it’s more convenient. But each of these activities is likely to create friction, which a digital solution might address.
Imagine the possibility of digitalising operations to eliminate glitches and barriers. For instance, Germany’s Klöckner began its digital journey by doing away with manual faxes.
Consider new kinds of value that might emerge from interactions. Conventional views of strategy often rest on a zero-sum attitude towards value. Instead, imagine the value that could be created by digital interactions.
Take the example of John Deere, which began by helping farmers realise better yields but facilitated interactions between seed producers, fertiliser makers, chemical companies and local governments to create value generating activities for all. Many agri tech startups are adopting similar models today.
Consider redesigning how work is done. One of the biggest impacts of digital – accelerated by the pandemic – is changing the nature of how work is done. Today, enterprises are using technology to reframe how they conduct business.
At ING, conventional silo structures were replaced with more agile options so that small teams could move quickly to solve complex problems with an architecture that’s suited to fast-moving technology enabled work. ‘Permissionless’ systems enable those closest to problems to take action.
The benefits of digital means reimagining how a business works. Think boldly but experiment inexpensively by quickly checking assumptions about how digital can help the business.
Digital offers several good qualities
