Who needs a digital strategy?
The short answer is: Not every company. The vast majority nowadays. Fewer in the future. What is meant by this?
By Martin Luckow
A digital strategy is a business-oriented answer to questions about the progressive digitalisation of our world. The basic question here is "How does my company need to develop to survive and grow in this world?" and affects all areas of the company such as management, marketing, sales, production, administration, CRM, etc.
This also provides the first part of the answer: Sooner rather than later, digital ways of thinking and working as well as strategically relevant technologies are mandatory for a successful business. This means that these aspects must be addressed in every business strategy. Companies and organisations that have taken this step and focused on digital thinking and digital technologies essentially do not need a digital strategy, because it has merged with the business strategy. Fully digital business strategies can often be found in start-ups as they were able to grow their business digitally right from the start.
The majority of companies are nowhere near that level – that is the second part of the answer. Expanded organisations in particular need to complete their business strategy with a digital supplement. They face various challenges:
One is that the effects and potential of digitalisation are often not fully understood by management. Organisations like this need to learn that digitalisation does not simply mean "more IT". Digitalisation is initially aimed at those who have to learn to think in new ways. The fact that the resulting ideas create a need for IT support is an effect, not the cause. Digital ideas must be actively developed, which is difficult in everyday life without innovation processes. Without this knowledge base, however, it is not possible to develop visions from which strategies could emerge.
Digitalisation is initially aimed at those who have to learn to think in new ways.
Another challenge can be found in old structures, ways of thinking and behaviour. For example, the word "digital" misleads many into thinking that digital questions should be answered by the entity that seems to be closest to the topic in the current organisational form: IT.
Well structured IT has the competence to deliver a sophisticated IT strategy. However, an IT strategy is a technical answer to the business question "How does IT help the company succeed?". Due to its technical focus, IT cannot answer all questions of digitalisation. In addition, a classic IT strategy requires that the business strategy is defined and requirements can be derived. Its task is to align IT so that the business strategy leads to success. In a strategy process, an IT strategy follows the business strategy over time.
Asking IT to formulate a digital strategy is therefore problematic. It initially indicates that the company does not understand digitalisation comprehensively enough. There is a risk that, in the best case scenario, the response from IT will be incomplete or that a technical focus will be set too early. Or it requires IT to position itself in such a way that it can answer strategically relevant digital questions for all departments at business level in the future. This is not realistic.
A separation should therefore be maintained between a technically oriented IT strategy and the strategies at business level. Every company or organisation therefore needs both an IT strategy and either a fully digital business strategy or a business strategy supplemented by a digital strategy.
The development of a comprehensive digital strategy must take place at business level. It should not be demanded from an individual department that actually has other tasks. This creates the risk that the topic will be viewed through departmental glasses.
It makes more sense to establish a separate entity with the sole objective of formulating this strategy. The relevant team must have an overview of external trends and strategically relevant innovations. It is irrelevant whether there is a direct connection to the current business, as relevant developments also arise outside the industry. The team must also have comprehensive knowledge of the business, internal circumstances, bottlenecks and potential.
Characteristics of digital strategies
A digital strategy is therefore required as long as the business strategy itself is not digital. A digital strategy defines which digital channels and assets and how digital technologies are used to secure or increase the company's competitiveness. Like the business strategy, it is holistic and relates to all areas relevant to competitiveness.
Based on the question "How does my company have to develop in order to survive and grow in an increasingly digital world?", there are two main directions in which a digital strategy can be developed. The combination of both approaches is also possible, but often difficult to implement.
Firstly, most companies are under pressure to optimise, which can be countered through automation. The appropriate competitive strategy is then aimed at cost leadership, i.e. the target is to achieve the highest possible returns through optimisation with cost savings in areas such as production, marketing or sales. These types of digital strategies are common, but they should only be temporary as they address only a subset of the potential offered by digitalisation. Mechanisms must therefore be included in the strategy process that prevent a company from permanently manoeuvring itself into the "optimisation corner" and neglecting other aspects.
Mechanisms must therefore be included in the strategy process that prevent a company from permanently manoeuvring itself into the "optimisation corner" and neglecting other aspects.
Another direction is the pursuit of benefit leadership. Digital strategies in this direction rely on using digital means to provide the customer with something that meets their exact expectations and values. Primarily focused on quality, service, emotions and a more comprehensive offering, completely new business models come into play here, which would not be possible without digitalisation.
A digital strategy that does not address cost or benefit leadership creates the risk that the company, its products or values become interchangeable and lose more and more market shares. It would therefore not provide a meaningful answer to the crucial question.
The pressure emanating from digitalisation will ultimately lead to successful business fundamentally having digital aspects. As a result, future business strategies will have to address these aspects comprehensively and holistically. As an organisation becomes more digitalised, the digital strategy will become part of the business strategy.
As long as companies are in the transformation process, it is advisable to develop a digital strategy in addition to the business strategy in order to enable consistent, iterative and adaptive implementation of digitalisation and thereby maintain and increase competitiveness in the long term. As part of this process, it should be decided at digital strategy level whether cost/benefit leadership or both are sought with digital means in order not to become interchangeable.
A digital strategy should be developed by an interdisciplinary, very well prepared team. This team must focus on the business, but still be able to reconcile ideas with current trends, technologies and innovations in such a way that successful digitalisation of the entire organisation can be achieved without the emergence of a "digital patchwork".