Home / Opinion / Views /  How companies should decide their digital strategy

Asking whether one has a digital strategy is as absurd as asking about an electricity strategy was at the turn of the last century. Both cases reflect how a shift in underlying technology fundamentally changes what is possible. When something has a digital component, it means there is a layer of information and connectivity between people, things, pieces of software, etc. While this seems simple enough, once something is no longer solely in analogue form, vast changes in what is possible occur.

Digital offers several advantages. The first is its potential for creating virtually unlimited perfect copies of the original. In an analogue world, a photograph requires an effortful process of chemical reproduction to copy. Digital photos? No trouble in copying, sharing or editing. Absent this quality, OTT subscriptions wouldn’t be this cheap.

You might also like

Tata, Singapore Airlines may merge Vistara, Air India  

Explained: Gameskraft and tax tangle of online gaming industry 

Why YouTube is luring content creators to Shorts 

Why luxury housing is reviving even amid rate hikes

The downside is that when you have a potentially unlimited supply of something, your ability to extract a price for that drops dramatically. This means the value for a customer is going to shift from merely possessing the physical thing to doing something desirable with it—from product value to the value in interactions. Consider the music business. As the price of a single song has gone to virtually zero, artists are finding they can only earn a living doing what is scarce—going on tour and offering an irreplaceable live experience for which customers are able and willing to pay.

Second, digital makes it far easier to combine and recombine data in ways that can’t be organized manually. For example, the Sabre airline reservation system uses electronic passenger reservation and seat availability records to match the two electronically. Earlier, that job was done with scribbled notes stored in lockers—very inefficient and a big barrier to the growth of aviation. Today, airlines can find out which seats and times are more popular and price accordingly. They can use data patterns for staffing schedules or easily deploy digital offerings like frequent-flyer rewards to enhance customer loyalty.

Finally, digital’s recombinant quality goes with cost reduction and increased ease of experimentation. Employees equipped with digital tools can tinker, experiment and model markets without much need for resources or permissions. This has huge implications for how business models are designed. When entirely new classes of value open up, old business models could have trouble adapting.

Leaders are forced to make fundamentally important business model choices—whether the potential offered by digital is a big opportunity to be seized or a big problem to be avoided. Businesses are likelier to succeed if they take the opportunity lens.

Many newspapers viewed the advent of digital carriage as a threat, at first, and tried to erect defensive flanks (often in the shape of digital divisions) to hold off the digital tide. Among the exceptions globally was Norwegian operator Schibsted, which both embraced digital technologies and compensated executives for keeping customers with the company, no matter which channel they used.

Domino’s Pizza is an example of a company that played a smart digital game. It aggressively invested in a digital strategy driven by the mantra of “making ordering as easy as possible." All franchisees were persuaded to use the same systems for streamlining data, and a then-unusual alliance between its technology and marketing arms was forged, leveraging the brand’s overall digital potential to connect with customers. In eight years, its online customers grew to 65% of the total, which resulted in an increased ability to push more users to its loyalty programme.

Here are some guidelines for developing a digital-friendly strategy:

Begin with frictions: Every established business does things a certain way because it was convenient. But each of these activities may create frictions that a digital solution might address. Germany’s Kloeckner started its digital journey by getting rid of 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 with digital interactions. Take the example of John Deere, which started by helping farmers get better yields, but facilitated interactions among seed producers, fertilizer makers, chemical companies and local governments, thus helping create value for all.

Consider reworking how work is done: One of the biggest impacts of digital technology is on the nature of how work is done. Enterprises are using technology to reframe how they do business. At ING, conventional silo structures were replaced with more agile ones in which small teams could move quickly to solve complex problems with an architecture suitable to fast-moving tech-enabled work. It paid off well.

As Jeff Bezos once observed, you can anchor your strategy on what is unlikely to change but customers will never say, “I wish Amazon would charge me more and deliver slower." The benefits of digital adoption mean re-imagining how business works. Think boldly, but experiment cheaply by checking assumptions quickly about how a closer digital embrace helps your business.

Rita McGrath  &  M. Muneer are, respectively, a professor at Columbia Business School and founder of Valize; and co-founder of the non-profit Medici Institute. Twitter @MuneerMuh

Elsewhere in Mint

In Opinion, Pramit Bhattacharya argues India needs to move a 'jugaad’ method to a reliable gauge of services activity. Alok Sheel makes a stylized case for monarchy in rhyming verse. Parmy Olson draws three sobering lessons from Larry Page’s flying car failure. Long Story weighs Jaggi's challenge to Ola and Uber.

Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
More Less

Recommended For You

Trending Stocks

Get alerts on WhatsApp
Set Preferences My ReadsWatchlistFeedbackRedeem a Gift CardLogout