Creating your digitalization strategy
You open an online store app on your smart device to explore the new offers, probably a book, and a pop up jumps in with recommendations that match your interests, LinkedIn does it too when you view someone’s profile by showing you “people also viewed” list. This is achieved by using your previous transactions, or even sometimes what you had browsed earlier, using an algorithm on a big data of people with similar interests. Displaying such recommendations resulted in increased selection and successful sales transactions on Amazon, Alibaba, even online restaurants. The idea here is “convenience”, its the ultimate goal manifested by digitalizing customer’s behavior patterns and increasing chances of successful transaction.
In pursuit of convenience, digitalization has rapidly gaining momentum in almost every industry and companies are quickly adapting to realize the potential of this relatively new enabler. Companies substantiate behavioral patterns gaining insights to what was concealed before, and using this clarity to enhance, or create, value proposition.
Similarly, you can now manage assets/stocks positions using a smart device, analyzing potential buys and risky holdings per your risk appetite using analytical tools provided by a specialized app. Consequently, brokerage houses developed new capabilities to provide its customers with tools enabling them to create better, speedier analysis on a smart device at any time. Earlier this could be achieved on various calls to your relationship manager and analysis was largely limited to a weekly or monthly market outlook report. Digitalization enabled brokerage firms to increase frequency of trades, sending out quick confirmations and market products to groups which would attract bulls and the bears per their appetite.
Digitalization initiatives are expansive to implement, with high redundancy costs involved with failure. Successful implementation depends on company’s capability to choose relevant data and depth of analytics, IT infrastructure to collect, store and process data, its people’s understanding of information at hand, depth of analytical ability, and adaptability by management structures. This means creating new positions and hiring the right talent, and simultaneously leveraging skills of existing talent to understand true drivers of business.
Yesterday I stumbled upon article about Warren Buffet and Elon Musk tug of war over strategy, where the former firmly argued in relevance of moats in strategy, Elon Musk sees its as transient by siding with pace of innovation for a successful strategy. Luckily, digitalization addresses both approaches to strategy. In fact for over a long time analytics agreed that pace of innovation is important in making a strategy.
Digitalization is not a fad, its the language which interprets customers demand objectively. Elon Musk makes an important point siding with the pace of innovation, pace disrupts strategic positions. Basic digitalization initiatives e.g. social media marketing, targeted advertisement, online shopping disrupted conventional marketing strategies as new means of communicating with customers became available. Digitization provides meaning to measuring disruption from company’s internal and external environment.
Warren Buffet’s views moats as an important element of strategy which is the tried and tested stronghold of strategy i.e. companies must make choices. Digitalization in form of strategy, provides visibility to analysts into behavioral patterns providing necessary fuel to create/maintain strategic positions.
Recently Steve Easterbrook announced McDonald’s new digitalization initiative to roll out self ordering kiosks. McDonald’s implementation of this new digitalization initiative is in pursuit of enhancing customer experience, by providing an interactive screen, product customization options and payments methods. These initiatives still work around McDonald’s vision “to be the best quick service restaurant experience”.
On the other hand McDonald’s will reduce cost invested in cashiers, and divert it to serving tables, adding additional value to McDonald’s customer and increasing the number of clean tables at any time, without incurring additional costs. McDonald’s has built its analytical system over years and has the best talent with an inspirational vision. It leverages on these strengths to create digitalization initiatives which create a win-win game for the Company.
Elon Musk’s idea of pace is highly relevant, its based on operational efficiency described by Michael Porter’s in 1980s. Pace of innovation drives operational efficiency of companies, conforming to Porter’s “if you are not operationally effective, strategy does not matter”. So if an organisation does not keep up with pace of innovation which make it faster, cheaper and produce with less defects, it would not be able to maintain its strategic position.
Effect of pace of innovation can be clearly seen on the value chain, which I frequently use to measure operational effectiveness. Its obvious that innovation in activities which create, preserve, transmit and consume value changes how you play the game. What is not so obvious is that in leveraging only on pace of innovation is not sustainable, as its often susceptible to be copied by others.
Companies realize now the importance of capability to mine and exploit data, identifying and measuring the core drivers of its business, as is done by market’s big players i.e. McDonald’s, Amazon, Alibaba etc. This can only be achieved by creating a digitalization plan and creating input collection points. Databank will become an important asset class which must be protected and refined, as it holds the ability to turn actions into customer wins.
We live in an age of innovation’s innovation, we create meaning and not just innovate products and services. Digitalization opens new doors to create meaning, providing insights on where to play, and how to win.
Disclaimer: Opinions expressed are solely my own and do not express the views or opinions of my employer.
Originally published at www.linkedin.com on May 11, 2018.