What is the difference between broad digital strategy initiatives referred to as ‘optimization’, ‘innovation’, ‘transformation’, and ‘disruption’? More importantly, is there any reason to care?
The unique characteristics among these four groups could be considered a matter of semantics. But for senior managers working to understand their place within the emerging and rapidly evolving digital strategy ecosystem, this framework offers a useful model to think about the issues, and how their industry sectors are being affected by digitally-based competitive forces.
Which Affects Which Companies?
- All companies can (and should) pursue a digital optimization strategy
- Most companies are capable of employing digital innovation in their businesses, but only a small percentage do
- To date, few companies have voluntarily initiated digital transformation undertakings; most go kicking and screaming, in response to dire competitive conditions
- Digital disruption is tricky, if not impossible, to reliably work into a formal business plan; but when conditions do yield disruption, it hits like a tidal wave
The following exhibit offers a one-stop summary, and further discussion on the distinctions follow.
Digital Optimization involves making the most of existing online and offline assets through digital-enablement and tuning, and any company with a website is able to do this. Most well-run, large companies have made digital optimization a priority in recent years, while the SMB marketplace is still trying to figure out the best way to make web marketing work.
Tools: multi-functional website, intranet/extranet, search marketing, email marketing, content marketing, display advertising, cloud solutions
Digital Innovation is characterized by using digital tools and techniques in a unique way to alter a competitive landscape, and cause competitors to respond accordingly. Digital can contribute in marketings, sales and operations, so can contribute in a variety of manners. Starbucks has innovated by making it easy for customers to pay by the mobile channel, as well as luring customers into its locations with free and high-speed internet access (note that McDonald’s is now doing the same). The Four Seasons invested $15 million into its latest global digital overhaul to alter the online landscape for selling luxury hotel rooms. MacGray has changed the niche laundry room management business with its introduction of LaundryView.
Tools: creative thinking and ideation, custom development, promotion and outreach; senior leadership willingness to test a new idea and fail.
Digital Transformation comes in a variety of forms — organizational, cultural, product-oriented — but some sectors are faced with no other option than to transform. Newspapers are the poster child for having been savagely assaulted by the internet revolution, and though it took the sector awhile to respond, some appear to have turned the corner, most notably the New York Times. Companies such as GE and AMEX have publicly stated digital transformation initiatives underway, though these are assumed to be of the 3-5-10 year variety. For a more detailed discussion on what’s involved with these efforts, see Digital Transformation Best Practices.
Tools: corporate strategy, leadership turnover, change management, new product development and promotion; emotional detachment from legacy business practices.
Digital Disruption turns sectors upside down, causes household brands to disappear in short order, and makes twenty-somethings into billionaires. These don’t happen frequently, but dominate media coverage when they do. Most revolutionary digital strategies are successfully converted by VC-backed start-ups, due to the Innovator’s Dilemmaprinciple. Apple is, of course, the highest profile example of the past decade or so – and completely contrary to the VC premise – using its “I-stack” (pod, phone, pad) to upend the music, telecommunications, and computing industries. Facebook and Google are two ubiquitous brands that are impacting multiple industries but having the most influence by affecting how employers attract and retain talent. Cloud computing is the category that will have the most impact over the next 2 – 5 years.
Tools: a big idea, and a whole lot of good fortune and capital investment.
In the final analysis, of course, it doesn’t matter what kind of digital strategy your organization chooses to pursue, so long as it’s taking the necessary measures to maintain a competitive advantage. While most industry sectors are being affected in a meaningful way by digital-enablement, the level of urgency in some areas (e.g., utilities) is much less significant than others (e.g., electronics). For senior managers in less digitally-intensive businesses, digital strategy can be viewed as a source of potential competitive advantage; while those in sectors experiencing the wrath of the digital revolution, figuring out how to work digital into the organization is a matter of survival.