The benefits of a digital strategy
According to a 2018 Deloitte study, 87% of business leaders believed digital technologies will disrupt their industries. But only half of them felt adequately prepared for that disruption.
Why? Because digital is not inherently the answer, nor is it a strategy. Digital is an enabler, a force multiplier that allows you to solve problems quicker and better. But all the tools in your shed are of no use if you don’t know what to build. This is what a digital strategy is for.
What sort of goals can a strategic approach set us up to achieve?
Pivoting from a competitor- to a challenger-mindset
Being aware of what your competitors are doing is an important element of being market-oriented, but playing follow the leader will inherently limit your ability to be the leader.
Challengers, on the other hand, look to make bold plays that allow them to seemingly come from nowhere and disrupt entire industries. These plays are almost always the result of finding solutions that satisfy a crystal clear digital roadmap.
Gaining a competitive advantage over your rivals
If digital is a force multiplier, imagine the possibilities if you use it to multiply the thing you already do better than anyone else. Playing to your strengths, a critical part of the challenger mindset, can help you strengthen your proposition in a competitive marketplace.
Expanding your total addressable market
Is your revenue potential limited by the size of your audience? Are you and your competitors fighting over the same customers and budgets? Seizing the initiative by moving into new segments through innovative digital marketing is a way to open yourself up to new potential customers.
Making the most of the available resources to benefit your customers
Digitisation can speed up your processes, but automation can help you scale up your operations without the overhead of extra staff. A good digital business strategy can help you understand where technology can be a multiplier for the effort you’re able to make, and help you punch above your weight.
Differentiating between strategy and tactics
As the Cheshire Cat in Lewis Carroll ’s Alice in Wonderland pointed out, “If you don’t know where you’re going, any road will take you there.”
This describes perfectly the relationship between strategy and tactics, or more precisely, what happens when you have the latter without the former. At its most basic level, a strategy is your destination, while the tactics are the steps that take you there.
Of course, the concepts of strategy and tactics are inextricably linked with war, and it’s a good—if unpleasant—way to think about it.
The goal when waging war is rarely as simple as ‘win’. What does that even mean in this context? A truly strategic leader will have very clearly defined goals:
- capture a particular territory
- eliminate the leaders of enemy forces
- gain valuable allies
- cut off the enemies’ supply chains ..and so on.
The battles he chooses, and the way he deploys his armed forces and materiel, will be in the service of those strategic goals. They are the tactics, as are the weapons and vehicles used, and the logistics that ensure the necessary flow of supplies.
What does ‘good’ look like?
Whatever the context of our ‘battles’, one thing is true: there is almost always more than one direction to take. Sometimes there are many, but which ones to choose?
Richard Rumelt provides an excellent rule of thumb: > A good strategy honestly acknowledges the challenges being faced and provides an approach to overcoming them.
Recognising the challenges your customers (or you as a business) face is a great way to understand what your goals should be. Your tactics, then, will consist of ways to overcome those challenges.
The result, hopefully, is a competitive advantage because people can do business with you in quicker/easier/cheaper ways than the rest of the market, or maybe you’re reaching entirely new markets thanks to digital.
Here are some real-life examples of a good digital strategy.
First-movers outperforming peers
A crucial part of winning a 100m sprint is being quick off the blocks when the starting gun fires. Olympic gold medallist Linford Christie described it as pushing off on ‘the B of the BANG’.
When a race is short and the winning margin so fine, such an advantage right at the very start can be very difficult to overcome.
Businesses that push off on the B of the bang get first mover advantage. This can mean getting strong brand recognition and customer loyalty before competitors try to play in the same space.
Many examples of first movers in the digital space used technology to allow people to do in their homes what they’d previously have to go elsewhere to do.
For example, the digital strategies of Amazon and Ebay are two sides of the same coin.
Amazon’s original incarnation was an online bookstore which, at the time, offered a wider range and cheaper prices than High Street retailers because they weren’t a High Street retailer. At the time, in the mid-90s, estimates about the potential growth of web-based retail, so the choice to sell books may seem conservative by today’s standards, but the business case was clear:
- The potential market was large.
- Lots of titles were readily available to sell.
- Books generally have a low unit cost, so there’s a low barrier to entering the business.
The digital strategy complimented the business case perfectly: harness the (then relatively new) power of the internet to create an online storefront that provides far more choice than any bookshop or library, at competitive prices because bricks-and-mortar properties aren’t required. It was new and it was revolutionary.
Amazon rode the wave of the Dotcom bubble of the late 90s and early 00s, at least in part because they started small but scaled quickly. Within two years, Amazon were selling music, videos, video games, consumer electronics, home-improvement items, software, games, and toys.
Today it is the world’s largest online marketplace. It turned over $232.887 billion in revenue in 2018 and employs over 750,000 people worldwide.
One of Amazon’s main online competitors is Ebay. Founded around the same time as Amazon, it may only have a fraction the turnover, but it has achieved significant brand awareness, and is unparalleled as a place for people to auction off and buy goods.
Up until the advent of the internet, most personal selling would’ve been via car boot sales, jumble sales, or using one of the trading magazines, such as Exchange & Mart, for larger, more expensive items such as cars.
But digital brought a number of clear benefits that Ebay was able to exploit:
- Ease of publishing items for sale.
- Effectively limitless room for photos and descriptions.
- Real-time bidding.
- Search tools to find the right products.
- Wider geographical reach.
- 24/7/365 access, and not dependent on the weather.
Here in the UK, it beat Exchange & Mart to the punch by a year, and with a much broader offering than just the latter’s cars and motorcycles. But, more than anything, it made a previously onerous process convenient: a benefit many people will pay for.
Shifting the competitive balance
For all our talk about the advantages of being a first mover, being quickest off the block does not guarantee success, especially over the long term, if you don’t keep ahead of changes in market forces, technology and customer behaviour.
As a competitor, you look for ways the market leaders are resting on their laurels, the chink in their armour, and look to exploit it.
The landscape of in-car GPS has gone though a number of changes in its relatively short time of being available to consumers.
Up until the rise of smartphones, you could buy a Tom Tom or Garmin unit from Argos to sucker onto your dashboard or windscreen. Then when iPhones and Android devices came with GPS capability built in, we got to choose the app to install that would guide us from A to B.
From this point in 2007, Google Maps came pre-installed on all these devices, with Apple Maps taking over on iPhones 5 years later.
Having your app installed on a phone by default is a powerful position to be in. Despite Apple Maps being poorly received when it was first released, that didn’t stop it being far more widely used simply because it came with the phone.
Perhaps this is why, while they have both received incremental updates over the years, neither Google Maps or Apple Maps have done much to consolidate their default position.
This is where Waze has capitalised. Although now owned by Google, Waze has carved its own niche in the market by crowdsourcing useful travel information.
Users are encouraged through gamification to flag up where there are accidents, traffic jams and speed traps to help drivers plan their routes and dodge trouble.
This democratisation of travel information has proved extremely popular, with Waze navigating over 50,000 trips in the UK every day.
Many of the best ideas also, with hindsight, seem to be the most obvious. Such is the case with Peloton. Exercise bikes have been in our homes for decades now but using them is an inherently lonely experience. The relatively recent popularity of spinning classes has shown that there are plenty of benefits to instructor-led, group classes.
Peloton bridges the gap between the two. For the purchase of one of their exercise bikes and a monthly subscription, you can join live studio sessions from the ‘comfort’ of your own home—complete with streaming audio and video of the instructor.
For many, the cost of this service is steep, but the convenience is undeniable. Removing the need to travel to a gym while providing 24⁄7 access to quality sessions are only possible thanks to the wide availability of broadband, while the cost savings of this business model means Peloton is able to offer contract-free membership.
While still too young to tell if Peloton has longevity, it did raise an impressive $1.1 billion through its IPO in 2019.
Innovating the business model
If shifting the competitive balance is about putting a different spin (pun intended) on an existing business model, innovating it is an entirely different proposition.
But, even though the internet is reaching ubiquity, there are still ways in which it can be used to flip a well-established industry on its head—which is often what’s needed if a newcomer is to challenge the established order.
After the 2008 financial crisis, the Bank of England put in place new rules that would lower the barrier to entry for the banking sector in the hope that greater competition would shake up the old guard who, it was believed, had lost touch with their customers.
This has sparked a revolution in banking, with Monzo being a notable example of how a digital-first strategy can change consumers’ attitudes to an essential service.
In stark contrast to the cliché of the high street branches, stuffy bank managers and indecipherable statements, Monzo does away with all that in favour of an app.
As acknowledged by Monzo co-founder Tom Blomfield, the app doesn’t entirely replace every facility offered by traditional banks, so it’s not for everyone. It doesn’t handle cheques, for instance, nor does it currently offer the full breadth of financial services that the likes of Lloyds Bank or Barclays do.
But it targets people who value convenience and control of their day-to-day financial needs. To this end, the app concentrates on the basics:
- Instant money transfers
- Notifications about changes to direct debits
- Automatic categorisation of expenditure
- Configurable budgets
- Overdraft management
…as well a nice-to-haves like bill splitting and peer-to-peer money transfers. All of these things have been made possible by digital, and Monzo’s success—they claim to be gaining 40,000 new customers each week—can be attributed to making the most of what mobile technology can offer, and leveraging its inherent advantages.
Riding the crowdfunding wave, Patreon was created to give creators a way to make a living from their talents.
Imagine the situation: you’re an artist with marketable skills, but how do you a) find an audience, and b) provide a mechanism to generate income?
For musicians, especially, the internet has been an important outlet for a couple of decades thanks to the likes of MySpace and YouTube. Other websites exist for creators to sell their work on a per item basis.
But Patreon has reinvented the business model by allowing fans to pay artists on an ongoing basis i.e. a subscription in return for new content or pieces, providing a steadier revenue stream. Patreon makes money by charging creators a percentage of their revenue.
This approach is not impossible in an analogue world, but digital allows artists to market themselves and create extra value by communicating with their fans, providing behind the scenes insights and exclusive content for patrons. Unlockable tiers makes some of that content available only at higher prices. In 2018, Patreon generated income from more than 3 million active patrons for around 130,000 creators (per TechCrunch).
Exploiting new technology
According to futurist and author Ray Kurzweil, technology is an evolutionary process, just like biology and we are in the middle of a burst of rapid change.
The drive towards making components smaller, faster, cheaper and more power efficient, plus the wider availability of broadband internet, means we’re increasingly adding connected devices to our home lives. In their 2019 Communications Market Report, Ofcom revealed that the average UK household uses about 240GB of data per month, up about a quarter year-on-year.
But not every idea or invention makes it into our consciousness, let alone our homes. Any new technology needs a killer application for it to enter the take-off phase of the technology adoption S-curve. Without that rocket fuel, even the most creative ideas wither on the vine. Here are a couple examples of killer applications that have exploited new technology and changed the way we live.
After a slow start, we are now entering the age of the smart assistant. Advances in artificial intelligence and machine learning techniques have meant that we are now able to speak to our devices and receive useful responses with increasing accuracy.
Machine learning is undoubtedly the key here. The more we use voice-activated assistants, the more they learn and improve, creating a virtuous circle. Gone are the days when we had to train software to understand our speech, or speak clearly in a quiet environment. Now they (mostly) just work out of the box.
This virtuous circle has its roots in the home. While voice assistants appeared on our smartphones in 2011 with Apple’s Siri, they remained somewhat of a novelty until Amazon launched the Echo in 2014. This was the first smart speaker intended to be operated by voice alone and, powered by the Alexa assistant, it sparked widespread interest and adoption.
In 2019, almost a quarter of UK households owned a smart speaker like the Echo and Google Home, and is expected to reach 100 million installed units worldwide by 2022.
Another example of a virtuous circle is in how the way we pay for products and services is rapidly changing. Payments by debit cards overtook cash in 2018, with the use of contactless technology driving the trend.
Today, retailers in the UK who don’t accept contactless payment are the exception, rather than the rule. Even market traders and street sellers are able to take contactless thanks to companies like Square. Square was started by Twitter co-founder Jack Dorsey when one of his friends was unable to complete a sale because his small business couldn’t accept credit cards. They developed an inexpensive card reader which, when paired with a smartphone, could complete transactions for a small fee. By 2015, Square devices could accept contactless payments.
By July 2019, UK consumers were using their contactless cards, phones and watches in more than 50% of transactions.
What they have in common
The examples quoted above are all well-known, big budget ventures that have might seem out of reach to most businesses.
But the money spent would’ve been wasted were is not for the reasons these products existed in the first place: their overarching strategic approaches combined the right technology with creative thinking to solve customer challenges and/or make their experiences better.
If these digital business strategy examples seem out of reach to you, don’t worry. There are ways to craft your own digital strategy, and we take a look at these in the next section.