The strategy is the starting point of the digital transformation journey. Digital leaders have a sound strategy. Strategy is repeatedly cited in digital transformation papers, books, media coverage, and this blog. Strategy, strategy, and more strategy.
So, how does a digital strategy look like?
One important clarification before going further, this post is not a comprehensive strategic thinking methodology to develop a digital transformation strategy. For those beginning the digital journey, the framework provides a practical guide to get started. This post proposes a structure to organize ideas, priorities, initiatives, and projects to describe the digital future and the route to get there, in a logical and understandable format.
Back to the strategy. The details will vary significantly depending on industry characteristics, competitive dynamics, starting maturity, the possibilities available to each company, and the ambition of the leadership team in charge. But experience points to a few common elements.
Digital Vision
The digital vision describes as precisely and as simply as possible how business will be conducted after being transformed by technology.
Will the means of delivering value to customers change? Can the customer experience be thoroughly reinvented? Can a digitally enabled commercial model change the rules of an industry?
Fractional or pay-per-use, peer-to-peer platforms, anything-as-a-service, open-anything are the sort of models that give digital visions stamina and have a higher chance of putting the leaders behind the strategy in the offensive and the competitors on the back foot.
Not all business or sectors can be wholly reconfigured by technology, but many seem stagnant until a clever entrepreneur comes with a disruptive idea. Simply prescribing more use of technology, for marketing, process automation or old-school ecommerce (it’s almost 30 years old already!) will rarely make a digital strategy disruptive or even competitive enough to move the needle. Combined adoption of several technology innovations, aggressive investment in exceptionally strong capabilities and nimble execution may provide sustainable competitive advantage. Designing and successfully implementing a D2C model that complements the role of traditional channels without creating conflict may also it.
Summary: the digital vision must point to structural and significant changes to how business is conducted, por instance to novel approaches to engage with customers, create value or use assets, enabled by technology. Adopting more platforms, no matter how advanced, is an IT plan, not a digital vision.
Digital Aspiration
The digital vision translated into measurable ambitions: market busting pricing or value creation structures, disruptive growth or market penetration targets, massively reconfigured financial ratios, [probably resulting in] improvements in EBITDA, etc. There are two references to develop the targets: one is bottoms-up, coming from the business cases supporting specific initiatives and investments, the other is top-down: the aggregate jump in financial performance compared with the past, the industry, or benchmarked against digital leaders.
The digital aspiration converts the vision in quantifiable impact, provides targets to align expectations, and supports the case for investment and change. The targets in the digital aspiration should be one of the first exercises of the “single source of truth” practiced by digital leaders. Tweaks and recalibrations are typical in a journey full of uncertainties and experimentations, but if the metrics or targets keep on changing, or different stakeholders look at different versions, it is time to reconsider if things are really going in the right direction.
It is beyond debate that digital leaders drive better results, here is where a leadership team must agree on the drivers that will turn investment and change in quantifiable impact.
Strategic Pillars
These are a few “themes” that support the vision and align the components of the strategy. Some are industry specific (streaming may a theme for media but not for other industries) but some (like customer experience and data-driven business) can be innovation vectors in many industries.
Identifying and adopting the pillars serves several useful purposes:
- Build consensus on which are the key innovation and value-creation drivers
- Provide a structure to align priorities, initiatives, technologies, capabilities and investments across teams and business units, and
- Give the vision and strategy focus, stability, and credibility over time as priorities, initiatives and technologies evolve and shift
The pillars are one – if not the most – significant elements connecting the pieces of the digital strategy. They should be carefully picked and tightly aligned with the vision.
Initiatives and Technologies
These are the concrete plans, actions, and investments to convert the vision in actions and tangible results. They should be described at a very high level in the digital strategy itself, leaving the details to stand alone plans or mission statements for the dedicated agile teams tasked with the execution. (More on this below.)
Some initiatives and technologies will span multiple pillars – in fact these are the more attractive plays because application of multiples technologies to the same business situations have a multiplicative effect in terms of innovation, and if properly executed and the underlying competencies perfected are very difficult to imitate.
An example: bundling industrial equipment “as-as-service” with auto-reordered supplies based on historic consumption rates and real-time customer site inventory spans customer experience, data-driven business and process automation as pillars, and will require integrating remote sensors, advanced analytics, IoT and a highly autonomous B2B e-commerce platform.
The proposed format of compact summaries in each intersection of pillars, initiatives and technologies promotes strategic alignment and consistency. From this point commonly employed strategic planning methodologies like OGSM can be used to define and track measurable goals and actions across different projects, parts of the organization, etc. Organizations with robust strategic planning processes can leverage them.
Capabilities
The vision describes the future, the pillars the change/value drivers and the initiatives and technologies map actions and investments. The capabilities are the enablers.
Most companies will have significant gaps to fill here. Some of are new organizational functions like the digital innovation hub and the transformation office, others are new skills like change management and Agile methodologies, and others are capacities like a modern operating model on the IT function, a modular digital architecture or good data governance. Each is described at more detail in the framework or specific articles.
The example in the picture is representative, but actual strategies can vary significantly. The capabilities section of the strategy will play a significant role in the design of the transformation strategy.
Goals and KPIs
Finally, the goals and KPIs are an execution-grade version of the targets in the digital aspiration, complemented with those from the business cases or initiative-specific.
I recommend using three types of KPIs. The execution indicators track that the basics are happening: people hired or reassigned, projects started, organizational changes implemented. These seem obvious, but when the to-do list is long this basic tracking anticipates roadblocks early on. The second set of transformation indicators track change. These are initiative-specific, but the common denominator is that they confirm that projects are churning along, and the innovative changes are being rolled-out. Then final set is the real thing: the digital KPIs track the actual impact: customers adopting new revenue models or better yet migrating from the competition, shift from human-assisted to fully digital order processing, etc. These are the ultimate proof of success!
Execution and transformation indicators are initiative or project-specific and probably transitory. Once enough execution and change momentum is achieved they can be discarded and focus shifted to the digital indicators that track the deep, disruptive vectors. Some metrics related to capabilities or culture (e.g. mid-level managers fully embracing digital and Agile by leading or originating ideas) may be kept in place for years to track transformation momentum beyond specific initiatives and projects.
A Word About Simplicity
The best digital strategies are surprisingly simple and compact. The structure pictured above can extend to two or three pages after initiatives, technologies, capabilities, and key metrics are broadly described and maybe some business or functional-unit level details are incorporated.
But if it cannot be kept at two or three pages, something is out of place. Details may have to be pushed down to specific action plans, or worse yet, the quantity of initiatives, projects or technologies be unrealistic. A complicated strategy or even a complicated presentation of the strategy can negatively impact communication, comprehension and alignment.
There are usually challenging actions, changes, and investments even behind beautifully simple and focused strategies. If it looks too complicated, it most likely is.
Digital Transformation: A Framework 