In Strategy = Execution, I lay out the five areas in which you must excel in order to survive and thrive in the digital age. As you’ll see below, human capital is key to digital innovation. Of course, they also play a key role in social and organizational innovation, but that’s for another post.
We can no longer see innovation and digitalization as separate phenomena. Ninety-nine percent of all organizations worldwide are neither startups nor well-established successful digital innovators like Apple, Google, or Amazon. Yet, if you want to survive, you’re going to have to come up with a digital innovation strategy.
In 2015, organizations expected to see 5 to 10% growth and efficiency gains in the next five years through digital experimentation. So far, however, the results have fallen far short of expectations. Digital objectives are by no means easier to achieve than traditional strategy objectives.That’s why we need to thoroughly analyze and redefine our strategy, value propositions, customer processes and organizational structure. Nine times out of ten, these issues are interconnected and multidisciplinary.
In essence, digital innovation is small experiments, quick fails, rapid scaling. “First fire bullets, then cannonballs,” said Jim Collins, and don’t be afraid to fail. Anyone who has built a big company has been ridiculed somewhere along the way. Making room for failure also leaves room for what is known as “tactical serendipity.” Great ideas spring from the unplanned.
Digital innovation requires iterative and agile development and execution methods. It is also essential to work in projects to coordinate the business processes, technology and people. An organization’s ability to shift into high gear is called its Innovation and Digital Quotient, or IDQ.44 This is the digital DNA of startups and software companies that many other types of companies lack and need to acquire. IDQ is no mystery, but because it applies to every aspect of an organization, it can be hard to pin down.
Below you’ll find the five areas in which you must excel in order to survive and compete in the digital age.
- Define your digital strategy and value propositions
Be sure to develop a clear and widely supported digital strategy. This boils down to a transformative digital vision that provides a new conceptualization of customers and their fundamental needs, as well as how digital innovation can meet these needs. Your digital innovation strategy must be a fresh chapter in your overall strategy. It will pull the other chapters along in its wake! Define what digital innovation will be about in the next few years, on the premise that innovative goods and services will contribute more to your profits every year. Make clear that this is your goal, and that everyone is responsible for working towards this. Your digital vision and strategy must shake things up.
Your digital vision provides an unbiased analysis of your ideal customer experience, business processes and business model. This digital transformation must be inspired by a disruptive mindset: you are out to disrupt the market and hence your own organization, too. The strategy must jar things loose, inspire people and spur them into action. In the end, there is no such thing as a digital strategy. There is only strategy in the digital age.
- Stop looking at your customers in cliché ways
The key is to look at your customers as if you are seeing them for the first time. If you don’t understand your customers’ fundamental needs, you can’t understand how to use digital innovation in order to meet those needs better, smarter and quicker. Customers have been king for so long, that our ideas about how to meet their needs have become old and stale. Digitalization challenges these fossilized ideas. It offers so many possibilities that it reprioritizes customer needs in a very refreshing way.
Take the SNKRS app that Nike launched in 2015. The people at Nike saw that sneaker fans followed niche sites and online communities to find out when new products would be launched. So Nike launched SNKRS, a platform that offered these fans pre-release exclusive access to the latest models, as well as a channel for buying them directly from the manufacturer. The app provides personalized content based on buyers’ preferences, whether that be Air Max or soccer shoes.
Digitalization equals business process automation. Digitalization is about the need for and usefulness of automating business processes. Yet it also works the other way around: when implemented well, automation leverages rapid scaling and efficiency. Just consider how much efficiency is improved through deduplication, gathering information at the beginning of every key process, eliminating errors and shortening throughput times by means of “straight-through processing.”
- Navigate by means of digital structure and agile management
As Menno Lanting wrote, turning an oil tanker into a speedboat—or a fleet of speedboats—is not easy. Going agile is a sea change: you shift from planning, development and rollout to experimenting, failing and starting over. That calls for a different culture too. But like I said, cultural change is an outcome of business process change. Digital innovation requires strong top-down leadership. Letting a thousand flowers bloom doesn’t guarantee success. Digital leaders need to manage transformations by providing direction and by persevering. Ensure that digitalization is managed explicitly. Create a digital governance philosophy that serves as a substantial, recognizable and widely supported framework. For digital innovation to be effective, the necessary roles and responsibilities must be defined, assigned, and up and running before execution begins.
Organizations should appoint a C-level executive who is responsible for digitalization, a chief digital officer (CDO) so to speak. That is the main digital leadership role, but responsibility for digitalization does not rest solely with that person. Each portfolio leader should know what their digital responsibilities are. This is why it is important to make sure leaders and key digital actors are on the same wavelength. They need to share the same digital vision, know it like the back of their hands, and promote it both within and outside of their own discipline.
- Develop new capabilities and a high-energy culture
Every employee needs to have basic digital capabilities. You also need a few digital key actors who are way ahead of the pack and have excellent competencies. In short, you need a platoon of capable soldiers, but a vanguard too.Digital capabilities are Human Resource Management’s core business. Therefore, every HR process—whether recruitment and selection, training and education, coaching, evaluation or remuneration—should include a focus on digital innovation capabilities.
The CTO and the CFO are crucial leadership roles. In new, data-driven organizations, the Chief Technical Officer basically operates at the same level as the CEO. Chief Financial Officers are just as essential, because their job encompasses so much more than just financial control. But at the heart of every digital business model are the product owners and engineers, the tech people. They are the backbone of your business. Salespeople are easy to replace, but product and technical engineers aren’t.
- Dual-track technology
IT works at two different speeds. Whether your organization is small or large, whether you’re dealing with legacy systems or not, digital innovation always requires a two-track approach to IT. Track 1 deals with basic digitalization, while Track 2 is dedicated to digital transformation. You can only take real strides when these tracks have been separated and properly facilitated. Track 2 is characterized by small, autonomous IT teams that use modern methods such as DevOps and Scrum. They cooperate with marketing, sales and the customer base to design, build, test, change and scale prototypes.
Digital platforms are used for economies of scale. Digital platforms enable you to quickly introduce new products and to create and maintain customer relations. Today, this infrastructure is just as indispensable to your business as railroads, highways and aviation were in the previous century. A digital platform allows you to analyze how you can grow your profits exponentially without increasing your costs—and without the burden of having to pitch your ideas to investors or set up an HRM department. A digital platform enables you to reach out to your customers. A great example is HBO, which James McQuivey cites in Digital Disruption. In the USA, 28 million viewers watch HBO on satellite or cable, which makes them indirect customers. Just imagine having 28 million prospects. The company used the HBO Go app to connect with these potential customers and establish direct customer relations. This gained them access to a treasure trove of user information. Digital platforms prioritize customer relations and decrease friction: an ideal combination for innovation.
There are plenty of examples of companies that used a digital platform to become the greatest disruptor in their industry: Uber—a transportation platform without its own fleet; Facebook—a social media platform without its own content; and Airbnb—a lodging platform without its own real estate. Similarly, none of the big online retailers— Amazon, Alibaba/ Aliexpress, Cdiscount—have their own inventory anymore.
Defining a platform strategy is the biggest challenge in business today and the main strategy puzzle for organizations with new revenue models. The puzzle is often multidimensional: which strategy do you choose for your B2B, B2C and B2B2C activities? Your platform strategy defines everything. You will want to maximize standardization and digitalization in order to make and keep your activities scalable. Scalability is key.
There are many big trends in the corporate world, but the biggest is digital innovation. The kind of innovation we need now is digital transformation.
Customers’ fundamental needs require radical, digital innovation from every organization. In Strategy = Execution, I lay out the five areas in which you must excel in order to survive and thrive in the digital age. As you’ll see below, human capital is key to digital innovation. Of course, they also play a key role in social and organizational innovation, but that’s for another post.
Strategy = Execution. Improve, Renew and Innovate Faster
How can organizations make strategy execution their number one priority? And improve, renew and innovate faster? This I describe in my book Strategy = Execution. Strategy = execution is based on the research that Turner started years ago into the success factors of strategy execution and innovation. We interviewed 60 directors and professionals and analyzed more than 75 cases, 300 relevant books and articles.
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