Digital Strategy – Let’s take a look into the fundamentals – Digital Leadership
Published: 05 July, 2021
Digitization and digital transformation require a new form of strategic planning: the development of a digital strategy. In addition to the vision – a clear idea of the role a company wants to play in the digital markets of the future – it includes concrete measures and projects for digital transformation. The digital strategy also serves to get employees excited about digital innovation and make them active drivers of change. A good digital strategy only works if employees are on board because the change is big and must be implementable for everyone.
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What is a digital strategy? Let’s start with a definition
Companies and even CEOs often think that a digital strategy now means a completely new business. But that is not entirely true. It is not the case that business has become irrelevant only because of the digital world. Nor are the insights or knowledge about its customers irrelevant. This mistake is often made and we need to differentiate between a digital strategy and digital business models.
A (digital) transformation can be incredibly difficult to manage. Not because they are inherently difficult, but because we often fall into the trap of treating transformations like improvements. The UNITE Horizons of Growth framework goes into more detail and tells you exactly when and how to improve, transform or innovate your business.
We can rather compare it with sports. It’s not the sport that has changed, but the playing field. By this, we mean that the existing business must be adapted to the new playing field by developing a digital strategy. This can be seen very well if you take a look at the definition:
A digital strategy is a plan of action for implementing digital transformation in the company, digital marketing and digital sales, and the development of digital business models. All of a company’s specialist departments are included in the digital strategy.
The digital strategy, therefore, defines behaviors and measures for achieving entrepreneurial goals in digital markets. According to a McKinsey study, only eight percent of all executives surveyed assume that their current business model will survive digitization unscathed. The digital strategy provides an answer to how to deal with the challenges and opportunities of digitization. In the end, one thing is certain: You can’t avoid a digital strategy anyway. So, you should set it up as well as possible.
The task of a digital strategy is therefore to provide a blueprint or a procedure with this answer. It forms the basis for the transformation of the existing traditional or analog business model into the new digital business model.
What is often misunderstood: An IT strategy is not a digital strategy
One trap that smaller to medium-sized companies often fall into is thinking that an IT strategy is a digital strategy, or that it is synonymous with it. The intention of digitizing a company is often misunderstood here. An IT strategy is a component of a digital strategy and is necessary for its success. However, it only involves the implementation of appropriate systems, hardware, and software in the company’s own business unit. It does not have to be aimed directly at implementing a digital strategy.
In simplified terms, we can state: An IT strategy focuses on the existing business model. An attempt is made to digitize established procedures and processes and thereby make them more efficient and secure or automated.
A Digital Strategy – the Basics
If you enter the market for digital business models, you will quickly notice that the dynamics and orientation are different from those of traditional models. The customer, or the consumer in general, is at the core here. And this is already the first special feature that needs to be understood. It is not about having a nice store here. Aspects such as exclusivity or the like also play a subordinate role, depending on the business in question. The maxim of a digital strategy is: How does the digital customer function, think, and behave?
The answer is as complex as it is simple. Simple is to describe the rough characteristics: Digital consumers demand transparency, simplicity, and, above all, speed. They don’t linger long over complex websites and purchasing processes that require a high level of cognitive input of their own. The big factors here are mistrust and convenience. Distrust of offers on the Internet ensures that signals that are unexpected and unfamiliar are perceived negatively. Convenience creates an expectation that leads to any complex purchasing process being poorly found. The current top class in the implementation of digital strategies is the Amazon One-Click-Purchase.
Now comes the complex part behind this answer: there are countless different approaches to this topic on the part of the providers. So, understanding customers’ problems and expectations is one thing, finding solutions to them is another. More and more studies are trying to describe the digital consumer in even greater detail, providing developers with more and more information on how to improve their offerings. Entire professional fields such as UX design are emerging from these findings.
This means one thing above all for a digital strategy: It never ends. It will constantly evolve with technological advances and requires a great deal of care on the part of the business.
Why a USP is so important: Examples of a digital strategy
Earlier we explained that it is much more complex to compete in digital than in analog. We need to explain this in a little more detail. Let’s take a clothing store in a city center as an example. This clothing store carries an exclusive collection that customers can only buy from it. For every customer in the city center, this store is logically the only place where they can buy just that product. The store has a clear USP.
In the digital environment, this USP would be completely obsolete. Digital consumers are able to buy the same product from any other provider of their choice. Maybe it’s even on sale at another store? So why stay with the store that carries the product at a higher price and then doesn’t even have it available in the right size?
This is precisely where the need for a digital strategy comes into play. There is no point in understanding only the competition or only the customer. You have to recognize how you can still get the customer from the example just mentioned to order from you. We need to shed light on this confusing construct.
The foundations of a digital strategy
In the beginning, there is always the target image. This is to be achieved in some way with the current business model. If you need support in developing this, it is worth using the appropriate tools. However, once it is clear, the following pillars must be considered for a successful digital strategy.
Customer Experience (CX) and Operational Excellence are the cornerstones
As we have already mentioned, digital customers have certain characteristics that set them apart from analog customers. This is where the customer experience comes into play. A good customer experience and high operational excellence are the results of well-thought-out and digital processes. In other words, a lot of standardization, hard work, and customer-centricity are required to align your own processes end-to-end with the customer.
However, the consistent implementation of this operational hygiene has a noticeable impact on the company’s own day-to-day business. After all, digitizing processes often means questioning existing structures and organizations. It is necessary to digitize processes based on modern architectures and systems in order to create the basis for new digital services and business models. This aspect of digitization is the responsibility of the CIO and a Chief Digital Officer. For smaller companies, it is advisable to create a corresponding position or to cooperate with a reliable partner.
The customer experience is the heart of a digital strategy, especially if customers are supposed to buy directly from their own company. It must be clearly defined and rethought with every small change. If you make mistakes here, you waste a large part of your own potential.
The company must move to a new level of flexibility
Success in digital markets requires a high level of adaptability, speed, and short reaction times. Technology and markets develop too dynamically to be successful with hierarchical and traditional organizational models. When problems occur in an online store, they don’t take into account whether it’s within business hours. This aspect, in particular, is often neglected and the damage that can result is misjudged.
Here, too, a corresponding position must be created. Whether internal or external, companies must be able to respond to digital problems around the clock.
Data is the most important asset
It’s no secret that data is the foundation of any success. However, it has never been as powerful as it is in the digital age. We’re not just talking about customer data to calculate the inventory. We’re talking about all the data a user leaves behind. Knowing which products are popular is nice, knowing on which page and at which point potential customers abandon the purchase is much better.
Tracking tools enable business owners to iterate and proof their digital strategy. With them, they learn directly from their customers and get insights that customers rarely express. This data helps them to continuously improve and enhance the all-important customer experience. The keyword here is performance marketing, and it pays off.
A wonderful marriage: IT Strategy and Digital Strategy
We have already explained why these terms should be strictly separated from each other, but only in their understanding. When it comes to implementing a digital strategy, they are directly linked. It is almost obvious that your digital strategy needs the corresponding IT support. It is irrelevant whether this is in-house IT or outsourcing. The fact is that no matter which path is chosen, it must have a perfect strategy.
As soon as you start working on a digital strategy, you have to know that IT has to be able to handle it comprehensively. We are no longer talking about checkout systems. We are talking about complex systems that can communicate with each other and must be compatible with each other. The smallest error in one of these tools can turn the entire strategy upside down. In short, the best customer experience on paper is worth nothing if the checkout doesn’t work because the backend doesn’t match.
A digital strategy is nothing to be afraid of, it is a huge opportunity. But it does have its dangers. Mistakes on the way to finalization can cause the construct to collapse. So, you are well-advised to get expert knowledge. No cooperation can be more expensive than errors in the system. Because once an appropriate integration has happened, all components are chosen to interact with each other. If you have saved money at one point, in the worst case the entire process can start all over again. Dare to do a digital Strategy, but do it right!
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