I’ve been reading a lot about so-called “digital strategy” lately, and several articles in particular have captured my attention. I found out that, according to McKinsey, “The need for an agile digital strategy is clear, yet it eludes many.” I read about the six steps for creating a digital strategy, which include research, analysis, and—somewhat inexplicably—“website strategy.” I even learned that digital strategy is dead.
As a product manager, business consultant, and the founder of multiple startups, I consider myself reasonably knowledgeable in the realm of strategy. Nevertheless, I find myself wondering how something that does not exist can also be elusive, agile, and … dead.
If the conversation about digital strategy is confusing, there’s a reason: Digital strategy does not exist. When people use the term, they’re often doing one or more of these things: misunderstanding what true strategy should accomplish, prioritizing digital for the sake of digital, or simply mislabeling an organization’s actions and capabilities, and calling them “strategy.”
Forest vs. Trees
Imagine that you’re playing a game of chess (I know, chess is a tired metaphor for strategy, but in our case, it will do the job). All the pieces on the board move toward a specific end: defeating the opponent. You don’t concoct one strategy for pawns, another for bishops, and yet another for knights. If your opponent surprises you with a move, you don’t think in terms of individual pieces—how you’ll respond with your rooks, for example. Rather, you address the problem holistically and decide which pieces to move in service of the overarching goal. This is exactly what should happen with strategy in real life.
In business, our resources are channeled toward an end goal: gaining a competitive advantage. We decide where to play and how to win, and we create a strategy to get there. As in chess, nobody can predict the outcome from the beginning. We try to create change to surprise our opponents, and we adapt and respond to changes created by them.
What we should not do is embark on a mission to achieve an outcome that has questionable benefit to the whole. Getting a pawn to the other side of the board, for example, restores your queen. And while it may seem like a solid strategy to ensure that your most powerful piece remains in play, what if your queen is already intact? What if moving that pawn without regard for the rest of the board jeopardizes your king?
This is precisely why I believe digital strategy is an illusion—and a dangerous one at that. Applying the word “strategy” so freely to all sorts of operational initiatives, efforts, and activities serves to fragment and potentially undermine the collective efforts of an organization and can lead to a decision-making process that is based on nothing at all.
Where Does Real Strategy Come From?
Pinpointing what constitutes “strategy” is not necessarily simple. It’s sometimes easier to establish what it is not. Economist and author Michael Porter, University Professor at Harvard Business School, believes strategy is often confused with operational effectiveness, while Richard Rumelt, Professor Emeritus at UCLA’s Anderson School of Management, notes that a goal should not be mistaken for a strategy. Instead, says Rumelt, “strategy is a coherent mix of policy and action designed to surmount a high-stakes challenge.” Porter defines competitive strategy as “deliberately choosing a different set of activities to deliver a unique mix of value.” Essentially, strategy is about the actions a company takes to acquire and sustain a unique competitive advantage. Ultimately, a strategy is about making a set of choices that address a problem and set you apart.
Let’s walk through the process of defining a strategy for a small bakery chain. The bakery is struggling because competition is growing and people are becoming more conscious of what they eat. These trends have translated into lower revenues and declining profits. The bakery’s CEO initially tried lowering prices but found this didn’t help much. It’s now clear to him that he needs to find a new way to become competitive.
He conducts market research, talks with his customers, and identifies some key takeaways that help him establish a new direction. He decides to target health-conscious professionals who grab breakfast on their way to work. To do this, he plans to differentiate his products from the competition by using local and organic ingredients, and modifying his recipes to be as healthy as possible.
At the same time, he wants to understand and support his clientele in a way that fosters customer intimacy. To help these busy commuters, he decides to create a subscription-based breakfast delivery service. To appeal to their health-conscious attitude, he intends to become transparent about the nutrient content in his products.
The strategic choices are set: He has decided where to play (in a market that targets professionals who care about their health and what they eat) and how to win (with a combination of product differentiation and customer intimacy).
Now, the CEO needs to measure the implementation of his strategy, so he defines objectives. To appeal to his new market, he will need to modify his products by developing new recipes and packaging. He’ll need to diversify his sales channels to reach his new clientele beyond his brick-and-mortar locations. He’ll need a larger, well-trained staff. And he’ll need for his customers to view his bakery as a healthy option and as a company that cares about their needs.
To meet those objectives, the CEO will need to develop specific capabilities. He’ll need new vendors to supply his raw materials. He’ll need an e-commerce website that supports his subscription service. He’ll need a bakery staff that can speak knowledgeably and with transparency about the nutrition content in his products. He’ll need to analyze customer data to learn about purchasing patterns.
To close the capability gap, the CEO will need to take some specific actions: He might contract with local farmers, hire a nutritionist to train his staff, set up a Shopify store for online sales, and implement a CRM to capture and manage customer data.
What we’ve done up until this point was articulate a strategy (not a digital strategy), explaining where the bakery will play and how it’ll win the market.
Now, imagine that the bakery had set out to define a “digital strategy.” What would that have looked like?
Instead of focusing on customers and their needs, the CEO would have focused on technology. He would have implemented an e-commerce solution because his competitors already offer that capability. Moving his existing product catalog online, however, would have done nothing to differentiate him from the competition. He might have tried online marketing, but without knowing who to target and how to appeal to them, he probably wouldn’t have seen much in the way of results. He probably would have tried setting up a CRM, but he wouldn’t have known what questions to ask his customers and how to analyze their responses.
Although the CEO may have ultimately taken many of the same steps, his singular focus on “digital” would have inhibited his efforts. Without the proper context, digital doesn’t mean all that much.
Action ≠ Strategy
People often confuse the actions they need to take with their strategy, which, by the way, is one of the most visible signs of a bad strategy. As Porter puts it, “You’d be surprised how many companies get themselves fixated on a particular action that they want their organization to take, and that becomes the strategy. And, of course, it then often drives the company literally off the cliff, because they don’t understand why they are doing it and when they should stop doing it.”
“Digital strategy” cannot exist because it does not say anything specific about how a company will acquire a competitive advantage. Technology is not a panacea for suffering companies, and it doesn’t replace a strategy.
What Is the Role of Digital?
The bakery CEO’s mistake would have been confusing digital capabilities with actual strategy. There are certainly a plethora of valuable digital capabilities that a company can develop:
- Digital commerce (web store, online payments)
- Digital marketing (e-mail and social media marketing, SEO, online advertising, affiliate management)
- Digital intelligence (customer insights, customer segmentation)
- Digital customer experience (UX design, customer journey)
- Digital infrastructure services (process integration, user interaction services)
Digital undoubtedly plays a very important role in every aspect of a company’s operations, from supply chain to customer interactions, but it cannot become a scope or a “strategy” in and of itself. It is merely a means to an end. And the “end” is the strategic positioning that is defined by choices. Capabilities certainly need to be created, developed, and improved, but they should ultimately serve and sustain the “where to play” and “how to win” directives that govern them.
In other words, in the rush toward digital, don’t put the cart before the horse.
Why “Digital Strategy” Is Dangerous
Companies fall into a number of traps when they emphasize digital strategy. The first involves equating it with scope, which is an easy mistake to make—after all, that’s what strategies do: they communicate scope. But when digital initiatives are not fully integrated into a broader strategy, companies get so caught up in the quest to build shiny new technology, they forget about their real mission and vision, and why customers buy their products in the first place.
The second trap is the natural outcome of the first: focusing on digital prevents the real strategy from being built. In a best-case scenario, having discrete strategies—for things like marketing, sales, pricing, and digital—becomes confusing. In the worst case, it dilutes and destroys value. If company strategy is set properly, various functions will have their own capability gaps to close, actions to implement, and risks to mitigate. But they would have no need for distinct strategies.
Learning from Mistakes
It should be obvious by now that the words “digital strategy” are not the problem. Rather, it’s the outlook and approach that they represent: the focus on the mission rather than the destination, and the assumption that “digital” is a skeleton key to success, rather than a critical puzzle piece that isn’t worth much in isolation. The same problem plagues the undertakings known by the buzzy terms “digital transformation” and “digital disruption.” Some of the most high-profile and successful companies have endured costly failures after trying to execute a digital-first strategy, so it’s not hard to imagine how many bakeries like ours have become casualties of this approach.
Product leaders should constantly ask themselves whether a product, feature, or initiative serves to help their company gain a competitive advantage and win the market in which it plays. Every idea and decision should be vetted through that lens—and it’s impossible to see the strategy if you’re blinded by the digital.
Understanding the basics
Organizations should focus on creating a good strategy, which may consist of and be supported by many digital actions and capabilities. The focus, however, should be on “strategy,” not on “digital.”
“Digital strategy” and “digital transformation” are buzzwords that are often thought to be imperatives for companies wanting to stay current and competitive. In reality, an organization should have one governing strategy that outlines how it will achieve and maintain a unique competitive advantage. Digital capabilities and actions should be part of that strategy but should not dictate it.
A digital-first strategy is often the attempt on the part of an organization to solve business problems by “going digital.” By applying the word “strategy” so freely to all sorts of operational initiatives, efforts, and activities, companies risk fragmenting and undermining their collective efforts and competitive edges.