digital strategy

An Effective Digital Strategy

Many analog companies are developing dedicated digital strategies, with three-quarters of respondents to the 2015
Harvey Nash CIO Survey saying that they have or are working on a formalized digital strategy. But the same study
found that the biggest challenge businesses face in response to digital disruption is a lack of vision. To overcome this, companies may need to rethink their approach to strategy development. Many companies still rely on traditional five year strategic planning horizons. In today’s disruptive and uncertain market environment, this classic planning approach is destined to fall short. Instead, CEOs should consider moving to an experimentation-oriented focus that uses real-time data to give instant feedback about the effectiveness of their strategic initiatives. A move toward a one-year planning cycle would be beneficial. CEOs should also bear in mind that, with the pace of change so high, extrapolating from past data to guide future actions is unlikely to be successful. A culture of constant, iterative experimentation is more effective.

Moreover, businesses should move away from the concept of a unified strategy that may already be out of date by the
time it is drafted. As Rita Gunter McGrath, a strategy professor at Columbia Business School argues: “Companies can’t afford to spend months at a time crafting a single long-term strategy. To stay ahead, they need to constantly start new strategic initiatives, building and exploiting many transient competitive advantages at once.” According to her research, companies should make eight shifts in the way they are operating:

1. Think about arenas, not industries.
2. Set broad themes, and then let people experiment.
3. Adopt metrics that support entrepreneurial growth.
4. Focus on experiences and solutions to problems.
5. Build strong relationships and networks.
6. Avoid brutal restructuring; learn healthy disengagement.
7. Get systematic about early-stage innovation.
8. Experiment, iterate and learn.

Ensure a supportive culture for digital transformation, starting with the CEO
Creating an effective digital strategy is critical, but so too is fostering a corporate culture that is open to innovation and will be supportive of the new strategy. There is a trend at present for firms to hire a chief digital officer (CDO) to drive through the changes that are needed to become a digital enterprise. Installing a CDO, however, does not guarantee success.

Digital transformation is a huge challenge and support for the process needs to be fostered by a receptive corporate culture. Responsibility for creating this corporate culture – and for driving digital transformation – ultimately rests with the CEO. Many companies already appreciate this, with research finding that 38% of digital executives at large companies saying that the CEO was responsible for setting the digital vision and strategy of their company.

The digital age will lead to an evolution in decision making
Corporate decision making has been a long-drawn-out process in the past, with scenarios such as decision making
spread over a year not unheard of. Decisions are no longer taken on the basis of managerial instincts, but are backed by insights driven by data. Organizations need to speed up their decision making by moving away from a centralized, control-oriented decision-making body leading to decisions being placed in the hands of a few, to a setup where employees across the organization are empowered to take decisions, leading to increased self-management.

There is a need for organizations to increasingly look at streamlining decision making without direct involvement by too many heads of functions. Enterprises need to pursue edge-centricity by pushing information decision-making authority away from the corporate headquarters to customer-facing points. Tommy Bahamas, for example, enlisted the support of Medallia to understand and improve its customer experience by listening to its customers. Based on feedback from customers, Tommy Bahamas empowered front-line employees to take decisions and address concerns related to poor customer service.

Reinvent R&D and innovation management
Companies need to reassess every aspect of their operations, to ensure they are fit for purpose in a digital world. A prime example is R&D and innovation management. For many years, the classic way to build products has been to
follow a regimented process called new product development (NPD), which entails a large number of fixed steps such
as idea generation, idea screening, concept development and testing, business analysis, beta and so on. This approach was successful when the problem and the solution were well-defined.

The NPD approach is less suited to today’s markets where uncertainty prevails and companies do not have the luxury
of time to extensively work up their ideas and test prototypes. As a consequence, successful organizations are
reinventing all aspects of product development, from how they generate innovative ideas to how they bring them to
market.

Move to multi-speed IT operations
Another critical function where many analog companies can improve their capabilities is IT. This section outlines three specific areas that enterprises can focus on: multi-speed IT, maximizing returns from data and prioritizing security.

“Agile [iterative processes] versus traditional waterfall development processes are so foreign that you can only
really implement it if it’s operating in a separate part of the organization unaffected by risk aversion and
bureaucracy.” –Ripley Martin, Vice President, Global Head, Healthcare Strategy, Royal Philips

A recent Accenture survey found that 81% of CIOs believed that most IT organizations do not know how to operate as a multi-speed IT enterprise.18 Multi-speed IT is achieved by bringing together a network of skills, instituting a dynamic operating model and installing flexible governance models. The challenge is great, but the reward for the CIO is a pivotal role in an organization’s strategic business agenda. To create a multi-speed IT infrastructure, four key actions are needed:

1. Recognize the business need for different speeds of IT use.
2. Employ multiple governance and operating methods. Introduce iterative methods to support changing user
experiences.
3. Rethink architecture needs. Initiatives include segmenting into multiple speeds, simplifying legacy architecture
and building an application program interface (API) layer to expose core data to faster-moving digital channels
and ecosystem partners.
4. Invent the new IT organization. Determine where new skills are required and educate your teams in new
methods such as iterfall (a mix of iterative and waterfall development) and agile operations. They should also be
up to speed with new tools and techniques such as DevOps and APIs.

Multi-speed IT requires agility in the development of IT infrastructure. The culture and best practices of technology companies from Silicon Valley offer some insight into how that can be achieved. These enterprises foster an open, impatient culture that celebrates innovation and looks to collaboration and partnerships to create technologies faster than they can be built independently. Companies are also turning to cloud and open-source technologies, such as Apache Hadoop, to enable rapid, scalable improvements. Finally, they employ iterative development disciplines, coupled with automated tests, to create systems very fast.

Maximize returns from data
To exploit the potential of new, data-driven business models, companies will need to use data to disrupt their business (before someone else does). Companies have to explore the entire big data ecosystem and be nimble. The big-data landscape is in a state of flux with new data sources and big-data technologies emerging, such as Hadoop and Hive.

Enterprises will need to:
• Explore all available data and be prepared to consider a broad range of technologies when developing a big-data
strategy that could prove differentiating in the market.
• Start local, end global; users in larger companies are winning big by starting small and staying realistic with their expectations, helped by frequent, direct CIO involvement and strong C-suite support.
• Focus resources on proving value in one area and then letting the results cascade across the wider enterprise,
rather than attempting to do everything at once.
• Remember the differences between good data and bad data; every hour spent hunting down an orphan database
hurts the return on investment of your analytics team, so businesses need to make data as ubiquitous as possible.

Prioritize security

“My key recommendation for CEOs is that they should be spending 3% of revenues on security; today, they are
probably spending <0.3%.” –Nico Sell, Cofounder and Co-Chairman, Wickr

With cybercrime a growing threat, security should not just be the responsibility of the IT department and the CTO or CIO. Prioritizing security can, in fact, reduce operating costs. A properly funded security program can save an average of $2.8 million in attack-response and management costs. The appointment of a high-level security leader (or a chief security officer at the board level) can reduce costs by $2 million.

But despite the cost savings that improved security can bring, many companies need to rethink their approach to
security. Current arrangements are often ineffective, with the FBI estimating that only 6% of corporate breaches are detected by IT departments. The prevalence of insider attacks, (which accounted for more than half of all cybercrime costs for organizations), coupled with the growing number of devices, technologies and users accessing corporate IT systems, means that a shift is needed from traditional network control and perimeter management security strategies to ones that focus on protecting interactions among users, applications and data.

Breaches of corporate security are inevitable, so the focus should be on protecting data. Tom Patterson, general
manager of global security solutions firm Unisys, calls this new approach micro-segmentation: building lots of little walls around those parts of your business containing data you can’t afford to lose.19 In addition, companies should consider further measures to improve security, such as using big-data analytics, hacking teams or quantum computing. Palantir, for example, offers services that harness data analytics to detect breaches and secure data. Salesforce.com has established ethical hacking teams whose role is to find and eliminate complex vulnerabilities across the organization.

Source: Digital Transformation of Industries: Digital Enterprise

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